Quarterly Report (10-q)

Date : 08/14/2019 @ 5:59PM
Source : Edgar (US Regulatory)
Stock : Broadway Financial Corp (BYFC)
Quote : 1.27  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)

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 June 30, 2019

 

[  ]       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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on which registered:

Common Stock, par value $0.01 per share

 

BYFC

 

The NASDAQ Stock Market, LLC

 

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 every Interactive Data File required to be submitted 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 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

 

x

 

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. ¨

 

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 August 2, 2019, 19,111,422 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 STATEMENTS

 

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018

1

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2019 and 2018

2

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

3

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity three and six months ended June 30, 2019 and 2018

4

 

 

 

 

 

 

Notes to Consolidated Financial Statements

5

 

 

 

 

 

Item 2.

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

24

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

 

 

Item 1A.

Risk Factors

33

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

33

 

 

 

 

 

Item 4.

Mine Safety Disclosures

33

 

 

 

 

 

Item 5.

Other Information

33

 

 

 

 

 

Item 6.

Exhibits

33

 

 

 

 

 

Signatures

34

 


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

 

 

 

June 30, 2019

 

December 31, 2018

 

 

(Unaudited)

 

 

Assets:

 

 

 

 

Cash and due from banks

 

$

2.587

 

$

4,124

Interest-bearing deposits in other banks

 

17,559

 

12,527

Cash and cash equivalents

 

20,146

 

16,651

Securities available-for-sale, at fair value

 

14,110

 

14,722

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

 

26,085

 

6,231

Loans receivable held for investment, net of allowance of $2,771 and $2,929

 

353,342

 

355,556

Accrued interest receivable

 

1,254

 

1,143

Federal Home Loan Bank (FHLB) stock, at cost

 

2,916

 

2,916

Office properties and equipment, net

 

3,140

 

2,242

Bank owned life insurance

 

3,073

 

3,047

Deferred tax assets, net

 

4,972

 

5,045

Investment in affordable housing limited partnership

 

244

 

342

Real estate owned (REO)

 

-

 

833

Other assets

 

562

 

669

Total assets

 

$

429,844

 

$

409,397

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

Deposits

 

$

295,798

 

$

281,414

FHLB advances

 

75,000

 

70,000

Junior subordinated debentures

 

4,845

 

5,100

Advance payments by borrowers for taxes and insurance

 

1,084

 

1,055

Accrued expenses and other liabilities

 

4,101

 

3,392

Total liabilities

 

380,828

 

360,961

 

 

 

 

 

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 June 30, 2019 and December 31, 2018; issued 21,732,500 shares at June 30, 2019 and 21,280,228 shares at December 31, 2018; outstanding 19,114,674 shares at June 30, 2019 and 18,662,402 shares at December 31, 2018

 

218

 

213

Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at June 30, 2019 and  December 31, 2018; issued and outstanding 8,756,396 shares at June 30, 2019 and December 31, 2018

 

87

 

87

Additional paid-in capital

 

46,292

 

46,141

Retained earnings

 

8,773

 

8,631

Unearned Employee Stock Ownership Plan (ESOP) shares

 

(994)

 

(1,027)

Accumulated other comprehensive loss, net of tax

 

(34)

 

(283)

Treasury stock-at cost, 2,617,826 shares at June 30, 2019 and at December 31, 2018

 

(5,326)

 

(5,326)

Total stockholders’ equity

 

49,016

 

48,436

Total liabilities and stockholders’ equity

 

$

429,844

 

$

409,397

 

See accompanying notes to unaudited consolidated financial statements.

 

1


 

Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans receivable

 

  $

3,841

 

  $

3,415

 

  $

7,956

 

  $

6,924

 

Interest on mortgage-backed and other securities

 

95

 

104

 

193

 

213

 

Other interest income

 

149

 

115

 

309

 

255

 

Total interest income

 

4,085

 

3,634

 

8,458

 

7,392

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Interest on deposits

 

1,097

 

685

 

2,124

 

1,316

 

Interest on borrowings

 

526

 

377

 

1,059

 

730

 

Total interest expense

 

1,623

 

1,062

 

3,183

 

2,046

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

2,462

 

2,572

 

5,275

 

5,346

 

Loan loss provision recapture

 

158

 

-

 

348

 

-

 

Net interest income after loan loss provision recapture

 

2,620

 

2,572

 

5,623

 

5,346

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Service charges

 

115

 

111

 

237

 

226

 

Gain on sale of loans

 

-

 

11

 

-

 

11

 

