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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

(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, 2016

 

[  ]                              TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For transition period from__________ to___________

 

Commission file number      000-27464

 

BROADWAY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

95-4547287

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

5055 Wilshire Boulevard, Suite 500

Los Angeles, California

90036

(Address of principal executive offices)

(Zip Code)

 

(323) 634-1700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]  No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer [   ]   Accelerated Filer [   ]   Non-Accelerated Filer [   ]   Smaller Reporting Company [ X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]   No [ X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of November 7, 2016, 21,405,188 shares of the Registrant’s voting common stock and 7,671,520 shares of the Registrant’s non-voting common stock were outstanding.

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition as of September 30, 2016 and December 31, 2015

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2016 and 2015

 

2

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2016 and 2015

 

3

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

4

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

28

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

29

 

 

 

 

 

 

Item 1A.

Risk Factors

 

29

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

29

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

29

 

 

 

 

 

 

Item 5.

Other Information

 

29

 

 

 

 

 

 

Item 6.

Exhibits

 

29

 

 

 

 

 

 

Signatures

 

 

30

 



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

September 30,
2016

 

 

December 31,
2015

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,721

 

 

$

5,104

 

Federal funds

 

30,560

 

 

62,735

 

Cash and cash equivalents

 

38,281

 

 

67,839

 

Securities available-for-sale, at fair value

 

14,336

 

 

14,140

 

Loans receivable held for investment, net of allowance of $4,597 and $4,828, respectively

 

344,733

 

 

304,171

 

Accrued interest receivable

 

1,100

 

 

1,077

 

Federal Home Loan Bank (FHLB) stock

 

2,573

 

 

2,573

 

Office properties and equipment, net

 

2,428

 

 

2,570

 

Real estate owned (REO)

 

-

 

 

360

 

Bank owned life insurance

 

2,926

 

 

2,882

 

Investment in affordable housing limited partnership

 

780

 

 

925

 

Deferred tax assets, net

 

4,564

 

 

4,594

 

Other assets

 

1,652

 

 

1,781

 

Total assets

 

$

413,373

 

 

$

402,912

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits

 

$

285,098

 

 

$

272,614

 

FHLB advances

 

70,000

 

 

72,000

 

Junior subordinated debentures

 

5,100

 

 

5,100

 

Advance payments by borrowers for taxes and insurance

 

1,065

 

 

663

 

Accrued expenses and other liabilities

 

4,589

 

 

6,372

 

Total liabilities

 

365,852

 

 

356,749

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued or outstanding

 

-

 

 

-

 

Common stock, $.01 par value, voting, authorized 50,000,000 shares at September 30, 2016 and December 31, 2015; issued 21,509,179 shares at September 30, 2016 and December 31, 2015; outstanding 21,405,188 shares at September 30, 2016 and December 31, 2015

 

215

 

 

215

 

Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at September 30, 2016 and December 31, 2015; issued and outstanding 7,671,520 shares at September 30, 2016 and December 31, 2015

 

77

 

 

77

 

Additional paid-in capital

 

44,692

 

 

44,669

 

Retained earnings

 

3,812

 

 

2,533

 

Accumulated other comprehensive income (loss)

 

54

 

 

(2

)

Treasury stock-at cost, 103,991 shares

 

(1,329

)

 

(1,329

)

Total stockholders’ equity

 

47,521

 

 

46,163

 

Total liabilities and stockholders’ equity

 

$

413,373

 

 

$

402,912

 

 

See accompanying notes to unaudited consolidated financial statements.

