Broadway Financial Corporation Announces Results for Fourth Quarter and Full Year 2018
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 $275 thousand, or $0.01 per diluted share, for the fourth quarter of 2018 compared
to a net loss of $399 thousand, or ($0.01) per diluted share, for the fourth quarter of 2017. Results for the fourth quarter
of 2018 included a tax benefit of $208 thousand for low income tax credits. Results for the fourth quarter of 2017 included tax
expense of $519 thousand to adjust the Company’s deferred tax asset for the decrease in the federal corporate tax rate to 21% from
34% due to the enactment of the Tax Cuts and Jobs Act of 2017.
Pretax earnings for the fourth quarter of 2018 were $96 thousand compared to $244 thousand for the fourth quarter of 2017.
Results for the fourth quarter of 2018 included an increase of $104 thousand in loan loss provision recapture and a decrease of
$269 thousand in non-interest expense compared to the fourth quarter of 2017. These items were offset by lower net interest income
of $161 thousand and lower gain on sale of loans of $127 thousand in the fourth quarter of 2018 compared to the fourth quarter of
2017. Also, the Bank received a grant of $227 thousand from the U.S. Department of the Treasury’s Community Development Financial
Institutions (“CDFI”) Fund during the fourth quarter of 2017, while no grants were received during the fourth quarter of 2018.
For the year ended December 31, 2018, the Company reported net income of $815 thousand, or $0.03 per diluted share, compared to
$1.9 million, or $0.07 per diluted share for the year ended December 31, 2017. Pretax earnings were $871 thousand during calendar
year 2018, compared to $3.7 million in 2017. The lower pretax earnings during 2018 were attributable to a decrease of $1.6 million
in net interest income and a decrease of $1.7 million in non-interest income, partially offset by a decrease of $281 thousand in
non-interest expense and an increase of $154 thousand in loan loss provision recapture. Non-interest income for 2017 included an
insurance litigation settlement of $1.2 million and a higher gain on the sale of loans of $490 thousand. Non-interest expense
decreased for the year 2018 compared to 2017 because 2017 expenses included costs of $214 thousand associated with the U.S.
Treasury’s sale of a portion of its holdings of the Company’s shares. Also, professional services costs decreased by $63 thousand
in 2018 compared to 2017.
Chief Executive Officer, Wayne Bradshaw, commented, “I am pleased to announce that Broadway was profitable during the fourth
quarter of 2018 and the full calendar year, despite a difficult interest rate environment that has compressed net interest margins
for the banking industry. Furthermore, I am very pleased to report that the Bank had only one delinquent loan at year end, which
had a balance of just $35 thousand.”
“As of the start of 2019, we have capacity to increase our loan portfolio by approximately 19% under our current regulatory loan
concentration guidelines, which were increased during the final few months of the year. We continue to be focused on building our
loan portfolio with new multi-family loans and non-multi-family commercial real estate loans, including construction loans, which
typically generate superior margins to those earned from the Bank’s prime single-family residential loans. These types of loans
should generate improved economics for the Company, as the increase in the Bank’s portfolio of more profitable loans receivable
should increase total net interest income without requiring significant increases in operating expenses. As I have stated
previously, these types of loans also leverage our lending relationships and expertise, and continue Broadway’s focus on addressing
the unrelenting demand for affordable housing, particularly within the Bank’s target market of low to moderate income communities
in Southern California.”
“I wish to thank our team again for their dedication and tireless efforts to build value, and Broadway’s stockholders for their
continuing support of our mission and business plans.”
Net Interest Income
For the fourth quarter of 2018, net interest income decreased by $161 thousand compared to the same period a year ago, primarily
due to higher rates paid on deposits and borrowings, which outweighed increases in the average balance of loans receivable and the
rates earned on loans receivable and investments.
Interest income on loans receivable increased by $303 thousand for the fourth quarter of 2018 compared to the fourth quarter of
2017. The increase in interest income on loans receivable resulted from an increase of $22.4 million in the average balance of
loans receivable, which increased interest income by $219 thousand and an increase of 10 basis points in the yield on loans
receivable compared to the fourth quarter of 2017, which increased interest income by $84 thousand.
Interest income on securities decreased slightly to $100 thousand for the fourth quarter of 2018 from $101 thousand for the
fourth quarter of 2017 due to a decrease of $1.6 million in the average balance of securities, which offset an increase of 23 basis
points in the average yield on securities.
