Third Quarter Net Interest Income Grew 8.1%
Year-Over-Year
Broadway Financial Corporation (the “Company”) (NASDAQ Capital
Market: BYFC), parent company of Broadway Federal Bank, f.s.b. (the
“Bank”), today reported net income of $327 thousand, or $0.01
per diluted share, for the third quarter of 2016, compared to
net income of $979 thousand, or $0.03 per diluted share for
the third quarter of 2015.
For the nine months ended September 30, 2016, the Company
reported net income of $1.3 million, or $0.04 per diluted share,
compared to $3.4 million, or $0.12 per diluted share for the nine
months ended September 30, 2015.
During the three and nine month periods ended September 30,
2016, the Company’s profits were generated from net interest income
on its loan portfolio. In contrast, during the corresponding
periods in 2015 substantially all of the Company’s reported profits
were attributable to gains from the sale of loans and recaptures of
loan loss provisions.
During the third quarter of 2016, the Bank did not record any
loan loss provisions or recaptures because ALLL requirements on
loans originated during the quarter were offset by a decrease in
ALLL requirements for the existing loan portfolio as the overall
credit quality of the loan portfolio continued to improve. In
comparison, the Bank recorded loan loss provision recaptures of
$200 thousand during the third quarter of 2015. On a year-to-date
basis, the Bank recorded loan loss provision recaptures of $550
thousand during the first nine months of 2016 compared to loan loss
provision recaptures of $1.7 million during the first nine months
of 2015.
The Bank did not complete any loan sales during the first nine
months of 2016 because the Bank has been building its loan
portfolio to generate more net interest income. In comparison, the
Bank sold $80.4 million of loans in the third quarter of 2015 and
$140.2 million of loans during the first nine months of 2015 to
comply with loan concentration limits set by the Bank’s primary
regulator. Those sales generated gains of $738 thousand during the
third quarter of 2015 and $1.3 million during the nine months ended
September 30, 2015.
These decreases in recaptures of loan loss provisions and the
absence of any gain on loan sales during the three and nine month
periods ended September 30, 2016 were partially offset by higher
net interest income during the three months ended September 30,
2016, resulting from growth in the Bank’s loan portfolio, and lower
non-interest expense during the three and nine months ended
September 30, 2016.
Chief Executive Officer Wayne Bradshaw commented, “The third
quarter represented an important period for Broadway Financial
Corporation, as we have transitioned from an institution that has
been spending considerable time and resources on improving internal
processes and loan quality to a healthy, sound financial
institution focusing on growth, profits, and value creation for our
stockholders. At the end of the third quarter, we had no delinquent
loans, no REO and non-accrual loans of only $3.0 million, or 0.74%
of total assets, all of which were current in their payments. These
accomplishments have allowed the Bank to reduce costs and time
commitments for a variety of expense categories, such as appraisal
fees and holdings costs for REO, assessment fees from both the FDIC
and the OCC, and expenses for professional services.
“Equally important, our strong loan quality has allowed us to
obtain improved loan concentration limits from the Bank’s primary
regulator, which in turn is providing Broadway with opportunities
to continue re-building our loan portfolio. As of September 30,
2016, we have grown our loan portfolio by 13.5% since the beginning
of the year, based on originations of $30.8 million during the
third quarter and $90.8 million year-to-date, and our net interest
income grew 8.1% over the comparable quarter in 2015.
“We are confident that our strategy of focusing on well-managed
multi-family residential properties located within low-to-moderate
income communities within Southern California, supplemented by new
originations of commercial real estate loans that can leverage our
existing customer relationships and the experience and expertise of
our lending team, will result in better earnings for our
stockholders.”
Net Interest Income
For the third quarter of 2016, net interest income increased by
$228 thousand to $3.0 million from $2.8 million for the third
quarter of 2015 due to an increase in the average balance of loans
receivable, which was partially offset by a lower average yield on
the Bank’s loans.
