BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~income (loss)

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			Three Months Ended March 31,
													2023		2022
Interest income:
Interest and fees on loans receivable	$	6,520		$	6,296		$	20,603		$	16,240		$	8,666	$	7,336
Interest on available-for-sale securities		2,069			457			3,416			953			2,180		591
Other interest income		639			156			1,589			377			328		84
Total interest income		9,228			6,909			25,608			17,570			11,174		8,011

Interest expense:
Interest on deposits		474			446			1,173			1,306			1,303		350
Interest on borrowings		146			472			617			1,607			1,597		489
Total interest expense		620			918			1,790			2,913			2,900		839

Net interest income		8,608			5,991			23,818			14,657			8,274		7,172
Loan loss provision		1,021			365			592			446
Net interest income after loan loss provision		7,587			5,626			23,226			14,211
Provision for credit losses														88		148
Net interest income after provision for credit losses														8,186		7,024

Non-interest income:
Service charges		21			76			106			205			61		64
CDFI Grant		–			217			–			2,043
Other		344			316			801			676			228		217
Total non-interest income		365			609			907			2,924			289		281

Non-interest expense:
Compensation and benefits		3,440			3,334			10,366			11,543			3,749		3,619
Occupancy expense		367			392			1,209			1,327			303		442
Information services		732			787			2,364			1,594			715		865
Professional services		861			616			2,183			3,068			505		364
Supervisory costs		4			139			261			386			94		157
Office services and supplies		38			65			153			219			22		61
Advertising and promotional expense														68		50
Corporate insurance		49			47			164			301			62		53
Appraisal and other loan expense														43		30
Amortization of core deposit intangible		109			131			326			262			98		109
Travel expense														78		27
Other		472			467			1,272			1,279			469		183
Total non-interest expense		6,072			5,978			18,298			19,979			6,206		5,960

Income (loss) before income taxes		1,880			257			5,835			(2,844	)
Income tax expense (benefit)		534			51			1,654			(297	)
Net income (loss)	$	1,346		$	206		$	4,181		$	(2,547	)
Income before income taxes														2,269		1,345
Income tax expense														674		363
Net income													$	1,595	$	982
Less: Net income attributable to non-controlling interest		28			24			51			57			22		24
Net income (loss) attributable to Broadway Financial Corporation	$	1,318		$	182		$	4,130		$	(2,604	)
Net income attributable to Broadway Financial Corporation													$	1,573	$	958

Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available-for-sale arising during the period	$	(11,949	)	$	(640	)	$	(25,281	)	$	224		$	3,433	$	(8,154	)
Income tax (benefit) expense		(3,382	)		(180	)		(7,364	)		63
Income tax expense (benefit)														988		(2,307	)
Other comprehensive income (loss), net of tax		(8,567	)		(460	)		(17,917	)		161			2,445		(5,847	)

Comprehensive income (loss)	$	(7,249	)	$	(278	)	$	(13,787	)	$	(2,443	)	$	4,018	$	(4,889	)

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

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2023			2022
	(In thousands)						(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
Net income							$	1,595		$	982
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses								88			148
Depreciation		630			198			172			30
Net change of deferred loan origination costs		38			457			(223	)		(148	)
Net amortization of premiums & discounts on available-for-sale securities		20			705			(253	)		118
Amortization of investment in affordable housing limited partnership		–			39
Amortization of purchase accounting marks on loans		(647	)		56			–			(465	)
Amortization of core deposit intangible		326			262			98			109
Director compensation expense-common stock		84			46			96			84
Accretion of premium on FHLB advances		(64	)		(26	)		1			(11	)
Stock-based compensation expense		93			368			38			15
Valuation allowance on deferred tax asset		–			370
ESOP compensation expense		56			81			(202	)		18
Earnings on bank owned life insurance		(32	)		(32	)		(9	)		(10	)
Change in assets and liabilities:
Net change in deferred taxes		1,732			(1,162	)		569			234
Net change in accrued interest receivable		(95	)		274			(246	)		923
Net change in other assets		(391	)		765			42			(3,524	)
Net change in accrued expenses and other liabilities		(1,195	)		3,669			2,035			(311	)
Net cash provided by operating activities		5,328			3,969
Net cash provided by (used in) operating activities								3,801			(1,808	)

Cash flows from investing activities:
Cash acquired in merger		–			84,745
Net change in loans receivable held for investment		(74,155	)		(57,143	)		(9,681	)		(4,396	)
Principal payments on available-for-sale securities		13,850			12,662			3,409			4,724
Purchase of available-for-sale securities		(215,500	)		(10,098	)		–			(26,908	)
Purchase of FHLB stock		(332	)		(152	)		(1,765	)		–
Proceeds from redemption of FHLB stock		1,431			1,243			–			351
Proceeds from redemption of FRB stock								1,721			–
Purchase of office properties and equipment		(816	)		(119	)		(3	)		(67	)
Proceeds from disposals of office properties and equipment		–			3
Net cash (used in) provided by investing activities		(275,522	)		31,141
Net cash used in investing activities								(6,319	)		(26,296	)

Cash flows from financing activities:
Net change in deposits		(19,541	)		80,294			(29,374	)		51,662
Net change in securities sold under agreements to repurchase		13,447			(7,069	)		7,470			4,043
Proceeds from sale of stock (net of costs)		–			30,837
Proceeds from issuance of preferred stock		150,000			–
Increase in unreleased ESOP shares								(2,500	)		–
Dividends paid on preferred stock		(15	)		(30	)		–			(15	)
Distributions to non-controlling interest		–			(165	)
Proceeds from FHLB advances		–			5,000			40,500			–
Repayments of FHLB advances		(53,000	)		(27,570	)		(35	)		(13,000	)
Stock cancelled for income tax withholding		–			(514	)
Repayments of junior subordinated debentures		–			(3,315	)
Net cash provided by financing activities		90,891			77,468			16,061			42,690
Net change in cash and cash equivalents		(179,303	)		112,578			13,543			14,586
Cash and cash equivalents at beginning of the period		231,520			96,109			16,105			231,520
Cash and cash equivalents at end of the period	$	52,217		$	208,687		$	29,648		$	246,106

Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,758		$	2,424		$	2,882		$	822
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	)
Supplemental non-cash disclosures:
Common stock issued in exchange for preferred stock								–			3,000

