UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021March 31, 2022

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

For transition period from__________ to___________

Commission file number      001-39043

BROADWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

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

50554601 Wilshire Boulevard, Suite 500150
Los Angeles, California
 9003690010
(Address of principal executive offices) (Zip Code)

(323) 634-1700
(Registrant’s telephone number, including area code)

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

Title of each class: Trading Symbol(s) Name of each exchange on which registered:
Common Stock, par value $0.01 per share
(including attached preferred stock purchase rights)
 BYFC
 The
Nasdaq StockCapital Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    ☒   No ☐

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

Large accelerated filer
☐
Accelerated filer
☐
    
Non-accelerated filer
☒
Smaller reporting company
☒
  
Emerging growth company
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of November 12, 2021, 43,674,026May 9, 2022, 46,837,695 shares of the Registrant’s Class A voting common stock, 11,404,618 shares of the Registrant’s Class B non-voting common stock and 16,689,77515,261,872 shares of the Registrant’s Class C non-voting common stock were outstanding.


TABLE OF CONTENTS
  Page
PART I.FINANCIAL STATEMENTS (to be updated)
    
 
Item 1.
Consolidated Financial Statements (Unaudited)
 
    
  1
    
  2
    
  3
    
  4
    
  Notes to Consolidated Financial Statements65
    
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
20
    
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
42
29
    
 
Item 4.
4229
    
PART II.OTHER INFORMATION 
    
 
Item 1.
Legal Proceedings
4430
    
 
Item 1A.
Risk Factors
4430
    
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4430
    
 
Item 3.
Defaults Upon Senior Securities
4430
    
 
Item 4.
Mine Safety Disclosures
4430
    
 
Item 5.
Other Information
4430
    
 
Item 6.
Exhibits
4430
    
 
Signatures
45
31

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands, except share and per share amounts)

 September 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
 (Unaudited)     (Unaudited)    
Assets:            
Cash and due from banks 
$
39,705
  
$
71,110
  
$
37,925
  
$
38,418
 
Interest-bearing deposits in other banks  
168,982
   
24,999
   
208,181
   
193,102
 
Cash and cash equivalents  
208,687
   
96,109
   
246,106
   
231,520
 
Securities available-for-sale, at fair value  
157,628
   
10,698
   
170,308
   
156,396
 
Loans receivable held for investment, net of allowance of $3,661 and $3,215
  
642,198
   
360,129
 
Loans receivable held for investment, net of allowance of $3,539 and $3,391
  
653,375
   
648,513
 
Accrued interest receivable  
2,565
   
1,202
   
2,449
   
3,372
 
Federal Home Loan Bank (“FHLB”) stock
  
2,708
   
3,431
   
2,222
   
2,573
 
Federal Reserve Bank (FRB) stock
  693
   0
   693
   693
 
Office properties and equipment, net  
9,221
   
2,540
   
10,380
   
10,344
 
Bank owned life insurance  
3,179
   
3,147
   
3,200
   
3,190
 
Deferred tax assets, net  
5,645
   
5,633
   
8,312
   
6,101
 
Core deposit intangible, net
  3,067
   0
   2,827
   2,936
 
Goodwill  25,996
   0
   25,858
   25,996
 
Other assets  
1,974
   
489
   
5,395
   
1,871
 
Total assets $1,063,561  $483,378  $1,131,125  $1,093,505 
                
Liabilities and stockholders’ equity                
Liabilities:                
Deposits 
$
749,645
  
$
315,630
  
$
839,714
  
$
788,052
 
Securities sold under agreements to repurchase
  52,876   0   56,003   51,960 
FHLB advances  
91,070
   
110,500
   
73,001
   
85,952
 
Junior subordinated debentures  
0
   
3,315
 
Notes payable  14,000
   0
   14,000
   14,000
 
Accrued expenses and other liabilities  
12,591
   
5,048
   
12,070
   
12,441
 
Total liabilities  920,182  
434,493   994,788   952,405 
Cumulative Redeemable Perpetual Preferred stock, Series A, authorized 3,000 shares at September 30, 2021 and NaN at December 31, 2020; issued and outstanding 3,000 shares at September 30, 2021 and NaN at December 31, 2020, liquidation value $1,000 per share
  
3,000
   
0
 
Common stock, Class A, $0.01 par value, voting, authorized 75,000,000 shares at September 30, 2021 and 50,000,000 shares at December 31, 2020; issued 46,291,852 shares at September 30, 2021 and 21,899,584 shares at December 31, 2020; outstanding 43,674,026 shares at September 30, 2021 and 19,281,758 shares at December 31, 2020  
463
   
219
 
Common stock, Class B, $0.01 par value, non-voting, authorized 15,000,000 shares at September 30, 2021 and 0ne at December 31, 2020; issued and outstanding 11,404,618 shares at September 30, 2021 and 0ne at December 31, 2020
  114
   0
 
Common stock, Class C, $0.01 par value, non-voting, authorized 25,000,000 shares at September 30, 2021 and December 31, 2020; issued and outstanding 16,689,775 at September 30, 2021 and 8,756,396 shares at December 31, 2020  
167
   
87
 
Cumulative Redeemable Perpetual Preferred stock, Series A, authorized 3,000 shares at March 31, 2022 and December 31, 2021; issued and outstanding NaN at March 31, 2022 and 3,000 shares at December 31, 2021, liquidation value $1,000 per share
  
0
   
3,000
 
Common stock, Class A, $0.01 par value, voting, authorized 75,000,000 shares at March 31, 2022 and December 31, 2021; issued 48,949,221 at March 31, 2022 and 46,291,852 shares at December 31, 2021; outstanding 46,194,148 shares at March 31, 2022 and 43,674,026 shares at December 31, 2021  
489
   
463
 
Common stock, Class B, $0.01 par value, non-voting, authorized 15,000,000 shares at March 31, 2022 and December 31, 2021; issued and outstanding 11,404,618 shares at March 31, 2022 and December 31, 2021
  114
   114
 
Common stock, Class C, $0.01 par value, non-voting, authorized 25,000,000 shares at March 31, 2022 and December 31, 2021; issued 15,768,172 shares at March 31, 2022 and 16,689,775 shares at December 31, 2021; outstanding 15,768,172 shares at March 31, 2022 and 16,689,775 shares at December 31, 2021
  
158
   
167
 
Additional paid-in capital  
140,275
   
46,851
   
143,373
   
140,289
 
Retained earnings  
5,149
   
7,783
   
4,616
   
3,673
 
Unearned Employee Stock Ownership Plan (ESOP) shares  
(844
)
  
(893
)
  
(813
)
  
(829
)
Accumulated other comprehensive income, net of tax  
325
   
164
 
Treasury stock-at cost, 2,617,826 shares at September 30, 2021 and at December 31, 2020
  
(5,326
)
  
(5,326
)
Accumulated other comprehensive loss, net of tax
  
(6,398
)
  
(551
)
Treasury stock-at cost, 2,617,826 shares at March 31, 2022 and at December 31, 2021
  
(5,326
)
  
(5,326
)
Total Broadway Financial Corporation and Subsidiary stockholders’ equity  143,323   48,885   136,213   141,000 
Non-controlling interest  56   0   124   100 
Total liabilities and stockholders’ equity $1,063,561  $483,378  $1,131,125  $1,093,505 

See accompanying notes to unaudited consolidated financial statements.

1


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
ConsolidatedStatements of Operations and Comprehensive Income (Loss)Loss
 (Unaudited)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2021
  2020
  2021
  2020
  
Three Months Ended
March 31,
 
 (In thousands, except per share)  2022
  2021
 
             
(In thousands, except per share)
 
Interest income:                  
Interest and fees on loans receivable $6,296  $4,438  $16,240  $13,226  $7,336  $3,644 
Interest on available for sale securities  457   59   953   194 
Interest on investment securities  591   56 
Other interest income  156   77   377   293   84   77 
Total interest income  6,909   4,574   17,570   13,713   8,011   3,777 
                        
Interest expense:                        
Interest on deposits  446   631   1,306   2,653   350   383 
Interest on borrowings  472   566   1,607   1,754   489   549 
Total interest expense  918   1,197   2,913   4,407   839   932 
                        
Net interest income  5,991   3,377   14,657   9,306   7,172   2,845 
Loan loss provision
  365   0   446   29   148   0 
Net interest income after loan loss provision  5,626   3,377   14,211   9,277   7,024   2,845 
                        
Non-interest income:                        
Service charges  76   93   205   331   64   93 
Gain on sale of loans  0   76   0   199 
CDFI Grant  217   0   2,043   0 
Other  316   37   676   115   217   30 
Total non-interest income  609   206   2,924   645   281   123 
                        
Non-interest expense:                        
Compensation and benefits  3,334   1,909   11,543   5,947   3,619   5,390 
Occupancy expense  392   332   1,327   967   442   308 
Information services  787   242   1,594   700   865   241 
Professional services  616   840   3,068   1,675   364   1,939 
Supervisory costs
  139   0   386   0 
Office services and supplies  65   97   219   260   157   95 
Corporate insurance  47   30   301   94   61   246 
Amortization of investment in affordable housing limited partnership  53   26 
Amortization of core deposit intangible  131   0   262   0   109   0 
Other  467   282   1,279   640   290   382 
Total non-interest expense  5,978   3,732   19,979   10,283   5,960   8,627 
                        
Income (loss) before income taxes  257   (149)  (2,844)  (361)  1,345   (5,659)
Income tax expense (benefit)  51   95   (297)  (300)  363   (2,172)
Net income (loss) $206  $(244) $(2,547) $(61) $982  $(3,487)
Less: Net income attributable to non-controlling interest
  24   0   57   0   24   0 
Net Income (loss) Attributable to Broadway Financial Corporation
 $182  $(244) $(2,604) $(61)
Net income (loss) attributable to Broadway Financial Corporation $958  $(3,487)

                        
Other comprehensive (loss) income, net of tax:
                
Unrealized (loss) gain on securities available-for-sale arising during the period
 $(640) $(40) $224  $290 
Income tax (benefit) expense
  (180)  (12)  63   86 
Other comprehensive (loss) income, net of tax
  (460)  (28)  161   204 
Other comprehensive loss, net of tax:        
Unrealized loss on securities available-for-sale arising during the period $(8,154) $(158)
Income tax benefit  (2,307)  (47)
Other comprehensive loss, net of tax  (5,847)  (111)
                        
Comprehensive (loss) income
 $(278) $(272) $(2,443) $143 
Comprehensive loss $(4,889) $(3,598)
                        
Earnings (loss) per common share-basic $0.00  
$
(0.01
)
 $(0.05) $0.00 
Earnings (loss) per common share-diluted $0.00  $(0.01) $(0.05) $0.00 
Income (loss) per common share-basic $0.01  $(0.13)
Income (loss) per common share-diluted $0.01  $(0.13)

See accompanying notes to unaudited consolidated financial statements.

2

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)

  Nine Months Ended September 30, 
  2021
  2020
 
  (In thousands) 
Cash flows from operating activities:
      
Net loss
 
$
(2,547
)
 
$
(61
)
Adjustments to reconcile net loss to net cash used in operating activities:
        
Loan loss provision
  
446
   
29
 
Depreciation  
198
   
170
 
Net amortization of deferred loan origination costs  
457
   
183
 
Net amortization of premiums on available for sale securities  
705
   
30
 
Amortization of investment in affordable housing limited partnership
  39
   79
 
Amortization of core deposit intangible
  262   0 
Director compensation expense-common stock  
45
   
45
 
Accretion of premium on FHLB advances  (26)  0 
Stock-based compensation expense  
369
   
279
 
Write down of deferred tax asset
  370   0 
ESOP compensation expense  
81
   
50
 
Earnings on bank owned life insurance  
(32
)
  
(35
)
Originations of loans receivable held for sale  
0
   
(118,626
)
Proceeds from sales of loans receivable held for sale  
0
   
77,642
 
Repayments on loans receivable held for sale
  0
   530
 
Gain on sale of loans receivable held for sale  
0
   
(199
)
Change in assets and liabilities:        
Net change in deferred taxes  
(1,162
)
  
(175
)
Net change in accrued interest receivable  
274
   
(102
)
Net change in other assets  
765
   
15
 
Net change in advance payments by borrowers for taxes and insurance  
310
   
508
 
Net change in accrued expenses and other liabilities  
3,359
   
(125
)
Net cash provided by (used in) operating activities
  
3,913
   
(39,763
)
         
Cash flows from investing activities:        
Cash acquired in merger
  84,745   0 
Net change in loans receivable held for investment  
(57,087
)
  
35,843
 
Principal payments on available-for-sale securities  
12,662
   
1,744
 
Purchase of available-for-sale securities
  (10,098)  (850)
Purchase of FHLB stock  
(152
)
  
(670
)
Proceeds from redemption of FHLB stock
  1,243
   0
 
Purchase of office properties and equipment  
(119
)
  
(501
)
Proceeds from disposals of office property and equipment  3   0 
Net cash provided by investing activities  
31,197
   
35,566
 
         
Cash flows from financing activities:        
Net change in deposits  
80,294
   
27,612
 
Net increase in securities sold under agreements to repurchase
  (7,069)  0 
Proceeds from sale of stock (net of costs)  30,837   0 
Distributions to non-controlling interest  (165)  0 
Dividends paid on preferred stock  (30)  0 
Proceeds from FHLB advances  
5,000
   
66,000
 
Repayments of FHLB advances  
(27,570
)
  
(34,500
)
Stock cancelled for income tax withholding
  (514)  0 
Repayments of junior subordinated debentures  
(3,315
)
  
(765
)
Net cash provided by financing activities  
77,468
   
58,347
 
Net change in cash and cash equivalents  
112,578
   
54,150
 
Cash and cash equivalents at beginning of the period  
96,109
   
15,566
 
Cash and cash equivalents at end of the period 
$
208,687
  
$
69,716
 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest 
$
2,424
  
$
4,530
 
Cash paid for income taxes  
454
   
8
 
Assets acquired (liabilities assumed) in acquisition:
        
Securities available for sale, at fair value
 $149,975  $0 
Loans receivable
  225,885
   0
 
Accrued interest receivable
  1,637
   0
 
FHLB and FRB stock
  1,061
   0
 
Office property and equipment
  6,953
   0
 
Goodwill
  25,966
   0
 
Core deposit intangible  3,329   0 
Other assets  2,290   0 
Deposits  (353,722)  0 
FHLB advances  (3,166)  0 
Securities sold under agreements to repurchase  (59,945)  0 
Other borrowings  (14,000)  0 
Deferred taxes  (717)  0 
Accrued expenses and other liabilities  (4,063)  0 
Preferred stock  (3,000)  0 
Common stock  (63,257)  0 
  
Three Months Ended
March 31,
 
  2022
  2021
 
  
(In thousands)
 
Cash flows from operating activities:
      
Net income (loss) $982  $(3,487)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Loan loss provision  148   0 
Depreciation  30   53 
Net change in amortization of deferred loan origination costs  (148)  (21)
Net amortization of premiums on available for sale securities  118   10 
Amortization of core deposit intangible  109   0 
Amortization of purchase accounting marks on loans  (465)  0 
Director compensation expense-common stock  84   45 
Accretion of premium on FHLB advances  (11)  0 
Stock-based compensation expense  15   168 
ESOP compensation expense  18   23 
Change in deferred taxes on goodwill  138   0 
Earnings on bank owned life insurance  (10)  (10)
Change in assets and liabilities:        
Net change in deferred taxes  96   (1,413)
Net change in accrued interest receivable  923   45 
Net change in other assets  (3,524)  (1,176)
Net change in other liabilities  (311)  3,705 
Net cash used in operating activities  (1,808)  (2,058)
         
Cash flows from investing activities:        
Net change in loans receivable held for investment  (4,396)  (2,370)
Principal payments on available-for-sale securities  4,724   507 
Purchase of available-for-sale securities  (26,908)  0 
Proceeds from redemption of FHLB stock  351   0 
Purchase of office properties and equipment  (67)  (15)
         
Net cash used in investing activities  (26,296)  (1,878)
         
Cash flows from financing activities:        
Net change in deposits  51,662   (3,315)
Net increase in securities sold under agreements to repurchase  4,043   0 
Dividends paid on preferred stock  (15)  0
 
Repayments of FHLB advances  (13,000)  0 
Stock cancelled for income tax withholding  0   (447)
Repayments of junior subordinated debentures  0   (255)
Net cash provided by (used in) financing activities  42,690   (4,017)
Net change in cash and cash equivalents  14,586   (7,953)
Cash and cash equivalents at beginning of the period  231,520   96,109 
Cash and cash equivalents at end of the period $246,106  $88,156 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $822  $809 
Cash paid for income taxes  0   39 
Supplemental disclosures of non-cash investing and financing activities:        
Conversion of preferred shares into Class A common shares  3,000
   0
 

See accompanying notes to unaudited consolidated financial statements.

