BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021
2020
2021
2020

(In thousands, except per share)

Interest income:
Interest and fees on loans receivable $ 6,296 $ 4,438 $ 16,240 $ 13,226
Interest on available for sale securities 457 59 953 194
Other interest income 156 77 377 293
Total interest income 6,909 4,574 17,570 13,713

Interest expense:
Interest on deposits 446 631 1,306 2,653
Interest on borrowings 472 566 1,607 1,754
Total interest expense 918 1,197 2,913 4,407

Net interest income 5,991 3,377 14,657 9,306
Loan loss provision
365 0 446 29
Net interest income after loan loss provision 5,626 3,377 14,211 9,277

Non-interest income:
Service charges 76 93 205 331
Gain on sale of loans 0 76 0 199
CDFI Grant 217 0 2,043 0
Other 316 37 676 115
Total non-interest income 609 206 2,924 645

Non-interest expense:
Compensation and benefits 3,334 1,909 11,543 5,947
Occupancy expense 392 332 1,327 967
Information services 787 242 1,594 700
Professional services 616 840 3,068 1,675
Supervisory costs
139 0 386 0
Office services and supplies 65 97 219 260
Corporate insurance 47 30 301 94
Amortization of core deposit intangible 131 0 262 0
Other 467 282 1,279 640
Total non-interest expense 5,978 3,732 19,979 10,283

Income (loss) before income taxes 257 (149 ) (2,844 ) (361 )
Income tax expense (benefit) 51 95 (297 ) (300 )
Net income (loss) $ 206 $ (244 ) $ (2,547 ) $ (61 )
Less: Net income attributable to non-controlling interest
24 0 57 0
Net Income (loss) Attributable to Broadway Financial Corporation
$ 182 $ (244 ) $ (2,604 ) $ (61 )

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

Comprehensive (loss) income
$ (278 ) $ (272 ) $ (2,443 ) $ 143

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

	Nine Months Ended September 30,
	2022			2021
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	4,181		$	(2,547	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loan loss provision		592			446
Depreciation		630			198
Net change of deferred loan origination costs		38			457
Net amortization of premiums & discounts on available-for-sale securities		20			705
Amortization of investment in affordable housing limited partnership		–			39
Amortization of purchase accounting marks on loans		(647	)		56
Amortization of core deposit intangible		326			262
Director compensation expense-common stock		84			46
Accretion of premium on FHLB advances		(64	)		(26	)
Stock-based compensation expense		93			368
Valuation allowance on deferred tax asset		–			370
ESOP compensation expense		56			81
Earnings on bank owned life insurance		(32	)		(32	)
Change in assets and liabilities:
Net change in deferred taxes		1,732			(1,162	)
Net change in accrued interest receivable		(95	)		274
Net change in other assets		(391	)		765
Net change in accrued expenses and other liabilities		(1,195	)		3,669
Net cash provided by operating activities		5,328			3,969

Cash flows from investing activities:
Cash acquired in merger		–			84,745
Net change in loans receivable held for investment		(74,155	)		(57,143	)
Principal payments on available-for-sale securities		13,850			12,662
Purchase of available-for-sale securities		(215,500	)		(10,098	)
Purchase of FHLB stock		(332	)		(152	)
Proceeds from redemption of FHLB stock		1,431			1,243
Purchase of office properties and equipment		(816	)		(119	)
Proceeds from disposals of office properties and equipment		–			3
Net cash (used in) provided by investing activities		(275,522	)		31,141

Cash flows from financing activities:
Net change in deposits		(19,541	)		80,294
Net change in securities sold under agreements to repurchase		13,447			(7,069	)
Proceeds from sale of stock (net of costs)		–			30,837
Proceeds from issuance of preferred stock		150,000			–
Dividends paid on preferred stock		(15	)		(30	)
Distributions to non-controlling interest		–			(165	)
Proceeds from FHLB advances		–			5,000
Repayments of FHLB advances		(53,000	)		(27,570	)
Stock cancelled for income tax withholding		–			(514	)
Repayments of junior subordinated debentures		–			(3,315	)
Net cash provided by financing activities		90,891			77,468
Net change in cash and cash equivalents		(179,303	)		112,578
Cash and cash equivalents at beginning of the period		231,520			96,109
Cash and cash equivalents at end of the period	$	52,217		$	208,687

Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,758		$	2,424
Cash paid for income taxes		42			454

Assets acquired (liabilities assumed) in acquisition:
Securities available-for-sale, at fair value	$	–		$	149,975
Loans receivable		–			225,885
Accrued interest receivable		–			1,637
FHLB and FRB stock		–			1,061
Office property and equipment		–			6,953
Goodwill		(138	)		25,966
Core deposit intangible		–			3,329
Other assets		–			2,290
Deposits		–			(353,722	)
FHLB advances		–			(3,166	)
Securities sold under agreements to repurchase		–			(59,945	)
Other borrowings		–			(14,000	)
Deferred taxes		138			(717	)
Accrued expenses and other liabilities		–			(4,063	)
Preferred stock		–			(3,000	)
Common stock		–			(63,257	)

See accompanying notes to unaudited consolidated financial statements.

~~Table of Contents~~

~~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

~~See accompanying notes to unaudited consolidated financial statements.~~

Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated S~~tatements~~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

	Three-Month Period Ended September 30, 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			Unearned ESOP Shares			Treasury Stock			Non-Controlling Interest		Total Stockholders’ Equity
	(In thousands)
Balance at July 1, 2022	$	150,000	$	504	$	257		$	143,427		$	(9,901	)	$	6,470		$	(797	)	$	(5,326	)	$	123	$	284,757
Net income		–		–		–			–			–			1,318			–			–			28		1,346
Release of unearned ESOP shares		–		–		–			(5	)		–			–			16			–			–		11
Restricted stock compensation expense		–		–		–			35			–			–			–			–			–		35
Conversion of non-voting shares into voting shares		–		4		(4	)		–			–			–			–			–			–		–
Other comprehensive loss, net of tax		–		–		–			–			(8,567	)		–			–			–			–		(8,567	)
Balance at September 30, 2022	$	150,000	$	508	$	253		$	143,457		$	(18,468	)	$	7,788		$	(781	)	$	(5,326	)	$	151	$	277,582

Balance at July 1, 2021	$	3,000	$	462	$	281		$	140,125		$	785		$	4,997		$	(861	)	$	(5,326	)	$	32	$	143,495
Net income		–		–		–			–			–			182			–			–			24		206
Preferred shares issued in business combination		–		–		–			–			–			(30	)		–			–			–		(30	)
Release of unearned ESOP shares		–		–		–			17			–			–			17			–			–		34
Common stock cancelled for payment of tax withholding		–		–		–			(66	)		–			–			–			–			–		(66	)
Restricted stock compensation expense		–		1		–			199			–			–			–			–			–		200
Other comprehensive income, net of tax		–		–		–			–			(460	)		–			–			–			–		(460	)
Balance at September 30, 2021	$	3,000	$	463	$	281		$	140,275		$	325		$	5,149		$	(844	)	$	(5,326	)	$	56	$	143,379

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Nine-Month Period Ended September 30, 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			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		–			–			–			–			–			4,130			–			–			51			4,181
Preferred shares issued		150,000			–			–			–			–			–			–			–			–			150,000
Release of unearned ESOP shares		–			–			–			8			–			–			48			–			–			56
Restricted stock compensation expense		–			5			–			88			–			–			–			–			–			93
Stock awarded to directors		–			–			–			84			–			–			–			–			–			84
Conversion of preferred shares to common shares		(3,000	)		12			–			2,988			–			–			–			–			–			–
Conversion of non-voting shares into voting shares		–			28			(28	)		–			–			–			–			–			–			–
Dividends paid on preferred stock		–			–			–			–			–			(15	)		–			–			–			(15	)
Other comprehensive loss, net of tax		–			–			–			–			(17,917	)		–			–			–			–			(17,917	)
Balance at September 30, 2022	$	150,000		$	508		$	253		$	143,457		$	(18,468	)	$	7,788		$	(781	)	$	(5,326	)	$	151		$	277,582

Balance at January 1, 2021	$	–		$	219		$	87		$	46,851		$	164		$	7,783		$	(893	)	$	(5,326	)	$	–		$	48,885
Net income (loss)		–			–			–			–			–			(2,604	)		–			–			57			(2,547	)
Preferred shares issued in business combination		3,000			–			–			–			–			–			–			–			–			3,000
Dividends paid on preferred stock		–			–			–			–			–			(30	)		–			–			–			(30	)
Common shares issued in business combination		–			140			114			62,839			–			–			–			–			164			63,257
Shares transferred from voting to non-voting after business combination		–			(7	)		7			–			–			–			–			–			–			–
Common shares issued in private placement		–			112			73			30,652			–			–			–			–			–			30,837
Release of unearned ESOP shares		–			–			–			32			–			–			49			–			–			81
Restricted stock compensation expense		–			–			–			361			–			–			–			–			–			361
Stock awarded to directors		–			1			–			45			–			–			–			–			–			46
Stock option compensation expense		–			–			–			7			–			–			–			–			–			7
Common stock cancelled for payment of tax withholding		–			(2	)		–			(512	)		–			–			–			–			–			(514	)
Payment to non-controlling interest		–			–			–			–			–			–			–			–			(165	)		(165	)
Other comprehensive income, net of tax		–			–			–			–			161			–			–			–			–			161
Balance at September 30, 2021	$	3,000		$	463		$	281		$	140,275		$	325		$	5,149		$	(844	)	$	(5,326	)	$	56		$	143,379

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Notes to Unaudited Consolidated Financial Statements~~

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, ~~2020~~2021 (“~~2020~~2021 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, ~~2021~~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,~~14, 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 “2020~~the 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.

~~Table of Contents~~

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Notes to Unaudited Consolidated Financial Statements~~

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 immediately and the amendments may be applied prospectively through December 31, 2022. The estimated financial impact has not yet been determined.

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, ~~“Financial~~Financial 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 ~~purchased~~purchase 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. Management is continuing to work with our vendor on refining the model used for CECL. The implementation committee is meeting regularly to review the data inputs and other factors involved. The estimated financial impact ~~has not yet been~~is still being determined.

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 ~~did~~is 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 ~~its~~whether the fair value option will be elected for any eligible financial assets.

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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 ~~our~~the 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’s~~CFBanc’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 1one 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. G~~oodwill~~Goodwill 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~~is 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.

