UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For transition period from__________ to___________
Commission file number 0-27464
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BROADWAY FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 95-4547287 (State or other jurisdiction of
incorporation or (IRS Employer Identification No.)
organization)
4800 Wilshire Boulevard, Los Angeles, California 90010
-------------------------------------------------------------
(Address of principal executive offices)
(323) 634-1700
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,814,414 shares of the Company's
Common Stock, par value $0.01 per share, were issued and outstanding as of
October 31, 2002.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
1
INDEX
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
as of September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations and
Comprehensive Earnings (unaudited) for the
three months and nine months ended September
30, 2002 and September 30, 2001 4
Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 2002 and September 30, 2001 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Disclosure Controls and Procedures 15
PART II. OTHER INFORMATION - NONE 15
SIGNATURES 16
SECTION 302 CERTIFICATIONS 17
SECTION 906 CERTIFICATIONS 19
2
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
(Unaudited)
September 30, December 31,
2002 2001
Assets:
Cash $ 2,843 $ 2,639
Fed funds sold 2,800 2,600
Interest bearing deposits 1,028 5,028
Investment securities held to maturity 2,000 -
Investment securities available for sale 21,225 4,604
Mortgage-backed securities held to maturity 12,423 13,931
Loans receivable, net 136,047 133,937
Loans receivable held for sale, at lower of cost or fair value 3,316 7,362
Accrued interest receivable 936 943
Real estate acquired through foreclosure, net 107 -
Investments in capital stock of Federal Home Loan Bank, at cost 1,459 1,399
Office properties and equipment, net 5,855 6,001
Other assets 708 457
Total assets $ 190,747 $ 178,901
Liabilities and stockholders' equity
Deposits $ 156,215 $ 151,156
Advances from Federal Home Loan Bank 15,750 11,000
Advance payments by borrowers for taxes and insurance 553 224
Deferred income taxes 562 556
Other liabilities 2,089 1,337
Total liabilities 175,169 164,273
Stockholders' Equity:
Preferred non-convertible, non-cumulative, and non-voting stock, $.01 par
value, authorized 1,000,000 shares; issued and outstanding 55,199 shares
at September 30, 2002 and December 31, 2001 1 1
Common stock, $.01 par value, authorized 6,000,000 shares; issued and
outstanding 1,814,414 shares at September 30, 2002 and 1,821,076 shares
at December 31, 2001 10 10
Additional paid-in capital 9,505 9,481
Accumulated other comprehensive gain (loss), net of taxes 10 2
Retained earnings-substantially restricted 6,740 5,804
Treasury stock-at cost, 109,056 shares at September 30, 2002 and 102,394
shares at December 31, 2001 (529) (469)
Unearned Employee Stock Ownership Plan shares (159) (201)
Total stockholders' equity 15,578 14,628
Total liabilities and stockholders' equity $ 190,747 $ 178,901
3
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Earnings
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months ended September 30,
Nine Months ended September 30,
2002 2001 2002 2001
Interest on loans receivable $ 2,644 $ 2,957 $ 8,220 $ 8,552
Interest on investment securities held to maturity 21 13 47 150
Interest on investment securities available for sale 86 58 182 94
Interest on mortgage-backed securities 208 194 612 539
Other interest income 61 50 213 476
Total interest income 3,020 3,272 9,274 9,811
Interest on deposits 887 1,418 2,900 4,382
Interest on borrowings 135 138 386 451
Total interest expense 1,022 1,556 3,286 4,833
Net interest income before provision for loan losses 1,998 1,716 5,988 4,978
Provision for loan losses - 30 - 105
Net interest income after provision for loan losses 1,998 1,686 5,988 4,873
Non-interest income:
Service charges 214 169 646 489
Gain on loans receivable held for sale - (1) - (1)
Other 51 25 84 77
Total non-interest income 265 193 730 565
Non-interest expense:
Compensation and benefits 920 796 2,724 2,434
Occupancy expense, net 309 315 954 878
Advertising and promotional expense 32 35 93 122
Professional services 123 56 322 169
Real estate operations, net 1 - (4) -
Contracted security services 45 41 127 121
Telephone and postage 21 46 98 160
Stationary, printing and supplies 32 36 91 89
Other 151 147 597 487
Total non-interest expense 1,634 1,472 5,002 4,460
Earnings before income taxes 629 407 1,716 978
Income taxes 189 167 628 401
Net earnings $ 440 $ 240 1,088 $ 577
Other comprehensive income (loss):
Unrealized income (loss) on securities available for $ale (24) $ 10 13 $ 5
Income tax (expense) benefit 10 (4) (5) (2)