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

~~BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY~~

~~Consolidated Statements of Changes in Stockholders’ Equity~~

~~(Unaudited)~~

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~~

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Three-Month Period Ended March 31, 2023 and 2022
	Preferred Stock Non-Voting			Common Stock Voting		Common Stock Non-Voting			Additional Paid-in Capital			Accumulated Other Comprehensive (Loss)			Retained Earnings			Unearned ESOP Shares			Treasury Stock			Non-Controlling Interest		Total Stockholders’ Equity
	(In thousands)
Balance at January 1, 2023	$	150,000		$	513	$	248		$	143,491		$	(17,473	)	$	9,294		$	(1,265	)	$	(5,326	)	$	170	$	279,652
Cumulative effect of change related to adoption of ASU 2016-13		–			–		–			–			–			(1,256	)		–			–			–		(1,256	)
Adjusted balance, January 1, 2023		150,000			513		248			143,491			(17,473	)		8,038			(1,265	)		(5,326	)		170		278,396
Net income		–			–		–			–			–			1,573			–			–			22		1,595
Release of unearned ESOP shares		–			–		–			(4	)		–			–			(198	)		–			–		(202	)
Increase in unreleased shares		–			–		–			–			–			–			(2,500	)		–			–		(2,500	)
Stock-based compensation expense		–			–		–			38			–			–			–			–			–		38
Director stock compensation expense		–			–		–			96			–			–			–			–			–		96
Other comprehensive income, net of tax		–			–		–			–			2,445			–			–			–			–		2,445
Balance at March 31, 2023	$	150,000		$	513	$	248		$	143,621		$	(15,028	)	$	9,611		$	(3,963	)	$	(5,326	)	$	192	$	279,868

Balance at January 1, 2022	$	3,000		$	463	$	281		$	140,289		$	(551	)	$	3,673		$	(829	)	$	(5,326	)	$	100	$	141,100
Net income		–			–		–			–			–			958			–			–			24		982
Conversion of preferred stock into common stock		(3,000	)		12		–			2,988			–			–			–			–			–		–
Conversion of non-voting common shares into voting common shares		–			9		(9	)		–			–			–			–			–			–		–
Release of unearned ESOP shares		–			–		–			2			–			–			16			–			–		18
Dividends paid on preferred stock		–			–		–			–			–			(15	)		–			–			–		(15	)
Director stock compensation expense		–			–		–			84			–			–			–			–			–		84
Stock-based compensation expense		–			5		–			10			–			–			–			–			–		15
Other comprehensive loss, net of tax		–			–		–			–			(5,847	)		–			–			–			–		(5,847	)
Balance at March 31, 2022	$	–		$	489	$	272		$	143,373		$	(6,398	)	$	4,616		$	(813	)	$	(5,326	)	$	124	$	136,337

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

NOTE ~~(1)~~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. 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, ~~2021~~2022 (“~~2021~~2022 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, 2022~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~2023.

Subsequent events have been evaluated through ~~November 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 ~~2021~~2022 Form 10-K.

Allowance for Credit Losses – Securities

Effective January 1, 2023, the Company accounts for the allowance for credit losses (“ACL”) on securities in accordance with Accounting Standards Codification Topic 326 (“ASC 326”) – Financial Instruments-Credit Losses. The ACL on securities is recorded at the time of purchase or acquisition, representing the Company’s best estimate of current expected credit losses (“CECL”) as of the date of the consolidated statements of financial condition.

For available-for-sale investment securities, the Company performs a qualitative evaluation for those securities that are in an unrealized loss position to determine if the decline in fair value is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) any downgrades in credit ratings; (iv) the payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments, and (vi) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. For investment securities where the Company has reason to believe the credit loss exposure is remote, a zero credit loss assumption is applied. Such investment securities typically consist of those guaranteed by the U.S. government or other government enterprises, where there is an explicit or implicit guarantee by the U.S. government, that are highly rated by rating agencies, and historically have had no credit loss experience.

If it is determined that the unrealized loss, or a portion thereof, is credit related, the Company records the amount of credit loss through a charge to the provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If the Company intends to sell a security that is in an unrealized loss position, or if it is more likely than not the Company will be required to sell a security in an unrealized loss position, the total amount of the unrealized loss is recognized in current period earnings through the provision for credit losses. Unrealized losses deemed non-credit related are recorded, net of tax, in accumulated other comprehensive income (loss).

The Company’s assessment of available-for-sale investment securities as of March 31, 2023, indicated that an ACL was not required. The Company analyzed available-for-sale investment securities that were in an unrealized loss position and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities as of March 31, 2023.

Table of Contents

Allowance for Credit Losses - Loans

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL for each of its loan segments using the weighted-average remaining maturity (“WARM”) method. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Since historical information (such as historical net losses) may not always, by itself, provide a sufficient basis for determining future expected credit losses, the Company periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not limited to factors such as: (i) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; (ii) changes in international, national, regional, and local conditions; (iii) changes in the nature and volume of the portfolio and terms of loans; (iv) changes in the experience, depth, and ability of lending management; (v) changes in the volume and severity of past due loans and other similar conditions; (vi) changes in the quality of the organization’s loan review system; (vii) changes in the value of underlying collateral for collateral dependent loans; (viii) the existence and effect of any concentrations of credit and changes in the levels of such concentrations; and (ix) the effect of other external factors (i.e., competition, legal and regulatory requirements) on the level of estimated credit losses.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. Collateral dependent loans are loans where the repayment of the loan is expected to come from the operation of and/or eventual liquidation of the underlying collateral. The ACL for collateral dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

The estimation of the appropriate level of the ACL requires significant judgment by management. Although management uses the best information available to make these estimations, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Changes in management’s estimates of forecasted net losses could materially change the level of the ACL. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ACL based on judgments different from those of management.

The Company has segmented the loan portfolio according to loans that share similar attributes and risk characteristics. Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. The Company determines the ACL for loans based on this more detailed loan segmentation and classification. These segments, and the risks associated with each segment, are as follows:

Real Estate: Single Family – Subject to adverse employment conditions in the local economy leading to increased default rate, decreased market values from oversupply in a geographic area and incremental rate increases on adjustable-rate mortgages which may impact the ability of borrowers to maintain payments.

Real Estate: Multi‑Family – Subject to adverse various market conditions that cause a decrease in market value or lease rates, changes in personal funding sources for tenants, oversupply of units in a specific region, population shifts and reputational risks.

Real Estate: Commercial Real Estate – Subject to adverse conditions in the local economy which may lead to reduced cash flows due to vacancies and reduced rental rates, and decreases in the value of underlying collateral.

Real Estate: Church – Subject to adverse economic and employment conditions, which may lead to reduced cash flows from members’ donations and offerings, and the stability, quality, and popularity of church leadership.

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Real Estate: Construction – Subject to adverse conditions in the local economy, which may lead to reduced demand for new commercial, multi‑family, or single family buildings or reduced lease or sale opportunities once the building is complete.

Commercial and SBA Loans – Subject to industry and economic conditions including decreases in product demand.

Consumer – Subject to adverse employment conditions in the local economy, which may lead to higher default rates.

Modified Loans to Borrowers Experiencing Financial Difficulty

In certain instances, the Company makes modifications to loans in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include: changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more. Such loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on these loans on an individual basis as the loans are deemed to no longer have risk characteristics that are similar to other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less selling costs.

