# Broadway Financial Corp \\de\\: Form 10-Q for the period ended Sep 30, 2013

- Company: [Broadway Financial Corp \\de\\](/companies/byfc.md) (CIK 1001171)
- Form: 10-Q
- Filed: 2013-11-14
- Accepted by EDGAR: Nov 14, 2013, 21:59 ET
- Period: 2013-09-30
- Accession: 0001104659-13-084872
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001171/000110465913084872/a13-19851_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001171/000110465913084872/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2013-07-01 to 2013-09-30 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2013-01-01 to 2013-09-30 | $3.8m | us-gaap:InterestExpense |
| Income tax | 9 months, 2013-01-01 to 2013-09-30 | $6.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-07-01 to 2013-09-30 | $584.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2013-01-01 to 2013-09-30 | −$260.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2013-01-01 to 2013-09-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2013-01-01 to 2013-09-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-07-01 to 2013-09-30 | 3,755,695 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2013-01-01 to 2013-09-30 | 2,536,913 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2013-01-01 to 2013-09-30 | $1.6m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2013-01-01 to 2013-09-30 | $232.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2013-09-30 | $60.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2013-09-30 | $345.7m | us-gaap:Assets |
| Total liabilities | at 2013-09-30 | $320.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2013-09-30 | $25.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,911 characters.

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, 2012.

### Overview

During the third quarter we closed a recapitalization of the Company’s balance sheet that strengthened the balance sheets of the Company and the Bank, and significantly simplified the capital structure of the Company. The agreements comprising the recapitalization included:

(1) The issuance of 8,776 shares of Common Stock Equivalents in exchange for the five series of the Company’s formerly outstanding preferred stock with an aggregate liquidation value or preference of $17.6 million, including the TARP Preferred Stock that was issued to the Treasury Department pursuant to the Capital Purchase Program component of the Treasury Department’s Troubled Asset Relief Program, which the parties agreed to value at $8.8 million based on the price at which shares of the Common Stock were sold in the private placement referred to below;

(2) The issuance of 2,646 shares of Common Stock Equivalents in exchange for all of the accumulated dividends on the TARP Preferred Stock, totaling $2.6 million as of the date of the exchange;

(3) The issuance of 2,575 shares of Common Stock Equivalents in exchange for $2.6 million principal amount of the Company’s senior line of credit (the “Debt Exchange”) (See Notes 2 and 7);

(4) The modification of the terms of the remaining $2.4 million principal amount of the senior line of credit to, among other matters, extend the maturity and eliminate the default rate;

(5) The forgiveness of the $1.8 million of accrued interest on the entire amount of the Company’s senior line of credit as of the date of the exchange;

(6) The exchange of 698 shares of Common Stock Equivalents issued in the Debt Exchange for 6,982 shares of Series G Non-Voting Preferred Stock; and

(7) The issuance of 4,235,500 shares of Common Stock in private sales at a price of $1.00 per share, yielding $4.2 million in gross proceeds. We used a portion of the proceeds to invest additional capital into the Bank and to repay all of the inter-company payables due to the Bank from the Company.

Collectively, these transactions have reduced the Company’s requirements for debt service, eliminated all cumulative dividends on preferred stock and improved the capital and liquidity of both the Company and the Bank. The Company’s stockholders will be asked to approve two proposals relating to the recapitalization at the Company’s annual stockholders meeting that will be held on November 27, 2013. One proposal seeks stockholder approval to increase the number of authorized shares of common stock. Stockholder approval of this proposal will result in the automatic conversion of all of the Common Stock Equivalents issued in the recapitalization into shares of Common Stock. The second proposal seeks stockholder approval to authorize a new class of non-voting common stock. Approval of this proposal will result in the automatic conversion of all of the Series G Non-Voting Preferred Stock issued in the recapitalization into shares of non-voting Common Stock. If both proposals are approved, then the only equity securities of the Company that will remain outstanding will be shares of Common Stock or non-voting Common Stock. We believe that the completion of these transactions should improve the Company’s ability to access capital in the future.

From an operating perspective, during the third quarter we continued to aggressively pursue reductions in our classified assets, including through loan sales, foreclosures on properties securing defaulted loans, and sales of real estate owned through foreclosure or through deed in lieu of foreclosure (“REO”). Also, during the latest quarter we began to pursue prudent growth in our loan portfolio to increase interest income. Our focus on loan growth is targeted on selective niches within the multi-family and investor-owned single family residential loan markets, which are markets that senior management has successfully served in the past and which are consistent with the Company’s focus on low-to-moderate income communities in Southern California. During the quarter we originated $16.3 million of new loans, partially offset by loan repayments of $9.2 million, and purchased over $10.9 million of residential real estate loans secured by five or more units (multi-family loans). As a result, our loan portfolio grew by $17.8 million over the level at the end of the second quarter. However, total assets increased by only $472 thousand during the third quarter as we funded our loan originations with excess liquidity. For the nine months ended September 30, 2013, total assets decreased by $28.0 million primarily due to a decrease in our loan portfolio as we focused on divesting problem assets. The decrease in our loan portfolio, including loans held for sale, consisted of a decrease of $15.4 million in our one-to-four family residential real estate loan portfolio, a decrease of $9.5 million in our commercial real estate loan portfolio, a decrease of $8.7 million in our church loan portfolio, a decrease of $301 thousand in our construction loan portfolio and a decrease of $1.8 million in our commercial loan portfolio. These decreases were partially offset by an increase of $15.2 million in our five or more units (multi-family) residential real estate loan portfolio.

