10-Q

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, 2015

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

For transition period from__________ to___________

Commission file number      000-27464

BROADWAY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-4547287
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
5055 Wilshire Boulevard, Suite 500 Los Angeles, California	90036
(Address of principal executive offices)	(Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]   No [   ]

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

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

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

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

Yes [   ]   No [ X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of August 5, 2015, 21,405,188 shares of the Registrant’s voting common stock and 7,671,520 shares of the Registrant’s non-voting common stock were outstanding.

TABLE OF CONTENTS

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Financial Condition as of June 30, 2015 (unaudited) and December 31, 2014	1
		Consolidated Statements of Income and Comprehensive Income (unaudited) for the three and six months ended June 30, 2015 and 2014	2
		Consolidated Statements of Cash Flows (unaudited) for the three and six months ended June 30, 2015 and 2014	3
		Notes to Unaudited 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	31
	Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3.	Defaults Upon Senior Securities	32
	Item 4.	Mine Safety Disclosures	32
	Item 5.	Other Information	32
	Item 6.	Exhibits	32
	Signatures		34

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Cash and due from banks	$	5,396		$	5,740
Federal funds	46,265			15,050
Cash and cash equivalents	51,661			20,790
Securities available-for-sale, at fair value	15,647			17,075
Loans receivable held for sale, at lower of cost or fair value	81,985			19,481
Loans receivable held for investment, net of allowance of $6,923 and $8,465	195,154			276,643
Accrued interest receivable	1,050			1,216
Federal Home Loan Bank (FHLB) stock	2,915			4,254
Office properties and equipment, net	2,628			2,697
Real estate owned (REO)	2,178			2,082
Bank owned life insurance	2,851			2,821
Investment in affordable housing limited partnership	1,021			1,117
Other assets	2,129			2,687
Total assets	$	359,219		$	350,863
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	232,152		$	217,867
FHLB advances	77,500			86,000
Junior subordinated debentures	5,100			5,100
Advance payments by borrowers for taxes and insurance	1,037			1,081
Accrued expenses and other liabilities	3,782			3,557
Total liabilities	319,571			313,605
Stockholders’ Equity:
Common stock, $.01 par value, voting, authorized 50,000,000 shares at June 30, 2015 and December 31, 2014; issued 21,509,179 shares at June 30, 2015 and December 31, 2014; outstanding 21,405,188 shares at June 30, 2015 and December 31, 2014	215			215
Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at June 30, 2015 and December 31, 2014; issued and outstanding 7,671,520 shares at June 30, 2015 and December 31, 2014	77			77
Additional paid-in capital	44,669			44,669
Accumulated deficit	(4,088		)	(6,539		)
Accumulated other comprehensive income	104			165
Treasury stock-at cost, 103,991 shares at June 30, 2015 and December 31, 2014	(1,329		)	(1,329		)
Total stockholders’ equity	39,648			37,258
Total liabilities and stockholders’ equity	$	359,219		$	350,863

See accompanying notes to unaudited consolidated financial statements.

1

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands, except per share)
Interest income:
Interest and fees on loans receivable	$	3,779		$	3,689		$	7,503		$	7,315
Interest on mortgage-backed and other securities	90			104			184			168
Other interest income	243			82			330			188
Total interest income	4,112			3,875			8,017			7,671
Interest expense:
Interest on deposits	435			427			850			888
Interest on borrowings	536			533			1,067			1,070
Total interest expense	971			960			1,917			1,958
Net interest income before recapture of loan losses	3,141			2,915			6,100			5,713
Recapture of loan losses	750			500			1,500			1,582
Net interest income after recapture of loan losses	3,891			3,415			7,600			7,295
Non-interest income:
Service charges	102			113			208			230
Net gain on sale of loans	380			-			514			-
Net loss on sale of REOs	(14		)	(47		)	-			(50		)
CDFI grant	-			-			355			200
Other	24			(2		)	58			17
Total non-interest income	492			64			1,135			397
Non-interest expense:
Compensation and benefits	1,670			1,607			3,438			3,195
Occupancy expense, net	287			296			586			580
Information services	245			218			462			437
Professional services	208			239			478			663
Office services and supplies	79			94			160			196
FDIC assessments	95			176			175			350
REO	164			377			200			425
Corporate insurance	102			116			196			228
Other	374			297			581			567
Total non-interest expense	3,224			3,420			6,276			6,641
Income before income taxes	1,159			59			2,459			1,051
Income tax expense	6			-			8			3
Net income	$	1,153		$	59		$	2,451		$	1,048
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities available-for-sale	$	(118	)	$	94		$	(61	)	$	73
Income tax effect	-			-			-			-
Other comprehensive income (loss), net of tax	(118		)	94			(61		)	73
Comprehensive income	$	1,035		$	153		$	2,390		$	1,121
Earnings per common share-basic	$	0.04		$	0.00		$	0.08		$	0.05
Earnings per common share-diluted	$	0.04		$	0.00		$	0.08		$	0.05

See accompanying notes to unaudited consolidated financial statements.

2

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net income	$	2,451		$	1,048
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Recapture of loan losses	(1,500		)	(1,582		)
Provision for losses on REOs	126			340
Depreciation	117			116
Net amortization of deferred loan origination costs	167			75
Net amortization of premiums on mortgage-backed securities	30			22
Amortization of investment in affordable housing limited partnership	96			96
Stock-based compensation expense	-			11
Earnings on bank owned life insurance	(30		)	(33		)
Originations of loans receivable held for sale	(31,479		)	-
Proceeds from sales of loans receivable held for sale	14,781			-
Net gain on sale of loans	(514		)	-
Net loss on sale of REOs	-			50
Amortization of deferred gain on debt restructuring	-			(74		)
Stock-based compensation – non-employee	-			25
Net change in accrued interest receivable	166			(30		)
Net change in other assets	558			56
Net change in advance payments by borrowers for taxes and insurance	(44		)	38
Net change in accrued expenses and other liabilities	225			756
Net cash provided by (used in) operating activities	(14,850		)	914
Cash flows from investing activities:
Net change in loans receivable held for investment	(8,204		)	(17,459		)
Proceeds from sales of loans receivable held for sale	44,725			-
Principal repayments on loans receivable held for sale	166			-
Available-for-sale securities:
Prepayments and amortizations	1,337			1,097
Purchases	-			(10,463		)
Proceeds from sales of REO	621			2,219
Redemption of FHLB stock	1,527			-
Purchase of FHLB stock	(188		)	-
Additions to office properties and equipment	(48		)	(194		)
Net cash provided by (used in) investing activities	39,936			(24,800		)
Cash flows from financing activities:
Net change in deposits	14,285			326
Proceeds from FHLB advances	21,000			8,000
Repayments of FHLB advances	(29,500		)	(8,000		)
Net cash provided by financing activities	5,785			326
Net change in cash and cash equivalents	30,871			(23,560		)
Cash and cash equivalents at beginning of the period	20,790			58,196
Cash and cash equivalents at end of the period	$	51,661		$	34,636
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,941		$	1,906
Cash paid for income taxes	2			3
Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO	$	843		$	1,845
Transfers of loans receivable held for investment to loans receivable held for sale	$	90,183		$	-
Issuance of common stock for services	$	-		$	25

See accompanying notes to unaudited consolidated financial statements.

3

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

June 30, 2015

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, 2014 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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects”.  ASU 2014-01 permits a reporting entity to make an accounting policy election to account for its investments in affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit.  ASU 2014-01 becomes effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. The provisions of ASU 2014-01 must be applied retrospectively to all periods presented.  Adopting this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”.  ASU 2014-15 incorporates into U.S. GAAP a requirement that management complete a going concern evaluation similar to that performed by an entity’s external auditor.  Under the new guidance, management will be required to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements.  Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”.  ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.  ASU 2015-01 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

4

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”.  Under ASU 2015-03, the Company will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset.  Amortization of such costs will continue to be reported as interest expense.  ASU 2015-03 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted.  Retrospective adoption is required.  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 by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period.  Diluted earnings per share of common stock is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period, increased for the dilutive effect of common stock equivalents.

The following table shows how the Company computed basic and diluted earnings per share of common stock for the three and six months ended June 30, 2015 and 2014:

	For the three months ended June 30,				For the six months ended June 30,
	2015		2014		2015		2014
	(Dollars in thousands, except per share)
Basic
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - basic	$	0.04	$	0.00	$	0.08	$	0.05
Diluted
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Add: dilutive effects of assumed exercises of stock options	-		-		-		-
Weighted average common shares - fully dilutive	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - diluted	$	0.04	$	0.00	$	0.08	$	0.05

Stock options for 93,750 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2015 and 2014 because they were anti-dilutive.

5

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 at June 30, 2015 and December 31, 2014 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)
June 30, 2015:
Residential mortgage-backed	$	13,204	$	470	$	-	$	13,674
U.S. Government and federal agency	1,939		34		-		1,973
Total available-for-sale securities	$	15,143	$	504	$	-	$	15,647
December 31, 2014:
Residential mortgage-backed	$	14,578	$	540	$	-	$	15,118
U.S. Government and federal agency	1,932		25		-		1,957
Total available-for-sale securities	$	16,510	$	565	$	-	$	17,075

At June 30, 2015, the Bank’s investment portfolio had an estimated remaining life of 4.6 years.  The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity at June 30, 2015.  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 not due at a single maturity date, primarily residential mortgage-backed securities, are shown separately.

	Available-for-Sale
Maturity	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	-	$	-
One to five years	1,939		1,973
Five to ten years	-		-
Beyond ten years	-		-
Residential mortgage-backed	13,204		13,674
Total	$	15,143	$	15,647

At June 30, 2015 and December 31, 2014, securities pledged to secure public deposits had a carrying amount of $783 thousand and $1.2 million, respectively.  At June 30, 2015 and December 31, 2014, there were no holdings of securities of 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, 2015 and 2014.

NOTE (4) – Loans Receivable Held for Sale

Loans receivable held for sale at June 30, 2015 and December 31, 2014 totaled $82.0 million and $19.5 million, respectively, and consisted of multi-family loans.  During the three and six months ended June 30, 2015, multi-family loans originated for sale totaled $18.9 million and $31.5 million, respectively.  During the second quarter of 2015, in order to comply with regulatory loan concentration guidelines, the Bank transferred $90.2 million of performing multi-family loans from held for investment to held for sale.

6

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

During the three and six months ended June 30, 2015, loan sales totaled $46.8 million and $59.0 million, respectively.

NOTE (5) – Loans Receivable Held for Investment

Loans at June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015		December 31, 2014
	(In thousands)
Real estate:
Single family	$	34,200	$	39,792
Multi-family	103,947		171,792
Commercial real estate	12,979		16,722
Church	49,729		54,599
Construction	366		387
Commercial – other	252		262
Consumer	4		9
Gross loans receivable before deferred loan costs and premiums	201,477		283,563
Unamortized net deferred loan costs and premiums	600		1,545
Gross loans receivable	202,077		285,108
Allowance for loan losses	(6,923)		(8,465)
Loans receivable, net	$	195,154	$	276,643

The following tables present the activity in the allowance for loan losses by loan type for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction			Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,164		$	2,741	$	436		$	3,314		$		4	$	11	$	1		$		7,671
Provision for (recapture of) loan losses	(11)			(896)		(32)			189			-			1		(1)			(750)
Recoveries	-			-		-			5			-			-		-			5
Loans charged off	(3)			-		-			-			-			-		-			(3)
Ending balance	$	1,150		$	1,845	$	404		$	3,508		$		4	$	12	$	-		$		6,923
	Six Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction			Commercial - other		Consumer				Total
	(In thousands)
Beginning balance	$	1,174		$	2,726	$	496		$	4,047		$		7	$	12	$		3		$		8,465
Provision for (recapture of) loan losses	(21)			(881)		(92)			(500)			(3)			-		(3)			(1,500)
Recoveries	-			-		-			11			-			-		-			11
Loans charged off	(3)			-		-			(50)			-			-		-			(53)
Ending balance	$		1,150	$	1,845	$		404	$		3,508	$	4		$	12	$		-	$				6,923

7

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	Three Months Ended June 30, 2014
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction			Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,874		$	2,107	$	1,212		$	4,867		$		7	$	20	$	4		$		10,091
Provision for (recapture of) loan losses	65			197		(131)			(629)			-			(2)		-			(500)
Recoveries	-			-		-			13			-			1		-			14
Loans charged off	(90)			-		-			(139)			-			-		-			(229)
Ending balance	$	1,849		$	2,304	$	1,081		$	4,112		$		7	$	19	$	4		$		9,376
	Six Months Ended June 30, 2014
	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction			Commercial - other		Consumer				Total
	(In thousands)
Beginning balance	$	1,930		$	1,726	$	1,473		$	4,949		$		7	$	55	$		6		$		10,146
Provision for (recapture of) loan losses	10			578		(383)			(684)			-			(1,101)		(2)			(1,582)
Recoveries	2			-		-			169			-			1,083		-			1,254
Loans charged off	(93)			-		(9)			(322)			-			(18)		-			(442)
Ending balance	$		1,849	$	2,304	$		1,081	$		4,112	$	7		$	19	$		4	$				9,376

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 June 30, 2015 and December 31, 2014:

	June 30, 2015
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	138	$	4	$	95	$	1,153	$	-	$	10	$	-	$	1,400
Collectively evaluated for impairment	1,012		1,841		309		2,355		4		2		-		5,523
Total ending allowance balance	$	1,150	$	1,845	$	404	$	3,508	$	4	$	12	$	-	$	6,923
Loans:
Loans individually evaluated for impairment	$	1,337	$	1,469	$	2,788	$	13,385	$	-	$	80	$	-	$	19,059
Loans collectively evaluated for impairment	33,085		103,344		10,200		35,847		366		172		4		183,018
Total ending loans balance	$	34,422	$	104,813	$	12,988	$	49,232	$	366	$	252	$	4	$	202,077

8

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	December 31, 2014
	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	$	132	$	115	$	161	$	1,088	$	-	$	10	$	-	$	1,506
Collectively evaluated for impairment	1,042		2,611		335		2,959		7		2		3		6,959
Total ending allowance balance	$	1,174	$	2,726	$	496	$	4,047	$	7	$	12	$	3	$	8,465
Loans:
Loans individually evaluated for impairment	$	1,414	$	2,765	$	4,636	$	14,602	$	-	$	102	$	-	$	23,519
Loans collectively evaluated for impairment	38,641		170,785		12,083		39,525		387		159		9		261,589
Total ending loans balance	$	40,055	$	173,550	$	16,719	$	54,127	$	387	$	261	$	9	$	285,108

The following table presents information related to loans individually evaluated for impairment by loan type as of June 30, 2015 and December 31, 2014:

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Single family	$	1,432	$	667	$	-	$	1,448	$	736	$	-
Multi-family	915		798		-		1,384		1,263		-
Commercial real estate	1,862		1,081		-		4,836		1,174		-
Church	5,929		3,984		-		6,234		4,350		-
Commercial - other	13		13		-		34		34		-
With an allowance recorded:
Single family	670		670		138		678		678		132
Multi-family	671		671		4		1,541		1,502		115
Commercial real estate	1,707		1,707		95		3,473		3,462		161
Church	9,790		9,401		1,153		10,751		10,252		1,088
Commercial -other	67		67		10		68		68		10
Total	$	23,056	$	19,059	$	1,400	$	30,447	$	23,519	$	1,506

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

9

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 three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	1,346		$	8		$	1,364		$	15
Multi-family		1,974			99			2,305			115
Commercial real estate		2,897			55			3,639			161
Church		13,695			144			14,191			286
Commercial -other		82			1			89			3
Total		$	19,994		$	307		$	21,588		$	580

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	2,930		$	18		$	2,977		$	35
Multi-family		3,543			23			3,722			46
Commercial real estate		4,783			96			4,828			189
Church		17,110			192			18,557			333
Commercial -other		130			2			137			5
Total		$	28,496		$	331		$	30,221		$	608

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans.  Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible.  Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $166 thousand and $328 thousand for the three months ended June 30, 2015 and 2014, respectively, and $450 thousand and $821 thousand for the six months ended June 30, 2015 and 2014, respectively, and were not included in the consolidated results of operations.