 

1



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans receivable

 

$

3,835

 

 

$

3,524

 

 

$

10,855

 

 

$

11,027

 

Interest on mortgage-backed and other securities

 

80

 

 

84

 

 

247

 

 

268

 

Other interest income

 

98

 

 

121

 

 

299

 

 

451

 

Total interest income

 

4,013

 

 

3,729

 

 

11,401

 

 

11,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

568

 

 

485

 

 

1,596

 

 

1,335

 

Interest on borrowings

 

419

 

 

446

 

 

1,267

 

 

1,513

 

Total 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:

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

119

 

 

117

 

 

365

 

 

325

 

Net gain on sale of loans

 

-

 

 

738

 

 

-

 

 

1,252

 

CDFI grant

 

-

 

 

-

 

 

265

 

 

355

 

Other

 

25

 

 

62

 

 

256

 

 

120

 

Total non-interest income

 

144

 

 

917

 

 

886

 

 

2,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

1,729

 

 

1,765

 

 

5,341

 

 

5,203

 

Occupancy expense

 

301

 

 

312

 

 

883

 

 

898

 

Information services

 

199

 

 

222

 

 

585

 

 

684

 

Professional services

 

170

 

 

209

 

 

617

 

 

687

 

Office services and supplies

 

74

 

 

68

 

 

216

 

 

228

 

FDIC assessments

 

68

 

 

122

 

 

151

 

 

297

 

Corporate insurance

 

46

 

 

71

 

 

188

 

 

267

 

Other

 

256

 

 

159

 

 

712

 

 

940

 

Total 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available-for-sale arising during the period

 

$

(68

)

 

$

21

 

 

$

95

 

 

$

(40

)

Income tax

 

(28

)

 

-

 

 

39

 

 

-

 

Other comprehensive income (loss), net of tax

 

(40

)

 

21

 

 

56

 

 

(40

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

287

 

 

$

1,000

 

 

$

1,335

 

 

$

3,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share-basic

 

$

0.01

 

 

$

0.03

 

 

$

0.04

 

 

$

0.12

 

Earnings per common share-diluted

 

$

0.01

 

 

$

0.03

 

 

$

0.04

 

 

$

0.12

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,279

 

 

$

3,430

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Loan loss provision recapture

 

(550

)

 

(1,700

)

Provision for losses on REOs

 

-

 

 

121

 

Depreciation

 

187

 

 

177

 

Net amortization of deferred loan origination costs

 

223

 

 

214

 

Net amortization of premiums on mortgage-backed securities

 

38

 

 

42

 

Amortization of investment in affordable housing limited partnership

 

145

 

 

144

 

Stock-based compensation expense

 

23

 

 

-

 

Earnings on bank owned life insurance

 

(44

)

 

(46

)

Originations of for-sale loans receivable

 

-

 

 

(57,635

)

Proceeds from for-sale loans receivable

 

-

 

 

45,518

 

Net gain on sale of loans

 

-

 

 

(1,252

)

Net gain on sale of REOs

 

(22

)

 

(75

)

Deferred income tax benefit

 

(8

)

 

-

 

Net change in accrued interest receivable

 

(23

)

 

253

 

Net change in other assets

 

129

 

 

642

 

Net change in advance payments by borrowers for taxes and insurance

 

402

 

 

421

 

Net change in accrued expenses and other liabilities

 

(1,783

)

 

679

 

Net cash used in operating activities

 

(4

)

 

(9,067

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in loans receivable held for investment

 

(40,235

)

 

(12,374

)

Proceeds from sales of loans receivable transferred to held-for-sale

 

-

 

 

95,923

 

Principal repayments on loans receivable transferred to held-for-sale

 

-

 

 

544

 

Purchase of available-for-sale securities

 

(2,505

)

 

-

 

Prepayments and amortizations on available-for-sale securities

 

2,365

 

 

2,197

 

Proceeds from sales of REO

 

382

 

 

2,321

 

Redemption of FHLB stock

 

-

 

 

1,869

 

Purchase of FHLB stock

 

-

 

 

(188

)

Additions to office properties and equipment

 

(45

)

 

(88

)

Net cash (used in) provided by investing activities

 

(40,038

)

 

90,204

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in deposits

 

12,484

 

 

57,054

 

Proceeds from FHLB advances

 

-

 

 

21,000

 

Repayments of FHLB advances

 

(2,000

)

 

(29,500

)

Net cash provided by financing activities

 

10,484

 

 

48,554

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(29,558

)

 

129,691

 

Cash and cash equivalents at beginning of the period

 

67,839

 

 

20,790

 

Cash and cash equivalents at end of the period

 

$

38,281

 

 

$

150,481

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

2,835

 

 

$

2,866

 

Cash paid for income taxes

 

8

 

 

2

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

Transfers of loans receivable held for investment to REO

 

$

-

 

 

$

843

 

Transfers of loans receivable held for investment to loans receivable held for sale

 

$

-

 

 

$

91,562

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

September 30, 2016

 

 

NOTE (1) – Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the “Bank”).  Also included in the unaudited consolidated financial statements is Broadway Service Corporation, a wholly owned subsidiary of the Bank.  All significant intercompany balances and transactions have been eliminated in consolidation.