Corresponding to the decrease in assets during the first nine months of 2013, our total deposits decreased by $38.5 million, primarily due to a decrease in certificates of deposit (“CDs”), in particular, CDs with higher interest costs that were obtained through QwickRate, a deposit listing service, and 36-month CDs. FHLB borrowings increased $8.0 million during 2013 while other borrowings decreased $2.0 million because of the recapitalization.

We recorded net income of $584 thousand for the three months ended September 30, 2013 and a net loss of $260 thousand for the nine months ended September 30, 2013, compared to a net loss of $613 thousand for the three months ended September 30, 2012 and net income of $1.2 million for the nine months ended September 30, 2012. The increase in net income in the third quarter of 2013 over the comparable quarter in the prior year was primarily attributable to the gain on debt restructuring of $1.2 million that resulted from the recapitalization. The decrease in income during the nine month period was primarily due to a gain of $2.5 million from the sale of our former headquarters building during the second quarter of 2012, which was partially offset by the $1.2 million gain on debt restructuring during the third quarter of 2013. In addition, during 2013 we generated lower net interest income before provision for loan losses because of payoffs of our loan portfolio. We partially offset this decrease in net interest income by reducing our non-interest operating expenses.

### Going Concern and Regulatory Matters

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited liquidity and is in default under the terms of its senior debt and subordinated debentures. These matters raise substantial doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue as a going concern is dependent on many factors, one of which is regulatory action, including acceptance of its capital plan. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

### Results of Operations

#### Net Income (Loss)

For the three and nine months ended September 30, 2013, we recorded net income of $584 thousand, or $0.05 earnings per diluted common share, and a net loss of $260 thousand, or $0.23 loss per diluted common share, respectively. For the same periods in 2012, we recorded a net loss of $613 thousand, or $0.48 loss per diluted common share, and net income of $1.2 million, or $0.21 earnings per diluted common share.

The increase from a net loss for the third quarter of 2012 to a net income for the third quarter of 2013 was primarily due to the inclusion of a gain of $1.2 million on the restructuring of the Company’s senior debt in the third quarter of 2013 and lower net loss on sales of REOs. In addition, during the third quarter of 2012, we recorded a net loss of $280 thousand on the sale of loans.

The decrease from net income for the first nine months of 2012 to net loss for the first nine months of 2013 was primarily due to the inclusion of a gain of $2.5 million on the sale of our former headquarters building in the second quarter of 2012, which was partially offset by the $1.2 million gain on debt restructuring in the third quarter of 2013. In addition, the decrease during the first nine months of 2013 was attributable to lower net interest income before provision for loan losses, which was partially offset by a lower provision for loan losses and lower non-interest expenses for the nine months ended September 30, 2013 as compared to the comparable period in 2012. Also, earnings per share were significantly impacted during the third quarter and nine month periods of 2013 because we issued a combined total of 18,225,229 shares of common stock, Common Stock Equivalents and Series G Non-Voting Preferred Stock, representing over 90% of our total shares of common stock and participating securities currently outstanding, in connection with the recapitalization that closed on August 22, 2013.

#### Net Interest Income

For the third quarter of 2013, net interest income before provision for loan losses totaled $2.6 million, down $589 thousand, or 18%, from $3.2 million of net interest income before provision for loan losses for the third quarter of 2012. The decrease in net interest income primarily resulted from a decrease of $59.3 million in average interest-earning assets and a decrease of 11 basis points in net interest margin.

Interest income decreased $912 thousand, or 19%, to $3.8 million for the third quarter of 2013 from $4.7 million for the third quarter of 2012. The decrease in interest income was primarily due to a decrease of $59.3 million in average interest-earning assets, primarily reflecting a decrease of $68.6 million in the average balance of loans receivable, and a decrease of $4.2 million in the average balance of securities available-for-sale, offset by an increase of $16.2 million in the average balance of federal funds sold. The decrease of $68.6 million in average loans receivable from $319.3 million for the third quarter of 2012 to $250.8 million for the third quarter of 2013 resulted in a reduction of $994 thousand in interest income. The average yield on loans increased from 5.76% for the third quarter of 2012 to 5.80% for the third quarter of 2013 primarily due to a lower level of non-accrual loans as $15.5 million of non-performing loans were sold and $1.9 million were paid off during 2013. The average yield on total interest-earning assets decreased from 4.96% for the third quarter of 2012 to 4.74% for the third quarter of 2013, as a higher percentage of our total interest-earning assets were invested in lower yielding federal funds sold. Recently we have begun refocusing on loan originations and rebuilding our loan portfolio to improve the yield on interest-earning assets and grow total interest income. We intend to finance loan growth in the near term by using excess federal funds sold. Our loan portfolio increased by $17.8 million during the third quarter of 2013 primarily due to loan originations of $16.3 million and loan purchases of $10.9 million, which were partially offset by loan repayments of $9.2 million.

Interest expense decreased $323 thousand, or 22%, to $1.2 million for the third quarter of 2013 from $1.5 million for the third quarter of 2012. The decrease in interest expense was primarily attributable to a decrease of $44.2 million in the average balance of deposits from $265.4 million for the third quarter of 2012 to $221.2 million for the third quarter of 2013, which resulted in a reduction of $140 thousand in interest expense. Additionally, the average cost of deposits decreased 13 basis points from 1.07% for the third quarter of 2012 to 0.94% for the third quarter of 2013, which resulted in a reduction of $45 thousand in interest expense. The decreases in the average balance and average cost of deposits reflect the maturities of certificates of deposit bearing higher rates. Also contributing to the decrease in interest expense during 2013 was a lower average balance and average cost of FHLB advances. The average balance of FHLB advances decreased $3.4 million, from $83.0 million for the third quarter of 2012 to $79.6 million for the third quarter of 2013, which resulted in a decrease of $24 thousand in interest expense. The average cost of FHLB advances decreased 39 basis points, from 2.90% for the third quarter of 2012 to 2.51% for the third quarter of 2013, which resulted in a decrease of $78 thousand in interest expense. The decrease in the average cost of FHLB advances was primarily due to the restructurings of $20.0 million of higher costing FHLB advances in the second and fourth quarters of 2012 and another $28 million in the second quarter of 2013.