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by loan type:

	June 30, 2015
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Loans receivable held for investment:
Single family		$	82		$	-		$	-		$	82		$	34,340
Multi-family		341			-			457			798			104,015
Commercial real estate		-			-			-			-			12,988
Church		395			204			258			857			48,375
Construction		-			-			-			-			366
Commercial - other		-			-			-			-			252
Consumer		-			-			-			-			4
Total		$	818		$	204		$	715		$	1,737		$	200,340

10

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	December 31, 2014
	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		$	-		$	-		$	-		$	-		$	40,055
Multi-family		455			-			-			455			173,095
Commercial real estate		856			-			-			856			15,863
Church		-			180			987			1,167			52,960
Construction		-			-			-			-			387
Commercial - other		34			-			-			34			227
Consumer		-			-			-			-			9
Total		$	1,345		$	180		$	987		$	2,512		$	282,596

The following table presents the recorded investment in non-accrual loans by loan type as of June 30, 2015 and December 31, 2014:

	June 30, 2015			December 31, 2014
	(In thousands)
Loans receivable held for investment:
Single family		$	667		$	736
Multi-family		798			1,618
Commercial real estate		1,081			1,174
Church		4,109			5,232
Commercial - other		80			102
Total non-accrual loans		$	6,735		$	8,862

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2015 or December 31, 2014.

Troubled Debt Restructurings

At June 30, 2015, loans classified as troubled debt restructurings (“TDRs”) totaled $17.4 million, of which $5.1 million were included in non-accrual loans and $12.3 million were on accrual status.  At December 31, 2014, loans classified as TDRs totaled $20.2 million, of which $5.5 million were included in non-accrual loans and $14.7 million were on accrual status.  The Company has allocated $1.4 million and $1.3 million of specific reserves for accruing TDRs as of June 30, 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  No loans were modified during the three and six months ended June 30, 2015 and 2014.

11

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Credit Quality Indicators

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

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

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

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

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

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

12

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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 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 category of loans by loan type as of June 30, 2015 and December 31, 2014 is as follows:

	June 30, 2015
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	30,320	$	-	$	3,431	$	671	$	-	$	-
Multi-family	102,440		-		964		1,409		-		-
Commercial real estate	10,200		-		-		2,788		-		-
Church	37,964		782		1,443		9,043		-		-
Construction	366		-		-		-		-		-
Commercial - other	172		-		-		67		13		-
Consumer	4		-		-		-		-		-
Total	$	181,466	$	782	$	5,838	$	13,978	$	13	$	-
	December 31, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	35,850	$	-	$	3,465	$	740	$	-	$	-
Multi-family	170,700		-		613		2,237		-		-
Commercial real estate	13,218		-		284		3,217		-		-
Church	41,716		-		2,202		10,209		-		-
Construction	387		-		-		-		-		-
Commercial - other	159		-		-		102		-		-
Consumer	9		-		-		-		-		-
Total	$	262,039	$	-	$	6,564	$	16,505	$	-	$	-

NOTE (6) – Junior Subordinated Debentures

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks.  Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%.  The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.82% at June 30, 2015.  On October 16, 2014, the Company made payments of $900 thousand of principal on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof.  The modified terms of the Debentures require quarterly payments of interest only for the next five years at the original rate of 3-Month LIBOR plus 2.54%.  Starting in June 2019, the Company will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024.  The Debentures may be called for redemption at any time by the Company.

13

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (7) – Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral which is obtained from recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals which are updated every nine months.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

14

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Appraisals for collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at June 30, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	13,674	$	-	$	13,674
Securities available-for-sale - U.S. Government and federal agency	1,973		-		-		1,973

	Fair Value Measurements at December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	15,118	$	-	$	15,118
Securities available-for-sale - U.S. Government and federal agency	1,957		-		-		1,957

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2015 and 2014.

Assets Measured on a Non-Recurring Basis

Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet.  Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value.

The following table provides information regarding the carrying values of our assets measured at fair value on a non-recurring basis at the dates indicated.  The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy, except for loans receivable held for sale which is a Level 2 classification.

15

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	June 30, 2015	December 31, 2014
	(In thousands)
Assets:
Impaired loans carried at fair value of collateral:
Single family	504	549
Multi-family	-	323
Commercial real estate	1,081	1,177
Church	2,794	3,779
Real estate owned:
Church	2,178	2,082

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014:

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	504	Sales comparison approach	Adjustment for differences between the comparable sales	-9% to -3% (-6%)
Impaired loans – commercial real estate	1,081		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 1% (-1%)
			Income approach	Capitalization rate	4.75% to 7.25% (6.58%)
Impaired loans – church	2,794		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 14% (4%)
Real estate owned – church	2,178		Sales comparison approach	Adjustment for differences between the comparable sales	2% to 29% (10%)
			Income approach	Capitalization rate	6.50%

16

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	549	Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 9% (-4%)
Impaired loans – multi-family	323		Sales comparison approach	Adjustment for differences between the comparable sales	-18%
			Income approach	Capitalization rate	7%
Impaired loans – commercial real estate	1,177		Sales comparison approach	Adjustment for differences between the comparable sales	0% to 1% (0%)
			Income approach	Capitalization rate	5% to 7.25% (6.64%)
Impaired loans – church	3,779		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 18% (5%)
			Income approach	Capitalization rate	6%
Real estate owned – church	2,082		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 2% (0%)

17

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at June 30, 2015 and December 31, 2014 were as follows:

			Fair Value Measurements at June 30, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	51,661	$	51,661	$	-	$	-	$	51,661
Securities available-for-sale	15,647		1,973		13,674		-		15,647
Loans receivable held for sale	81,985		-		82,637		-		82,637
Loans receivable held for investment	195,154		-		-		195,405		195,405
Accrued interest receivable	1,050		6		94		950		1,050
Federal Home Loan Bank stock	2,915		2,915		-		-		2,915
Financial Liabilities:
Deposits	$	232,152	$	-	$	224,169	$	-	$	224,169
Federal Home Loan Bank advances	77,500		-		79,447		-		79,447
Junior subordinated debentures	5,100		-		-		3,025		3,025
Accrued interest payable	43		0		38		5		43

			Fair Value Measurements at December 31, 2014
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	20,790	$	20,790	$	-	$	-	$	20,790
Securities available-for-sale	17,075		1,957		15,118		-		17,075
Loans receivable held for sale	19,481		-		19,679		-		19,679
Loans receivable held for investment	276,643		-		-		277,000		277,000
Accrued interest receivable	1,216		6		88		1,122		1,216
Federal Home Loan Bank stock	4,254		4,254		-		-		4,254
Financial Liabilities:
Deposits	$	217,867	$	-	$	210,181	$	-	$	210,181
Federal Home Loan Bank advances	86,000		-		88,246		-		88,246
Junior subordinated debentures	5,100		-		-		2,034		2,034
Accrued interest payable	69		-		39		30		69

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

(b) Loans Receivable Held for Sale

The Company’s loans receivable held for sale are carried at the lower of cost or fair value. The fair value of loans receivable held for sale is determined by pricing for comparable assets or by outstanding commitments from third party investors, resulting in a Level 2 classification.

18

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

(c) Loans Receivable Held for Investment

Fair values of loans, excluding loans receivable held for sale, are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification.  Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.  Impaired loans are valued at the lower of cost or fair value as described previously.  The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) FHLB Stock

The carrying value of FHLB stock approximates its fair value as the shares can only be redeemed by the FHLB at par.

(e) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest receivable/payable approximate their fair value and are classified the same as the related asset.

(f) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 2 classification.  Fair values for fixed rate certificates of deposit are estimated using discounted cash flow calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(g) Federal Home Loan Bank Advances

The fair values of the Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(h) Junior Subordinated Debentures

The fair values of the Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

NOTE (8) – Stock-based Compensation

In 2008, the Company adopted the 2008 Long-Term Incentive Plan (“2008 LTIP”), which was approved by its stockholders.  The 2008 LTIP permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards to the Company’s non-employee directors and certain officers and employees for up to 2,000,000 shares of common stock.  Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; the option awards have vesting periods ranging from immediate vesting to 5 years and have 10-year contractual terms.

No options were granted during the three and six months ended June 30, 2015 and 2014.  The Company recorded no stock-based compensation expense during the three and six months ended June 30, 2015, compared to $11 thousand and $22 thousand of stock-based compensation expense recorded during the three and six months ended June 30, 2014.

19

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (9) – Regulatory Matters

Effective September 9, 2010, the Company and the Bank agreed to the issuance of cease and desist orders (the “Orders”) by the Office of Thrift Supervision, which was succeeded by the Office of the Comptroller of the Currency (“OCC”).  The Order applicable to the Company prohibits the Company from paying dividends to its stockholders without the prior written approval of the FRB, which is now the federal regulator for savings and loan holding companies.  In addition, the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt of written notice of non-objection from the FRB.

Effective October 30, 2013, the Bank entered into a Consent Order with the OCC, which superseded the Order applicable to the Bank.  The Bank’s capital requirements are administered by the OCC and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by the OCC.  Failure to meet capital requirements can result in regulatory action.

As part of the Consent Order, the Bank is required to maintain a Tier 1 Leverage ratio (Tier 1 capital to adjusted total assets) of at least 9% and a Total Capital ratio (Total capital to risk-weighted assets) of at least 13%, both of which ratios are greater than the respective 4% and 8% levels for such ratios that are generally required under OCC regulations.

The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013 that substantially amend the existing capital rules for banks.  These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act.

Beginning in the first quarter of 2015, the Bank became subject to the Basel III capital requirements, including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.  The final rules revise the definition and calculation of Tier 1 capital, Total capital, and include a new Common Equity Tier 1 capital.

Common Equity Tier 1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles, net of related taxes, MSRs and related deferred taxes that arise from tax loss and credit carryforwards.  Tier 1 capital is primarily comprised of Common Equity Tier 1 capital, perpetual preferred stock and certain qualifying capital instruments that are subject to phase-out from Tier 1 capital.  Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALLL.

The new capital rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 Leverage ratio of 4.0%.  A new capital conservation buffer is also established above the regulatory minimum capital requirements.  This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.  An institution that does not meet the conservation buffer will be subject to restrictions on certain activities, including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.

The Bank met the minimum capital requirements under the Consent Order at June 30, 2015 and December 31, 2014.  Actual and required capital amounts and ratios at June 30, 2015 and December 31, 2014, together with the higher capital requirements that the Bank is required to meet under the Consent Order applicable to it, are presented below.

20

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	Actual			Required for Capital Adequacy Purposes			Capital Requirements under Consent Order
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2015:
Tier 1 Leverage	$	42,578	11.89%	$	14,323	4.00%	$	32,227	9.00%
Common Equity Tier 1	$	42,578	17.87%	$	10,723	4.50%	N/A		N/A
Tier 1	$	42,578	17.87%	$	14,297	6.00%	N/A		N/A
Total Capital	$	45,606	19.14%	$	19,063	8.00%	$	30,978	13.00%
December 31, 2014:
Tier 1 Leverage	$	39,773	11.34%	$	14,028	4.00%	$	31,562	9.00%
Tier 1	$	39,773	16.41%	$	9,695	4.00%	N/A		N/A
Total Capital	$	42,870	17.69%	$	19,390	8.00%	$	31,508	13.00%

NOTE (10) – Income Taxes

The Company and its subsidiaries are subject to U.S. federal and state income taxes.  Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.  In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies.  This analysis is updated quarterly.  Based on this analysis, the Company determined that a valuation allowance of $7.9 million was required as of June 30, 2015, resulting in $0 net deferred tax assets.  The Company recorded a valuation allowance of $8.8 million and $0 net deferred tax assets as of December 31, 2014.  The decreases in the valuation allowance for the three and six months ended June 30, 2015 were $387 thousand and $877 thousand, respectively.

21

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.  Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I “Item 1, Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

Total assets increased by $8.3 million during the six months ended June 30, 2015, primarily reflecting an increase of $30.9 million in cash and cash equivalents and a net decrease of $19.0 million in loans receivable, including loans held for sale, as we completed a bulk loan sale of approximately $45.0 million in June 2015 in order to comply with regulatory loan concentration guidelines.  Additionally, the FHLB redeemed $1.3 million of our investment in FHLB stock and we received $1.4 million of principal payments on our securities investments during the first half of 2015.

During the six months ended June 30, 2015, total deposits increased by $14.3 million and FHLB advances decreased by $8.5 million.

We recorded net income of $1.2 million and $2.5 million for the three and six months ended June 30, 2015, compared to $59 thousand and $1.0 million for the three and six months ended June 30, 2014, respectively.  Results during 2015 included recaptures of loan losses of $750 thousand in the first and second quarters and a grant of $355 thousand from the U.S. Department of the Treasury’s Community Development Financial Institutions (“CDFI”) Fund, compared to the same periods in 2014, when we recorded recaptures of loan losses of $1.1 million and $500 thousand for the first and second quarters, respectively, and a $200 thousand grant from CDFI.   During the three and six months ended June 30, 2015, we also generated higher net interest income before recapture of loan losses, higher net gain on sale of loans and lower non-interest expense compared to the same periods in 2014.

We became subject to the Basel III capital requirements effective January 1, 2015.  The Basel III capital rules include a new ratio of Common Equity Tier 1 capital to risk-weighted assets and increase the minimum capital requirements.  A new capital conservation buffer has also been established at levels above the regulatory minimum capital requirements.  The final rules also revise the definition and calculation of Tier 1 capital, Total capital and risk-weighted assets.  The implementation of the Basel III capital requirements is transitional and phases in through the end of 2018.  See “Regulatory Capital” for additional information.

Results of Operations

Net Income

We recorded net income of $1.2 million, or $0.04 per diluted common share, and $2.5 million, or $0.08 per diluted common share, for the three and six months ended June 30, 2015, respectively.  For the same periods a year ago, we recorded net income of $59 thousand, or $0.00 per diluted common share, and $1.0 million, or $0.05 per diluted common share, respectively.  The increases in net income during the three and six months ended June 30, 2015 were primarily due to higher net interest income before recapture of loan losses, higher non-interest income and lower non-interest expense.  In addition, we recorded higher recapture of loan losses during the second quarter of 2015.

Net Interest Income

Net interest income before recapture of loan losses was $3.1 million for the second quarter of 2015, which is an increase of $227 thousand, or 8%, from $2.9 million for the second quarter of 2014.  The increase in net interest income from the second quarter of 2014 was primarily due to higher interest income on loans and securities.

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Interest income and fees on loans was $3.8 million for the second quarter of 2015, up $90 thousand, or 2%, from the second quarter of 2014.  The increase in loan interest income from the second quarter of 2014 was driven by growth in the loan portfolio, including loans held for sale.  The average balance of loans receivable increased by $39.6 million to $307.4 million for the second quarter of 2015 from $267.8 million for the second quarter of 2014 and resulted in an increase of $511 thousand in interest income.  Partially offsetting this increase was a decrease of $421 thousand in interest income as our average yield on loans decreased 59 basis points to 4.92% for the second quarter of 2015 from 5.51% for the second quarter of 2014.  The lower average yield on loans for the second quarter of 2015 was primarily due to payoffs of loans which carried higher coupon rates than the average yield on total loans, lower coupon rates on loan originations as a result of the low interest rate environment and higher amortization expense on deferred origination costs.