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q.  These unaudited 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-K for the year ended December 31, 2015 and, accordingly, should be read in conjunction with such audited consolidated financial statements.  In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.  Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

Some items in the consolidated financial statements for the prior period were reclassified to conform to the current presentation.  Reclassifications had no effect on prior period consolidated net income or stockholders’ equity.

 

Recent Accounting Pronouncements

 

In January 2016, the FASB issued ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities”.  ASU 2016-1 (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale.  For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued are permitted as of the beginning of the fiscal year of adoption.  Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”.  Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases, as defined) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.  Under the new guidance, lessor accounting is largely unchanged.  Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted.  Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.  The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

 

4



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.  ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements.  The areas for simplification include income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows.  ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.  ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.  Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.  Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.  Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public business entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  Early adoption is permitted.  The Company has not yet determined the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

 

NOTE (2)  Earnings Per Share of Common Stock

 

Basic earnings per share of common stock is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period.  Diluted earnings per share of common stock is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period, increased for the dilutive effect of common stock equivalents.

 

The following table shows how the Company computed basic and diluted earnings per share of common stock for the periods indicated:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(Dollars in thousands, except per share)

 

Basic

 

 

 

 

 

 

 

 

 

Net income

 

  $

327

 

  $

979

 

  $

1,279

 

  $

3,430

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

29,076,708

 

29,076,708

 

29,076,708

 

29,076,708

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

  $

0.01

 

  $

0.03

 

  $

0.04

 

  $

0.12

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

Net income

 

  $

327

 

  $

979

 

  $

1,279

 

  $

3,430

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

29,076,708

 

29,076,708

 

29,076,708

 

29,076,708

 

Add: dilutive effects of assumed exercises of stock options

 

-

 

-

 

-

 

-

 

Weighted average common shares - fully dilutive

 

29,076,708

 

29,076,708

 

29,076,708

 

29,076,708

 

Earnings per common share - diluted

 

  $

0.01

 

  $

0.03

 

  $

0.04

 

  $

0.12

 

 

5



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

Stock options for 540,625 shares of common stock for the three and nine months ended September 30, 2016 and for 90,625 shares of common stock for the three and nine months ended September 30, 2015 were not considered in computing diluted earnings per common share, because they were anti-dilutive.

 

NOTE (3) – Securities

 

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios as of the periods indicated and the corresponding amounts of unrealized gains and losses which are recognized in accumulated other comprehensive income (loss):

 

 

 

Amortized Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In thousands)

 

September 30, 2016:

 

 

 

 

 

 

 

 

 

Residential mortgage-backed

 

    $

11,887

 

    $

435   

 

    $

-   

 

    $

12,322   

 

U.S. Government and federal agency

 

1,956

 

58   

 

-   

 

2,014   

 

Total available-for-sale securities

 

    $

13,843

 

    $

493   

 

    $

-   

 

    $

14,336   

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

Residential mortgage-backed

 

    $

11,796

 

    $

371   

 

    $

-   

 

    $

12,167   

 

U.S. Government and federal agency

 

1,946

 

27   

 

-   

 

1,973   

 

Total available-for-sale securities

 

    $

13,742

 

    $

398   

 

    $

-   

 

    $

14,140   

 

 

At September 30, 2016, the Bank had one U.S. Government and federal agency security with an amortized cost of $2.0 million, an estimated fair value of $2.0 million and a contractual maturity of October 2, 2019.   At September 30, 2016, the Bank had 25 residential mortgage-backed securities with an amortized cost of $11.9 million, an estimated fair value of $12.3 million and an estimated average remaining life of 4.0 years.  Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

At September 30, 2016 and December 31, 2015, securities pledged to secure public deposits had a carrying amount of $636 thousand and $719 thousand, respectively.  At September 30, 2016 and December 31, 2015, there were no holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

There were no sales of securities during the three and nine months ended September 30, 2016 and 2015.

