Broadway Financial Corporation (the “Company”) (The Nasdaq Stock
Market LLC: BYFC), parent company of Broadway Federal Bank, f.s.b.
(the “Bank”), today reported a net loss of $279 thousand, or
($0.01) per diluted share, for the third quarter of 2019, compared
to net income of $751 thousand, or $0.03 per diluted share, for the
third quarter of 2018.
Results declined primarily because of a change in the loan loss
provision; during the third quarter of 2019 the Bank recorded a
loan loss provision of $47 thousand whereas during the third
quarter of 2018 the Bank recorded a loan loss provision recapture
of $1.0 million. In addition, during the third quarter of 2019, the
Company recorded an increase of $343 thousand in non-interest
expense, primarily due to higher professional services fees and
stock related compensation costs, and a decrease of $112 thousand
in net interest income, primarily due to the flat yield curve,
which compressed net interest margins. The effects of these changes
were partially offset by a decrease of $508 thousand in income tax
expense.
For the nine months ended September 30, 2019, the Company
reported a net loss of $137 thousand, or ($0.01) per diluted share,
compared to net income of $540 thousand, or $0.02 per diluted
share, for the nine months ended September 30, 2018.
The results declined for the nine months ended September 30,
2019 primarily because of a decrease of $699 thousand in the loan
loss provision recapture. Also, results for the nine months were
impacted by an increase of $470 thousand in non-interest expense,
and a decrease of $183 thousand in net interest income compared to
the prior year period. The effects of these changes were partially
offset by a decrease of $497 thousand in income tax expense. The
increase in non-interest expense was primarily due to increases in
professional services fees of $412 thousand, $360 thousand of which
were related to non-recurring matters, and compensation costs of
$256 thousand, primarily related to stock related compensation,
offset by a decline in REO expense of $106 thousand, a decrease in
marketing expense of $88 thousand, and a decline in other
categories of expenses. The decrease in net interest income was
primarily caused by the flat yield curve, which compressed
margins.
Chief Executive Officer, Wayne Bradshaw, commented, “Results in
the third quarter and year-to-date have continued to be impacted by
the difficult interest rate environment, which has exacerbated the
competitive conditions for both loan originations and acquisition
and retention of deposits. As rates have declined and the yield
curve has continued to flatten throughout the year, benchmark rates
for loan maturing or adjusting in three to five years, which
maturities represent over 70% of our loan portfolio, have declined
significantly more than short-term rates. As a result, for most of
2019 rates have been inverted for maturities less than ten years,
which has compressed the Bank’s net interest margins to extremely
low levels.”
“Within this difficult environment, Broadway
has achieved some notable accomplishments:
Interest income on loans receivable increased
for both the third quarter and year-to-date;
Loan originations increased in the third
quarter;
The Bank’s non-performing assets were lowered
to less than $700 thousand, or 0.17% of total assets, by the end of
September;
The Bank continued to maintain strong capital
ratios, with a Total Capital ratio of 20.57% and a Leverage ratio
of 11.74% at the end of September; and
The Bank’s overall safety and soundness have
improved to the point that the Board has the flexibility to
increase Broadway’s loan portfolio. This follows the successful
reaffirmation of the Bank’s “Outstanding” CRA rating by the Bank’s
primary regulator during the second quarter.”
“Since the end of the third quarter we have already begun using
this flexibility to prudently grow the Bank’s loan portfolio
through originations of high-quality loans, primarily for
multi-family residential properties in low to moderate income
communities in Southern California. Also, we plan to increase our
portfolio of commercial real estate and construction loans, which
typically provide higher yields than are available from single
family and multi-family residential loans. In addition, we are in
the process of examining all facets of the Company’s business and
corporate structure to eliminate costs. All of these efforts are
part of our plan to generate better economies of scale and return
Broadway to profitability.”
“As always, I wish to thank our team for their dedication and
persistent efforts to build value, and Broadway’s stockholders for
their continuing support of our mission.”
Net Interest Income
Net interest income for the third quarter of 2019 totaled $2.4
million, compared to $2.5 million for the third quarter of 2018.
The decrease of $112 thousand in net interest income primarily
resulted from higher interest expense on deposits, which was
partially offset by higher interest income on loans, higher
interest on other interest earning assets and lower interest
expense on borrowings.
Interest income on loans increased by $41 thousand for the third
quarter of 2019 compared to the third quarter of 2018. The increase
in interest income on loans primarily resulted from an increase of
13 basis points in average yield on loans, which increased loan
interest income by $123 thousand. This was partially offset by a
decrease of $8.3 million in the average balance of loans
receivable, which decreased interest income by $82 thousand. The
increase in the average yield on loans primarily resulted from the
payoff of loans with lower rates than those originated over the
year. In July of 2019, the Bank sold $22.8 million of performing
multi-family loans to conform to loan concentration guidelines,
which lowered the average balance of loans receivable.