Other interest income was $243 thousand for the second quarter of 2015, up $161 thousand, or 196%, from the second quarter of 2014.  The increase from the second quarter of 2014 was primarily due to a special cash dividend on FHLB stock of $160 thousand received during the second quarter of 2015.

Total interest expense was $971 thousand for the second quarter of 2015, up $11 thousand, or 1%, from the second quarter of 2014.  Interest expense on deposits was $435 thousand for the second quarter of 2015, up $8 thousand, or 2%, from the second quarter of 2014.  The increase in deposit interest expense from the second quarter of 2014 was due to growth in interest-bearing deposits.  The impact of higher average interest-bearing deposit balances more than offset the impact of lower deposit rates in the second quarter of 2015.  The average balance of deposits increased by $13.5 million to $224.1 million for the second quarter of 2015 from $210.6 million for the second quarter of 2014 and resulted in an increase of $40 thousand in interest expense.   The average cost of deposits decreased by 3 basis points to 78 basis points for the second quarter of 2015 from 81 basis points for the second quarter of 2014 and resulted in a decrease of $32 thousand in interest expense.

Interest expense on borrowings was $536 thousand for the second quarter of 2015, up from $533 thousand for the second quarter of 2014.  The increase of $3 thousand in interest expense on borrowings primarily reflected an increase of $14 thousand in interest expense on FHLB advances and a decrease of $11 thousand in interest expense on the Debentures as a result of the debt modification in 2014.  The increase of $14 thousand in interest expense on FHLB advances was primarily due to an increase of $6.4 million in the average balance of FHLB advances, which increased interest expense by $40 thousand, and a decrease of 12 basis points in the average cost of FHLB advances, which decreased interest expense by $26 thousand.

For the six months ended June 30, 2015, net interest income before recapture of loan losses totaled $6.1 million, up $387 thousand, or 7%, from $5.7 million of net interest income before recapture of loan losses for the same period a year ago.  The increase in net interest income primarily resulted from an increase of $26.1 million in average interest-earning assets.

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The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated.  All average balances are daily average balances.  The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense.  We do not accrue interest on loans on non-accrual status; however, the balance of these loans is included in the total average balance of loans receivable, which has the effect of reducing average loan yields.

	For the three months ended June 30,
	2015					2014
(Dollars in Thousands)	Average Balance		Interest		Average Yield/ Cost	Average Balance		Interest		Average Yield/ Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	2,379	$	2	0.34%	$	2,944	$	3	0.41%
Federal Funds sold and other short-term investments	21,374		13		0.24%	29,238		18		0.25%
Securities	16,184		90		2.22%	17,716		104		2.35%
Loans receivable (1)	307,358		3,779		4.92%	267,820		3,689		5.51%
FHLB stock	3,461		228		26.35%	3,737		61		6.53%
Total interest-earning assets	350,756		$	4,112	4.69%	321,455		$	3,875	4.82%
Non-interest-earning assets	7,220					9,179
Total assets	$	357,976				$	330,634
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	17,349	$	19	0.44%	$	15,382	$	15	0.39%
Passbook deposits	36,701		29		0.32%	36,503		29		0.32%
NOW and other demand deposits	28,782		5		0.07%	30,978		7		0.09%
Certificate accounts	141,283		382		1.08%	127,787		376		1.18%
Total deposits	224,115		435		0.78%	210,650		427		0.81%
FHLB advances	85,907		500		2.33%	79,500		486		2.45%
Senior debt (2)	-		-		-	2,867		-		-
Junior subordinated debentures (3)	5,100		36		2.82%	6,000		47		3.13%
Total interest-bearing liabilities	315,122		$	971	1.23%	299,017		$	960	1.28%
Non-interest-bearing liabilities	4,020					5,098
Stockholders’ Equity	38,834					26,519
Total liabilities and stockholders’ equity	$	357,976				$	330,634
Net interest rate spread (4)			$	3,141	3.46%			$	2,915	3.54%
Net interest rate margin (5)					3.58%					3.63%

(1)Amount is net of deferred loan fees, loan discounts, and loans in process, and includes loans receivable held for sale.

(2)No interest expense was recognized on the senior debt post restructuring because the floating interest rate on the remaining modified loan did not exceed the floor rate of 6% post modification.  Paid off in October 2014.

(3)2014 interest expense included compounding on past due interest.  Interest on the Debentures was brought current in October 2014.

(4)Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

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	For the six months ended June 30,
	2015					2014
(Dollars in Thousands)	Average Balance		Interest		Average Yield/ Cost	Average Balance		Interest		Average Yield/ Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	2,351	$	4	0.34%	$	3,005	$	6	0.40%
Federal Funds sold and other short-term investments	20,638		24		0.23%	38,400		45		0.23%
Securities	16,237		184		2.27%	13,456		168		2.50%
Loans receivable (1)	304,903		7,503		4.92%	263,359		7,315		5.56%
FHLB stock	3,898		302		15.50%	3,737		137		7.33%
Total interest-earning assets	348,027		$	8,017	4.61%	321,957		$	7,671	4.77%
Non-interest-earning assets	7,010					8,758
Total assets	$	355,037				$	330,715
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	16,965	$	35	0.41%	$	15,683	$	31	0.40%
Passbook deposits	36,751		58		0.32%	36,921		59		0.32%
NOW and other demand deposits	29,275		11		0.08%	30,816		14		0.09%
Certificate accounts	138,797		746		1.07%	127,656		784		1.23%
Total deposits	221,788		850		0.77%	211,076		888		0.84%
FHLB advances	85,511		996		2.33%	79,500		976		2.46%
Senior debt (2)	-		-		-	2,886		-		-
Junior subordinated debentures (3)	5,100		71		2.78%	6,000		94		3.13%
Total interest-bearing liabilities	312,399		$	1,917	1.23%	299,462		$	1,958	1.31%
Non-interest-bearing liabilities	4,307					5,092
Stockholders’ Equity	38,331					26,161
Total liabilities and stockholders’ equity	$	355,037				$	330,715
Net interest rate spread (4)			$	6,100	3.38%			$	5,713	3.46%
Net interest rate margin (5)					3.51%					3.55%

(1)Amount is net of deferred loan fees, loan discounts, and loans in process, and includes loans receivable held for sale.

(2)No interest expense was recognized on the senior debt post restructuring because the floating interest rate on the remaining modified loan did not exceed the floor rate of 6% post modification.  Paid off in October 2014.

(3)2014 interest expense included compounding on past due interest.  Interest on the Debentures was brought current in October 2014.

(4)Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

25

Recapture of Loan Losses

We recorded a $750 thousand recapture of loan losses for the second quarter of 2015, compared to a $500 thousand recapture of loan losses for the second quarter of 2014.  The recapture of loan losses during the second quarter of 2015 was primarily due to the reduction in the loans held for investment portfolio, continued improvements in credit quality, and declines in net charge-offs and overall historical loss factors.  See “Allowance for Loan Losses” for additional information.

For the six months ended June 30, 2015, we recorded a recapture of loan losses of $1.5 million compared to $1.6 million for the same period a year ago.  The recapture of loan losses during the first half of 2015 primarily reflected a reduction in the loans held for investment portfolio and continued improvements in credit quality.

Non-interest Income

Non-interest income was $492 thousand for the second quarter of 2015, up $428 thousand, or 669%, from the second quarter of 2014.  The increase in non-interest income from the second quarter of 2014 was primarily due to a $380 thousand gain on sale of loans and a decrease of $33 thousand in net loss on sale of REOs.

For the six months ended June 30, 2015, non-interest income totaled $1.1 million compared to $397 thousand for the same period a year ago.  The increase in non-interest income was primarily due to a gain on sale of loans of $514 thousand during the first half of 2015.  We also received $200 thousand more in CDFI grant and recorded a small net gain on sale of REOs during the first half of 2015, compared to a net loss on sale of REOs of $50 thousand during the first half of 2014.

Non-interest Expense

Non-interest expense was $3.2 million for the second quarter of 2015, down $196 thousand, or 6%, from the second quarter of 2014.  The decrease in non-interest expense from the second quarter of 2014 was primarily due to a decrease of $81 thousand in FDIC assessments, a decrease of $213 thousand in REO expense, primarily relating to valuation write-downs, and an increase of $77 thousand in other expense, primarily relating to provision for unfunded loan commitments.

For the six months ended June 30, 2015, non-interest expense totaled $6.3 million compared to $6.6 million for the same period a year ago.  The decrease in non-interest expense during the first half of 2015 primarily reflected a decrease of $185 thousand in professional services expense, a decrease of $175 thousand in FDIC assessments and a decrease of $225 thousand in REO expenses, which were partially offset by an increase of $243 thousand in compensation and benefits expense.  Professional services expense for the first half of 2015 was lower than in the first half of 2014 due to legal and consulting fees incurred in the first half of 2014 in connection with our request for an extension of the maturity of the Debentures.  The decrease in REO expense during the first half of 2015 was primarily due to lower provision for losses on REO reflecting fewer foreclosures and stable property values.  Compensation and benefits expense increased primarily due to bonus accruals and salary increases.

Income Taxes

The Company’s income tax expense was $6 thousand and $8 thousand for the three and six months ended June 30, 2015 compared to $0 and $3 thousand for the three and six months ended June 30, 2014 respectively.  The tax expense for 2015 and 2014 primarily reflected the statutory minimum taxes paid to the state of California, and the use of tax carryforwards to offset current taxable income in the periods presented.

Financial Condition

Total Assets

Total assets were $359.2 million at June 30, 2015, which represented an increase of $8.3 million, or 2%, from total assets of $350.9 million at December 31, 2014.  The increase in assets during the first half of 2015 was primarily due to an increase of $30.9 million in cash and cash equivalents.  This was partially offset by a net decrease of $19.0 million in loans receivable, including loans held for sale, as a result of the completion of a bulk loan sale for approximately $45.0 million.

26

Loans Receivable Held for Sale

Loans receivable held for sale at June 30, 2015 and December 31, 2014 totaled $82.0 million and $19.5 million, respectively, and consisted of multi-family loans.  During the first half of 2015, we originated $31.4 million of multi-family loans in our held for sale portfolio.  In addition, during the first half of 2015, we reclassified $90.2 million of multi-family loans from loans receivable held for investment to loans receivable held for sale in order to comply with our Loan Concentration Risk Management Policy, which was revised in March 2015 to comply with the OCC’s Loan Concentration Guidelines.  Loan sales totaled $59.0 million and loan repayments totaled $166 thousand during the first half of 2015.

Loans Receivable Held for Investment

Our gross loan portfolio decreased by $82.1 million to $201.5 million at June 30, 2015, from $283.6 million at December 31, 2014.  The decrease in our loan portfolio during the first half of 2015 primarily consisted of a decrease of $67.8 million in our multi-family residential real estate loan portfolio, a decrease of $5.6 million in our single family residential real estate loan portfolio, a decrease of $3.7 million in our commercial real estate loan portfolio and a decrease of $4.9 million in our church loan portfolio.

Loans originated for investment totaled $32.6 million for the six months ended June 30, 2015, compared to loans originated for investment of $40.6 million for the six months ended June 30, 2014.  Loan repayments for the six months ended June 30, 2015 totaled $24.6 million, compared to $22.3 million for the six months ended June 30, 2014.  Loans transferred to our held for sale portfolio during the six months ended June 30, 2015 totaled $90.2 million.

Gross loan charge-offs during the first half of 2015 totaled $53 thousand, compared to gross loan charge-offs of $442 thousand during the first half of 2014.  Loans transferred to REO during the first half of 2015 totaled $843 thousand, compared to $1.8 million during the first half of 2014.

Allowance for Loan Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for loan losses (“ALLL”) at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio.  At least quarterly we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market.  The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

Our ALLL decreased by $1.6 million to $6.9 million, or 3.43% of our gross loans receivable held for investment, at June 30, 2015, from $8.5 million, or 2.97% of our gross loans receivable held for investment, at December 31, 2014, primarily reflecting $1.5 million of recapture of loan losses.  The recapture of $1.5 million was primarily due to shrinkage of the loans held for investment portfolio, continued improvements in credit quality and declines in net charge-offs and overall historical loss factors.  We continue to maintain our allowance at a level that we believe is appropriate given the significant reduction in delinquencies and non-performing loans, the continued improvement in our asset quality metrics and the high quality of our loan originations.

Our asset quality continues to show signs of improvement as our loan delinquencies and non-performing loans are at their lowest levels since December 2009.  As of June 30, 2015, we had total delinquencies of $1.7 million, compared to total delinquencies of $2.5 million at December 31, 2014.  Loan delinquencies decreased by $775 thousand during the first half of 2015 primarily due to two loans foreclosed and transferred to REO.

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Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status.  At June 30, 2015, NPLs totaled $6.7 million, compared to $8.9 million at December 31, 2014.  The decrease of $2.2 million in NPLs was primarily due to transfers to REO of $843 thousand, payoff of $793 thousand, repayments of $419 thousand and charge-offs of $53 thousand.

In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as lack of current financial information and an insufficient period of satisfactory performance.  As of June 30, 2015, $5.7 million, or 84%, of our total NPLs of $6.7 million were current in their payments.  Also, in determining the ALLL, we consider the ratio of the ALLL to NPLs, which increased to 102.79% at June 30, 2015 from 95.52% at December 31, 2014.

When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends.  Gross loan charge-offs during the first half of 2015 were $53 thousand compared to $442 thousand during the first half of 2014.  The charge-offs during the first half of 2015 were primarily due to impairment losses on a foreclosed church loan and a delinquent single-family residential real estate loan that was fully written off.  In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months.  If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs.  Therefore, certain losses inherent in our total NPLs are recognized periodically through charge-offs.  The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans.  As of June 30, 2015, we had written down 65% of our NPLs to estimated fair value less estimated selling costs.  The remaining 35% of our NPLs at June 30, 2015 had specific reserves or were reported at cost because the fair value of collateral less estimated selling costs exceeded the recorded investment in the loan.  As of June 30, 2015, the average loan to value on NPLs was 52%.

Recoveries during the first half of 2015 totaled $11 thousand compared to $1.3 million during the first half of 2014.  Recoveries during the first half of 2014 were primarily due to payoffs of two non-accrual loans which had been fully written off in late 2011, resulting in recoveries of $1.1 million.

Impaired loans at June 30, 2015 were $19.1 million, compared to $23.5 million at December 31, 2014.  Specific reserves for impaired loans were $1.4 million, or 7.35% of the aggregate impaired loan amount at June 30, 2015, compared to $1.5 million, or 6.40%, at December 31, 2014.  Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) increased to 3.02% at June 30, 2015, from 2.66% at December 31, 2014, primarily as we transferred over $90 million of loans held for investment to loans held for sale.

Management believes that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of June 30, 2015, but there can be no assurance that actual losses will not exceed the estimated amounts.  In addition, the OCC and the FDIC periodically review the ALLL as an integral part of their examination process.  These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

Real Estate Owned

During the first half of 2015, REO increased by $96 thousand to $2.2 million at June 30, 2015, from $2.1 million at December 31, 2014.  During the first half of 2015, two church loans totaling $843 thousand were foreclosed and the properties securing the loans were transferred to REO.  Two REO properties were sold during 2015 for net proceeds of $621 thousand and a net gain of less than $1 thousand.  At June 30, 2015, the Bank’s REO consisted of two church buildings.

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Deposits

Deposits totaled $232.2 million at June 30, 2015, up $14.3 million from December 31, 2014.  During the first half of 2015, certificates of deposit increased by $12.3 million and represented 64% of total deposits at June 30, 2015, compared to 62% of total deposits at December 31, 2014.  Core deposits (NOW, demand, money market and passbook accounts) increased by $2.0 million during the first half of 2015 and represented 36% of total deposits at June 30, 2015, compared to 38% of total deposits at December 31, 2014.