 

6



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

NOTE (4) – Loans Receivable Held for Investment

 

Loans receivable held for investment were as follows as of the periods indicated:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

Single family (1)

 

$  

109,992

 

$  

130,891

 

Multi-family

 

189,748

 

118,616

 

Commercial real estate

 

8,965

 

11,442

 

Church

 

38,443

 

46,390

 

Construction

 

308

 

343

 

Commercial – other

 

309

 

270

 

Consumer

 

9

 

4

 

Gross loans receivable before deferred loan costs and premiums

 

347,774

 

307,956

 

Unamortized net deferred loan costs and premiums

 

1,556

 

1,043

 

Gross loans receivable

 

349,330

 

308,999

 

Allowance for loan losses

 

(4,597)

 

(4,828)

 

Loans receivable, net

 

$  

344,733

 

$  

304,171

 

 

__

(1)             Includes $85.2 million and $99.5 million of non-impaired purchased loans at September 30, 2016 and December 31, 2015, respectively.

 

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

 

 

 

Three Months Ended September 30, 2016

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

441 

 

 $

2,247 

 

 $

240 

 

 $

1,596

 

 $

3

 

 $

17

 

 $

 

 $

4,545 

Provision for (recapture of) loan losses

 

(68)

 

200 

 

 

(133)

 

-

 

(1)

 

 

-  

Recoveries

 

47

 

 

 

4

 

-

 

1

 

 

52 

Loans charged off

 

-

 

 

 

-

 

-

 

-

 

 

-  

Ending balance

 

  $

420 

 

 $

2,447

 

 $

242

 

 $

1,467

 

 $

3

 

 $

17

 

 $

 

 $

4,597 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

597 

 

 $

1,658 

 

 $

469 

 

 $

2,083 

 

 $

 3 

 

 $

18 

 

 $

 

 $

4,828 

Provision for (recapture of) loan losses

 

(224)

 

789

 

(475)

 

(632)

 

 

(9)

 

 

(550)

Recoveries

 

47 

 

 

248 

 

16 

 

 

 

 

319 

Loans charged off

 

 

 

 

 

 

 

 

Ending balance

 

  $

420

 

 $

2,447 

 

 $

242

 

 $

1,467 

 

 $

 3 

 

 $

17 

 

 $

 

 $

4,597 

 

7



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

 

Three Months Ended September 30, 2015

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

1,150

 

 $

1,845

 

 $

404

 

 $

3,508

 

 $

4

 

 $

12

 

 $

-

 

 $

6,923

Provision for (recapture of) loan losses

 

(189)

 

135

 

75

 

(221)

 

-

 

-

 

-

 

(200)

Recoveries

 

-

 

-

 

-

 

5

 

-

 

-

 

-

 

5

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

961

 

 $

1,980

 

 $

479

 

 $

3,292

 

 $

4

 

 $

12

 

 $

-

 

 $

6,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

1,174

 

 $

2,726

 

 $

496

 

 $

4,047

 

 $

7

 

 $

12

 

 $

3

 

 $

8,465

Provision for (recapture of) loan losses

 

(210)

 

(746)

 

(17)

 

(721)

 

(3)

 

-

 

(3)

 

(1,700)

Recoveries

 

-

 

-

 

-

 

16

 

-

 

-

 

-

 

16

Loans charged off

 

(3)

 

-

 

-

 

(50)

 

-

 

-

 

-

 

(53)

Ending balance

 

  $

961

 

 $

1,980

 

 $

479

 

 $

3,292

 

 $

4

 

 $

12

 

 $

-

 

 $

6,728

 

The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of and for the periods indicated:

 

 

 

September 30, 2016

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

  $

127

 

 $

1

 

 $

-

 

 $

535

 

 $

-

 

 $

15

 

 $

-

 

 $

678

Collectively evaluated for impairment

 

293

 

2,446

 

242

 

932

 

3

 