CDFI Grant

 

-

 

-

 

233

 

-

 

Other

 

24

 

48

 

45

 

64

 

Total non-interest income

 

139

 

170

 

515

 

301

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

1,875

 

1,751

 

3,757

 

3,656

 

Occupancy expense

 

312

 

317

 

620

 

633

 

Information services

 

218

 

206

 

426

 

420

 

Professional services

 

235

 

183

 

574

 

371

 

Office services and supplies

 

67

 

66

 

135

 

148

 

REO expense

 

(6)

 

24

 

25

 

86

 

Marketing expense

 

33

 

87

 

72

 

137

 

Corporate insurance

 

34

 

36

 

69

 

78

 

Amortization of investment in affordable housing limited partnership

 

49

 

49

 

98

 

97

 

Other

 

205

 

204

 

306

 

329

 

Total non-interest expense

 

3,022

 

2,923

 

6,082

 

5,955

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(263)

 

(181)

 

56

 

(308)

 

Income tax benefit

 

(128)

 

(54)

 

(86)

 

(97)

 

Net (loss) income

 

  $

(135)

 

  $

(127)

 

  $

142

 

  $

(211)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

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

 

  $

157

 

  $

(76)

 

  $

353

 

  $

(360)

 

Income tax expense (benefit)

 

46

 

(23)

 

104

 

(107)

 

Other comprehensive income (loss), net of tax

 

111

 

(53)

 

249

 

(253)

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

  $

(24)

 

  $

(180)

 

  $

391

 

  $

(464)

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per common share-basic

 

  $

(0.01)

 

  $

(0.00 )

 

  $

0.01

 

  $

(0.01)

 

(Loss) earnings per common share-diluted

 

  $

(0.01)

 

  $

(0.00 )

 

  $

0.01

 

  $

(0.01)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

2018

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Cash flows from operating activities :

 

 

 

 

 

 

 

Net income (loss)

 

$

142

 

 

$

(211

)

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Loan loss provision recapture

 

(348

)

 

-

 

 

Provision for losses on REOs

 

13

 

 

45

 

 

Depreciation

 

115

 

 

121

 

 

Net amortization of deferred loan origination costs

 

95

 

 

276

 

 

Net amortization of premiums on mortgage-backed securities

 

13

 

 

20

 

 

Amortization of investment in affordable housing limited partnership

 

98

 

 

97

 

 

Director compensation expense-common stock

 

52

 

 

45

 

 

Stock-based compensation expense

 

109

 

 

49

 

 

ESOP compensation expense

 

28

 

 

48

 

 

Earnings on bank owned life insurance

 

(26

)

 

(26

)

 

Originations of loans receivable held for sale

 

(10,280

)

 

-

 

 

Proceeds from sales of loans receivable held for sale

 

-

 

 

4,349

 

 

Repayments on loans receivable held for sale

 

46

 

 

82

 

 

Gain on sale of loans receivable held for sale

 

-

 

 

(11

)

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Net change in deferred taxes

 

(31

)

 

15

 

 

Net change in accrued interest receivable

 

(111

)

 

(43

)

 

Net change in other assets

 

107

 

 

113

 

 

Net change in advance payments by borrowers for taxes and insurance

 

29

 

 

(160

)

 

Net change in accrued expenses and other liabilities

 

(281

)

 

(30

)

 

Net cash (used in) provided by operating activities

 

(10,230

)

 

4,779

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in loans receivable held for investment

 

(7,153

)

 

(13,362

)

 

Principal payments on available-for-sale securities

 

952

 

 

1,137

 

 

Proceeds from sales of REO

 

820

 

 

-

 

 

Purchase of office properties and equipment

 

(23

)

 

(43

)

 

Net cash used in investing activities

 

(5,404

)

 

(12,268

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in deposits

 

14,384

 

 

(20,024

)

 

Proceeds from FHLB advances

 

10,000

 

 

36,500

 

 

Repayments of FHLB advances

 

(5,000

)

 

(17,500

)

 

Payment for tax withholding for vesting of restricted stock

 

-

 

 

(108

)

 

Repayments of junior subordinated debentures

 

(255

)

 

-

 

 

Net cash provided by (used in) financing activities

 

19,129

 

 

(1,132

)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

3,495

 

 

(8,621

)

 

Cash and cash equivalents at beginning of the period

 

16,651

 

 

22,219

 

 

Cash and cash equivalents at end of the period

 

$

20,146

 

 

$

13,598

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,971

 

 

$

2,048

 

 

