BROADWAY FINANCIAL CORPORATION 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 of 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, 2019 . Certain statements
herein are forward-looking statements within the meaning of Section 21E of the
U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Section 27A of the U.S. Securities Act of 1933, as amended, which reflect our
current views with respect to future events and financial performance.
Forward-looking statements typically include the words "anticipate," "believe,"
"estimate," "expect," "project," "plan," "forecast," "intend," and other similar
expressions. These forward-looking statements are subject to risks and
uncertainties, which could cause actual future results to differ materially from
historical results or from those anticipated or implied by such statements.
Readers should not place undue reliance on these forward-looking statements,
which speak only as of their dates or, if no date is provided, then as of the
date of this Form 10-Q. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except to the extent required by law.
Critical Accounting Policies and Estimates
Our significant accounting policies, which are essential to understanding Management's Discussion and Analysis of Financial Condition and Results of Operations, are described in the "Notes to Consolidated Financial Statements" and in the "Critical Accounting Policies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no material changes since then to our critical accounting policies. Overview Since earlyMarch 2020 , the effects from the spread of the COVID-19 virus (the "COVID-19 Pandemic") permeated virtually every aspect of society, and required management to quickly plan and implement multiple changes toBroadway 's operations to protect the health and welfare of the Bank's employees and customers, while minimizing disruptions to the Bank's ability to provide essential services. These changes were based on guidance from various governmental entities, including theCenter for Disease Control and Prevention . Among the changes that the Bank implemented were the following: more intensive cleaning and maintenance of the branches, distribution of personal protection equipment to employees, creation of safe distancing measures within the branches and all work areas, guidance to all employees regarding other safe practices, amended benefit policies to ease the burden on employees with children at home, or those experiencing symptoms of disease, development of plans for certain employees or departments to work from home, and creation of contingency plans for potential further changes to operations.Broadway has not implemented layoffs or furloughs of any of our employees. In addition,Broadway has developed plans and policies for providing financial relief to borrowers that may experience difficulties in meeting the terms of their loans, performed updated stress tests of the Bank's loan portfolio using new assumptions reflecting potential significant impacts of the COVID-19 Pandemic and related governmental stay-at-home orders, created contingency plans in case various aspects of the credit markets cease to operate in a normal manner, and implemented new lending guidelines that are designed to moderate the Bank's loan concentration and enhance liquidity. Management has been in regular communication with the Bank's regulator regarding these new plans and policies.Broadway decided not to participate as a lender in theSmall Business Administration's ("SBA") Paycheck Protection Program ("PPP") because management believes that it is more important and appropriate to maintain the Bank's focus on existing clients, markets, and loan products. In addition, the Bank has historically not offered SBA loans and has not had a significant client base or portfolio of commercial and industrial loans for which the PPP would have represented a product line extension. 25
Total assets increased by$50.9 million to$491.3 million atJune 30, 2020 from$440.4 million atDecember 31, 2019 . The increase in total assets primarily consisted of an increase of$49.7 million in loans receivable held for sale and an increase of$24.3 million in cash and cash equivalents, offset by a decrease of$23.4 million in loans held for investment.
Total liabilities increased by
We recorded net income of$216 thousand and$183 thousand for the three and six months endedJune 30, 2020 , respectively, compared to a net loss of$135 thousand and net income of$142 thousand for the three and six months ended
June 30, 2019 , respectively.
