Edgar Filing: BROADWAY FINANCIAL CORP \DE\

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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 March 31, 2016

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

For transition period from__________ to___________

Commission file number 000-27464

BROADWAY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		95-4547287
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

5055 Wilshire Boulevard, Suite 500 Los Angeles, California		90036
(Address of principal executive offices)		(Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 2, 2016, 21,405,188 shares of the Registrant’s voting common stock and 7,671,520 shares of the Registrant’s non-voting common stock were outstanding.

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TABLE OF CONTENTS

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements (Unaudited)

		Consolidated Statements of Financial Condition as of March 31, 2016 and December 31, 2015	1

		Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2016 and 2015	2

		Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	3

		Notes to Consolidated Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	28

	Item 1A.	Risk Factors	28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

	Item 3.	Defaults Upon Senior Securities	28

	Item 4.	Mine Safety Disclosures	28

	Item 5.	Other Information	28

	Item 6.	Exhibits	28

	Signatures		29

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

(Unaudited)

	March 31, 2016		December 31, 2015

Assets

Cash and due from banks	$	7,656	$	5,104
Federal funds	28,335		62,735
Cash and cash equivalents	35,991		67,839
Securities available-for-sale, at fair value	15,209		14,140
Loans receivable held for investment, net of allowance of $4,534 and $4,828, respectively	319,881		304,171
Accrued interest receivable	1,091		1,077
Federal Home Loan Bank (FHLB) stock	2,573		2,573
Office properties and equipment, net	2,522		2,570
Real estate owned (REO)	-		360
Bank owned life insurance	2,897		2,882
Investment in affordable housing limited partnership	877		925
Deferred tax assets, net	4,565		4,594
Other assets	1,674		1,781
Total assets	$	387,280	$	402,912

Liabilities and stockholders’ equity

Liabilities:
Deposits	$	257,409	$	272,614
FHLB advances	72,000		72,000
Junior subordinated debentures	5,100		5,100
Advance payments by borrowers for taxes and insurance	297		663
Accrued expenses and other liabilities	5,584		6,372
Total liabilities	340,390		356,749

Stockholders’ Equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued or outstanding	-		-
Common stock, $.01 par value, voting, authorized 50,000,000 shares at March 31, 2016 and December 31, 2015; issued 21,509,179 shares at March 31, 2016 and December 31, 2015; outstanding 21,405,188 shares at March 31, 2016 and December 31, 2015	215		215
Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at March 31, 2016 and December 31, 2015; issued and outstanding 7,671,520 shares at March 31, 2016 and December 31, 2015	77		77
Additional paid-in capital	44,672		44,669
Retained earnings	3,166		2,533
Accumulated other comprehensive income (loss)	89		(2)
Treasury stock-at cost, 103,991 shares	(1,329)		(1,329)
Total stockholders’ equity	46,890		46,163
Total liabilities and stockholders’ equity	$	387,280	$	402,912

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
	2016		2015
	(In thousands, except per share)
Interest income:
Interest and fees on loans receivable	$	3,429	$	3,724
Interest on mortgage-backed and other securities	83		94
Other interest income	103		87
Total interest income	3,615		3,905

Interest expense:
Interest on deposits	517		415
Interest on borrowings	427		531
Total interest expense	944		946

Net interest income before loan loss provision recapture	2,671		2,959
Loan loss provision recapture	300		750
Net interest income after loan loss provision recapture	2,971		3,709

Non-interest income:
Service charges	126		106
Net gain on sale of loans	-		134
CDFI grant	265		355
Other	152		34
Total non-interest income	543		629

Non-interest expense:
Compensation and benefits	1,903		1,768
Occupancy expense	293		299
Information services	206		217
Professional services	127		270
Office services and supplies	70		81
FDIC assessments	25		80
Corporate insurance	71		94
Other	184		229
Total non-interest expense	2,879		3,038

Income before income taxes	635		1,300
Income tax expense	2		2
Net income	$	633	$	1,298