Cash paid for income taxes

 

13

 

 

-

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing:

 

 

 

 

 

 

 

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

 

$

1,064

 

 

$

16,871

 

 

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

 

10,684

 

 

-

 

 

Common stock exchanged for payment of tax withholding

 

-

 

 

108

 

 

Initial Recognition of Operating Lease Right-to-Use Assets

 

1,120

 

 

-

 

 

Initial Recognition of Operating Lease Liabilities

 

1,120

 

 

-

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

 

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

 

 

Three-Month Period Ended June 30, 2018 and 2019

 

 

Common
Stock
Voting

 

Common
Stock
Non-
Voting

 

Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income

 

Retained
Earnings
(Substantially
Restricted)

 

Unearned
ESOP
Shares

 

Treasury
Stock

 

Total
Stockholders’
Equity

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

Balance at April 1, 2018

 

   $

213

 

   $

87

 

   $

46,098

 

   $

(281)

 

   $

7,732

 

   $

(1,078)

 

   $

(5,326)

 

   $

47,445

Net income for the three months ended June 30, 2018

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(127)

 

 

-

 

 

-

 

 

(127)

Release of unearned ESOP shares

 

 

-

 

 

-

 

 

5

 

 

-

 

 

-

 

 

18

 

 

-

 

 

23

Restricted stock Compensation expense

 

 

-

 

 

-

 

 

4

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4

Stock awarded to directors

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Stock option compensation expense

 

 

-

 

 

-

 

 

9

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9

Other comprehensive income, net of tax

 

 

-

 

 

-

 

 

-

 

 

(53)

 

 

-

 

 

-

 

 

-

 

 

(53)

Balance at June 30, 2018

 

   $

213

 

   $

87

 

   $

46,116

 

   $

(334)

 

   $

7,605

 

   $

(1,060)

 

   $

(5,326)

 

   $

47,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2019

 

   $

218

 

   $

87

 

   $

46,219

 

   $

(145)

 

   $

8,908

 

   $

(1,010)

 

   $

(5,326)

 

   $

48,951

Net income for the three months ended June 30, 2019

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(135)

 

 

-

 

 

-

 

 

(135)

Release of unearned ESOP shares

 

 

-

 

 

-

 

 

(2)

 

 

-

 

 

-

 

 

16

 

 

-

 

 

14

Restricted stock Compensation expense

 

 

-

 

 

-

 

 

65

 

 

-

 

 

-

 

 

-

 

 

-

 

 

65

Stock awarded to directors

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Stock option compensation expense

 

 

-

 

 

-

 

 

10

 

 

-

 

 

-

 

 

-

 

 

-

 

 

10

Other comprehensive income, net of tax

 

 

-

 

 

-

 

 

-

 

 

111

 

 

-

 

 

-

 

 

-

 

 

111

Balance at June 30, 2019

 

   $

218

 

   $

87

 

   $

46,292

 

   $

(34)

 

   $

8,773

 

   $

(994)

 

   $

(5,326)

 

   $

49,016

 

 

 

Six-Month Period Ended June 30, 2018 and 2019

 

 

Common
Stock
Voting

 

Common
Stock
Non-
Voting

 

Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income

 

Retained
Earnings
(Substantially
Restricted)

 

Unearned
ESOP
Shares

 

Treasury
Stock

 

Total
Stockholders’
Equity

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

   $

213

 

   $

87

 

   $

46,117

 

   $

(81)

 

   $

7,816

 

   $

(1,095)

 

   $

(5,326)

 

   $

47,731

Net income for the six months ended June 30, 2018

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(211)

 

 

-

 

 

-

 

 

(211)

Release of unearned ESOP shares

 

 

-

 

 

-

 

 

13

 

 

-

 

 

-

 

 

35

 

 

-

 

 

48

Restricted stock Compensation expense

 

 

-

 

 

-

 

 

30

 

 

-

 

 

-

 

 

-

 

 

-

 

 

30

Stock awarded to directors

 

 

-

 

 

-

 

 

45

 

 

-

 

 

-

 

 

-

 

 

-

 

 

45

Stock option compensation expense

 

 

-

 

 

-

 

 

19

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19

Cancellation of shares issued to CEO

 

 

-

 

 

-

 

 

(108)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(108)

Other comprehensive loss, net of tax

 

 

-

 

 

-

 

 

-

 

 

(253)

 

 

-

 

 

-

 

 

-

 

 

(253)

Balance at June 30, 2018

 

   $

213

 

   $

87

 

   $

46,116

 

   $

(334)