Our net income increased by$351 thousand during the second quarter of 2020 compared to the second quarter of 2019, primarily due to an income tax adjustment of$273 thousand recorded upon the resolution of an outstanding audit issue with the California Franchise Tax Board. In addition, during the second quarter of 2020, net interest income increased by$569 thousand and gain on sale of loans increased by$116 thousand compared to the second quarter of 2019. These increases were partially offset by higher non-interest expense of$380 thousand , including$152 thousand of expenses incurred to respond to actions by a former stockholder, during the second quarter of 2020, compared to the second quarter of 2019. Also, during the second quarter of 2019, the Bank recorded net loan loss provision recaptures of$158 thousand but did not record any net loan loss provision recaptures during the second quarter of 2020. For the six months endedJune 30, 2020 , our net income increased by$41 thousand compared to the six months endedJune 30, 2019 , primarily due to the income tax adjustment of$273 thousand during the second quarter of 2020. In addition, during the first six months of 2020, net interest income increased by$654 thousand , gains on the sales of loans increased by$123 thousand , and miscellaneous loan income increased by$33 thousand compared to the first six months of 2019. These increases were offset by higher non-interest expenses of$469 thousand , including$200 thousand of expenses incurred to respond to actions by a former stockholder during the first six months of 2020, Also, during the first six months of 2019, the Bank recorded a loan loss recapture of$348 thousand compared to a loan loss provision of$29 thousand during the first six months of 2020, and the Bank received a grant of$233 thousand from theU.S. Department of the Treasury's Community Development Financial Institution ("CDFI") Fund, which it did not received during the first six months of 2020. Results of Operations Net Interest Income Net interest income for the second quarter of 2020 totaled$3.0 million , compared to$2.5 million for the second quarter of 2019. The increase primarily resulted from an increase in interest income of$483 thousand during the second quarter of 2020 due to higher interest income and fees on loans receivable of$588 thousand , partially offset by a decrease in interest income on securities of$30 thousand and a decrease in other interest income of$75 thousand . Also, interest expense decreased by$86 thousand due to lower interest expense on deposits of$130 thousand , partially offset by higher interest expense on borrowings of$44 thousand . The average balance of interest-earning assets increased by$88.0 million during the second quarter of 2020 compared to the second quarter of the prior year, and the net interest margin increased by 3 basis points to 2.43% for the second quarter of 2020 compared to 2.40% for the second quarter of 2019. The net interest margin increased because the average rates paid on interest-bearing liabilities decreased by more than the average rates earned on interest-earning assets. Interest income and fees on loans receivable increased by$588 thousand to$4.4 million for the second quarter of 2020, from$3.8 million for the second quarter of 2019 due to an increase of$66.6 million in the average balance of loans receivable (including loans held for sale), which increased interest income by$665 thousand . This was partially offset by a decrease of 8 basis points in the average yield on loans, which decreased interest income by$77 thousand . 26 Interest income on securities decreased by$30 thousand for the second quarter of 2020, compared to the second quarter of 2019. The decrease in interest income on securities during the second quarter of 2020 primarily resulted from a decrease of$3.8 million in the average balance of securities, which decreased interest income by$24 thousand and a decrease of 18 basis points in the average yield on securities, which decreased interest income by$6 thousand . Other interest income decreased by$75 thousand for the second quarter of 2020, compared to the second quarter of 2019. The decrease was primarily due to a decrease of 202 basis points in the average yield on interest-earning deposits in other banks during the second quarter of 2020, which decreased interest income by$123 thousand , partially offset by an increase of$24.6 million in the average balance of interest-earning deposits in other banks, which increased interest income by$71 thousand . In addition, there