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

	CFBanc Book Value			Fair Value Adjustments			Fair Value
Assets acquired	(In thousands)
Cash and cash equivalents	$	84,745		$	–		$	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			–
Allowance for loan losses		(2,178	)		2,178			–
		225,176			709			225,885
Accrued interest receivable		1,637			–			1,637
FHLB and FRB stock		1,061			–			1,061
Office properties and equipment		5,152			1,801			6,953
Deferred tax assets, net		890			(1,608	)		(718	)
Core deposit intangible		–			3,329			3,329
Other assets		2,290			–			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			–			59,945
FHLB advances		3,057			109			3,166
Notes payable		14,000			–			14,000
Accrued expenses and other liabilities		4,063			–			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:~~follows (in thousands):

	Acquired Loans
	(In thousands)

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

A component of total loans acquired from CFBanc were loans that were considered to be purchased credit impaired loans (“PCI ~~loans.~~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
Nonaccretable difference (cash flows not expected to be collected)		(634	)
Expected cash flows		1,191
Accretable yield		(346	)
Fair value of acquired loans	$	845

Contractual amounts due
$
1,825

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

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
	September 30, 2021		September 30, 2021
	(Dollars in thousands except per share amounts)
Net interest income	$	5,988		$	17,013
Net income (loss)		179			(3,390	)

Basic earnings per share	$	–		$	(0.05	)
Diluted earnings per share	$	–		$	(0.05	)

Three Months Ended
Nine Months Ended

September 30,
2021

September 30,
2020
September 30, 2021
September 30,
2020

(Dollars in thousands except per share amounts)
Net interest income $ 5,978 $ 5,738 $ 16,988 $ 16,068
Net income (loss) 191 (343 ) (3,348 ) (157 )

Basic earnings per share $ 0.00 $ (0.01 ) $ (0.05 ) $ 0.00
Diluted earnings per share $ 0.00 $ (0.01 ) $ (0.05 ) $ 0.00

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)~~ – 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. ESOP 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			Three Months Ended September 30,				Nine Months Ended September 30,
	(Dollars in thousands, except per share )											2022		2021		2022		2021
												(Dollars in thousands, except share and per share data)
Net income (loss) attributable to Broadway Financial Corporation	$	182	$	(244	)	$	(2,604	)	$	(61	)	$	1,318	$	182	$	4,130	$	(2,604	)
Less net income attributable to participating securities		0		(2)			0			(1)
Less net income (loss) attributable to participating securities													7		–		25		–
Income (loss) available to common stockholders	$	182	$	(242	)	$	(2,604	)	$	(61	)	$	1,311	$	182	$	4,105	$	(2,604	)

Weighted average common shares outstanding for basic earnings (loss) per common share		71,222,869		27,224,344			56,403,545			27,114,022			72,555,282		71,222,869		72,386,900		56,403,545
Add: dilutive effects of unvested restricted stock awards		228,082		0			0			0			408,552		228,082		442,150		–
Weighted average common shares outstanding for diluted earnings (loss) per common share		71,450,951		27,224,344			56,403,545			27,114,022			72,963,834		71,450,951		72,829,050		56,403,545

Earnings (loss) per common share - basic	$	0.00	$	(0.01	)	$	(0.05	)	$	0.00		$	0.02	$	–	$	0.06	$	(0.05	)
Earnings (loss) per common share - diluted	$	0.00	$	(0.01	)	$	(0.05	)	$	0.00		$	0.02	$	–	$	0.06	$	(0.05	)

Stock options for 450,000 shares of common stock for the nine months ended September 30, 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 0no unvested restricted stock awards outstanding during the three months ended September 30, 2021.

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~~dates indicated and the corresponding amounts of unrealized gains and losses ~~that~~which 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:
September 30, 2022:
Federal agency mortgage-backed securities		$	81,943	$	506	$	(84	)	$	82,365	$	90,333	$	7	$	(11,749	)	$	78,591
Federal agency CMO			5,509		0		(31	)		5,478
Federal agency collateralized mortgage obligations (“CMO”)												26,435		4		(1,587	)		24,852
Federal agency debt			35,724		348		(11	)		36,061		56,641		38		(4,475	)		52,204
Municipal bonds			4,906		33		(6	)		4,933		4,874		–		(747	)		4,127
U. S. Treasuries			18,180		0		(13	)		18,167
U.S. Treasuries												165,735		–		(5,550	)		160,185
SBA pools			10,676		40		(92	)		10,624		14,540		13		(1,767	)		12,786
Total available-for-sale securities		$	156,938	$	927	$	(237	)	$	157,628	$	358,558	$	62	$	(25,875	)	$	332,745
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		–		(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

~~Table of Contents~~

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Notes to Unaudited Consolidated Financial Statements~~

AtAs of September 30, ~~2021, the Bank had 13 (13)~~2022, investment securities with a market value of $70.0 million were pledged as collateral for securities sold under agreements to repurchase and included $34.2 million of U.S. Government Agency securities, $29.4 million of mortgage-backed securities, $5.6 million of SBA pool securities and $829 thousand of federal agency ~~debt~~CMO. As of December 31, 2021, investment securities with a ~~total amortized cost of $35.7 million, estimated total fair~~market value of ~~$36.1~~$53.2 million were pledged as collateral for securities sold under agreements to repurchase and ~~an estimated average remaining life~~included $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-backed~~debt, $9.8 million of SBA pool securities, ~~with a total amortized cost~~and $4.2 million 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~~federal agency CMO. (See Note 7 – Borrowings). There were no 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, 2022 or December 31, 2021.

At September 30, 2022, and December 31, 2021, ~~consisted~~there were no holdings of ~~NaN~~ securities ~~(145) with~~by any one issuer, other than the U.S. Government and its agencies, in an ~~estimated average remaining life~~amount greater than 10% of ~~4.0 years. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.~~stockholders’ equity.

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The amortized cost and estimated fair value of all investment securities available-for-sale at September 30, ~~2021,~~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
	(In thousands)										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
											(In thousands)
Due in one year or less		$	1,019	$	1	$	(11	)	$	1,009	$	1,000	$	–	$	–		$	1,000
Due after one year through five years			30,034		128		(13	)		30,149		221,154		6		(9,476	)		211,684
Due after five years through ten years			20,453		166		(6	)		20,613		64,541		44		(5,934	)		58,651
Due after ten years ⁽¹⁾			105,432		632		(207	)		105,857		71,863		12		(10,465	)		61,410
		$	156,938	$	927	$	(237	)	$	157,628	$	358,558	$	62	$	(25,875	)	$	332,745

⁽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~~table below indicates the length of time individual securities ~~with unrealized losses of $237 thousand at September 30, 2021. NaNne of these securities has~~had been in a continuous unrealized 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.position:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2022:
Federal agency mortgage-backed securities	$	63,620	$	(9,388	)	$	14,666	$	(2,361	)	$	78,286	$	(11,749	)
Federal agency CMOs		20,313		(855	)		3,709		(732	)		24,022		(1,587	)
Federal agency debt		37,646		(3,496	)		8,916		(979	)		46,562		(4,475	)
Municipal bonds		3,193		(581	)		934		(166	)		4,127		(747	)
U. S. Treasuries		143,707		(3,893	)		16,478		(1,657	)		160,185		(5,550	)
SBA pools		3,889		(393	)		6,846		(1,374	)		10,735		(1,767	)
Total unrealized loss position investment securities	$	272,368	$	(18,606	)	$	51,549	$	(7,269	)	$	323,917	$	(25,875	)

December 31, 2021:
Federal agency mortgage-backed securities	$	65,456	$	(498	)	$	–	$	–		$	65,456	$	(498	)
Federal agency debt		25,413		(269	)		–		–			25,413		(269	)
Municipal bonds		2,349		(23	)		–		–			2,349		(23	)
U. S. Treasuries		17,950		(218	)		–		–			17,950		(218	)
Total unrealized loss position investment securities	$	111,168	$	(1,008	)	$	–	$	–		$	111,168	$	(1,008	)

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, 2021 and December 31, 2020, 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.~~

~~Table of Contents~~

~~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			September 30, 2022			December 31, 2021
	(In thousands)						(In thousands)
Real estate:
Single family	$	50,880		$	48,217		$	30,781		$	45,372
Multi-family		383,401			272,387			459,234			393,704
Commercial real estate		98,411			24,289			91,576			93,193
Church		15,057			16,658			16,683			22,503
Construction		21,076			429			57,845			32,072
Commercial – other		47,306			57			66,516			46,539
SBA loans⁽¹⁾		28,873			0			3,654			18,837
Consumer		12			7			9			–
Gross loans receivable before deferred loan costs and premiums		645,016			362,044			726,298			652,220
Unamortized net deferred loan costs and premiums		843			1,300			1,564			1,526
Gross loans receivable		645,859			363,344			727,862			653,746
Credit and interest marks on purchased loans, net								(1,194	)		(1,842	)
Allowance for loan losses		(3,661	)		(3,215	)		(3,983	)		(3,391	)
Loans receivable, net	$	642,198		$	360,129		$	722,685		$	648,513

⁽¹⁾

Including Paycheck Protection Program (PPP) loans.

⁽¹⁾

~~Including~~Table of Contents

As of September 30, 2022 and December 31, 2021, the commercial loan category above included $2.9 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 0no such acquired loans. The carrying amount of those loans as of September 30, 2022, and December 31, 2021, was as follows:

	September 30, 2021		September 30, 2022		December 31, 2021
	(In thousands)		(In thousands)
Real estate:
Single family	$	558	$	67	$	558
Commercial real estate		221		–		221
Commercial - other		104
Commercial – other				26		104
	$	883	$	93	$	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, ~~2021,~~2022, ~~NaN~~and December 31, 2021, none of the Company’s PCI loans were classified as nonaccrual.

~~Table of Contents~~

~~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~~September~~ 30, ~~2021~~2022: and September 30, 2021:

							Three Months Ended September 30, 2022			Nine Months Ended September 30, 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		$	160		$	883
Additions		0			346
Deduction due to payoffs								(71	)		(810	)
Accretion		(19	)		(38	)		(4	)		(20	)
Balance at the end of the period	$	308		$	308		$	93		$	93

	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
	(In thousands)

Balance at the beginning of the period	$	327	$	–
Additions		–		346
Accretion		19		38
Balance at the end of the period	$	308	$	308

Table of Contents

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																				For the Three Months Ended September 30, 2022
	Single family			Multi- family		Commercial real estate		Church			Construction		Commercial - other		SBA Loans		Consumer		Total		Real Estate
	(In thousands)																				Single Family			Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		Consumer		Total
Beginning balance	$	170		$	2,606	$	227	$	208		$	81	$	4	$	0	$	0	$	3,296	$	120		$	2,278	$	153	$	48	$	221	$	138	$	4	$	2,962
Provision for (recapture of) loan losses		(10	)		325		32		(18	)		35		0		0		1		365		(8	)		641		142		6		187		53		–		1,021
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	$	112		$	2,919	$	295	$	54	$	408	$	191	$	4	$	3,983

	Three Months Ended September 30, 2020
	Real Estate																				For the Three Months Ended September 30, 2021
	Single family		Multi- family		Commercial real estate		Church			Construction		Commercial - other			SBA Loans		Consumer		Total		Real Estate
	(In thousands)																				Single Family			Multi- Family		Commercial Real Estate		Church			Construction		Commercial - Other		Consumer		Total
Beginning balance	$	312	$	2,424	$	169	$	282		$	22	$	6		$	0	$	0	$	3,215	$	170		$	2,606	$	227	$	208		$	81	$	4	$	–	$	3,296
Provision for (recapture of) loan losses		9		1		17		(28	)		0		(1	)		0		2		0		(10	)		325		32		(18	)		35		–		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	$	321	$	2,425	$	186	$	254		$	22	$	5		$	0	$	2	$	3,215	$	160		$	2,931	$	259	$	190		$	116	$	4	$	1	$	3,661