Accounting Pronouncements ~~Yet to Be~~Recently Adopted

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13 – Financial ~~Instruments – Credit~~Instruments-Credit Losses (Topic ~~326)~~326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments. This ASU ~~2016-13~~ replaces the incurred loss impairment model in previous GAAP with ~~an expected loss~~a model ~~which is referred to as the~~that reflects current expected credit ~~loss (“CECL”) model.~~losses. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. CECL also requires credit losses on available-for-sale debt securities ~~and reinsurance receivables. It~~be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. The new guidance 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 purchase credit impaired (“PCI”) assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption.exposures. The ~~asset will be grossed up for the allowance for~~ASU requires that all expected credit losses for ~~all PCD~~financial assets held at the reporting date ~~of adoption and will continue to recognize the noncredit discount in interest income~~be measured based on ~~the yield~~historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosure, including qualitative and quantitative disclosures that provide additional information about significant estimates and judgments used in estimating credit losses. The provisions 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~~this ASU became 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~~Company for all annual 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~~interim periods beginning January 1, 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 is still being determined.

In April 2019, the FASB issued ASU ~~No.~~ 2019-04 – Codification Improvements to Topic 326, Financial ~~Instruments - Credit~~Instruments-Credit Losses, Topic ~~815, Derivatives~~815-Derivatives and Hedging, and Topic ~~825, Financial Instruments.~~825-Financial Instruments. This ASU ~~clarifies~~was issued as part of an ongoing project on the ~~scope~~FASB’s agenda for improving the Codification or correcting for its unintended application. The amendments in this ASU became effective for all interim and annual reporting periods for the Company on January 1, 2023. The Company adopted the provisions within this ASU in conjunction with the implementation of ASC 326, including: (i) the election to not measure credit losses ~~standard and addresses issues related to~~on accrued interest receivable when such balances ~~recoveries, variable~~are written-off in a timely manner when deemed uncollectable and (ii) the election to not include the balance of accrued interest ~~rates and prepayments, among other things. The amendments to Topic 326 have~~receivable as part of the ~~same effective dates as ASU 2016-13. This guidance is not expected to have~~amortized cost of a ~~significant impact on the Company’s consolidated financial statements.~~loan.

In May 2019, the FASB issued ASU ~~No.~~ 2019-05 - Financial ~~Instruments - Credit~~Instruments-Credit Losses (Topic 326): Targeted Transition ~~Relief.~~Relief. This ASU ~~allows~~was issued to allow entities that have certain financial instruments within the scope of ASC 326-20 - Financial Instruments-Credit Losses-Measured at Amortized Costto ~~irrevocably~~make an irrevocable election to elect the fair value option for those instruments in accordance with ASC 825 – Financial Instruments upon the adoption of ASC 326, which for the Company was January 1, 2023. The fair value option is not applicable to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument ~~basis for eligible financial assets measured at amortized cost basis upon adoption of the credit loss standards.~~basis. The ~~effective date for this ASU is the same as for ASU 2016-13. Management will evaluate this ASU in conjunction with ASU 2016-13 to determine whether~~Company did not elect the fair value option ~~will be elected~~ for any ~~eligible~~of its financial ~~assets.~~assets upon the adoption of ASC 326.

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Effective January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of $1.3 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment. The following table illustrates the impact of the adoption of the CECL model under ASC 326 on the Company’s consolidated statements of financial position as of January 1, 2023:

	Pre-CECL Adoption		Impact of CECL Adoption			As Reported Under CECL
	(In thousands)
Assets:
Allowance for credit losses on available-for-sale securities	$	–	$	–		$	–
Allowance for credit losses on loans		4,388		1,809			6,197
Deferred tax assets		11,872		508			12,380
Liabilities:
Allowance for credit losses on off-balance sheet exposures		412		(45	)		367
Stockholders’ equity:
Retained earnings		9,294		(1,256	)		8,038

The Company’s assessment of available-for-sale investment securities as of January 1, 2023 indicated that an ACL was not required. The Company analyzed available-for-sale investment securities that were in an unrealized loss position as of the date of adoption and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities as of January 1, 2023.

Upon the adoption of ASC 326, the Company did not reassess purchased loans with credit deterioration (previously classified as purchased credit impaired loans under ASC 310-30).

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in the adverse regulatory capital effects of the impact of adoption of ASC 326 over a three-year period. As a result, entities have the option to gradually phase in the full effect of CECL on regulatory capital over a three-year transition period. The Company implemented its CECL model commencing January 1, 2023 and elected to phase in the full effect of CECL on regulatory capital over the three-year transition period.

In March 2022, the FASB issued ASU ~~No.~~ 2022-02 – Financial ~~Instruments - Credit~~Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage ~~Disclosures. This new accounting standard pertains~~Disclosures. The FASB issued this ASU in response to ~~eliminating certain existing~~feedback the FASB received from various stakeholders in its post-implementation review process related to the issuance of ASU 2016-13. The amendments in this ASU include the elimination of accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 – Receivables-Troubled Debt Restructurings by ~~creditors~~Creditors, and ~~adding~~introduce new disclosures and enhance existing disclosures concerning certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. Under the provisions of this ASU, an entity must determine whether a modification results in a new loan or the continuation of an existing loan. Further, the amendments in this ASU require that an entity disclose current period gross charge-offs on financing receivables within the scope of ASC 326 by year of origination and class of financing receivable. The amendments in this ASU became effective for the Company on January 1, 2023, for all interim and annual periods. The adoption of the provisions in this ASU are applied prospectively and have resulted in additional disclosures ~~related to the nature and characteristics of~~concerning modifications of loans to borrowers experiencing financial ~~difficulties~~difficulty, as well as disaggregated disclosure of charge-offs on loans.

Accounting Pronouncements Yet to Be Adopted

In March 2023, the FASB issued ASU 2023-02 – Investments-Equity Method and ~~vintage disclosures~~Joint Ventures (Topic 323): Accounting for ~~gross write-offs.~~Investments in Tax Credit Structures Using the Proportional Amortization Method, a Consensus of the Emerging Issues Task Force. The amendments in this ASU allow the option for an entity to ~~Topic 326 have~~apply the ~~same effective dates~~proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. Prior to this ASU, the application of the proportional amortization method of accounting was limited to investments in low-income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the consolidated statements of operations and comprehensive loss (within income tax expense). Under this ASU, ~~2016-13. This~~an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the proportional amortization method is not ~~expected to have a significant impact~~applied can no longer be accounted for using the delayed equity contribution guidance. Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323 – Investments-Equity Method and Joint Ventures. This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 – Investments-Equity Securities. The amendments in this ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including the nature of tax equity investments and the effect of tax equity investments and related income tax credits and other income tax benefits on the ~~Company’s~~consolidated statements of financial position and results of operations. The provisions of this ASU are effective for the Company for interim and annual periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

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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 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’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 (“CFBanc Corporation Preferred Stock”) issued and outstanding immediately prior to the effective time of the CFBanc Merger was converted into one 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 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.