was a decrease of$23 thousand in dividends earned on FHLB stock during the second quarter of 2020, compared to the second quarter of 2019. Interest expense on deposits decreased by$130 thousand for the second quarter of 2020, compared to the second quarter of 2019. The decrease was attributable to a decrease of 37 basis points in the average cost of deposits, which caused interest expense on deposits to decrease by$173 thousand , partially offset by an increase in the average balance of total deposit by$45.7 million , which led to an increase in interest expense of$43 thousand . Interest expense on borrowings increased by$44 thousand for the second quarter of 2020, compared to the second quarter of 2019. The higher interest expense on borrowings during the second quarter of 2020 reflected a net increase of$41.5 million in average borrowings, due to an increase of$42.6 million in the average balance of FHLB advances, which increased interest expense by$189 thousand , partially offset by a decrease of$1.1 million in the average balance of the Company's junior subordinated debentures, which decreased interest expense by$12 thousand . In addition, the average cost of FHLB advances decreased by 59 basis points during the second quarter of 2020, which decreased interest expense by$112 thousand , and the average cost of the Company's junior subordinated debentures decreased by 189 basis points during the second quarter of 2020, which decreased interest expense by$21 thousand . For the six months endedJune 30, 2020 , net interest income increased by$654 thousand to$5.9 million compared to$5.3 million for the six months endedJune 30, 2019 . The increase in net interest income during the six months endedJune 30, 2020 primarily resulted from an increase in interest income of$681 thousand due to higher interest income on loans receivable of$832 thousand , partially offset by a decrease in interest income on securities of$58 thousand and a decrease in other interest income of$93 thousand . Interest expense increased by$27 thousand during the six months endedJune 30, 2020 due to an increase in in interest expense on borrowings of$129 thousand , which was partially offset by a decrease in interest expense on deposits of$102 thousand . Interest income and fees on loans receivable increased by$832 thousand during the first six months of 2020 due to an increase of$59.0 million in the average balance of loans receivable (including loans held for sale), which increased interest income by$1.2 million , partially offset by a decrease of 19 basis points in the average yield on loans, which decreased interest income by$372 thousand . During the first half of 2020, the Bank recorded an interest recovery of$162 thousand upon the payoff of one non-accrual church loan, compared to interest recoveries of$351 thousand upon the payoff of two non-accrual church loans during the first half of 2019. Interest income on securities decreased by$58 thousand for the first half of 2020, compared to the first half of 2019. The decrease in interest income on securities during the first half of 2020 primarily resulted from a decrease of$3.7 million in the average balance of securities, which decreased interest income by$48 thousand and a decrease of 15 basis points in the average yield on securities, which decreased interest income by$10 thousand . Other interest income decreased by$93 thousand for the first half of 2020 compared to the first half of 2019. The decrease was primarily due to a decrease of 176 basis points in the average yield on interest-earning deposits in other banks during the first half of 2020, which decreased interest income by$205 thousand , partially offset by an increase of$17.8 million in the average balance of interest-earning deposits in other banks, which increased interest income by$130 thousand . In addition, there was a decrease of$18 thousand in dividends earned on FHLB stock during the first half of 2020, compared to the first half of 2019. 