	Nine Months Ended September 30, 2021
	Real Estate																				For the Nine Months Ended September 30, 2022
	Single family			Multi-family		Commercial real estate		Church			Construction		Commercial - other		SBA Loans		Consumer		Total		Real Estate
				(In thousands)																	Single Family			Multi- Family		Commercial Real Estate		Church			Construction		Commercial - Other		Consumer			Total
Beginning balance	$	296		$	2,433	$	222	$	237		$	22	$	4	$	0	$	1	$	3,215	$	145		$	2,657	$	236	$	103		$	212	$	23	$	15		$	3,391
Provision for (recapture of) loan losses		(136	)		498		37		(47	)		94		0		0		0		446		(33	)		262		59		(49	)		196		168		(11	)		592
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	$	112		$	2,919	$	295	$	54		$	408	$	191	$	4		$	3,983

	For the Nine Months Ended September 30, 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		(136	)		498		37		(47	)		94		–		–		446
Recoveries		–			–		–		–			–		–		–		–
Loans charged off		–			–		–		–			–		–		–		–
Ending balance	$	160		$	2,931	$	259	$	190		$	116	$	4	$	1	$	3,661

~~Table of Contents~~

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Notes to Unaudited Consolidated Financial Statements~~

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

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																		September 30, 2022
	Real Estate																		Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other			SBA Loans	Consumer		Total		Single Family		Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		Consumer		Total
	(In thousands)																(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	$	3	$	–	$	–	$	4	$	–	$	–	$	–	$	7
Collectively evaluated for impairment		207		2,433		222		185		22		4		0		1		3,074		109		2,919		295		50		408		191		4		3,976
Total ending allowance balance	$	296	$	2,433	$	222	$	237	$	22	$	4	$	0	$	1	$	3,215	$	112	$	2,919	$	295	$	54	$	408	$	191	$	4	$	3,983
Loans:
Loans individually evaluated for impairment	$	573	$	298	$	0	$	3,813	$	0	$	47	$	0	$	0	$	4,731	$	58	$	268	$	–	$	2,135	$	–	$	–	$	–	$	2,461
Loans collectively evaluated for impairment		47,784		273,566		24,322		12,495		430		9		0		7		358,613		21,607		422,731		40,946		7,030		53,813		30,447		9		576,583
Subtotal																				21,665		422,999		40,946		9,165		53,813		30,447		9		579,044
Loans acquired in the Merger																				9,116		37,799		50,630		7,518		4,032		39,723		–		148,818
Total ending loans balance	$	48,357	$	273,864	$	24,322	$	16,308	$	430	$	56	$	0	$	7	$	363,344	$	30,781	$	460,798	$	91,576	$	16,683	$	57,845	$	70,170	$	9	$	727,862

1612

Table of Contents

	December 31, 2021
	Real Estate
	Single Family		Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		SBA		Total

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	–	$	–	$	4	$	–	$	–	$	–	$	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	$	–	$	1,954	$	–	$	–	$	–	$	2,301
Loans collectively evaluated for impairment		32,599		353,179		25,507		9,058		24,225		3,124		–		447,692
Subtotal		32,664		353,461		25,507		11,012		24,225		3,124		–		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

~~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						September 30, 2022						December 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)												(In thousands)
With no related allowance recorded:
Single family	$	0	$	0	$	-	$	2	$	1	$	-
Multi-family		286		286		-		298		298		-	$	267	$	267	$	–	$	282	$	282	$	–
Church		2,468		1,879		-		2,527		1,970		-		2,049		2,049		–		1,854		1,854		–
With an allowance recorded:
Single family		65		65		3		573		573		88		58		58		3		65		65		3
Church		1,478		1,478		27		1,842		1,842		52		87		87		4		100		100		4
Commercial - other		0		0		0		47		47		1
Total	$	4,297	$	3,708	$	30	$	5,289	$	4,731	$	141	$	2,461	$	2,461	$	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 present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:

	Three Months Ended September 30, 2021				Three Months Ended September 30, 2020				Three Months Ended September 30, 2022				Three Months Ended September 30, 2021
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)								(In thousands)
Single family	$	65	$	4	$	589	$	7	$	60	$	1	$	65	$	4
Multi-family		288		5		305		5		268		5		288		5
Church		3,614		64		3,938		67		2,172		25		3,614		64
Commercial - other		0		0		50		1		–		–		–		–
Total	$	3,967	$	73	$	4,882	$	80	$	2,500	$	31	$	3,967	$	73

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

Table of Contents

	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	63	$	3	$	318	$	14
Multi-family		274		14		292		15
Church		2,197		76		3,710		190
Commercial - other		–		–		18		1
Total	$	2,534	$	93	$	4,338	$	220

~~Table of Contents~~

~~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, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$38~~$51 thousand and ~~$67~~$38 thousand for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 ~~periods~~dates indicated:

	September 30, 2021												September 30, 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	$	–	$	–	$	–	$	–	$	30,781	$	30,781
Multi-family		249		0		0		249		384,996		385,245		4,316		5,864		–		10,180		450,618		460,798
Commercial real estate		0		0		0		0		98,384		98,384		–		–		–		–		91,576		91,576
Church		0		0		0		0		14,728		14,728		–		–		–		–		16,683		16,683
Construction		0		0		0		0		20,907		20,907		–		–		–		–		57,845		57,845
Commercial - other		0		0		0		0		47,306		47,306		41		12		–		53		66,463		66,516
SBA loans		0		0		0		0		28,290		28,290		–		–		–		–		3,654		3,654
Consumer		0		0		0		0		12		12		–		–		–		–		9		9
Total	$	249	$	0	$	0	$	249	$	645,610	$	645,859	$	4,357	$	5,876	$	–	$	10,233	$	717,629	$	727,862

	December 31, 2020												December 31, 2021
	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	$	48,357	$	48,357	$	–	$	–	$	–	$	–	$	45,372	$	45,372
Multi-family		0		0		0		0		273,864		273,864		–		–		–		–		395,230		395,230
Commercial real estate		0		0		0		0		24,322		24,322		–		–		2,423		2,423		90,770		93,193
Church		0		0		0		0		16,308		16,308		–		–		–		–		22,503		22,503
Construction		0		0		0		0		430		430		–		–		–		–		32,072		32,072
Commercial - other		0		0		0		0		56		56		–		–		–		–		46,539		46,539
Consumer		0		0		0		0		7		7		–		–		–		–		18,837		18,837
Total	$	0	$	0	$	0	$	0	$	363,344	$	363,344	$	–	$	–	$	2,423	$	2,423	$	651,323	$	653,746

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

	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021
	(In thousands)				(In thousands)
Loans receivable held for investment:
Single-family residence	$	0	$	1
Church		709		786	$	608	$	684
Total non-accrual loans	$	709	$	787	$	608	$	684

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Table of Contents

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Notes to Unaudited Consolidated Financial Statements~~

There were 0no loans 90 days or more delinquent that were accruing interest as of September 30, ~~2021~~2022 or December 31, ~~2020.~~2021. ~~NaN~~None of the church non-accrual loans were delinquent, but none qualified for accrual status as of the ~~periods~~dates 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,~~2022, loans classified as TDRs totaled ~~$3.7~~$2.0 million, of which ~~$405~~$155 thousand were included in non-accrual loans and ~~$3.3~~$1.9 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, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had 0no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. ~~NaN~~No loans were modified during the ~~three or~~ nine months ended September 30, ~~2021~~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:~~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~~.herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

◾●

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

◾●

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

◾●

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

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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.

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~~dates indicated were as follows:

	September 30, 2021												September 30, 2022
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Total
	(In thousands)												(In thousands)
Single family	$	50,987	$	0	$	0	$	0	$	0	$	0	$	30,422	$	359	$	–	$	–	$	–	$	–	$	30,781
Multi-family		384,897		0		0		348		0		0		448,183		1,735		7,162		3,718		–		–		460,798
Commercial real estate		96,918		0		0		1,466		0		0		90,142		–		–		1,434		–		–		91,576
Church		13,045		641		0		1,042		0		0		14,934		–		–		1,749		–		–		16,683
Construction		20,907		0		0		0		0		0		23,504		34,341		–		–		–		–		57,845
Commercial - other		47,306		0		0		0		0		0
SBA loans		28,290		0		0		0		0		0
Commercial - others														61,426		5,090		–		–		–		–		66,516
SBA														3,022		632		–		–		–		–		3,654
Consumer		12		0		0		0		0		0		9		–		–		–		–		–		9
Total	$	642,362	$	641	$	0	$	2,856	$	0	$	0	$	671,642	$	42,157	$	7,162	$	6,901	$	–	$	–	$	727,862

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

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

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.~~

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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 ~~(See~~(see Note 2 - – Business ~~Combination.)~~Combination), the Company recognized ~~goodwill~~goodwill of $26.0 million and a core deposit intangible of $3.3 million. An assessment of goodwill impairment was performed as of June 30, 2022, in which no impairment was determined. The following table presents the changes in the carrying amounts of goodwill ~~and core deposit intangibles~~ for the ~~three~~ ~~months~~three- and nine-month period ended September 30, ~~2021~~: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			–			–
Change in deferred tax estimate							(138	)		–
Amortization		0		(262	)		–			(326	)
Impairment		0		0
Balance at the end of the period	$	25,996	$	3,067		$	25,858		$	2,610

The carrying amount of the core deposit intangible consisted of the following at September 30, ~~2021:~~2022 (in thousands):

Core deposit intangible acquired	$	3,329
Less: accumulated amortization		(719	)
	$	2,610

(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:~~years (in thousands):

	(In thousands)
2021	$	131
2022		435	$	110
2023		390		390
2024		336		336
2025		315		315
2026				304
Thereafter		1,460		1,155
	$	3,067	$	2,610

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NOTE ~~(9)~~(7) – Borrowings

T~~The~~he 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~~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, 2022 securities sold under agreements to repurchase totaled $65.4 million at an average rate of 0.24%. The market value of pledged totaled $70.0 million as of September 30, 2022, and included $34.2 million of U.S. Government Agency securities, $29.4 million of mortgage-backed securities, $5.6 million of SBA pool securities and $829 thousand of federal agency CMO. 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 ~~$43.8~~and $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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Bank had outstanding ~~Advances~~advances from the FHLB totaling ~~$91.1~~$32.9 million and ~~$110.5~~$86.0 million, respectively. The weighted interest rate was ~~1.91%~~1.34% and ~~1.94%~~1.85% as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The weighted average contractual maturity was 2629 months and 2722 months as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The advances were collateralized by loans with a market value of ~~$176.5~~$146.6 million at September 30, ~~2021.~~2022 and $165.0 million at December 31, 2021. 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. Based on collateral pledged and FHLB stock as of September 30, 2022, the Company was eligible to borrow an additional $101.7 million as of September 30, 2022.

~~Table of Contents~~

~~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 First~~the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This ~~CDE~~community 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 2two 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 nine months. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans and assets acquired through or by transfer of in lieu of foreclosure 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.

