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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, 2017

 

[  ]       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     o

 

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     o

 

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

 

Large accelerated filer

 

o

 

Accelerated filer

o

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

x

 

 

 

 

 

 

 

 

 

 

Emerging growth company

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     o

 

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

Yes     o    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 3, 2017, 18,694,823 shares of the Registrant’s voting common stock and 8,756,396 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, 2017 and December 31, 2016

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

 

2

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

 

3

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

4

 

 

 

 

 

 

Item 2.

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

 

22

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 

 

 

 

 

 

Item 5.

Other Information

 

31

 

 

 

 

 

 

Item 6.

Exhibits

 

31

 

 

 

 

 

 

Signatures

 

 

32

 



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

 

 

 

September 30, 2017

 

December 31, 2016

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

2,166

 

 

$

1,516

 

Interest-bearing deposits in other banks

 

66,179

 

 

16,914

 

Cash and cash equivalents

 

68,345

 

 

18,430

 

Securities available-for-sale, at fair value

 

11,474

 

 

13,202

 

Loans receivable held for sale, at lower of cost or fair value

 

22,521

 

 

-

 

Loans receivable held for investment, net of allowance of $4,213 and $4,603, respectively

 

320,522

 

 

379,454

 

Accrued interest receivable

 

1,113

 

 

1,178

 

Federal Home Loan Bank (FHLB) stock

 

2,916

 

 

2,573

 

Office properties and equipment, net

 

2,462

 

 

2,479

 

Bank owned life insurance

 

2,981

 

 

2,940

 

Deferred tax assets, net

 

5,696

 

 

6,907

 

Real estate owned (REO)

 

958

 

 

-

 

Other assets

 

1,664

 

 

1,920

 

Total assets

 

$

440,652

 

 

$

429,083

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits

 

$

294,920

 

 

$

287,427

 

FHLB advances

 

86,000

 

 

85,000

 

Junior subordinated debentures

 

5,100

 

 

5,100

 

Advance payments by borrowers for taxes and insurance

 

1,537

 

 

828

 

Accrued expenses and other liabilities

 

4,980

 

 

5,202

 

Total liabilities

 

392,537

 

 

383,557

 

 

 

 

 

 

 

 

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, 2017 and December 31, 2016; issued 21,312,649 shares at September 30, 2017 and 21,282,647 shares at December 31, 2016; outstanding 18,694,823 shares at September 30, 2017 and 18,664,821 shares at December 31, 2016

 

213

 

 

212

 

Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at September 30, 2017 and December 31, 2016; issued and outstanding 8,756,396 shares at September 30, 2017 and December 31, 2016

 

87

 

 

87

 

Additional paid-in capital

 

46,073

 

 

45,819

 

Retained earnings

 

8,281

 

 

6,013

 

Unearned Employee Stock Ownership Plan (ESOP) shares

 

(1,112

)

 

(1,176

)

Accumulated other comprehensive income (loss)

 

(101

)

 

(103

)

Treasury stock-at cost, 2,617,826 shares at September 30, 2017 and December 31, 2016

 

(5,326

)

 

(5,326

)

Total stockholders’ equity

 

48,115

 

 

45,526

 

Total liabilities and stockholders’ equity

 

$

440,652

 

 

$

429,083

 

 

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,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans receivable

 

$

4,127

 

 

$

3,835

 

 

$

12,035

 

 

$

10,855

 

Interest on mortgage-backed and other securities

 

69

 

 

80

 

 

217

 

 

247

 

Other interest income

 

148

 

 

98

 

 

365

 

 

299

 

Total interest income

 

4,344

 

 

4,013

 

 

12,617

 

 

11,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

611

 

 

568

 

 

1,782

 

 

1,596

 

Interest on borrowings

 

494

 

 

419

 

 

1,515

 

 

1,267

 

Total interest expense

 

1,105

 

 

987

 

 

3,297

 

 

2,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

3,239

 

 

3,026

 

 

9,320

 

 

8,538

 

Loan loss provision recapture

 

300

 

 

-

 

 

950

 

 

550

 

Net interest income after loan loss provision recapture

 

3,539

 

 

3,026

 

 

10,270

 

 