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. 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 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 $ – $ 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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~~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~~ ~~(in thousands):~~

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

~~A component of total loans acquired from CFBanc were loans that were considered to be purchased credit impaired loans (“PCI loans”). Refer to Note 5 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

~~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.~~

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, 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 )

~~NOTE (3)~~2 – 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~~Employee Stock Option Plan (“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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The following table shows how the Company computed basic and diluted earnings ~~(loss)~~ per share of common stock for the periods indicated:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022
2021
2022 2021
(Dollars in thousands, except share and per share data)
Net income (loss) attributable to Broadway Financial Corporation
$ 1,318 $ 182 $ 4,130 $ (2,604 )
Less net income (loss) attributable to participating securities 7 – 25 –
Income (loss) available to common stockholders $ 1,311 $ 182 $ 4,105 $ (2,604 )

Weighted average common shares outstanding for basic earnings (loss) per common share 72,555,282 71,222,869 72,386,900 56,403,545
Add: dilutive effects of unvested restricted stock awards
408,552
228,082
442,150
–

Weighted average common shares outstanding for diluted earnings (loss) per common share 72,963,834 71,450,951 72,829,050 56,403,545

Earnings (loss) per common share - basic $ 0.02 $ – $ 0.06 $ (0.05 )
Earnings (loss) per common share - diluted $ 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 because they were anti-dilutive due to the ~~net loss. There were no unvested restricted stock awards outstanding during the three months ended September 30, 2021.~~

	Three Months Ended March 31,
	2023		2022
	(Dollars in thousands, except share and per share data)
Net income attributable to Broadway Financial Corporation	$	1,573	$	958
Less net income attributable to participating securities		7		7
Income available to common stockholders	$	1,566	$	951


Weighted average common shares outstanding for basic earnings per common share		71,442,163		72,039,378
Add: dilutive effects of unvested restricted stock awards		323,024		50,195
Add: dilutive effects of assumed exercise of stock options		–		490,372
Weighted average common shares outstanding for diluted earnings per common share		71,765,187		72,579,945

Earnings per common share - basic	$	0.02	$	0.01
Earnings per common share - diluted	$	0.02	$	0.01

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NOTE ~~(5)~~4 – Loans Receivable Held for Investment

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

September 30, 2022 December 31, 2021
(In thousands)
Real estate:
Single family $ 30,781 $ 45,372
Multi-family 459,234 393,704
Commercial real estate 91,576 93,193
Church 16,683 22,503
Construction 57,845 32,072
Commercial – other 66,516 46,539
SBA loans⁽¹⁾
3,654 18,837
Consumer 9 –
Gross loans receivable before deferred loan costs and premiums 726,298 652,220
Unamortized net deferred loan costs and premiums 1,564 1,526
Gross loans receivable 727,862 653,746
Credit and interest marks on purchased loans, net (1,194 ) (1,842 )
Allowance for loan losses (3,983 ) (3,391 )
Loans receivable, net $ 722,685 $ 648,513

	March 31, 2023			December 31, 2022
	(In thousands)
Real estate:
Single family	$	29,216		$	30,038
Multi-family		509,514			502,141
Commercial real estate		129,031			114,574
Church		13,983			15,780
Construction		59,143			40,703
Commercial – other		37,354			64,841
SBA loans ⁽¹⁾		3,565			3,601
Consumer		10			11
Gross loans receivable before deferred loan costs and premiums		781,816			771,689
Unamortized net deferred loan costs and premiums		1,532			1,755
Gross loans receivable		783,348			773,444
Credit and interest marks on purchased loans, net		(1,010	)		(1,010	)
Allowance for credit losses ⁽²⁾		(6,285	)		(4,388	)
Loans receivable, net	$	776,053		$	768,046

⁽¹⁾

Including Paycheck Protection Program (PPP) loans.

(2)

The allowance for credit losses as of December 31, 2022 was accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the date of the consolidated statement of financial condition. Effective January 1, 2023, the allowance for credit losses is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

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As of ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021,~~2022, the commercial loan category above included ~~$2.9~~$2.7 million ~~and $18.0 million, respectively,~~ of loans issued under the SBA’s ~~Paycheck Protection Program (PPP).~~PPP. PPP loans have terms of two 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~~Company expects the vast majority of the PPP loans to be fully forgiven by the SBA.

~~As part~~Prior to the adoption of ~~the CFBanc Merger,~~ ~~the Company acquired~~ASC 326, loans ~~for which there was, at acquisition,~~that were purchased in a business combination that showed evidence of credit deterioration ~~of credit quality~~ since their origination and for which it was probable, at acquisition, that not all contractually required payments would be collected were classified as purchased-credit impaired (“PCI”). The Company accounted for PCI loans and associated income recognition in accordance with ASC Subtopic 310-30 – Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Upon acquisition, the Company measured the amount by which the undiscounted expected cash future flows on PCI loans exceeded the estimated fair value of the loan as the “accretable yield,” representing the amount of estimated future interest income on the loan. The amount of accretable yield was re-measured at each financial reporting date, representing the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI loan. The accretable yield on PCI loans was recognized in interest income using the interest method.

Following the adoption of ASC 326 on January 1, 2023, the Company analyzes all acquired loans at the time of acquisition for more-than-insignificant deterioration in credit quality since their origination date. Such loans are classified as purchased credit deteriorated (“PCD”) loans. Acquired loans classified as PCD are recorded at an initial amortized cost, which is comprised of the purchase price of the loans and the initial ACL determined for the loans, which is added to the purchase price, and any resulting discount or premium related to factors other than credit. PCI loans were considered to be PCD loans at the date of adoption of ASC 326. The Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts or premiums are accreted or amortized into interest income as an adjustment of the loan’s yield. An accretable yield is not ~~be collected.~~determined for PCD loans.

As part of the CFBanc merger, the Company acquired PCI loans. Prior to the CFBanc ~~Merger,~~merger, there were no such acquired loans. The carrying amount of those loans ~~as of~~ ~~September~~ ~~30,2022, and December 31, 2021,~~was as follows:

September 30, 2022
December 31, 2021

(In thousands)

Real estate:
Single family
$
67
$ 558
Commercial real estate
–
221
Commercial – other
26
104

$
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~~ ~~30,2022,~~ ~~and December 31, 2021, none of the Company’s~~ ~~PCI~~ ~~loans were classified as nonaccrual.~~

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

Three Months Ended
September 30, 2022

Nine Months Ended
September 30, 2022

(In thousands)

Balance at the beginning of the period $ 160 $ 883
Deduction due to payoffs (71 ) (810 )
Accretion (4 ) (20 )
Balance at the end of the period $ 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

	March 31, 2023		December 31, 2022
Real estate:	(In thousands)
Single family	$	68	$	68
Commercial – other		57		57
	$	125	$	125

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The following table summarizes the discount on the PCI loans for the three months ended:

	March 31, 2023		March 31, 2022
	(In thousands)
Balance at the beginning of the period	$	165	$	883
Deduction due to payoffs		–		(707	)
Accretion		–		(11	)
Balance at the end of the period	$	165	$	165

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses, to determine the ACL. ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the WARM method when determining estimates for the ACL for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Qualitative adjustments may be related to and include, but are not limited to factors such as: (i) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; (ii) changes in international, national, regional, and local conditions; (iii) changes in the nature and volume of the portfolio and terms of loans; (iv) changes in the experience, depth, and ability of lending management; (v) changes in the volume and severity of past due loans and other similar conditions; (vi) changes in the quality of the organization’s loan review system; (vii) changes in the value of underlying collateral for collateral dependent loans; (viii) the existence and effect of any concentrations of credit and changes in the levels of such concentrations; and (ix) the effect of other external factors (i.e., competition, legal and regulatory requirements) on the level of estimated credit losses. These qualitative factors incorporate the concept of reasonable and supportable forecasts, as required by ASC 326.