The average balance of loans receivable increased $63.7 million,
or 22.2%, to $351.0 million during the third quarter of 2016 from
$287.3 million during the third quarter of 2015, which resulted in
additional interest income of $724 thousand. The increase in the
average balance of loans receivable resulted from loan originations
of $90.8 million during the first nine months of 2016. Partially
offsetting this increase was the impact of a decrease of 54 basis
points in the average yield on loans to 4.37% for the third quarter
of 2016 from 4.91% for the third quarter of 2015, which reduced
loan interest income by $413 thousand. The decline in the average
yield primarily resulted from sales of higher rate multi-family
loans during 2015 that were done to conform to loan concentration
limits set by the Bank’s primary regulator. The proceeds from the
multi-family loans sales were invested in lower rate single family
loans near the end of 2015. Also, the average rates on the
multi-family loans originated for the portfolio during the first
nine months of 2016 were lower than the rates on loans originated
during comparable period of 2015 because of the low interest rate
environment and competitive market conditions. The net interest
margin during the third quarter of 2016 decreased by 7 basis points
to 3.02% from 3.09% during the third quarter of 2015.
Interest expense on deposits increased by $83 thousand to $568
thousand for the third quarter of 2016 from $485 thousand for the
third quarter of 2015. The increase in interest expense on deposits
was primarily due to an increase of $39.1 million in the average
balance of deposits to $281.0 million in the third quarter of 2016
from $241.9 million in the third quarter of 2015. The increase in
the average balance of deposits primarily reflected growth in money
market and certificates of deposit (“CD”) accounts. The average
cost of deposits increased to 0.81% for the third quarter of 2016
from 0.80% for the third quarter of 2015.
Interest expense on borrowings decreased by $27 thousand to $419
thousand for the third quarter of 2016 from $446 thousand for the
third quarter of 2015. The decrease in interest expense on
borrowings was primarily due to a decrease of $7.3 million in the
average balance of FHLB advances, which decreased interest expense
by $39 thousand. Partially offsetting this decrease was the impact
of an increase of 6 basis points in the cost of borrowings to 2.22%
for the third quarter of 2016 from 2.16% for the third quarter of
2015, which increased interest expense by $12 thousand. The
increase in the cost of borrowings during the third quarter of 2016
consisted of an increase of 3 basis points in the average cost of
FHLB advances and an increase of 47 basis points in the average
cost of the Company’s variable rate subordinated debentures.
Combined with the Bank’s deposits, the average cost of all
liabilities decreased by 4 basis points to 1.11% for the third
quarter of 2016 compared to 1.15% for the third quarter of
2015.
For the nine months ended September 30, 2016, net interest
income decreased by $360 thousand to $8.5 million from $8.9 million
for the same period in 2015, due to the impact of lower net
interest margins, which more than offset the impact of the higher
average balance of interest-earning assets during 2016. The net
interest margin decreased by 43 basis points to 2.93% for the nine
months ended September 30, 2016 from 3.36% for the same period in
2015 because the Bank changed the mix of its loan portfolio to
conform to loan concentration limits set by its primary regulator.
Average interest-earning assets increased by $35.5 million to
$388.1 million for the nine months ended September 30, 2016 from
$352.6 million for the same period in 2015.
Loan Loss Provision Recapture
The Bank did not record any loan loss provision or recapture for
the third quarter of 2016. The increase in ALLL requirements
resulting from loan growth was offset by a decrease in ALLL
requirements on the existing portfolio as the overall credit
quality of the Bank’s loan portfolio continued to improve. In
comparison, the Bank recorded loan loss provision recaptures of
$200 thousand for the third quarter of 2015.
For the nine months ended September 30, 2016, the Company
recorded loan loss provision recaptures of $550 thousand, compared
to $1.7 million for the same period in 2015. The loan loss
provision recaptures during the first nine months of 2016 and 2015
were primarily attributable to recoveries, continued improvements
in asset credit quality, and positive trends in overall historical
loss factors.
Non-interest Income
Non-interest income for the third quarter of 2016 totaled $144
thousand, compared to $917 thousand for the third quarter of 2015.