Other interest income decreased by $30 thousand for the fourth quarter of 2018 compared to the fourth quarter of 2017. The
decrease was primarily due to a decrease of $77 thousand in interest earned on interest-earning deposits, which reflected a decline
of $30.8 million in the average balance, offset by an increase of 85 basis points in the average rate earned. In addition, the Bank
received a special dividend of $47 thousand from the FHLB.
Interest expense on deposits increased by $336 thousand for the fourth quarter of 2018 compared to the fourth quarter of 2017.
The higher interest expense on deposits primarily resulted from an increase of 52 basis points in the average cost of deposits,
which increased interest expense by $373 thousand. This was offset by a $13.6 million decrease in the average deposit balance,
which decreased interest expense by $37 thousand.
Interest expense on borrowings increased by $97 thousand for the fourth quarter of 2018 compared to the fourth quarter of 2017.
Interest expense on borrowings reflected an increase of $3.9 million in average borrowings from the FHLB, which increased interest
expense by $20 thousand, and an increase of 36 basis points in the overall cost of borrowings, which increased interest expense by
$77 thousand.
For the year ended December 31, 2018, net interest income decreased by $1.6 million compared to the year ended December 31,
2017.
Interest income on loans receivable decreased by $1.1 million for the year ended December 31, 2018 compared to the same period a
year ago, primarily due to a decrease of $14.8 million in the average balance of loans receivable, which decreased interest income
by $588 thousand, and a decrease of 14 basis points in the average yield on loans receivable, which reduced loan interest income by
$530 thousand. The decrease in the average balance of loans receivable during 2018 reflected loan sales that the Bank completed in
the second half of 2017 and early 2018 to maintain compliance with the lower loan concentration limits that existed during that
period.
Interest income on securities increased by $95 thousand for the year ended December 31, 2018 compared to the prior year due to
an increase of $2.6 million in the average securities balance, which increased interest income by $66 thousand, and an increase of
21 basis points in the average yield on securities, which increased interest income by $29 thousand.
Other interest income decreased by $27 thousand for the year ended December 31, 2018 compared to the prior year, primarily
reflecting a decrease of $79 thousand in interest income from interest-earning deposits. Those deposits generated less income
because the average balance during the year was lower by $15.0 million, which decreased interest income by $232 thousand. This
decrease was partially offset by an increase of 68 basis points in the rate earned on interest-earning deposits, which increased
other interest income by $153 thousand. Dividends earned on FHLBSF stock increased by $52 thousand, primarily due to the $47
thousand special dividend received during the fourth quarter of 2018.
Interest expense on deposits increased by $691 thousand for the year ended December 31, 2018 compared to the prior year,
primarily due to an increase of 29 basis points in the average cost of deposits, which increased interest expense by $888 thousand.
This increase was partially offset by the effects of a decrease of $12.7 million in the average balance of deposits, which
decreased interest expense by $197 thousand.
Interest expense on borrowings decreased by $110 thousand for the year ended December 31, 2018 compared to the prior year,
primarily due to a decrease of $166 thousand in interest on FHLB advances. The interest expense on these advances decreased because
of a decrease of $14.6 million in the average balance of FHLB borrowings, which was partially offset by the impact of an increase
of 16 basis points in the average cost of FHLB borrowings. Interest expense on the Company’s subordinated debt increased by $56
thousand due to an increase of 110 basis points in rate.
Loan Loss Provision Recapture
The Bank recorded a loan loss provision recapture of $254 thousand for the fourth quarter of 2018 compared to a loan loss
provision recapture of $150 thousand for the fourth quarter of 2017. The loan loss provision recapture for the fourth quarter of
2018 was primarily due to the removal of a specific allowance of $183 thousand upon the payoff of an impaired loan. In addition,
the recapture in the fourth quarter of 2018 reflected continued improvement in the credit quality of the Bank’s loans due to
upgrades of non-performing church loans and improvement in historical loss factors.
For calendar year 2018, the Bank recorded a loan loss provision recapture of $1.3 million compared to $1.1 million for calendar
year 2017. The loan loss provision recapture for calendar year 2018 was due to the overall improvement in the loan portfolio, which
had a favorable impact on the environmental factors used in the Bank’s analysis of the allowance for loan and lease losses
(“ALLL”).