Borrowings

At June 30, 2015, total borrowings consisted of advances to the Bank from the FHLB of $77.5 million and Debentures issued by the Company of $5.1 million.  At December 31, 2014, borrowings consisted of advances from the FHLB of $86.0 million and Debentures of $5.1 million.  During the first half of 2015, we repaid $8.5 million of the FHLB advance with proceeds from our loan sale in June.

Stockholders’ Equity

Stockholders’ equity was $39.6 million, or 11.04% of the Company’s total assets, at June 30, 2015, compared to $37.3 million, or 10.62% of the Company’s total assets, at December 31, 2014.  The increase in stockholders’ equity during the first half of 2015 was primarily due to net earnings for such period.

Liquidity

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet other obligations on a timely and cost-effective basis.  The Bank’s sources of funds include deposits, advances from the FHLB and other borrowings, proceeds from the sale of loans, REO, and investment securities, and payments of principal and interest on loans and investment securities.  The Bank is currently approved by the FHLB to borrow up to 30% of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.  This approved limit and collateral requirement would have permitted the Bank, as of June 30, 2015, to borrow an additional $28.7 million.  Also, the Bank has received funds from investments made by the Company into the equity of the Bank, including the investments made as part of the recapitalization completed in August 2013 and the private placement transactions completed in October 2014.

The Bank’s primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.  Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank sells federal funds to the Federal Reserve Bank or other financial institutions.  The Bank’s liquid assets at June 30, 2015 consisted of $51.7 million in cash and cash equivalents and $14.9 million in securities available-for-sale that were not pledged, compared to liquid assets of $20.8 million in cash and cash equivalents and $15.9 million in securities available-for-sale that were not pledged at December 31, 2014.

Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

The Company’s separate company liquidity is based primarily on the proceeds from financing transactions, such as the private placements completed in August 2013 and October 2014.  The Company has not been able to obtain funds from the Bank since 2010 as the Order placed limitations on the Bank, including prohibition of the payment of dividends by the Bank without prior regulatory approval.

The Company recorded consolidated net cash outflows from operating activities of $14.8 million during the six months ended June 30, 2015, compared to consolidated net cash inflows from operating activities of $914 thousand during the six months ended June 30, 2015.  Net cash outflows from operating activities during the first half of 2015 were primarily attributable to originations of loans held for sale.

29

The Company recorded consolidated net cash inflows from investing activities of $39.9 million during the six months ended June 30, 2015, compared to consolidated net cash outflows from investing activities of $24.8 million during the six months ended June 30, 2014.  Net cash inflows from investing activities during the first half of 2015 were primarily attributable to proceeds from sale of loans, principal repayments on securities, proceeds from sale of REOs and proceeds from redemption of FHLB stock.

The Company recorded consolidated net cash inflows from financing activities of $5.8 million and $326 thousand during the six months ended June 30, 2015 and June 30, 2014, respectively.  Net cash inflows from financing activities during the first half of 2015 were primarily attributable to a net increase in deposits.

Capital Resources

Our principal subsidiary, Broadway Federal, must comply with capital standards established by the OCC in the conduct of its business.  Failure to comply with such capital requirements may result in significant limitations on its business or other sanctions.  The Dodd-Frank Act, among other things, now imposes specific capital requirements on us as a savings and loan holding company as well.  These requirements must be no less than those to which federally insured depository institutions are currently subject.  The current regulatory capital requirements are described in Note 9 of the Notes to Consolidated Financial Statements and in “Regulatory Capital” below.

Regulatory Capital

The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013 that substantially amend the existing capital rules for banks.  These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act.

Beginning in the first quarter of 2015, we became subject to the Basel III capital requirements, including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.  The final rules also revise the definition and calculation of Tier 1 capital, Total capital, and include a new Common Equity Tier 1 capital.

Common Equity Tier 1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles net of related taxes, MSRs net of related taxes that arise from tax loss and credit carryforwards.  Tier 1 capital is primarily comprised of Common Equity Tier 1 capital, perpetual preferred stock and certain qualifying capital instruments that are subject to phase-out from Tier 1 capital.  Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALLL.

The new capital rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 Leverage ratio of 4.0%.  A new capital conservation buffer is also established above the regulatory minimum capital requirements.  This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.  An institution that does not meet the conservation buffer will be subject to restrictions on certain activities, including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.

The Bank is subject to higher capital requirements under the Consent Order entered into by the Bank with the OCC on October 30, 2013.  The Consent Order raised the Bank’s minimum capital requirements to 9% for Tier 1 Leverage ratio (Tier 1 capital to adjusted total assets) and 13% for Total Capital ratio (Total capital to risk-weighted assets).  The Bank was in compliance with all capital requirements in effect at June 30, 2015 and December 31, 2014.

30

Actual and required capital amounts and ratios at June 30, 2015 and December 31, 2014, together with the higher capital requirements that the Bank is required to meet under the Consent Order applicable to it, are presented below.

	Actual			Required for Capital Adequacy Purposes			Capital Requirements under Consent Order
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2015:
Tier 1 Leverage	$	42,578	11.89%	$	14,323	4.00%	$	32,227	9.00%
Common Equity Tier 1	$	42,578	17.87%	$	10,723	4.50%	N/A		N/A
Tier 1	$	42,578	17.87%	$	14,297	6.00%	N/A		N/A
Total Capital	$	45,606	19.14%	$	19,063	8.00%	$	30,978	13.00%
December 31, 2014:
Tier 1 Leverage	$	39,773	11.34%	$	14,028	4.00%	$	31,562	9.00%
Tier 1	$	39,773	16.41%	$	9,695	4.00%	N/A		N/A
Total Capital	$	42,870	17.69%	$	19,390	8.00%	$	31,508	13.00%

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as of June 30, 2015.  Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2015.  There were no significant changes during the quarter ended June 30, 2015 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

PART II.  OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

None

Item 1A.RISK FACTORS

Not Applicable

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3.DEFAULTS UPON SENIOR SECURITIES

None

Item 4.MINE SAFETY DISCLOSURES

Not Applicable

Item 5.OTHER INFORMATION

None

Item 6.EXHIBITS

Exhibit Number*
3.1	Certificate of Incorporation of Registrant and amendments thereto (Exhibit 3.1 to Form 10-Q filed by the Registrant on November 13, 2014)
3.2	Bylaws of Registrant (Exhibit 3.2 to Form 10-Q filed by the Registrant on November 14, 2013)
10.1	Form of Subscription Agreement entered into between the Registrant and various investors, dated October 16, 2014 (Exhibit 10.1 to Form 10-Q filed by the Registrant on November 13, 2014)
10.2.1	Subscription Agreement entered into between the Registrant and Gapstow Financial Growth Capital Fund I LP, dated October 16, 2014 (Exhibit 10.2.1 to Form 10-Q filed by the Registrant on November 13, 2014)
10.2.2	Investor Rights Letter Agreement entered into between the Registrant and Gapstow Financial Growth Capital Fund I LP, dated October 16, 2014 (Exhibit 10.2.2 to Form 10-Q filed by the Registrant on November 13, 2014)
10.3.1	Subscription Agreement entered into between the Registrant and National Community Investment Fund, dated October 16, 2014 (Exhibit 10.3.1 to Form 10-Q filed by the Registrant on November 13, 2014)
10.3.2	Investor Rights Letter Agreement entered into between the Registrant and National Community Investment Fund, dated October 16, 2014 (Exhibit 10.3.2 to Form 10-Q filed by the Registrant on November 13, 2014)
10.4	Registration Rights Agreement entered into among the Registrant, Gapstow Financial Growth Capital Fund I LP, and National Community Investment Fund, dated October 16, 2014 (Exhibit 10.4 to Form 10-Q filed by the Registrant on November 13, 2014)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Exhibit Number*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Exhibits followed by a parenthetical reference are incorporated by reference herein from the document filed by the Registrant with the SEC described therein.  Except as otherwise indicated, the SEC File No. for each incorporated document is 000-27464.

33

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:	August 13, 2015	By:	/s/ Wayne-Kent A. Bradshaw
			Wayne-Kent A. Bradshaw
			Chief Executive Officer
Date:	August 13, 2015	By:	/s/ Brenda J. Battey
			Brenda J. Battey
			Chief Financial Officer

34

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Wayne-Kent A. Bradshaw, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 13, 2015	By:  /s/  Wayne-Kent A. Bradshaw
		Wayne-Kent A. Bradshaw
		Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Brenda J. Battey, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 13, 2015	By:  /s/  Brenda J. Battey
		Brenda J. Battey
		Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 906 CERTIFICATION

The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.

The undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.

Date: August 13, 2015	By:	/s/ Wayne-Kent A. Bradshaw
		Wayne-Kent A. Bradshaw
		Chief Executive Officer

EX-32.2

Exhibit 32.2

SECTION 906 CERTIFICATION

The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.

The undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.

Date: August 13, 2015	By:	/s/ Brenda J. Battey
		Brenda J. Battey
		Chief Financial Officer

XML

Fair Value (Details 4) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financial Assets:
Securities available-for-sale, at fair value	$ 15,647	$ 17,075
Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets:
Cash and cash equivalents	51,661	20,790
Securities available-for-sale, at fair value	1,973	1,957
Accrued interest receivable	6	6
Federal Home Loan Bank stock	2,915	4,254
Significant Other Observable Unobservable Inputs (Level 2)
Financial Assets:
Securities available-for-sale, at fair value	13,674	15,118
Loans receivable held for sale	82,637	19,679
Accrued interest receivable	94	88
Financial Liabilities:
Deposits	224,169	210,181
Federal Home Loan Bank advances	79,447	88,246
Accrued interest payable	38	39
Significant Unobservable Inputs (Level 3)
Financial Assets:
Loans receivable held for investment	195,405	277,000
Accrued interest receivable	950	1,122
Financial Liabilities:
Junior subordinated debentures	3,025	2,034
Accrued interest payable	5	30
Carrying Value
Financial Assets:
Cash and cash equivalents	51,661	20,790
Securities available-for-sale, at fair value	15,647	17,075
Loans receivable held for sale	81,985	19,481
Loans receivable held for investment	195,154	276,643
Accrued interest receivable	1,050	1,216
Federal Home Loan Bank stock	2,915	4,254
Financial Liabilities:
Deposits	232,152	217,867
Federal Home Loan Bank advances	77,500	86,000
Junior subordinated debentures	5,100	5,100
Accrued interest payable	43	69
Total
Financial Assets:
Cash and cash equivalents	51,661	20,790
Securities available-for-sale, at fair value	15,647	17,075
Loans receivable held for sale	82,637	19,679
Loans receivable held for investment	195,405	277,000
Accrued interest receivable	1,050	1,216
Federal Home Loan Bank stock	2,915	4,254
Financial Liabilities:
Deposits	224,169	210,181
Federal Home Loan Bank advances	79,447	88,246
Junior subordinated debentures	3,025	2,034
Accrued interest payable	$ 43	$ 69

XML

Loans Receivable Held for Investment (Details 8) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) loan	Jun. 30, 2014 loan	Jun. 30, 2015 USD ($) loan	Jun. 30, 2014 loan	Dec. 31, 2014 USD ($)
Troubled debt restructuring
Loans classified as Troubled Debt Restructurings	$ 17,400		$ 17,400		$ 20,200
Specific reserves allocated to TDRs	1,400		$ 1,400		1,300
Timely payment period for return to accrual status			6 months
Commitments to lend additional amounts to customers with TDRs	$ 0		$ 0		0
Number of loans modified | loan	0	0	0	0
Non-accrual status
Troubled debt restructuring
Loans classified as Troubled Debt Restructurings	$ 5,100		$ 5,100		5,500
Accrual status
Troubled debt restructuring
Loans classified as Troubled Debt Restructurings	$ 12,300		$ 12,300		$ 14,700

XML

Loans Receivable Held for Sale (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Loans Receivable Held for Sale
Loans receivable held for sale	$ 81,985	$ 81,985	$ 19,481
Payments for Origination of Mortgage Loans Held-for-sale		31,479
Transfer of loan held in portfolio to held-for-sale		90,183
Loan sales	46,800	59,000
Multi-family
Loans Receivable Held for Sale
Loans receivable held for sale	82,000	82,000	$ 19,500
Payments for Origination of Mortgage Loans Held-for-sale	18,900	$ 31,500
Transfer of loan held in portfolio to held-for-sale	$ 90,200

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Income Taxes
Period for which prior cumulative losses considered in assessing the realization of deferred tax assets		2 years
Valuation allowance	$ 7,900	$ 7,900	$ 8,800
Decreases in the valuation allowance	387	877
Net deferred tax assets	$ 0	$ 0	$ 0

XML

Fair Value (Details 2) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair Value
Loans receivable, fair value	$ 195,405	$ 277,000
Fair Value, Measurements, Nonrecurring | Single family | Impaired loans
Fair Value
Loans receivable, fair value	504	549
Fair Value, Measurements, Nonrecurring | Multi-family | Impaired loans
Fair Value
Loans receivable, fair value		323
Fair Value, Measurements, Nonrecurring | Commercial real estate | Impaired loans
Fair Value
Loans receivable, fair value	1,081	1,177
Fair Value, Measurements, Nonrecurring | Church | Impaired loans
Fair Value
Loans receivable, fair value	2,794	3,779
Fair Value, Measurements, Nonrecurring | Church | Real estate owned.
Fair Value
Assets, fair value	$ 2,178	$ 2,082

XML

Loans Receivable Held for Sale

6 Months Ended

Jun. 30, 2015

Loans receivable held for sale

Loans Receivable Held for Sale

Loans Receivable Held for Sale

NOTE (4) – Loans Receivable Held for Sale

Loans receivable held for sale at June 30, 2015 and December 31, 2014 totaled $82.0 million and $19.5 million, respectively, and consisted of multi-family loans.  During the three and six months ended June 30, 2015, multi-family loans originated for sale totaled $18.9 million and $31.5 million, respectively.  During the second quarter of 2015, in order to comply with regulatory loan concentration guidelines, the Bank transferred $90.2 million of performing multi-family loans from held for investment to held for sale.

During the three and six months ended June 30, 2015, loan sales totaled $46.8 million and $59.0 million, respectively.