 

   $

7,605

 

   $

(1,060)

 

   $

(5,326)

 

   $

47,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

   $

213

 

   $

87

 

   $

46,141

 

   $

(283)

 

   $

8,631

 

   $

(1,027)

 

   $

(5,326)

 

   $

48,436

Net income for the six months ended June 30, 2019

 

 

-

 

 

-

 

 

-

 

 

-

 

 

142

 

 

-

 

 

-

 

 

142

Release of unearned ESOP shares

 

 

-

 

 

-

 

 

(5)

 

 

-

 

 

-

 

 

33

 

 

-

 

 

28

Restricted stock Compensation expense

 

 

5

 

 

-

 

 

85

 

 

-

 

 

-

 

 

-

 

 

-

 

 

90

Stock awarded to directors

 

 

-

 

 

-

 

 

52

 

 

-

 

 

-

 

 

-

 

 

-

 

 

52

Stock option compensation expense

 

 

-

 

 

-

 

 

19

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19

Cancellation of shares issued to CEO

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Other comprehensive loss, net of tax

 

 

-

 

 

-

 

 

-

 

 

249

 

 

-

 

 

-

 

 

-

 

 

249

Balance at June 30, 2019

 

   $

218

 

   $

87

 

   $

46,292

 

   $

(34)

 

   $

8,773

 

   $

(994)

 

   $

(5,326)

 

   $

49,016

 

See accompanying notes to unaudited consolidated financial statements.

 

4


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

June 30, 2019

 

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, 2018 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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)”, which is intended to increase transparency and comparability in the accounting for lease transactions.  ASU 2016-02 became effective as of January 1, 2019 and provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at either the earliest period presented or the beginning of the period of adoption with the option to elect certain practical expedients. We have elected to apply ASU 2016-02 as of the beginning of the period of adoption, which was January 1, 2019 and we have elected not to restate comparative periods. Of the practical expedients available under ASU 2016-02, all have been adopted.

 

The Bank has a combined operating lease for its corporate headquarters and main retail branch and a photocopier lease. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use (“ROU”) asset of $1.2 million and an operating lease liability of $1.2 million as of January 1, 2019, with no impact on our consolidated statements of operations or consolidated statements of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded in fixed assets and other liabilities, respectively, in the consolidated statements of financial condition. See Note 6 – Leases for additional information. The implementation of this standard had a minor impact on our regulatory capital ratios.

 

Recent Accounting Pronouncements Yet to Be Adopted

 

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 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model.  The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.  For public business entities that meet the definition of an SEC filer, the standard will be effective for fiscal years beginning after Dec. 15, 2019, including interim periods in those fiscal years.  All entities may early adopt for fiscal years beginning after Dec. 15, 2018, including interim periods in those fiscal years.  For debt securities with other-than-temporary impairment, the guidance will be applied prospectively.  Existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption.  The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date.  Subsequent changes in expected credit losses will be recorded through the allowance.  For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective.  The Company has begun its implementation efforts by identifying key interpretive issues, assessing its processes and identifying the system requirements against the new guidance to determine

 

5


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

what modifications may be required.  While the Company is still evaluating the overall impact on the new standard on its consolidated financial statements, the Company expects the adoption may result in an increase to the allowance for loan losses balance.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The ASU was issued to improve the effectiveness of disclosures surrounding fair value measurements. The ASU removes numerous disclosures from Topic 820 including; transfers between level 1 and 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation process for level 3 fair value measurements. The ASU also modified and added disclosure requirements in regards to changes in unrealized gains and losses included in other comprehensive income, as well as the range and weighted average of unobservable inputs for level 3 fair value measurements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.  This ASU is effective January 1, 2020 and clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. The amendments to Topic 326 have the same effective dates as ASU 2016-13. We will evaluate this ASU in conjunction with ASU 2016-13 to determine its impact on our financial condition and results of operations.

 

In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This ASU allows entities to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible financial assets measured at amortized cost basis upon adoption of the credit loss standards. The effective date for this ASU is the same as for ASU 2016-13. We will evaluate this ASU in conjunction with ASU 2016-13 to determine its impact on our financial condition and results of operations.