At December 31, 2018, the ALLL was $2.9 million, or 0.82% of our gross loans receivable held for investment, compared to $4.1
million, or 1.20% of our gross loans receivable held for investment at December 31, 2017. Due to a reduction in non-performing
loans from $1.8 million at the end of 2017 to $911 thousand at the end of 2018, ALLL, as a percentage of non-performing loans,
increased to 321.5% at the end 2018 from 230.4% at the end of 2017. Also, delinquent loans fell to $35 thousand at December 31,
2018 from $391 thousand at December 31, 2017, as substantially all of the Bank’s non-performing loans are current in payments.
Non-interest Income
Non-interest income for the fourth quarter of 2018 totaled $184 thousand compared to $544 thousand for the fourth quarter of
2017. The decrease in non-interest income of $360 thousand primarily reflected a lower gain on the sale of loans of $127 thousand
and a grant of $227 thousand received during the fourth quarter of 2017 from the CDFI Fund. No grant was received during the fourth
quarter of 2018.
For the year ended December 31, 2018, non-interest income totaled $865 thousand compared to $2.5 million for the same period a
year ago. The decrease of $1.7 million in non-interest income was primarily due to a one-time insurance litigation settlement of
$1.2 million received during 2017. In addition, gain on the sale of loans decreased by $490 thousand during the year 2018 compared
to 2017.
Non-interest Expense
Non-interest expense decreased to $2.8 million during the fourth quarter of 2018 from $3.1 million during the fourth quarter of
2017 primarily due to decreases in compensation costs of $221 thousand, professional services costs of $35 thousand, REO costs of
$34 thousand, and insurance costs of $19 thousand, partially offset by an increase in provisions for off-balance sheet items of $52
thousand. The decrease in compensation costs was primarily attributable to lower bonus accruals and lower stock-related costs.
Non-interest expense decreased to $11.6 million during calendar year 2018 from $11.8 million during calendar year 2017 primarily
because 2017 expenses included $214 thousand in costs associated with the sale of a portion of the U.S. Treasury’s holdings of the
Company’s shares. In addition, professional services costs decreased by $63 thousand, corporate insurance decreased by $49
thousand, and compensation expense decreased by $37 thousand during the year 2018 compared to 2017. These decreases were partially
offset by an increase in expenses of $88 thousand associated with the Bank’s one foreclosed property, which was sold in early
2019.
Income Taxes
The Company recorded an income tax benefit of $179 thousand for the fourth quarter of 2018 and income tax expense of $56
thousand for the year 2018. The tax benefit for the fourth quarter resulted from available tax credits of $208 thousand, partially
offset by a standard tax provision of $29 thousand. Income tax expense for the year 2018 resulted from a standard tax provision of
$261 thousand, offset by tax credits of $205 thousand.
The Company recorded income tax expense of $643 thousand for the fourth quarter of 2017 and income tax expense of $1.9 million
for the year of 2017. The tax expense for the fourth quarter and year 2017 included an adjustment of $519 thousand to record the
Company’s deferred tax assets at the lower federal corporate income tax rate of 21%.
The deferred tax asset totaled $5.0 million at December 31, 2018 and $5.1 million at December 31, 2017.
Balance Sheet Summary
Total assets decreased by $4.3 million to $409.4 million at December 31, 2018 from $413.7 million at December 31, 2017. The
decline in total assets was primarily due to a decrease of $16.1 million in loans receivable held for sale, a decrease of $5.9
million in interest-bearing deposits in other banks, and a decrease in securities available for sale of $2.8 million, offset by an
increase of $20.7 million in net loans receivable held for investment.
Loans receivable held for investment, net of the allowance for loan losses, totaled $355.6 million at December 31, 2018,
compared to $334.9 million at December 31, 2017.
During 2018, the Bank originated $99.0 million in new loans, $96.0 million of which were multi-family loans. Of the multi-family
loans originated, we allocated $75.8 million, or 79%, to loans held for investment and $20.2 million, or 21%, to loans held for
sale. In addition, during 2018, we transferred $16.9 million of loans to loans held for investment from loans held for sale. At the
end of the third quarter, the Bank received written non-objection from its primary regulator to the Bank’s request to increase its
concentration of multi-family residential loans, and subsequently, to increase its concentration of non-multifamily commercial real
estate loans, including the sublimit for commercial land/construction loans.