For the nine months ended September 30, 2013, net interest income before provision for loan losses totaled $8.1 million, down $2.3 million, or 22%, from $10.4 million of net interest income before provision for loan losses for the same period a year ago. The decrease of $2.3 million in net interest income primarily resulted from a decrease of $54.3 million in average interest-earning assets and a decrease of 34 basis points in net interest margin.

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

*(Dollars in Thousands)*

| Assets Interest-earning assets: | For the three months ended September 30, 2013 Average Balance | Interest | Average Yield/ Cost (1) | 2012 Average Balance | Interest | Average Yield/ Cost (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits | $3,921 | $7 | 0.71% | $6,554 | $6 | 0.37% |
| Federal Funds sold and other short-term investments | 53,259 | 32 | 0.24% | 37,082 | 9 | 0.10% |
| Investment securities | - | - | - | - | - | - |
| Residential mortgage-backed securities | 10,218 | 71 | 2.78% | 14,372 | 109 | 3.03% |
| Loans receivable (2)(3) | 250,787 | 3,637 | 5.80% | 319,340 | 4,595 | 5.76% |
| FHLB stock | 3,741 | 64 | 6.84% | 3,901 | 4 | 0.41% |
| Total interest-earning assets | 321,926 | $3,811 | 4.74% | 381,249 | $4,723 | 4.96% |
| Non-interest-earning assets | 15,764 |  |  | 4,611 |  |  |
| Total assets | $337,690 |  |  | $385,860 |  |  |
| **Liabilities and Stockholders’ Equity** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Money market deposits | $16,460 | $16 | 0.39% | $18,047 | $20 | 0.44% |
| Passbook deposits | 37,453 | 31 | 0.33% | 36,366 | 28 | 0.31% |
| NOW and other demand deposits | 32,858 | 8 | 0.10% | 37,551 | 7 | 0.07% |
| Certificate accounts | 134,403 | 467 | 1.39% | 173,408 | 652 | 1.50% |
| Total deposits | 221,174 | 522 | 0.94% | 265,372 | 707 | 1.07% |
| FHLB advances | 79,587 | 500 | 2.51% | 83,000 | 602 | 2.90% |
| Junior subordinated debentures (4) | 6,000 | 70 | 4.67% | 6,000 | 46 | 3.07% |
| Other borrowings (5) | 3,713 | 81 | 8.73% | 5,000 | 141 | 11.28% |
| Total interest-bearing liabilities | 310,474 | $1,173 | 1.51% | 359,372 | $1,496 | 1.67% |
| Non-interest-bearing liabilities | 6,064 |  |  | 6,902 |  |  |
| Stockholders’ Equity | 21,152 |  |  | 19,586 |  |  |
| Total liabilities and stockholders’ equity | $337,690 |  |  | $385,860 |  |  |
| Net interest rate spread (6) |  | $2,638 | 3.22% |  | $3,227 | 3.29% |
| Net interest rate margin (7) |  |  | 3.28% |  |  | 3.39% |

(1) Average yields and costs have been annualized.

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

(3) Amount excludes interest on non-performing loans.

(4) Includes compounding on past due interest.

(5) Includes default rate margin that was in effect to August 22, 2013.

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

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

*(Dollars in Thousands)*

| Assets Interest-earning assets: | For the nine months ended September 30, 2013 Average Balance | Interest | Average Yield/ Cost (1) | 2012 Average Balance | Interest | Average Yield/ Cost (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-earning deposits | $5,472 | $18 | 0.44% | $6,553 | $16 | 0.33% |
| Federal Funds sold and other short-term investments | 58,729 | 93 | 0.21% | 32,946 | 23 | 0.09% |
| Investment securities | - | - | - | 642 | 24 | 4.98% |
| Residential mortgage-backed securities | 11,154 | 240 | 2.87% | 15,496 | 368 | 3.17% |
| Loans receivable (2)(3) | 259,217 | 11,420 | 5.87% | 333,086 | 14,955 | 5.99% |
| FHLB stock | 3,789 | 126 | 4.43% | 3,952 | 16 | 0.54% |
| Total interest-earning assets | 338,361 | $11,897 | 4.69% | 392,675 | $15,402 | 5.23% |
| Non-interest-earning assets | 16,246 |  |  | 6,643 |  |  |
| Total assets | $354,607 |  |  | $399,318 |  |  |
| **Liabilities and Stockholders’ Equity** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Money market deposits | $16,838 | $49 | 0.39% | $19,376 | $63 | 0.43% |
| Passbook deposits | 37,363 | 91 | 0.32% | 36,738 | 88 | 0.32% |
| NOW and other demand deposits | 34,213 | 20 | 0.08% | 38,270 | 21 | 0.07% |
| Certificate accounts | 149,814 | 1,568 | 1.40% | 185,579 | 2,390 | 1.72% |
| Total deposits | 238,228 | 1,728 | 0.97% | 279,963 | 2,562 | 1.22% |
| FHLB advances | 79,529 | 1,564 | 2.62% | 83,000 | 1,878 | 3.02% |
| Junior subordinated debentures (4) | 6,000 | 156 | 3.47% | 6,000 | 140 | 3.11% |
| Other borrowings (5) | 4,485 | 355 | 10.55% | 5,000 | 419 | 11.17% |
| Total interest-bearing liabilities | 328,242 | $3,803 | 1.54% | 373,963 | $4,999 | 1.78% |
| Non-interest-bearing liabilities | 7,470 |  |  | 6,513 |  |  |
| Stockholders’ Equity | 18,895 |  |  | 18,842 |  |  |
| Total liabilities and stockholders’ equity | $354,607 |  |  | $399,318 |  |  |
| Net interest rate spread (6) |  | $8,094 | 3.14% |  | $10,403 | 3.45% |
| Net interest rate margin (7) |  |  | 3.19% |  |  | 3.53% |