3

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)


               
     Three-Month Period Ended September 30, 2021 and 2020          
  
Preferred Stock Non-Voting
  
Common
Stock
Voting
  
Common
Stock Non-Voting
  
Additional
Paid‑in
Capital
  
Accumulated Other Comprehensive Income
  
Retained Earnings (Substantially Restricted)
  
Unearned
ESOP Shares
  
Treasury
Stock
  
Non-controlling Interest
  
Total
Stockholders’
Equity
 
              
(In thousands)
                
Balance at June 30, 2021 $3000  $462  $281  $140,125  $785  $4,997  $(861) $(5,326) $32  $143,495 
Net income for the three months ended September 30, 2021
  0   0   0   0   0   182   0   0   24
   206
 
Release of unearned ESOP shares  0
   0
   0
   17
   0
   0
   17
   0
   0
   34
 
Dividends paid on preferred stock  0   -   -   0   0   (30)  0   0   0   (30)
Common stock cancelled for payment of tax withholdings  0
   0
   0
   (66)  0
   0
   0
   0
   0
   (66)
Restricted stock compensation expense
  0
   1
   0
   199
   0
   0
   0
   0
   0
   200
 
Other comprehensive loss, net of tax  0
   0
   0
   0
   (460)  0
   0
   0
   0
   (460)
Balance at September 30, 2021 
$
3,000
  
$
463
  
$
281
  
$
140,275
  
$
325
  
$
5,149
  
$
(844
)
 
$
(5,326
)
 
$
56
  
$
143,379
 
                                         
Balance at June 30, 2020 $0  $219  $87  $46,650  $209  $8,608  $(927) $(5,326) $0  $49,520 
Net loss for the three months ended September 30, 2020
  0   0   0   0   0   (244)  0   0   0
   (244)
Release of unearned ESOP shares  0   0   0   0   0   0   18   0   0
   18 
Restricted stock Compensation expense  0   0   0   90   0   0   0   0   0
   90 
Stock option compensation expense  0   0   0   10   0   0   0   0   0
   10 
Other comprehensive loss, net of tax  
0
   
0
   
0
   
0
   
(28
)
  
0
   
0
   
0
   0
   
(28
)
Balance at September 30, 2020 
$
0
  
$
219
  
$
87
  
$
46,750
  
$
181
  
$
8,364
  
$
(909
)
 
$
(5,326
)
 $0  
$
49,366
 

See accompanying notes to unaudited consolidated financial statements.

4
     
Nine-Month Period Ended September 30, 2021 and 2020
          
  
Preferred Stock Non-Voting
  
Common
Stock
Voting
  
Common
Stock Non-Voting
  
Additional
Paid‑in
Capital
  
Accumulated Other Comprehensive Income
  
Retained Earnings (Substantially Restricted)
  
Unearned
ESOP Shares
  
Treasury
Stock
  
Non-controlling interest
  
Total
Stockholders’
Equity
 
              
(In thousands)
                
Balance at December 31, 2020 $0  $219  $87  $46,851  $164  $7,783  $(893) $(5,326) $0  $48,885 
Net (loss) income for the nine months ended September 30, 2021  0   0   0   0   0   (2,604)  0   0   57   (2,547)
Preferred shares issued in business combination  3,000   0   0   0   0   0   0   0   0   3,000 
Dividends paid on preferred stock  0   -   -   0   0   (30)  0   0   0   (30)
Common shares issued in business combination  0   140   114   62,839   0   0   0   0   164   63,257 
Shares transferred from voting to non-voting after business combination  0   (7)  7   0   0   0   0   0   0   0 
Common shares issued in private placement  0   112   73   30,652   0   0   0   0   0   30,837 
Release of unearned ESOP shares  0   0   0   32   0   0   49   0   0   81 
Restricted stock compensation expense  0   1   0   361   0   0   0   0   0   362 
Stock awarded to directors  0   0   0   45   0   0   0   0   0   45 
Stock option compensation expense  0   0   0   7   0   0   0   0   0   7 
Common stock cancelled for payment of tax withholdings  0   (2)  0   (512)  0   0   0   0   0   (514)
Payment to non-controlling interest  0   0   0   0   0   0   0   0   (165)  (165)
Other comprehensive income, net of tax  
0
   
0
   
0
   
0
   
161
   
0
   
0
   
0
   
0
   
161
 
Balance at September 30, 2021 
$
3,000
  
$
463
  
$
281
  
$
140,275
  
$
325
  
$
5,149
  
$
(844
)
 
$
(5,326
)
 
$
56
  
$
143,379
 
                                         
Balance at December 31, 2019 $0  $218  $87  $46,426  $(23) $8,425  $(959) $(5,326) $0  $48,848 
Net loss for the nine months ended September 30, 2020
  0   0   0   0   0   (61)  0   0   0
   (61)
Release of unearned ESOP shares  0   0   0   0   0   0   50   0   0
   50 
Restricted stock compensation expense  0   1   0   250   0   0   0   0   0
   251 
Stock awarded to directors  0   0   0   45   0   0   0   0   0
   45 
Stock option compensation expense  0   0   0   29   0   0   0   0   0
   29 
Other comprehensive loss, net of tax  
0
   
0
   
0
   
0
   
204
   
0
   
0
   
0
   0
   
204
 
Balance at September 30, 2020 
$
0
  
$
219
  
$
87
  
$
46,750
  
$
181
  
$
8,364
  
$
(909
)
 
$
(5,326
)
 $0  
$
49,366
 

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

  
Three Months Ended March 31, 2022 and 2021
 
  Preferred Stock Non-Voting  
Common
Stock
Voting
  
Common
Stock Non-Voting
  
Additional
Paid‑in
Capital
  Accumulated Other Comprehensive Income (Loss)  Retained Earnings (Substantially Restricted)  
Unearned
ESOP Shares
  
Treasury
Stock
  Non-controlling Interest  
Total
Stockholders’
Equity
 
              
(In thousands)
                
                               
Balance at January 1, 2022
 $3,000  $463  $281  $140,289  $(551) $3,673  $(829) $(5,326) $100  $141,100 
Net income for the three months ended March 31, 2022
  0   0   0   0   0   958   0   0   24   982 
Conversion of preferred stock into common stock  (3,000)  12   0   2,988                       0 
Conversion of non-voting common shares into voting common shares      9   (9)                          0 
Release of unearned ESOP shares  0   0   0   2   0   0   16   0   0   18 
Dividends paid on preferred stock  0   0   0   0   0   (15)  0   0   0   (15)
Stock awarded to directors  0   0   0
   84   0   0   0   0   0   84 
Restricted stock compensation expense  0   5   0   10   0   0   0   0   0   15 
Other comprehensive loss, net of tax  0   0   0   0   (5,847)  0   0   0   0   (5,847)
Balance at March 31, 2022
 $0  $489  $272  $143,373  $(6,398) $4,616  $(813) $(5,326) $124  $136,337 
                                         
Balance at January 1, 2021
 $0  $219  $87  $46,851  $164  $7,783  $(893) $(5,326) $0  $48,885 
Net loss for the three months ended March 31, 2021
  0   0   0   0   0   (3,487)  0   0   0   (3,487)
Release of unearned ESOP shares  0   0   0   7   0   0   16   0   0   23 
Restricted stock compensation expense  0   0   0   162   0   0   0   0   0   162 
Common stock cancelled for payment of tax withholding  0   (1)  0   (446)  0   0   0   0   0   (447)
Stock awarded to directors  0   0   0   45   0   0   0   0   0   45 
Stock option compensation expense  0   0   0   6   0   0   0   0   0   6 
Other comprehensive loss, net of tax  0   0   0   0   (111)  0   0   0   0   (111)
Balance at March 31, 2021
 $0  $218  $87  $46,625  $53  $4,296  $(877) $(5,326) $0  $45,076 

See accompanying notes to unaudited consolidated financial statements.
4
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

NOTE (1) – Basis of Financial Statement Presentation


The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, City First Bank, National Association (the “Bank” and, together with the Company, “City First Broadway”). Also included in the unaudited consolidated financial statements are the following subsidiaries of City First Bank: 1432 U Street LLC, Broadway Service Corporation, City First Real Estate LLC, City First Real Estate II LLC, City First Real Estate III LLC, City First Real Estate IV LLC, and CF New Markets Advisors, LLC (“CFNMA”). In addition, CFNMA also consolidates CFC Fund Manager II, LLC; City First New Markets Fund II, LLC; City First Capital IX, LLC; and City First Capital 45, LLC (“CFC 45”) into its financial results. The results of Broadway Service Corporation, a wholly owned subsidiary of the Bank, are also included in the unaudited consolidated financial statements. 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, 20202021 (“20202021 Form 10-K”) and, accordingly, should be read in conjunction with such audited consolidated financial statements.  In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
2022.


Subsequent events have been evaluated through November 15, 2021,May 16, 2022, which is the date these financial statements were issued.


Except as discussed below, our accounting policies are described in Note 1 – Summary of Significant Accounting Policies of our audited consolidated financial statements included in (the “2020the 2021 Form 10-K”).10-K.

Purchased Credit Impaired Loans


As part our recent merger, see Note 2 – Business Combination, the Company acquired certain loans that have shown evidence of credit deterioration since origination; these loans are referred to as purchased credit impaired loans (“PCI loans”). These PCI loans are recorded at their fair value at acquisition, such that there is no carryover of the seller’s allowance for loan losses. Such PCI loans are accounted for individually. The Company estimates the amount and timing of expected cash flows for each PCI loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the PCI loan, expected cash flows continue to be estimated each quarter. If the present value of expected cash flows decreases from the prior estimate, a provision for loan losses is recorded and an allowance for loan losses is established. If the present value of expected cash flows increases from the prior estimate, the increase is recognized as part of future interest income. If the timing and amount of cash flows is uncertain, then cash payments received will be recognized as a reduction of the recorded investment.

Business Combinations


Business combinations are accounted for using the acquisition accounting method. Under the purchase accounting method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at fair value on the acquisition date. Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. See Note 2 - Business Combination and Note 7 - Goodwill and Intangible Assets for further information.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Newly Adopted Accounting Pronouncements

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has selected November 30th as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated statement of financial condition.



Core deposit intangible assets arising from mergers and acquisitions are amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.

Variable Interest Entities (“VIE”)

An entity is considered to be a VIE when it does not have sufficient equity investment at risk, the equity investors as a group lack the characteristics of a controlling financial interest, or the entity is structured with disproportionate voting rights and substantially all of the entity’s activities are conducted on behalf of an investor with disproportionately few voting rights. The Company is required to consolidate a VIE when it holds a variable interest in the VIE and is also the primary beneficiary of the VIE. CFC 45 is a Community Development Entity (“CDE”), and is considered to be a VIE. The Company is the primary beneficiary because it has the power to direct activities that most significantly affect the economic performance of CFC 45 and has the obligation to absorb the majority of the losses or benefits of its financial performance.

Noncontrolling Interests


For consolidated subsidiaries that are less than wholly-owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The portion of net income attributable to noncontrolling interests for such subsidiaries is presented as net income applicable to noncontrolling interests on the consolidated statements of operations and comprehensive income, and the portion of the stockholders’ equity of such subsidiaries is presented as noncontrolling interests on the consolidated statements of financial condition and consolidated statements of changes in stockholders’ equity.

Recent Accounting Guidance

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions regarding the accounting related to the modifications of certain contracts, relationships and other transactions that are affected by reference rate reform related to contracts that reference LIBOR or other reference rates that could be discontinued due to reference rate reform.  This guidance was effective immediatelyadopted by the Company as of January 1, 2022. As of January 1, 2022, the Company modified all of its loan contracts that were benchmarked to the LIBOR index to SOFR, and applied the amendments may be applied prospectively through December 31, 2022.  The estimated financial impact has not yet been determined.practical expedients allowed by this ASU regarding treatment of those modifications.


In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments are also intended to improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance did not have a significant impact on the Company’s consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Accounting Pronouncements Yet to Be Adopted


In June 2016, the FASB issued ASU 2016-13, “FinancialFinancial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For debt securities with other-than-temporary impairment, the guidance will be applied prospectively. Existing purchasedpurchase credit impaired (“PCI”) assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective.



On October 16, 2019, the FASB voted to affirm the proposed amended effective date for ASU 2016-13 for smaller reporting companies (“SRCs”) as defined by the SEC. The final ASU, which was issued in November 2019, delays the implementation date for ASU 2016-13 to fiscal years beginning after December 15, 2022. SRCs are defined as companies with less than $250 million of public float or less than $100 million in annual revenues for the previous year and no public float or public float of less than $700 million.  The Company qualifies as an SRC, and management will implement ASU 2016-13 in the first quarter of 2023. The estimated financial impact has not yet been determined.


5

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.  This ASU is effective January 1, 2020 and clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. The amendments to Topic 326 have the same effective dates as ASU 2016-13. This guidance didis not expected to have a significant impact on the Company’s consolidated financial statements.



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


In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This new accounting standard pertains to eliminating certain existing accounting guidance for troubled debt restructurings (“TDRs”) by creditors and adding additional disclosures related to the nature and characteristics of modifications of loans to borrowers experiencing financial difficulties and vintage disclosures for gross write-offs. The amendments to Topic 326 have the same effective dates as ASU 2016-13. This guidance is not expected to have a significant impact on ourthe Company’s consolidated financial condition and results of operations.statements.

NOTE (2) – Business Combination


The Company completed its merger with CFBanc Corporation (“CFBanc”) on April 1, 2021, with the Company continuing as the surviving entity (the “CFBanc Merger”). Immediately following this merger, Broadway Federal Bank, f.s.b., a subsidiary of Broadway Financial Corporation, merged with and into City First Bank of D.C., National Association, with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association). As of the acquisition date, CFBanc Corporation had $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million of total deposits.


On April 1, 2021, (1) each share of CFBanc Corporation’sCFBanc’s Class A Common Stock, par value $0.50 per share, and Class B Common Stock, par value $0.50 per share, issued and outstanding immediately prior to the CFBanc Merger was converted into 13.626 validly issued, fully paid and nonassessable shares, respectively, of the voting common stock of the Company, par value $0.01 per share, which were renamed Class A Common Stock, and a new class of non-voting common stock of the Company, par value $0.01 per share, which was named Class B Common Stock, and (2) each share of Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series B, par value $0.50 per share, of CFBanc Corporation (“CFBanc Corporation Preferred Stock”) issued and outstanding immediately prior to the effective time of the CFBanc Merger was converted into 1 validly issued, fully paid and non-assessable share of a new series of preferred stock of the Company, which was designated as the Company’s Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series A, with such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, which taken as a whole, are not materially less favorable to the holders of CFBanc Corporation Preferred Stock than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof of CFBanc Corporation Preferred Stock. The total value of the consideration transferred to CFBanc Corporation shareholders was approximately $66.3 million, which was based on the closing price of the Company’s common stock on March 31, 2021, the last trading day prior to the consummation of the merger.


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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The Company accounted for the CFBanc Merger under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the acquired assets and assumed liabilities with the assistance of third-party valuation firms.  GoodwillGoodwill in the amount of $26.0 million was recognized in the CFBanc Merger. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and are attributable to synergies expected to be derived from the combination of the two entities. Goodwill is not amortized for financial reporting purposes; rather, it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. Goodwill recognized in this transaction is not deductible for income tax purposes.