XML

Loans Receivable Held for Investment (Details 4) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Impaired loans
Unpaid principal balance	$ 23,056	$ 30,447
Recorded investment	19,059	23,519
Allowance for loan losses allocated, with an allowance recorded	1,400	1,506
Single family
Impaired loans
Unpaid principal balance, with no related allowance recorded	1,432	1,448
Unpaid principal balance, with an allowance recorded	670	678
Recorded investment, with no related allowance recorded	667	736
Recorded investment, with an allowance recorded	670	678
Allowance for loan losses allocated, with an allowance recorded	138	132
Multi-family
Impaired loans
Unpaid principal balance, with no related allowance recorded	915	1,384
Unpaid principal balance, with an allowance recorded	671	1,541
Recorded investment, with no related allowance recorded	798	1,263
Recorded investment, with an allowance recorded	671	1,502
Allowance for loan losses allocated, with an allowance recorded	4	115
Commercial real estate
Impaired loans
Unpaid principal balance, with no related allowance recorded	1,862	4,836
Unpaid principal balance, with an allowance recorded	1,707	3,473
Recorded investment, with no related allowance recorded	1,081	1,174
Recorded investment, with an allowance recorded	1,707	3,462
Allowance for loan losses allocated, with an allowance recorded	95	161
Church
Impaired loans
Unpaid principal balance, with no related allowance recorded	5,929	6,234
Unpaid principal balance, with an allowance recorded	9,790	10,751
Recorded investment, with no related allowance recorded	3,984	4,350
Recorded investment, with an allowance recorded	9,401	10,252
Allowance for loan losses allocated, with an allowance recorded	1,153	1,088
Commercial - other
Impaired loans
Unpaid principal balance, with no related allowance recorded	13	34
Unpaid principal balance, with an allowance recorded	67	68
Recorded investment, with no related allowance recorded	13	34
Recorded investment, with an allowance recorded	67	68
Allowance for loan losses allocated, with an allowance recorded	$ 10	$ 10

XML

Loans Receivable Held for Investment (Details 3) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 1,400		$ 1,506
Collectively evaluated for impairment	5,523		6,959
Total ending allowance balance	6,923	$ 7,671	8,465	$ 9,376	$ 10,091	$ 10,146
Loans:
Loans individually evaluated for impairment	19,059		23,519
Loans collectively evaluated for impairment	183,018		261,589
Total ending loans balance	202,077		285,108
Single family
Ending allowance balance attributable to loans:
Individually evaluated for impairment	138		132
Collectively evaluated for impairment	1,012		1,042
Total ending allowance balance	1,150	1,164	1,174	1,849	1,874	1,930
Loans:
Loans individually evaluated for impairment	1,337		1,414
Loans collectively evaluated for impairment	33,085		38,641
Total ending loans balance	34,422		40,055
Multi-family
Ending allowance balance attributable to loans:
Individually evaluated for impairment	4		115
Collectively evaluated for impairment	1,841		2,611
Total ending allowance balance	1,845	2,741	2,726	2,304	2,107	1,726
Loans:
Loans individually evaluated for impairment	1,469		2,765
Loans collectively evaluated for impairment	103,344		170,785
Total ending loans balance	104,813		173,550
Commercial real estate
Ending allowance balance attributable to loans:
Individually evaluated for impairment	95		161
Collectively evaluated for impairment	309		335
Total ending allowance balance	404	436	496	1,081	1,212	1,473
Loans:
Loans individually evaluated for impairment	2,788		4,636
Loans collectively evaluated for impairment	10,200		12,083
Total ending loans balance	12,988		16,719
Church
Ending allowance balance attributable to loans:
Individually evaluated for impairment	1,153		1,088
Collectively evaluated for impairment	2,355		2,959
Total ending allowance balance	3,508	3,314	4,047	4,112	4,867	4,949
Loans:
Loans individually evaluated for impairment	13,385		14,602
Loans collectively evaluated for impairment	35,847		39,525
Total ending loans balance	49,232		54,127
Construction
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	4		7
Total ending allowance balance	4	4	7	7	7	7
Loans:
Loans collectively evaluated for impairment	366		387
Total ending loans balance	366		387
Commercial - other
Ending allowance balance attributable to loans:
Individually evaluated for impairment	10		10
Collectively evaluated for impairment	2		2
Total ending allowance balance	12	11	12	19	20	55
Loans:
Loans individually evaluated for impairment	80		102
Loans collectively evaluated for impairment	172		159
Total ending loans balance	252		261
Consumer
Ending allowance balance attributable to loans:
Collectively evaluated for impairment			3
Total ending allowance balance		$ 1	3	$ 4	$ 4	$ 6
Loans:
Loans collectively evaluated for impairment	4		9
Total ending loans balance	$ 4		$ 9

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Loans Receivable Held for Investment (Details 5) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Impaired loans
Average Recorded Investment	$ 19,994	$ 28,496	$ 21,588	$ 30,221
Cash Basis Interest Income Recognized	307	331	580	608
Foregone interest income if impaired loans had performed according to terms	166	328	450	821
Single family
Impaired loans
Average Recorded Investment	1,346	2,930	1,364	2,977
Cash Basis Interest Income Recognized	8	18	15	35
Multi-family
Impaired loans
Average Recorded Investment	1,974	3,543	2,305	3,722
Cash Basis Interest Income Recognized	99	23	115	46
Commercial real estate
Impaired loans
Average Recorded Investment	2,897	4,783	3,639	4,828
Cash Basis Interest Income Recognized	55	96	161	189
Church
Impaired loans
Average Recorded Investment	13,695	17,110	14,191	18,557
Cash Basis Interest Income Recognized	144	192	286	333
Commercial - other
Impaired loans
Average Recorded Investment	82	130	89	137
Cash Basis Interest Income Recognized	$ 1	$ 2	$ 3	$ 5

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Loans Receivable Held for Investment (Details 6) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Past due receivable
30-59 Days Past Due, Loans receivable	$ 818	$ 1,345
60-89 Days Past Due, Loans receivable	204	180
Greater than 90 Days Past Due, Loans receivable	715	987
Total Past Due, Loans receivable	1,737	2,512
Current	200,340	282,596
Single family
Past due receivable
30-59 Days Past Due, Loans receivable	82
Total Past Due, Loans receivable	82
Current	34,340	40,055
Multi-family
Past due receivable
30-59 Days Past Due, Loans receivable	341	455
Greater than 90 Days Past Due, Loans receivable	457
Total Past Due, Loans receivable	798	455
Current	104,015	173,095
Commercial real estate
Past due receivable
30-59 Days Past Due, Loans receivable		856
Total Past Due, Loans receivable		856
Current	12,988	15,863
Church
Past due receivable
30-59 Days Past Due, Loans receivable	395
60-89 Days Past Due, Loans receivable	204	180
Greater than 90 Days Past Due, Loans receivable	258	987
Total Past Due, Loans receivable	857	1,167
Current	48,375	52,960
Construction
Past due receivable
Current	366	387
Commercial - other
Past due receivable
30-59 Days Past Due, Loans receivable		34
Total Past Due, Loans receivable		34
Current	252	227
Consumer
Past due receivable
Current	$ 4	$ 9

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Securities

6 Months Ended

Jun. 30, 2015

Securities

Securities

NOTE (3) – Securities

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios at June 30, 2015 and December 31, 2014 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)
June 30, 2015:
Residential mortgage-backed	$	13,204	$	470	$	-	$	13,674
U.S. Government and federal agency	1,939		34		-		1,973
Total available-for-sale securities	$	15,143	$	504	$	-	$	15,647
December 31, 2014:
Residential mortgage-backed	$	14,578	$	540	$	-	$	15,118
U.S. Government and federal agency	1,932		25		-		1,957
Total available-for-sale securities	$	16,510	$	565	$	-	$	17,075

At June 30, 2015, the Bank’s investment portfolio had an estimated remaining life of 4.6 years.  The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity at June 30, 2015.  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 not due at a single maturity date, primarily residential mortgage-backed securities, are shown separately.

	Available-for-Sale
Maturity	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	-	$	-
One to five years	1,939		1,973
Five to ten years	-		-
Beyond ten years	-		-
Residential mortgage-backed	13,204		13,674
Total	$	15,143	$	15,647

At June 30, 2015 and December 31, 2014, securities pledged to secure public deposits had a carrying amount of $783 thousand and $1.2 million, respectively.  At June 30, 2015 and December 31, 2014, there were no holdings of securities of 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, 2015 and 2014.

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Loans Receivable Held for Investment (Details 7) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Investment in non-accrual loans by type of loans
Total non-accrual loans	$ 6,735	$ 8,862
Loans 90 days or more delinquent that were accruing interest	0	0
Single family
Investment in non-accrual loans by type of loans
Total non-accrual loans	667	736
Multi-family
Investment in non-accrual loans by type of loans
Total non-accrual loans	798	1,618
Commercial real estate
Investment in non-accrual loans by type of loans
Total non-accrual loans	1,081	1,174
Church
Investment in non-accrual loans by type of loans
Total non-accrual loans	4,109	5,232
Commercial - other
Investment in non-accrual loans by type of loans
Total non-accrual loans	$ 80	$ 102

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Stock-Based Compensation (Details) - 2008 LTIP - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Stock-based compensation
Shares authorized to be granted under stock compensation plan	2,000,000		2,000,000
Stock Options
Stock-based compensation
Contractual term of option awards			10 years
Stock options granted (in shares)	0	0	0	0
Stock based compensation expense	$ 0	$ 11	$ 0	$ 22
Stock Options | Maximum
Stock-based compensation
Vesting period of option awards			5 years

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Consolidated Statements of Financial Condition - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 5,396	$ 5,740
Federal funds	46,265	15,050
Cash and cash equivalents	51,661	20,790
Securities available-for-sale, at fair value	15,647	17,075
Loans receivable held for sale, at lower of cost or fair value	81,985	19,481
Loans receivable held for investment, net of allowance of $6,923 and $8,465	195,154	276,643
Accrued interest receivable	1,050	1,216
Federal Home Loan Bank (FHLB) stock	2,915	4,254
Office properties and equipment, net	2,628	2,697
Real estate owned (REO)	2,178	2,082
Bank owned life insurance	2,851	2,821
Investment in affordable housing limited partnership	1,021	1,117
Other assets	2,129	2,687
Total assets	359,219	350,863
Liabilities:
Deposits	232,152	217,867
FHLB advances	77,500	86,000
Junior subordinated debentures	5,100	5,100
Advance payments by borrowers for taxes and insurance	1,037	1,081
Accrued expenses and other liabilities	3,782	3,557
Total liabilities	319,571	313,605
Stockholders' Equity:
Additional paid-in capital	44,669	44,669
Accumulated deficit	(4,088)	(6,539)
Accumulated other comprehensive income	104	165
Treasury stock-at cost, 103,991 shares at June 30, 2015 and December 31, 2014	(1,329)	(1,329)
Total stockholders' equity	39,648	37,258
Total liabilities and stockholders' equity	359,219	350,863
Common Stock | Voting common stock
Stockholders' Equity:
Common stock	215	215
Common Stock | Non-voting common stock
Stockholders' Equity:
Common stock	$ 77	$ 77

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Basis of Financial Statement Presentation

6 Months Ended

Jun. 30, 2015

Basis of Financial Statement Presentation

Basis of Financial Statement Presentation

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, 2014 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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects”.  ASU 2014-01 permits a reporting entity to make an accounting policy election to account for its investments in affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit.  ASU 2014-01 becomes effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. The provisions of ASU 2014-01 must be applied retrospectively to all periods presented.  Adopting this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”.  ASU 2014-15 incorporates into U.S. GAAP a requirement that management complete a going concern evaluation similar to that performed by an entity’s external auditor.  Under the new guidance, management will be required to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements.  Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”.  ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.  ASU 2015-01 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”.  Under ASU 2015-03, the Company will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset.  Amortization of such costs will continue to be reported as interest expense.  ASU 2015-03 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted.  Retrospective adoption is required.  Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

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Junior Subordinated Debentures (Details) - USD ($) $ in Thousands		6 Months Ended
	Oct. 16, 2014	Jun. 30, 2015	Dec. 31, 2014	Mar. 17, 2004
Junior subordinated debentures
Junior subordinated debentures	$ 5,100	$ 5,100	$ 5,100
Floating Rate Junior Subordinated Debentures
Junior subordinated debentures
Payment of principal amount at face value required to extend maturity	$ 900
Junior subordinated debentures				$ 6,000
Effective interest rate on debentures (as a percent)		2.82%
Number of years of quarterly payments of interest only	5 years
Floating Rate Junior Subordinated Debentures | 3-month Libor
Junior subordinated debentures
Debt instrument interest rate description		3-Month LIBOR
Basis spread (as a percent)		2.54%

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Earnings Per Share of Common Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Basic
Net income	$ 1,153	$ 59	$ 2,451	$ 1,048
Weighted average common shares outstanding	29,076,708	20,243,948	29,076,708	20,234,368
Earnings per common share - basic (in dollars per share)	$ 0.04	$ 0.00	$ 0.08	$ 0.05
Diluted
Net income	$ 1,153	$ 59	$ 2,451	$ 1,048
Weighted average common shares outstanding	29,076,708	20,243,948	29,076,708	20,234,368
Weighted average common shares - fully dilutive	29,076,708	20,243,948	29,076,708	20,234,368
Earnings per common share - diluted (in dollars per share)	$ 0.04	$ 0.00	$ 0.08	$ 0.05
Anti-dilutive stock options not considered in computing diluting earnings (loss) per common share	93,750	93,750	93,750	93,750

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Fair Value (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Fair Value
Securities available-for-sale, at fair value	$ 15,647		$ 15,647		$ 17,075
Transfers between levels	0	$ 0	0	$ 0
Residential mortgage-backed
Fair Value
Securities available-for-sale, at fair value	13,674		13,674		15,118
U.S. Government and federal agency
Fair Value
Securities available-for-sale, at fair value	1,973		1,973		1,957
Significant Other Observable Unobservable Inputs (Level 2)
Fair Value
Securities available-for-sale, at fair value	13,674		13,674		15,118
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value
Securities available-for-sale, at fair value	1,973		1,973		1,957
Recurring basis | Significant Other Observable Unobservable Inputs (Level 2) | Residential mortgage-backed
Fair Value
Securities available-for-sale, at fair value	13,674		13,674		15,118
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Government and federal agency
Fair Value
Securities available-for-sale, at fair value	1,973		1,973		1,957
Recurring basis | Total | Residential mortgage-backed
Fair Value
Securities available-for-sale, at fair value	13,674		13,674		15,118
Recurring basis | Total | U.S. Government and federal agency
Fair Value
Securities available-for-sale, at fair value	$ 1,973		$ 1,973		$ 1,957

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Securities (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Securities
Estimated remaining term			4 years 7 months 6 days
Amortized Cost
One to five years	$ 1,939		$ 1,939
Residential mortgage-backed	13,204		13,204
Total	15,143		15,143
Fair Value
One to five years	1,973		1,973
Residential mortgage-backed	13,674		13,674
Total	15,647		15,647
Securities pledged	783		783		$ 1,200
Securities of any one issuer, other than U.S. Government, greater than 10% of shareholders equity	0		$ 0		$ 0
Shareholders equity representing a concentration risk for any one securities investment (as a percent)			10.00%
Sales of securities	$ 0	$ 0	$ 0	$ 0

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Earnings Per Share of Common Stock

6 Months Ended

Jun. 30, 2015

Earnings Per Share of Common Stock

Earnings Per Share of Common Stock

NOTE (2) – Earnings Per Share of Common Stock

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

The following table shows how the Company computed basic and diluted earnings per share of common stock for the three and six months ended June 30, 2015 and 2014:

	For the three months ended June 30,				For the six months ended June 30,
	2015		2014		2015		2014
	(Dollars in thousands, except per share)
Basic
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - basic	$	0.04	$	0.00	$	0.08	$	0.05
Diluted
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Add: dilutive effects of assumed exercises of stock options	-		-		-		-
Weighted average common shares - fully dilutive	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - diluted	$	0.04	$	0.00	$	0.08	$	0.05

Stock options for 93,750 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2015 and 2014 because they were anti-dilutive.