Interest income on securities and other interest earning assets
increased by $71 thousand for the third quarter of 2019 compared to
the third quarter of 2018. The increase in other interest income
primarily resulted from a net increase in the average balance of
interest earning cash deposits in other banks of $13.1 million,
which increased interest income by $74 thousand, offset by a
decrease in the average balance of securities of $1.8 million,
which decreased interest income by $11 thousand.
Interest expense on deposits increased by $284 thousand for the
third quarter of 2019 compared to the third quarter of 2018. The
increase in interest expense on deposits primarily resulted from an
increase of 33 basis points in the average cost of deposits, which
increased interest expense by $195 thousand and an increase of
$15.0 million in the average deposit balance, which increased
interest expense by $89 thousand.
Interest expense on borrowings decreased by $60 thousand for the
third quarter of 2019 compared to the third quarter of 2018. The
lower interest expense on borrowings primarily resulted from a
decrease of $13.6 million in the average balance of the Federal
Home Loan Bank (“FHLB”) advances, which decreased interest expense
by $82 thousand. This decrease was offset in part by an increase of
12 basis points in the average cost of advances from FHLB, which
increased interest expense by $26 thousand. Additionally, the
average balance of the Company’s junior subordinated debentures
decreased by $308 thousand during the third quarter of 2019, which
decreased interest expense by $4 thousand. The interest rate on the
Company’s junior subordinated debentures increased by 6 basis
points during the third quarter of 2019, resulting in additional
interest expense of $1 thousand.
For the nine months ended September 30, 2019, net interest
income decreased by $183 thousand to $7.7 million compared to $7.9
million for the nine months ended September 30, 2018. The decrease
in net interest income primarily resulted from higher interest
expense on deposits and borrowings, which offset higher interest
earned on loans and other interest-earning assets. The net interest
margin decreased by 13 basis points to 2.49% for the nine months
ended September 30, 2019 from 2.62% for the same period in
2018.
Interest and fees on loans receivable increased by $1.1 million
for the nine months ended September 30, 2019, primarily due to an
increase of $9.5 million in the average balance of loans receivable
(including loans held for sale), which increased interest income by
$281 thousand, and an increase of 29 basis points in loan yield,
which increased interest income by $792 thousand.
Interest income on securities and other interest earning assets
increased by $105 thousand for the nine months ended September 30,
2019 compared to the nine months ended September 30, 2018. The
increase in other interest income primarily resulted from a net
increase in the average balance of interest earning cash deposits
in other banks of $3.3 million, which increased interest income by
$50 thousand, and an increase of 47 basis points in deposit rate,
which increased interest income by $85 thousand. These were
primarily offset by a decrease in the average securities balance of
$2.1 million, which decreased interest income by $42 thousand.
Interest on deposits increased by $1.1 million during the nine
months ended September 30, 2019 compared to the nine months ended
September 30, 2018, due to an increase of 48 basis points
attributable to higher rates paid on all deposit types, which
caused interest expense on deposits to increase by $952 thousand,
and an increase of $7.2 million in the average balance of deposits,
which caused interest expense to increase by $140 thousand.
Interest expense on borrowings increased by $269 thousand during
the nine months ended September 30, 2019 compared to the nine month
ended September 30, 2018 due to an increase of 39 basis points in
the average cost of FHLB advances, which increased interest expense
by $221 thousand and an increase of $2.2 million in the average
balance of FHLB advances, which increased interest expense by $32
thousand. Additionally, the average balance of the Company’s junior
subordinated debentures decreased by $107 thousand during the nine
months ended September 30, 2019, which decreased interest expense
by $4 thousand. The interest rate on the Company’s junior
subordinated debentures increased by 53 basis points during the
nine months ended September 30, 2019, resulting in additional
interest expense of $20 thousand.
Loan Loss Provision/Recapture
The Company recorded a loan loss provision of $47 thousand for
the third quarter of 2019, compared to a loan loss provision
recapture of $1.0 million for the third quarter of 2018. The loan
loss provision recorded in the third quarter of 2019 was primarily
due to net growth in the multi-family portfolio, while the loan
loss provision recapture during the third quarter of 2018 was
primarily due to improvement in the credit quality of the loan
portfolio due to payoffs and recoveries of problem loans which had
a favorable impact on the environmental factors used in the Bank’s
analysis of the allowance for loan and lease losses (“ALLL”).
The Company recorded loan loss provision recaptures of $301
thousand during the nine months ended September 30, 2019, compared
to $1.0 million in recaptures during the nine months ended
September 30, 2018. Loan loss recoveries totaled $190 thousand
during the nine months ended September 30, 2019, compared to $114
thousand recorded in the same period of 2018. There were no
charge-offs during the nine months ended September 30, 2019 or
2018.