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The following table represents the assets acquired and liabilities assumed in the CFBanc Merger as of April 1, 2021, and the fair value adjustments and amounts recorded by the Company as of the same date under the acquisition method of accounting:

   
CFBanc
Book
Value
  
Fair Value
Adjustments
  
Fair Value
 
Assets acquired (In thousands)
 
Cash and cash equivalents $84,745  $0  $84,745 
Securities available-for-sale  150,052   (77
)
  149,975 
Loans receivable held for investment:
            
Gross loans receivable held for investment  227,669   (1,784
)
  225,885 
Deferred fees and costs  (315
)
  315   0 
Allowance for loan losses  (2,178
)
  2,178   0 
   225,176   709   225,885 
Accrued interest receivable  1,637   0   1,637 
FHLB and FRB stock  1,061   0   1,061 
Office properties and equipment  5,152   1,801   6,953 
Deferred tax assets, net  890   (1,608
)
  (718
)
Core deposit intangible  0   3,329   3,329 
Other assets  2,290   0   2,290 
Total assets $471,003  $4,154  $475,157 
             
Liabilities assumed            
Deposits $353,671  $51  $353,722 
Securities sold under agreements to repurchase
  59,945
   0
   59,945
 
FHLB advances  3,057   109   3,166 
Notes payable
  14,000
   0
   14,000
 
Accrued expenses and other liabilities  4,063   0   4,063 
Total liabilities $434,736  $160  $434,896 
             
Excess of assets acquired over liabilities assumed $36,267  $3,994  $40,261 
Consideration paid         $66,257 
Goodwill recognized         $25,996 


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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. These changes could differ materially from what is presented above.


The contractual amounts due, expected cash flows to be collected, the interest component, and the fair value of loans acquired from CFBanc as of the acquisition date were as follows:

  Acquired Loans 
  (In thousands) 
    
Contractual amounts due $231,432 
Cash flows not expected to be collected  (3,666
)
Expected cash flows  227,766 
Interest component of expected cash flows  (1,881
)
Fair value of acquired loans $225,885 



A component of total loans acquired from CFBanc were loans that were considered to be PCI loans. Refer to Note 65 for additional information regarding PCI loans. The following table presents the amounts that comprise the fair value of PCI loans (in thousands):



Contractual amounts due 
$
1,825
  $1,825 
Non-accretable difference (cash flows not expected to be collected)  
(634
)
  (634
)
Expected cash flows  1,191   1,191 
Accretable yield  
(346
)
  (346
)
Fair value of acquired loans $845 
Fair value of PCI acquired loans $845 


7

In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded on loans by CFBanc.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table presents the net interest income, net income, and earnings per share as if the CFBanc Merger was effective as of January 1, 2020.2021. The unaudited pro forma financial information included in the table below is based on various estimates and is presented for informational purposes only and does not indicate the financial condition or results of operations of the combined Company that would have been achieved for the periods presented had the transactions been completed as of the date indicated or that may be achieved in the future.

Three Months Ended  
Nine Months Ended
  Three months Ended 
September 30,
2021
  
September 30,
2020
  September 30, 2021  
September 30,
2020
  
March 31,
2022
  
March 31,
2021
 
(Dollars in thousands except per share amounts)  (Dollars in thousands, except per share amounts) 
Net interest income $5,978  $5,738  $16,988  $16,068  $7,172  $5,197 
Net income (loss)  191   (343)  (3,348)  (157)  958   (4,277)
                        
Basic earnings per share $0.00  $(0.01) $(0.05) $0.00  $0.01  $(0.08)
Diluted earnings per share $0.00  $(0.01) $(0.05) $0.00  $0.01  $(0.08)

NOTE (3) – Capital Raise



On April 6, 2021, the Company completed the sale of 18,474,000 shares of Broadway Financial Corporation common stock in private placements to institutional and accredited investors at a purchase price of $1.78 per share for an aggregate purchase price of $32.9 million (net of expenses).


The following table shows the common stock issued on April 1, 2021 as a result of the merger and on April 6, 2021 as a result of the private placements by class:

  Common Shares Outstanding 
  
Voting
Class A
  
Nonvoting
Class B
  
Nonvoting
Class C
  
Total
Shares
 
             
Shares outstanding March 31, 2021:
  19,142,498
   0   8,756,396   27,898,894 
                 
Shares issued in merger  13,999,870   11,404,621   0   25,404,491 
Shares exchanged post-merger  (681,300)  0   681,300   0 
Shares cancelled  (52,105)  0   0   (52,105)
Shares issued in private placements  11,221,921   0   7,252,079   18,474,000 
                 
Shares outstanding April 6, 2021:  43,630,884   11,404,621   16,689,775   71,725,280
 

NOTE (4)(3) – Earnings Per Share of Common Stock


Basic earnings per share of common stock is computed pursuant to the two-class method by dividing net income available to common stockholders less dividends paid on participating securities (unvested shares of restricted common stock) and any undistributed earnings attributable to participating securities by the weighted average common shares outstanding during the period.  The weighted average common shares outstanding includes the weighted average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted common stock.  ESOPEmployee Stock Ownership Plan shares are considered outstanding for this calculation unless unearned.  Diluted earnings per share of common stock includes the dilutive effect of unvested stock awards and additional potential common shares issuable under stock options.


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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

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

  
For the three months ended
September 30,
  
For the nine months ended
September 30,
 
  2021
  2020
  2021  2020 
  (Dollars in thousands, except per share ) 
             
Net income (loss) attributable to Broadway Financial Corporation
 $182  $(244) $(2,604) $(61)
Less net income attributable to participating securities  0   (2)   0   (1) 
Income (loss) available to common stockholders $182  $(242) $(2,604) $(61)
                 
Weighted average common shares outstanding for basic earnings (loss) per common share  71,222,869   27,224,344   56,403,545   27,114,022 
Add: dilutive effects of unvested restricted stock awards
  228,082   0   0   0 
Weighted average common shares outstanding for diluted earnings (loss) per common share  71,450,951   27,224,344   56,403,545   27,114,022 
                 
Earnings (loss) per common share - basic $0.00  $(0.01) $(0.05) $0.00 
Earnings (loss) per common share - diluted $0.00  $(0.01) $(0.05) $0.00 
  
For the three months ended
March 31,
 
  2022
  2021
 
  
(In thousands, except share and
per share data)
 
       
Net income (loss) attributable to Broadway Financial Corporation $958  $(3,487
)
Less net income attributable to participating securities  7   0 
Income (loss) available to common stockholders $951  $(3,487
)
         
         
Weighted average common shares outstanding for basic earnings (loss) per common share  72,039,378   27,357,750 
Add: dilutive effects of stock options
  50,195   0 
Add: dilutive effects of unvested restricted stock awards  490,372   0 
Weighted average common shares outstanding for diluted earnings (loss) per common share  72,579,945   27,357,750 
         
Income (loss) per common share - basic $0.01  $(0.13)
Income (loss) per common share - diluted $0.01  $(0.13)



Stock options for 450,000 shares of common stock for the ninethree months ended September 30,March 31, 2021 were not considered in computing diluted earnings per common share for three months ended September 30, 2020, the nine months ended September 30, 2021 or the nine months ended September 30, 2020 because they were anti-dilutive due to the net loss. There were 0 unvested restricted stock awards outstanding during the three months ended September 30,as of March 31, 2021.

8
NOTE (5)(4) – 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 that were recognized in accumulated other comprehensive income (loss):


Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value  Amortized
Cost		  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
(In thousands)  (In thousands) 
September 30, 2021:  
March 31, 2022:   
Federal agency mortgage-backed securities $81,943  $506  $(84) $82,365  $79,222  $31  $(4,368) $74,885 
Federal agency CMO  5,509   0   (31)  5,478 
Federal agency collateralized mortgage obligations (“CMO”)  8,910   11   (373)  8,548 
Federal agency debt  35,724   348   (11)  36,061   42,035   58   (1,826)  40,267 
Municipal bonds  4,906   33   (6)  4,933   4,890   0   (354)  4,536 
U. S. Treasuries  18,180   0   (13)  18,167   28,168   0   (1,104)  27,064 
SBA pools  10,676   40   (92)  10,624   15,770   18   (780)  15,008 
Total available-for-sale securities $156,938  $927  $(237) $157,628  $178,995  $118  $(8,805) $170,308 
December 31, 2020:  
December 31, 2021: 
 
Federal agency mortgage-backed securities $5,550  $257  $0  $5,807  $70,078  $196  $(244) $70,030 
Federal agency CMOs
  9,391   11   (115)  9,287 
Federal agency debt  2,682   190   0   2,872   38,152   106   (270)  37,988 
Municipal bonds  2,000   19   0   2,019   4,898   40   (23)  4,915 
U.S. Treasuries
  18,169   0   (218)  17,951 
SBA pools  16,241   122   (138)  16,225 
Total available-for-sale securities $10,232  $466  $0  $10,698  $156,929  $475  $(1,008) $156,396 


12The Bank held 129 securities with unrealized losses of $8.8 million at March 31, 2022. NaN of these securities has been in a loss position for greater than one year.  The Bank’s securities were primarily issued by the federal government or its agencies. The unrealized gains or losses on our available-for-sale securities at March 31, 2022 were primarily caused by movements in market interest rates subsequent to the purchase of such securities.
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

AtThe Bank held 129 securities with unrealized losses of $1.0 million September 30,at December 31, 2021. NaN of these securities has been in a loss position for greater than one year.  The Bank’s securities were primarily issued by the federal government or its agencies. The unrealized gains or losses on our available-for-sale securities at December 31, 2021 were primarily caused by movements in market interest rates subsequent to the Bank had 13 (13)purchase of such securities.


Securities with a market value of $61.9 million were pledged as collateral for securities sold under agreements to repurchase as of March 31, 2022, and included $22.3 million of U.S. Government Agency securities, $33.5 million of mortgage-backed securities, $4.1 million of federal agency debt securitiesCMO and $2.0 million of Small Business Administration (“SBA”) pool securities. Securities with a total amortized cost of $35.7 million, estimated total fairmarket value of $36.1$53.2 million were pledged as collateral for securities sold under agreements to repurchase as of December 31, 2021 and an estimated average remaining lifeincluded $25.9 million of 6.1 years; NaN (99) federal agency mortgage-backed securities, with a total amortized cost$13.3 million of $81.9 million, estimated total fair value of $82.4 million and an estimated average remaining life of 4.8 years; 8 (8) federal agency mortgage-backeddebt, $9.8 million of SBA pool, and $4.2 million of federal agency CMO. (See Note 7 – Borrowings). There were 0 securities with a total amortized cost of $5.5 million, estimated total fair value of $5.5 million and an estimated average remaining life of 3.7 years; 9 (9) U.S. treasury securities with a total amortized cost of $18.2 million, estimated total fair value of $18.2 million and an estimated average remaining life of 3.8 years; 5 (5) SBA pools securities with a total amortized cost of $10.7 million, estimated total fair value of $10.6 million and an estimated average remaining life of 5.8 years; 9 (9) municipal bonds with a total amortized cost of $4.9 million, estimated total fair value of $4.9 million and an estimated average remaining life of 7.0 years. The entire securities portfoliopledged to secure public deposits at September 30, 2021, consisted of NaN securities (145) with an estimated average remaining life of 4.0 years.  Expected maturities may differ from contractual maturities if borrowers have the right to callMarch 31, 2022 or prepay obligations with or without call or prepayment penalties.December 31, 2021.



The amortized cost and estimated fair value of all investment securities available-for-sale at September 30, 2021,March 31, 2022, by contractual maturities are shown below.  Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value  
Amortized
Cost
  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
(In thousands)  (In thousands) 
     
Due in one year or less $1,019  $1  $(11) $1,009  $1,009  $0  $(5) $1,004 
Due after one year through five years  30,034   128   (13)  30,149   49,938   0   (2,086)  47,852 
Due after five years through ten years  20,453   166   (6)  20,613   19,373   8   (1,075)  18,306 
Due after ten years (1)
  105,432   632   (207)  105,857   108,675   110   (5,639)  103,146 
 $156,938  $927  $(237) $157,628  $178,995  $118  $(8,805) $170,308 

(1)
Mortgage-backed securities, collateralized mortgage obligations and SBA pools do not have a single stated maturity date and therefore have been included in the “Due after ten years” category.

The Bank held 58 securities with unrealized losses of $237 thousand at September 30, 2021. NaNne of these securities has been in a loss position for greater than one year.  The Bank’s securities were primarily issued by the federal government or its agencies. The unrealized gains or losses on our available-for-sale securities at September 30, 2021 were primarily caused by movements in market interest rates subsequent to the purchase of such securities.


Securities with a market value of $71.4 million were pledged as collateral for securities sold under agreements to repurchase as of September 30, 2021 and included $23.4 million of U.S. Government Agency securities, $43.8 million of mortgage-backed securities, and $4.2 million of collateralized mortgage obligations. (See Note 9 – Borrowings.) There were 0 securities pledged as collateral for securities sold under agreements to repurchase as December 31, 2020. There were 0 securities pledged to secure public deposits at September 30, 2021 or December 31, 2020.


At September 30, 2021March 31, 2022 and December 31, 2020,2021, there were 0 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 0 sales of securities during the three and nine months ended September 30, 2021 and 2020.March 31, 2022.

139
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (6)(5) – Loans Receivable Held for Investment



Loans receivable held for investment were as follows as of the dates indicated:
  September 30, 2021  December 31, 2020 
  (In thousands) 
Real estate:      
Single family $50,880  $48,217 
Multi-family  383,401   272,387 
Commercial real estate  98,411   24,289 
Church  15,057   16,658 
Construction  21,076   429 
Commercial – other  47,306   57 
SBA loans (1)
  28,873   0 
Consumer  12   7 
Gross loans receivable before deferred loan costs and premiums  645,016   362,044 
Unamortized net deferred loan costs and premiums  843   1,300 
Gross loans receivable  645,859   363,344 
Allowance for loan losses  (3,661)  (3,215)
Loans receivable, net $642,198  $360,129 

(1) Including
  March 31, 2022  December 31, 2021 
  (In thousands) 
Real estate:      
Single family $40,145  $45,372 
Multi-family  401,252   393,704 
Commercial real estate  90,402   93,193 
Church  21,365   22,503 
Construction  33,938   32,072 
Commercial – other  53,880   46,539 
SBA loans
  15,488   18,837 
Consumer  146   0 
Gross loans receivable before deferred loan costs and premiums  656,616   652,220 
Unamortized net deferred loan costs and premiums  1,674   1,526 
Gross loans receivable  658,290   653,746 
Credit and interest marks on purchased loans, net
  (1,376)  (1,842)
Allowance for loan losses  (3,539
)
  (3,391
)
Loans receivable, net $653,375  $648,513 


As of March 31, 2022 and December 31, 2021, the commercial loan category above included $14.7 million and $18.0 million, respectively, of loans issued under the SBA’s Paycheck Protection Program (PPP) loans.. PPP loans have terms of two

Purchased Credit Impaired (PCI) Loans to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA.


As part of the CFBanc Merger, the Company acquired loans for which there was, at acquisition, evidence of credit deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. Prior to the CFBanc Merger, there were 0 such acquired loans. The carrying amount of those loans as of September 30, March 31, 2022, and December 31, 2021, was as follows:

 
September 30, 2021
  March 31, 2022  December 31, 2021 
 
(In thousands)
  (In thousands) 
Real estate:         
Single family 
$
558
  $56  $558 
Commercial real estate  
221
   0   221 
Commercial - other  
104
 
Commercial – other  109   104 
 
$
883
  $165  $883 


On the acquisition date, the amount by which the undiscounted expected cash flows of the PCI loans exceeded the estimated fair value of the loan is the accretable yield. The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted cash flows and the current carrying value of the PCI loan. At September 30, March 31, 2022, and December 31, 2021, NaN of the Company’s PCI loans were classified as nonaccrual.