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Consolidated Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Allowance for loan losses (in dollars)	$ 6,923	$ 8,465
Treasury stock, shares	103,991	103,991
Common Stock | Voting common stock
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	21,509,179	21,509,179
Common stock, shares outstanding	21,405,188	21,405,188
Common Stock | Non-voting common stock
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,671,520	7,671,520
Common stock, shares outstanding	7,671,520	7,671,520

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Jun. 30, 2015

Earnings Per Share of Common Stock

Schedule of basic and diluted earnings per share of common stock

	For the three months ended June 30,				For the six months ended June 30,
	2015		2014		2015		2014
	(Dollars in thousands, except per share)
Basic
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - basic	$	0.04	$	0.00	$	0.08	$	0.05
Diluted
Net income	$	1,153	$	59	$	2,451	$	1,048
Weighted average common shares outstanding	29,076,708		20,243,948		29,076,708		20,234,368
Add: dilutive effects of assumed exercises of stock options	-		-		-		-
Weighted average common shares - fully dilutive	29,076,708		20,243,948		29,076,708		20,234,368
Earnings per common share - diluted	$	0.04	$	0.00	$	0.08	$	0.05

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 05, 2015
Entity Registrant Name	BROADWAY FINANCIAL CORP \DE\
Entity Central Index Key	0001001171
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Voting common stock
Entity Common Stock, Shares Outstanding		21,405,188
Non-voting common stock
Entity Common Stock, Shares Outstanding		7,671,520

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Securities (Tables)

6 Months Ended

Jun. 30, 2015

Securities

Summary of amortized cost and fair value of available-for-sale investment securities and corresponding amounts of unrealized gains (losses)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
June 30, 2015:
Residential mortgage-backed	$	13,204	$	470	$	-	$	13,674
U.S. Government and federal agency	1,939		34		-		1,973
Total available-for-sale securities	$	15,143	$	504	$	-	$	15,647
December 31, 2014:
Residential mortgage-backed	$	14,578	$	540	$	-	$	15,118
U.S. Government and federal agency	1,932		25		-		1,957
Total available-for-sale securities	$	16,510	$	565	$	-	$	17,075

Schedule of amortized cost and fair value of the investment securities portfolios by contractual maturity

	Available-for-Sale
Maturity	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	-	$	-
One to five years	1,939		1,973
Five to ten years	-		-
Beyond ten years	-		-
Residential mortgage-backed	13,204		13,674
Total	$	15,143	$	15,647

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Consolidated Statements of Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest income:
Interest and fees on loans receivable	$ 3,779	$ 3,689	$ 7,503	$ 7,315
Interest on mortgage-backed and other securities	90	104	184	168
Other interest income	243	82	330	188
Total interest income	4,112	3,875	8,017	7,671
Interest expense:
Interest on deposits	435	427	850	888
Interest on borrowings	536	533	1,067	1,070
Total interest expense	971	960	1,917	1,958
Net interest income before recapture of loan losses	3,141	2,915	6,100	5,713
Recapture of loan losses	750	500	1,500	1,582
Net interest income after recapture of loan losses	3,891	3,415	7,600	7,295
Non-interest income:
Service charges	102	113	208	230
Net gain on sale of loans	380		514
Net loss on sale of REOs	(14)	(47)		(50)
CDFI grant			355	200
Other	24	(2)	58	17
Total non-interest income	492	64	1,135	397
Non-interest expense:
Compensation and benefits	1,670	1,607	3,438	3,195
Occupancy expense, net	287	296	586	580
Information services	245	218	462	437
Professional services	208	239	478	663
Office services and supplies	79	94	160	196
FDIC assessments	95	176	175	350
REO	164	377	200	425
Corporate insurance	102	116	196	228
Other	374	297	581	567
Total non-interest expense	3,224	3,420	6,276	6,641
Income before income taxes	1,159	59	2,459	1,051
Income tax expense	6		8	3
Net income	1,153	59	2,451	1,048
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities available-for-sale	(118)	94	(61)	73
Other comprehensive income (loss), net of tax	(118)	94	(61)	73
Comprehensive income	$ 1,035	$ 153	$ 2,390	$ 1,121
Earnings per common share - basic (in dollars per share)	$ 0.04	$ 0.00	$ 0.08	$ 0.05
Earnings per common share - diluted (in dollars per share)	$ 0.04	$ 0.00	$ 0.08	$ 0.05

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Fair Value

6 Months Ended

Jun. 30, 2015

Fair Value

Fair Value

NOTE (7) – Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral which is obtained from recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals which are updated every nine months.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at June 30, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	13,674	$	-	$	13,674
Securities available-for-sale - U.S. Government and federal agency	1,973		-		-		1,973

	Fair Value Measurements at December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	15,118	$	-	$	15,118
Securities available-for-sale - U.S. Government and federal agency	1,957		-		-		1,957

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2015 and 2014.

Assets Measured on a Non-Recurring Basis

Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet.  Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value.

The following table provides information regarding the carrying values of our assets measured at fair value on a non-recurring basis at the dates indicated.  The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy, except for loans receivable held for sale which is a Level 2 classification.

	June 30, 2015	December 31, 2014
	(In thousands)
Assets:
Impaired loans carried at fair value of collateral:
Single family	504	549
Multi-family	-	323
Commercial real estate	1,081	1,177
Church	2,794	3,779
Real estate owned:
Church	2,178	2,082

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014:

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	504	Sales comparison approach	Adjustment for differences between the comparable sales	-9% to -3% (-6%)
Impaired loans – commercial real estate	1,081		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 1% (-1%)
			Income approach	Capitalization rate	4.75% to 7.25% (6.58%)
Impaired loans – church	2,794		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 14% (4%)
Real estate owned – church	2,178		Sales comparison approach	Adjustment for differences between the comparable sales	2% to 29% (10%)
			Income approach	Capitalization rate	6.50%

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	549	Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 9% (-4%)
Impaired loans – multi-family	323		Sales comparison approach	Adjustment for differences between the comparable sales	-18%
			Income approach	Capitalization rate	7%
Impaired loans – commercial real estate	1,177		Sales comparison approach	Adjustment for differences between the comparable sales	0% to 1% (0%)
			Income approach	Capitalization rate	5% to 7.25% (6.64%)
Impaired loans – church	3,779		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 18% (5%)
			Income approach	Capitalization rate	6%
Real estate owned – church	2,082		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 2% (0%)

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at June 30, 2015 and December 31, 2014 were as follows:

			Fair Value Measurements at June 30, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	51,661	$	51,661	$	-	$	-	$	51,661
Securities available-for-sale	15,647		1,973		13,674		-		15,647
Loans receivable held for sale	81,985		-		82,637		-		82,637
Loans receivable held for investment	195,154		-		-		195,405		195,405
Accrued interest receivable	1,050		6		94		950		1,050
Federal Home Loan Bank stock	2,915		2,915		-		-		2,915
Financial Liabilities:
Deposits	$	232,152	$	-	$	224,169	$	-	$	224,169
Federal Home Loan Bank advances	77,500		-		79,447		-		79,447
Junior subordinated debentures	5,100		-		-		3,025		3,025
Accrued interest payable	43		0		38		5		43

			Fair Value Measurements at December 31, 2014
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	20,790	$	20,790	$	-	$	-	$	20,790
Securities available-for-sale	17,075		1,957		15,118		-		17,075
Loans receivable held for sale	19,481		-		19,679		-		19,679
Loans receivable held for investment	276,643		-		-		277,000		277,000
Accrued interest receivable	1,216		6		88		1,122		1,216
Federal Home Loan Bank stock	4,254		4,254		-		-		4,254
Financial Liabilities:
Deposits	$	217,867	$	-	$	210,181	$	-	$	210,181
Federal Home Loan Bank advances	86,000		-		88,246		-		88,246
Junior subordinated debentures	5,100		-		-		2,034		2,034
Accrued interest payable	69		-		39		30		69

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

(b) Loans Receivable Held for Sale

The Company’s loans receivable held for sale are carried at the lower of cost or fair value. The fair value of loans receivable held for sale is determined by pricing for comparable assets or by outstanding commitments from third party investors, resulting in a Level 2 classification.

(c) Loans Receivable Held for Investment

Fair values of loans, excluding loans receivable held for sale, are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification.  Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.  Impaired loans are valued at the lower of cost or fair value as described previously.  The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) FHLB Stock

The carrying value of FHLB stock approximates its fair value as the shares can only be redeemed by the FHLB at par.

(e) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest receivable/payable approximate their fair value and are classified the same as the related asset.

(f) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 2 classification.  Fair values for fixed rate certificates of deposit are estimated using discounted cash flow calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(g) Federal Home Loan Bank Advances

The fair values of the Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(h) Junior Subordinated Debentures

The fair values of the Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

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Junior Subordinated Debentures

6 Months Ended

Jun. 30, 2015

Junior Subordinated Debentures:

Junior Subordinated Debentures

NOTE (6) – Junior Subordinated Debentures

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks.  Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%.  The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.82% at June 30, 2015.  On October 16, 2014, the Company made payments of $900 thousand of principal on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof.  The modified terms of the Debentures require quarterly payments of interest only for the next five years at the original rate of 3-Month LIBOR plus 2.54%.  Starting in June 2019, the Company will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024.  The Debentures may be called for redemption at any time by the Company.

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Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Securities
Amortized Cost	$ 15,143	$ 16,510
Gross Unrealized Gains	504	565
Fair Value	15,647	17,075
Residential mortgage-backed
Securities
Amortized Cost	13,204	14,578
Gross Unrealized Gains	470	540
Fair Value	13,674	15,118
U.S. Government and federal agency
Securities
Amortized Cost	1,939	1,932
Gross Unrealized Gains	34	25
Fair Value	$ 1,973	$ 1,957

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Loans Receivable Held for Investment (Tables)

6 Months Ended

Jun. 30, 2015

Loans Receivable Held for Investment

Schedule of loans receivable

	June 30, 2015		December 31, 2014
	(In thousands)
Real estate:
Single family	$	34,200	$	39,792
Multi-family	103,947		171,792
Commercial real estate	12,979		16,722
Church	49,729		54,599
Construction	366		387
Commercial – other	252		262
Consumer	4		9
Gross loans receivable before deferred loan costs and premiums	201,477		283,563
Unamortized net deferred loan costs and premiums	600		1,545
Gross loans receivable	202,077		285,108
Allowance for loan losses	(6,923)		(8,465)
Loans receivable, net	$	195,154	$	276,643

Activity in the allowance for loan losses by loan type

	Three Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,164		$	2,741	$	436		$	3,314	$	4	$	11	$	1		$	7,671
Provision for (recapture of) loan losses	(11)			(896)		(32)			189		-		1		(1)			(750)
Recoveries	-			-		-			5		-		-		-			5
Loans charged off	(3)			-		-			-		-		-		-			(3)
Ending balance	$	1,150		$	1,845	$	404		$	3,508	$	4	$	12	$	-		$	6,923
	Six Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,174		$	2,726	$	496		$	4,047	$	7	$	12	$		3	$	8,465
Provision for (recapture of) loan losses	(21)			(881)		(92)			(500)		(3)		-		(3)			(1,500)
Recoveries	-			-		-			11		-		-		-			11
Loans charged off	(3)			-		-			(50)		-		-		-			(53)
Ending balance	$		1,150	$	1,845	$		404	$	3,508	$	4	$	12	$		-	$	6,923

	Three Months Ended June 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,874	$	2,107	$	1,212		$	4,867	$	7	$	20	$	4		$	10,091
Provision for (recapture of) loan losses	65		197		(131)			(629)		-		(2)		-			(500)
Recoveries	-		-		-			13		-		1		-			14
Loans charged off	(90)		-		-			(139)		-		-		-			(229)
Ending balance	$	1,849	$	2,304	$	1,081		$	4,112	$	7	$	19	$	4		$	9,376
	Six Months Ended June 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,930	$	1,726	$	1,473		$	4,949	$	7	$	55	$		6	$	10,146
Provision for (recapture of) loan losses	10		578		(383)			(684)		-		(1,101)		(2)			(1,582)
Recoveries	2		-		-			169		-		1,083		-			1,254
Loans charged off	(93)		-		(9)			(322)		-		(18)		-			(442)
Ending balance	$	1,849	$	2,304	$		1,081	$	4,112	$	7	$	19	$		4	$		9,376

Allowance for loan losses and recorded investment in loans by type of loans and based on impairment method

	June 30, 2015
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	138	$	4	$	95	$	1,153	$	-	$	10	$	-	$	1,400
Collectively evaluated for impairment	1,012		1,841		309		2,355		4		2		-		5,523
Total ending allowance balance	$	1,150	$	1,845	$	404	$	3,508	$	4	$	12	$	-	$	6,923
Loans:
Loans individually evaluated for impairment	$	1,337	$	1,469	$	2,788	$	13,385	$	-	$	80	$	-	$	19,059
Loans collectively evaluated for impairment	33,085		103,344		10,200		35,847		366		172		4		183,018
Total ending loans balance	$	34,422	$	104,813	$	12,988	$	49,232	$	366	$	252	$	4	$	202,077

	December 31, 2014
	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	$	132	$	115	$	161	$	1,088	$	-	$	10	$	-	$	1,506
Collectively evaluated for impairment	1,042		2,611		335		2,959		7		2		3		6,959
Total ending allowance balance	$	1,174	$	2,726	$	496	$	4,047	$	7	$	12	$	3	$	8,465
Loans:
Loans individually evaluated for impairment	$	1,414	$	2,765	$	4,636	$	14,602	$	-	$	102	$	-	$	23,519
Loans collectively evaluated for impairment	38,641		170,785		12,083		39,525		387		159		9		261,589
Total ending loans balance	$	40,055	$	173,550	$	16,719	$	54,127	$	387	$	261	$	9	$	285,108

Loans individually evaluated for impairment by loan type

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Single family	$	1,432	$	667	$	-	$	1,448	$	736	$	-
Multi-family	915		798		-		1,384		1,263		-
Commercial real estate	1,862		1,081		-		4,836		1,174		-
Church	5,929		3,984		-		6,234		4,350		-
Commercial - other	13		13		-		34		34		-
With an allowance recorded:
Single family	670		670		138		678		678		132
Multi-family	671		671		4		1,541		1,502		115
Commercial real estate	1,707		1,707		95		3,473		3,462		161
Church	9,790		9,401		1,153		10,751		10,252		1,088
Commercial -other	67		67		10		68		68		10
Total	$	23,056	$	19,059	$	1,400	$	30,447	$	23,519	$	1,506

Average of loans individually evaluated for impairment by loan type and related interest income

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	1,346		$	8		$	1,364		$	15
Multi-family		1,974			99			2,305			115
Commercial real estate		2,897			55			3,639			161
Church		13,695			144			14,191			286
Commercial -other		82			1			89			3
Total		$	19,994		$	307		$	21,588		$	580

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	2,930		$	18		$	2,977		$	35
Multi-family		3,543			23			3,722			46
Commercial real estate		4,783			96			4,828			189
Church		17,110			192			18,557			333
Commercial -other		130			2			137			5
Total		$	28,496		$	331		$	30,221		$	608

Aging of recorded investment in past due loans by loan type

	June 30, 2015
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Loans receivable held for investment:
Single family		$	82		$	-		$	-		$	82		$	34,340
Multi-family		341			-			457			798			104,015
Commercial real estate		-			-			-			-			12,988
Church		395			204			258			857			48,375
Construction		-			-			-			-			366
Commercial - other		-			-			-			-			252
Consumer		-			-			-			-			4
Total		$	818		$	204		$	715		$	1,737		$	200,340

	December 31, 2014
	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		$	-		$	-		$	-		$	-		$	40,055
Multi-family		455			-			-			455			173,095
Commercial real estate		856			-			-			856			15,863
Church		-			180			987			1,167			52,960
Construction		-			-			-			-			387
Commercial - other		34			-			-			34			227
Consumer		-			-			-			-			9
Total		$	1,345		$	180		$	987		$	2,512		$	282,596

Recorded investment in nonaccrual loans by loan type

	June 30, 2015			December 31, 2014
	(In thousands)
Loans receivable held for investment:
Single family		$	667		$	736
Multi-family		798			1,618
Commercial real estate		1,081			1,174
Church		4,109			5,232
Commercial - other		80			102
Total non-accrual loans		$	6,735		$	8,862

Risk category of loans by loan type

	June 30, 2015
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	30,320	$	-	$	3,431	$	671	$	-	$	-
Multi-family	102,440		-		964		1,409		-		-
Commercial real estate	10,200		-		-		2,788		-		-
Church	37,964		782		1,443		9,043		-		-
Construction	366		-		-		-		-		-
Commercial - other	172		-		-		67		13		-
Consumer	4		-		-		-		-		-
Total	$	181,466	$	782	$	5,838	$	13,978	$	13	$	-
	December 31, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	35,850	$	-	$	3,465	$	740	$	-	$	-
Multi-family	170,700		-		613		2,237		-		-
Commercial real estate	13,218		-		284		3,217		-		-
Church	41,716		-		2,202		10,209		-		-
Construction	387		-		-		-		-		-
Commercial - other	159		-		-		102		-		-
Consumer	9		-		-		-		-		-
Total	$	262,039	$	-	$	6,564	$	16,505	$	-	$	-

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Income Taxes

6 Months Ended

Jun. 30, 2015

Income Taxes

Income Taxes

NOTE (10) – Income Taxes

The Company and its subsidiaries are subject to U.S. federal and state income taxes.  Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.  In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies.  This analysis is updated quarterly.  Based on this analysis, the Company determined that a valuation allowance of $7.9 million was required as of June 30, 2015, resulting in $0 net deferred tax assets.  The Company recorded a valuation allowance of $8.8 million and $0 net deferred tax assets as of December 31, 2014.  The decreases in the valuation allowance for the three and six months ended June 30, 2015 were $387 thousand and $877 thousand, respectively.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

Stock based Compensation

Stock-based Compensation

NOTE (8) – Stock-based Compensation

In 2008, the Company adopted the 2008 Long-Term Incentive Plan (“2008 LTIP”), which was approved by its stockholders.  The 2008 LTIP permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards to the Company’s non-employee directors and certain officers and employees for up to 2,000,000 shares of common stock.  Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; the option awards have vesting periods ranging from immediate vesting to 5 years and have 10-year contractual terms.