(1) Average yields and costs have been annualized.

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

(3) Amount excludes interest on non-performing loans.

(4) Includes compounding on past due interest.

(5) Includes default rate margin that was in effect to August 22, 2013.

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

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

#### Provision and Allowance for Loan Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for loan losses 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, trends, 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.

The provision for loan losses for the third quarter of 2013 totaled $414 thousand, compared to $129 thousand for the same period a year ago. The provision for loan losses for the third quarter of 2013 was primarily due to loan growth resulting from loan originations and loan purchases. During the third quarter of 2013, loan charge-offs also contributed to the increased provision for loan losses, which was partially offset by recoveries on previously charged-off loans and a decrease in the general valuation allowance. The decrease in the general valuation allowance reflected lower historical loss reserve factors because periods with higher loan losses are beginning to be replaced with periods with lower loan losses as part of our rolling three-year look back analysis.

For the nine months ended September 30, 2013, the provision for loan losses totaled $414 thousand compared to a provision of $1.2 million for the same period a year-ago. The decrease in loan loss provision was primarily due to a decrease of $38.0 million in our gross loan portfolio from one year ago and improving asset quality.

At September 30, 2013 our allowance for loan losses was $10.3 million, or 3.96% of our loans receivable held for investment, compared to $11.9 million, or 4.51% of our loans receivable held for investment, at December 31, 2012. The ratio of the allowance for loan losses to non-performing loans, excluding loans held for sale, increased to 53.43% at September 30, 2013 from 44.09% at December 31, 2012, primarily due to the sale of $15.5 million of non-performing loans.

When reviewing the adequacy of the allowance for loan losses as a percentage of non-performing loans, we consider the impact of charge-offs. Also, we update our estimates of collateral values on non-performing loans at least every nine months. If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs. Therefore certain losses inherent in our non-performing loans are being 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 allowance for loan losses required on these loans. As of September 30, 2013, 61% of our non-performing loans had already been written down to their estimated fair value less estimated selling costs. The remaining 39% of non-performing loans have specific reserves or are reported at cost as the fair value of collateral less estimated selling costs exceeded the recorded investment in the loan. Also, in connection with our review of the adequacy of our allowance for loan losses, we track the amount and percentage of our non-performing loans that are paying currently, but nonetheless must be classified as non-performing loans for reasons unrelated to payments. As of September 30, 2013, approximately $10.8 million of our total non-performing loans of $20.1 million (including loans held for sale) were current in their payments.

Loan charge-offs during the first nine months of 2013 were $2.6 million, or 1.31% of average loans held for investment, compared to $1.9 million, or 0.67% of average loans held for investment, during the first nine months of 2012. Of the $2.6 million of charge-offs, $1.3 million charge-offs were related to the write down of certain classified loans that were transferred to loans held for sale in the first quarter of 2013 and subsequently sold in April 2013. Another $177 thousand of charge-offs were related to non-performing church loans that were sold in February and April 2013. The remaining $1.1 million of charge-offs were related to losses on impaired loans. Charge-offs on commercial real estate loans totaled $1.1 million and represented 44% of charge-offs during the first nine months of 2013. Charge-offs on church loans totaled $667 thousand million and represented 26% of charge-offs during the first nine months of 2013. Charge-offs on multi-family residential real estate loans totaled $661 thousand and represented 26% of charge-offs during the first nine months of 2013. Charge-offs on one-to-four family residential real estate loans totaled $90 thousand and represented 4% of charge-offs during the first nine months of 2013.

Impaired loans at September 30, 2013 were $38.6 million, compared to $44.4 million at December 31, 2012. Specific reserves for impaired loans were $2.5 million, or 6.36% of the aggregate impaired loan amount at September 30, 2013, compared to $2.7 million, or 6.16%, at December 31, 2012. Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) was 3.55% at September 30, 2013, compared to 4.18% at December 31, 2012. The decrease in our coverage ratio during 2013 was primarily due to the $20.9 million increase in our multi-family loan portfolio, which has the lowest historical loss reserve factors. Of the $38.6 million impaired loans, $23.1 million had specific reserves recorded as of September 30, 2013. Of the $23.1 million impaired loans with specific reserves, $3.7 million were collateral dependent loans measured at fair value with a valuation allowance of $321 thousand and $19.4 million were evaluated based on the loans’ present value of expected cash flows with a valuation allowance of $2.1 million. On $6.2 million of impaired loans, the fair value of collateral less estimated selling costs exceeded the recorded investment in the loan and did not require a specific reserve or charge-off. The remaining $9.3 million of impaired loans had been written down to fair value after charge-offs of $10.2 million.