14
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table summarizes the accretable yield on the PCI loans for the three and nine months ended September 30,2021:March 31, 2022:

 March 31, 2022 
 
Three Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2021
  (In thousands) 
 
(In thousands)
    
Balance at the beginning of the period 
$
327
  
$
0
  $883 
Additions  0   346 
Deduction due to Payoffs  (707)
Accretion  
(19
)
  
(38
)
  11 
Balance at the end of the period 
$
308
  
$
308
  $165 

10

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:
  Three Months Ended September 30, 2021 
  Real Estate             
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
  (In thousands)       
Beginning balance $170  $2,606  $227  $208  $81  $4  $0  $0  $3,296 
Provision for (recapture of) loan losses  (10)  325   32   (18)  35   0  0   1   365 
Recoveries  0   0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $160  $2,931  $259  $190  $116  $4  $0  $1  $3,661 
  Three Months Ended September 30, 2020 
  Real Estate             
  Single
family		  
Multi-
family
  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
  (In thousands)    
Beginning balance $312  $2,424  $169  $282  $22  $6  $0  $0  $3,215 
Provision for (recapture of) loan losses
  9   1   17   (28)  0  (1)  0   2  0 
Recoveries  0   0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $321  $2,425  $186  $254  $22  $5  $
0  $2  $3,215 
 
  Nine Months Ended September 30, 2021 
  Real Estate             
  Single family  Multi-family  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
     (In thousands) 
Beginning balance $296  $2,433  $222  $237  $22  $4  $0  $1  $3,215 
Provision for (recapture of) loan losses
  (136)  498   37   (47)  94   0   0   0  446 
Recoveries  0   0   0   0   0   0   0   0   0 
Loans charged off
  0   0   0   0   0   0   0   0   0 
Ending balance $160  $2,931  $259  $190  $116  $4  $0  $1  $3,661 


15
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
  For the three months ended March 31, 2022 
  Real Estate          
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  Consumer  Total 
Beginning balance $145  $2,657  $236  $103  $212  $23  $15  $3,391 
Provision for (recapture of) loan losses  12
  114   (20
)
  (40
)
  25   57   0
  148 
Recoveries  0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0 
Ending balance $157  $2,771  $217  $63  $236  $95  $0  $3,539 
  Nine Months Ended September 30, 2020 
  Real Estate             
  Single family  Multi-family  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
     (In thousands) 
Beginning balance $312  $2,319  $133  $362  $48  $7  $0  $1  $3,182 
Provision for (recapture of) loan losses  5  106   53   (108)  (26)  (2)  0   1  29 
Recoveries  4   0   0   0   0   0   0   0   4 
Loans charged off
  0   0   0   0   0   0   0   0   0 
Ending balance $321  $2,425  $186  $254  $22  $5  $0  $2  $3,215 

  For the three months ended March 31, 2021 
  Real Estate          
  Single
family		  
Multi-
family
  Commercial real estate  Church  Construction  Commercial - other  Consumer  Total 
Beginning balance $296  $2,433  $222  $237  $22  $4  $1  $3,215 
Provision for (recapture of) loan losses  (21
)
  40   (3)  (16
)
  0   1   (1)  0 
Recoveries  0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0 
Ending balance $275  $2,473  $219  $221  $0  $5  $0  $3,215 


The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of the dates indicated:
  September 30, 2021 
  Real Estate             
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  SBA
Loans
  Consumer  Total 
  (In thousands) 
Allowance for loan losses:                           
Ending allowance balance attributable to loans:                                    
Individually evaluated for impairment $3  $0  $0  $27  $0  $0   $0  $0  $30 
Collectively evaluated for impairment  157   2,931   259   163   116   4   0   1   3,631 
Total ending allowance balance $160  $2,931  $259  $190  $116  $4   $0  $1  $3,661 
Loans:                                    
Loans individually evaluated for impairment $65  $286  $0  $3,357  $0  $0   $0  $0  $3,708 
Loans collectively evaluated for impairment  50,922   384,959   98,384   11,371   20,907   47,306   28,290   12   642,151 
Total ending loans balance $50,987  $385,245  $98,384  $14,728  $20,907  $47,306   $28,290  $12  $645,859 
  December 31, 2020 
  Real Estate              
  
Single
family
  Multi-
family		  
Commercial
real estate
  Church  Construction  Commercial - other   
 SBA
Loans
  Consumer  Total 
  (In thousands) 
Allowance for loan losses:                            
Ending allowance balance attributable to loans:                                    
Individually evaluated for impairment $89  $0  $0  $52  $0  $0   $0  $0  $141 
Collectively evaluated for impairment  207   2,433   222   185   22   4   0   1   3,074 
Total ending allowance balance $296  $2,433  $222  $237  $22  $4   $0  $1  $3,215 
Loans:                                    
Loans individually evaluated for impairment $573  $298  $0  $3,813  $0  $47   $0  $0  $4,731 
Loans collectively evaluated for impairment  47,784   273,566   24,322   12,495   430   9   0   7   358,613 
Total ending loans balance $48,357  $273,864  $24,322  $16,308  $430  $56   $0  $7  $363,344 

  March 31, 2022 
  Real Estate          
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  SBA
  Total 
  (In thousands) 
Allowance for loan losses:                        
Ending allowance balance attributable to loans:                   
Individually evaluated for impairment $3  $0  $0  $4  $0  $0  $0  $7 
Collectively evaluated for impairment  154   2,771   217   59   236   95   0   3,532 
Total ending allowance balance $157  $2,771  $217  $63  $236  $95  $0  $3,539 
Loans:                                
Loans individually evaluated for impairment $64  $277  $0  $1,907  $0  $0  $0  $2,248 
Loans collectively evaluated for impairment  31,151   368,647   24,594   8,062   26,606   17,281   0   476,341 
Subtotal
  31,215   368,924   24,594   9,969   26,606   17,281   0   478,589 
Loans acquired in the Merger
  8,930   34,002   65,808   11,396   7,332   36,599   15,488   179,701 
Total ending loans balance $40,145  $402,926  $90,402  $21,365  $33,938  $53,880  $15,488  $658,290 

  December 31, 2021 
  Real Estate          
  
Single
family
  Multi-
family		  
Commercial
real estate
  Church  Construction  Commercial - other  SBA
  Total 
  (In thousands) 
Allowance for loan losses:                        
Ending allowance balance attributable to loans:                   
Individually evaluated for impairment $3  $0  $0  $4  $0  $0  $0  $7 
Collectively evaluated for impairment  142   2,657   236   99   212   23   15   3,384 
Total ending allowance balance $145  $2,657  $236  $103  $212  $23  $15  $3,391 
Loans:                                
Loans individually evaluated for impairment $65  $282  $0  $1,954  $0  $0  $0  $2,301 
Loans collectively evaluated for impairment  32,599   353,179   25,507   9,058   24,225   3,124   0   447,692 
Subtotal  32,664   353,461   25,507   11,012   24,225   3,124   0   449,993 
Loans acquired in the Merger  12,708   41,769   67,686   11,491   7,847   43,415   18,837   203,753 
Total ending loans balance $45,372  $395,230  $93,193  $22,503  $32,072  $46,539  $18,837  $653,746 


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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table presents information related to loans individually evaluated for impairment by loan type as of the dates indicated:
  September 30, 2021  December 31, 2020 
  
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 $0  $0  $-  $2  $1  $- 
Multi-family 
286  
286  
-   298   298   - 
Church 
2,468  
1,879  
-   2,527   1,970   - 
With an allowance recorded:                        
Single family  65   65   3   573   573   88 
Church  1,478   1,478   27   1,842   1,842   52 
Commercial - other  0   0   0   47   47   1 
Total $4,297  $3,708  $30  $5,289  $4,731  $141 

  March 31, 2022  December 31, 2021 
  
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:                  
Multi-family $
277  $
277  $
-  $
282  $
282  $
- 
Church  1,811   1,810   -   1,854   1,854   - 
With an allowance recorded:                        
Single family  64   64   3   65   65   3 
Church  96   96   4   100   100   4 
Total $2,248  $2,248  $7  $2,301  $2,301  $7 


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 presenttable presents the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:
  Three Months Ended September 30, 2021  Three Months Ended September 30, 2020 
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
 
  (In thousands) 
Single family $65  $4  $589  $7 
Multi-family  288   5   305   5 
Church  3,614   64   3,938   67 
Commercial - other  0   0   50   1 
Total $3,967  $73  $4,882  $80 

  Nine Months Ended September 30, 2021  Nine Months Ended September 30, 2020 
  
Average
Recorded Investment
  
Cash Basis
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
 
  (In thousands) 
Single family $318  $14  $596  $22 
Multi-family  292   15   308   16 
Church  3,710   190   4,094   376 
Commercial - other  18   1   57   3 
Total $4,338  $220  $5,055  $417 

  Three Months Ended March 31, 2022  Three Months Ended March 31, 2021 
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
 
  (In thousands) 
Single family $64  $1  $571  $7 
Multi-family  279   5   296   5 
Church  2,535   25   3,789   63 
Commercial – other  0   0   46   1 
Total $2,878  $31  $4,702  $76 
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off.  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 or paid off.  When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan.  Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $19$17 thousand and $22$19 thousand for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectivelyand $38 thousand and $67 thousand for the nine months ended September 30, 2021 and 2020, respectively, and were not included in the consolidated results of operations.


As of September 30,2021, the Bank had $249 thousandof loans delinquent 30 to 89 days, and 0 loans were past due 90 days or more.
The following tables present the aging of the recorded investment in past due loans by loan type as of the periodsdates indicated:

 September 30, 2021  March 31, 2022 
 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total 
 (In thousands)  (In thousands) 
Loans receivable held for investment:                                    
Single family $0  $0  $0  $0  $50,987  $50,987  $0  $0  $0  $0  $40,145  $40,145 
Multi-family 249  0  0  249  384,996  385,245  0  0  0  0  402,926  402,926 
Commercial real estate 0  0  0  0  98,384  98,384  2,944  0  0  2,944  87,458  90,402 
Church 0  0  0  0  14,728  14,728  0  0  0  0  21,365  21,365 
Construction 0  0  0  0  20,907  20,907  0  0  0  0  33,938  33,938 
Commercial - other 0  0  0  0  47,306  47,306  0  0  0  0  53,880  53,880 
SBA loans 0
  0
  0  0  28,290
  28,290
  0  0  0  0  15,488  15,488 
Consumer  0   0   0   0   12   12   0   0   0   0   146   146 
Total $249  $0  $0  $249  $645,610  $645,859  $2,944  $0  $0  $2,944  $655,346  $658,290 
  December 31, 2020 
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total 
  (In thousands) 
Loans receivable held for investment:                  
Single family $0  $0  $0  $0  $48,357  $48,357 
Multi-family  0   0   0   0   273,864   273,864 
Commercial real estate  0   0   0   0   24,322   24,322 
Church  0   0   0   0   16,308   16,308 
Construction  0   0   0   0   430   430 
Commercial - other  0   0   0   0   56   56 
Consumer  0   0   0   0   7   7 
Total $0  $0  $0  $0  $363,344  $363,344 

12
  December 31, 2021 
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total 
  (In thousands) 
Loans receivable held for investment:                  
Single family $0  $0  $0  $0  $45,372  $45,372 
Multi-family  0   0   0   0   395,230   395,230 
Commercial real estate  0   2,423   0   2,423   90,770   93,193 
Church  0   0   0   0   22,503   22,503 
Construction  0   0   0   0   32,072   32,072 
Commercial - other  0   0   0   0   46,539   46,539 
SBA
  0   0   0   0   18,837   18,837 
Total $0  $2,423  $0  $2,423  $651,323  $653,746 


The following table presents the recorded investment in non-accrual loans by loan type as of the periodsdates indicated:
  September 30, 2021  December 31, 2020 
  (In thousands) 
Loans receivable held for investment:      
Single-family residence $0  $1 
Church 
709   786 
Total non-accrual loans $709  $787 

  March 31, 2022  December 31, 2021 
  (In thousands) 
Loans receivable held for investment:      
Church  653   684 
Total non-accrual loans $653  $684 
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

There were 0 loans 90 days or more delinquent that were accruing interest as of September 30, 2021March 31, 2022 or December 31, 2020. 2021. NaN of the church non-accrual loans were delinquent, but none qualified for accrual status as of the periods indicated.

Troubled Debt Restructurings (TDRs)


In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.  The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.



The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, 0 borrowers have requested loan modifications. To date, 0 modifications have been granted.

At September 30, 2021,March 31, 2022, loans classified as TDRs totaled $3.7$1.8 million, of which $405$177 thousand were included in non-accrual loans and $3.3$1.6 million were on accrual status.  At December 31, 2020,2021, loans classified as TDRs totaled $4.2$1.8 million, of which $232$188 thousand were included in non-accrual loans and $4.0$1.6 million were on accrual status.  The Company has allocated $30 thousand and $141$7 thousand of specific reserves for accruing TDRs as of September 30, 2021March 31, 2022 and December 31, 2020, respectively.2021.  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 September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had 0 commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  NaN loans were modified during the three or nine monthsmonth periods ended September 30, 2021March 31, 2022 and 2020.2021.

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 within this footnote.footnote.  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.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements


◾●
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.

13

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 and/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:
  September 30, 2021 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss 
  (In thousands) 
Single family $50,987  $0  $0  $0  $0  $0 
Multi-family  384,897   0
   0   348   0   0 
Commercial real estate  96,918   0   0   1,466   0   0 
Church  13,045   641   0   1,042   0   0 
Construction  20,907   0   0   0   0   0 
Commercial - other  47,306   0   0   0   0   0 
SBA loans  28,290
   0
   0
   0
   0
   0
 
Consumer  12   0   0   0   0   0 
Total $642,362  $641  $0  $2,856  $0  $0 

  
 
December 31, 2020
 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss 
  (In thousands) 
Single family $48,357  $0  $
0  $
1  $0  $0 
Multi-family  273,501   0   0   362   0   0 
Commercial real estate  22,834   1,488   0   0   0   0 
Church  12,899   657   0   2,752   0   0 
Construction  430   0   0   0   0   0 
Commercial - other  9   0   0   47   0   0 
Consumer  7   0   0   0   0   0 
Total $358,037  $2,145  $0  $3,162  $0  $0 

In 2015, CFC 45 was formed to, in effect, act as a pass-through entity for a Merrill Lynch NMTC Corp. (“Merrill Lynch”) allocation of funds in connection with the Bank’s participation in the New Markets Tax Credit (“NMTC”) Program totaling $14.0 million. (See Note 9 - Borrowings.) The financial statements for CFC 45 are consolidated with those of the Company, and as such the Company has reflected a $14.0 million loan made by CFC 45 to a Qualified Active Low Income Business in gross loans above as of September 30, 2021, in connection with the NMTC Program.
  March 31, 2022 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss    Total 
  (In thousands) 
Single family $38,135  $1,328  $268  $414  $0  $0  $
40,145 
Multi-family  385,748   6,428
   2,540   8,210   0   0   402,926 
Commercial real estate  70,078   9,589   5,970   4,765   0   0   90,402 
Church  16,795   931   0   3,639   0   0   21,365 
Construction  9,158   24,780   0   0   0   0   33,938 
Commercial - other  41,397   12,167   0   307   9   0   53,880 
SBA
  14,668   657   163   0   0   0   15,488 
Consumer  146   0   0   0   0   0   146 
Total $576,125  $55,880  $8,941  $17,335  $9  $0  $
658,290 

  December 31, 2021 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss    Total 
  (In thousands) 
Single family $42,454  $1,343  $271  $1,304  $0  $0  $
45,372 
Multi-family  378,141   7,987   575   8,527   0   0   395,230 
Commercial real estate  69,257   7,034   9,847   7,055   0   0   93,193 
Church  20,021   0   0   2,482   0   0   22,503 
Construction  10,522   21,550   0   0   0   0   32,072 
Commercial - other  33,988   12,551   0   0   0   0   46,539 
SBA
  18,665   0   172   0   0   0   18,837 
Total $573,048  $50,465  $10,865  $19,368  $0  $0  $
653,746 

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (7) – Leases

Effective October 1, 2021, the Bank entered into an operating lease for its administrative offices in Los Angeles.  The ROU asset and operating lease liability will be recorded in fixed assets and other liabilities, respectively, in the consolidated statements of financial condition as of that date.
The ROU asset represents our right to use the underlying asset during the lease term. Operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the date of implementation of the new accounting standard.
The operating lease has 1 5-year extension option at the then fair market rate. As this extension option is not reasonably certain of exercise, it is not included in the lease term. The Bank has no finance leases.
As the lease term started on October 1, 2021, there is 0 rent expense under the operating lease for the three months or nine months ended September 30, 2021.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

NOTE (8)(6) – Goodwill and Intangible Assets



 In connection with the CFBanc Merger completed as of April 1, 2021 (See Note 2 - Business Combination.)Combination), the Company recognized goodwill of $26.0 million and a core deposit intangible of $3.3 million. The following table presents the changes in the carrying amounts of goodwill and core deposit intangibles for the three months ended September 30, 2021March 31, 2022:


 Goodwill
  
Core Deposit
Intangible
  Goodwill
  
Core Deposit
Intangible
 
 (In thousands)
  (In thousands)
 
Balance at the beginning of the period 
$
0
  $0  
$
25,996
  $2,936 
Additions  25,996
   3,329
   0   0 
Amortization  0
   (262)
Change in deferred tax estimate  (138)  (109)
Impairment  0
   0
   0   0 
Balance at the end of the period $25,996  $3,067  $25,858  $2,827 




14



  (In thousands) 
Core deposit intangible acquired $3,329 
Less: accumulated amortization  (262)

 $3,067 


The following table outlines the estimated amortization expense for the core deposit intangible during the next five fiscal years:


 (In thousands)  (In thousands) 
2021 $131 
2022  435  $326 
2023  390   390 
2024  336   336 
2025  315   315 
2026  304 
Thereafter  1,460   1,156 
 $3,067  $2,827 

NOTE (9)(7) – Borrowings


The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of September 30,March 31, 2022, securities with a market value of $61.9 million were pledged as collateral for securities sold under agreements to repurchase and included $22.3 million of U.S. Government Agency securities, $33.5 million of mortgage-backed securities, $4.1 million of federal agency CMO and $2.0 million of SBA pool securities. As of December 31, 2021, securities sold under agreements to repurchase totaled $52.9$52.0 million at an average rate of 0.10%. The market value of securities pledged totaled $71.4$53.2 million as of September 30,December 31, 2021 and included $23.4$13.3 million of U.S. Government Agency securities $43.8and $39.9 million of mortgage-backed securities, and $4.2 million of collateralized mortgage obligations. There were 0 securities pledged as of December 31, 2020.securities.