27 During the first half of 2020, interest expense on deposits decreased by$102 thousand due to a decrease of 23 basis points in the average cost of deposits attributable to lower rates paid on all deposit types, which caused interest expense on deposits to decrease by$201 thousand , partially offset by an increase of$36.0 million in the average balance of deposits, which caused interest expense to increase by$99 thousand . During the first half of 2020, interest expense on borrowings increased by$129 thousand , compared to the first half of 2019. The higher interest expense on borrowings during the first half of 2020 reflected a net increase of$36.4 million in average borrowings, due to an increase of$37.4 million in the average balance of FHLB advances, which increased interest expense by$370 thousand , offset by a decrease of$932 thousand in the average balance of the Company's junior subordinated debentures, which decreased interest expense by$22 thousand . In addition, the average cost of FHLB advances decreased by 47 basis points, which decreased interest expense by$186 thousand , and the average cost of the Company's junior subordinated debentures decreased by 146 basis points, which decreased interest expense by$33 thousand . The net interest margin decreased by 12 basis points to 2.45% for the six months endedJune 30, 2020 from 2.57% for the same period in 2019, primarily due to a lower average loan yield. 28 The following tables set forth the average balances, 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, but 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, 2020 June 30, 2019
Average Average
(Dollars in Average Yield/ Average Yield/
Thousands) Balance Interest Cost Balance Interest Cost
Assets
Interest-earning
assets:
Interest-earning
deposits $ 40,416 $ 46 0.46 % $ 15,810 $ 98 2.48 %
Securities 10,431 65 2.49 % 14,242 95 2.67 %
Loans receivable (1) 444,530 4,429 3.99 % 377,906 3,841 4.07 %
FHLB stock 3,518 28 3.18 % 2,916 51 7.00 %
Total
interest-earning
assets 498,895 $ 4,568 3.66 % 410,874 $ 4,085 3.98 %
Non-interest-earning
assets 10,466 11,058
Total assets $ 509,361 $ 421,932
Liabilities and
Stockholders' Equity
Interest-bearing
liabilities:
Money market deposits $ 46,364 $ 112 0.97 % $ 25,416 $ 56 0.88 %
Passbook deposits 53,167 81 0.61 % 45,346 69 0.61 %
NOW and other demand
deposits 54,362 3 0.02 % 33,578 3 0.04 %
Certificate accounts 177,392 771 1.74 % 181,280 969 2.14 %
Total deposits 331,285 967 1.17 % 285,620 1,097 1.54 %
FHLB advances 119,315 536 1.80 % 76,747 459 2.39 %
Junior subordinated
debentures 4,038 34 3.37 % 5,091 67 5.26 %
Total
interest-bearing
liabilities 454,638$ 1,537 1.35 % 367,458$ 1,623 1.77 % Non-interest-bearing liabilities 5,523
5,505
Stockholders' Equity 49,200
48,969
Total liabilities and stockholders' equity$ 509,361 $
421,932
Net interest rate spread (2)$ 3,031 2.31 %$ 2,462 2.21 % Net interest rate margin (3) 2.43 % 2.40 % Ratio of interest-earning assets to interest-bearing liabilities 109.73 %
111.82 %
(1) Amount is net of deferred loan fees, loan discounts and loans in process, and
includes deferred origination costs, loan premiums and loans receivable held
for sale.
(2) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(3) Net interest rate margin represents net interest income as a percentage of
average interest-earning assets.
29
For the six months ended
June 30, 2020 June 30, 2019
Average Average
(Dollars in Average Yield/ Average Yield/
Thousands) Balance Interest Cost Balance Interest Cost
Assets
Interest-earning
assets:
Interest-earning
deposits $ 34,250 $ 133 0.78 % $ 16,417 $ 208 2.53 %Federal funds sold - - - - - - Securities 10,689 135 2.53 % 14,417 193 2.68 % Loans receivable (1) 435,388 8,788 4.04 % 376,378 7,956 4.23 % FHLB stock 3,320 83 5.00 % 2,916 101 6.93 % Total interest-earning assets 483,647$ 9,139 3.78 % 410,128$ 8,458 4.12 % Non-interest-earning assets 10,464 10,862 Total assets$ 494,111 $ 420,990 Liabilities and Stockholders' Equity Interest-bearing liabilities: Money market deposits$ 42,130 $ 217 1.03 %$ 27,226 $ 120 0.88 % Passbook deposits 50,936 169 0.66 % 45,390 134 0.59 % NOW and other demand deposits 48,545 6 0.02 % 33,541 6 0.04 % Certificate accounts 180,106 1,630 1.81 % 179,567 1,864 2.08 % Total deposits 321,717 2,022 1.26 % 285,724 2,124 1.49 % FHLB advances 113,595 1,108 1.95 % 76,232 924 2.42 % Junior subordinated debentures 4,164 80 3.84 % 5,096 135 5.30 % Total
interest-bearing
liabilities 439,476$ 3,210 1.46 % 367,052$ 3,183 1.73 % Non-interest-bearing liabilities 5,574
5,167
Stockholders' Equity 49,061
48,771
Total liabilities and stockholders' equity$ 494,111 $
420,990
Net interest rate spread (2)$ 5,929 2.32 %$ 5,275 2.39 % Net interest rate margin (3) 2.45 % 2.57 % Ratio of interest-earning assets to interest-bearing liabilities 110.05 %
111.74 %
(1) Amount is net of deferred loan fees, loan discounts and loans in process, and
includes deferred origination costs, loan premiums and loans receivable held
for sale.
(2) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(3) Net interest rate margin represents net interest income as a percentage of
average interest-earning assets.