2317

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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 September 30, 2022:
Securities available-for-sale:
Federal agency mortgage-backed	$	–	$	78,591	$	–	$	78,591
Federal agency CMO		–		24,852		–		24,852
Federal agency debt		–		52,204		–		52,204
Municipal bonds		–		4,127		–		4,127
U.S. Treasuries		–		160,185		–		160,185
SBA pools		–		12,786		–		12,786

At December 31, 2021:
Securities available-for-sale:
Federal agency mortgage-backed	$	–	$	70,030	$	–	$	70,030
Federal agency CMO		–		9,287		–		9,287
Federal agency debt		–		37,988		–		37,988
Municipal bonds		–		4,915		–		4,915
U.S. Treasuries		–		17,951		–		17,951
SBA pools		–		16,225		–		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, ~~2021~~2022 and ~~2020.~~

~~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.2021.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Bank did 0tnot have any ~~impaired loans~~assets carried at fair value ~~of collateral.~~on a nonrecurring basis.

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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 in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of September 30, ~~2021~~2022 and December 31, ~~2020. This table excludes financial instruments for which the carrying amount approximates fair value.~~2021. 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.

			Fair Value Measurements at September 30, 2021										Fair Value Measurements at September 30, 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	$	52,217	$	52,217	$	–	$	–	$	52,217
Securities available-for-sale		157,628		0		157,628		0		157,628		332,745		–		332,745		–		332,745
Loans receivable held for investment		642,198		0		0		647,988		647,988		722,685		–		–		603,731		603,731
Accrued interest receivables		2,565		206		275		2,084		2,565		3,467		266		849		2,352		3,467
Bank owned life insurance		3,179		3,179		0		0		3,179		3,222		3,222		–		–		3,222

Financial Liabilities:
Deposits	$	749,645	$	0	$	749,645	$	0	$	749,645	$	768,511	$	–	$	682,420	$	–	$	682,420
Federal Home Loan Bank advances												32,888		–		31,581		–		31,581
Securities sold under agreements to repurchase		52,876		0		52,332		0		52,332		65,407		–		62,716		–		62,716
Federal Home Loan Bank advances		91,070		0		92,836		0		92,836
Note payable		14,000		0		0		14,000		14,000		14,000		–		–		14,000		14,000
Accrued interest payable		99		0		99		0		99		186		–		186		–		186

			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	$	–	$	–	$	231,520
Securities available-for-sale		10,698		0		10,698		0		10,698		156,396		–		156,396		–		156,396
Loans receivable held for investment		360,129		0		0		366,279		366,279		648,513		–		–		623,778		623,778
Accrued interest receivables		1,202		60		14		1,128		1,202		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		–		–		3,190

Financial Liabilities:
Deposits	$	315,630	$	0	$	312,725	$	0	$	312,725	$	788,052	$	–	$	754,181	$	–	$	754,181
Federal Home Loan Bank advances		110,500		0		113,851		0		113,851		85,952		–		87,082		–		87,082
Junior subordinated debentures		3,315		0		0		2,798		2,798
Securities sold under agreements to repurchase												51,960		–		51,960		–		51,960
Note payable												14,000		–		–		14,000		14,000
Accrued interest payable		88		0		84		4		88		119		–		119		–		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.

~~Table of Contents~~

~~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. As of September 30, ~~2021, 533,169~~2022, 901,781 shares had been awarded and ~~759,940~~391,328 shares are available under the LTIP.

During ~~the third quarter~~February of 2022 and 2021, the Company issued ~~64,516~~47,187 and 20,736 shares of stock, ~~that vested immediately~~respectively, to its ~~Chief Executive Officer at a cost~~directors under the 2018 LTIP, which were fully vested. The Company recorded $0 and $84 thousand of ~~$200 thousand. As permitted by~~compensation expense during the ~~LTIP, 21,354~~three and nine months ended September 30, 2022, respectively, based on the fair value of ~~these shares were cancelled to pay income taxes. At~~the stock, which was determined using the fair value of the stock on the date of the award. During the three and nine months ended September 30, 2021, ~~0 unvested~~the Company recorded $0 and $46 thousand of stock compensation expense.

During March of 2022, the Company issued 495,262 shares to its 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 no shares issued to officers and employees during 2021. During the three- and nine-month periods ending September 30, 2022, the company recorded $35 thousand and $93 thousand of stock-based compensation expense, respectively. During the three- and nine-month periods ending September 30, 2021, the company recorded $200 thousand and $361 thousand of stock-based compensation expense, respectively, related to awards ~~were outstanding.~~granted prior to 2021.

No stock options were granted during the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

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The following table summarizes stock option activity during the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

	Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020					September 30, 2022					September 30, 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		–			–		–		–
Exercised during period		0		0		0			0		–			–		–		–
Forfeited or expired during period		0		0		(5,000	)		6.00		(200,000	)		–		–		–
Outstanding at end of period		450,000	$	1.62		450,000		$	1.62		250,000		$	1.62		450,000	$	1.62
Exercisable at end of period		450,000	$	1.62		360,000		$	1.62		250,000		$	1.62		450,000	$	1.62

The Company did 0tnot record any stock-based compensation expense related to ~~sto~~ckstock options during the three and nine months ended September 30, ~~2021~~2022 assince these stock options became fully vested and all compensation ~~cost~~expense was recognized in February 2021. For the three and nine months ended September 30, 2021, the Company recorded $0 and $7 thousand expense related to stock ~~options. During the three and~~ ~~nine months ended September~~ ~~30, 2020, the Company recorded $10 thousand and $20 thousand of stock-based compensation expense related to stock~~ options, ~~respectively~~respectively..

Options outstanding and exercisable at September 30, ~~2021~~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
	250,000		$	1.62				250,000	$	1.62
	250,000	3.38 years	$	1.62	$	–		250,000	$	1.62	$	–

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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”) 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~~$11 thousand and ~~$18~~$34 thousand for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$81~~$56 thousand and ~~$50~~$81 thousand for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Shares held by the ESOP were as follows:

	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021
	(Dollars in thousands)				(Dollars in thousands)

Allocated to participants		1,092,033		1,065,275		1,102,583		1,065,275
Committed to be released		0		10,236		–		10,236
Suspense shares		531,682		562,391		491,425		562,391
Total ESOP shares		1,623,715		1,637,902		1,594,008		1,637,902
Fair value of unearned shares	$	1,458	$	1,040	$	555	$	1,040

Unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were ~~$844~~$781 thousand and ~~$893~~$829 thousand at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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

On June 7, 2022, the Company issued 150,000 shares of Senior Non-Cumulative Perpetual Preferred stock, Series C (“Series C Preferred Stock”), for the capital investment of $150.0 million from the U.S. Treasury under the Emergency Capital Investment Program (“ECIP”). ECIP investment is treated as Tier 1 Capital for the regulatory capital treatment.

The Series C Preferred stock may be redeemed at the option of the Company on or after the fifth anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator in accordance with the federal banking agencies’ regulatory capital regulations.

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The initial dividend rate of the Series C Preferred Stock is zero percent for the first two years after issuance, and thereafter the floor dividend rate is 0.50% and the ceiling dividend rate is 2.00%.

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 rate 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.

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 ~~reestablishes~~was 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, 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 ~~periods~~dates 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)
September 30, 2022:
Community Bank Leverage Ratio	$	169,909		14.70	%	$	103,995		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,~~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 ~~December 31, 2020~~September 30, 2022 that would materially adversely change the Bank’s capital classifications. From time to time, wethe Bank may need to raise additional capital to support ~~the Bank’s~~its further growth and to maintain ~~the~~its “well capitalized” status.

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.~~carryforwards. 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.

~~The~~ ~~Company’s tax expense for the nine months ended~~At September 30, ~~2021 included~~2022, the Company maintained a $370 thousand ~~impairment~~valuation 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 1one customer that accounted for approximately 9%17% of its deposits as of September 30, ~~2021.~~2022. The Bank also has a significant concentration of ~~short term~~short-term borrowings from 1one customer that accounted for ~~66%~~79% of the outstanding balance of securities sold under agreements to repurchase as of September30, ~~2021.~~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 our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I ~~Item~~“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 ~~2020~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021. 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 significant~~Critical accounting policies ~~which~~ are ~~essential~~those that involve a significant level of estimation uncertainty and have had or are reasonably likely to ~~understanding MD&A,~~have a material impact on our financial condition or results of operations under different assumptions and conditions. This discussion highlights those accounting policies that management considers critical. All accounting policies are ~~described~~important; however, and therefore you are encouraged to review each of the policies included in Note 1 “Summary of Significant Accounting Principles” of the ~~“Notes~~Notes to Consolidated Financial ~~Statements” and in the “Critical Accounting Policies” section of MD&A~~Statements in our ~~2020~~2021 Form ~~10-K.~~

As10-K to gain a ~~result~~better 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 ~~during~~as follows:

Allowance for Loan Losses

The determination of the ~~nine months ended September 30, 2021. See Note 1 - Basis~~allowance for loan losses (“ALLL”) is considered critical due to the high degree of ~~Financial Statement Presentation~~judgment involved, the subjectivity of the underlying assumptions used, and the potential for changes in the ~~accompanying Notes~~economic environment that could result in material changes in the amount of the ALLL considered necessary. The ALLL 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 ~~Unaudited Consolidated Financial Statements contained~~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 ~~Item 1-- Consolidated Financial Statements (Unaudited)~~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.

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.

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~~COVID-19 Pandemic Impact~~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 ~~continues~~has selected November 30th as the date to ~~monitor~~perform the ~~impact~~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 ~~lingering COVID-19 pandemic on its operations. To date,~~temporary differences between the ~~Bank has~~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 ~~implemented layoffs~~that some or ~~furloughs~~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 ~~employees because~~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 ~~pandemic.~~measurement date.

~~Although~~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 ~~Bank developed plans~~assumptions that market participants would use in pricing an asset or liability.

Fair values are estimated using relevant market information and ~~policies for providing financial relief~~other assumptions, as more fully disclosed in Note 8 of the Notes to ~~borrowers that may experience difficulties in meeting the terms~~Consolidated Financial Statements of ~~their loans, as~~this Quarterly Report on Form 10-Q. Fair value estimates involve uncertainties and matters of ~~September 30, 2021, none of its borrowers had requested loan modifications~~significant judgment regarding interest rates, credit risk, prepayments, and ~~the Bank had no delinquencies related to COVID-19.~~

~~As of September 30, 2021, the Company participated~~other factors, especially in the ~~Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) by way~~absence of ~~its merger with CFBanc Corporation. The Bank has originated $26.5 million~~broad markets for items. Changes in ~~PPP since~~assumptions or in market conditions could significantly affect the ~~merger. No PPP loans were originated during the three months ended September 30, 2021 as the program ended in June of 2021.~~estimates.

Overview

~~The Company~~Broadway Financial Corporation (the “Company”) merged ~~withCFBanc~~with CFBanc Corporation (“CFBanc”) on April 1, ~~2021,~~2022, with Broadway Financial Corporation continuing as the surviving ~~entity.~~entity (the “CFBanc Merger”). 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). The results for the three months ended September 30, 2022 reflect the contribution of the consolidated operations of CFBanc Corporation. Accordingly, results for the ~~third quarter of~~three- and nine-month periods ending September 30, 2022 and for the six months ended September 30,, 2021, include the operations of Broadway Financial Corporation and its subsidiary, City First Bank, National ~~Association. Results for the nine months ended September 30, 2021 include the operations of Broadway Financial Corporation and the~~Association (the “Bank”), whereas 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~~ending March 31, 2021 include the results of Broadway Financial Corporation and its former subsidiary, Broadway Federal Bank, f.s.b., which was merged into City First Bank of D.C., National Association on April 1, 2022.