 

At SeptemberMarch 30, 202131, 2022 and December 31, 2020,2021, the Bank had outstanding Advancesadvances from the FHLB of San Francisco totaling $91.1$73.0 million and $110.5$86.0 million, respectively. The weighted interest rate was 1.91%1.66% and 1.94%1.85% as of SeptemberMarch 30, 202131, 2022 and December 31, 2020,2021, respectively. The weighted average contractual maturity was 2622 months and 2722 months as of SeptemberMarch 30, 202131, 2022 and December 31, 2020,2021, respectively. The advances were collateralized by loans with a market value of $176.5$106.5 million at SeptemberMarch 30, 2021.31, 2022 and $165.0 million at December 31, 2021. The Bank also had $2.9 million in outstanding borrowings from the FHLB of Atlanta as of March 31, 2022 at an average rate of 2.60%. Principal repayments of $12 thousand per month are required until January 6, 2025 when the advance fully matures.  The advances were collateralized by loans with a market value of $22.4 million as of March 31, 2022.


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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

On September 17, 2021, the Company fully redeemed its Floating Rate Junior Subordinated Debentures.



In connection with the New Market Tax Credit activities of City Firstthe Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This CDEcommunity development entity (“CDE”) acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a Qualified Active Low-Income Business (“QALICB”). The loan to the QALICB is secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee. The financial statements of CFC 45 are consolidated with those of the Bank and the Company.


There are 2 notes for CFC 45. Note A is in the amount of $9.9 million with a fixed interest rate of 5.2% per annum. Note B is in the amount of $4.1 million with a fixed interest rate of 0.24% per annum. Quarterly interest only payments commenced in March 2016 and will continue through March 2023 for Notes A and B. Beginning in September 2023, quarterly principal and interest payments will be due for Notes A and B. Both notes will mature on December 1, 2040.

NOTE (10)(8) – Fair Value


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 ninethree 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.

15

Appraisals for collateral-dependent impaired loans 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
Assets Measured on a Recurring Basis


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

  Fair Value Measurement 
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant Unobservable
Inputs
(Level 3)
  Total 
  (In thousands) 
At March 31, 2022:            
Securities available for sale:            
Federal agency mortgage-backed $0  $79,222  $0  $79,222 
Federal agency CMO  0   8,910   0   8,910 
Federal agency debt  0   42,035   0   42,035 
Municipal bonds  0   4,890   0   4,890 
U. S. Treasuries  0   26,168   0   26,168 
SBA pools  0   15,770   0   15,770 
                 
At December 31, 2021:                
Securities available for sale:  
             
Federal agency mortgage-backed $0  $70,030  $0  $70,030 
Federal agency CMO  0   9,287   0   9,287 
Federal agency debt  0   37,988   0   37,988 
Municipal bonds  0   4,915   0   4,915 
U. S. Treasuries  0   17,951   0   17,951 
SBA pools  0   16,225   0   16,225 
  Fair Value Measurement 
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant Unobservable
Inputs
(Level 3)
  Total 
  (In thousands) 
At September 30, 2021:
            
Securities available-for-sale – federal agency mortgage-backed $0  $82,365  $0  $82,365 
Securities available-for-sale – federal agency CMO  0   5,478   0   5,478 
Securities available-for-sale – federal agency debt  0   36,061   0   36,061 
Municipal bonds  0   4,933   0   4,933 
U. S. Treasuries  0   18,167   0   18,167 
SBA pools  0   10,624   0   10,624 
                 
At December 31, 2020:
                
Securities available-for-sale – federal agency mortgage-backed $0  $5,807  $0  $5,807 
Securities available-for-sale – federal agency debt  0   2,872   0   2,872 
Municipal bonds  0   2,019   0   2,019 


There were 0no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021.

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 statements of financial condition.  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.


As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Bank did 0t have any impaired loans carried at fair value of collateral.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Fair Values of Financial Instruments


The following tables present the carrying amount, fair value, and placement inlevel within the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of September 30, 2021March 31, 2022 and December 31, 2020.  This table excludes financial instruments for which the carrying amount approximates fair value.  For short-term financial assets such as cash and due from banks, interest-bearing deposits in other banks, and accrued interest receivable/payable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.  For non-marketable equity securities such as Federal Home Loan Bank stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.2021.

    Fair Value Measurements at September 30, 2021     Fair Value Measurements at March 31, 2022 
 
Carrying
Value
  Level 1  Level 2  Level 3  Total  
Carrying
Value
  Level 1  Level 2  Level 3  Total 
 (In thousands)  (In thousands) 
Financial Assets:                              
Cash and cash equivalents $208,687  $208,687  $0  $0  $208,687  $246,106  $246,106  $0  $0  $246,106 
Securities available-for-sale
  157,628
   0
   157,628
   0
   157,628
   170,308
   0
   170,308
   0
   170,308
 
Loans receivable held for investment  642,198   0   0   647,988   647,988   653,375   0   0   598,354   598,354 
Accrued interest receivables
  2,565
   206
   275
   2,084
   2,565
 
Accrued interest receivable
  2,449
   1
   266
   2,182
   2,449
 
Bank owned life insurance
  3,179
   3,179
   0
   0
   3,179
   3,200
   3,200
   0
   0
   3,200
 
                                        
Financial Liabilities:                                        
Deposits $749,645  $0  $749,645  $0  $749,645  $839,714  $0  $784,698  $0  $784,698 
Federal Home Loan Bank advances  73,001   0   72,037   0   72,037 
Securities sold under agreements to repurchase
  52,876   0   52,332   0   52,332   56,003   0   52,873   0   52,873 
Federal Home Loan Bank advances  91,070   0   92,836   0   92,836 
Note payable
  14,000   0   0   14,000   14,000 
Notes payable
  14,000   0   14,000   0   14,000 
Accrued interest payable
  99
   0
   99
   0
   99
   135
   0
   135
   0
   135
 

    Fair Value Measurements at December 31, 2020     Fair Value Measurements at December 31, 2021 
 
Carrying
Value
  Level 1  Level 2  Level 3  Total  
Carrying
Value
  Level 1  Level 2  Level 3  Total 
 (In thousands)  (In thousands) 
Financial Assets:                              
Cash and cash equivalents $96,109  $96,109  $0  $0  $96,109  $231,520  $231,520  $0  $0  $231,520 
Securities available-for-sale  10,698   0   10,698   0   10,698   156,396   0   156,396   0   156,396 
Loans receivable held for investment  360,129   0   0   366,279   366,279 �� 648,513   0   0   623,778   623,778 
Accrued interest receivables  1,202   60   14   1,128   1,202 
Accrued interest receivable  3,372   19   1,089   2,264   3,372 
Bank owned life insurance  3,147   3,147   0   0   3,147   3,190   3,190   0   0   3,190 
                                        
Financial Liabilities:                                        
Deposits $315,630  $0  $312,725  $0  $312,725  $788,052  $0  $754,181  $0  $754,181 
Federal Home Loan Bank advances  110,500   0   113,851   0   113,851   85,952   0   87,082   0   87,082 
Junior subordinated debentures  3,315   0   0   2,798   2,798 
Securities sold under agreements to repurchase  51,960   0   51,960   0   51,960 
Notes payable  14,000   0   14,000   0   14,000 
Accrued interest payable
  88   0   84   4   88   119   0   119   0   119 


In accordance with ASU No. 2016-01, the fair value of certain financial assets and liabilities including loans and time deposits as of September 30, 2021 and December 31, 2020 was measured using an exit price notion.  Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (11)(9) – Stock-based Compensation


The Long-Term Incentive Plan, which was adopted by the Company and approved by the stockholders in 2018 (the “LTIP”), permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards. The plan is in effect for ten years.  The maximum number of shares that can be awarded under the plan is 1,293,109 shares of common stock as of December 31, 2018.stock. As of September 30, 2021, 533,169March 31, 2022, there were 1,023,513 shares that had been awarded and 759,940269,596 shares arethat were available to be issued under the LTIP.


During the third quarterFebruary of 2022 and 2021,  the Company issued 64,51647,187 and 20,736 shares of stock, that vested immediatelyrespectively, to its Chief Executive Officer at a costdirectors under the 2018 LTIP, which were fully vested. The Company recorded $84 thousand and $45 thousand of $200 thousand. As permitted bycompensation expense during the LTIP, 21,354quarters ended March 31, 2022 and March 31, 2021, based on the fair value of thesethe stock, which was determined using the fair value of the stock on the date of the award.



During March of 2022, the Company issued 495,262 shares were cancelled to pay income taxes. At September 30, 2021, 0 unvestedits officers and employees under the 2018 LTIP. Each restricted stock award is valued based on the fair value of the stock on the date of the award. These awarded shares of restricted stock fully vest over periods ranging from 36 months to 60 months from their respective dates of grant. Stock based compensation is recognized on a straight-line basis over the vesting period. There were 0 shares issued to officers and employees during 2021. During the quarter ended March 31, 2021, the company recorded $119 thousand of stock based compensation expense related to awards were outstanding.granted previously to 2021.



NoNaN stock options were granted during the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.

17


The following table summarizes stock option activity during the ninethree months ended September 30, 2021March 31, 2022 and 2020:2021:


 
Nine Months Ended
September 30, 2021
  
Nine Months Ended
September 30, 2020
  
Three months Ended
March 31, 2022
  
Three months Ended
March 31, 2021
 
 
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
 
Outstanding at beginning of period  450,000  $1.62   455,000  $1.67   450,000  $1.62   450,000  $1.62 
Granted during period  0   0   0   0   0   0   0   0 
Exercised during period  0   0   0   0   0   0   0   0 
Forfeited or expired during period  0   0   (5,000
)
  6.00   0   0   0
  0 
Outstanding at end of period  450,000  $1.62   450,000  $1.62   450,000  $1.62   450,000  $1.62 
Exercisable at end of period  450,000  $1.62   360,000  $1.62   450,000  $1.62   450,000  $1.62 


The Company did 0t record any stock-based compensation expense related to stockstock options during the three months ended September 30, 2021 as these options became fully vested and all compensation cost was recognized in February 2021.March 31, 2022. For the threenine months ended SeptemberMarch 30,31, 2021, the Company recorded $7$6 thousand of expense related to stock options. During the three and optionsnine months ended September 30, 2020, the Company recorded $10 thousand and $20 thousand of stock-based compensation expense related to stock options, respectively.


Options outstanding and exercisable at September 30, 2021March 31, 2022 were as follows:

  Outstanding  Exercisable 
Grant Date 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
 
 
Aggregate
Intrinsic
Value
 
February 24, 2016  450,000 
 $1.62      450,000  $1.62    
   450,000 4.40 years $1.62  $481,500   450,000  $1.62  $481,500 
 Outstanding  Exercisable 
 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
 
 
Aggregate
Intrinsic
Value
 
  450,000 
 $1.62      450,000  $1.62    
  450,000 4.40 years $1.62  $0   450,000  $1.62  $0 

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (12)(10) – ESOP Plan


Employees participate in an Employee Stock Option Plan (“ESOP”)ESOP after attaining certain age and service requirements.  In December 2016, the ESOP purchased 1,493,679 shares of the Company’s common stock at $1.59 per share, for a total cost of $2.4 million, of which $1.2 million was funded with a loan from the Company.  The loan will be repaid from the Bank’s annual discretionary contributions to the ESOP, net of dividends paid, over a period of 20 years.  Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants.  When loan payments are made, shares are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants.  As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released.  To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital.  Any dividends on allocated shares increase participant accounts.  Any dividends on unallocated shares will be used to repay the loan.  Participants will receive shares for their vested balance at the end of their employment.  Compensation expense related to the ESOP was $34$18 thousand and $18$23 thousand for the three months ended September 30, 2021March 31, 2022 and 2020, respectively, and $81 thousand and $50 thousand for the nine months ended September 30, 2021 and 2020, respectively.2021.


Shares held by the ESOP were as follows:

 September 30, 2021  December 31, 2020  March 31, 2022  December 31, 2021 
 (Dollars in thousands)  (Dollars in thousands) 
            
Allocated to participants  1,092,033   1,065,275   1,087,216   1,087,216 
Committed to be released  0   10,236   20,128   10,064 
Suspense shares  531,682   562,391   512,554   521,618 
Total ESOP shares  1,623,715   1,637,902   1,619,898   1,618,898 
Fair value of unearned shares $1,458  $1,040  $933  $1,454 


Unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were $844$813 thousand and $893$829 thousand at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

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NOTE (13)(11) – Regulatory Matters and Stockholders’ Equity


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.


As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. The CARES Act temporarily lowered this ratio to 8% beginning in the three months ended September 30,March 31, 2020. The ratio then rose to 8.5% for 2021 and reestablisheswas reestablished at 9% on January 1, 2022.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

City First Bank, N.A. elected to adopt the CBLR option on April 1, 2020 as reflected in its September 30,March 31, 2020  Call Report. Its CBLR as of September 30, 2021 is shown in the table below. The Company’s former subsidiary, Broadway Federal Bank, f.s.b., did not elect to adopt the CBLR and reported the December 31, 2020 capital ratios as shown in the table below.



Actual and required capital amounts and ratios as of the periodsdates 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) 
September 30, 2021:
                  
Community Bank Leverage Ratio (1)
 $98,009   9.41% $





 $88,576   8.50%
December 31, 2020:
                        
Tier 1 (Leverage) $46,565   9.54% $19,530   4.00 % $24,413   5.00 %
Common Equity Tier 1 $46,565   18.95% $11,059   4.50 % $15,975   6.50 %
Tier 1 $46,565   18.95% $14,746   6.00 % $19,661   8.00 %
Total Capital $49,802   20.20% $19,661   8.00 % $24,577   10.00 %
  Actual   
Minimum Required to
Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 
  Amount  Ratio   Amount  Ratio 
  (Dollars in thousands) 
March 31, 2022:
             
Community Bank Leverage Ratio
 $99,993   9.45%  $95,129   9.00%
December 31, 2021:
                 
Community Bank Leverage Ratio $98,590   9.32%  $89,871   8.50%


(1)
At the Merger on April 1, 2021, the Company’s former subsidiary, Broadway Federal Bank, f.s.b., was merged into City First Bank of D.C, N. A., with City First Bank of D.C, N.A. as the surviving entity and the resultant bank being named City First Bank, National Association, which had elected to adopt Community Bank Leverage Ratio option on April 1, 2020 as reflected in its September 30, 2020 Call Report.