The following tables summarize the activity in the allowance for credit losses on loans for the period indicated:

	March 31, 2023
	Beginning Balance		Impact of CECL Adoption			Charge-offs		Recoveries		Provision (benefit)			Ending Balance
	(In thousands)
Loans receivable held for investment:
Single family	$	109	$	214		$	–	$	–	$	(62	)	$	261
Multi-family		3,273		603			–		–		56			3,932
Commercial real estate		449		466			–		–		97			1,012
Church		65		37			–		–		(10	)		92
Construction		313		219			–		–		61			593
Commercial - other		175		254			–		–		(72	)		357
SBA loans		–		20			–		–		18			38
Consumer		4		(4	)		–		–		–			–
Total	$	4,388	$	1,809		$	–	$	–	$	88		$	6,285

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

	For the Three Months Ended March 31, 2022
	Real Estate
	Single Family		Multi- Family		Commercial Real Estate			Church			Construction		Commercial - Other		Consumer		Total
	(In thousands)
Beginning balance	$	145	$	2,657	$	236		$	103		$	212	$	23	$	15	$	3,391
Provision for (recapture of) loan losses		12		114		(20	)		(40	)		25		57		–		148
Recoveries		–		–		–			–			–		–		–		–
Loans charged off		–		–		–			–			–		–		–		–
Ending balance	$	157	$	2,771	$	216		$	63		$	237	$	80		15		3,539

For the Three Months Ended September 30, 2022
Real Estate

Single
Family

Multi-
Family

Commercial
Real Estate
Church Construction Commercial - Other Consumer Total
Beginning balance $ 120 $ 2,278 $ 153 $ 48 $ 221 $ 138 $ 4 $ 2,962
Provision for (recapture of) loan losses (8 ) 641 142 6 187 53 – 1,021
Recoveries – – – – – – – –
Loans charged off – – – – – – – –
Ending balance $ 112 $ 2,919 $ 295 $ 54 $ 408 $ 191 $ 4 $ 3,983

For the Three Months Ended September 30, 2021
Real Estate
Single
Family
Multi-
Family
Commercial Real Estate Church Construction Commercial - Other Consumer Total
Beginning balance $ 170 $ 2,606 $ 227 $ 208 $ 81 $ 4 $ – $ 3,296
Provision for (recapture of) loan losses
(10 ) 325 32 (18 ) 35 – 1 365
Recoveries – – – – – – – –
Loans charged off – – – – – – – –
Ending balance $ 160 $ 2,931 $ 259 $ 190 $ 116 $ 4 $ 1 $ 3,661

Table of Contents

For the Nine Months Ended September 30, 2022
Real Estate

Single
Family

Multi-
Family
Commercial Real Estate Church Construction Commercial - Other Consumer Total
Beginning balance $ 145 $ 2,657 $ 236 $ 103 $ 212 $ 23 $ 15 $ 3,391
Provision for (recapture of) loan losses
(33 ) 262 59 (49 ) 196 168 (11 ) 592
Recoveries – – – – – – – –
Loans charged off
– – – – – – – –
Ending balance $ 112 $ 2,919 $ 295 $ 54 $ 408 $ 191 $ 4 $ 3,983
The increase in ACL during the quarter was due to the implementation of the CECL methodology adopted by the Bank effective January 1, 2023, which increased the ACL by $1.8 million. In addition, the Bank recorded an additional increase in the provision for credit losses of $88 thousand during the first quarter of 2023 related to growth in the portfolio. The CECL methodology includes estimates of expected loss rates in the future, whereas the former Allowance for Loan and Lease methodology did not.

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

Prior to the Company’s adoption of ASC 326 on January 1, 2023, the Company maintained an allowance for loan losses (“ALLL”) in accordance with ASC 310 and ASC 450 that covered estimated credit losses on individually evaluated loans that were determined to be impaired, as well as estimated probable incurred losses inherent in the remainder of the loan portfolio.

Beginning on January 1, 2023, the Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified from those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated selling costs. The Company may increase or decrease the ACL for collateral dependent loans based on changes in the estimated fair value of the collateral.

The following table presents collateral dependent loans by collateral type as of the date indicated:

	March 31, 2023
	Single Family		Condominium		Church		Business Assets		Total
Real estate:	(In thousands)
Single family	$	53	$	112	$	–	$	–	$	165
Commercial real estate		–		–		78		–		78
Church		–		–		695		–		695
Commercial – other		–		–		–		281		281
Total	$	53	$	112	$	773	$	281	$	1,219

At March 31, 2023, $1.2 million of individually evaluated loans were evaluated based on the underlying value of the collateral and no individually evaluated loans were evaluated using a discounted cash flow approach. The Company had no individually evaluated loans on nonaccrual status at March 31, 2023.

Prior to the adoption of ASC 326 on January 1, 2023, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote. Credit losses on impaired loans were determined separately based on the guidance in ASC 310. Beginning January 1, 2023, the Company accounts for credit losses on all loans in accordance with ASC 326, which eliminates the concept of an impaired loan within the context of determining credit losses, and requires all loans to be evaluated for credit losses collectively based on similar risk characteristics. Loans are only evaluated individually when they are deemed to no longer possess similar risk characteristics with other loans in the loan portfolio.

Table of Contents

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~~date indicated:

September 30, 2022
Real Estate

Single
Family

Multi-
Family

Commercial
Real Estate
Church Construction Commercial - Other Consumer Total
(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ 3 $ – $ – $ 4 $ – $ – $ – $ 7
Collectively evaluated for impairment 109 2,919 295 50 408 191 4 3,976
Total ending allowance balance $ 112 $ 2,919 $ 295 $ 54 $ 408 $ 191 $ 4 $ 3,983
Loans:
Loans individually evaluated for impairment $ 58 $ 268 $ – $ 2,135 $ – $ – $ – $ 2,461
Loans collectively evaluated for impairment 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 $ 30,781 $ 460,798 $ 91,576 $ 16,683 $ 57,845 $ 70,170 $ 9 $ 727,862

	December 31, 2022
	Real Estate
	Single Family		Multi- Family		Commercial Real Estate		Church		Construction		Commercial - Other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	–	$	–	$	4	$	–	$	–	$	–	$	7
Collectively evaluated for impairment		106		3,273		449		61		313		175		4		4,381
Total ending allowance balance	$	109	$	3,273	$	449	$	65	$	313	$	175	$	4	$	4,388
Loans:
Loans individually evaluated for impairment	$	57	$	–	$	–	$	1,655	$	–	$	–	$	–	$	1,712
Loans collectively evaluated for impairment		20,893		462,539		63,929		9,008		38,530		29,558		11		624,468
Subtotal		20,950		462,539		63,929		10,663		38,530		29,558		11		626,180
Loans acquired in the Merger		9,088		41,357		50,645		5,117		2,173		38,884		–		147,264
Total ending loans balance	$	30,038	$	503,896	$	114,574	$	15,780	$	40,703	$	68,442	$	11	$	773,444