Loans receivable held for sale totaled $6.2 million as of December 31, 2018 compared to $22.4 million as of December 31, 2017.
The Bank originated $20.2 million in loans held for sale during 2018, transferred $16.9 million to loans held for investment, sold
$19.3 million in loans held for sale and received $159 thousand in loan repayments.
An REO, recorded at $878 thousand at the beginning of the year, was written down to $833 thousand during the first quarter of
2018 due to a decrease in fair value.
Deposits decreased by $9.9 million to $281.4 million at December 31, 2018 from $291.3 million at December 31, 2017, which
consisted of a decrease of $35.7 million in liquid deposits and an increase of $25.8 million in CDs. During 2018, one deposit
relationship of $25.0 million was moved to CDs from a money market account. Excluding this transfer, liquid deposits decreased by
$10.7 million and CDs increased by $775 thousand during 2018.
Total borrowings at December 31, 2018 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 $65.0 million and subordinated debentures
of $5.1 million at December 31, 2017. During 2018, the Bank paid off $27.5 million in maturing advances and borrowed $32.5 million
in new advances from the FHLB.
Stockholders' equity was $48.4 million, or 11.83% of the Company’s total assets, at December 31, 2018, compared to $47.7
million, or 11.54% of the Company’s total assets, at December 31, 2017. The Company’s book value was $1.77 per share as of December
31, 2018, compared to $1.74 per share as of December 31, 2017.
At December 31, 2018, the Bank’s Total Capital ratio (Total Capital to Total Risk-Weighted Assets) was 20.48% and its Leverage
ratio (Tier 1 Capital to Adjusted Total Assets) was 12.03%, compared to a Total Capital ratio of 19.88% and a Leverage ratio of
11.39% at December 31, 2017.
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, monetary
and fiscal policy 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) |
| |
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
December 31, 2017 |
|
| Selected Financial Condition Data and Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
|
|
|
$ |
16,651 |
|
|
|
$ |
22,219 |
|
|
| Securities available-for-sale, at fair value |
|
|
|
|
|
|
|
|
14,722 |
|
|
|
|
17,494 |
|
|
| Loans receivable held for sale |
|
|
|
|
|
|
|
|
6,231 |
|
|
|
|
22,370 |
|
|
| Loans receivable held for investment |
|
|
|
|
|
|
|
|
358,485 |
|
|
|
|
338,920 |
|
|
| Allowance for loan losses |
|
|
|
|
|
|
|
|
(2,929 |
) |
|
|
|
(4,069 |
) |
|
| Loans receivable held for investment, net of allowance |
|
|
|
|
|
355,556 |
|
|
|
|
334,851 |
|
|
| Total assets |
|
|
|
|
|
|
|
|
409,397 |
|
|
|
|
413,704 |
|
|
| Deposits |
|
|
|
|
|
|
|
|
281,414 |
|
|
|
|
291,290 |
|
|
| FHLB advances |
|
|
|
|
|
|
|
|
70,000 |
|
|
|
|
65,000 |
|
|
| Junior subordinated debentures |
|
|
|
|
|
|
|
|
5,100 |
|
|
|
|
5,100 |
|
|
| Total stockholders' equity |
|
|
|
|
|
|
|
|
48,436 |
|
|
|
|
47,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Book value per share |
|
|
|
|
|
|
|
$ |
1.77 |
|
|
|
$ |
1.74 |
|
|
| Equity to total assets |
|
|
|
|
|
|
|
|
11.83 |
% |
|
|
|
11.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
| Non-accrual loans to total loans |
|
|
|
|
|
|
|
|
0.25 |
% |
|
|
|
0.49 |
% |
|
| Non-performing assets to total assets |
|