Classified loans at September 30, 2013 were $34.0 million, compared to $42.6 million at December 31, 2012. The decrease of $8.6 million in classified loans primarily consisted of a decrease of $4.9 million in substandard commercial real estate loans, a decrease of $4.8 million in substandard church loans and a decrease of $273 thousand in substandard construction loan, offset in part by an increase of $1.2 million in substandard multi-family residential real estate loans and an increase of $205 thousand in one-to-four-family residential loans. Of the $9.7 million decrease in substandard commercial real estate and church loans, $5.5 million resulted from loan sales, $1.8 million resulted from loans transferred to REO and $1.2 million resulted from repayments. The $1.2 million increase in substandard multi-family loans was due to asset classification downgrades of $3.7 million, offset in part by $2.2 million in loan sales and $253 thousand in payoffs.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of September 30, 2013, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC periodically review the allowance for loan losses as an integral part of their examination process. These agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations.

#### Non-interest Income

Non-interest income for the third quarter of 2013 increased $1.6 million from the third quarter of 2012 primarily due to a gain of $1.2 million from the restructuring of our $5.0 million of senior line of credit. This gain represents a portion of the accrued interest expense of $1.8 million that was forgiven on this debt as part of the recapitalization. The balance of the interest forgiven, $535 thousand, was added to the amount of the obligation reported on the Company’s balance sheet at September 30, 2013 in accordance with Accounting Standards Codification (“ASC”) 470-60 - Troubled Debt Restructurings by Debtors. Also contributing to higher non-interest income in the third quarter of 2013 was a reduction of $99 thousand in net losses on sales of REO compared to the third quarter of 2012. Also, during the third quarter of 2012, we incurred $280 thousand of net losses on sales of loans.

For the nine months ended September 30, 2013, non-interest income totaled $1.8 million compared to $2.9 million for the same period a year ago. The decrease in non-interest income during the first nine months of 2013 primarily reflected the gain on the sale of our headquarters building in the year 2012 which was partially offset by the gain on the restructuring of senior debt in August 2013.

#### Non-interest Expense

Non-interest expense for the third quarter of 2013 decreased $485 thousand from $3.5 million for the third quarter of 2012 to $3.0 million for the third quarter of 2013. The decrease of $485 thousand in non-interest expense was primarily due to a decrease of $106 thousand in the provision for losses on REO, a decrease of $89 thousand in occupancy expense, a decrease of $55 thousand in compensation and benefits expense, a decrease of $48 thousand in FDIC insurance premium expense, a decrease of $97 thousand in other expenses, primarily REO and appraisal expenses, and an increase of $48 thousand in the recapture of losses on loans held for sale.

For the nine months ended September 30, 2013, non-interest expense totaled $9.8 million compared to $10.1 million for the same period a year ago. The decrease in non-interest expense during the first nine months of 2013 primarily reflected lower compensation and benefits expense, lower provision for losses on REO, and lower FDIC insurance premium expense, which were partially offset by a higher provision for losses on loans held for sale.

#### Income Taxes

The Company’s income tax expense was $0 and $6 thousand for the three and nine months ended September 30, 2013 compared to $2 thousand and $849 thousand for the three and nine months ended September 30, 2012. The tax expense for the first nine months of 2013 primarily reflects the minimum taxes paid to the state of California. For the first nine months of 2012, income taxes were computed by applying the projected annual effective income tax rate for the year to the year-to-date earnings plus discrete items (items incurred in the quarter). The projected effective tax rate incorporates certain non-taxable federal and state income items and expected increases to the valuation allowance for projected deferred tax assets. Income tax expense for the first nine months of 2012 was primarily related to the gain on the sale of our former headquarters building in the second quarter of 2012.

### Financial Condition

#### Total Assets

Total assets were $345.7 million at September 30, 2013, which represented a decrease of $28.0 million, or 7%, from December 31, 2012, but an increase of approximately $500 thousand from the end of the second quarter. During the first nine months of 2013, net loans held for investment decreased by $219 thousand, loans held for sale decreased by $18.0 million, securities decreased by $3.2 million, cash and cash equivalents decreased by $4.1 million, REO decreased by $1.6 million and other assets decreased by $955 thousand.

During the first nine months of 2013, the Orders issued to us by the OTS effective September 9, 2010, which are now administered by the OCC with respect to the Bank, limited the increase in the Bank’s total assets during any quarter to an amount equal to the net interest credited on deposit liabilities during the prior quarter without the prior written notice to and receipt of notice of non-objection from the OCC. This specific growth restriction was eliminated on October 30, 2013 when the Bank entered into a Consent Order with the OCC, which supersedes the Order that was applicable to the Bank. The Bank is subject to the requirements of the new Consent Order, which includes requirements that the Bank develop a Strategic Plan and a Capital Plan and that the Bank not begin to implement those plans, or any diversions from those plans, until it has submitted the plans, and any proposed diversions, to the OCC for a written statement that the OCC has no supervisory objection thereto.

#### Loans Receivable Held for Investment

Our gross loan portfolio decreased by $2.3 million to $260.8 million at September 30, 2013 from $263.1 million at December 31, 2012, but increased by $25.4 million from the balance of $235.4 million at June 30, 2013. The decrease of $2.3 million in our loan portfolio since the end of 2012 consisted of a decrease of $7.4 million in our one-to-four family residential real estate loan portfolio, a decrease of $8.2 million in our commercial real estate loan portfolio, a decrease of $5.5 million in our church loan portfolio, a decrease of $301 thousand in our construction loan portfolio and a decrease of $1.8 million in our commercial loan portfolio, which were partially offset by an increase of $21.0 million in our multi-family residential real estate loan portfolio.