~~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

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

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

(In thousands)
With no related allowance recorded:
Multi-family $ 267 $ 267 $
–
$ 282 $ 282 $
–

Church 2,049 2,049 – 1,854 1,854
–

With an allowance recorded:
Single family 58 58 3 65 65 3
Church 87 87 4 100 100 4
Total $ 2,461 $ 2,461 $ 7 $ 2,301 $ 2,301 $ 7

	December 31, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Church	$	1,572	$	1,572	$	–
With an allowance recorded:
Single family		57		57		3
Church		83		83		4
Total	$	1,712	$	1,712	$	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~~period indicated:

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

(In thousands)
Single family $ 60 $ 1 $ 65 $ 4
Multi-family 268 5 288 5
Church 2,172 25 3,614 64
Commercial - other – – – –
Total $ 2,500 $ 31 $ 3,967 $ 73

	Three Months Ended March 31, 2022
	Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	64	$	1
Multi-family		279		5
Church		2,535		25
Total	$	2,878	$	31

1314

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

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

	March 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single family	$	–	$	–	$	–	$	–	$	29,216	$	29,216
Multi-family		406		–		–		406		510,640		511,046
Commercial real estate		–		–		–		–		129,031		129,031
Church		–		–		–		–		13,983		13,983
Construction		–		–		–		–		59,143		59,143
Commercial - other		–		–		–		–		37,354		37,354
SBA loans		–		–		–		–		3,565		3,565
Consumer		–		–		–		–		10		10
Total	$	406	$	–	$	–	$	406	$	782,942	$	783,348

December 31, 2022

30-59

Days

Past Due

60-89

Days

Past Due

Greater

than

90 Days

Past Due

Total

Past Due

Current

Total

(In thousands)

Loans receivable held for investment:

Single family

–

30,038

Multi-family

–

503,896

Commercial real estate

–

114,574

Church

–

15,780

Construction

–

40,703

Commercial - other

–

64,841

SBA loans

–

3,601

Consumer

–

Total

–

773,444

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

	March 31, 2023		December 31, 2022
	(In thousands)
Loans receivable held for investment:
Church	$	–	$	144
Total non-accrual loans	$	–	$	144

Cash-basis interest income recognized represents interest recoveries on non-accrual loans that were paid off and, prior to the adoption of ASC 326, cash received for interest payments on accruing impaired ~~loans and interest recoveries on non-accrual loans that were paid off.~~loans. Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible 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 $17 thousand ~~and $19 thousand~~ for the three months ended ~~September 30,~~March 31, 2022, ~~and 2021, respectively,~~ ~~and $51 thousand and $38 thousand for the nine months ended~~ ~~September~~ ~~30, 2022 and 2021, respectively,~~ and were not included in the consolidated ~~results~~statement of ~~operations.~~operations and comprehensive loss. There was no foregone interest income on non-accrual loans for the three months ended March 31, 2023. The Company recognized interest income on nonaccrual loans of $286 thousand during the three months ended March 31, 2023. The Company did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2022.

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

September 30, 2022

30-59
Days
Past Due

60-89
Days
Past Due

Greater
than
90 Days
Past Due

Total
Past Due
Current Total
(In thousands)
Loans receivable held for investment:
Single family $ – $ – $ – $ – $ 30,781 $ 30,781
Multi-family 4,316 5,864 – 10,180 450,618 460,798
Commercial real estate – – – – 91,576 91,576
Church – – – – 16,683 16,683
Construction – – – – 57,845 57,845
Commercial - other 41 12 – 53 66,463 66,516
SBA loans –
–
– – 3,654
3,654

Consumer – – – – 9 9
Total $ 4,357 $ 5,876 $ – $ 10,233 $ 717,629 $ 727,862

December 31, 2021

30-59
Days
Past Due

60-89
Days
Past Due

Greater
than
90 Days
Past Due

Total
Past Due
Current Total
(In thousands)
Loans receivable held for investment:
Single family $ – $ – $ – $ – $ 45,372 $ 45,372
Multi-family – – – – 395,230 395,230
Commercial real estate – – 2,423 2,423 90,770 93,193
Church – – – – 22,503 22,503
Construction – – – – 32,072 32,072
Commercial - other – – – – 46,539 46,539
Consumer – – – – 18,837 18,837
Total $ – $ – $ 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 dates indicated:~~

September 30, 2022 December 31, 2021
(In thousands)
Loans receivable held for investment:
Church $ 608 $
684
Total non-accrual loans $ 608 $ 684

~~Table of Contents~~

There were no loans 90 days or more delinquent that were accruing interest as of ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~ 2022.

~~None~~Table of ~~the church non-accrual loans were delinquent, but none qualified for accrual status as of the dates indicated.~~Contents

Modified Loans to Troubled ~~Debt Restructurings (TDRs)~~Borrowers

On January 1, 2023, the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing. The ACL for loans that were modified in response to a borrower’s financial difficulty is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for such loans is determined through individual evaluation. There were no loan modifications to borrowers that were experiencing financial difficulty during the three months ended March 31, 2023.

Troubled Debt Restructurings (TDRs)

Prior to the adoption of ASU 2022-02 – Financial Instruments-Credit Losses: Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, the Company accounted for TDRs in accordance with ASC 310-40. When a loan to a borrower that was experiencing financial difficulty was modified in response to that difficulty, the loan was classified as a TDR. At ~~September 30,~~December 31, 2022, loans classified as TDRs totaled ~~$2.0~~$1.7 million, of which ~~$155 thousand were included in non-accrual loans and $1.9 million were on accrual status. At December 31, 2021, loans classified as TDRs totaled $1.8 million, of which $188~~$144 thousand were included in non-accrual loans and $1.6 million were on accrual status. The Company ~~has~~had allocated $7 thousand of specific reserves for accruing TDRs as of ~~September 30, 2022 and~~ December 31, ~~2021, respectively.~~2022. TDRs on accrual status ~~are~~were 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~~Company anticipates full repayment of both principal and interest. TDRs that ~~are~~were on non-accrual status ~~can~~could 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~~

ASU 2022-02 eliminated the ~~borrower’s financial condition~~concept of TDRs in current GAAP, and ~~prospects for repayment under the revised terms is also required. As of September 30, 2022 and December 31, 2021,~~therefore, beginning January 1, 2023, the Company ~~had~~ no ~~commitment to lend additional amounts to customers with outstanding~~longer reports loans ~~that are classified~~modified as ~~TDRs. No~~TDRs except for those loans ~~were~~ modified ~~during the nine months ended September 30, 2022~~ and ~~2021.~~reported as TDRs in prior period financial information under previous GAAP.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For single family residential, consumer, and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