Other comprehensive income, net of tax:
Unrealized gains on securities available-for-sale arising during the period	$	120	$	57
Income tax	29		-
Other comprehensive income, net of tax	91		57

Comprehensive income	$	724	$	1,355

Earnings per common share-basic	$	0.02	$	0.04
Earnings per common share-diluted	$	0.02	$	0.04

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2016		2015
	(In thousands)

Cash flows from operating activities:
Net income	$	633	$	1,298
Adjustments to reconcile net income to net cash used in operating activities:
Loan loss provision recapture	(300)		(750)
Provision for losses on REOs	-		6
Depreciation	61		59
Net amortization of deferred loan origination costs	61		91
Net amortization of premiums on mortgage-backed securities	9		16
Amortization of investment in affordable housing limited partnership	48		48
Stock-based compensation expense	3		-
Earnings on bank owned life insurance	(15)		(15)
Originations of for-sale loans receivable	-		(12,562)
Net gain on sale of loans	-		(134)
Net gain on sale of REOs	(22)		(14)
Net change in accrued interest receivable	(14)		44
Net change in other assets	107		190
Net change in advance payments by borrowers for taxes and insurance	(366)		(421)
Net change in accrued expenses and other liabilities	(788)		(483)
Net cash used in operating activities	(583)		(12,627)

Cash flows from investing activities:
Net change in loans receivable held for investment	(15,471)		3,945
Proceeds from sales of loans receivable transferred to held-for-sale	-		12,292
Principal repayments on loans receivable transferred to held-for-sale	-		72
Purchase of available-for-sale securities	(1,484)		-
Prepayments and amortizations on available-for-sale securities	526		630
Proceeds from sales of REO	382		454
Redemption of FHLB stock	-		470
Purchase of FHLB stock	-		(188)
Additions to office properties and equipment	(13)		(14)
Net cash (used in) provided by investing activities	(16,060)		17,661

Cash flows from financing activities:
Net change in deposits	(15,205)		4,225
Repayments of FHLB advances	-		(1,500)
Net cash (used in) provided by financing activities	(15,205)		2,725

Net change in cash and cash equivalents	(31,848)		7,759
Cash and cash equivalents at beginning of the period	67,839		20,790
Cash and cash equivalents at end of the period	$	35,991	$	28,549

Supplemental disclosures of cash flow information:
Cash paid for interest	$	941	$	972
Cash paid for income taxes	-		-

Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO	$	-	$	843

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

March 31, 2016

NOTE (1) – Basis of Financial Statement Presentation

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

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

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

Recent Accounting Pronouncements

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

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

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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

NOTE (2) – Earnings Per Share of Common Stock

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

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

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands, except share and per share)
Basic
Net income	$	633	$	1,298

Weighted average common shares outstanding	29,076,708		29,076,708

Earnings per common share - basic	$	0.02	$	0.04

Diluted
Net income	$	633	$	1,298

Weighted average common shares outstanding	29,076,708		29,076,708
Add: dilutive effects of assumed exercises of stock options	-		-
Weighted average common shares - fully dilutive	29,076,708		29,076,708

Earnings per common share - diluted	$	0.02	$	0.04

Stock options for 540,625 and 90,625 shares of common stock were not considered in computing diluted earnings per common share for the three months ended March 31, 2016 and 2015, respectively, because they were anti-dilutive.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (3) – Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
March 31, 2016:

Residential mortgage-backed	$	12,742	$	459	$	-	$	13,201
U.S. Government and federal agency		1,949		59		-		2,008
Total available-for-sale securities	$	14,691	$	518	$	-	$	15,209
December 31, 2015:
Residential mortgage-backed	$	11,796	$	371	$	-	$	12,167
U.S. Government and federal agency	1,946		27		-		1,973
Total available-for-sale securities	$	13,742	$	398	$	-	$	14,140

At March 31, 2016, the Bank’s investment portfolio had an estimated remaining life of 4.1 years. The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity at March 31, 2016. 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	1,949		2,008
Five to ten years	-		-
Beyond ten years	-		-
Residential mortgage-backed	12,742		13,201
Total	$	14,691	$	15,209