~~Total assets increased~~The Company closed a private placement of shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series C (“Series C Preferred Stock”), pursuant to a Purchase Agreement with the United States Department of the Treasury (the “Purchaser”) as part of the Emergency Capital Investment Program (“ECIP”), which has provided funding to Minority Depository Institutions and Community Development Financial Institutions to increase access to capital for underserved communities that may have been disproportionately impacted by ~~$580.2~~the economic effects of the COVID-19 pandemic. The Series C Preferred Stock will be classified within stockholders’ equity of the statement of financial condition. Pursuant to the Purchase Agreement, the Purchaser acquired an aggregate of 150,000 shares of Series C Preferred Stock for an aggregate purchase price equal to $150.0 million in cash, which is intended to ~~$1.064 billion~~qualify as Tier 1 Capital. The initial dividend rate of the Series C Preferred Stock is zero percent for the first two years after issuance, and thereafter the floor dividend rate is 0.50% and the ceiling dividend rate is 2.00%. The dividend rate is based on annual change in actual qualified lending relative to a baseline level of qualified lending. The Series C Preferred stock may be redeemed at ~~September 30, 2021 from $483.4 million at December 31, 2020. The increase in total assets was primarily due to assets acquired~~the option of the Company on or after the fifth anniversary of issuance (or earlier in the ~~merger, which increased total assets by $501.2 million for~~event of loss of regulatory capital treatment), subject to the period. The increase in total assets was also due to a net increase in cash of $35.8 million since the merger and an increase in the loan portfolio of $53.8 million since the merger, which was primarily due to loan originations of $173.3 million, net of loan repayments and payoffs of $120.8 million for the nine months ended September 30, 2021.

~~Total liabilities increased by $485.7 million to $920.2 million at September 30, 2021 from $434.5 million at December 31, 2020. The increase in total liabilities primarily consisted~~approval of the ~~assumption of $353.7 million of deposits, $3.2 million of FHLB advances, and $73.9 million of other borrowings~~appropriate federal banking regulator in accordance with 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 million and the junior subordinated debt, which was $3.3 million at December 31, 2020, was fully paid off.

Net income for the third quarter of 2021 increased by $426 thousand compared to the third quarter of 2020 primarily due to an increase of $2.2 million in net interest income after loan loss provision and an increase of $496 thousand in grant and fee income, which were offset by additional operating expenses of $2.2 million due to the combined operations of the two banks after the merger 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.federal banking agencies’ regulatory capital regulations.

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~~For the year-to-date period ended September 30, 2021, the Company reported a net loss of $2.6~~Total assets increased by $76.1 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~~2022 to $1.2 billion at September 30, 2022, primarily due to ~~merger-related~~growth in investment securities available-for-sale of $176.3 million and growth in net loans of $74.2 million, partially offset by a decrease of $179.3 million in cash and cash equivalents. The increase in total assets was largely the result of the proceeds received from the sale of the Series C Preferred Stock, offset by paydowns of borrowings of $39.6 million, deposit outflows of $19.6 million, and the fair value adjustments on the investment securities portfolio of $17.9 million, net of taxes.

Total liabilities decreased by $60.4 million to $892.1 million at September 30, 2022 from $952.4 million at December 31, 2021. The decrease in total liabilities primarily consisted of decreases of $53.1 in FHLB advances, $19.5 million in deposits and $1.2 million in other liabilities, which were partially offset by net increases in securities sold under agreements to repurchase of $13.4 million.

During the third quarter of 2022, we recorded an increase in net interest income of $2.6 million or 43.7% compared to the third quarter of 2021. This increase resulted from an increase in the average balance of interest-earning assets, primarily from the investment of funds from the Bank’s general liquidity. Interest income was also positively impacted by an increase in the average rates earned on interest-earning assets. The Company contributed $75 million of the proceeds from the sale of the Series C Preferred Stock to Bank which reduced the Bank’s multi-family and commercial real estate loan concentration levels.

Partially offsetting these improvements were an increase in loan loss provision of $656 thousand, a decrease in non-interest income of $244 million and an increase in non-interest expenses of ~~$710~~$94 thousand ~~as well as $210 thousand~~during the three months ended September 30, 2022, compared to the same period in ~~higher professional services costs due to actions by a former shareholder.~~

~~Net Interest Income~~

~~Third Quarter of 2021 Compared to Third Quarter of 2020~~

~~Net interest~~2021. Non-interest income for the third quarter of 2021 included a non-recurring benefit of $217 thousand from a grant from the United States Department of the Treasury’s Community Development Financial Institution (“CDFI”) Fund. Non-interest expenses increased during the third quarter of 2022 compared to the third quarter of 2021 primarily due to higher compensation and benefits costs and professional services costs.

For the nine months ended September 30, 2022, the Company reported net income of $4.1 million compared to a net loss of $2.6 million for the nine months ended September 30, 2021. Merger-related costs of $5.6 million were recorded during the nine months ended September 30, 2021, which significantly impacted the results. The Company’s results for the first three and nine months of 2022 reflect the consolidated operations of CFB after the Merger on April 1, 2021.

Results of Operations

Net Interest Income

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Net interest income before loan loss provision for the third quarter of 2022 totaled ~~$6.0~~$8.6 million, representing an increase of $2.6 million, or 43.7%, over net interest income before loan loss provision of ~~$3.4~~$6.0 million for the third quarter of ~~2020.~~2021. The increase resulted from ~~higher~~additional interest income, primarily ~~due to~~generated from growth of ~~$508.1~~$152.9 million in average interest-earning assets during the third quarter of ~~2021~~2022, compared to the third quarter of ~~2020 due to the acquisition of loans, securities, and cash equivalents~~2021. Net interest income in the ~~Merger~~third quarter of 2021 also benefited from a reduction of 16 basis points in the overall rate paid on ~~April 1, 2021.~~average interest-bearing liabilities.

Interest income and fees on loans receivable increased by ~~$1.9~~$224 thousand, or 3.6%, to $6.5 million ~~to $6.0~~for the third quarter of 2022, from $6.3 million for the third quarter of 2021 ~~from $4.4 million for the third quarter of 2020~~ due to an increase of ~~$189.5~~$70.3 million in the average balance of loans receivable, which increased interest income by ~~$1.9 million, and an 8~~$691 thousand, which was offset by a decrease of 29 basis ~~point decrease~~points in the average yield on loans, which decreased interest income by ~~$90~~$467 thousand. During the third quarter interest income and fees on loans, and therefore average yield, were impacted by adjustments to the amortization of the purchase accounting adjustments on loans acquired in the Merger. Also, during the third quarter of 2022 there were fewer prepayments of loans and fewer outstanding Paycheck Protection Program loans, which lowered fee income from loans.

Interest income on securities increased by ~~$398 thousand~~$1.6 million, or 352.7%, for the third quarter of ~~2021,~~2022, compared to the third quarter of ~~2020.~~2021. The increase in interest income on securities primarily resulted from ~~growth~~an increase of $146.9 million in the average balance, which resulted from securities 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 thousand. This increase was partially offset by the effects of a decrease of 114147 basis points in the average interest rate earned on securities, which ~~decreased~~increased interest income by ~~$43~~$901 thousand, and an increase of $156.8 million in the average balance of securities, which increased interest income by $711 thousand. The increase in securities resulted from the investment of funds received from the sale of the Series C Preferred Stock pursuant to the ECIP award. We also made a concerted effort to deploy assets from Fed Funds to higher yielding investment securities.

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Other interest income increased by ~~$79~~$483 thousand, or 309.6%, during the third quarter of ~~2021~~2022 compared to the third quarter of ~~2020~~2021. Interest income on interest-earning cash in other banks increased by $493 thousand primarily due to ~~higher~~an increase of 149 basis points in the average interest rate earned on cash deposits, ~~in other banks~~ which increased interest income by ~~$69~~$539 thousand, and was partially offset by a decrease of $73.1 million in average cash deposits, which decreased interest income by $46 thousand. This net increase was partially offset by a decrease of $10 thousand in dividend income on Federal Home Loan Bank (“FHLB”) and Federal Reserve Board (“FRB”) stock between the two periods.

Interest expense on deposits increased by $28 thousand, or 6.3%, for the third quarter of ~~2021~~2022, compared to the third quarter of ~~2020.~~2021. The increase was attributable to an increase of $96.0 million in the average ~~balance increased by $172.0 million,~~deposits which increased interest income by ~~$85~~$60 thousand. This increase was partially offset by 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, interest income on Federal Reserve Bank (“FRB”) stock and Federal Home Loan Bank (“FHLB”) stock increased by $10 thousand during the third quarter of 2021 compared to the third quarter of 2020.

~~Interest expense for the third quarter of 2021 decreased by $279 thousand compared to the third quarter of 2020 due to~~ a decrease of 662 basis points in the cost of funds. The lower rates paid offset the impact of an increase of $405.9 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.

Interest expense on deposits decreased by $185 thousand for the third quarter of 2021, compared to the third quarter of 2020. The decrease was primarily attributable to a decrease of 54 basis points in the average rate paid on deposits, which caused interest expense on deposits to decrease by ~~$605~~$32 thousand.

Interest expense on borrowings decreased by $326 thousand, or 69.1%, for the third quarter of 2022, compared to the third quarter of 2021. Interest expense on FHLB advances decreased by $329 thousand between the two periods due to a decrease of $58.1 million in the average balance of FHLB advances, which decreased interest expense by $223 thousand, and a decrease of 59 basis points in the average rate paid, which decreased interest expense by $106 thousand. Interest expense on the Company’s junior subordinated debentures decreased by $17 thousand between the two periods because the Company paid off its junior subordinated debentures in the third quarter of 2021. The debentures averaged $2.9 million during the third quarter of 2022 at an average rate of 2.33%. Interest expense on other borrowings increased by $20 thousand between the two periods. The average rate on other borrowings increased by 9 basis points, which increased interest expense by $16 thousand and the average balance increased by $13.4 million, which increased interest expense by $3 thousand.

The net interest margin increased to 3.02% for the third quarter of 2022 from 2.43% for the third quarter of 2021 primarily due to an increase in the volume of interest-earning loans and investments and a decrease in the average rate paid on interest-bearing liabilities of 16 basis points.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Net interest income before loan loss provision for the nine months ended September 30, 2022, totaled $23.8 million, representing an increase of $9.2 million, or 62.5%, over net interest income before loan loss provision of $14.7 million for the nine months ended September 30, 2021. Results for the nine month of 2022 reflect the consolidated operations of CFB after the Merger on April 1, 2021. The increase resulted from additional interest income, primarily generated from growth of $218.7 million in average interest-earning assets for the year-to-date period ending September 30, 2022, compared to the period ending September 30, 2021, due to the addition of loans, securities, and cash equivalents in the Merger, and organic growth subsequent to the Merger. Net interest income in the first nine months of 2022 also benefited from a reduction of 25 basis points in the overall rates paid on interest-bearing liabilities.