At September 30, 2019, the ALLL was $2.8 million, or 0.79% of
gross loans receivable held for investment, compared to $2.9
million, or 0.82% of gross loans receivable held for investment at
December 31, 2018. The ALLL was 403.2% of non-performing loans at
September 30, 2019, compared to 321.5% of non-performing loans at
December 31, 2018.
Non-interest Income
Non-interest income for the third quarter of 2019 totaled $344
thousand, compared to $380 thousand for the third quarter of 2018.
The results for the third quarter of 2019 included a gain on sale
of loans of $204 thousand, whereas the results for the third
quarter of 2018 included a grant for $233 thousand received from
the U.S. Treasury’s Community Development Financial Institutions
Fund.
For the nine months ended September 30, 2019, non-interest
income totaled $859 thousand, compared to $681 thousand for the
same period a year ago. The increase of $178 thousand in
non-interest income was primarily due to an increase of $184
thousand in gain on sale of loans during the nine months ended
September 30, 2019 compared to the same period last year.
Non-interest Expense
Non-interest expense for the third quarter of 2019 totaled $3.1
million, compared to $2.8 million for the third quarter of 2018.
The increase of $343 thousand in non-interest expense during the
third quarter of 2019 compared to the same quarter of 2018 was
primarily due to increases of $209 thousand in professional
services expense, $155 thousand in compensation and benefits
expense and $40 thousand in information technology expenses, offset
by decreases of $45 thousand in REO expense and $23 thousand in
marketing expense. The Bank had no REO property as of September 30,
2019.
Professional services expense increased by $209 thousand during
the third quarter of 2019 compared to the third quarter of 2018 due
to $159 thousand of legal fees and $50 thousand in consulting
services fees, both of which were primarily related to
non-recurring matters. Compensation and benefits expense increased
by $155 thousand during the third quarter of 2019 compared to the
third quarter of 2018 primarily due to an increase in stock-related
salary costs.
For the nine months ended September 30, 2019, non-interest
expense totaled $9.2 million, compared to $8.8 million for the same
period a year ago. The increase of $470 thousand in non-interest
expense was primarily due to increases of $412 thousand in
professional services expense, $360 thousand of which was related
to non-recurring matters, $256 thousand in compensation and
benefits expense, offset by decreases of $106 thousand in REO
expense and $88 thousand in marketing expense.
Professional services expense increased by $412 thousand during
the nine months ended September 30, 2019 compared to the nine
months ended September 30, 2018 primarily due to $239 thousand in
legal-related matters, $123 thousand in third party audit costs,
and $44 thousand in consulting fees.
Compensation and benefits expense increased by $256 thousand
during the nine months ended September 30, 2019 compared to the
same period of 2018 primarily due to increases of $188 thousand in
stock-related salary costs, $112 thousand in lower deferred
compensation costs associated with loans originated for the
portfolio, and $42 thousand in lower salary costs.
Income Taxes
Income taxes are computed by applying the statutory federal
income tax rate of 21.0% and the California income tax rate of
10.84% to taxable income. The Company recorded income tax benefits
of $176 thousand and $262 thousand during the third quarter and
nine months ended September 30, 2019 compared to recording income
tax expenses of $332 thousand and $235 thousand for the comparable
periods in 2018. The Company’s effective income tax benefit rate
was 38.7% and 65.7% for the three and nine months ended September
30, 2019, respectively, compared to the effective income tax
expense rate of 30.7% and 30.3% for the comparable periods in 2018.
The variations in the effective benefit rates are attributable to
the Company’s low-income housing tax credits. The Company had no
valuation allowance on its deferred tax assets, which totaled $5.1
million and $5.0 million at September 30, 2019 and December 31,
2018, respectively.
Balance Sheet Summary
Total assets increased by $5.2 million to $414.6 million at
September 30, 2019 from $409.4 million at December 31, 2018. The
growth in total assets was comprised of an increase of $5.2 million
in cash and cash equivalents and an increase of $1.9 million in
loans receivable held for sale, offset by a decrease of $1.1
million in securities available-for-sale and a decrease of $833
thousand in REO. The Bank sold its sole REO property during the
second quarter of 2019.
Loans receivable held for sale totaled $8.2 million at September
30, 2019, compared to $6.2 million at December 31, 2018. The
increase was primarily due to $15.2 million of new loans originated
for sale during the nine months ended September 30, 2019 and $9.6
million of loans transferred from the loans held for investment
portfolio for loan concentration management purposes. These
increases were offset by $22.8 in loan sales during the third
quarter of 2019 and $103 thousand in repayments of loans receivable
held for sale during the nine months ended September 30, 2019.