30
Loan loss provision recapture
The Bank did not record a loan loss provision or recapture during the second quarter of 2020 and recorded a loan loss provision of$29 thousand during the first six months of 2020. During the first quarter of 2020 the Bank recorded additional provisions to increase the ALLL for economic uncertainties related to the COVID-19 Pandemic. During the second quarter of 2020, the Bank maintained its ALLL at$3.2 million , after adjusting for a loan loss recovery of$4 thousand , despite a net decrease of$6.9 million in the loans held for investment portfolio during the second quarter of 2020. No loan charge-offs were recorded during the second quarter or first half of 2020. The Bank recorded loan loss provision recaptures of$158 thousand and$348 thousand , respectively, during the second quarter and first six months of 2019. The Bank recorded no cash recoveries during the second quarter of 2019 and recorded cash recoveries of$190 thousand during the first half of 2019. No loan charge-offs were recorded during the second quarter or first half of 2019.
Non-interest Income Non-interest income for the second quarter of 2020 totaled$242 thousand , compared to$139 thousand for the second quarter of 2019. Non-interest income increased by$103 thousand primarily because the Bank recorded a gain on sale of loans of$116 thousand during the second quarter of 2020; the Bank did not record any gain on sales of loans during the first half of 2019. This increase was partially offset by a net decrease in other components of non-interest income of$13 thousand during the second quarter of 2020, compared to the second quarter of 2019. For the six months endedJune 30, 2020 , non-interest income totaled$439 thousand compared to$515 thousand for the same period one year ago. The decrease of$76 thousand in non-interest income was primarily due to a grant of$233 thousand from theCDFI Fund received during the first quarter of 2019, offset by gain on sale of loans of$123 thousand recorded during the first
half of 2020. Non-interest Expense Non-interest expense for the second quarter of 2020 totaled$3.4 million , compared to$3.0 million for the second quarter of 2019. The increase of$380 thousand in non-interest expense during the second quarter of 2020 compared to the same quarter of 2019 was primarily due to increases of$336 thousand in professional services expense,$108 thousand in compensation and benefits expense and$20 thousand in office services and supplies, offset by decreases of$41 thousand in amortization of investment in affordable housing limited partnership,$27 thousand in loan related expenses, and$25 thousand in other non-interest expenses primarily due to a lower provision for off-balance sheet loan commitments. The increase of$336 thousand in professional services expense was due to an increase of$248 thousand in legal fees and an increase of$109 thousand in consulting services fees, offset by a decrease of$21 thousand in audit fees. The increase in legal and consulting fees during the second quarter included$152 thousand of expenses incurred to respond to activities conducted by a former stockholder against the Company. The related litigation was subsequently withdrawn by the former stockholder early in the third quarter. For the six months endedJune 30, 2020 , non-interest expense totaled$6.6 million , compared to$6.1 million for the same period a year ago. The increase of$469 thousand in non-interest expense was primarily due to increases of$281 thousand in compensation and benefits expense,$261 thousand in professional services expenses,$32 thousand in information services expense,$28 thousand in office services and supplies and$15 thousand in occupancy expense, offset by decreases of$45 thousand in amortization of investment in affordable housing limited partnership,$37 thousand in loan related expenses, and$61 thousand in other non-interest expense, primarily due to a lower provision for off-balance sheet loan commitments. The increase of$261 thousand in professional services expense was due to an increase of$233 thousand in legal fees and an increase of$142 thousand in consulting services fees, offset by a decrease of$114 thousand in audit fees. The increase in legal and consulting fees during the first half of 2020 included$200 thousand of legal expenses incurred to respond to activities conducted by a former stockholder against the Company. 31 Income Taxes
Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21% and theCalifornia income tax rate of 10.84% to taxable income or loss. The Company recorded income tax benefits of$345 thousand and$395 thousand for the three and six months endedJune 30, 2020 , respectively, compared to income tax benefits of$128 thousand and$86 thousand for the three and six months endedJune 30, 2019 , respectively. The increase in income tax benefit during the second quarter and first six months of 2020 was primarily due to a tax adjustment of$273 thousand upon the resolution of an outstanding audit issue with theCalifornia Franchise Tax Board for tax years 2009 to 2013. In addition, the Company recorded low-income housing tax credits of$29 thousand and$58 thousand during the second quarter and six months endedJune 30, 2020 , compared to$50 thousand and$99 thousand during the second quarter and six months endedJune 30, 2019 . The Company had no valuation allowance on its deferred tax assets, which totaled$5.4 million atJune 30, 2020 and$5.2 million atDecember 31, 2019 . Financial Condition Total Assets
Total assets increased by$50.9 million to$491.3 million atJune 30, 2020 from$440.4 million atDecember 31, 2019 . The increase in total assets was comprised primarily of an increase of$49.7 million in loans receivable held for sale, an increase of$24.3 million in cash and cash equivalents and an increase of$670 thousand in FHLB stock. These increases were offset by a decrease of$23.4 million in loans held for investment and a decrease of$814 thousand in securities available-for-sale.