 

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 (loss) earnings per share of common stock for the periods indicated:

 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(Dollars in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

  $

(135)

 

  $

(127)

 

  $

142

 

  $

(211)

 

Less net (loss) income attributable to participating securities

 

(2)

 

-

 

2

 

-

 

(Loss) income available to common stockholders

 

  $

(133)

 

  $

(127)

 

  $

140

 

  $

(211)

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings (loss) per common share

 

26,858,018

 

26,740,082

 

26,711,043

 

26,752,550

 

Add: dilutive effects of assumed exercises of stock options

 

-

 

-

 

-

 

-

 

Add: dilutive effects of unvested restricted stock awards

 

-

 

-

 

396,331

 

-

 

Weighted average common shares outstanding for diluted earnings (loss) per common share

 

26,858,018

 

26,740,082

 

27,107,374

 

26,752,550

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings per common share - basic

 

  $

(0.01)

 

  $

(0.00)

 

  $

0.01

 

  $

(0.01)

 

(Loss) Earnings per common share - diluted

 

  $

(0.01)

 

  $

(0.00)

 

  $

0.01

 

  $

(0.01)

 

 

6


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

Unvested restricted stock awards of 388,215 shares of common stock and stock options for 455,000 shares of common stock for the three months ended June 30, 2019 and unvested restricted stock awards of 10,399 shares of common stock and stock options for 537,500 shares of common stock for the three and six months ended June 30, 2018 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 were recognized in accumulated other comprehensive income (loss):

 

 

 

Amortized Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In thousands)

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

  $

8,752

 

  $

129

 

  $

(6)

 

  $

8,875

 

Federal agency debt

 

5,175

 

61

 

(1)

 

5,235

 

Total available-for-sale securities

 

  $

13,927

 

  $

190

 

  $

(7)

 

  $

14,110

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

  $

9,575

 

  $

88

 

  $

(155)

 

  $

9,508

 

Federal agency debt

 

5,317

 

-

 

(103)

 

5,214

 

Total available-for-sale securities

 

  $

14,892

 

  $

88

 

  $

(258)

 

  $

14,722

 

 

At June 30, 2019, the Bank had 3 federal agency debt securities with total amortized cost of $5.2 million, estimated total fair value of $5.2 million and an estimated average remaining life of 3.6 years.  The Bank also had 22 federal agency mortgage-backed securities with total amortized cost of $8.8 million, estimated total fair value of $8.9 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.

 

Securities with unrealized losses at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Estimated
Fair Value

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Gross
Unrealized
Losses

 

 

 

(In thousands)

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

  $

-

 

  $

-

 

  $

4,054

 

  $

(6)

 

  $

4,054

 

  $

(6)

 

Federal agency debt

 

1,995

 

(1)

 

 

 

1,995

 

(1)

 

Total temporarily impaired

 

   $

1,995

 

   $

(1)

 

   $

4,054

 

   $

(6)

 

   $

6,049

 

   $

(7)

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency mortgage-backed securities

 

   $

2,649

 

   $

(25)

 

   $

4,213

 

   $

(130)

 

   $

6,862

 

   $

(155)

 

Federal agency debt

 

1,979

 

(10)

 

3,235

 

(93)

 

5,214

 

(103)

 

Total temporarily impaired

 

   $

4,628

 

   $

(35)

 

   $

7,448

 

   $

(223)

 

   $

12,076

 

   $

(258)

 

 

7


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

At June 30, 2019 and December 31, 2018, there were no securities pledged to secure public deposits since those public deposits are under $250 thousand and are fully insured by FDIC.  At June 30, 2019 and December 31, 2018, 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 six months ended June 30, 2019 and 2018.

 

The Bank held 5 securities with unrealized losses at June 30, 2019 compared to 10 securities with unrealized losses at December 31, 2018. 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 June 30, 2019 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 June 30, 2019 and December 31, 2018 totaled $26.1 million and $6.2 million, respectively, and consisted of multi-family loans.  The Bank transferred $1.1 million and $16.9 million of multi-family loans from the held-for-sale portfolio to the held-for-investment portfolio during the first half of 2019 and 2018, respectively.  During the first six months of 2019, $10.7 million in loans receivable held for investment were transferred to loans receivable held for sale.  There were no loan sales during the six months ended June 30, 2019.  Sales of multi-family loans during the six months ended June 30, 2018 totaled $4.3 million.  Loan repayments totaled $46 thousand and $82 thousand during the six months ended June 30, 2019 and 2018, respectively.