During the third quarter we began to refocus on increasing interest income by rebuilding our loan portfolio. Loan originations, including loan purchases of $10.9 million, for the nine months ended September 30, 2013 totaled $35.3 million, compared to $18.2 million for the nine months ended September 30, 2012. Loan repayments for the nine months ended September 30, 2013 totaled $33.4 million, compared to $53.2 million for the nine months ended September 30, 2012. Loan charge-offs during the first nine of 2013 totaled $2.6 million, compared to charge-offs of $1.9 million during the first nine months of 2012. Loans transferred to REO during the first nine months of 2013 totaled $1.8 million, compared to $3.5 million during the first nine months of 2012. Loans transferred to loans held for sale during the first nine months of 2013 totaled $7.3 million, which primarily represented multi-family and commercial real estate loans that we sold in a bulk sale consummated in the second quarter. During the first nine months of 2012, two non-performing loans, which had a total carrying amount of $616 thousand and were secured by commercial real estate, were transferred to held-for-sale. During the third quarter of 2013, $7.4 million of loans held for sale were transferred to held for investment as these loans are no longer to be marketed for sale. All of these transferred loans were performing loans.

#### Loans Receivable Held for Sale

Loans held for sale decreased from $19.1 million at December 31, 2012 to $1.1 million at September 30, 2013. The $18.0 million decrease during the first nine months of 2013 was primarily due to sales of non-performing and classified loans totaling $15.5 million. In addition, we transferred $7.4 million of loans held for sale to held for investment, transferred $753 thousand to REO and received repayments of $1.5 million. These reductions in loans held for sale were partially offset by the transfer of $7.3 million of non-performing classified multi-family and commercial real estate loans from the held for investment loan portfolio to the held for sale portfolio in connection with their subsequent sale during the nine months ended September 30, 2013.

#### Non-Performing Assets

Non-performing assets (“NPAs”) include loans that are 90 days or more delinquent and still accruing, non-accrual loans and REO. NPAs at September 30, 2013 were $26.7 million, or 7.74% of total assets, compared to $45.3 million, or 12.11% of total assets, at December 31, 2012.

At September 30, 2013, non-accrual loans were $20.1 million compared to $37.1 million at December 31, 2012. These loans consist of delinquent loans that are 90 days or more past due and troubled debt restructurings that do not qualify for accrual status. The $17.0 million decrease in non-accrual loans was primarily due to the sale of $15.5 million of non-performing loans and the transfer of $2.6 million to REO. The non-accrual loans at September 30, 2013 included 20 church loans totaling $13.8 million, six multi-family residential real estate loans totaling $3.0 million, ten one-to-four family residential real estate loans totaling $1.7 million, two commercial real estate loans totaling $1.5 million and two commercial loans totaling $162 thousand.

During the first nine months of 2013, REO decreased by $1.6 million to $6.6 million at September 30, 2013, from $8.2 million at December 31, 2012. At September 30, 2013 the Bank’s REO consisted of ten commercial real estate properties, seven of which are church buildings. During the first nine months of 2013, five church loans totaling $2.6 million were foreclosed and transferred to REO and eight REO properties were sold for net proceeds of $3.6 million and a net loss of $10 thousand.

#### Deposits

Deposits totaled $218.6 million at September 30, 2013, down $38.5 million, or 15%, from December 31, 2012. During the first nine months of 2013, CDs decreased by $36.2 million and represented 61% of total deposits at September 30, 2013, compared to 66% of total deposits at December 31, 2012. Of the $36.2 million decrease in CDs during the first nine months of 2013, $29.2 million represented higher rate deposits from QwickRate, a deposit listing service, and $599 thousand were from brokered deposits. Additionally, core deposits (NOW, demand, money market and passbook accounts) decreased by $2.3 million during the first nine months of 2013 and represented 39% of total deposits at September 30, 2013, compared to 34% of total deposits at December 31, 2012. Brokered deposits represented 1% of total deposits at September 30, 2013 and December 31, 2012.

The Order issued to the Bank by the OTS effective September 9, 2010, which has been administered by the OCC since July 2012, prohibited the Bank from accepting brokered deposits.

#### Borrowings

At September 30, 2013, borrowings consisted of advances from the FHLB of $87.5 million, junior subordinated debentures of $6.0 million and our modified senior line of credit of $2.4 million of principal amount and $535 thousand of deferred gain on restructuring. At December 31, 2012, borrowings consisted of advances from the FHLB of $79.5 million, junior subordinated debentures of $6.0 million and our senior line of credit of $5.0 million. At September 30, 2013 and December 31, 2012, FHLB advances were 25% and 21%, respectively, of total assets. The weighted average cost of advances decreased 42 basis points from 2.67% at December 31, 2012 to 2.25% at September 30, 2013 primarily because we restructured $28.0 million of advances in June 2013.

We are currently developing plans to negotiate an extension of the March 17, 2014 maturity date of the subordinated debentures. No assurance can be given that we will be successful in negotiating an extension. As of September 30, 2013 the accrued interest on the subordinated debentures was $609 thousand. As disclosed previously, the Company is not permitted to make payments on any debt without prior notice to and receipt of written notice of non-objection from the FRB. In addition, under the terms of the subordinated debentures, the Company is not allowed to make payments on the subordinated debentures if the Company is in default on any of its senior indebtedness, which term includes the senior line of credit described below.