●

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

●

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

●

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

●

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

●

Loss. Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

Loans not meeting the criteria above that are analyzed individually as part of the ~~above described~~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 dates indicated were as follows:~~

September 30, 2022
Pass Watch Special Mention Substandard Doubtful Loss Total
(In thousands)
Single family $ 30,422 $ 359 $ – $ – $ – $ – $ 30,781
Multi-family 448,183 1,735
7,162 3,718 – – 460,798
Commercial real estate 90,142 – – 1,434 – – 91,576
Church 14,934 – – 1,749 – – 16,683
Construction 23,504 34,341 – – �� – 57,845
Commercial - others 61,426 5,090 – – – – 66,516
SBA
3,022
632
–
–
–
–
3,654
Consumer 9 – – – – – 9
Total $ 671,642 $ 42,157 $ 7,162 $ 6,901 $ – $ – $ 727,862

1516

Table of Contents

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

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination as of the date indicated:

	Term Loans Amortized Cost Basis by Origination Year - As of March 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(In thousands)
Single family:
Pass	$	–	$	2,517	$	2,663	$	4,399	$	1,833	$	16,798	$	–	$	28,210
Watch		–		–		–		–		–		349		–		349
Special Mention		–		–		–		–		–		258		–		258
Substandard		–		–		–		–		–		399		–		399
Total	$	–	$	2,517	$	2,663	$	4,399	$	1,833	$	17,804	$	–	$	29,216

Multi-family:
Pass	$	13,179	$	187,621	$	154,166	$	27,839	$	46,232	$	57,980	$	–	$	487,017
Watch		–		3,300		915		–		–		3,453		–		7,668
Special Mention		–		–		–		–		–		1,775		–		1,775
Substandard		–		–		–		–		760		13,826		–		14,586
Total	$	13,179	$	190,921	$	155,081	$	27,839	$	46,992	$	77,034	$	–	$	511,046

Commercial real estate:
Pass	$	2,835	$	22,571	$	26,181	$	30,678	$	6,430	$	32,719	$	–	$	121,414
Watch		–		432		–		–		740		1,101		–		2,273
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–	$	–	$	–		5,344	$	–	$	5,344
Total	$	2,835	$	23,003	$	26,181	$	30,678	$	7,170	$	39,164	$	–	$	129,031

Church:
Pass	$	–	$	–	$	2,247	$	1,785	$	–	$	7,188	$	–	$	11,220
Watch		–		–		–		–		649		1,120		–		1,769
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		994		–		994
Total	$	–	$	–	$	2,247	$	1,785	$	649	$	9,302	$	–	$	13,983

Construction:
Pass	$	995	$	–	$	1,219	$	–	$	–	$	2,154	$	–	$	4,368
Watch		17,495		30,012		7,268		–		–		–		–		54,775
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	18,490	$	30,012	$	8,487	$	–	$	–	$	2,154	$	–	$	59,143

Commercial – others:
Pass	$	–	$	7,611	$	175	$	1,404	$	4,300	$	5,784	$	6,568	$	25,842
Watch		–		1,205		107		1,500		2,250		5,532		637		11,231
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		281		–		281
Total	$	–	$	8,816	$	282	$	2,904	$	6,550	$	11,597	$	7,205	$	37,354

SBA:
Pass	$	–	$	148	$	2,723	$	–	$	28	$	128	$	–	$	3,027
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		538		–		–		–		538
Substandard		–		–		–		–		–		–		–		–
Total	$	–	$	148	$	2,723	$	538	$	28	$	128	$	–	$	3,565

Consumer:
Pass	$	10	$	–	$	–	$	–	$	–	$	–	$	–	$	10
Watch		–		–		–		–		–		–		–		–
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	10	$	–	$	–	$	–	$	–	$	–	$	–	$	10

Total loans:
Pass	$	17,019	$	220,468	$	189,374	$	66,105	$	58,823	$	122,751	$	6,568	$	681,108
Watch		17,495		34,949		8,290		1,500		3,639		11,555		637		78,065
Special Mention		–		–		–		538		–		2,033		–		2,571
Substandard		–		–		–		–		760		20,844		–		21,604
Total loans	$	34,514	$	255,417	$	197,664	$	68,143	$	63,222	$	157,183	$	7,205	$	783,348

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The following table stratifies the loan portfolio by the Company’s internal risk rating as of the date indicated:

	December 31, 2022
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Total
Single family	$	29,022	$	354	$	260	$	402	$	–	$	–	$	30,038
Multi-family		479,182		9,855		14,859		–		–		–		503,896
Commercial real estate		104,066		4,524		1,471		4,513		–		–		114,574
Church		14,505		728		–		547		–		–		15,780
Construction		2,173		38,530		–		–		–		–		40,703
Commercial – others		53,396		11,157		–		288		–		–		64,841
SBA		3,032		569		–		–		–		–		3,601
Consumer		11		–		–		–		–		–		11
Total	$	685,387	$	65,717	$	16,590	$	5,750	$	–	$	–	$	773,444

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an allowance for credit losses on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in other liabilities of the consolidated statements of financial condition. Upon the Company’s adoption of ASC 326 on January 1, 2023, the Company applies an expected credit loss estimation methodology for off-balance sheet commitments. This methodology is commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for the probability that a loan will fund, as well as the expected amount of funding. These assumptions are based on the Company’s own historical internal loan data.

The allowance for off-balance sheet commitments was $367 thousand and $412 thousand at March 31, 2023 and December 31, 2022, respectively.

NOTE ~~(6)~~5 – Goodwill and Core Deposit Intangible ~~Assets~~

~~In connection with the CFBanc Merger (see Note 2 – Business Combination), the~~The Company recognized goodwill of $~~26.0~~25.9 million and a core deposit intangible of $~~3.3~~2.4 million. An assessment of goodwill impairment was performed as of ~~June~~December ~~30,~~31, 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- and nine-month period~~three months ended ~~September 30, 2022:~~March 31, 2023:

	Goodwill			Core Deposit Intangible			Goodwill		Core Deposit Intangible
	(In thousands)						(In thousands)
Balance at the beginning of the period	$	25,996		$	2,936		$	25,858	$	2,501
Additions		–			–			–		–
Change in deferred tax estimate		(138	)		–			–		–
Amortization		–			(326	)		–		(98	)
Balance at the end of the period	$	25,858		$	2,610		$	25,858	$	2,403

The carrying amount of the core deposit intangible consisted of the following at ~~September~~March ~~30, 2022~~31, 2023 (in thousands):

Core deposit intangible acquired	$	3,329		$	3,329
Less: accumulated amortization		(719	)		(926	)
	$	2,610		$	2,403

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

2022	$	110
2023		390	$	292
2024		336		336
2025		315		315
2026		304		304
2027				291
Thereafter		1,155		865
	$	2,610	$	2,403

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NOTE ~~(7)~~6 – Borrowings

The ~~Bank~~Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the ~~Bank~~Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the ~~Bank~~Company 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~~Company’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of ~~September 30, 2022~~March 31, 2023 securities sold under agreements to repurchase totaled ~~$65.4~~$70.9 million at an average rate of 0.24%. The market value of securities pledged totaled ~~$70.0~~$87.6 million as of ~~September 30, 2022,~~March 31, 2023, and included ~~$34.2~~$33.9 million of U.S. Treasuries, $26.0 million of U.S. Government Agency securities, ~~$29.4~~$22.2 million of mortgage-backed securities, ~~$5.6~~$5.3 million of SBA pool securities and ~~$829~~$273 thousand of federal agency CMO. As of December 31, ~~2021,~~2022, securities sold under agreements to repurchase totaled ~~$52.0~~$63.5 million at an average rate of ~~0.10%~~0.38%. The market value of securities pledged totaled ~~$53.2~~$64.4 million as of December 31, ~~2021,~~2022, and included ~~$13.3~~$33.3 million of federal agency debt, $19.2 million of U.S. ~~Government Agency securities~~Treasuries and ~~$39.9~~$11.9 million of federal agency mortgage-backed securities.