At September 30, 2021,March 31, 2022, the Company and the Bank met all the capital adequacy requirements to which they were subject. In addition, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since DecemberMarch 31, 20202022 that would materially adversely change the Bank’s capital classifications. From time to time, we may need to raise additional capital to support the Bank’s further growth and to maintain the “well capitalized” status.


During the first quarter of 2022 the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3 million, plus accrued dividends, for 1,193,317 shares of Class A Common Stock at an exchange price of $2.51 per share of Class A Common Stock.

NOTE (14)(12) – 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 evaluated 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.



TheAt March 31, 2022, the Company’s tax expense for the nine months ended September 30, 2021 includedCompany maintained a $370369 thousand impairmentvaluation allowance on its deferred tax assets because the number of shares sold in the private placements completed on April 6, 2021 triggered limitations on the use of certain tax attributes under the Section 382 of the federal tax code. The ability to use net operating losses (“NOLs”) to offset future taxable income will be restricted and these NOLs could expire or otherwise be unavailable. In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (15)(13) – Concentration of Credit Risk
  

The Bank has a significant concentration of deposits with 1 customer that accounted for approximately 9%16% of its deposits as of SeptemberMarch 30, 2021.31, 2022. The Bank also has a significant concentration of short term borrowings from 1 customer that accounted for 66%74% of the outstanding balance of securities sold under agreements to repurchase as of SeptemberMarch 30, 2021.31, 2022. The Bank expects to maintain the relationships with these customers for the foreseeable future.

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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 ourthe financial statements of Broadway Financial Corporation (the “Company,” “us,” “we,” or “our,”) 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, “Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q and Item 8 of Part II, “Financial Statements and Supplementary Data” of our 20202021 Form 10-K.  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 words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions.  These forward-looking statements are subject to risks and uncertainties, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements.  Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-Q.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
 
Critical Accounting Policies and Estimates

Our significantCritical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. This discussion highlights those accounting policies that management considers critical. All accounting policies are essentialimportant, however, and therefore you are encouraged to understanding MD&A, are describedreview each of the policies included in Note 1 “Summary of Significant Accounting Principles” of the “NotesNotes to Consolidated Financial Statements” and in the “Critical Accounting Policies” section of MD&AStatements in our 20202021 Form 10-K.
As10-K to gain a resultbetter understanding of how our financial performance is measured and reported. Management has identified the Company’s acquisition of CFBanc Corporation on April 1, 2021, the accounting policy related to business combinations has been added to our critical accounting policies duringas follows:

Allowance for Loan Losses

The determination of the nine months ended September 30, 2021. See Note 1 - Basisallowance for loan losses is considered critical due to the high degree of Financial Statement Presentationjudgment involved, the subjectivity of the underlying assumptions used, and the potential for changes in the accompanyingeconomic environment that could result in material changes in the amount of the allowance for loan losses considered necessary. The allowance is evaluated on a regular basis by management and the Board of Directors and is based on a periodic review of the collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and feedback from regulatory examinations.

Business Combinations

Business combinations are accounted for using the acquisition accounting method. Under the acquisition method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at fair value on the acquisition date. Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Changes to the acquisition date fair values of assets acquired and liabilities assumed may be made as adjustments to goodwill over a 12-month measurement period following the date of acquisition. Such adjustments are attributable to additional information obtained related to fair value estimates of the assets acquired and liabilities assumed.

Acquired Loans

Acquired loans that are not considered to be PCI loans are recognized at fair value at the acquisition date, with the resulting credit and non-credit discount or premium being amortized or accreted into interest income using the level yield method. Acquired loans that in management’s judgement have shown evidence of deterioration in credit quality since origination are classified as PCI loans. Factors that indicate a loan may have shown evidence of credit deterioration include delinquency, downgrades in credit rating, non-accrual status, and other negative factors identified by management at the time of initial assessment. The Company estimates the amount and timing of expected cash flows for each PCI loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the PCI loan, expected cash flows continue to be estimated each quarter. If the present value of expected cash flows decreases from the prior estimate, a provision for loan losses is recorded and an allowance for loan losses is established. If the present value of expected cash flows increases from the prior estimate, the increase is recognized as part of future interest income.

20
The estimates used to determine the fair values of non-PCI and PCI acquired loans can be complex and require significant judgment regarding items such as default rates, timing and amount of future cash flows, prepayment rates and other factors.

Goodwill and Intangible Assets

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has selected November 30th as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated statement of financial condition.

Income Taxes

Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all 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 any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry‑back years, forecasts of future income and available tax planning strategies. This analysis is updated quarterly.

Fair Value Measurements

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.

Fair values are estimated using relevant market information and other assumptions, as more fully disclosed in Note 8 of the Notes to Unaudited Consolidated Financial Statements containedof this Quarterly Report on Form 10-Q. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in Item 1-- Consolidated Financial Statements (Unaudited).the absence of broad markets for items. Changes in assumptions or in market conditions could significantly affect the estimates.

30
COVID-19 Pandemic Impact

The Company continues to monitor the impact of the lingering COVID-19 pandemic on its operations.  To date, the Bank has not implemented layoffs or furloughs of any employees because of the pandemic.

Although the Bank developed plans and policies for providing financial relief to borrowers that may experience difficulties in meeting the terms of their loans, as of September 30, 2021,March 31, 2022, none of its borrowers had requested loan modifications and the Bank had no delinquencies related to COVID-19.

As of September 30, 2021, theThe Company participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) by way of its merger with CFBanc Corporation. The Bank has originated $26.5 million in PPP since the merger. No PPP loans were originated during the three months ended September 30, 2021March 31, 2022 as the program ended in June of 2021.

21
Overview

The Company merged withCFBancwith CFBanc on April 1, 2021, with Broadway Financial Corporation continuing as the surviving entity.  Immediately following the CFBanc Merger, Broadway Federal Bank, f.s.b. merged with and into City First Bank of D.C, National Association with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association). Accordingly, results for the thirdfirst quarter of 20212022 include the operations of Broadway Financial Corporation and its subsidiary, City First Bank, National Association. Results for the ninethree months ended September 30,March 31, 2021 include the operations of Broadway Financial Corporation and the results of Broadway Federal Bank, f.s.b., its former subsidiary, for the first quarter and the results for Broadway Financial Corporation and City First Bank, N.A. for the second and third quarters. Results for the three months ended September 30, 2020 and the nine months ended September 30, 2020 include the results of Broadway Financial Corporation and  Broadway Federal Bank, f.s.b.subsidiary.

Total assets increased by $580.2$37.6 million to $1.064 billion at September 30, 2021 from $483.4 million at Decemberduring the first quarter ended March 31, 2020.  The increase in total assets was2022, primarily due to assets acquiredgrowth in the merger, which increased total assets by $501.2cash and cash equivalents of $14.6 million, for the period. The increasegrowth in total assets was also due toinvestment securities available-for-sale of $13.9 million, a net increase in cashloans held for investment of $35.8$4.9 million, since the mergergrowth in other assets of $3.5 million, and ana net increase in the loan portfoliodeferred tax asset of $53.8$2.2 million.  Total assets increased by $652 million sincecompared to March 31, 2021, primarily because of the merger, which was primarily due to loan originations of $173.3assets, totaling $475 million, net of loan repayments and payoffs of $120.8 million forthat were acquired in the nine months ended September 30, 2021.Merger.

Total liabilities increased by $485.7$42.4 million to $920.2$994.8 million at September 30, 2021March 31, 2022 from $434.5$952.4 million at December 31, 2020.2021. The increase in total liabilities primarily consisted of the assumptionnet increases in deposits of $353.7 million of deposits, $3.2 million of FHLB advances, and $73.9 million of other borrowings in the CFBanc Merger. Since the merger, deposits have increased by $83.6 million, FHLB advances have decreased by $22.7 million, short term borrowings have decreased by $7.1$51.7 million and the junior subordinated debt,net increases in securities sold under agreements to repurchase of $4.0 million, which was $3.3outweighed a $13.0 million at December 31, 2020, was fully paid off.

decrease in FHLB advances.
Net income for the thirdfirst quarter of 2021 2022 increased by $426to $958 thousand compared to a net loss of $3.5 million for the thirdfirst quarter of 20202021 primarily due to an increase of $2.2 million in net interest income afterbefore loan loss provision of $4.3 million due to interest income from the acquired interest-earning assets of CFB and an increasegrowth in interest-earning assets since the Merger.  Non-interest expense decreased by $2.7 million during the first quarter of $496 thousand in grant and fee income, which were2022 compared to the first quarter of 2021, primarily because the results for the first quarter of 2021 included non-recurring costs of $5.4 million related to the Merger, partially offset by additional operating expenses of $2.2 million due toincreases from including the combined operations of CFB in the two banks afterresults for the mergerfirst quarter of 2022 and higher data processing costs after the merger.  Results for the second quarter of 2021 were $519 thousand higher than the third quarter of 2021 primarily due to a special grant award of $1.8 million, offset by a higher effective tax rate and a tax adjustment of $370 thousand during the second quarter for a valuation allowance on the deferred tax asset due to a limitation on the use of net operating loss carryforwards.

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For the year-to-date period ended September 30, 2021, the Company reported a net loss of $2.6 million, or $(0.05) per share, compared to a net loss of $61 thousand or $0.00 per share for the first nine months of 2020.  The net loss during 2021 was due to merger-related costs of $5.6 million, ($4.2 million net of tax) and one-time costs of $408 thousand associated with the data processing conversion. The net loss during the first nine months of 2020 was due to merger-related expenses of $710 thousand as well as $210 thousand in higher professional services costs due to actions by a former shareholder.
 
Net Interest Income

ThirdFirst Quarter of 20212022 Compared to ThirdFirst Quarter of 20202021

Net interest income before loan loss provision for the thirdfirst quarter of 20212022 totaled $6.0$7.2 million, representing an increase of $2.6$4.3 million over net interest income before loan loss provision of $3.4$2.8 million for the thirdfirst quarter of 2020.2021. The increase resulted from higheradditional interest income, primarily due to growth of $508.1$564.3 million in average interest-earning assets during the thirdfirst quarter of 20212022 compared to the thirdfirst quarter of 20202021 due to the acquisition of loans, securities, and cash equivalents in the Merger on April 1, 2021.  Net interest income in the first quarter of 2022 also benefited from a reduction in the overall rates paid on interest-bearing liabilities of 48 basis points.

Interest income and fees on loans receivable increased by $1.9$3.7 million to $6.0$7.3 million for the thirdfirst quarter of 2021,2022, from $4.4$3.6 million for the thirdfirst quarter of 20202021 due to an increase of $189.5$292.0 million in the average balance of loans receivable, which increased interest income by $1.9$3.2 million, and an 8increase of 46 basis point decreasepoints in the average yield on loans, which decreasedincreased interest income by $90$455 thousand. The increase in the average balance of loans receivable was primarily the result of the addition of $225.9 million of loans in the Merger, as well as additional organic loan growth of the combined entity after the date of the Merger. In addition, the increase in the average yield on loans receivable in the first quarter of 2022 was primarily the result of higher yields earned on the commercial loan portfolio acquired in the Merger.

Interest income on securities increased by $398$497 thousand for the thirdfirst quarter of 2021,2022 to $553 thousand, compared to $56 thousand in the thirdfirst quarter of 2020.2021.  The increase in interest income on securities primarily resulted from growth of $146.9$150.6 million in the average balance of securities, which resulted from securities of $150.0 million acquired in the Merger of $150 million, net of purchases of  $10.1 million and payoffs and amortization of $12.7 million since the Merger.  The higher average balance of securities increased interest income by $441$524 thousand.  This increase was partially offset by the effects of a decrease of 11478 basis points in the average interest rate earned on securities, which decreasedreduced interest income by $43$27 thousand.

Other interest income increased by $79$45 thousand during the thirdfirst quarter of 2022 compared to the first quarter of 2021 compared to the third quarter of 2020 primarily due to higher interest earned on cash depositsan increase of $122.1 million in other banks which increased by $69 thousand for the third quarter of 2021 compared to the third quarter of 2020.  The average balance increased by $172.0 million,of interest-earning deposits and other short-term investments, which increased interest income by $85$49 thousand.  This increase was partially offset by a decrease of $4 thousand in the effects of lower rates earned on interest-earning deposits in other banks, which decreased by 11 basis points and lowered interest income by $16 thousand.  Also, interestdividend income on Federal Reserve Bank (“FRB”)FHLB and FRB stock and Federal Home Loan Bank (“FHLB”) stock increased by $10 thousand duringbetween the third quarter of 2021 compared to the third quarter of 2020.two periods.

Interest expense for the thirdfirst quarter of 20212022 decreased by $279$93 thousand compared to the thirdfirst quarter of 20202021 due to a decrease of 6648 basis points in the Company’s cost of funds.interest-bearing liabilities.  The lower rates paid offset the impact of an increase of $405.9$421.6 million in average interest-bearing liabilities due to the assumption of $307.6 million of interest-bearing deposits, $73.9 million of borrowings, and $3.2 million of FHLB advances in the Merger.  In addition, $46.1 million of non-interest-bearing deposits were assumed in the Merger.

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Interest expense on deposits decreased by $185$33 thousand for the thirdfirst quarter of 2021,2022 compared to the thirdfirst quarter of 2020.2021.  The decrease was primarily attributable to a decrease of 5428 basis points in the average rate paid on deposits, which caused interest expense on deposits to decrease by $605$316 thousand.  This decrease was partially offset by the effects of an increase of $365.6$389.5 million in the average balance of deposits, primarily because of the Merger, which increased interest expense by $420$283 thousand.

Interest expense on borrowings decreased by $94$60 thousand for the thirdfirst quarter of 2021,2022, compared to the thirdfirst quarter of 2020.2021.  The decrease was attributable to a decrease of 7159 basis points in the average borrowing rate, which decreased interest expense by $251$192 thousand, offset by an increase in average borrowings of $40.3$32.1 million during the period, which increased interest expense by $157$132 thousand.  The increase in the average balance of borrowings was due to an increase of $51.7$68.0 million in the average balance of short termshort-term borrowings (securities(primarily, securities sold under agreements to repurchase)repurchase that were assumed in the Merger), offset by a decrease of $24.5$32.7 million in average borrowings from the FHLB and a decrease of $860$3.3 million in the average balance of the Company’s junior subordinated debentures, duringwhich were paid off in the third quarter of 2021 compared to the third quarter of 2020.2021.

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The net interest margin decreasedincreased to 2.43%2.76% for the thirdfirst quarter of 2022 from 2.40% for the first quarter of 2021 from 2.82% for the third quarter of 2020 primarily due to lower rates earned on higher balances of interest-earning cash deposits in other banks, which grew to an average balance of $214.4 million during the third quarter of 2021 compared to an average balance of $42.4 million during the third quarter of 2020.  During the third quarter of 2021, the average interest rate earned on cash deposits decreased to 0.19% from an average rate of 0.30% earned during the third quarter of 2020.

First Nine Months of 2021 Compared to the First Nine Months of 2020

For the first nine months of 2021, net interest income before provisions increased by $5.4 million to $14.7 million compared to $9.3 million for the first nine months of 2020.  The increase in net interest income primarily resulted from additional net interest income earned on assets acquired in the Merger.

Interest income and fees on loans receivable increased by $3.0 million during the first nine months of 2021, compared to the first nine months of 2020, due to an increase in the volume of $108.5 millioninterest-earning assets (mainly due to an increase in the average balance of loans receivable, primarily resulting fromreceivable), the Merger, which increased interest income by $3.3 million, and a decreasecontribution of 8 basis points in the averagehigher loan yield, which decreased interest income by $254 thousand.