No options were granted during the three and six months ended June 30, 2015 and 2014.  The Company recorded no stock-based compensation expense during the three and six months ended June 30, 2015, compared to $11 thousand and $22 thousand of stock-based compensation expense recorded during the three and six months ended June 30, 2014.

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Regulatory Matters

6 Months Ended

Jun. 30, 2015

Regulatory Matters

Regulatory Matters

NOTE (9) – Regulatory Matters

Effective September 9, 2010, the Company and the Bank agreed to the issuance of cease and desist orders (the “Orders”) by the Office of Thrift Supervision, which was succeeded by the Office of the Comptroller of the Currency (“OCC”).  The Order applicable to the Company prohibits the Company from paying dividends to its stockholders without the prior written approval of the FRB, which is now the federal regulator for savings and loan holding companies.  In addition, the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt of written notice of non-objection from the FRB.

Effective October 30, 2013, the Bank entered into a Consent Order with the OCC, which superseded the Order applicable to the Bank.  The Bank’s capital requirements are administered by the OCC and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by the OCC.  Failure to meet capital requirements can result in regulatory action.

As part of the Consent Order, the Bank is required to maintain a Tier 1 Leverage ratio (Tier 1 capital to adjusted total assets) of at least 9% and a Total Capital ratio (Total capital to risk-weighted assets) of at least 13%, both of which ratios are greater than the respective 4% and 8% levels for such ratios that are generally required under OCC regulations.

The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013 that substantially amend the existing capital rules for banks.  These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act.

Beginning in the first quarter of 2015, the Bank became subject to the Basel III capital requirements, including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.  The final rules revise the definition and calculation of Tier 1 capital, Total capital, and include a new Common Equity Tier 1 capital.

Common Equity Tier 1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles, net of related taxes, MSRs and related deferred taxes that arise from tax loss and credit carryforwards.  Tier 1 capital is primarily comprised of Common Equity Tier 1 capital, perpetual preferred stock and certain qualifying capital instruments that are subject to phase-out from Tier 1 capital.  Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALLL.

The new capital rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 Leverage ratio of 4.0%.  A new capital conservation buffer is also established above the regulatory minimum capital requirements.  This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.  An institution that does not meet the conservation buffer will be subject to restrictions on certain activities, including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.

The Bank met the minimum capital requirements under the Consent Order at June 30, 2015 and December 31, 2014.  Actual and required capital amounts and ratios at June 30, 2015 and December 31, 2014, together with the higher capital requirements that the Bank is required to meet under the Consent Order applicable to it, are presented below.

	Actual			Required for Capital Adequacy Purposes			Capital Requirements under Consent Order
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2015:
Tier 1 Leverage	$	42,578	11.89%	$	14,323	4.00%	$	32,227	9.00%
Common Equity Tier 1	$	42,578	17.87%	$	10,723	4.50%	N/A		N/A
Tier 1	$	42,578	17.87%	$	14,297	6.00%	N/A		N/A
Total Capital	$	45,606	19.14%	$	19,063	8.00%	$	30,978	13.00%
December 31, 2014:
Tier 1 Leverage	$	39,773	11.34%	$	14,028	4.00%	$	31,562	9.00%
Tier 1	$	39,773	16.41%	$	9,695	4.00%	N/A		N/A
Total Capital	$	42,870	17.69%	$	19,390	8.00%	$	31,508	13.00%

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Basis of Financial Statement Presentation (Policies)

6 Months Ended

Jun. 30, 2015

Basis of Financial Statement Presentation

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects”.  ASU 2014-01 permits a reporting entity to make an accounting policy election to account for its investments in affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit.  ASU 2014-01 becomes effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. The provisions of ASU 2014-01 must be applied retrospectively to all periods presented.  Adopting this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”.  ASU 2014-15 incorporates into U.S. GAAP a requirement that management complete a going concern evaluation similar to that performed by an entity’s external auditor.  Under the new guidance, management will be required to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements.  Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”.  ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.  ASU 2015-01 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”.  Under ASU 2015-03, the Company will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset.  Amortization of such costs will continue to be reported as interest expense.  ASU 2015-03 is effective for annual periods ending after December 15, 2015, and interim periods thereafter.  Early adoption is permitted.  Retrospective adoption is required.  Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

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Loans Receivable Held for Investment (Details 9) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Credit Quality Indicators
Loans receivable	$ 202,077	$ 285,108
Single family
Credit Quality Indicators
Loans receivable	34,422	40,055
Multi-family
Credit Quality Indicators
Loans receivable	104,813	173,550
Commercial real estate
Credit Quality Indicators
Loans receivable	12,988	16,719
Church
Credit Quality Indicators
Loans receivable	49,232	54,127
Construction
Credit Quality Indicators
Loans receivable	366	387
Commercial - other
Credit Quality Indicators
Loans receivable	252	261
Consumer
Credit Quality Indicators
Loans receivable	4	9
Pass
Credit Quality Indicators
Loans receivable	181,466	262,039
Pass | Single family
Credit Quality Indicators
Loans receivable	30,320	35,850
Pass | Multi-family
Credit Quality Indicators
Loans receivable	102,440	170,700
Pass | Commercial real estate
Credit Quality Indicators
Loans receivable	10,200	13,218
Pass | Church
Credit Quality Indicators
Loans receivable	37,964	41,716
Pass | Construction
Credit Quality Indicators
Loans receivable	366	387
Pass | Commercial - other
Credit Quality Indicators
Loans receivable	172	159
Pass | Consumer
Credit Quality Indicators
Loans receivable	4	9
Watch
Credit Quality Indicators
Loans receivable	782
Watch | Church
Credit Quality Indicators
Loans receivable	782
Special Mention
Credit Quality Indicators
Loans receivable	5,838	6,564
Special Mention | Single family
Credit Quality Indicators
Loans receivable	3,431	3,465
Special Mention | Multi-family
Credit Quality Indicators
Loans receivable	964	613
Special Mention | Commercial real estate
Credit Quality Indicators
Loans receivable		284
Special Mention | Church
Credit Quality Indicators
Loans receivable	1,443	2,202
Substandard
Credit Quality Indicators
Loans receivable	13,978	16,505
Substandard | Single family
Credit Quality Indicators
Loans receivable	671	740
Substandard | Multi-family
Credit Quality Indicators
Loans receivable	1,409	2,237
Substandard | Commercial real estate
Credit Quality Indicators
Loans receivable	2,788	3,217
Substandard | Church
Credit Quality Indicators
Loans receivable	9,043	10,209
Substandard | Commercial - other
Credit Quality Indicators
Loans receivable	67	$ 102
Doubtful
Credit Quality Indicators
Loans receivable	13
Doubtful | Commercial - other
Credit Quality Indicators
Loans receivable	$ 13

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Regulatory Capital Matters (Tables)

6 Months Ended

Jun. 30, 2015

Regulatory Matters

Schedule of actual and required capital amounts and ratios

	Actual			Required for Capital Adequacy Purposes			Capital Requirements under Consent Order
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2015:
Tier 1 Leverage	$	42,578	11.89%	$	14,323	4.00%	$	32,227	9.00%
Common Equity Tier 1	$	42,578	17.87%	$	10,723	4.50%	N/A		N/A
Tier 1	$	42,578	17.87%	$	14,297	6.00%	N/A		N/A
Total Capital	$	45,606	19.14%	$	19,063	8.00%	$	30,978	13.00%
December 31, 2014:
Tier 1 Leverage	$	39,773	11.34%	$	14,028	4.00%	$	31,562	9.00%
Tier 1	$	39,773	16.41%	$	9,695	4.00%	N/A		N/A
Total Capital	$	42,870	17.69%	$	19,390	8.00%	$	31,508	13.00%

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Loans Receivable Held for Investment (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	$ 201,477		$ 283,563
Unamortized net deferred loan costs and premium	600		1,545
Total ending loans balance	202,077		285,108
Allowance for loan losses	(6,923)	$ (7,671)	(8,465)	$ (9,376)	$ (10,091)	$ (10,146)
Loans receivable, net	195,154		276,643
Single family
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	34,200		39,792
Total ending loans balance	34,422		40,055
Allowance for loan losses	(1,150)	(1,164)	(1,174)	(1,849)	(1,874)	(1,930)
Multi-family
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	103,947		171,792
Total ending loans balance	104,813		173,550
Allowance for loan losses	(1,845)	(2,741)	(2,726)	(2,304)	(2,107)	(1,726)
Commercial real estate
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	12,979		16,722
Total ending loans balance	12,988		16,719
Allowance for loan losses	(404)	(436)	(496)	(1,081)	(1,212)	(1,473)
Church
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	49,729		54,599
Total ending loans balance	49,232		54,127
Allowance for loan losses	(3,508)	(3,314)	(4,047)	(4,112)	(4,867)	(4,949)
Construction
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	366		387
Total ending loans balance	366		387
Allowance for loan losses	(4)	(4)	(7)	(7)	(7)	(7)
Commercial - other
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	252		262
Total ending loans balance	252		261
Allowance for loan losses	(12)	(11)	(12)	(19)	(20)	(55)
Consumer
Loans Receivable Held for Investment
Gross loans receivable before deferred loan costs and premiums	4		9
Total ending loans balance	$ 4		9
Allowance for loan losses		$ (1)	$ (3)	$ (4)	$ (4)	$ (6)

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Regulatory Matters (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Tier-1 Leverage	$ 42,578	$ 39,773
Common Equity Tier 1	42,578
Tier-1	42,578	39,773
Total Capital	$ 45,606	$ 42,870
Tier-1 Leverage, ratio (as a percent)	11.89%	11.34%
Common Equity Tier 1, ratio (as a percent)	17.87%
Tier 1, ratio (as a percent)	17.87%	16.41%
Total Capital, ratio (as a percent)	19.14%	17.69%
Leverage required for capital adequacy purposes	$ 14,323	$ 14,028
Common Equity Tier 1 required for capital adequacy purposes	10,723
Tier-1 required for capital adequacy purposes	14,297	9,695
Total Capital required for capital adequacy purposes	$ 19,063	$ 19,390
Leverage required for capital adequacy purposes, ratio (as a percent)	4.00%	4.00%
Common Equity Tier 1 required for capital adequacy purposes, ratio (as a percent)	4.50%
Tier-1 required for capital adequacy purposes, ratio (as a percent)	6.00%	4.00%
Total capital required for capital adequacy purposes, ratio (as a percent)	8.00%	8.00%
Tier 1 Leverage required under consent order	$ 32,227	$ 31,562
Total capital required under consent order	$ 30,978	$ 31,508
Leverage, ratio per consent order (as a percent)	9.00%	9.00%
Total Capital, ratio per consent order (as a percent)	13.00%	13.00%
Conservation Buffer Rule Starting January 2016
Basel III and Dodd Frank Rules
Capital conservation buffer (as a percent)	0.625%
Conservation Buffer Rule Subsequent to 2016
Basel III and Dodd Frank Rules
Capital conservation buffer annual increase (as a percent)	0.625%
Conservation Buffer Rule | Maximum
Basel III and Dodd Frank Rules
Capital conservation buffer (as a percent)	2.50%
Prior to Basel III New Capital Rules
Tier-1 required for capital adequacy purposes, ratio (as a percent)		4.00%
Basel III New Capital Rules
Tier-1 required for capital adequacy purposes, ratio (as a percent)	6.00%

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net income	$ 2,451	$ 1,048
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Recapture of loan losses	(1,500)	(1,582)
Provision for losses on REO's	126	340
Depreciation	117	116
Net amortization of deferred loan origination costs	167	75
Net amortization of premiums on mortgage-backed securities	30	22
Amortization of investment in affordable housing limited partnership	96	96
Stock-based compensation expense		11
Earnings on bank owned life insurance	(30)	(33)
Originations of loans receivable held for sale	(31,479)
Proceeds from sales of loans receivable held for sale	14,781
Net gain on sales of loans	(514)
Net loss on sale of REO's		50
Amortization of deferred gain on debt restructuring		(74)
Stock-based compensation - non-employee		25
Net change in accrued interest receivable	166	(30)
Net change in other assets	558	56
Net change in advance payments by borrowers for taxes and insurance	(44)	38
Net change in accrued expenses and other liabilities	225	756
Net cash provided by (used in) operating activities	(14,850)	914
Cash flows from investing activities:
Net change in loans receivable held for investment	(8,204)	(17,459)
Proceeds from sales of loans receivable held for sale	44,725
Principal repayments on loans receivable held for sale	166
Available-for-sale securities:
Prepayments and amortizations	1,337	1,097
Purchases		(10,463)
Proceeds from sales of REO	621	2,219
Redemption of FHLB stock	1,527
Purchase of FHLB stock	(188)
Additions to office properties and equipment	(48)	(194)
Net cash provided by (used in) investing activities	39,936	(24,800)
Cash flows from financing activities:
Net change in deposits	14,285	326
Proceeds from FHLB advances	21,000	8,000
Repayments of FHLB advances	(29,500)	(8,000)
Net cash provided by financing activities	5,785	326
Net change in cash and cash equivalents	30,871	(23,560)
Cash and cash equivalents at beginning of the period	20,790	58,196
Cash and cash equivalents at end of the period	51,661	34,636
Supplemental disclosures of cash flow information:
Cash paid for interest	1,941	1,906
Cash paid for income taxes	2	3
Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO	843	1,845
Transfers of loans receivable held for investment to loans receivable held for sale	$ 90,183
Issuance of common stock for services		$ 25

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Loans Receivable Held for Investment

6 Months Ended

Jun. 30, 2015

Loans receivable held for investment

Loans Receivable Held for Investment

Loans Receivable Held for Investment

NOTE (5) – Loans Receivable Held for Investment

Loans at June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015		December 31, 2014
	(In thousands)
Real estate:
Single family	$	34,200	$	39,792
Multi-family	103,947		171,792
Commercial real estate	12,979		16,722
Church	49,729		54,599
Construction	366		387
Commercial – other	252		262
Consumer	4		9
Gross loans receivable before deferred loan costs and premiums	201,477		283,563
Unamortized net deferred loan costs and premiums	600		1,545
Gross loans receivable	202,077		285,108
Allowance for loan losses	(6,923)		(8,465)
Loans receivable, net	$	195,154	$	276,643