Other comprehensive income (loss) (14) 6 8 3
Comprehensive earnings $ 426 $ 246 $ 1,096 $ 580
Net earnings $ 440 240 $ 1,088 577
Dividends paid on preferred stock (7) (7) (21) (21)
Earnings available to common shareholders $ 433 $ 233 $ 1,067 $ 556
Earnings per share-basic $0.25 $0.13 $0.60 $0.32
Earnings per share-diluted $0.24 $0.13 $0.59 $0.32
Dividend declared per share-common stock $0.03 $0.03 $0.08 $0.08
Basic weighted average shares outstanding 1,776,008 1,770,738 1,779,612 1,753,604
Diluted weighted average shares outstanding 1,813,192 1,783,040 1,805,718 1,758,106
4
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine months ended September 30,
2002 2001
Cash flows from operating activities
Net earnings $ 1,088 $ 577
Adjustments to reconcile net earnings to net cash provided by used in
(used in) operating activities:
Depreciation 304 265
Amortization of premiums and discounts on loans purchased (145) 4
Amortization of net deferred loan origination fees (221) (14)
Amortization of discounts and premium on investment securities
and mortgage-backed securities 132 (195)
Amortization of deferred compensation 64 67
Gain on sale of securities available for sale (24) 1
Loss (gain) on disposal of fixed assets 53 (15)
Provision for loan losses - 105
Loans originated for sale (679) (299)
Proceeds from sale of loans receivable held for sale 795 357
Purchases of loans held for sale - (8,001)
Principal repayment on loans held for sale 3,930 1,127
Changes in operating assets and liabilities:
Accrued interest receivable 8 32
Other assets (251) 60
Accrual for branch closure - 55
Deferred income taxes - 2
Other liabilities 752 (526)
Total adjustments 4,718 (6,975)
Net cash provided by (used in) operating activities 5,806 (6,398)
Cash flows from investing activities
Loans originated (18,855) (17,870)
Principal repayment on loans 17,824 12,816
Purchase of loans (820)
Purchases of investment securities held-to-maturity (2,000) (5,000)
Purchases of mortgage-backed securities held to maturity (2,093) (5,317)
Purchases of securities held for sale (27,128) (4,600)
Proceeds from maturities of interest bearing deposits 4,000 -
Proceeds from maturities of investment securities held-to-maturity - 11,624
Proceeds from maturities of mortgage-backed securities held-
to-maturity 3,471 2,276
Proceeds from sale of securities available for sale 10,544
Purchase of Federal Home Loan stock (60) (64)
Proceeds from sale of fixed assets 10 210
Capital expenditures for office properties and equipment (221) (191)
Net cash used in investing activities (15,328) (6,116)
5
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
(Unaudited)
Nine months ended September 30,
2002 2001
Cash flows from financing activities
Net increase in deposits 5,059 15,646
Increase (decrease) in advances from Federal Home Loan Bank 4,750 (1,750)
Dividends paid (153) (152)
Purchases of treasury stock (83) -
Exercises of stock options 24 -
Increase in advances by borrowers - -
for taxes and insurance 329 224
Net cash provided by financing activities 9,926 13,968
Net increase in cash and cash equivalents 404 1,454
Cash and cash equivalents at beginning of period 5,239 10,267
Cash and cash equivalents at end of period $ 5,643 $11,721
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,453 $ 4,856
Cash paid for income taxes 568 581
Supplemental disclosure of non-cash investing and financing activities
Transfers of loans to real estate acquired through foreclosure $ 107 $ -
6
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2002
NOTE (1) - Basis of Financial Statement Presentation
The unaudited consolidated financial statements included herein have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial statements and pursuant to the
instructions for Form 10-QSB and the rules and regulations of the Securities and
Exchange Commission. In the opinion of the management of Broadway Financial
Corporation (the "Company"), the preceding unaudited consolidated financial
statements contain all material adjustments, consisting solely of normal
recurring accruals, necessary to present fairly the consolidated financial
position of the Company and its subsidiaries at September 30, 2002 and the
results of their operations and comprehensive earnings for the three months and
nine months ended September 30, 2002 and 2001, and their cash flows for the nine
months ended September 30, 2002 and 2001. These consolidated financial
statements do not include all disclosures associated with the Company's
consolidated annual financial statements included in its annual report on Form
10-KSB for the year ended December 31, 2001 and, accordingly, should be read in
conjunction with such audited statements. The results of operations for the
three months and nine months ended September 30, 2002 are not necessarily
indicative of the results to be expected for the full year.