Interest income and fees on loans receivable increased by $4.4 million, or 26.9%, to $20.6 million for the first nine months of 2022, from $16.2 million for the first nine months of 2021 due to an increase of $126.7 million in the average balance of loans receivable, which increased interest income by $3.9 million, and an increase of 11 basis points in the average yield on loans, which increased interest income by $458 thousand. The increase in the average balance of loans receivable was primarily the result of the addition of loans in the Merger as well as organic loan growth. In addition, the increase in the average yield on loans receivable for the first nine months of 2022 was primarily the result of higher yields earned on the commercial loan portfolio and, to a lesser extent, higher yields on multi-family loans.

Interest income on securities increased by $2.5 million, or 258.4%, for the first nine months of 2022 to $3.4 million, compared to $953 thousand in the first nine months of 2021. There was an increase of $108.7 million in the average balance of securities which increased interest income by $1.3 million, and an increase in the average interest rate earned on securities of 93 basis points, which increased interest income by $1.2 million. The increase in securities resulted from the investment of funds received from the sale of the Series C Preferred Stock pursuant to the ECIP award. We also made a concerted effort to deploy assets from Fed Funds to higher yielding investment securities.

Other interest income increased by $1.2 million, or 321.5%, during the first nine months of 2022, compared to the first nine months of 2021, primarily due to an increase in the average rate earned on short term investments of 93 basis points, which increased interest income by $1.3 million, and an decrease of $15.5 million in the average balance of interest-earning deposits and other short-term investments, which increased interest income by $17 thousand. Also, dividend income on FHLB and FRB stock decreased by $47 thousand between the two periods due to a decrease in the average balance of FHLB stock.

Total interest expense for the first nine months of 2022 decreased by $1.1 million, or 38.6%, to $1.8 million, compared to $2.9 million during the first nine months of 2021, due to a decrease of 25 basis points in the Company’s cost of interest-bearing liabilities. The lower rates paid offset the impact of an increase of $129.9 million in average interest-bearing liabilities, due to an increase of $162.4 million of interest-bearing deposits, primarily due to the Merger, and an increase of $23.9 million in short term borrowings, partially offset by a decrease of $53.3 million of FHLB advances.

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Interest expense on deposits decreased by $133 thousand, or 10.2%, for the nine months ended September 30, 2022, compared to the same period in 2021. The decrease was primarily attributable to a decrease of 9 basis points in the average rate paid on deposits due to increases in non-interest bearing and lower rate deposits, which caused interest expense on deposits to decrease by $445 thousand. This decrease was partially offset by the effects of an increase of ~~$365.6~~$162.4 million in the average balance of deposits, primarily because of the Merger, which increased interest expense by ~~$420~~$312 thousand.

Interest expense on borrowings decreased by ~~$94~~$990 thousand, or 61.6%, for the ~~third quarter of 2021,~~nine months ended September 30, 2022, compared to the ~~third quarter of 2020.~~nine months ended September 30, 2021. The decrease was attributable to a decrease of 71 basis points in the average borrowing rate, which decreased interest expense by ~~$251~~$704 thousand, ~~offset by an increase~~and a decrease in average borrowings of ~~$40.3~~$32.5 million during the period, which ~~increased~~decreased interest expense by ~~$157~~$286 thousand. The ~~increase in borrowings was due to an increase of $51.7 million~~decrease in the average balance of ~~short term~~ borrowings ~~(securities sold under agreements~~was due to ~~repurchase), offset by~~ a decrease of ~~$24.5~~$53.3 million in average borrowings from the FHLB and a decrease of ~~$860~~$3.1 million in the average balance of the Company’s junior subordinated debentures, ~~during~~which were paid off in the third quarter of 2021, ~~compared to the third quarter of 2020.~~

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The net interest margin decreased to 2.43% for the third 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~~partially offset 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 of ~~$108.5~~$23.9 million in the average balance of loans receivable, primarily resulting from the Merger, which increased interest income by $3.3 million, and a decrease of 8 basis points in the average loan yield, which decreased interest income by $254 thousand.

~~Interest income on~~short-term borrowings (primarily securities ~~increased by $759 thousand for the first nine months of 2021, compared~~sold under agreements 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 yield 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 stock 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 to a decrease of 81 basis points in the average cost 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 depositsrepurchase assumed in the ~~Merger, which increased interest expense by $1.3 million.~~Merger).

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.

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The net interest margin ~~decreased by 31 basis points~~increased to 2.93% for the nine-month period ended September 30, 2022 from 2.26% for the ~~first nine months~~nine-month period ended September 30, 2021, primarily due to an increase in the volume of ~~2021 from 2.57%~~higher yielding loan and investments and a decrease in the average rate paid on interest-bearing liabilities of 25 basis points.

The following tables set forth the average balances, average yields and costs, and certain other information for the ~~same period~~periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans on non-accrual status, but the balance of these loans is included in ~~2020.~~the total average balance of loans receivable, which has the effect of reducing average loan yields.

		For the three months ended														For the Three Months Ended
		September 30, 2021							September 30, 2020							September 30, 2022							September 30, 2021
(Dollars in Thousands)		Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost			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	%	$	141,281	$	594		1.68	%	$	214,366	$	101		0.19	%
Securities			157,142		457		1.16	%		10,242		59		2.30	%		313,983		2,069		2.64	%		157,142		457		1.16	%
Loans receivable (1)			612,755		6,296		4.12	%		423,305		4,438		4.19	%		683,085		6,520		3.82	%		612,755		6,296		4.11	%
FRB and FHLB stock			3,401		55		6.47	%		3,586		45		5.02	%		2,166		45		8.31	%		3,401		55		6.47	%
Total interest-earning assets			987,664	$	6,909		2.80	%		479,539	$	4,574		3.82	%		1,140,515	$	9,228		3.24	%		987,664	$	6,909		2.80	%
Non-interest-earning assets			61,615							10,663							51,845							61,615
Total assets		$	1,049,279						$	490,202						$	1,192,360						$	1,049,279

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits		$	199,577	$	159		0.16	%	$	50,238	$	60		0.48	%	$	180,865	$	271		0.60	%	$	199,577	$	159		0.32	%
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	%
Savings deposits																	70,909		23		0.13	%		74,223		61		0.33	%
Interest checking and other demand deposits																	349,343		66		0.08	%		210,014		37		0.07	%
Certificate accounts			197,746		189		0.07	%		146,469		511		1.40	%		176,433		114		0.26	%		197,746		189		0.38	%
Total deposits			681,560		446		0.26	%		315,919		631		0.80	%		777,550		474		0.24	%		681,560		446		0.26	%
FHLB advances			91,000		440		1.98	%		115,500		538		1.86	%		32,913		111		1.35	%		91,000		440		1.93	%
Junior subordinated debentures			2,923		17		2.67	%		3,783		28		2.96	%		–		–		–	%		2,923		17		2.33	%
Other borrowings			65,657		15		0.09	%		-		-		-			79,025		35		0.18	%		65,657		15		0.09	%
Total borrowings			159,580		472		1.18	%		119,283		566		1.90	%		111,938		146		0.52	%		159,580		472		1.18	%
Total interest-bearing liabilities			841,140	$	918		0.44	%		435,202	$	1,197		1.10	%		889,488	$	620		0.28	%		841,140	$	918		0.44	%
Non-interest-bearing liabilities			64,271							5,281							21,852							64,271
Stockholders’ Equity			143,868							49,719							281,020							143,868
Total liabilities and stockholders’ equity		$	1,049,279						$	490,202						$	1,192,360						$	1,049,279

Net interest rate spread (2)				$	5,991		2.36	%			$	3,377		2.72	%			$	8,608		2.96	%			$	5,991		2.36	%
Net interest rate margin (3)							2.43	%						2.82	%						3.02	%						2.43	%
Ratio of interest-earning assets to interest-bearing liabilities	Ratio of interest-earning assets to interest-bearing liabilities						117.4	%						110.19	%						128.22	%						117.42	%

⁽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 %

	For the Nine Months Ended
	September 30, 2022							September 30, 2021
(Dollars in Thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	183,463	$	1,466		1.07	%	$	198,922	$	207		0.14	%
Securities		229,630		3,416		1.98	%		120,952		953		1.05	%
Loans receivable ⁽¹⁾		666,493		20,603		4.12	%		539,811		16,240		4.01	%
FRB and FHLB stock		2,522		123		6.50	%		3,718		170		6.10	%
Total interest-earning assets		1,082,108	$	25,608		3.16	%		863,403	$	17,570		2.71	%
Non-interest-earning assets		49,624							34,696
Total assets	$	1,131,732						$	898,099

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	195,292	$	654		0.45	%	$	162,230	$	463		0.38	%
Savings deposits		67,125		44		0.09	%		69,728		175		0.33	%
Interest checking and other demand deposits		289,494		147		0.07	%		165,646		84		0.07	%
Certificate accounts		191,684		328		0.23	%		183,569		584		0.42	%
Total deposits		743,595		1,173		0.21	%		581,173		1,306		0.30	%
FHLB advances		51,063		538		1.40	%		104,366		1,516		1.94	%
Junior subordinated debentures		–		–		–	%		3,113		60		2.57	%
Other borrowings		71,751		79		0.15	%		47,863		31		0.09	%
Total borrowings		122,814		617		0.67	%		155,342		1,607		1.38	%
Total interest-bearing liabilities		866,409	$	1,790		0.28	%		736,515	$	2,913		0.53	%
Non-interest-bearing liabilities		55,510							49,695
Stockholders’ Equity		209,813							111,889
Total liabilities and stockholders’ equity	$	1,131,732						$	898,099

Net interest rate spread ⁽²⁾			$	23,818		2.88	%			$	14,657		2.19	%
Net interest rate margin ⁽³⁾						2.93	%						2.26	%
Ratio of interest-earning assets to interest-bearing liabilities						124.90	%						117.23	%

⁽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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Loan ~~Loss Provision~~loss provision

The ~~Company~~Company's bank subsidiary, City First Bank, National Association (the "Bank") recorded a loan loss provision of $1.0 million for the three months ended September 30, 2022, as compared to a loan loss provision of $365 thousand for the ~~three months ended September 30, 2021 and $446 thousand for the nine months~~three-month period ended September 30, 2021 due to growth in the loan ~~portfolio.~~portfolio and increases of $7.2 million in special mention and $4.0 million in substandard loans. For the nine months ended September 30, 2022 and 2021, the Company recorded a loan loss provision of $592 thousand and $446 thousand, respectively. No loan charge-offs were recorded during the three- and nine-month periods ended September 30, 2022 and 2021. The ALLL increased to $4.0 million as of September 30, 2022, compared to $3.4 million as of December 31, 2021.

Non-interest Income

Non-interest income for the three months orended September 30, 2022 totaled $365 thousand compared to $609 thousand for the three months ended September 30, 2021. The decrease of $244 thousand during the three months ending September 30, 2022 was mainly the result of lower grant income recorded from the U.S.Treasury’s Community Development Financial Institutions (“CDFI”) Fund as compared to the three months ended September 30, 2021.

For the nine months ended September 30, ~~2021. The Allowance for Loan and Lease Losses (“ALLL”) increased to $3.7 million as of September 30, 2021 compared to $3.2 million as of December 31, 2020.~~

~~Table of Contents~~

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~~2022, non-interest income ~~for the third quarter of 2021~~ totaled ~~$609~~$907 thousand compared to $206 thousand for the third 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. The increase of $2.3 million in non-interest income was primarily due to the grant of $1.8 million from the CDFI Fund recognized in the second quarter 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 in Washington, D.C.