9,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

117

 

 

119

 

 

338

 

 

365

 

Gain on sale of loans

 

160

 

 

-

 

 

383

 

 

-

 

CDFI grant

 

-

 

 

-

 

 

-

 

 

265

 

Income from litigation settlement

 

-

 

 

-

 

 

1,183

 

 

-

 

Other

 

28

 

 

25

 

 

82

 

 

256

 

Total non-interest income

 

305

 

 

144

 

 

1,986

 

 

886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

1,878

 

 

1,729

 

 

5,193

 

 

5,341

 

Occupancy expense

 

333

 

 

301

 

 

953

 

 

883

 

Information services

 

202

 

 

199

 

 

610

 

 

585

 

Professional services

 

120

 

 

170

 

 

525

 

 

617

 

Office services and supplies

 

72

 

 

74

 

 

225

 

 

216

 

FDIC assessments

 

34

 

 

68

 

 

118

 

 

151

 

Other

 

418

 

 

302

 

 

1,144

 

 

900

 

Total non-interest expense

 

3,057

 

 

2,843

 

 

8,768

 

 

8,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

787

 

 

327

 

 

3,488

 

 

1,281

 

Income taxes

 

284

 

 

-

 

 

1,220

 

 

2

 

Net income

 

$

503

 

 

$

327

 

 

$

2,268

 

 

$

1,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

-

 

 

$

(68

)

 

$

3

 

 

$

95

 

Income tax

 

-

 

 

(28

)

 

1

 

 

39

 

Other comprehensive income (loss), net of tax

 

-

 

 

(40

)

 

2

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

503

 

 

$

287

 

 

$

2,270

 

 

$

1,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share-basic

 

$

0.02

 

 

$

0.01

 

 

$

0.09

 

 

$

0.04

 

Earnings per common share-diluted

 

$

0.02

 

 

$

0.01

 

 

$

0.08

 

 

$

0.04

 

 

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,

 

 

    2017

 

 

    2016

 

 

 

(In thousands)    

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,268

 

 

$

1,279

 

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

 

 

 

 

 

 

Loan loss provision recapture

 

(950

)

 

(550

)

Depreciation

 

194

 

 

187

 

Net amortization of deferred loan origination costs

 

216

 

 

223

 

Net amortization of premiums on mortgage-backed securities

 

23

 

 

38

 

Amortization of investment in affordable housing limited partnership

 

146

 

 

145

 

Stock-based compensation expense

 

240

 

 

23

 

ESOP compensation expense

 

79

 

 

62

 

Earnings on bank owned life insurance

 

(41

)

 

(44

)

Originations of loans receivable held for sale

 

(94,972

)

 

-

 

Repayments on loans receivable held for sale

 

318

 

 

-

 

Proceeds from sales of loans receivable held for sale

 

81,853

 

 

-

 

Gain on sale of loans receivable held for sale

 

(383

)

 

-

 

Net gain on sale of REOs

 

-

 

 

(22

)

Net change in deferred taxes

 

1,210

 

 

(8

)

Net change in accrued interest receivable

 

65

 

 

(23

)

Net change in other assets

 

110

 

 

129

 

Net change in advance payments by borrowers for taxes and insurance

 

709

 

 

402

 

Net change in accrued expenses and other liabilities

 

(222

)

 

(1,845

)

Net cash used in operating activities

 

(9,137

)

 

(4

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in loans receivable held for investment

 

49,371

 

 

(40,235

)

Purchase of available-for-sale securities

 

-

 

 

(2,505

)

Principal payments on available-for-sale securities

 

1,708

 

 

2,365

 

Proceeds from sales of REO

 

-

 

 

382

 

Purchase of FHLB stock

 

(343

)

 

-

 

Additions to office properties and equipment

 

(177

)

 

(45

)

Net cash provided by (used in) investing activities

 

50,559

 

 

(40,038

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in deposits

 

7,493

 

 

12,484

 

Proceeds from FHLB advances

 

29,500

 

 

-

 

Repayments of FHLB advances

 

(28,500

)

 

(2,000

)

Net cash provided by financing activities

 

8,493

 

 

10,484

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

49,915

 

 

(29,558

)