2

 

1

 

3,919

Total ending allowance balance

 

  $

420

 

 $

2,447

 

 $

242

 

 $

1,467

 

 $

3

 

 $

17

 

 $

1

 

 $

4,597

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

  $

649

 

 $

647

 

 $

-

 

 $

10,692

 

 $

-

 

 $

66

 

 $

-

 

 $

12,054

Loans collectively evaluated for impairment

 

109,908

 

190,690

 

8,972

 

27,146

 

308

 

243

 

9

 

337,276

Total ending loans balance

 

  $

110,557

 

 $

191,337

 

 $

8,972

 

 $

37,838

 

 $

308

 

 $

309

 

 $

9

 

 $

349,330

 

8



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

 

December 31, 2015

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

  $

134

 

  $

1

 

  $

88

 

  $

756

 

  $

-

 

  $

16

 

$

-

 

  $

995

Collectively evaluated for impairment

 

463

 

1,657

 

381

 

1,327

 

3

 

2

 

-

 

3,833

Total ending allowance balance

 

  $

597

 

  $

1,658

 

  $

469

 

  $

2,083

 

  $

3

 

  $

18

 

$

-

 

  $

4,828

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

  $

963

 

  $

1,440

 

  $

1,924

 

  $

11,390

 

  $

-

 

  $

67

 

  $

-

 

  $

15,784

Loans collectively evaluated for impairment

 

130,632

 

118,186

 

9,488

 

34,359

 

343

 

203

 

4

 

293,215

Total ending loans balance

 

  $

131,595

 

  $

119,626

 

  $

11,412

 

  $

45,749

 

  $

343

 

$

270

 

  $

4

 

  $

308,999

 

The following table presents information related to loans individually evaluated for impairment by loan type as of the periods indicated:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses
Allocated

 

 

 

(In thousands)

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

-

 

$

-

 

$

-

 

$

877

 

$

302

 

$

-

 

Multi-family

 

302

 

302

 

-

 

912

 

779

 

-

 

Commercial real estate

 

-

 

-

 

-

 

636

 

259

 

-

 

Church

 

5,980

 

3,693

 

-

 

5,615

 

3,542

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

649

 

649

 

127

 

662

 

661

 

134

 

Multi-family

 

345

 

345

 

1

 

661

 

661

 

1

 

Commercial real estate

 

-

 

-

 

-

 

1,702

 

1,665

 

88

 

Church

 

7,377

 

6,999

 

535

 

8,245

 

7,848

 

756

 

Commercial -other

 

66

 

66

 

15

 

67

 

67

 

16

 

Total

 

$

14,719

 

$

12,054

 

$

678

 

$

19,377

 

$

15,784

 

$

995

 

 

The recorded investment in loans excludes accrued interest receivable due to immateriality.  For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

 

9



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated.

 

 

 

Three Months Ended September 30, 2016

 

Nine Months Ended September 30, 2016

 

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

 

(In thousands)

Single family

 

 

$

780

 

 

 

$

232

 

 

 

$

878

 

 

 

$

246

 

Multi-family

 

 

804

 

 

 

92

 

 

 

997

 

 

 

144

 

Commercial real estate

 

 

425

 

 

 

4

 

 

 

1,277

 

 

 

271

 

Church

 

 

10,766

 

 

 

122

 

 

 

10,966

 

 

 

369

 

Commercial -other

 

 

66

 

 

 

2

 

 

 

66

 

 

 

4

 

Total

 

 

$

12,841

 

 

 

$

452

 

 

 

$

14,184

 

 

 

$

1,034

 

 

 

 

Three Months Ended September 30, 2015

 

Nine Months Ended September 30, 2015

 

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

 

(In thousands)

Single family

 

 

$

1,239

 

 

 

$

42

 

 

 

$

1,317

 

 

 

$

57

 

Multi-family

 

 

1,461

 

 

 

10

 

 

 

2,051

 

 

 

125

 

Commercial real estate

 

 

2,766

 

 

 

56

 

 

 

3,375

 

 

 

217

 

Church

 

 

13,410

 

 

 

174

 

 

 

13,841

 

 

 

460

 

Commercial -other

 

 

73

 

 

 

1

 

 

 

83

 

 

 

4

 

Total

 

 

$

18,949

 

 

 

$

283

 

 

 

$

20,667

 

 

 

$

863

 

 

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans.  Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible.