Non-interest income decreased by $773 thousand primarily because
the Bank did not sell any loans during the third quarter of 2016,
whereas the Bank recorded a gain of $738 thousand from the sale of
loans during the third quarter of 2015. Additionally, the Company
recorded $5 thousand of rental income from an REO property and $28
thousand of income from a litigation settlement during the third
quarter of 2015.
For the nine months ended September 30, 2016, non-interest
income totaled $886 thousand, compared to $2.1 million for the same
period in 2015. The decrease of $1.2 million in non-interest income
was primarily due to gains of $1.3 million from sales of loans
during the first nine months of 2015. Additionally, the grant
received from the U.S. Treasury’s Community Development Financial
Institutions (CDFI) Fund in 2016 was $90 thousand lower than the
amount of the grant received in 2015. These decreases were
partially offset by an increase of $40 thousand in service charges
on deposit accounts and an increase of $136 thousand in other
income. The increase in other income was comprised of an early
withdrawal fee of $80 thousand, a loan extension fee of $50
thousand and a foreclosure forbearance fee of $38 thousand, offset
by the litigation settlement of $28 thousand reported in 2015.
Non-interest Expense
Non-interest expense for the third quarter of 2016 totaled $2.8
million, compared to $2.9 million for the third quarter of 2015.
The decrease of $85 thousand in non-interest expense was primarily
due to a decrease of $54 thousand in FDIC assessments, a decrease
of $39 thousand in professional services expense, a decrease of $36
thousand in compensation and benefits expense, a decrease of $25
thousand in corporate insurance expense and a decrease of $23
thousand in information services expense. Partially offsetting
these decreases in non-interest expense was an increase of $97
thousand in other expenses for the third quarter of 2016 compared
to the same period in 2015 primarily resulting from higher
provisions for unfunded commitments during the third quarter of
2016 and fewer expense offsets in 2016, as compared to 2015,
attributable to sales of REO.
For the nine months ended September 30, 2016, non-interest
expense totaled $8.7 million, compared to $9.2 million for the same
period in 2015. The decrease of $511 thousand in non-interest
expense was primarily due to continued improvement in the quality
and nature of the Bank’s assets. This improvement resulted in a
decrease of $175 thousand in REO expenses, a decrease of $146
thousand in FDIC assessments, a decrease of $33 thousand in OCC
assessment fees, and a decrease of $30 thousand in appraisal
expenses. Also, information services expense decreased by $99
thousand, corporate insurance expense decreased by $79 thousand,
and professional services expense decreased by $70 thousand. The
decrease of $99 thousand in information services expense was
primarily due to a decrease of $52 thousand in core processing
expense and a decrease of $25 thousand in item processing expense,
primarily reflecting lower branch research costs. These decreases
in non-interest expense during the first nine months of 2016 were
partially offset by an increase of $138 thousand in compensation
and benefits expense, primarily reflecting higher bonus payments
compared to the prior year.
Income Taxes
The Company recorded no income tax expense for the third quarter
of 2016, compared to $8 thousand for the third quarter of 2015. For
the nine months ended September 30, 2016, income tax expense was $2
thousand, compared to $16 thousand for the nine months ended
September 30, 2015. The tax expense for both periods primarily
reflected the statutory minimum taxes payable to the State of
California, and the use of net operating loss carryforwards to
offset current taxable income in the periods presented. As of
September 30, 2016, the Company had $4.6 million of deferred tax
assets, net of a valuation allowance of $2.1 million.
Balance Sheet Summary
Total assets increased by $10.5 million to $413.4 million at
September 30, 2016 from $402.9 million at December 31, 2015. During
2016, the Bank increased net loans receivable by $40.6 million,
which was funded by an increase of $12.5 million in deposits and a
decrease of $29.6 million in cash and cash equivalents, as federal
funds were invested in multi-family residential loans to improve
the yield on interest-earning assets.