At March 31, 2016 and December 31, 2015, securities pledged to secure public deposits had a carrying amount of $708 thousand and $731 thousand, respectively. At March 31, 2016 and December 31, 2015, there were no holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

There were no sales of securities during the three months ended March 31, 2016 and 2015.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (4) – Loans Receivable Held for Investment

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

	March 31, 2016		December 31, 2015
	(In thousands)
Real estate:
Single family (1)	$	124,025	$	130,891
Multi-family	142,773		118,616
Commercial real estate	11,073		11,442
Church	44,710		46,390
Construction	332		343
Commercial – other	289		270
Consumer	6		4
Gross loans receivable before deferred loan costs and premiums	323,208		307,956
Unamortized net deferred loan costs and premiums	1,207		1,043
Gross loans receivable	324,415		308,999
Allowance for loan losses	(4,534)		(4,828)
Loans receivable, net	$	319,881	$	304,171

______

(1) Includes $94.4 million and $99.5 million of non-impaired purchased loans at March 31, 2016 and December 31, 2015, respectively, which are accounted for under ASC 310-20.

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

	Three Months Ended March 31, 2016
	Real Estate

	Single family							Multi- family				Commercial real estate						Church						Construction				Commercial - other				Consumer				Total
	(In thousands)
Beginning balance	$	597						$	1,658			$	469					$	2,083					$	3			$	18			$	-			$	4,828
Provision for (recapture of) loan losses	(69					)		208				(25				)		(413				)		-				(1			)	-				(300			)
Recoveries	-							-				-						6						-				-				-				6
Loans charged off	-							-				-						-						-				-				-				-
Ending balance	$		528					$	1,866			$	444					$	1,676					$	3			$	17			$	-			$	4,534
	Three Months Ended March 31, 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	(10				)		15				(60				)		(689				)		(3				)	(1			)	(2			)	(750			)
Recoveries	-						-				-						6						-					-				-				6
Loans charged off	-						-				-						(50				)		-					-				-				(50			)
Ending balance	$			1,164			$			2,741	$			436			$			3,314			$			4		$		11		$		1		$		7,671

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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

	March 31, 2016
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	131	$	2	$	91	$	570	$	-	$	15	$	-	$	809
Collectively evaluated for impairment	397		1,864		353		1,106		3		2		-		3,725
Total ending allowance balance	$	528	$	1,866	$	444	$	1,676	$	3	$	17	$	-	$	4,534
Loans:
Loans individually evaluated for impairment	$	939	$	972	$	1,939	$	10,995	$	-	$	67	$	-	$	14,912
Loans collectively evaluated for impairment	123,726		142,995		9,141		33,081		332		222		6		309,503
Total ending loans balance	$	124,665	$	143,967	$	11,080	$	44,076	$	332	$	289	$	6	$	324,415

	December 31, 2015
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	134	$	1	$	88	$	756	$	-	$	16	$	-	$	995
Collectively evaluated for impairment	463		1,657		381		1,327		3		2		-		3,833
Total ending allowance balance	$	597	$	1,658	$	469	$	2,083	$	3	$	18	$	-	$	4,828
Loans:
Loans individually evaluated for impairment	$	963	$	1,440	$	1,924	$	11,390	$	-	$	67	$	-	$	15,784
Loans collectively evaluated for impairment	130,632		118,186		9,488		34,359		343		203		4		293,215
Total ending loans balance	$	131,595	$	119,626	$	11,412	$	45,749	$	343	$	270	$	4	$	308,999

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Single family	$	873	$	282	$	-	$	877	$	302	$	-
Multi-family	385		315		-		912		779		-
Commercial real estate	635		240		-		636		259		-
Church	6,046		3,917		-		5,615		3,542		-
With an allowance recorded:
Single family	657		657		131		662		661		134
Multi-family	657		657		2		661		661		1
Commercial real estate	1,699		1,699		91		1,702		1,665		88
Church	7,470		7,078		570		8,245		7,848		756
Commercial -other	67		67		15		67		67		16
Total	$	18,489	$	14,912	$	809	$	19,377	$	15,784	$	995