Interest income on securities increased by $759 thousand for the first nine months of 2021, compared to the first nine months of 2020.  The increase in interest income on securities primarily resulted from an increase of $110.4 million in the average balance of securities because of the Merger, which increased interest income by $930 thousand.  This increase was partially offset by the effects of a decrease of 140 basis points in the average interest yieldyields earned on investment securities, which decreased interest income by $171 thousand.

Other interest income increased by $42 thousand during the first nine months of 2021, compared to the first nine months of 2020 due to higher average cash balances in other banks, which increased by an average of $161.9 million during the first nine months of 2021 compared to the first nine months of 2020.  The Company also recorded $42 thousand in higher interest income on regulatory stock during the first nine months of 2021, primarily due to interest earned on FRB and FHLB stockcommercial loan portfolio acquired in the Merger along with the existing holdings of FHLB stock.

During the first nine months of 2021, interest expense on deposits decreased by $1.3 million, compared to the first nine months of 2020, due toand a decrease of 81 basis points in the average costrate paid on interest-bearing liabilities of deposits, which decreased interest expense by $2.6 million.  This decrease was partially offset by an increase of $261.4 million in the average balance of deposits, primarily due to deposits assumed in the Merger, which increased interest expense by $1.3 million.48 basis points.

During the first nine months of 2021, interest expense on borrowings decreased by $147 thousand compared to the first nine months of 2020 due to a decrease of 60 basis points in the average cost of borrowings, which decreased interest expense by $612 thousand.  This decrease was offset by an increase of $37.1 million in average outstanding borrowings, which increased interest expense by $465 thousand.  The increase in average borrowings was due primarily due to short-term borrowings assumed in the Merger.
  For the three months ended 
  March 31, 2022  March 31, 2021 
(Dollars in Thousands) Average Balance  Interest  
Average
Yield/
Cost
  Average Balance  Interest  
Average
Yield/
Cost
 
Assets                  
Interest-earning assets:                  
Interest-earning deposits $220,266  $84   0.15% $98,183  $35   0.14%
Securities  160,968   553   1.37%  10,414   56   2.15%
Loans receivable (1)
  653,493   7,336   4.49%  361,487   3,644   4.03%
FRB and FHLB stock  3,046   38   4.99%  3,431   42   4.90%
Total interest-earning assets  1,037,773  $8,011   3.09%  473,515  $3,777   3.19%
Non-interest-earning assets  74,542           11,064         
Total assets $1,112,315          $484,579         
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Money market deposits $207,078  $189   0.37% $76,750  $81   0.42%
Passbook deposits  66,825   8   0.05%  64,044   57   0.36%
NOW and other demand deposits  230,461   39   0.07%  54,650   7   0.05%
Certificate accounts  201,446   114   0.23%  120,857   238   0.79%
Total deposits  705,810   350   0.20%  316,301   383   0.48%
FHLB advances  77,849   342   1.76%  110,500   527   1.91%
Junior subordinated debentures  -   -   0.00%  3,275   22   2.69%
Other borrowings  68,019   147   0.86%  -   -   0.00%
Total borrowings  145,868   489   1.34%  113,775   549   1.93%
Total interest-bearing liabilities  851,678  $839   0.39%  430,076  $932   0.87%
Non-interest-bearing liabilities  121,912           5,832         
Stockholders’ equity  138,725           48,671         
Total liabilities and stockholders’ equity $1,112,315          $484,579         
                         
Net interest rate spread (2)
     $7,172   2.70%     $2,845   2.32%
Net interest rate margin (3)
          2.76%          2.40%
Ratio of interest-earning assets to interest-bearing liabilities          121.85%          110.10%

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The net interest margin decreased by 31 basis points to 2.26% for the first nine months of 2021 from 2.57% for the same period in 2020.
 
  For the three months ended 
  September 30, 2021  September 30, 2020 
(Dollars in Thousands) Average Balance  Interest  
Average
Yield/
Cost
  Average Balance  Interest  
Average
Yield/
Cost
 
Assets                  
Interest-earning assets:                  
Interest-earning deposits $214,366  $101   0.19% $42,406  $32   0.30%
Securities  157,142   457   1.16%  10,242   59   2.30%
Loans receivable (1)  612,755   6,296   4.12%  423,305   4,438   4.19%
FRB and FHLB stock  3,401   55   6.47%  3,586   45   5.02%
Total interest-earning assets  987,664  $6,909   2.80%  479,539  $4,574   3.82%
Non-interest-earning assets  61,615           10,663         
Total assets $1,049,279          $490,202         
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Money market deposits $199,577  $159   0.16% $50,238  $60   0.48%
Passbook deposits  74,223   61   0.11%  58,377   55   0.38%
NOW and other demand deposits  210,014   37   0.02%  60,835   5   0.03%
Certificate accounts  197,746   189   0.07%  146,469   511   1.40%
Total deposits  681,560   446   0.26%  315,919   631   0.80%
FHLB advances  91,000   440   1.98%  115,500   538   1.86%
Junior subordinated debentures  2,923   17   2.67%  3,783   28   2.96%
Other borrowings  65,657   15   0.09%  -   -   - 
Total borrowings  159,580   472   1.18%  119,283   566   1.90%
Total interest-bearing liabilities  841,140  $918   0.44%  435,202  $1,197   1.10%
Non-interest-bearing liabilities  64,271           5,281         
Stockholders’ Equity  143,868           49,719         
Total liabilities and stockholders’ equity $1,049,279          $490,202         
                         
Net interest rate spread (2)     $5,991   2.36%     $3,377   2.72%
Net interest rate margin (3)          2.43%          2.82%
Ratio of interest-earning assets to interest-bearing liabilities       117.4%          110.19%

(1)
Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.
(2)
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)
Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

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  For the nine months ended 
  September 30, 2021  September 30, 2020 
(Dollars in Thousands) Average Balance  Interest  
Average
Yield/
Cost
  Average Balance  Interest  
Average
Yield/
Cost
 
Assets                  
Interest-earning assets:                  
Interest-earning deposits $198,922  $207   0.14% $36,989  $165   0.59%
Securities  120,952   953   1.05%  10,539   194   2.45%
Loans receivable (1)  539,811   16,240   4.01%  431,330   13,226   4.09%
FHLB stock  3,718   170   6.10%  3,410   128   5.00%
Total interest-earning assets  863,403  $17,570   2.71%  482,268  $13,713   3.79%
Non-interest-earning assets  34,696           10,530         
Total assets $898,099          $492,798         
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Money market deposits $162,230  $463   0.38% $44,853  $277   0.82%
Passbook deposits  69,728   175   0.33%  53,451   224   0.56%
NOW and other demand deposits  165,646   84   0.07%  52,655   12   0.03%
Certificate accounts  183,569   584   0.42%  168,812   2,140   1.69%
Total deposits  581,173   1,306   0.30%  319,771   2,653   1.11%
FHLB advances  104,366   1,516   1.94%  114,234   1,646   1.92%
Junior subordinated debentures  3,113   60   2.57%  4,036   108   3.57%
Other borrowings  47,863   31   0.09%  -   -   - 
Total borrowings  155,342   1 607   1.38%  118,270   1,754   1.98%
Total interest-bearing liabilities  736,515  $2,913   0.53%  438,041  $4,407   1.34%
Non-interest-bearing liabilities  49,696           5,476         
Stockholders’ Equity  111,889           49,281         
Total liabilities and stockholders’ equity $898,099          $492,798         
                         
Net interest rate spread (2)     $14,657   2.19%     $9,306   2.45%
Net interest rate margin (3)          2.26%          2.57%
Ratio of interest-earning assets to interest-bearing liabilities       117.2%          110.10%

(1)
Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.
(2)
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)
Net interest rate margin represents net interest income as a percentage of average interest-earning assets.
Loan Loss Provision

The Company recorded a loan loss provision of $365 $148thousand for the three months ended September 30, 2021 and $446 thousand for the nine months ended September 30, 2021first quarter of  2022 due to growth in the loan portfolio. There was no loan loss provision during the first quarter of 2021. No loan charge-offs were recorded during the three monthsfirst quarter of 2022 or the nine months ended September 30, 2021. The Allowance for Loan and Lease Losses (“ALLL”) increased to $3.7$3.5 million as of September 30, 2021March 31, 2022 compared to $3.2$3.4 million as of December 31, 2020.
352021.
The Bank did not record a loan loss provision or recapture during the three months ended September 30, 2020, but a loan loss provision of $29 thousand and a loan loss recapture of $4 thousand were recorded during the nine months ended September 30, 2020. Due to economic uncertainty related to the COVID-19 Pandemic, the Bank maintained its ALLL at $3.2 million as of September 30, 2020 despite a net decrease of $36.1 million in loans held for investment portfolio during the nine months ended September 30, 2020.  No loan charge-offs were recorded during the three months or the nine months ended September 30, 2020.
Non-interest Income

Non-interest income for the thirdfirst quarter of 20212022 totaled $609$280 thousand, compared to $206$123 thousand for the thirdfirst quarter of 2020.  Non-interest income increased due to $217 thousand in CDFI grant income recognized during the third quarter. No grant income was recorded during the third quarter of 2020. Other non-interest income during the third quarter of 2021 also included $154 thousand in management fees related to New Market Tax Credit projects managed by City First Bank in Washington, D.C.  No gain on the sale of loans was recorded during the third quarter and first nine months of 2021 compared to gains of $76 thousand recorded during the third quarter of 2020 and $199 thousand during the first nine months of 2020.

For the first nine months of 2021, non-interest income totaled $2.9 million compared to $645 thousand for the same period in the prior year.2021.  The increase of $2.3 million in non-interest income was primarily due to the grant of $1.8 millionfees earned from the CDFI Fund recognized inremaining  New Market Tax Credit ventures on the second quarterbooks of 2021, grant income of $217 thousand recognized in the third quarter, and management fees of $307 thousand related to the NMTC projects managed by City First Bank and an increase in Washington, D.C.ATM exchange fees.

Non-interest Expense

Non-interestTotal non-interest expense for the third quarter of 2021 totaledwas $6.0 million, compared to $3.7 million for the thirdfirst quarter of 2020.2022, compared to $8.6 million for the first quarter of 2021.  The increase of $2.3 milliondecrease in non-interest expense during the third quarter of 2021 compared to the same quarter of 2020 was primarily due to non-recurring compensation costs and professional services fees associated with the inclusionCFBanc merger on April 1, 2021, partially offset by higher information services costs.  Compensation costs and professional services fees decreased by $1.8 million and $1.6 million, respectively, during the first quarter of non-interest expenses of2022 compared to the acquired operations of the Bank.  In addition, non-interest expense for the thirdfirst quarter of 2021, included $359while information services costs increased by $624 thousand.  In addition, during the first quarter of 2022 the Company recorded $109 thousand in one-time costs associated with the data processing conversion and $131 thousand in amortization of expense to amortize the core deposit intangible asset that was recorded in connection with the Merger.

For the first nine months of  2021, non-interest expense totaled $20.0 million, compared to $10.3 million for the same period in the prior year.  The increase of $9.7 million in non-interest expense was primarily due to Merger-related expenses of $5.6 million and data processing conversion expenses of $359 thousand during the first nine months of 2021, as well as the inclusion of non-interest expenses of the acquired operations of the Bank.

Income Tax Expense or Benefit

Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21%.  State taxes are recorded at the State of California tax rate and apportioned based on an allocation schedule to reflect that a portion of the Bank’s operations are conducted in the Washington, D.C. area.  The Company recorded income tax expense of $51 $363thousand during the thirdfirst quarter of 2022, representing an effective rate of 19.8%27.0%, and a tax benefit of $297 thousand$2.2 million during the first nine monthsquarter of 2021, representing an effective tax rate of 10.4%38.4%. Income tax expense for the first nine months of 2021 includes a $369 thousand valuation allowance on the Company’s deferred tax assets to record the write down of the tax benefits from net operating losses for the State of California, net of the federal tax benefit.  This change in the valuation allowance was required because the shares of common stock issued in the private placements that closed a few days after the Merger triggered a limitation on the use of net operating loss carryforwards.
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Financial Condition

Total Assets

Total assets increased by $580.2$37.6 million to $1.064$1131 billion at September 30, 2021March 31, 2022 from $483.4$1.094 billion million at December 31, 2020.  The increase in total assets was2021, primarily due to the Merger, which increased totalgrowth in cash and cash equivalents of $14.6 million, growth in investment securities available-for-sale of $13.9 million,  a net increase in loans held for investment of $4.9 million, growth in other assets by $501.2of $3.5 million and $82.8 milliona net increase in the deferred tax asset growth since the merger.of $2.2 million.
 
Securities Available-For-Sale

Securities available-for-sale totaled $157.6$170.3 million at September 30, 2021,March 31, 2022, compared with $10.7$156.4 million at December 31, 2020.2021. The $146.9$13.9 million of increase in securities available-for-sale during the ninethree months ended September 30, 2021March 31, 2022 was primarily due to the addition of $150.0 million of securities as a result of the CFBanc Merger, as well as additional purchases of securities of $10.0$26.9 million. These increases were partially offset by net amortizations and paydowns of investment securities of $12.7$4.7 million.

Loans Receivable

Loans receivable increased by $282.1$4.9 million during the first nine monthsquarter of 20212022 primarily due to loansloan originations in excess of $225.9 million acquired in the Merger on April 1, 2021. Since the merger, thepayoffs. The Bank originated $103.1$41.5 million multi-family loans, $23.4$2.9 million of commercial real estate loans, $26.5$9.5 million in PPPof commercial loans $16.1 millionand $756 thousand in construction loans and $4.2 million of other loans. Loan advances on pre-existing construction loans totaled $6.5 million. Loan payoffs and repayments sincetotaled $56.9 million during the merger totaled $120.8 million.first quarter of 2022, of which $33 million were PPP loans.

 Allowance for Loan Losses

As a smaller reporting  company as defined by the SEC, the Company is not required to adopt the current expected credit losses (“CECL”)CECL accounting standard until 2023; consequently, the Bank’s ALLL is based on probable incurred losses at the date of the consolidated balance sheet,statement of financial position, rather than projections of future economic conditions over the life of the loans.  In determining the adequacy of the ALLL within the context of the current uncertainties posed by the COVID-19 Pandemic, management has considered the historical and current performance of the Company’s portfolio, as well as various measures of the quality and safety of the portfolio, such as debt servicing and loan-to-value ratios.  Management is continuing to monitor the loan portfolio and regularly communicating with borrowers to determine the continuing adequacy of the ALLL.

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We record a provision for loan losses as a charge to earnings, when necessary, in order to maintain the ALLL at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio.  At least quarterly we assess the overall quality of the loan portfolio and general economic trends in the local markets in which we operate.  The determination of the appropriate level for the allowance is based on these reviews, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.
 
The ALLL was $3.7$3.5 million or 0.57%0.54% of gross loans held for investment at September 30, 2021,March 31, 2022, compared to $3.2$3.4 million, or 0.88%0.52% of gross loans held for investment, at December 31, 2020.  The decrease in the ALLL as a percentage of gross loans is because there is no ALLL associated with the loans acquired in the merger.2021.  The increase in the dollar amount of ALLL during the nine months ended September 30, 2021first quarter of  2022 was the result of additional loan loss provisions due to loan growth during the period.
 
As of September 30, 2021,March 31, 2022, loan delinquencies totaled $249 thousand,$2.9 million, compared to $0$2.4 million at December 31, 2020.  None of these loans were2021.  No loan was greater than 90 days delinquent. The slight increase in delinquenciesThere was due to one commercial real estate loan acquired in the merger.that was 30 days delinquent as of March 31, 2022 and one commercial real estate loan to a different borrower that was 84 days delinquent as of December 31, 2021.
37
Non-performing loans (“NPLs”)(NPLs) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status.  At September 30, 2021,March 31, 2022, NPLs totaled $709 $653thousand, compared to $787$684 thousand at December 31, 2020.  2021.  The decrease of $78 thousand in NPLs during the ninethree months ended September 30, 2021March 31, 2022 was due to loan repayments. The Bank diddid not have any real estate owned from foreclosures (“REO”)(REO) at September  30, 2021March 31, 2022 or December 31, 2020.2021.
 