Cash and cash equivalents at beginning of the period

 

18,430

 

 

67,839

 

Cash and cash equivalents at end of the period

 

$

68,345

 

 

$

38,281

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

3,168

 

 

$

2,835

 

Cash paid for income taxes

 

20

 

 

8

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Transfers of loans receivable held for investment to REO

 

$

958

 

 

$

-

 

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

 

9,337

 

 

-

 

 

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, 2017

 

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, 2016 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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

 

Recently Adopted Accounting Pronouncement

 

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.  Under the new guidance, all excess tax benefits and deficiencies that occur when an award vests, is exercised, or expires are recognized in income tax expense as discrete period items.  Previously, these transactions were typically recorded directly within equity.  Consistent with this change, excess tax benefits and deficiencies are no longer included within estimated proceeds when performing the calculation for diluted earnings per share.  The presentation of excess tax benefits in the statement of cash flows shifted to an operating activity from the prior classification as a financing activity.  ASU 2016-09 also provides an accounting policy election to recognize forfeitures of awards as they occur when estimating stock-based compensation expense rather than the previous requirement to estimate forfeitures from inception.  ASU 2016-09 became effective for the Company for reporting periods after January 1, 2017.  The actual effects of adoption in 2017 primarily depends upon the share price of the Company’s stock, probability of exercise of certain stock options and the magnitude of windfalls for all awards upon either vesting or exercise.  The effects on earnings per share calculations and election to account for forfeitures as incurred have not been significant.

 

Recently Issued Accounting Pronouncements (Not Yet Effective)

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”.  ASU 2014-09 replaced existing revenue recognition guidance for contracts to provide goods or services to customers.  The new guidance clarifies the principles for recognizing revenue and replaces nearly all existing revenue recognition guidance in U.S. GAAP.  Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required.  ASU 2014-09 as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, is effective for interim and annual periods beginning after December 15, 2017 and is applied on either a modified retrospective or full retrospective basis.  Early adoption is permitted for interim and annual periods beginning after December 15, 2016.  The Company’s revenue is mainly comprised of net interest income from financial assets and liabilities and to a lesser degree, noninterest income.  The scope of ASU 2014-09 explicitly excludes net interest income as well as other revenues associated with financial assets and liabilities, including loans and securities.  Accordingly, the majority of the Company’s revenues will not be affected.  The Company will continue to evaluate the effect that this guidance will have on other revenue streams within its scope, as well as changes in disclosures required by the new guidance.  However, adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

4



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities”.  ASU 2016-01 (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 securities.  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.  While the Company is currently evaluating the impact of this standard, the Company does not expect its adoption 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 has identified certain contracts with respect to leased real estate and office equipment that are within the scope of ASU 2016-02.  As a lessee in operating lease arrangements that are not considered short-tem, effective January 1, 2019, the Company expects a gross-up of its Consolidated Statements of Condition as a result of recognizing lease liabilities and right of use assets.  However, it will likely not have a significant impact on the Company’s Consolidated Statements of Income and Comprehensive Income or Cash Flows but will have a minor impact on the Bank’s regulatory capital.

 

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 form 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 over the life of the related financial assets.  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 fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption is permitted.  While the Company is still evaluating the impact on its consolidated financial statements, the Company expects that ASU 2016-13 may result in an increase in the allowance for credit losses due to the following factors: 1) the allowance for credit losses will increase to provide for expected credit losses over the remaining expected life of the loan portfolio, and will consider expected future changes in macroeconomic conditions; and 2) an allowance may be established for estimated credit losses on available-for-sale debt securities.  The amount of increase will be impacted by the portfolio composition and quality, as well as the economic conditions and forecasts as of the adoption date.  While the Company has begun its implementation efforts by identifying key interpretive issues, and assessing its processes and identifying the system requirements against the new guidance to determine what modifications may be required, the Company cannot yet determine the overall impact of the new standard on its consolidated financial statements.