Loans Receivable Held for Sale
Loans receivable held for sale totaled$49.7 million atJune 30, 2020 . There were no loans held for sale as ofDecember 31, 2019 . During the first half of 2020, the Bank originated$110.9 million of multi-family loans for sale and sold$60.9 million of loans held for sale for a gain of$123 thousand . Repayments of loans receivable held for sale totaled$315 thousand during the first half
of 2020.
Loans Receivable Held for Investment
Loans receivable held for investment, net of the allowance for loan losses, totaled$374.4 million atJune 30, 2020 , compared to$397.8 million atDecember 31, 2019 . During the first half of 2020, the Bank originated$4.1 million in commercial real estate loans and$728 thousand in construction loans for the loans held-for-investment portfolio. Loan repayments during the first half
of 2020 totaled$28.2 million . Allowance for Loan Losses
As a small banking institution,Broadway is not required to adopt the CECL accounting standard until 2023; consequently, the Bank's allowance for loan and lease losses ("ALLL") is based on evidence available at the date of preparation of its financial statements, rather than projections of future economic conditions over the life of the loans. In determining the adequacy of the ALLL within the context of the current uncertainties posed by the COVID-19 Pandemic, management has considered the historical and current performance of the Bank's portfolio, as well as various measures of the quality and safety of the portfolio, such as debt servicing and loan-to-value ratios. Management is continuing to monitor the loan portfolio and regularly communicating with borrowers to determine the continuing adequacy of the ALLL. We record a provision for loan losses as a charge to earnings when necessary in order to maintain the 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.
32 Our ALLL was$3.2 million or 0.85% of our gross loans receivable held for investment atJune 30, 2020 compared to$3.2 million or 0.79% of our gross loans receivable held for investment atDecember 31, 2019 . The levels of ALLL atJune 30, 2020 andDecember 31, 2019 reflect the result of our quarterly review of the adequacy of the ALLL. During the second quarter of 2020, the Bank did not record a loan loss provision or recapture but recorded a loan loss provision of$29 thousand during the first six months of 2020. During the first quarter of 2020 the Bank recorded additional provisions to increase the ALLL for economic uncertainties related to the COVID-19 Pandemic. As ofJune 30, 2020 , we had experienced no delinquencies on any loans, compared to$18 thousand atDecember 31, 2019 . 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. AtJune 30, 2020 , NPLs totaled$846 thousand , compared to$424 thousand atDecember 31, 2019 . The increase of$422 thousand in NPLs was due to an addition of a non-accrual church loan, offset partially by repayments of the existing NPL loans. 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 ofJune 30, 2020 , all our non-performing loans were current in their payments. Also, in determining the ALLL, we considered the ratio of the ALLL to NPLs, which decreased to 379.6% atJune 30, 2020 from 750.5% atDecember 31, 2019 . When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends in loan charge-offs. There have been no loan charge-offs since 2015. In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every twelve 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. Due to increases in collateral values, the average recorded investment in NPLs was only 38% of estimated fair value less estimated selling costs as ofJune 30, 2020 . Recoveries during the first half of 2020 and 2019 totaled$4 thousand and$190 thousand , respectively. The recovery during the first half of 2020 resulted from the payoff of one single-family loan that had been previously partially charged off. Recoveries during the first half of 2019 resulted from the payoff of two church loans that had been previously partially charged off. Impaired loans atJune 