|
|
|
|
|
|
|
0.43 |
% |
|
|
|
0.64 |
% |
|
| Allowance for loan losses to total gross loans |
|
|
|
|
|
|
|
|
0.82 |
% |
|
|
|
1.20 |
% |
|
| Allowance for loan losses to total delinquent loans |
|
|
|
|
|
|
|
|
8368.57 |
% |
|
|
|
1040.66 |
% |
|
| Allowance for loan losses to non-performing loans |
|
|
|
|
|
|
|
|
321.51 |
% |
|
|
|
230.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-Performing Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Non-accrual loans |
|
|
|
|
|
|
|
$ |
911 |
|
|
|
$ |
1,766 |
|
|
| Loans delinquent 90 days or more and still accruing |
|
|
|
|
|
|
|
|
- |
|
|
|
|
- |
|
|
| Real estate acquired through foreclosure |
|
|
|
|
|
|
|
|
833 |
|
|
|
|
878 |
|
|
| Total non-performing assets |
|
|
|
|
|
|
|
$ |
1,744 |
|
|
|
$ |
2,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
Twelve Months Ended December 31, |
|
| Selected Operating Data and Ratios: |
|
|
2018 |
|
|
|
|
2017 |
|
|
|
|
2018 |
|
|
|
|
2017 |
|
|
| Interest income |
|
$ |
3,942 |
|
|
|
$ |
3,670 |
|
|
|
$ |
15,237 |
|
|
|
$ |
16,287 |
|
|
| Interest expense |
|
|
1,484 |
|
|
|
|
1,051 |
|
|
|
|
4,929 |
|
|
|
|
4,348 |
|
|
| Net interest income |
|
|
2,458 |
|
|
|
|
2,619 |
|
|
|
|
10,308 |
|
|
|
|
11,939 |
|
|
| Loan loss provision recapture |
|
|
254 |
|
|
|
|
150 |
|
|
|
|
1,254 |
|
|
|
|
1,100 |
|
|
| Net interest income after loan loss provision recapture |
|
|
2,712 |
|
|
|
|
2,769 |
|
|
|
|
11,562 |
|
|
|
|
13,039 |
|
|
| Non-interest income |
|
|
184 |
|
|
|
|
544 |
|
|
|
|
865 |
|
|
|
|
2,530 |
|
|
| Non-interest expense |
|
|
(2,800 |
) |
|
|
|
(3,069 |
) |
|
|
|
(11,556 |
) |
|
|
|
(11,837 |
) |
|
| Income before income taxes |
|
|
96 |
|
|
|
|
244 |
|
|
|
|
871 |
|
|
|
|
3,732 |
|
|
| Income tax expense |
|
|
(179 |
) |
|
|
|
643 |
|
|
|
|
56 |
|
|
|
|
1,863 |
|
|
| Net income |
|
$ |
275 |
|
|
|
$ |
(399 |
) |
|
|
$ |
815 |
|
|
|
$ |
1,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per common share-diluted |
|
$ |
0.01 |
|
|
|
$ |
(0.01 |
) |
|
|
$ |
0.03 |
|
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan originations (1) |
|
$ |
21,170 |
|
|
|
$ |
16,008 |
|
(3 |
) |
|
$ |
98,960 |
|
(2 |
) |
|
$ |
115,428 |
|
(3 |
) |
| Loan purchase |
|
|
|
|
$ |
24,640 |
|
|
|
$ |
- |
|
|
|
$ |
24,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net recoveries to average loans |
|
|
(0.00 |
)% |
(4 |
) |
|
|
(0.01 |
)% |
(4 |
) |
|
|
(0.03 |
)% |
(4 |
) |
|
|
(0.15 |
)% |
(4 |
) |
| Return on average assets |
|
|
0.27 |
% |
(4 |
) |
|
|
-0.38 |
% |
(4 |
) |
|
|
0.20 |
% |
(4 |
) |
|
|
0.43 |
% |
(4 |
) |
| Return on average equity |
|
|
2.29 |
% |
(4 |
) |
|
|
-3.32 |
% |
(4 |
) |
|
|
1.71 |
% |
(4 |
) |
|
|
3.96 |
% |
(4 |
) |
| Net interest margin |
|
|
2.43 |
% |
(4 |
) |
|
|
2.53 |
% |
(4 |
) |
|
|
2.57 |
% |
(4 |
) |
|
|
2.79 |
% |
(4 |
) |
|
|
|
|
|
|
| (1) |
|
Does not include net deferred origination costs. |
| (2) |
|
Includes loans held for sale originations of $20.2 million for the twelve months
ended December 31, 2018. |
| (3) |
|
Includes loans held for sale originations of $15.7 million and $110.4 million for the
three and twelve months ended December 31, 2017, respectively. |
| (4) |
|
Annualized |
Brenda J. Battey, Chief Financial Officer
(323) 556-3264
investor.relations@broadwayfederalbank.com
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