 

8


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 dates indicated:

 

 

 

June 30, 2019

 

December 31, 2018

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

Single family

 

$  

85,107

 

$  

91,835

 

Multi-family

 

238,718

 

231,870

 

Commercial real estate

 

6,429

 

5,802

 

Church

 

22,553

 

25,934

 

Construction

 

2,246

 

1,876

 

Commercial – other

 

264

 

226

 

Consumer

 

12

 

5

 

Gross loans receivable before deferred loan costs and premiums

 

355,329

 

357,548

 

Unamortized net deferred loan costs and premiums

 

784

 

937

 

Gross loans receivable

 

356,113

 

358,485

 

Allowance for loan losses

 

(2,771)

 

(2,929)

 

Loans receivable, net

 

$  

353,342

 

$  

355,556

 

 

9


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

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

 

 

 

Three Months Ended June 30, 2019

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

347

 

  $

1,990

 

  $

62

 

  $

507

 

  $

18

 

  $

5

 

  $

-

 

  $

2,929

Provision for (recapture of) loan losses

 

(19)

 

(58)

 

(4)

 

(106)

 

26

 

-

 

3

 

(158)

Recoveries

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

328

 

  $

1,932

 

  $

58

 

  $

401

 

  $

44

 

  $

5

 

  $

3

 

  $

2,771

 

 

 

Three Months Ended June 30,  2018

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

588

 

  $

2,508

 

  $

65

 

  $

1,005

 

  $

11

 

  $

6

 

  $

-

 

  $

4,183

Provision for (recapture of) loan losses

 

(71)

 

148

 

(4)

 

(80)

 

7

 

-

 

-

 

-

Recoveries

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

517

 

  $

2,656

 

  $

61

 

  $

925

 

  $

18

 

  $

6

 

  $

-

 

  $

4,183

 

 

 

Six Months Ended June 30, 2019

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

369

 

  $

1,880

 

  $

52

 

  $

603

 

  $

19

 

  $

6

 

  $

-

 

  $

2,929

Provision for (recapture of) loan losses

 

(41)

 

52

 

6

 

(392)

 

25

 

(1)

 

3

 

(348)

Recoveries

 

-

 

-

 

-

 

190

 

-

 

-

 

-

 

190

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

328

 

  $

1,932

 

  $

58

 

  $

401

 

  $

44

 

  $

5

 

  $

3

 

  $

2,771

 

 

 

Six Months Ended June 30, 2018

 

 

Real Estate

 

 

 

 

 

 

 

 

Single
family

 

Multi-
family

 

Commercial
real estate

 

Church

 

Construction

 

Commercial
- other

 

Consumer

 

Total

 

 

(In thousands)

Beginning balance

 

  $

594

 

  $

2,300

 

  $

71

 

  $

1,081

 

  $

17

 

  $

6

 

  $

-

 

  $

4,069

Provision for (recapture of) loan losses

 

(77)

 

356

 

(10)

 

(270)

 

1

 

-

 

-

 

-

Recoveries

 

-

 

-

 

-

 

114

 

-

 

-

 

-

 

114

Loans charged off

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Ending balance

 

  $

517

 

  $

2,656

 

  $

61

 

  $

925

 

  $

18

 

  $

6

 

  $

-

 

  $

4,183

 

10


Table of Contents

 

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

 

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 the dates indicated:

 

 

 

June 30, 2019

 

 

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

 

$

37

 

$

-

 

$

-

 

$

96

 

$

-

 

$

3

 

$

-

 

$

136

Collectively evaluated for impairment

 

291

 

1,932

 

58

 

305

 

44

 

2

 

3

 

2,635

Total ending allowance balance

 

$

328

 

$

1,932

 

$

58

 

$

401

 

$

44

 

$

5

 

$

3

 

$

2,771

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

636

 

$

318

 

$

-

 

$

4,703

 

$

-

 

$

63

 

$

-

 

$

5,720

Loans collectively evaluated for impairment

 

84,755

 

239,582

 

6,436

 

17,165

 

2,242

 

201

 

12

 

350,393

Total ending loans balance

 

$

85,391

 

$

239,900

 

$

6,436

 

$

21,868

 

$

2,242

 

$

264

 

$

12

 

$

356,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

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

 

$

53

 

$

-

 

$

-

 

$

170

 

$

-

 

$

4

 

$

-

 

$

227

Collectively evaluated for impairment

 

316

 

1,880

 

52

 

433

 

19

 

2

 

-

 

2,702

Total ending allowance balance

 

$

369

 

$

1,880

 

$

52

 

$

603

 

$

19

 

$

6

 

$

-

 

$

2.929

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

610

 

$

323

 

$

-

 

$

5,383

 

$

-

 

$

64

 

$

-

 

$

6,380

Loans collectively evaluated for impairment

 

91,567

 

232,986

 

5,800

 

19,713