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

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

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
	Average Recorded Investment			Cash Basis Interest Income Recognized			Average Recorded Investment			Cash Basis Interest Income Recognized
	(In thousands)
Single family		$	951		$	7		$	1,382		$	7
Multi-family		1,206			41			2,740			16
Commercial real estate		1,933			56			4,264			106
Church		11,191			126			14,603			142
Commercial -other		67			-			95			2
Total		$	15,348		$	230		$	23,084		$	273

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 $119 thousand and $284 thousand for the three months ended March 31, 2016 and 2015, respectively, and were not included in the consolidated results of operations.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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

	March 31, 2016
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Loans receivable held for investment:
Single family		$	73		$	5		$	-		$	78		$	124,587
Multi-family		-			-			-			-			143,967
Commercial real estate		-			-			-			-			11,080
Church		578			-			463			1,041			43,035
Construction		-			-			-			-			332
Commercial - other		-			-			-			-			289
Consumer		-			-			-			-			6
Total		$	651		$	5		$	463		$	1,119		$	323,296

	December 31, 2015
	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current
	(In thousands)
Loans receivable held for investment:
Single family		$	103		$	-		$	-		$	103		$	131,492
Multi-family		291			-			-			291			119,335
Commercial real estate		-			-			-			-			11,412
Church		595			-			456			1,051			44,698
Construction		-			-			-			-			343
Commercial - other		-			-			-			-			270
Consumer		-			-			-			-			4
Total		$	989		$	-		$	456		$	1,445		$	307,554

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

	March 31, 2016			December 31, 2015
	(In thousands)
Loans receivable held for investment:
Single family		$	282		$	302
Multi-family		315			779
Commercial real estate		240			259
Church		3,265			2,887
Total non-accrual loans		$	4,102		$	4,227

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

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Troubled Debt Restructurings

At March 31, 2016, loans classified as troubled debt restructurings (“TDRs”) totaled $14.4 million, of which $3.6 million were included in non-accrual loans and $10.8 million were on accrual status. At December 31, 2015, loans classified as TDRs totaled $15.3 million, of which $3.8 million were included in non-accrual loans and $11.5 million were on accrual status. The Company has allocated $809 thousand and $995 thousand of specific reserves for accruing TDRs as of March 31, 2016 and December 31, 2015, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required. As of March 31, 2016 and December 31, 2015, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. No loans were modified during the three months ended March 31, 2016 and 2015.

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.

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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 categories of loans by loan type as of the periods indicated were as follows:

	March 31, 2016
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	122,163	$	-	$	2,220	$	282	$	-	$	-
Multi-family	141,922		493		350		1,202		-		-
Commercial real estate	7,170		-		-		3,910		-		-
Church	34,425		725		836		8,090		-		-
Construction	332		-		-		-		-		-
Commercial - other	222		-		-		67		-		-
Consumer	6		-		-		-		-		-
Total	$	306,240	$	1,218	$	3,406	$	13,551	$	-	$	-

	December 31, 2015
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	128,736	$	-	$	2,557	$	302	$	-	$	-
Multi-family	117,602		-		352		1,672		-		-
Commercial real estate	7,509		-		-		3,903		-		-
Church	35,013		776		1,431		8,529		-		-
Construction	343		-		-		-		-		-
Commercial - other	203		-		-		67		-		-
Consumer	4		-		-		-		-		-
Total	$	289,410	$	776	$	4,340	$	14,473	$	-	$	-

NOTE (5) – 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 3.18% at March 31, 2016. 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 through March 2019 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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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (6) – 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.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Assets Measured on a Recurring Basis

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

	Fair Value Measurements at March 31, 2016
	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	$		-	$		13,201	$	-	$	13,201
Securities available-for-sale - U.S. Government and federal agency	2,008			-			-		2,008

	Fair Value Measurements at December 31, 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	$	-		$	12,167		$	-	$	12,167
Securities available-for-sale - U.S. Government and federal agency	1,973			-			-		1,973

There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2016 and 2015.