 

5



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”.  ASU 2016-15 provides guidance on the classification of certain cash receipts and payments on the consolidated statement of cash flows in order to reduce diversity in practice.  ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”.  ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows.  As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows.  ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, where the guidance should be applied using a retrospective transition method to each period presented.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

NOTE (2) – Earnings Per Share of Common Stock

 

Basic earnings per share of common stock is computed pursuant to the two-class method by dividing net income available to common stockholders less dividends paid on participating securities (unvested shares of restricted common stock) and any undistributed earnings attributable to participating securities by the weighted average common shares outstanding during the period.  The weighted average common shares outstanding includes the weighted average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted common stock.  ESOP shares are considered outstanding for this calculation unless unearned.  Diluted earnings per share of common stock includes the dilutive effect of unvested stock awards and additional potential common shares issuable under stock options.

 

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,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

503

 

 

$

327

 

 

$

2,268

 

 

$

1,279

 

Less net income attributable to participating securities

 

1

 

 

-

 

 

5

 

 

-

 

Income available to common stockholders

 

$

502

 

 

$

327

 

 

$

2,263

 

 

$

1,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

26,702,564

 

 

29,076,708

 

 

26,662,344

 

 

29,076,708

 

Add: dilutive effects of unvested restricted stock awards

 

42,345

 

 

-

 

 

56,552

 

 

-

 

Add: dilutive effects of assumed exercises of stock options

 

79,898

 

 

-

 

 

3,748

 

 

-

 

Weighted average common shares outstanding for diluted earnings per common share

 

26,824,807

 

 

29,076,708

 

 

26,722,644

 

 

29,076,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.02

 

 

$

0.01

 

 

$

0.09

 

 

$

0.04

 

Earnings per common share - diluted

 

$

0.02

 

 

$

0.01

 

 

$

0.08

 

 

$

0.04

 

 

Stock options for 90,625 shares of common stock for the three and nine months ended September 30, 2017 and for 540,625 shares of common stock for the three and nine months ended September 30, 2016 were not considered in computing diluted earnings per common share because they were anti-dilutive.

 

6



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

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, 2017:

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

   $

9,280

 

   $

216

 

   $

(11)

 

   $

9,485

 

Federal agency debt

 

1,971

 

18

 

-

 

1,989

 

Total available-for-sale securities

 

   $

11,251

 

   $

234

 

   $

(11)

 

   $

11,474

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

   $

11,022

 

   $

227

 

   $

(35)

 

   $

11,214

 

Federal agency debt

 

1,960

 

28

 

-

 

1,988

 

Total available-for-sale securities

 

   $

12,982

 

   $

255

 

   $

(35)

 

   $

13,202

 

 

At September 30, 2017, the Bank had one federal agency security with an amortized cost and an estimated fair value of $2.0 million and a contractual maturity of October 2, 2019.  The Bank also had 24 federal agency mortgage-backed securities with an amortized cost of $9.3 million, an estimated fair value of $9.5 million and an estimated average remaining life of 4.1 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, 2017 and December 31, 2016, securities pledged to secure public deposits had a carrying amount of $533 thousand and $629 thousand, respectively.  At September 30, 2017 and December 31, 2016, 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 or nine months ended September 30, 2017 and 2016.

 

We held two securities with unrealized losses at September 30, 2017 and three securities with unrealized losses at December 31, 2016.  Securities in unrealized loss positions are analyzed as part of our ongoing assessment of other-than-temporary impairment.  Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost, and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  All of the Bank’s securities were issued by the federal government or its agencies. The unrealized losses on our available-for-sale securities at September 30, 2017 were primarily caused by movements in market interest rates subsequent to the purchase of such securities.  We do not consider these unrealized losses to be other than temporary impairment.

 

NOTE (4) – Loans Receivable Held for Sale

 

Loans receivable held for sale at September 30, 2017 totaled $22.5 million and consisted of multi-family loans.  As part of the Bank’s loan concentration risk management program, $9.3 million of multi-family loans were transferred from the held-for-investment portfolio to the held-for-sale portfolio during the nine months ended September 30, 2017.  The Bank also allocated $94.7 million, or 96%, of its total loan originations during the period as held-for-sale and completed sales of $81.1 million of multi-family loans during the nine months ended September 30, 2017 for a total gain of $383 thousand.  There were no loans held for sale at December 31, 2016.