NOTE (2) - Earnings Per Share (adjusted for stock split)
On November 5, 2002 the Company announced a two-for-one stock split in the form
of a dividend of one new common share on each outstanding share of its common
stock. The dividend will be payable on November 30, 2002 to stockholders of
record as of November 15, 2002. The number of shares and earnings per share
computations have been adjusted to reflect the stock split for all periods
presented. The par value of the additional shares of common stock to be issued
in connection with the stock split will be credited to common stock and a like
amount charged to additional paid in capital in the fourth quarter of 2002.
Basic earnings per share were computed by dividing net earnings available to
common shareholders by the weighted average number of shares of Common Stock
outstanding for the period (1,776,008 and 1,770,738 shares for the three months
ended September 30, 2002 and 2001, and 1,779,612 and 1,753,604 shares for the
nine months ended September 30, 2002 and 2001, respectively). Diluted earnings
per shares reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per share additionally included the dilutive effect of
Common Stock equivalents (1,813,192 and 1,783,040 shares for the three months
ended September 30, 2002 and 2001 and 1,805,718 and 1,758,106 shares for the
nine months ended September 30, 2002 and 2001, respectively). The number of
shares reflected above have been adjusted for the stock split.
7
NOTE (3) - Cash and Cash Equivalents
For purposes of reporting cash flows in the "Consolidated Statements of Cash
Flows", cash and cash equivalents include cash and fed funds sold.
NOTE (4) - Current Accounting Issues
In April 2002, the FASB issued SFAS No. 145. Statement of Financial Accounting
Standards No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment
of SFAS Statement No. 13, and Technical Corrections" ("SFAS 145"), updates,
clarifies and simplifies existing accounting pronouncements. SFAS 145 rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." SFAS 145
amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The provisions of SFAS 145 related to
SFAS No. 4 and SFAS No. 13 are effective for fiscal years beginning and
transactions occurring after May 15, 2002, respectively. Management anticipates
the adoption of SFAS 145 will not have a material impact on the Company's
consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146. Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS 146") which requires the recognition of
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS 146 replaces
Emerging Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
146 are to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. Management anticipates the adoption of SFAS 146 will
not have a material impact on the Company's consolidated financial statements.
In October, 2002 the FASB issued Statement of Financial Accounting Standards No.
147, "Acquisitions of Certain Financial Institutions, an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9" ("SFAS 147"), which
addresses the financial accounting and reporting for the acquisition of all or
part of a financial institution, except for a transaction between two or more
mutual enterprises. SFAS 147 removes acquisitions of financial institutions,
other than transactions between two or more mutual enterprises, from the scope
of Statement of Financial Accounting Standards No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions," ("SFAS 72"), and Financial
Accounting Standards Board Interpretation No. 9, "Applying APB Opinions No. 16
and 17 When a Savings and Loan Association or a Similar Institution Is Acquired
in a Business Combination Accounted for by the Purchase Method," and requires
that those transactions be accounted for in accordance with Statement of
Financial Accounting Standards No. 141, "Business Combinations," and SFAS 142.