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 as of the periods indicated. The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy.

	March 31, 2016	December 31, 2015
	(In thousands)
Impaired loans carried at fair value of collateral	$ 2,456	$ 2,557
Real estate owned	-	360

There were no losses recognized on assets measured at fair value on a non-recurring basis for the three months ended March 31, 2016 and 2015.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2016:

	Valuation Technique(s)	Unobservable Input(s)	Range	Weighted Average

Impaired loans	Third Party Appraisals	Adjustment for differences between the comparable sales	-18% to 13%	0%

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments as of the periods indicated were as follows:

			Fair Value Measurements at March 31, 2016
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	35,991	$	35,991	$	-	$	-	$	35,991
Securities available-for-sale	15,209		2,008		13,201		-		15,209
Loans receivable held for investment	319,881		-		-		327,441		327,441
Accrued interest receivable	1,091		63		34		994		1,091
Federal Home Loan Bank stock	2,573		2,573		-		-		2,573
Financial Liabilities:
Deposits	$	257,409	$	-	$	252,816	$	-	$	252,816
Federal Home Loan Bank advances	72,000		-		73,728		-		73,728
Junior subordinated debentures	5,100		-		-		3,164		3,164
Accrued interest payable	54		-		48		6		54

			Fair Value Measurements at December 31, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	67,839	$	67,839	$	-	$	-	$	67,839
Securities available-for-sale	14,140		1,973		12,167		-		14,140
Loans receivable held for investment	304,171		-		-		306,643		306,643
Accrued interest receivable	1,077		63		31		983		1,077
Federal Home Loan Bank stock	2,573		2,573		-		-		2,573
Financial Liabilities:
Deposits	$	272,614	$	-	$	265,495	$	-	$	265,495
Federal Home Loan Bank advances	72,000		-		73,441		-		73,441
Junior subordinated debentures	5,100		-		-		3,117		3,117
Accrued interest payable	52		-		46		6		52

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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 investment

Fair values of loans 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.

(c) FHLB Stock

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

(d) 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.

(e) 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.

(f) 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.

(g) 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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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (7) – 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 five years and have 10-year contractual terms.

In February 2016, the Company granted 450,000 stock options, with an exercise price of $1.62 per share, to senior executive officers. These options vest over five years and expire in ten years. The Company estimated the compensation costs and fair value per share of these stock options to be $194 thousand and $0.43 per share, respectively, using the Black-Scholes option pricing model and the following assumptions: (i) expected volatility of 27.36%; (ii) risk free interest rate of 1.21%; (iii) expected option term of five years; and (iv) 0% dividend yield.

The Company recorded $3 thousand of stock-based compensation expense during the three months ended March 31, 2016 compared to $0 during the three months ended March 31, 2015.

NOTE (8) – Regulatory Matters

The Bank’s capital requirements are administered by the Office of the Comptroller of the Currency (“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.

The federal banking regulators approved final capital rules (“Basel III Capital Rules”) in July 2013 implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules prescribe a standardized approach for calculating risk-weighted assets and revised the definition and calculation of Tier 1 capital and Total capital, and include a new Common Equity Tier 1 capital (“CET1”) measure. Under the Basel III Capital Rules, the currently effective minimum capital ratios are:

· 4.5% CET1 to risk-weighted assets;

· 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

· 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

· 4.0% Tier 1 capital to average consolidated assets (known as the “leverage ratio”).

A new capital conservation buffer was also established above the regulatory minimum capital requirements. This capital conservation buffer was 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 it reaches its final level of 2.5% on January 1, 2019.

The Basel III Capital rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as “well capitalized”: (i) a CET1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). At March 31, 2016 and December 31, 2015, the Bank’s level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios as of the periods indicated are presented below.