30, 2020 were$5.1 million , compared to$5.3 million atDecember 31, 2019 . The decrease of$259 thousand in impaired loans was primarily due to the sale of a non-accrual church loan and repayments. Specific reserves for impaired loans were$144 thousand , or 2.83% of the aggregate impaired loan amount atJune 30, 2020 , compared to$147 thousand , or 2.75% atDecember 31, 2019 . OnMarch 27, 2020 , the Coronavirus Aid Relief and Economic Security Act ("CARES Act") was signed into law byCongress . The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to Troubled Debt Restructurings ("TDR's") for a limited period of time to account for the effects of COVID-19. InMarch 2020 , a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification. The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, two borrowers have requested loan modifications. Both borrowers were current at the time modification program was implemented. To date, no modifications have been granted. 33
In July of 2020, the$600 per week Federal stimulus payments that had been granted to individuals since the start of the Pandemic were terminated. As a result, some tenants may be unable to make their monthly rent payments. However, the risk to the Bank's multi-family loan portfolio is mitigated by the low loan-to-value ratios (less than 59%) and high debt service coverage ratios (over 1.49%) of the multi-family loan portfolio as ofJune 30, 2020 . In addition, the Bank's borrowers generally have high cash reserves and sufficient net worth
to service their loans. We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as ofJune 30, 2020 , but because of the current uncertainties posed by the COVID-19 Pandemic, there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and theFederal Deposit Insurance Corporation ("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.
Net office properties and equipment decreased by$53 thousand to$2.7 million atJune 30, 2020 from$2.8 million as ofDecember 31, 2019 . Due to the implementation of ASU 2016-02 "Leases (Topic 842)", the Bank recorded a right of use ("ROU") asset of$1.2 million as ofJanuary 1, 2019 . After amortization, the ROU was$460 thousand as ofJune 30, 2020 . Total Liabilities
Total liabilities increased by$50.3 million to$441.8 million atJune 30, 2020 from$391.5 million atDecember 31, 2019 . The increase in total liabilities was comprised primarily of an increase of$32.5 million in FHLB advances and an increase of$18.1 million in deposits. These increases were offset by a decrease of$510 thousand in the Company's junior subordinated debentures. Deposits
Deposits increased by$18.1 million to$315.8 million atJune 30, 2020 from$297.7 million atDecember 31, 2019 , which consisted of an increase of$54.9 million in liquid deposits and a decrease of$36.8 million in certificates of deposit. Liquid deposits (NOW, demand, money market and passbook accounts) increased to$162.4 million atJune 30, 2020 , which represented 51% of total deposits, from$107.5 million which represented 36% of total deposits. Certificates of deposit ("CDs") decreased by$36.7 million during the first six months of 2020 to$153.4 million atJune 30, 2020 , which represented 49% of total deposits, from$190.2 million atDecember 31, 2019 , which represented 64% of total deposits. The decrease in CDs was primarily due to net decreases in CDARS deposits of$36.2 million and a net decrease in accounts acquired through a deposit listing service of$8.9 million , offset by a net increase in retail CDs of$8.4 million . CDARS is a deposit placement service that allows us to place our customers' funds inFDIC -insured certificates of deposit at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network ("CDARS Reciprocal"). We may also accept deposits from other institutions when we have no reciprocal deposit ("CDARS One-Way Buy"). AtJune 30, 2020 , we had approximately$11.4 million in CDARS Reciprocal and$33.1 million in CDARS One-Way Buy, compared to 39.3 million in CDARS Reciprocal and$40.7 million in CDARS One-Way Buy atDecember 31, 2019 .