Other borrowings decreased by $2.6 million in connection with the restructuring of our senior line of credit during the third quarter of 2013, offset by the deferral of a portion of the gain on restructuring. Pursuant to the terms of the restructuring, we exchanged Common Stock Equivalents with an agreed upon value of $2.6 million for $2.6 million of loan principal and modified the terms of the remaining $2.4 million of principal. In addition, the lender forgave the accrued interest, totaling $1.8 million, on the entire $5 million loan to the date of the closing of the recapitalization. The modified terms for the remaining loan include, among others items, an extension of the maturity of the line of credit to February 22, 2019 and a repayment schedule that specifies six quarterly payments of interest only beginning three months following the closing of the recapitalization, followed by 48 fully amortizing equal monthly payments of principal and interest on the loan beginning 19 months after the closing of the recapitalization; provided, that each payment on the loan must receive prior approval from the FRB. Failure to make such any payment due to an inability to obtain such approval despite the exercise by the Company of required efforts to obtain such approval will not constitute an event of default under the revised loan terms. In addition the interest rate on the remaining loan has been increased to the Wall Street Journal Prime Rate plus 2%, with a floor (minimum) rate of 6%, from the original loan interest rate of the Wall Street Journal Prime Rate plus 1%, with a floor rate of 6%. As part of the modification, the Default Rate Margin of 5% has been forgiven. In accordance with Accounting Standards Codification (“ASC”) 470-60 - Troubled Debt Restructurings by Debtors, we have reported $1.2 million of the forgiven interest as a gain on restructuring during the third quarter and added the remaining $535 thousand balance of the forgiven interest to the principal balance of the bank loan that remains outstanding.

Information regarding the subordinated debentures and senior line of credit is included in Note 7 “Junior Subordinated Debentures and Other Borrowings” of the Notes to Consolidated Financial Statements.

#### Stockholders’ Equity

Stockholders’ equity was $25.6 million, or 7.40% of the Company’s total assets, at September 30, 2013, compared to $18.0 million, or 4.82% of the Company’s total assets, at December 31, 2012. The increase in stockholders’ equity during 2013 was due to the completion of the recapitalization. At September 30, 2013, the Bank’s Total Risk-Based Capital ratio was 16.08%, its Tier 1 Risk-Based Capital ratio was 14.79%, and its Core Capital and Tangible Capital ratios were 9.75%.

### Liquidity and Capital Resources

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet other obligations on a timely and cost-effective basis. The Bank’s sources of funds include deposits, advances from the FHLB and other borrowings, proceeds from the sale of loans, REO, and investment securities, and payments of principal and interest on loans and investment securities. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.

Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future; however, we do not expect that the Bank will be able to pay dividends to the Company for at least the next several quarters. As a result, our immediate priority for enhancing liquidity is to raise additional equity capital for the Company, which has limited liquid assets. As of September 30, 2013, the Company has $1.6 million of cash available for operating expenses and debt obligations, which reflects full repayment of all inter-company payables that had been owed to the Bank by the Company. We expect that our ability to raise additional capital will be significantly affected by our success in negotiating an extension of the maturity of the Company’s subordinated debentures, which mature on March 17, 2014. These conditions and the Company’s operating losses raise substantial doubt about the Company’s ability to continue as a going concern. These and related matters are discussed in Note 2 “Going Concern, Regulatory Matters and Recapitalization of the Company” of the Notes to Consolidated Financial Statements. We anticipate that we would use a portion of any additional capital raised by the Company to reduce the Company’s senior debt, negotiate an extension of the maturity of the Company’s subordinated debentures and increase the Bank’s capital.

Net cash inflows from operating activities totaled $1.6 million and $3.4 million during the nine months ended September 30, 2013 and 2012, respectively. Net cash inflows from operating activities for the first nine months of 2013 were primarily attributable to interest payments received on loans and securities.

Net cash inflows from investing activities totaled $21.1 million and $53.0 million during the nine months ended September 30, 2013 and 2012, respectively. Net cash inflows from investing activities for the first nine months of 2013 were attributable primarily to proceeds from sales of loans receivable held for sale, principal repayments on loans and securities and proceeds from sales of REOs.

Net cash outflows from financing activities totaled $26.8 million and $31.5 million during the nine months ended September 30, 2013 and 2012, respectively. Net cash outflows from financing activities for the first nine months of 2013 were attributable primarily to the net decrease in deposits which was partially offset by a net increase in FHLB advances and net proceeds from issuance of common stock as part of the recapitalization.

When the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank sells federal funds to the Federal Reserve Bank or other financial institutions and maintains a portion of its liquid assets in interest-bearing cash deposits with other banks and in securities available-for-sale that are not pledged. The Bank’s liquid assets at September 30, 2013 consisted of $60.2 million in cash and cash equivalents, compared to liquid assets of $64.4 million in cash and cash equivalents and $11.9 million in securities available-for-sale that were not pledged at December 31, 2012.

Additionally, the Bank is currently approved by the FHLB to borrow up to $100.0 million to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. That approved limit and collateral requirement would have permitted the Bank, as of September 30, 2013, to borrow an additional $11.8 million.

### Regulatory Capital

The capital regulations applicable to the Bank, which are now administered by the OCC, include three separate minimum capital requirements. First, the tangible capital requirement mandates that the Bank’s stockholder’s equity, less intangible assets, be at least 1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital requirement mandates that core capital (tangible capital plus certain qualifying intangible assets) be at least 4.00% of adjusted total assets as defined in the capital regulations. Third, the risk-based capital requirement mandates that core capital plus supplemental capital (as defined by the OCC) be at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings to all assets and off-balance- sheet items for this purpose.