	Actual			Minimum Capital Requirements			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
March 31, 2016:
Tier 1 (Leverage)	$	46,751	12.02%	$	15,560	4.0%	$	19,450	5.0%
Common Equity Tier 1	$	46,751	19.19%	$	10,960	4.5%	$	15,832	6.5%
Tier 1	$	46,751	19.19%	$	14,614	6.0%	$	19,485	8.0%
Total Capital	$	49,814	20.45%	$	19,485	8.0%	$	24,356	10.0%

December 31, 2015:
Tier 1 (Leverage)	$	46,028	11.56%	$	15,923	4.0%	$	19,903	5.0%
Common Equity Tier 1	$	46,028	19.45%	$	10,650	4.5%	$	15,383	6.5%
Tier 1	$	46,028	19.45%	$	14,200	6.0%	$	18,933	8.0%
Total Capital	$	49,010	20.71%	$	18,933	8.0%	$	23,667	10.0%

NOTE (9) – Income Taxes

The Company and its subsidiary 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 $2.4 million was required as of March 31, 2016, resulting in a $4.6 million net deferred tax assets. The Company recorded a valuation allowance of $2.5 million and reported $4.6 million in net deferred tax assets as of December 31, 2015.

NOTE (10) – Concentration of Credit Risk

The Bank has a significant concentration of deposits with a long-time customer that accounted for approximately 13% of its deposits as of March 31, 2016. The Bank expects to maintain this relationship with the customer.

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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, 2015. 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, that 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.

Overview

We recorded net income of $633 thousand, or $0.02 per diluted share, for the first quarter of 2016, compared to net income of $1.3 million, or $0.04 per diluted share, for the first quarter of 2015. The decrease of $665 thousand in net income during the first quarter of 2016 was primarily due to a decrease of $288 thousand in net interest income (before loan loss provision recapture), a decrease of $450 thousand in loan loss provision recapture and a decrease of $86 thousand in non-interest income, which were partially offset by a decrease of $159 thousand in non-interest expense.

The loan loss provision recapture reflects the substantial reduction in delinquencies and non-performing loans over the past three years. As of March 31, 2016, delinquencies and non-performing loans were at their lowest levels since 2009, and represented 0.29% and 1.06% of total assets. There were no loan charge-offs or loans transferred to REO during the first quarter of 2016 and the Bank owned no REO properties as of March 31, 2016.

Total assets decreased by $15.6 million during the first quarter of 2016, primarily because the Bank used cash to redeem $15.0 million of certificates of deposit. Total cash and cash equivalents decreased $31.8 million, reflecting investments in loans receivable, which increased $15.7 million, and securities, which increased $1.1 million as we invested excess Federal Funds in multi-family residential loans and securities to improve the yield on interest-earning assets.

Results of Operations

Net Income

We recorded net income of $633 thousand for the first quarter of 2016, compared to $1.3 million for the first quarter of 2015. Results during the first quarter of 2016 included a loan loss provision recapture of $300 thousand and a grant of $265 thousand from the U.S. Treasury Department’s Community Development Financial Institutions (“CDFI”) Fund. During the first quarter of 2015, we recorded a loan loss provision recapture of $750 thousand, a grant of $355 thousand from the CDFI Fund and a gain on sale of loans of $134 thousand.

Net Interest Income

For the first quarter of 2016, net interest income totaled $2.7 million, representing a decrease of $288 thousand, or 10%, from the $3.0 million of net interest income reported for the first quarter of 2015. The decrease in net interest income in the first quarter of 2016, compared to the first quarter of 2015 was due to lower interest income on loans.

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Interest income and fees on loans for the first quarter of 2016 totaled $3.4 million, representing a decrease of $295 thousand, or 8%, from the $3.7 million of interest income and fees on loans for the first quarter of 2015. The decrease in loan interest income in the first quarter of 2016, compared to the first quarter of 2015 was driven by a decrease of 60 basis points in the average yield on loans to 4.33% for the first quarter of 2016 from 4.93% for the first quarter of 2015, which reduced loan interest income by $469 thousand. The average yield on loans for the first quarter of 2016 decreased primarily because the yields on the $99.7 million of single family loans that were purchased during the fourth quarter of 2015 and on loans that were originated during the first quarter of 2016 were lower than the average