Thus, the requirement in SFAS 72 to recognize, and subsequently amortize, any
excess of the fair value of liabilities assumed over the fair value of tangible
and identifiable intangible assets acquired as an unidentifiable intangible
asset no longer applies to acquisitions within the scope of SFAS 147. Management
anticipates the adoption of SFAS 147 will not have a material impact on the
Company's consolidated financial statements.
8
NOTE (5) - Critical Accounting Policy
Accounting for the allowance for loan losses involves significant judgments and
assumptions by management, which has a material impact on the carrying value of
net loans. Management considers this accounting policy to be a critical
accounting policy. The judgments and assumptions used by management are based on
historical experience, current economic trends, the borrowers' ability to repay
and repayment performance, and other factors, which are believed to be
reasonable under the circumstances as described under the heading "Loans
Receivable and the Allowance for Loan Losses" in the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2001.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements under this caption may constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995, which
involve risks and uncertainties. Actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, economic conditions,
competition in the geographic and business areas in which we conduct our
operations, fluctuations in the interest rates, credit quality and government
regulation.
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 Central Los
Angeles, California. Broadway Federal's business is that of a financial
intermediary and consists primarily of accepting deposits from the general
public and using such deposits, together with borrowings and other funds, to
make mortgage loans secured by residential real estate located in Southern
California. At September 30, 2002, Broadway Federal operated four retail banking
offices in Mid-City and South Central Los Angeles. 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 its 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, 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.
10
Comparison of Operating Results for the Three Months and Nine Months Ended
September 30, 2002 and September 30, 2001
General
The Company recorded net earnings of $440,000 and $1,088,000, or $0.24 and $0.59
per diluted common share, respectively, for the three months and nine months
ended September 30, 2002, compared to $240,000 and $577,000, or $0.13 and $0.32
per diluted common share, respectively, for the three months and nine months
ended September 30, 2001. Compared to 2001, third quarter net earnings increased
83.33% and for the nine months net earnings increased 88.56%.
The increase in net earnings from 2001 to 2002 resulted primarily from higher
net interest income and non-interest income offset by higher non-interest
expense.
Net Interest Income
Net interest income after provision for loan losses increased from $1.7 million
and $4.9 million for the three months and nine months ended September 30, 2001,
respectively, to $2.0 million and $6.0 million for the same periods in 2002. The
increase was attributable primarily to 1) increases in the net interest rate
spread of 54 basis points and 64 basis points, respectively, 2) increases in
average interest-earning assets of $6.2 million and $7.2 million, respectively,
and 3) lower provisions for loan losses, for the three months and nine months
ended September 30, 2002 compared to the same periods in 2001.
The net interest rate spreads for the three months and nine months ended
September 30, 2002 were 4.39% and 4.47%, respectively, compared to 3.85% and
3.83%, respectively, for the same periods in 2001. The increase in spread was
attributable to deposit cost of funds declining faster than the yield on the
loan portfolio in the current low interest rate environment
Non-interest Income
Non-interest income increased by $72,000 and $165,000, or 37.31% and 29.20%,
respectively, from $193,000 and $565,000 for the three months and nine months
ended September 30, 2001, to $265,000 and $730,000, respectively, for the same
periods in 2002. The increase in non-interest income was primarily attributable
to an increase in NOW monthly service fees, prepayment fees on loans and higher
dividend income from FHLB stock.
Non-interest Expense
Total non-interest expense increased from $1.5 million and $4.5 million for the
three months and nine months ended September 30, 2001, respectively, to $1.6 and
$5.0 million for the same periods in 2002. The increase was primarily
attributable to increases in compensation costs of $124,000 for third quarter
2002 compared to third quarter 2001, and $290,000 for the nine months ended
11
September 30, 2002 compared to the nine month ended September 30, 2001. The
increase in compensation costs was due to an increase in incentive compensation
resulting from improved profitability. In addition, several needed management
personnel were added at the beginning of the year. An increase in professional
service fees of $67,000 for the third quarter 2002 compared to third quarter
2001, and $153,000 for the nine months ended September 30, 2002 compared to the
2001 period also accounted for higher non-interest expense. Management believes
the effective use of consultants has helped to improve operations.