 

7



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

NOTE (5)  Loans Receivable Held for Investment

 

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

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

Single family

 

$  

89,521

 

$  

104,807

 

Multi-family

 

194,483

 

229,566

 

Commercial real estate

 

6,129

 

8,914

 

Church

 

31,188

 

37,826

 

Construction

 

1,394

 

837

 

Commercial – other

 

351

 

308

 

Consumer

 

7

 

6

 

Gross loans receivable before deferred loan costs and premiums

 

323,073

 

382,264

 

Unamortized net deferred loan costs and premiums

 

1,662

 

1,793

 

Gross loans receivable

 

324,735

 

384,057

 

Allowance for loan losses

 

(4,213)

 

(4,603)

 

Loans receivable, net

 

$  

320,522

 

$  

379,454

 

 

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

 

 

 

Three Months Ended September 30, 2017

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

320

 

  $

2,719

 

  $

77

 

  $

1,104

 

  $

9

 

  $

17

 

  $

-

 

  $

4,246

Provision for (recapture of) loan losses

 

219

 

(297)

 

(4)

 

(214)

 

5

 

(9)

 

-

 

(300)

Recoveries

 

-

 

-

 

-

 

267

 

-

 

-

 

-

 

267

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

539

 

  $

2,422

 

  $

73

 

  $

1,157

 

  $

14

 

  $

8

 

  $

-

 

  $

4,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

  $

1

 

  $

4,545

Provision for (recapture of) loan losses

 

(68)

 

200

 

2

 

(133)

 

-

 

(1)

 

-

 

-

Recoveries

 

47

 

-

 

-

 

4

 

-

 

1

 

-

 

52

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

420

 

  $

2,447

 

  $

242

 

  $

1,467

 

  $

3

 

  $

17

 

  $

1

 

  $

4,597

 

8



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

 

Nine Months Ended September 30, 2017

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

367

 

  $

2,659

 

  $

215

 

  $

1,337

 

  $

8

 

  $

17

 

  $

-

 

  $

4,603

Provision for (recapture of) loan losses

 

142

 

(237)

 

(142)

 

(710)

 

6

 

(9)

 

-

 

(950)

Recoveries

 

30

 

-

 

-

 

530

 

-

 

-

 

-

 

560

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

539

 

  $

2,422

 

  $

73

 

  $

1,157

 

  $

14

 

  $

8

 

  $

-

 

  $

4,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

1

 

(550)

Recoveries

 

47

 

-

 

248

 

16

 

-

 

8

 

-

 

319

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

420

 

  $

2,447

 

  $

242

 

  $

1,467

 

  $

3

 

  $

17

 

  $

1

 

  $

4,597

 

 

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, 2017

 

 

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

 

  $

102

 

  $

1

 

  $

-

 

  $

521

 

  $

-

 

  $

5

 

  $

-

 

  $

629

Collectively evaluated for impairment

 

437

 

2,421

 

73

 

636

 

14

 

3

 

-

 

3,584

 Total ending allowance balance

 

  $

539

 

  $

2,422

 

  $

73

 

  $

1,157

 

  $

14

 

  $

8

 

  $

-

 

  $

4,213

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

  $

631

 

  $

630

 

  $

-

 

  $

8,435

 

  $

-

 

  $

65

 

  $

-

 

  $

9,761

Loans collectively evaluated for impairment

 

89,348

 

195,398

 

6,136

 

22,418

 

1,381

 

286

 

7

 

314,974

Total ending loans balance

 

  $

89,979

 

  $

196,028

 

  $

6,136

 

  $

30,853

 

  $

1,381

 

  $

351

 

  $

7

 

  $

324,735

 

9



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

December 31, 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

 

  $

125

 

  $

-

 

  $

-

 

  $

516

 

  $

-

 

  $

15

 

  $

-

 

  $

656

Collectively evaluated for impairment

 

242

 

2,659

 

215

 

821

 

8

 

2

 

-

 

3,947

Total ending allowance balance

 

  $

367

 

  $

2,659

 

  $

215

 

  $

1,337

 

  $

8

 

  $

17

 

  $

-

 

  $

4,603

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

  $

644

 

  $

642

 

  $

-

 

  $

10,545

 

  $

-

 

  $

66

 

  $

-

 