Loans receivable, net of the allowance for loan losses, totaled
$344.7 million at September 30, 2016, compared to $304.2 million at
December 31, 2015. Loan originations during the first nine months
of 2016 totaled $90.8 million, compared to $99.9 million during the
first nine months of 2015. There were no loan sales during the
first nine months of 2016, compared to $140.2 million during the
first nine months of 2015. Loan repayments during the first nine
months of 2016 totaled $50.9 million, compared to $30.6 million
during the first nine months of 2015. At September 30, 2016, 54.8%
of the Bank’s loan portfolio consisted of multi-family loans, 31.6%
consisted of single family residential loans, 10.8% consisted of
church loans, and 2.8% consisted of commercial real estate. In
comparison, at December 31, 2015, 38.7% of the Bank’s loan
portfolio consisted of multi-family loans, 42.6% consisted of
single family residential loans, 14.8% consisted of church loans,
and 3.9% consisted of commercial real estate.
During the first nine months of 2016, total non-accrual loans
decreased by $1.2 million to $3.0 million at September 30, 2016
from $4.2 million at the end of 2015. This decrease reduced the
Bank’s ratio of non-accrual loans to total loans to 0.87% at
September 30, 2016 from 1.37% at the end of 2015. None of the
Bank’s loans were delinquent at September 30, 2016, including the
non-accrual loans. In addition, the Bank did not have any REO at
the end of September 2016, compared to total REO of $360 thousand
at the end of 2015. As a result, the Bank’s ratio of non-performing
assets to total assets decreased to 0.74% at September 30, 2016
from 1.14% at December 31, 2015. The allowance for loan losses
represented 151.0% of total non-performing loans at September 30,
2016, compared to 114.2% at December 31, 2015.
Deposits increased by $12.5 million to $285.1 million at
September 30, 2016 from $272.6 million at December 31, 2015, which
consisted of an increase of $6.3 million in CDs, and an increase of
$6.2 million in core deposits (NOW, demand, money market and
passbook accounts). The increase in CDs during 2016 was primarily
due to an increase of $26.7 million in Certificate of Deposit
Account Registry Service (“CDARS”) accounts. CDARS is a deposit
placement service that allows the Bank to place customers’ funds in
FDIC-insured certificates of deposits at other banks and, at the
same time, receive an equal sum of funds from the customers of
other banks in the CDARS Network. The increase in CDARS was
partially offset by a decrease of $20.4 million in retail CDs, of
which $10.0 million was from one, ongoing, deposit relationship,
and $3.0 million was from maturities of QwickRate CDs.
Total borrowings at September 30, 2016 consisted of advances to
the Bank from the FHLB of $70.0 million, and subordinated
debentures issued by the Company of $5.1 million, compared to
advances from the FHLB of $72.0 million and subordinated debentures
of $5.1 million at December 31, 2015. During the first nine months
of 2016, $2.0 million of FHLB advances were repaid.
Stockholders' equity was $47.5 million, or 11.50% of the
Company’s total assets, at September 30, 2016, compared to $46.2
million, or 11.46% of the Company’s total assets, at December 31,
2015. The Company’s book value was $1.63 per share as of September
30, 2016, compared to $1.59 per share as of December 31, 2015.
At September 30, 2016, the Bank’s Total Capital ratio was 19.16%
and its Leverage ratio (Tier 1 Capital to adjusted total assets)
was 11.16%, compared to a Total Capital ratio of 20.71% and a
Leverage ratio of 11.56% at December 31, 2015. The decrease in the
Bank’s Total Capital ratio was primarily due to an increase in
risk-weighted assets as the Bank invested lower risk-weighted cash
and cash equivalents into higher risk-weighted loans
receivable.
About Broadway Financial Corporation
Broadway Financial Corporation conducts its operations through
its wholly-owned subsidiary, Broadway Federal Bank, f.s.b., which
is the leading community-oriented savings bank in Southern
California serving low-to-moderate income communities. We offer a
variety of residential and commercial real estate loan products for
consumers, businesses, and non-profit organizations, other loan
products, and a variety of deposit products, including checking,
savings and money market accounts, certificates of deposits and
retirement accounts. The Bank operates three full service branches,
two in the city of Los Angeles, and one located in the nearby city
of Inglewood, California.