Provision for Loan Losses
The provision for loan losses decreased by $30,000 and $105,000, respectively,
for the three months and nine months ended September 30, 2002 compared to the
same periods in 2001.
As of September 30, 2002 the Company's allowance for loan losses totaled $1.6
million, unchanged from the balance at December 31, 2001. The allowance for loan
losses represents 1.10% of gross loans at both September 30, 2002 and at
December 31, 2001. The allowance for loan losses was 660.08% of non-performing
loans at September 30, 2002, compared to 335.68% of such loans at December 31,
2001.
Total non-performing assets, consisting of non-accrual loans and real estate
acquired through foreclosure ("REO"), decreased from $468,000 at December 31,
2001 to $238,000 at September 30, 2002 as a result of payments received on
non-accrual loans reducing the balance of such non-accrual loans. At September
30, 2002 non-performing assets as a percentage of total assets was 0.18%
compared to 0.26% at December 31, 2001 and 0.58% at September 30, 2001. At
September 30, 2002, the Bank had one foreclosed real property with a carrying
value of $107,000. The property was sold in October 2002 at a nominal profit.
For the three months and nine months ended September 30, 2002 no provision for
loan losses was considered necessary based upon management's ongoing assessment
of the Company's level of credit risk inherent in the portfolio and changes
within the loan categories resulting from various factors, including new loan
originations, loan repayments, and prepayments, and changes in asset
classifications. Management will continue to monitor the allowance for loan
losses and adjust the Company's provision for loan losses based on the risks
inherent in the loan portfolio.
Management believes that the allowance for loan losses is adequate to cover
inherent losses in its loan portfolio as of September 30, 2002, but there can be
no assurance that actual losses will not exceed the estimated amounts. In
addition, the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation periodically review the Company's allowance for loan losses as an
integral part of their examination process. These agencies may require the
Company to increase the allowance for loan losses based on their judgments of
the information available to them at the time of the examination.
12
Income Taxes
The Company's effective tax rate was approximately 30.05% and 36.60% for the
three months and nine months ended September 30, 2002, compared to 41.03% and
41.00% for the same period in the prior year. The Company computed income taxes
by applying the statutory federal income tax rate of 34.00% and California
income tax rate of 10.84% to earnings before income taxes. The effective tax
rate in 2002 was lower than in 2001 principally due to higher California
Enterprise Zone tax incentives received in 2002.
Comparison of Financial Condition at September 30, 2002 and December 31, 2001
Total assets at September 30, 2002 were $190.7 million, compared to $178.9
million at December 31, 2001, representing an increase of $11.8 million. Net
loans receivable (excluding loans held for sale) increased from $133.9 million
at December 31, 2001 to $136.0 million at September 30, 2002 as a result of
$19.7 million in new loan originations and $0.6 million in loans purchases, and
a decrease in discounts and deferred loan fees of $0.4 million, offset by $17.8
million in principal repayments and payoffs.
Loans held for sale at September 30, 2002 were $3.3 million, as compared to $7.4
million at December 31, 2001. During the period, loans originated that were
classified as held-for-sale totaled $0.6 million, principal repayments totaled
$3.9 million and loans sold totaled $0.8 million.
Total liabilities at September 30, 2002 and December 31, 2001 amounted to $175.2
and $164.3 million. Deposits increased $5.0 million, or 3.31%, from $151.2
million at December 31, 2001 to $156.2 million at September 30, 2002. The Bank
has targeted, and has succeeded in increasing, core deposits (NOW, Demand, Money
Market, and Passbook accounts) by $7.2 million, while managing rates paid on CD
accounts, including Jumbo CDs, resulting in a decline in CD accounts of $2.2
million. Core deposits amounted to 39.41 % of total deposits at September 30,
2002, compared to 35.95% at December 31, 2001 and 36.07% at September 30, 2001.
FHLB advances have increased by $4.8 million since December 31, 2001 as part of
the Bank's program to fund increases in interest earning assets.
Total capital at September 30, 2002 was $15.6 million, compared to $14.6 million
at December 31, 2001. The $950,000 increase was primarily due to net earnings
for the period and the allocation of ESOP shares, offset by cash dividends
declared.