The following tables present the activity in the allowance for loan losses by loan type for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,164		$	2,741	$	436		$	3,314	$	4	$	11	$	1		$	7,671
Provision for (recapture of) loan losses	(11)			(896)		(32)			189		-		1		(1)			(750)
Recoveries	-			-		-			5		-		-		-			5
Loans charged off	(3)			-		-			-		-		-		-			(3)
Ending balance	$	1,150		$	1,845	$	404		$	3,508	$	4	$	12	$	-		$	6,923
	Six Months Ended June 30, 2015
	Real Estate
	Single family			Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,174		$	2,726	$	496		$	4,047	$	7	$	12	$		3	$	8,465
Provision for (recapture of) loan losses	(21)			(881)		(92)			(500)		(3)		-		(3)			(1,500)
Recoveries	-			-		-			11		-		-		-			11
Loans charged off	(3)			-		-			(50)		-		-		-			(53)
Ending balance	$		1,150	$	1,845	$		404	$	3,508	$	4	$	12	$		-	$	6,923

	Three Months Ended June 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,874	$	2,107	$	1,212		$	4,867	$	7	$	20	$	4		$	10,091
Provision for (recapture of) loan losses	65		197		(131)			(629)		-		(2)		-			(500)
Recoveries	-		-		-			13		-		1		-			14
Loans charged off	(90)		-		-			(139)		-		-		-			(229)
Ending balance	$	1,849	$	2,304	$	1,081		$	4,112	$	7	$	19	$	4		$	9,376
	Six Months Ended June 30, 2014
	Real Estate
	Single family		Multi- family		Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,930	$	1,726	$	1,473		$	4,949	$	7	$	55	$		6	$	10,146
Provision for (recapture of) loan losses	10		578		(383)			(684)		-		(1,101)		(2)			(1,582)
Recoveries	2		-		-			169		-		1,083		-			1,254
Loans charged off	(93)		-		(9)			(322)		-		(18)		-			(442)
Ending balance	$	1,849	$	2,304	$		1,081	$	4,112	$	7	$	19	$		4	$		9,376

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 June 30, 2015 and December 31, 2014:

	June 30, 2015
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	138	$	4	$	95	$	1,153	$	-	$	10	$	-	$	1,400
Collectively evaluated for impairment	1,012		1,841		309		2,355		4		2		-		5,523
Total ending allowance balance	$	1,150	$	1,845	$	404	$	3,508	$	4	$	12	$	-	$	6,923
Loans:
Loans individually evaluated for impairment	$	1,337	$	1,469	$	2,788	$	13,385	$	-	$	80	$	-	$	19,059
Loans collectively evaluated for impairment	33,085		103,344		10,200		35,847		366		172		4		183,018
Total ending loans balance	$	34,422	$	104,813	$	12,988	$	49,232	$	366	$	252	$	4	$	202,077

	December 31, 2014
	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	$	132	$	115	$	161	$	1,088	$	-	$	10	$	-	$	1,506
Collectively evaluated for impairment	1,042		2,611		335		2,959		7		2		3		6,959
Total ending allowance balance	$	1,174	$	2,726	$	496	$	4,047	$	7	$	12	$	3	$	8,465
Loans:
Loans individually evaluated for impairment	$	1,414	$	2,765	$	4,636	$	14,602	$	-	$	102	$	-	$	23,519
Loans collectively evaluated for impairment	38,641		170,785		12,083		39,525		387		159		9		261,589
Total ending loans balance	$	40,055	$	173,550	$	16,719	$	54,127	$	387	$	261	$	9	$	285,108

The following table presents information related to loans individually evaluated for impairment by loan type as of June 30, 2015 and December 31, 2014:

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Single family	$	1,432	$	667	$	-	$	1,448	$	736	$	-
Multi-family	915		798		-		1,384		1,263		-
Commercial real estate	1,862		1,081		-		4,836		1,174		-
Church	5,929		3,984		-		6,234		4,350		-
Commercial - other	13		13		-		34		34		-
With an allowance recorded:
Single family	670		670		138		678		678		132
Multi-family	671		671		4		1,541		1,502		115
Commercial real estate	1,707		1,707		95		3,473		3,462		161
Church	9,790		9,401		1,153		10,751		10,252		1,088
Commercial -other	67		67		10		68		68		10
Total	$	23,056	$	19,059	$	1,400	$	30,447	$	23,519	$	1,506

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.

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	1,346		$	8		$	1,364		$	15
Multi-family		1,974			99			2,305			115
Commercial real estate		2,897			55			3,639			161
Church		13,695			144			14,191			286
Commercial -other		82			1			89			3
Total		$	19,994		$	307		$	21,588		$	580

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	2,930		$	18		$	2,977		$	35
Multi-family		3,543			23			3,722			46
Commercial real estate		4,783			96			4,828			189
Church		17,110			192			18,557			333
Commercial -other		130			2			137			5
Total		$	28,496		$	331		$	30,221		$	608

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans.  Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible.  Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $166 thousand and $328 thousand for the three months ended June 30, 2015 and 2014, respectively, and $450 thousand and $821 thousand for the six months ended June 30, 2015 and 2014, respectively, and were not included in the consolidated results of operations.

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by loan type:

	June 30, 2015
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Loans receivable held for investment:
Single family		$	82		$	-		$	-		$	82		$	34,340
Multi-family		341			-			457			798			104,015
Commercial real estate		-			-			-			-			12,988
Church		395			204			258			857			48,375
Construction		-			-			-			-			366
Commercial - other		-			-			-			-			252
Consumer		-			-			-			-			4
Total		$	818		$	204		$	715		$	1,737		$	200,340

	December 31, 2014
	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		$	-		$	-		$	-		$	-		$	40,055
Multi-family		455			-			-			455			173,095
Commercial real estate		856			-			-			856			15,863
Church		-			180			987			1,167			52,960
Construction		-			-			-			-			387
Commercial - other		34			-			-			34			227
Consumer		-			-			-			-			9
Total		$	1,345		$	180		$	987		$	2,512		$	282,596

The following table presents the recorded investment in non-accrual loans by loan type as of June 30, 2015 and December 31, 2014:

	June 30, 2015			December 31, 2014
	(In thousands)
Loans receivable held for investment:
Single family		$	667		$	736
Multi-family		798			1,618
Commercial real estate		1,081			1,174
Church		4,109			5,232
Commercial - other		80			102
Total non-accrual loans		$	6,735		$	8,862

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2015 or December 31, 2014.

Troubled Debt Restructurings

At June 30, 2015, loans classified as troubled debt restructurings (“TDRs”) totaled $17.4 million, of which $5.1 million were included in non-accrual loans and $12.3 million were on accrual status.  At December 31, 2014, loans classified as TDRs totaled $20.2 million, of which $5.5 million were included in non-accrual loans and $14.7 million were on accrual status.  The Company has allocated $1.4 million and $1.3 million of specific reserves for accruing TDRs as of June 30, 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  No loans were modified during the three and six months ended June 30, 2015 and 2014.

Credit Quality Indicators

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

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

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor 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 category of loans by loan type as of June 30, 2015 and December 31, 2014 is as follows:

	June 30, 2015
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	30,320	$	-	$	3,431	$	671	$	-	$	-
Multi-family	102,440		-		964		1,409		-		-
Commercial real estate	10,200		-		-		2,788		-		-
Church	37,964		782		1,443		9,043		-		-
Construction	366		-		-		-		-		-
Commercial - other	172		-		-		67		13		-
Consumer	4		-		-		-		-		-
Total	$	181,466	$	782	$	5,838	$	13,978	$	13	$	-
	December 31, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	35,850	$	-	$	3,465	$	740	$	-	$	-
Multi-family	170,700		-		613		2,237		-		-
Commercial real estate	13,218		-		284		3,217		-		-
Church	41,716		-		2,202		10,209		-		-
Construction	387		-		-		-		-		-
Commercial - other	159		-		-		102		-		-
Consumer	9		-		-		-		-		-
Total	$	262,039	$	-	$	6,564	$	16,505	$	-	$	-

XML

Loans Receivable Held for Investment (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Allowance for loan losses
Beginning balance	$ 7,671	$ 10,091	$ 8,465	$ 10,146
Provision for (recapture of) loan losses	(750)	(500)	(1,500)	(1,582)
Recoveries	5	14	11	1,254
Loans charged off	(3)	(229)	(53)	(442)
Ending balance	6,923	9,376	6,923	9,376
Single family
Allowance for loan losses
Beginning balance	1,164	1,874	1,174	1,930
Provision for (recapture of) loan losses	(11)	65	(21)	10
Recoveries				2
Loans charged off	(3)	(90)	(3)	(93)
Ending balance	1,150	1,849	1,150	1,849
Multi-family
Allowance for loan losses
Beginning balance	2,741	2,107	2,726	1,726
Provision for (recapture of) loan losses	(896)	197	(881)	578
Ending balance	1,845	2,304	1,845	2,304
Commercial real estate
Allowance for loan losses
Beginning balance	436	1,212	496	1,473
Provision for (recapture of) loan losses	(32)	(131)	(92)	(383)
Loans charged off				(9)
Ending balance	404	1,081	404	1,081
Church
Allowance for loan losses
Beginning balance	3,314	4,867	4,047	4,949
Provision for (recapture of) loan losses	189	(629)	(500)	(684)
Recoveries	5	13	11	169
Loans charged off		(139)	(50)	(322)
Ending balance	3,508	4,112	3,508	4,112
Construction
Allowance for loan losses
Beginning balance	4	7	7	7
Provision for (recapture of) loan losses			(3)
Ending balance	4	7	4	7
Commercial - other
Allowance for loan losses
Beginning balance	11	20	12	55
Provision for (recapture of) loan losses	1	(2)		(1,101)
Recoveries		1		1,083
Loans charged off				(18)
Ending balance	12	19	12	19
Consumer
Allowance for loan losses
Beginning balance	1	4	3	6
Provision for (recapture of) loan losses	$ (1)		$ (3)	(2)
Ending balance		$ 4		$ 4

XML

Fair Value (Details 3) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Fair value quantitative information
Fair Value	$ 195,405	$ 277,000
Fair Value, Measurements, Nonrecurring | Impaired loans | Single family
Fair value quantitative information
Fair Value	504	549
Fair Value, Measurements, Nonrecurring | Impaired loans | Multi-family
Fair value quantitative information
Fair Value		323
Fair Value, Measurements, Nonrecurring | Impaired loans | Commercial real estate
Fair value quantitative information
Fair Value	1,081	1,177
Fair Value, Measurements, Nonrecurring | Impaired loans | Church
Fair value quantitative information
Fair Value	$ 2,794	$ 3,779
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Single family | Minimum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(9.00%)	(1.00%)
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Single family | Maximum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(3.00%)	9.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Single family | Weighted Average
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(6.00%)	(4.00%)
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Multi-family
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)		(18.00%)
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Commercial real estate | Minimum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(1.00%)	0.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Commercial real estate | Maximum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	1.00%	1.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Commercial real estate | Weighted Average
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(1.00%)	0.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Church | Minimum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	(12.00%)	(12.00%)
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Church | Maximum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	14.00%	18.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Sales comparison approach | Church | Weighted Average
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	4.00%	5.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Income approach | Multi-family
Fair value quantitative information
Capitalization rate (as a percent)		7.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Income approach | Commercial real estate | Minimum
Fair value quantitative information
Capitalization rate (as a percent)	4.75%	5.00%
Fair Value, Measurements, Nonrecurring | Impaired loans | Income approach | Commercial real estate | Maximum
Fair value quantitative information
Capitalization rate (as a percent)	7.25%	7.25%
Fair Value, Measurements, Nonrecurring | Impaired loans | Income approach | Commercial real estate | Weighted Average
Fair value quantitative information
Capitalization rate (as a percent)	6.58%	6.64%
Fair Value, Measurements, Nonrecurring | Impaired loans | Income approach | Church
Fair value quantitative information
Capitalization rate (as a percent)		6.00%
Fair Value, Measurements, Nonrecurring | Real estate owned. | Church
Fair value quantitative information
Fair Value	$ 2,178	$ 2,082
Fair Value, Measurements, Nonrecurring | Real estate owned. | Sales comparison approach | Church | Minimum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	2.00%	(1.00%)
Fair Value, Measurements, Nonrecurring | Real estate owned. | Sales comparison approach | Church | Maximum
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	29.00%	2.00%
Fair Value, Measurements, Nonrecurring | Real estate owned. | Sales comparison approach | Church | Weighted Average
Fair value quantitative information
Adjustment for differences between the comparable sales (as a percent)	10.00%	0.00%
Fair Value, Measurements, Nonrecurring | Real estate owned. | Income approach | Church | Weighted Average
Fair value quantitative information
Capitalization rate (as a percent)	6.50%

XML

Fair Value (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value

Summary of assets measured at fair value on recurring basis

	Fair Value Measurements at June 30, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	13,674	$	-	$	13,674
Securities available-for-sale - U.S. Government and federal agency	1,973		-		-		1,973

	Fair Value Measurements at December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	15,118	$	-	$	15,118
Securities available-for-sale - U.S. Government and federal agency	1,957		-		-		1,957

Schedule of carrying values of assets measured at fair value on non-recurring basis

	June 30, 2015	December 31, 2014
	(In thousands)
Assets:
Impaired loans carried at fair value of collateral:
Single family	504	549
Multi-family	-	323
Commercial real estate	1,081	1,177
Church	2,794	3,779
Real estate owned:
Church	2,178	2,082

Schedule of quantitative information on financial instruments measured on non-recurring basis

	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	504	Sales comparison approach	Adjustment for differences between the comparable sales	-9% to -3% (-6%)
Impaired loans – commercial real estate	1,081		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 1% (-1%)
			Income approach	Capitalization rate	4.75% to 7.25% (6.58%)
Impaired loans – church	2,794		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 14% (4%)
Real estate owned – church	2,178		Sales comparison approach	Adjustment for differences between the comparable sales	2% to 29% (10%)
			Income approach	Capitalization rate	6.50%

	December 31, 2014
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans – single family	$	549	Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 9% (-4%)
Impaired loans – multi-family	323		Sales comparison approach	Adjustment for differences between the comparable sales	-18%
			Income approach	Capitalization rate	7%
Impaired loans – commercial real estate	1,177		Sales comparison approach	Adjustment for differences between the comparable sales	0% to 1% (0%)
			Income approach	Capitalization rate	5% to 7.25% (6.64%)
Impaired loans – church	3,779		Sales comparison approach	Adjustment for differences between the comparable sales	-12% to 18% (5%)
			Income approach	Capitalization rate	6%
Real estate owned – church	2,082		Sales comparison approach	Adjustment for differences between the comparable sales	-1% to 2% (0%)

Schedule of carrying amounts and estimated fair values of financial instruments

			Fair Value Measurements at June 30, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	51,661	$	51,661	$	-	$	-	$	51,661
Securities available-for-sale	15,647		1,973		13,674		-		15,647
Loans receivable held for sale	81,985		-		82,637		-		82,637
Loans receivable held for investment	195,154		-		-		195,405		195,405
Accrued interest receivable	1,050		6		94		950		1,050
Federal Home Loan Bank stock	2,915		2,915		-		-		2,915
Financial Liabilities:
Deposits	$	232,152	$	-	$	224,169	$	-	$	224,169
Federal Home Loan Bank advances	77,500		-		79,447		-		79,447
Junior subordinated debentures	5,100		-		-		3,025		3,025
Accrued interest payable	43		0		38		5		43

			Fair Value Measurements at December 31, 2014
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	20,790	$	20,790	$	-	$	-	$	20,790
Securities available-for-sale	17,075		1,957		15,118		-		17,075
Loans receivable held for sale	19,481		-		19,679		-		19,679
Loans receivable held for investment	276,643		-		-		277,000		277,000
Accrued interest receivable	1,216		6		88		1,122		1,216
Federal Home Loan Bank stock	4,254		4,254		-		-		4,254
Financial Liabilities:
Deposits	$	217,867	$	-	$	210,181	$	-	$	210,181
Federal Home Loan Bank advances	86,000		-		88,246		-		88,246
Junior subordinated debentures	5,100		-		-		2,034		2,034
Accrued interest payable	69		-		39		30		69