 

The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:

 

 

 

September 30, 2016

 

 

30-59
Days

Past Due

 

60-89
Days
Past Due

 

Greater than
90 Days
Past Due

 

Total
Past Due

 

Current

 

 

(In thousands)

Loans receivable held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

 

$

-

 

 

 

$

-

 

 

 

$

-

 

 

 

$

-

 

 

 

$

110,557

 

Multi-family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

191,337

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,972

 

Church

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,838

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

308

 

Commercial - other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

309

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9

 

Total

 

 

$

-

 

 

 

$

-

 

 

 

$

-

 

 

 

$

-

 

 

 

$

349,330

 

 

10



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

 

 

December 31, 2015

 

 

30-59
Days
Past Due

 

60-89
Days
Past Due

 

Greater than
90 Days
Past Due

 

Total
Past Due

 

Current

 

 

(In thousands)

Loans receivable held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

 

$

103

 

 

 

$

-

 

 

 

$

-

 

 

 

$

103

 

 

 

$

131,492

 

Multi-family

 

 

291

 

 

 

-

 

 

 

-

 

 

 

291

 

 

 

119,335

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,412

 

Church

 

 

595

 

 

 

-

 

 

 

456

 

 

 

1,051

 

 

 

44,698

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

343

 

Commercial - other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

270

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

Total

 

 

$

989

 

 

 

$

-

 

 

 

$

456

 

 

 

$

1,445

 

 

 

$

307,554

 

 

The following table presents the recorded investment in non-accrual loans by loan type as of the periods indicated:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

(In thousands)

Loans receivable held for investment:

 

 

 

 

 

 

 

 

 

 

Single family

 

 

$

-

 

 

 

$

302

 

Multi-family

 

 

-

 

 

 

779

 

Commercial real estate

 

 

-

 

 

 

259

 

Church

 

 

3,045

 

 

 

2,887

 

Total non-accrual loans

 

 

$

3,045

 

 

 

$

4,227

 

 

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2016 or December 31, 2015.

 

Troubled Debt Restructurings

 

At September 30, 2016, loans classified as troubled debt restructurings (“TDRs”) totaled $11.6 million, of which $2.6 million were included in non-accrual loans and $9.0 million were on accrual status.  At December 31, 2015, loans classified as TDRs totaled $15.3 million, of which $3.8 million were included in non-accrual loans and $11.5 million were on accrual status.  The Company has allocated $678 thousand and $995 thousand of specific reserves for accruing TDRs as of September 30, 2016 and December 31, 2015, respectively.  TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest.  TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified.  A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required.  As of September 30, 2016 and December 31, 2015, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  No loans were modified during the three and nine months ended September 30, 2016 and 2015.

 

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Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

Credit Quality Indicators

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  For single family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance.  Information about payment status is disclosed elsewhere herein.  The Company analyzes all other loans individually by classifying the loans as to credit risk.  This analysis is performed at least on a quarterly basis.  The Company uses the following definitions for risk ratings:

 

·                  Watch.  Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors.  Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists but correction is anticipated within an acceptable time frame.

 

·                  Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

·                  Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

·                  Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

·                  Loss.  Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral.  Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms.  Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:

 

 

 

September 30, 2016

 

 

 

Pass

 

Watch

 

Special Mention

 

Substandard

 

Doubtful

 

Loss

 

 

 

(In thousands)

 

Single family

 

  $

110,429

 

  $

 -

 

  $

128

 

  $

-

 

  $

 -

 

  $

 -

 

Multi-family

 

189,681

 

-

 

345

 

1,311

 

-

 

-

 

Commercial real estate

 

7,011

 

-

 

-

 

1,961

 

-

 

-

 

Church

 

28,470

 

717

 

827

 

7,824

 

-

 

-

 

Construction

 

308

 

-

 

-

 

-

 

-

 

-

 

Commercial - other

 

243

 

-

 

-