Shareholders, analysts and others seeking information about the
Company are invited to write to: Broadway Financial Corporation,
Investor Relations, 5055 Wilshire Blvd., Suite 500, Los Angeles, CA
90036, or visit our website at www.broadwayfederalbank.com.
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based upon our
management’s current expectations, and involve risks and
uncertainties. Actual results or performance may differ materially
from those suggested, expressed, or implied by the 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-K and Quarterly Reports on Form
10-Q. The Company undertakes no obligation to revise any
forward-looking statement to reflect any future events or
circumstances, except to the extent required by law.
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Selected Financial Data and Ratios (Unaudited) (Dollars
in thousands, except per share data)
September 30, 2016 December
31, 2015 Selected Financial Condition Data and Ratios:
Total assets $ 413,373 $ 402,912 Gross loans receivable 349,330
308,999 Allowance for loan losses (4,597 ) (4,828 ) Cash and cash
equivalents 38,281 67,839 Securities available-for-sale, at fair
value 14,336 14,140 Deposits 285,098 272,614 FHLB advances 70,000
72,000 Junior subordinated debentures 5,100 5,100 Total
stockholders' equity 47,521 46,163 Book value per share $
1.63 $ 1.59 Equity to total assets 11.50 % 11.46 %
Asset
Quality Ratios: Non-accrual loans to total loans 0.87 % 1.37 %
Non-performing assets to total assets 0.74 % 1.14 % Allowance for
loan losses to total gross loans 1.32 % 1.56 % Allowance for loan
losses to total delinquent loans - 334.12 % Allowance for loan
losses to non-performing loans 150.97 % 114.22 %
Non-Performing Assets: Non-accrual loans $ 3,045 $ 4,227
Loans delinquent 90 days or more and still accruing - - Real estate
acquired through foreclosure - 360
Total non-performing assets $ 3,045 $ 4,587
Three Months Ended September 30, Nine
Months Ended September 30, Selected Operating Data and
Ratios: 2016 2015
2016 2015 Interest income
$ 4,013 $ 3,729 $ 11,401 $ 11,746 Interest expense 987
931 2,863 2,848
Net interest income before loan loss provision recapture 3,026
2,798 8,538 8,898 Loan loss provision recapture -
200 550 1,700 Net
interest income after loan loss provision recapture 3,026 2,998
9,088 10,598 Non-interest income 144 917 886 2,052 Non-interest
expense (2,843 ) (2,928 ) (8,693 )
(9,204 ) Income before income taxes 327 987 1,281 3,446 Income tax
expense - 8 2 16
Net income $ 327 $ 979 $ 1,279 $ 3,430
Earnings per common share-basic and diluted $ 0.01 $
0.03 $ 0.04 $ 0.12 Loan originations (1) $ 30,845 $ 36,066
(2) $ 90,775 $ 99,854 (2) Net (recoveries) charge-offs to
average loans (0.06 )% (3) (0.01 )% (3) (0.13 )% (3) 0.02 % (3)
Return on average assets 0.32 % (3) 1.06 % (3) 0.43 % (3) 1.27 %
(3) Return on average equity 2.76 % (3) 9.81 % (3) 3.63 % (3) 11.78
% (3) Net interest margin 3.02 % (3) 3.09 % (3) 2.93 % (3) 3.36 %
(3) (1) Does not include net deferred origination
costs. (2) Includes loans held for sale originations of $26.0
million and $57.3 million for the three and nine months ended
September 30, 2015, respectively. (3) Annualized
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version on businesswire.com: http://www.businesswire.com/news/home/20161101006618/en/
Broadway Financial CorporationBrenda J. Battey, Chief Financial
Officer(323) 556-3264investor.relations@broadwayfederalbank.com
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