Loans receivable held for investment, net of the allowance for
loan losses, totaled $354.8 million at September 30, 2019, compared
to $355.6 million at December 31, 2018. During the nine months
ended September 30, 2019, the Bank originated $44.6 million in
loans for its portfolio, compared to $57.5 million originated for
its portfolio during the nine months ended September 30, 2018. In
addition, the Bank transferred $9.6 million to loans receivable
held for sale during the nine months ended September 30, 2019. Loan
repayments during the nine months ended September 30, 2019 totaled
$36.6 million, compared to $54.8 million during the nine months
ended September 30, 2018.
Deposits decreased to $280.1 million at September 30, 2019 from
$281.4 million at December 31, 2018, which consisted of an increase
of $13.2 million in certificates of deposit, a net increase of $1.4
million in two-way CDARS and an increase of $98 thousand in
deposits gathered from a deposit listing service. These increases
were offset by a decrease of $9.9 million in brokered deposits and
a decrease of $6.1 million in liquid deposits (NOW, demand, money
market and passbook accounts).
FHLB advances increased by $5.0 million to $75.0 million at
September 30, 2019 from $70.0 million at December 31, 2018 as the
Bank took on a new five-year advance to fund new loans.
Stockholders' equity was $48.9 million, or 11.78% of the
Company’s total assets, at September 30, 2019, compared to $48.4
million, or 11.83% of the Company’s total assets, at December 31,
2018. The Company’s book value was $1.75 per share as of September
30, 2019, compared to $1.77 per share as of December 31, 2018.
At September 30, 2019, the Bank’s Total Capital ratio was 20.57%
and its Leverage ratio (Tier 1 Capital to adjusted total assets)
was 11.74%, compared to a Total Capital ratio of 20.48% and a
Leverage ratio of 12.03% at December 31, 2018.
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, California, 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, 2019
December 31, 2018 Selected Financial Condition Data and
Ratios: Cash and cash equivalents
$ 21,822
$ 16,651
Securities available-for-sale, at fair value
13,671
14,722
Loans receivable held for sale
8,175
6,231
Loans receivable held for investment
357,618
358,485
Allowance for loan losses
(2,818
)
(2,929
)
Loans receivable held for investment, net of allowance
354,800
355,556
Total assets
414,618
409,397
Deposits
280,067
281,414
FHLB advances
75,000
70,000
Junior subordinated debentures
4,590
5,100
Total stockholders' equity
48,860
48,436
Book value per share
$ 1.75
$ 1.77
Equity to total assets
11.78
%
11.83
%
Asset Quality Ratios: Non-accrual loans to total
loans
0.19
%
0.25
%
Non-performing assets to total assets
0.17
%
0.43
%
Allowance for loan losses to total gross loans
0.79
%
0.82
%
Allowance for loan losses to total delinquent loans
457.47
%
8368.57
%
Allowance for loan losses to non-performing loans
403.15
%
321.51
%
Non-Performing Assets: Non-accrual loans
$ 699
$ 911
Loans delinquent 90 days or more and still accruing
-
-
Real estate acquired through foreclosure
-
833
Total non-performing assets
$ 699
$ 1,744
Three Months Ended September
30,
Nine Months Ended September
30,
Selected Operating Data and Ratios:
2019
2018
2019
2018
Interest income
$ 4,015
$ 3,903
$ 12,473
$ 11,295
Interest expense
1,623
1,399
4,806
3,445
Net interest income
2,392
2,504
7,667
7,850
Loan loss provision (recapture)
47
(1,000
)
(301
)
(1,000
)
Net interest income after loan loss provision recapture
2,345
3,504
7,968
8,850
Non-interest income
344
380
859
681
Non-interest expense
(3,144
)
(2,801
)
(9,226
)
(8,756
)
Income (loss) before income taxes
(455
)
1,083
(399
)
775
Income tax expense (benefit)
(176
)
332
(262
)
235
Net income (loss)
$ (279
)
$ 751
$ (137
)
$ 540
Earnings per common share-diluted
$ (0.01
)
$ 0.03
$ (0.01
)
$ 0.02
Loan originations (1)
$ 22,507
$ 20,995
$ 59,772
$ 77,790
Net recoveries to average loans
(0.00
)%
(2
)
(0.00
)%
(2
)
(0.07
)%
(2
)
(0.04
)%
(2
)
Return on average assets
-0.26
%
(2
)
0.72
%
(2
)
-0.04
%
(2
)
0.18
%
(2
)
Return on average equity
-2.28
%
(2
)
6.34
%
(2
)
-0.37
%
(2
)
1.52
%
(2
)
Net interest margin
2.33
%
(2
)
2.46
%
(2
)
2.49
%
(2
)
2.62
%
(2
)
(1
)
Does not include net deferred origination costs.
(2
)
Annualized
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191104005880/en/
Brenda J. Battey, Chief
Financial Officer, (323) 556-3264; or
investor.relations@broadwayfederalbank.com
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