The Bank was in compliance with all capital requirements in effect at September 30, 2013, and met the generally applicable capital ratio standards necessary to be considered “well-capitalized” under the prompt corrective action regulations adopted pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. However, in March 2010, the Company and the Bank were determined to be “in troubled condition” by the OTS and they consented to the issuance of cease and desist orders by the OTS effective September 9, 2010, which orders remained in effect through the first nine months of 2013 and are now administered by the OCC with respect to the Bank and the FRB with respect to the Company. On October 30, 2013, the Bank entered into a Consent Order with the OCC which superseded the cease and desist order applicable to the Bank. The cease and desist order required the Bank to achieve and maintain higher levels of regulatory capital than normally required, and the Consent Order raised the required thresholds further. Under the applicable regulations, the Bank is therefore precluded from being considered to be more than “adequately capitalized” until such special capital requirements are terminated and the Company and the Bank are no longer considered to be “in troubled condition.”

The Bank met the minimum capital requirements under the cease and desist order at September 30, 2013 and December 31, 2012. Actual required capital amounts and ratios at September 30, 2013 and December 31, 2012, together with the higher capital requirements that the Bank is required to meet under the cease and desist order applicable to it, are presented below.

*(Dollars in thousands)*

| September 30, 2013: | Actual Amount | Ratio | Required for Capital Adequacy Purposes Amount | Ratio | Capital Requirements under Consent Order Amount | Ratios |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Tangible Capital to adjusted total assets | $ 33,670 | 9.75% | $ 5,182 | 1.50% | N/A | N/A |
| Tier 1(Core) Capital to adjusted total assets | $ 33,670 | 9.75% | $ 13,819 | 4.00% | $ 31,092 | 9.00% |
| Tier 1(Core) Capital to risk weighted assets | $ 33,670 | 14.79% | N/A | N/A | N/A | N/A |
| Total Capital to risk weighted assets | $ 36,608 | 16.08% | $ 18,208 | 8.00% | $ 29,588 | 13.00% |

|  |  |  |
| --- | --- | --- |
| **Actual** | **Required for Capital Adequacy Purposes** | **Capital Requirements under Cease and Desist Order** |
| **Amount** **Ratio** | **Amount** **Ratio** | **Amount** **Ratios** |
| **(Dollars in thousands)** |  |  |

| December 31, 2012: |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Tangible Capital to adjusted total assets | $ 32,936 | 8.82% | $ 5,603 | 1.50% | N/A | N/A |
| Tier 1(Core) Capital to adjusted total assets | $ 32,936 | 8.82% | $ 14,940 | 4.00% | $ 29,881 | 8.00% |
| Tier 1(Core) Capital to risk weighted assets | $ 32,936 | 13.12% | N/A | N/A | N/A | N/A |
| Total Capital to risk weighted assets | $ 36,183 | 14.41% | $ 20,090 | 8.00% | $ 30,135 | 12.00% |

Effective October 30, 2013, the Bank’s minimum capital requirements were raised by the OCC under the Consent Order to 9% for Tier 1 (Core) Capital and 13% for Total Capital to risk weighted assets. The Bank’s regulatory capital exceeded both ratios as of September 30, 2013.

### Phase-in of Increased Regulatory Capital Requirements

In July 2013, the Federal banking regulators amended their capital adequacy regulations to reflect the new capital standards recommended by the Basel Committee on Banking Supervision, commonly called Basel III, and to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The amended regulations change the definition of regulatory capital, increase risk-based capital requirements, make selected changes to the calculation of risk-weighted assets, and adjust the prompt corrective action thresholds. Community banking organizations, such as the Company and the Bank, become subject to the new rule on January 1, 2015 and certain provisions of the amended regulations will be phased in over the period of 2015 through 2019. The amended regulations:

|  |  |
| --- | --- |
| ¡ | Require a minimum ratio of “common equity Tier 1 capital” (a new capital measure) to risk-weighted assets of 4.5%. |
| ¡ | Increase the minimum Tier 1 capital to risk-weighted assets ratio requirement from 4% to 6%. |
| ¡ | Retain the minimum total capital to risk-weighted assets ratio requirement of 8%. |
| ¡ | Establish a minimum leverage ratio requirement of 4%. |
| ¡ | Retain the existing regulatory capital framework for 1-4 family residential mortgage exposures. |
| ¡ | Permit smaller, less complex banking organizations, such as the Company and the Bank, to retain, through a one-time election, the existing treatment for most accumulated other comprehensive income, such that unrealized gains and losses on securities available for sale will not affect regulatory capital amounts and ratios. |
| ¡ | Implement a new “capital conservation buffer” requirement pursuant to which a banking organization must maintain a common equity capital ratio that is more than 2.5% above the minimum common equity Tier 1 capital, Tier 1 capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625% and will be fully phased in at 2.50% by January 1, 2019. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer (the amount of its capital exceeding regulatory minimums) approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income. |
| ¡ | Increase capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term commitments and securitization exposures. |
| ¡ | Expand the recognition of collateral and guarantors in determining risk-weighted assets. |
| ¡ | Remove references to credit ratings consistent with the Dodd Frank Act and establish due diligence requirements for securitization exposures. |
| ¡ | Permit banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009 to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock issued and included in Tier 1 capital prior to May 19, 2010, subject to a limit of 25% of Tier 1 capital elements, excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital. |
| ¡ | Establish new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights. |

The Company’s management is currently evaluating the provisions of the final rule and their expected impact on the Company.

## Controls and procedures

As filed, 743 characters.

### Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as of September 30, 2013. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2013. There were no significant changes during the quarter ended September 30, 2013 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Nov 14, 2013.
Source: SEC EDGAR, the filing index for accession 0001104659-13-084872. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.