  $

11,897

Loans collectively evaluated for impairment

 

104,688

 

230,798

 

8,921

 

26,678

 

827

 

242

 

6

 

372,160

Total ending loans balance

 

  $

105,332

 

  $

231,440

 

  $

8,921

 

  $

37,223

 

  $

827

 

  $

308

 

  $

6

 

  $

384,057

 

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

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

$

295

 

$

295

 

$

-

 

$

642

 

$

642

 

$

-

 

Church

 

5,181

 

3,398

 

-

 

5,946

 

3,589

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

631

 

631

 

102

 

644

 

644

 

125

 

Multi-family

 

335

 

335

 

1

 

-

 

-

 

-

 

Church

 

5,077

 

5,037

 

521

 

7,330

 

6,956

 

516

 

Commercial - other

 

65

 

65

 

5

 

66

 

66

 

15

 

Total

 

$

11,584

 

$

9,761

 

$

629

 

$

14,628

 

$

11,897

 

$

656

 

 

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.

 

10



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, 2017

 

Nine Months Ended September 30, 2017

 

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

Average
Recorded
Investment

 

Cash Basis
Interest
Income
Recognized

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Single family

 

 

$

634

 

 

 

$

7

 

 

 

$

638

 

 

 

$

21

 

Multi-family

 

 

631

 

 

 

5

 

 

 

636

 

 

 

28

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

397

 

 

 

104

 

Church

 

 

9,038

 

 

 

256

 

 

 

9,674

 

 

 

592

 

Commercial – other

 

 

65

 

 

 

2

 

 

 

65

 

 

 

4

 

Total

 

 

$

10,368

 

 

 

$

270

 

 

 

$

11,410

 

 

 

$

749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off.  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 or paid off.  When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan.

 

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

 

 

 

September 30, 2017

 

 

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

 

 

$

-

 

 

 

$

54

 

 

 

$

-

 

 

 

$

54

 

 

 

$

89,925

 

Multi-family

 

 

-

 

 

 

295

 

 

 

-

 

 

 

295

 

 

 

195,733

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,136

 

Church

 

 

17

 

 

 

-

 

 

 

371

 

 

 

388

 

 

 

30,465

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,381

 

Commercial - other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

351

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7

 

Total

 

 

$

17

 

 

 

$

349

 

 

 

$

371

 

 

 

$

737

 

 

 

$

323,998

 

 

11


 


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

 

 

December 31, 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

 

 

$

-

 

 

 

$

64

 

 

 

$

-

 

 

 

$

64

 

 

 

$

105,268

 

Multi-family

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

231,440

 

Commercial real estate

 

 

1,324

 

 

 

-

 

 

 

-

 

 

 

1,324

 

 

 

7,597

 

Church

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,223

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

827

 

Commercial - other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

308

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6

 

Total

 

 

$

1,324

 

 

 

$

64

 

 

 

$

-

 

 

 

$

1,388

 

 

 

$

382,669

 

 

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

 

 

 

September 30, 2017

 

December 31, 2016

 

 

(In thousands)

Loans receivable held for investment:

 

 

 

 

 

 

 

 

 

 

Multi-family

 

 

$

295

 

 

 

$

-

 

Church

 

 

1,865

 

 

 

2,944

 

Total non-accrual loans

 

 

$

2,160

 

 

 

$

2,944

 

 

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2017 or December 31, 2016.

 

Troubled Debt Restructurings

 

At September 30, 2017, loans classified as troubled debt restructurings (“TDRs”) totaled $9.4 million, of which $1.8 million were included in non-accrual loans and $7.6 million were on accrual status.  At December 31, 2016, loans classified as TDRs totaled $11.5 million, of which $2.5 million were included in non-accrual loans and $9.0 million were on accrual status.  The Company has allocated $629 thousand and $656 thousand of specific reserves for accruing TDRs as of September 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, 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 or nine months ended September 30, 2017 and 2016.

 

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:

 

12



Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

§     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, 2017

 

 

 

Pass

 

Watch

 

Special Mention

 

Substandard

 

Doubtful

 

Loss

 

 

 

(In thousands)

 

Single family

 

  $

89,967

 

  $

-

 

  $

-