In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as lack of current financial information and an insufficient period of satisfactory performance.  As of September 30, 2021, March 31, 2022 and December 31, 2022, all our non-performing loans were current in their payments.  Also, in determining the ALLL, we evaluate the ratio of the ALLL to NPLs, which was 516.4%541.96% at September 30, 2021March 31, 2022 compared to 408.5%495.8% at December 31, 2020.2021.
 
When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends in loan charge-offs.  There have been no loan charge-offs since 2015.  In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every twelve months.  If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-offcharge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs.  Therefore, certain losses inherent in our total NPLs are recognized periodically through charge-offs.  The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans.
 
There were no recoveries or charge-offs recorded during the nine months ended September 30, 2021 compared to $4 thousand in recoveries recorded during the nine months ended September 30, 2020.first quarter of  2022 or 2021.
 
Impaired loans at September 30, 2021March 31, 2022 were $3.7$2.2 million, compared to $4.7$2.3 million at December 31, 2020.2021.  The  decrease of $1.0 million$52 thousand in impaired loans during the nine months ended September 30, 2021first quarter of  2022 was primarily due to loan repayments.  Specific reserves for impaired loans were $30$7 thousand, or 0.82%0.31% of the aggregate impaired loan amount at September 30, 2021,March 31, 2022, compared to $141$7 thousand, or 2.98%0.30% of the aggregate impaired loan amount at December 31, 2020.2021.
 
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) was signed into law by Congress. The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to Troubled Debt Restructurings (“TDR’s”) for a limited period of time to account for the effects of COVID-19.  In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, ninethree months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.  The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.
 
The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, two borrowers have requested applications, but no applications for loan modifications have been formally submitted. Both borrowers were current at the time the modification program was implemented.  To date, no modifications have been granted.
 
We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of September 30, 2021,March 31, 2022, but because of the current uncertainties posed by the COVID-19 Pandemic and other economic uncertainties, there can be no assurance that actual losses will not exceed the estimated amounts.  In addition, the OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ALLL as an integral part of their examination process.  These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

3825
Office Properties and Equipment
Net office properties and equipment increased by $6.6 million to $9.2 million at September 30, 2021 from $2.5 million as of December 31, 2020.  The large increase was due to the result of the merger, as CFBanc owned the land and building that in which it operates its headquarters and branch. Office properties and equipment, net increased by $7.0 million as of the date of the merger.
Goodwill and Intangible Assets

As a result of the merger,Merger, the Company recorded $26.0 million of goodwill and $3.3 million of core deposit intangible assets. Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.

Goodwill decreased by $138 thousand from $26.0 million to $25.9 million due to a recalculation of deferred taxes on the assets and liabilities acquired as of the merger date.

The core deposit intangible asset is amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.years, with 9 years remaining as of March 31, 2022. During the ninethree months ended September 30, 2021,March 31, 2022, the Company recorded $262$109 thousand of amortization expense related to the core deposit intangible.

No impairment charges were recorded during 2021 forthe three months ended March 31, 2022 related to goodwill or the core deposit intangible.

Total Liabilities

Total liabilities increased by $463.0$42.4 million to $920.2$994.8 million at September 30, 2021March 31, 2022 from $434.5$952.4 million at December 31, 2020.  The increase2021, largely due to growth in total liabilities was largely the result of liabilities assumed in the CFB merger, plus additional activity since the merger date.deposits.

Deposits

Deposits increased by $51.6 million to $749.6$839.7 million at September 30, 2021March 31, 2022 from $315.6$788.1 million at December 31, 2020, due2021, which consisted of increases of $76.0 million in ICS deposits (ICS deposits are the Bank’s own money market accounts in excess of FDIC  insured limits whereby the Bank makes reciprocal arrangements for insurance with other banks), $6.4 million in CDARS deposits (CDARS deposits are similar to ICS deposits, but involve certificates of $353.7deposit instead of money market accounts), and $1.3 million that were assumed in the Merger and additional growthother certificates of deposit accounts.  The above increases in deposits were offset by a decrease of $83.6$32.1 million since the Merger, primarily in liquid deposits (NOW, demand, money market, and demand deposit accounts.

Singlepassbook accounts).  Five customer relationships accounted for approximately 9% and 13%26% of our deposits at September 30, 2021 and DecemberMarch 31, 2020, respectively.2022. We expect to maintain these relationships for the foreseeable future.

Borrowings

Total borrowings increased by $44.1at March 31, 2022 consisted of advances to the Bank from the FHLB of $73.0 million, repurchase agreements of $56.0 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million compared to $157.9advances to the Bank from the FHLB of $86.0 million, repurchase agreements of $52.0 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million as of December 31, 2021.

Balances of outstanding FHLB advances decreased to $73.0 million at September 30, 2021 from $113.8March 31, 2022, compared to $86.0 million at December 31, 2020. The increase consisted2021 due to the payoff of the addition of $77.1 million of  borrowings assumed at the merger date, and decreases of $10.0$13.0 million in short term borrowings, payoffs of $22.7 million inadvances that matured during the year.  The weighted average rate on FHLB advances and payoffsdecreased to 1.66% at March 31, 2022, compared to 1.85% at December 31, 2021 due to the maturity of subordinated debt of $3.1 million. 
39higher rate advances.

The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets.  As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities assetavailable-for-sale accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. The outstanding balance of these borrowings totaled $52.9$59.0 million and $52.0 million as of September 30, 2021. There were no such borrowings as ofMarch 31, 2022 and December 31, 2020.  2021, respectively, and the interest rate was 0.10% during both periods. These agreements mature on a daily basis. As of March 31, 2022, securities with a market value of $61.9 million were pledged as collateral for securities sold under agreements to repurchase and included $22.3 million of U.S. Government Agency securities, $33.5 million of mortgage-backed securities, $4.1 million of federal agency CMO and $2.0 million of SBA Pool securities. The market value of securities pledged totaled $71.4$53.2 million as of September 30,December 31, 2021 and included $23.4$13.3 million of U.S. Government Agency securities $43.8and $39.9 million of mortgage-backed securities.

26
One relationship accounted for 74% of our balance of securities and $4.2 million of collateralized mortgage obligations. The weighted average rate paid on repurchasesold under agreements was 0.10% for the three months ended September 30, 2021.
Agreements to sell securities subject to obligations to repurchase with a single customer totaled $34.7 million as of September 30, 2021. There were no such agreements as of DecemberMarch 31, 2020.2022. We expect to maintain these relationshipsthis relationship for the foreseeable future.

Borrowings
In connection with the New Market Tax Credit activities of the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This CDE acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a QALICB. The loan to the QALICB is secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the FHLB totaled $91.1 million asQALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee. The financial statements of September 30, 2021 at a weighted average interest rateCFC 45 are consolidated with those of 1.91% at September 30, 2021, compared with borrowings of $110.5 million at a rate of 1.94% at December 31, 2020. The Company has not been renewing FHLB advances since the merger.Bank and the Company.
The Company paid off its Junior Subordinated Debt in September of 2021. The balance outstanding as of December 31, 2020 was $3.3 million.

Stockholders’ Equity

Stockholders’ equity was $143.3$136.2 million, or 13.48%12.04% of the Company’sBroadway’s total assets, at September 30, 2021,March 31, 2022, compared to $48.9$141.0 million or 10.1%12.89% of the Company’sBroadway’s total assets, at December 31, 2020.2021.  The Company issued $63.3decrease in total stockholders’ equity was primarily due to an increase of $5.7 million in common stockunrealized loss on available-for-sale securities, net of taxes, which resulted from increases in market interest rates that adversely affected the value of the securities portfolio during the first quarter of 2022.  There was no deterioration in the credit quality of the investment portfolio during the first quarter of 2022.

At March 31, 2022, CBLR was 9.45% compared to 9.32% as of December 31, 2021.  The increase in CBLR was due to growth in the Bank’s net earnings.

During the first quarter of 2022 the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3 million, plus accrued dividends, for 1,193,317 shares of Class A Common Stock at aan exchange price of $2.51 per share of $2.49 and $3.0 million in preferred stock in connection with the merger.Class A Common Stock.  In addition, during the quarter the Company raised $30.9 million in net proceedsissued 542,449 shares of Class A Common Stock to directors, executive officers, and certain employees, including 495,262 shares of restricted stock to executive officers and certain employees, which vest over periods ranging from the sale36 months to 60 months, and 47,187 shares of commonunrestricted stock in private placements immediately following the merger on April 6, 2021.to directors which vested immediately. 

The Company’s book value was $1.96 per share at September 30, 2021, and its tangible book value was $1.55$1.85 per share as of September 30, 2021 after adjustingMarch 31, 2022 compared to $1.92 per share as of December 31, 2021. The decrease in book value per share during the first quarter of 2022 was primarily due to an increase in unrealized losses on available for sale securities.
Tangible book value per common share is a non-GAAP measurement that excludes goodwill of $26.0 million and the net unamortized core deposit intangible of $3.1 million,asset, which were both originally recorded in connection with the merger.Merger.  The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s financial condition and operational performance. A reconciliation between book value and tangible book value per common share was $1.74 per shareis shown as of December 31, 2020.follows:
A capital contribution of $20 million was made from the Company to the Bank in June of  2021.  The Bank (City First Bank, N.A.) elected to adopt the CBLR as of April 1, 2020 as reflected in its September 30, 2020 Call Report. The Bank’s CBLR was 9.41% at September 30, 2021.
Prior to the Merger, the Company’s former subsidiary, Broadway Federal Bank, f.s.b., did not elect to adopt the CBLR and reported a Total Capital ratio of 20.20% and a Leverage ratio of 9.54% at December 31, 2020.
40
  Common Equity Capital  Shares Outstanding  Per Share Amount 
  (Dollars in thousands) 
          
March 31, 2022:         
Common book value $136,213   73,504,185  $1.85 
Less:            
Goodwill  25,858         
Net unamortized core deposit intangible  2,827         
Tangible book value $107,541   73,504,185  $1.46 
             
December 31, 2021:            
Common book value $138,000   71,768,419  $1.92 
Less:            
Goodwill  25,996         
Net unamortized core deposit intangible  2,936         
Tangible book value $109,068   71,768,419  $1.52 

Liquidity

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis.  The Bank’s sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities.  The Bank is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.  This approved limit and collateral requirement would have permitted the Bank to borrow an additional $16.9$13.6 million at September 30, 2021March 31, 2022 based on pledged collateral.  In addition, the Bank had additional lines of credit of $11.0 million with other financial institutions as of that date.

27
The Bank’s primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating expenses.  Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank invests in federal funds with the Federal Reserve Bank or in money market accounts with other financial institutions.  The Bank’s liquid assets at September 30, 2021March 31, 2022 consisted of $208.7$246.1 million in cash and cash equivalents and $49.7$82.5 million in securities available-for-sale that were not pledged, compared to $96.1$231.5 million in cash and cash equivalents and $10.7$52.4 million in securities available-for-sale that were not pledged at December 31, 2020.  The increases were due to liquid assets acquired in the CFBanc Merger.2021.  Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future. The increase in liquid assets during the first quarter of 2022 resulted from an increase in deposits.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed in August 2013, October 2014, December 2016, and April 2021 and dividends received from the Bank in 2021 and 2020.  The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

TheOn a consolidated basis, the Company recorded consolidated net cash inflowsoutflows from operating activities of $3.9$1.8 million during the ninethree months ended September 30, 2021,March 31, 2022, compared to consolidated net cash outflows from operating activities of $39.8$2.1 million during the ninethree months ended September 30, 2020.March 31, 2021.  Net cash inflows from operating activities during the ninethree months ended September 30, 2021March 31, 2022 were primarily attributable to increases in accrued liabilities,other assets, whereas net cash outflows from operating activities for the ninethree months ended September 30, 2020March 31, 2021 were primarily due to originations of loans receivable held for sale of $118.6 million,reductions in deferred tax assets and other assets, offset primarily by proceeds from sales of loans receivable held for sale of $77.6 million.an increase in accrued expenses and other liabilities.

The Company recorded consolidated net cash inflowsoutflows from investing activities of $31.2$26.3 million during the ninethree months ended September 30, 2021,March 31, 2022, compared to consolidated net cash inflowsoutflows from investing activities of $35.6$1.9 million during the ninethree months ended September 30, 2020.March 31, 2021.  Net cash inflows from investing activities during the ninethree months ended September 30, 2021March 31, 2022 were primarily due to net cash acquired in the merger with City First Bank N.A.purchases of $84.7 million, net payments oninvestment securities of $12.7 million,  and redemptions of FHLB stock of $1.2 million, offset by cash used to fund new loans receivable held for investment of $57.1$26.9 million. In comparison, cash inflowsoutflows from investing activities million during the ninethree months ended September 30, 2020March 31, 2021 were primarily due to principal payments on loans receivable held for investment, offset by funds used to originate new loans.

The Company recorded consolidated net cash inflows from financing activities of $77.5$42.7 million during the ninethree months ended September 30, 2021,March 31, 2022, compared to consolidated net cash inflowsoutflows from financing activities of $58.3$4.0 million during the ninethree months ended September 30, 2020.March 31, 2021.  Net cash inflows from financing activities during the ninethree months ended September 30, 2021March 31, 2022 were primarily attributable to a net increase in deposits of $80.3$51.7 million and proceeds from the sale of stock of $30.8 million. These increases were offset by a net decrease in FHLB advancesincrease of $22.6$4.0 million a decrease in securities sold under agreements to repurchase, net of $7.1 million since the merger, and the payoffrepayments of subordinated debtFHLB advances of $3.3$13.0 million.  During the ninethree months ended September 30, 2020,March 31, 2021, net cash inflowsoutflows from financing activities were primarily due to a net increase$3.3 million decrease in deposits of $27.6 million and net proceeds from FHLB advances of $31.5 million.deposit balances.
41
Capital Resources and Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” As of April 1, 2020, the Bank elected to follow the CBLR guidelines. (See Note 1311 – Regulatory Matters.)

28
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicableapplicable

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. 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, 2021.March 31, 2022.  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, 2021.March 31, 2022.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as noted below.reporting.
We completed the CFBanc Merger during the second quarter of 2021.  (See Note 2 - Business Combination.)  We are currently integrating CFBanc into our operations and internal control processes. As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the CFBanc business, which we expect to complete within one year after the date of acquisition. Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2021 may exclude CFBanc to the extent that they are not yet integrated into our internal controls environment.
42
Inherent Limitations on Effectiveness of Controls

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

4329
PART II.  OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

None

Item 1A.RISK FACTORS

Not Applicableapplicable

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

None
On January 3, 2022, pursuant to an Exchange Agreement, the Company issued 1,193,317 shares of the Company’s Class A Common Stock to the holder of the Company’s Series A Fixed Rate Cumulative Redeemable Preferred Stock (the “Series A Preferred”), with an aggregate liquidation value of $3 million, plus accrued dividends, in exchange for all of the outstanding shares of the Series A Preferred, at an exchange price of $2.51 per share of Class A Common Stock, in a private placement transaction that included accredited investor representations and limitations on transfer, and was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Item 3.DEFAULTS UPON SENIOR SECURITIES

None

Item 4.MINE SAFETY DISCLOSURES

Not Applicableapplicable

Item 5.OTHER INFORMATION

None .

Item 6.EXHIBITS

Exhibit
Number*
 
3.1
Amended and Restated Certificate of Incorporation of Broadway Financial Corporation effective as of April 1, 2021 (Exhibit 3.1 to Form 8-K filed by Registrant on April 5, 2021).
3.2
Bylaws of Registrant (Exhibit 3.2 to Form 8-K filed by Registrant on August 24, 2020)
31.1
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
31.2
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definitions Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (included as Exhibit 101)



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

4430
SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 Broadway Financial Corporation
   
Date: November 15, 2021May 16, 2022By:/s/ Brian Argrett
  Brian Argrett
  Chief Executive Officer
   
Date: November 15, 2021May 16, 2022By:/s/ Brenda J. Battey
  Brenda J. Battey
  Chief Financial Officer


4531