~~Non-interest Expense~~

Non-interest expense for the third quarter of 2021 totaled $6.0 million, compared to $3.7 million for the third quarter of 2020. The increase of $2.3 million in non-interest expense during the third quarter of 2021 compared to the same quarter of 2020 was primarily due to the inclusion of non-interest expenses of the acquired operations of the Bank. In addition, non-interest expense for the third quarter of 2021 included $359 thousand in one-time costs associated with the data processing conversion and $131 thousand in amortization of the core deposit intangible 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~~decrease of ~~$9.7~~$2.0 million inwas primarily the result of a non-recurring benefit of $2.0 million from a special grant from the U.S. Treasury's CDFI during the nine months ended September 30, 2021.

Non-interest Expense

Total non-interest expense was ~~primarily~~$6.1 million for the third quarter of 2022, compared to $6.0 million for the third quarter of 2021. The increase in non-interest expenses was mainly due to ~~Merger-related~~increases of $106 thousand in compensation and benefits expenses and $245 thousand in professional services expenses. These increases were partially offset by decreases in supervisory/regulatory costs of $135 thousand and information services expenses of ~~$5.6~~$55 thousand, and various other costs.

For the first nine months ended of 2021, non-interest expense totaled $18.3 million, compared to $20.0 million for the same period in the prior year. The decrease of $1.7 million between the periods primarily resulted from decreases in compensation and benefits expenses of $1.2 million and ~~data processing conversion~~professional services expenses of ~~$359~~$885 thousand due to the Merger-related costs included in 2021 results, and to a lesser extent, decreases in corporate insurance and supervisory/regulatory costs. These decreases were partially offset by increases in information services expenses of $770 thousand and higher amortization of the core deposit intangible, which was included in the Company's results for the entire nine-month period during 2022, but only for six months of the nine-month period in 2021. The Company’s results for the first nine months of 2021 ~~as well as~~reflect the ~~inclusion of non-interest expenses of the acquired~~consolidated operations of CFB since the ~~Bank.~~Merger on April 1, 2021.

Income ~~Tax Expense or Benefit~~Taxes

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~~Company’s operations are conducted in the Washington, D.C. area. The Company recorded income tax expense of ~~$51~~$534 thousand ~~during~~for the third quarter ~~representing an effective rate~~ of ~~19.8%,~~2022 and ~~a tax benefit~~$51 thousand for the third quarter of ~~$297 thousand during the first nine months of 2021, representing an~~2021. The effective tax rate for the three-month periods ended September 30, 2022 and 2021, was 28.40% and 19.84%, respectively. The high effective income tax for the third quarter of ~~10.4%.~~2022 reflects changes in the assumptions used to estimate the Company’s annual income tax expense. Income tax expense for the ~~first nine~~three months ended September 30, 2021 also included an increase of ~~2021 includes a $369~~$370 thousand in the valuation allowance on the Company’s deferred tax assets to record ~~the write down of the tax benefits from~~an allowance against net operating ~~losses~~loss carryforwards 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 that the Company issued in ~~the~~ private placements ~~that closed a few days after~~in the ~~Merger~~second quarter of 2021 triggered a limitation on the use of the Company’s net operating loss carryforwards.

For the nine months ended September 30, 2022, income tax expense was $1.7 million, compared to an income tax benefit of $297 thousand for the nine months ended September 30, 2021. The increase in tax expense reflected an increase of $8.7 million in pre-tax income over that period, consisting of $5.8 million in pre-tax income for the nine months ended September 30, 2022, and a pre-tax loss of $2.8 million for the nine months ended September 30, 2021, which reflected Merger-related costs. The effective tax rate was 28.3% during the 2022 period.

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Financial Condition

Total Assets

Total assets increased by ~~$580.2~~$76.1 million to ~~$1.064~~$1.2 billion at September 30, ~~2021~~2022 from ~~$483.4 million~~$1.1 billion at December 31, ~~2020.~~2021. The increase in total assets was primarily due to ~~the Merger, which increased total assets by $501.2 million, and $82.8~~growth in $176.3 million in ~~asset~~investment securities available-for-sale and growth ~~since the merger.~~in net loans of $74.2 million, partially offset by a decrease of $179.3 million in cash and cash equivalents.

Securities Available-For-Sale

Securities available-for-sale totaled ~~$157.6~~$332.7 million at September 30, ~~2021,~~2022, compared with ~~$10.7~~$156.4 million at December 31, ~~2020.~~2021. The ~~$146.9~~$176.3 million of increase in securities available-for-sale during the three and nine months ended September 30, ~~2021~~2022 was primarily due to the ~~addition~~deployment of $15.0 million of the $150.0 million ofECIP funds into securities ~~as a result~~in June. The remainder of the ~~CFBanc Merger, as well as additional purchases of securities of $10.0 million. These increases were~~increase was due to investing liquidity dollars into higher-yielding short-term securities. This increase was partially offset by ~~net amortizations and paydowns~~an increase in accumulated other comprehensive loss of $9.4 million since the end of 2021 due to a decline in the fair value of investment securities available-for-sale, net of ~~$12.7 million.~~taxes. These decreases in the fair values of available-for-sale investment securities during 2022 were the result of increases in market interest rates, which caused the fair value of the Company’s fixed rate investments to decrease. The declines in fair value were not the result of a change in the creditworthiness of any of the issuers of those securities.

Loans Receivable

Loans receivable increased by ~~$282.1~~ $74.2 million during first nine months of 2022 primarily due to loan originations of $141.1million multi-family loans and $62.3 million of commercial real estate loans and commercial loans. Loan payoffs and repayments totaled $132.4million during the first nine months of 2021 primarily due to loans of $225.9 million acquired in the Merger on April 1, 2021. Since the merger, the Bank originated $103.1 million multi-family loans, $23.4 million of commercial real estate loans, $26.5 million in PPP loans, $16.1 million in construction loans and $4.2 million of other loans. Loan repayments since the merger totaled $120.8 million.2022.

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”) accounting standard until 2023; consequently, the Bank’s ALLL is based on probable incurred losses at the date of the consolidated balance sheet, 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.

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~~conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local ~~markets in which we operate.~~market. The determination of the appropriate level for the allowance is based on ~~these reviews,~~that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

The ALLL was ~~$3.7~~$4.0 million or ~~0.57%~~0.55% of gross loans held for investment at September 30, ~~2021,~~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. The increase in the dollar amount of ALLL during the nine months ended September 30, 2021 was the result of additional loan loss provisions due to loan growth during the period.2021.

As of September 30, 2021, loan delinquencies totaled $249 thousand, compared to $0 at December 31, 2020. None of these loans were greater than 90 days delinquent. The slight increase in delinquencies was due to one commercial real estate loan acquired in the merger.

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Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status. At September 30, 2021, NPLs totaled $709 thousand, compared to $787 thousand at December 31, 2020. The decrease of $78 thousand in NPLs during the nine months ended September 30, 2021 was due to loan repayments. ~~The Bank did not have any real estate owned from foreclosures (“REO”) at September 30, 2021 or December 31, 2020.~~

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, 2022 and December 31, 2021, all our non-performing loans were current in their payments. Also, in determining the ALLL, we ~~evaluate~~considered the ratio of the ALLL to NPLs, which was ~~516.4%~~655.1% at September 30, ~~2021~~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-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 either the ~~nine months ended~~three- or nine-month periods ending September 30, ~~2021 compared to $4 thousand in recoveries recorded during the nine months ended September 30, 2020.~~2022 or 2021.

Impaired loans at September 30, ~~2021~~2022 were ~~$3.7~~$2.4 million, compared to ~~$4.7~~$2.3 million at December 31, ~~2020.~~2021. The ~~decrease~~increase of ~~$1.0 million~~$160 thousand in impaired loans ~~during the nine months ended September 30, 2021~~ was primarily due to ~~loan repayments.~~paydowns. Specific reserves for impaired loans were ~~$30~~$7 thousand, or ~~0.82%~~0.28% of the aggregate impaired loan amount at September 30, ~~2021,~~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

Table 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, nine months or less is provided as an example of short-term, and current is defined as lessContents

Delinquent loans greater than 30 days as of September 30, 2022, were $10.2 million as compared to $2.4 million at December 31, 2021. The $4.4 million of loans delinquent 30-59 days as of September 30, 2022 consisted primarily of multi-family loans. The $5.9 thousand of loans delinquent 60-89 days September 30, 2022 consisted primarily of multi-family loans.

Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status. At September 30, 2022, NPLs totaled $608 thousand, compared to $684 thousand at ~~the time the modification program is implemented.~~December 31, 2021. The ~~guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term~~decrease of ~~the modification.~~$76 thousand in NPLs was due to repayments.

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 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,~~2022, but ~~because of the current uncertainties posed by the COVID-19 Pandemic,~~ there can be no assurance that actual losses will not exceed the estimated amounts. ~~In addition, the~~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.

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~~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.

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. During the three and three and nine months ended September 30, 2022, the Company recorded $109 thousand and $326 thousand, respectively, of amortization expense related to the core deposit intangible. During the three- and nine-month periods ending September 30, 2021, the Company recorded $131 thousand and $262 thousand, respectively, of amortization expense related to the core deposit intangible.

As the Company’s stock was recently trading at a discount to tangible book value, an assessment of goodwill impairment was performed as of June 30, 2022, in which no impairment was determined. No impairment charges were recorded during 2022 or 2021 for goodwill or the core deposit intangible.

Total Liabilities

Total liabilities ~~increased~~decreased by ~~$463.0~~$60.4 million to ~~$920.2~~$892.1 million at September 30, ~~2021~~2022 from ~~$434.5~~$952.4 million at December 31, ~~2020. The~~2021, largely due to a decrease in FHLB borrowings and deposits, partially offset by an increase in ~~total liabilities was largely the result of liabilities assumed in the CFB merger, plus additional activity since the merger date.~~securities sold under agreements to repurchase.

Deposits

Deposits ~~increased~~decreased to ~~$749.6~~$768.5 million at September 30, ~~2021~~2022 from ~~$315.6~~$788.1 million at December 31, ~~2020, due~~2021, which consisted of decreases of $29.3 million in CDARS deposits (CDARS deposits are similar to ICS deposits, but involve certificates of ~~$353.7~~deposit instead of money market accounts), decreases of $69.1 million ~~that were assumed~~ in ~~the Merger and additional growth in~~liquid deposits ~~of $83.6 million since the Merger, primarily in~~(NOW, demand, money market, and ~~demand~~passbook accounts) and decreases of $9.8 million in other certificates of deposit ~~accounts.~~

~~Single~~accounts, partially offset by an increase of $88.6 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). One customer ~~relationships~~relationship accounted for approximately ~~9% and 13%~~17% of our deposits at September 30, ~~2021 and December 31, 2020, respectively.~~2022. We expect to maintain ~~these relationships~~this relationship for the foreseeable future.