13
Liquidity, Capital Resources and Market Risk
Sources of liquidity and capital for the Company on a stand-alone basis
primarily include distributions from the Bank. 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, mortgage-backed securities and investments, and advances from
the FHLB. While maturities and scheduled amortization of the Bank's loan
portfolio are relatively predictable sources of funds, deposit flows and
mortgage prepayments are influenced by changes in interest rates, economic
conditions and competitions. FHLB advances are the Bank's principal source of
liquidity in the event that other sources of liquidity are not available. At
September 30, 2002 and December 31, 2001, FHLB advances totaled $15.8 million
and $11.0 million, respectively.
Between December 31, 2001 and September 30, 2002 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-K for the year ended December 31, 2001, including the
Company's audited financial statements and the notes thereto included therein.
Stock Split and Cash Dividend Increase
The Company has announced a two-for-one stock split in the form of a stock
dividend of one new common share on each outstanding share of its common stock.
The dividend will be payable on November 30, 2002 to stockholders of record as
of November 15, 2002.
The Company has also announced its intention to increase the quarterly cash
dividend on its common stock from $0.05 per share to $0.075 per share based on
shares outstanding prior to the announced stock split. Accordingly, on a
post-split basis the cash dividend would increase from $0.025 to $0.0375 per
common share. The record date and the payment date for the next quarterly
dividend have not been determined and the amounts of any future dividends will
depend on the Board of Directors' assessment of the Company's financial
condition, capital requirements, projected results of operations and other
relevant considerations.
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.
14
Broadway Federal was in compliance with all capital requirements in effect at
September 30, 2002, and meets all standards necessary to be considered
"well-capitalized" under the prompt corrective action regulations adopted by the
OTS pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA). The following table reflects the required and actual regulatory
capital ratios of Broadway Federal at the date indicated:
Regulatory FDICIA Actual At
Regulatory Capital Ratios Minimum "Well-capitalized" September 30,
for Broadway Federal Requirement Requirement 2002
------------------------- ------------ ---------------- --------------
Tangible capital 1.50% N/A 7.31%
Core capital 4.00% 5.00% 7.31%
Risk-based capital 8.00% 10.00% 13.37%
Tier 1 Risk-based capital N/A 6.00% 12.13%
Item 3. DISCLOSURE CONTROLS AND PROCEDURES
As of September 30, 2002, 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 September 30, 2002. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to September 30, 2002.
PART II. OTHER INFORMATION
None.
15
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 2002 By: /s/ PAUL C. HUDSON
------------------
Paul C. Hudson
President and Chief Executive Officer
Broadway Financial Corporation
Date: November 14, 2002 /s/ ALVIN D. KANG
----------------
Alvin D. Kang
Chief Financial Officer
Broadway Financial Corporation
16
Section 302 Certification
I, Paul C. Hudson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Broadway Financial
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including the
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 By: /s/Paul C. Hudson
Paul C. Hudson
President and Chief Executive Officer
Broadway Financial Corporation
17
Section 302 Certification
I, Alvin D. Kang, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Broadway Financial
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including the
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 By:/s/Alvin D. Kang
Alvin D. Kang
Chief Financial Officer
Broadway Financial Corporation
18
Section 906 Certification
The following statement is provided by the undersigned to accompany the
foregoing Report on Form 10-QSB pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, and shall not be
deemed filed pursuant to any provision of the Exchange Act of 1934 or any other
securities law.
Each of the undersigned certifies that the foregoing Report on Form 10-QSB fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 (15 U.S.C. Section 78m) and that the information contained in the Form
10-QSB fairly presents, in all material respects, the financial condition and
results of operations of Broadway Financial Corporation as of and for the three
and nine months ended September 30, 2002.
Date: November 14, 2002
By: /s/Paul C. Hudson
Paul C. Hudson
President and Chief Executive Officer
Broadway Financial Corporation
By: /s/Alvin D. Kang
Alvin D. Kang
Chief Financial Officer
Broadway Financial Corporation
19