One customer relationship accounted for approximately 13% and 10% of our
deposits at
Borrowings Total borrowings increased by$32.0 million to$120.3 million atJune 30, 2020 from$88.3 million atDecember 31, 2019 due to an increase of$32.5 million in advances from the FHLB, offset by a decrease of$510 thousand in our junior subordinated floating rate debentures. The weighted average interest rate on the FHLB Advances decreased to 1.84% atJune 30, 2020 from 2.32% atDecember 31, 2019 , primarily due lower weighted average rate on new advances in replacements of the matured ones. The weighted average interest rate on the subordinated floating rate debentures decreased to 2.86% atJune 30, 2020 from 4.44% atDecember 31, 2019 , primarily due to decreases in LIBOR. 34 Stockholders' Equity Stockholders' equity was$49.5 million , or 10.08% of the Company's total assets, atJune 30, 2020 , compared to$48.8 million , or 11.09% of the Company's total assets atDecember 31, 2019 . The Company's book value was$1.77 per share as ofJune 30, 2020 , compared to$1.75 per share as ofDecember 31, 2019 . Liquidity The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis. The Bank's sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans 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 40% 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 to borrow an additional$44.5 million atJune 30, 2020 . In addition, the Bank has an$11.0 million line of credit with another financial institution. The Bank's primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating expenses. Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank invests in federal funds with theFederal Reserve Bank or in money market accounts with other financial institutions. The Bank's liquid assets atJune 30, 2020 consisted of$39.8 million in cash and cash equivalents and$10.2 million in securities available-for-sale that were not pledged, compared to$15.6 million in cash and cash equivalents and$11.0 million in securities available-for-sale that were not pledged atDecember 31, 2019 . Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future. The Company's liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed inAugust 2013 ,October 2014 andDecember 2016 and dividends received from the Bank in 2020 and 2019. The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines. The Company recorded consolidated net cash outflows from operating activities of$49.2 million during the six months endedJune 30, 2020 , compared to consolidated net cash outflows from operating activities of$10.2 million during the six months endedJune 30, 2019 . Net cash outflows from operating activities during the six months endedJune 30, 2020 were primarily attributable to originations of loans receivable held for sale of$110.9 million , compared to$10.3 million during the six months endedJune 30, 2019 , offset primarily by proceeds from sales of loans receivable held for sale of$61.0 million during the six months endedJune 30, 2020 . The Company did not record any proceeds from sales of loans receivable held for sale during the six months endedJune 30, 2019 . The Company recorded consolidated net cash inflows from investing activities of$23.4 million during the six months endedJune 30, 2020 , compared to consolidated net cash outflows of$5.4 million during the six months endedJune 30, 2019 . Net cash inflows from investing activities during the six months endedJune 30, 2020 were primarily attributable to a net cash inflow of$23.3 million from loans receivable held for investment, compared to a net cash outflow of$7.2 million during the six months endedJune 30, 2019 . Net cash inflows from investing activities during the six months endedJune 30, 2020 were offset primarily by net cash outflows of$670 thousand for the purchase of FHLB stock and$328 thousand for the purchase of office properties and equipment. The Company did not purchase FHLB stock during the six months endedJune 30, 2019 and recorded a net cash outflow of$23 thousand for the purchase of office properties and equipment during the same period. In addition, the Company recorded$820 thousand in proceeds from sales of REO during the six months endedJune 30, 2019 , but the Company did not record any proceeds from sales of REO during the six months endedJune 30, 2020 . 35 The Company recorded consolidated net cash inflows from financing activities of$50.0 million during the six months endedJune 30, 2020 , compared to consolidated net cash outflows from financing activities of$19.1 million during the six months endedJune 30, 2019 . Net cash inflows from financing activities during the six months endedJune 30, 2020 were primarily attributable to a net increase in deposits of$18.1 million and proceeds from FHLB advances of$66.0 million , offset by repayments of FHLB advances of$33.5 million and repayments of junior subordinated debentures of$510 thousand . During the six months endedJune 30, 2019 , the Company recorded a net increase in deposits of$14.4 million and proceeds from FHLB advances of$10.0 million , offset by repayments of FHLB advances of$5.0 million and repayments of junior subordinated debentures of$255 thousand .
Our principal subsidiary,Broadway Federal Bank , 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 requires the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository institution holding companies and certain non-bank financial companies that are no less than those to which insured depository institutions have been previously subject. The current regulatory capital requirements are described in Note 11 of the Notes to Consolidated Financial Statements.
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