Borrowings

Total borrowings ~~increased by $44.1~~at September 30, 2022 consisted of advances to the Bank from the FHLB of $32.9 million, repurchase agreements of $65.4 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million compared to ~~$157.9~~advances 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 $32.9 million at September 30, ~~2021 from $113.8~~2022, compared to $86.0 million at December 31, ~~2020. The increase consisted~~2021, due to the early payoff of ~~the addition of $77.1 million of borrowings assumed at the merger date, and decreases of $10.0~~$40.0 million in ~~short term borrowings, payoffs of $22.7 million in~~higher rate advances during the year. The weighted average rate on FHLB advances ~~and payoffs~~decreased to 1.34% at September 30, 2022, compared to 1.85% at December 31, 2021 due to the payoff of ~~subordinated debt of $3.1 million.~~ higher rate advances.

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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 ~~asset~~available-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~~$65.4 million and $52.0 million as of September 30, ~~2021. There were no such borrowings as of~~2022 and December 31, ~~2020.~~2021, respectively, and the interest rate was 0.24% and 0.10%, respectively. These agreements mature on a daily basis. As of September 30, 2022, securities with a market value of $70.0 million were pledged as collateral for securities sold under agreements to repurchase and included $34.1 million of U.S. Government Agency securities, $29.4 million of mortgage-backed securities, $829 thousand of federal agency CMO and $5.6 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 ~~$43.8~~and $39.9 million of mortgage-backed securities.

One relationship accounted for 79% of our balance of securities ~~and $4.2 million of collateralized mortgage obligations. The weighted average rate paid on repurchase~~sold 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 December 31, 2020.~~2022. We expect to maintain ~~these relationships~~this 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 as~~QALICB 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 rate~~CFC 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~~$277.4 million, or ~~13.48%~~23.7%, of the Company’s total assets, at September 30, ~~2021,~~2022, compared to ~~$48.9~~$141.0 million, or ~~10.1%~~12.9% of the Company’s total assets at December 31, ~~2020.~~2021. The increase in total stockholders’ equity is primarily due to the closing of the private placement of the Series C Preferred Stock, which increased stockholders’ equity by $150.0 million during the second quarter of 2022. This increase was partially offset by a decrease in accumulated other comprehensive income of $17.9 million since the end of 2021 due to a decline in the fair value of investment securities available-for-sale, net of taxes. These decreases in the fair values of available-for-sale investment securities during 2022 were the result of increases in market interest rates, which caused the fair value of the Company’s fixed rate investments to decrease; the declines in fair value were not the result of a change in the creditworthiness of any of the issuers of those securities.

Subsequent to the closing of the private placement of the Series C Preferred Stock, the Company ~~issued $63.3~~contributed $75.0 million of the proceeds to the Bank. As a result, the Bank’s Community Bank Leverage Ratio (“CBLR”) was 14.70% at September 30, 2022, compared to 15.87% at June 30, 2022, 9.45% at March 31, 2022, and 9.32% at December 31, 2021. The decrease in ~~common stock~~the CBLR during the quarter was due to growth in average assets which resulted from loan originations and investment purchases.

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 first quarter, the Company ~~raised $30.9 million in net proceeds~~issued 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 sale~~36 months to 60 months, and 47,187 shares of ~~common~~unrestricted 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 per share as of September 30, 2021 after adjusting for goodwill of $26.0 million and the net unamortized core deposit intangible of $3.1 million, which were both originally recorded in connection with the merger. The Company’s tangible book value per share was $1.74 per share as of September 30, 2022 compared to $1.92 per share as of December 31, ~~2020.~~

~~A capital contribution~~2021. The decrease in book value per share during the third quarter of ~~$20 million~~2022 was ~~made from the Company~~due to the ~~Bank~~decrease 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~~equity related to the ~~Merger,~~$18.3 million unrealized losses in the investment portfolio.

Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the Merger. The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s ~~former subsidiary, Broadway Federal Bank, f.s.b., did not elect to adopt the CBLR~~financial condition and ~~reported a Total Capital ratio of 20.20%~~operational performance. A reconciliation between book value and ~~a Leverage ratio of 9.54% at December 31, 2020.~~tangible book value per common share is shown as follows:

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	Common Equity Capital		Shares Outstanding		Per Share Amount
	(Dollars in thousands)
September 30, 2022:
Common book value	$	127,431		73,436,501	$	1.74
Less:
Goodwill		25,858
Net unamortized core deposit intangible		2,610
Tangible book value	$	98,963		73,436,501	$	1.35

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

The decrease in tangible book value per share during the third quarter of 2022 was also due to the decrease in equity related to the $18.3 million of unrealized losses in the investment portfolio.

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, or $292.4 million, to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. ~~This approved limit~~Based on FHLB stock held and collateral ~~requirement would have permitted~~pledged as of September 30, 2022, the Bank had the ability to borrow anand additional ~~$16.9~~$101.7 million ~~at September 30, 2021 based on pledged collateral.~~from the FHLB of Atlanta. In addition, the Bank had additional lines of credit of $11.0 million with other financial institutions as of ~~that date.~~September 30, 2022.

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, ~~2021~~2022 consisted of ~~$208.7~~$52.2 million in cash and cash equivalents and ~~$49.7~~$153.6 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 next twelve months. The increase in liquid assets during the third quarter of 2022 primarily resulted from the proceeds from the preferred stock issued during June of 2022.

The Bank has a significant concentration of deposits with one customer that accounted for approximately 17% of its deposits as of September 30, 2022. The Bank also has a significant concentration of short-term borrowings from one customer that accounted for 79% of the outstanding balance of securities sold under agreements to repurchase as of September 30, 2022. The Bank expects to maintain the relationships with these customers for the foreseeable future. As mentioned above, the Bank has borrowing capacity of from FHLB of Atlanta which amounts to 25% of total assets.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private ~~placements~~placement completed in ~~August 2013, October 2014, December 2016,~~June of 2022 and previous private placements including in April ~~2021 and dividends received from the Bank in 2021 and 2020.~~of 2021. The Bank is currently under no prohibition to pay dividends to the Company, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

~~The~~On a consolidated basis, the Company recorded net cash inflows from operating activities of $5.3 million the nine months ended September 30, 2022, compared to consolidated net cash inflows from operating activities of ~~$3.9~~$4.0 million during the nine months ended September 30, ~~2021, compared to consolidated net~~2021. Net cash ~~outflows~~inflows from operating activities ~~of $39.8 million~~ during the nine months ended September 30, ~~2020.~~2022 were primarily attributable to net income of $4.2 million offset by a decrease in other liabilities. Net cash inflows from operating activities during the nine months ended September 30, 2021 were primarily attributable to ~~increases~~an increase in ~~accrued liabilities, whereas~~other liabilities.

The Company recorded consolidated net cash outflows from ~~operating~~investing activities of $275.4 million during the nine months ended September 30, 2022, compared to consolidated net cash inflows from investing activities of $31.1 million during the nine months ended September 30, 2021. Net cash outflows from investing activities for the nine months ended September 30, ~~2020~~2022 were primarily due to ~~originations~~the purchase of $215.5 million of available-for-sale securities and a net increase in loans ~~receivable held for sale~~ of ~~$118.6 million, offset primarily by proceeds from sales of loans receivable held for sale of $77.6~~$17.1 million.

The Company recorded consolidated net cash inflows from investing activities of $31.2 million during the nine months ended September 30, 2021, compared to consolidated net cash inflows of $35.6 million during the nine months ended September 30, 2020. Net cash inflows from investing activities during the nine months ended September 30, 2021, were primarily due to net cash acquired in the merger with City First Bank N.A. of $84.7 million, net payments on 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 million. ~~In comparison, cash inflows from investing activities million during the nine months ended September 30, 2020 were primarily due to principal payments on loans receivable held for investment~~

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The Company recorded consolidated net cash inflows from financing activities of $90.9 million during the nine months ended September 30, 2022, compared to consolidated net cash inflows of $77.5 million during the nine months ended September 30, ~~2021, compared to consolidated net~~2021. Net cash inflows from ~~financing~~investing activities ~~of $58.3 million~~ during the nine months ended September 30, ~~2020.~~2022 were primarily due to cash received from the closing of the $150 million private placement of Series C Preferred Stock along with increases in cash provided by increased other borrowings of $13.4 million offset by cash used to repay FHLB advances of $53.0 million and decreased deposits of $19.5 million. Net cash inflows from ~~financing~~investing activities during the nine months ended September 30, 2021 were primarily attributable to a net increase in deposits of $80.3 million and proceeds from the sale of stock of $30.8 ~~million. These increases were~~million, offset by ~~a net decrease in~~repayments of FHLB advances of $22.6 million, a decrease in securities sold under agreements to repurchase of $7.1 million since the merger, and the payoff of subordinated debt of $3.3 million. During the nine months ended September 30, 2020, net cash inflows from financing activities were primarily due to a net increase in deposits of $27.6 ~~million and net proceeds from FHLB advances of $31.5~~ million.

~~Table of Contents~~

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, ~~2021~~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.)

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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.~~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.~~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,~~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.

~~Table of Contents~~

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.

4335

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PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

None

Item 1A.

RISK FACTORS

Not Applicable

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None

Item 4.

MINE SAFETY DISCLOSURES

Not Applicable

Item 5.

OTHER INFORMATION

None .

Item 6.

EXHIBITS

Exhibit Number*
3.1	Amended and Restated Certificate of Incorporation of Broadway Financial Corporation effective as of April 1, ~~2021~~2022 (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)
3.3	Certificate of Designations of Senior Non-Cumulative Perpetual Preferred Stock, Series C (Exhibit 3.1 to Form 8-K filed by Registrant on June 8, 2022)
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 2002
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 2002
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.~~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.~~2002
101.INS	XBRL 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.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in 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~~arrangement.

4436

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SIGNATURES

~~Pursuant to~~In accordance with 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, 2021~~14, 2022	By:	/s/ Brian Argrett
		Brian Argrett
		Chief Executive Officer

Date: November ~~15, 2021~~14, 2022	By:	/s/ Brenda J. Battey
		Brenda J. Battey
		Chief Financial Officer

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

~~5055~~4601 Wilshire Boulevard, Suite ~~500~~150 Los Angeles, California		~~90036~~90010
(Address of principal executive offices)		(Zip Code)

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 ~~Stock~~Capital Market ~~LLC~~

Large accelerated filer	☐	Accelerated filer	☐

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

~~TABLE OF CONTENTS~~
			Page
PART I.	FINANCIAL STATEMENTS		~~(to be updated)~~

	Item 1.	Consolidated Financial Statements (Unaudited)

		Consolidated Statements of Financial Condition as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021	1

		Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	2

		Consolidated Statements of Cash Flows for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	3

		Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	4

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30 23

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42 35

	Item 4.	Controls and Procedures	42 35

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	4436

	Item 1A.	Risk Factors	4436

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4436

	Item 3.	Defaults Upon Senior Securities	4436

	Item 4.	Mine Safety Disclosures	4436

	Item 5.	Other Information	4436

	Item 6.	Exhibits	4436

	Signatures		4537

	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

		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

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

	Three Months Ended						Nine Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
	(Dollars in thousands except per share amounts)
Net interest income		$	5,978	$	5,738		$	16,988		$	16,068
Net income (loss)			191		(343	)		(3,348	)		(157	)

Basic earnings per share		$	0.00	$	(0.01	)	$	(0.05	)	$	0.00
Diluted earnings per share		$	0.00	$	(0.01	)	$	(0.05	)	$	0.00

	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

	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

	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

	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

	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	%