At ~~September~~ ~~30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the ~~Bank~~Company had outstanding advances from the ~~FHLB~~Federal Home Loan Bank (“FHLB”) totaling ~~$32.9~~$168.8 million and ~~$86.0~~$128.3 million, respectively. The weighted interest rate was ~~1.34%~~4.35% and ~~1.85%~~3.74% as of ~~September~~ ~~30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The weighted average contractual maturity was 29nine months and 2213 months as of ~~September~~ ~~30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The advances were collateralized by loans with a ~~market~~fair value of ~~$146.6~~$329.1 million at ~~September 30, 2022~~March 31, 2023 and ~~$165.0~~$328.1 million at December 31, 2021.2. The ~~Bank~~Company is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the ~~Bank~~Company provides qualifying collateral and holds sufficient FHLB stock. Based on collateral pledged and FHLB stock as of ~~September 30, 2022,~~March 31, 2023, the Company was eligible to borrow an additional ~~$101.7~~$157.2 million as of ~~September~~March 31, 2023.

In addition, the Company had additional lines of credit of $10.0 million with other financial institutions as of March 31, 2023. These lines of credit are unsecured, bear interest at the Federal funds rate as of the date of utilization, and mature in 30 ~~2022.~~days.

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 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 two 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.

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NOTE ~~(8)~~7 – 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~~Collateral dependent loans are evaluated on a quarterly basis for additional ~~impairment~~required calculation adjustments (taken as part of the ACL) 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.

~~Table of Contents~~

Assets Measured on a Recurring Basis

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

	Fair Value Measurement								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		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)								(In thousands)
At September 30, 2022:
At March 31, 2023:
Securities available-for-sale:
Federal agency mortgage-backed	$	–	$	78,591	$	–	$	78,591	$	–	$	73,017	$	–	$	73,017
Federal agency CMO		–		24,852		–		24,852		–		25,749		–		25,749
Federal agency debt		–		52,204		–		52,204		–		52,030		–		52,030
Municipal bonds		–		4,127		–		4,127		–		4,299		–		4,299
U.S. Treasuries		–		160,185		–		160,185		162,096		–		–		162,096
SBA pools		–		12,786		–		12,786		–		11,835		–		11,835

At December 31, 2021:
At December 31, 2022:
Securities available-for-sale:
Federal agency mortgage-backed	$	–	$	70,030	$	–	$	70,030	$	–	$	74,169	$	–	$	74,169
Federal agency CMO		–		9,287		–		9,287		–		26,100		–		26,100
Federal agency debt		–		37,988		–		37,988		–		51,425		–		51,425
Municipal bonds		–		4,915		–		4,915		–		4,197		–		4,197
U.S. Treasuries		–		17,951		–		17,951		160,589		–		–		160,589
SBA pools		–		16,225		–		16,225		–		12,269		–		12,269

There were no transfers between Level 1, Level 2, or Level 3 during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Bank did not have any assets or liabilities carried at fair value on a nonrecurring basis.

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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, 2022~~March 31, 2023 and December 31, 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.2022.

			Fair Value Measurements at September 30, 2022										Fair Value Measurements at March 31, 2023
	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	$	52,217	$	52,217	$	–	$	–	$	52,217	$	29,648	$	29,648	$	–	$	–	$	29,648
Securities available-for-sale		332,745		–		332,745		–		332,745		329,026		162,096		166,930		–		329,026
Loans receivable held for investment		722,685		–		–		603,731		603,731		776,053		–		–		636,286		636,286
Accrued interest receivables		3,467		266		849		2,352		3,467		4,219		612		635		2,972		4,219
Bank owned life insurance		3,222		3,222		–		–		3,222		3,242		3,242		–		–		3,242

Financial Liabilities:
Deposits	$	768,511	$	–	$	682,420	$	–	$	682,420	$	657,542	$	–	$	596,064	$	–	$	596,064
Federal Home Loan Bank advances		32,888		–		31,581		–		31,581
FHLB advances												168,810		–		167,175		–		167,175
Securities sold under agreements to repurchase		65,407		–		62,716		–		62,716		70,941		–		67,423		–		67,423
Note payable		14,000		–		–		14,000		14,000		14,000		–		–		14,000		14,000
Accrued interest payable		186		–		186		–		186		368		–		368		–		368

			Fair Value Measurements at December 31, 2021										Fair Value Measurements at December 31, 2022
	Carrying Value		Level 1		Level 2		Level 3		Total		Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)										(In thousands)
Financial Assets:
Cash and cash equivalents	$	231,520	$	231,520	$	–	$	–	$	231,520	$	16,105	$	16,105	$	–	$	–	$	16,105
Securities available-for-sale		156,396		–		156,396		–		156,396		328,749		160,589		168,160		–		328,749
Loans receivable held for investment		648,513		–		–		623,778		623,778		768,046		–		–		641,088		641,088
Accrued interest receivables		3,372		19		1,089		2,264		3,372		3,973		442		793		2,738		3,973
Bank owned life insurance		3,190		3,190		–		–		3,190		3,233		3,233		–		–		3,233

Financial Liabilities:
Deposits	$	788,052	$	–	$	754,181	$	–	$	754,181	$	686,916	$	–	$	673,615	$	–	$	673,615
Federal Home Loan Bank advances		85,952		–		87,082		–		87,082
FHLB advances												128,344		–		126,328		–		126,328
Securities sold under agreements to repurchase		51,960		–		51,960		–		51,960		63,471		–		60,017		–		60,017
Note payable		14,000		–		–		14,000		14,000		14,000		–		–		14,000		14,000
Accrued interest payable		119		–		119		–		119		453		–		453		–		453

In accordance with ASU No. 2016-01, the fair value of financial assets and liabilities 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.

NOTE ~~(9)~~8 – 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~~March ~~30, 2022~~31, 2023, ~~901,781~~968,572 shares had been awarded and ~~391,328~~324,537 shares are available under the LTIP.

During February of ~~2022~~2023 and ~~2021,~~2022, the Company issued ~~47,187~~73,840 and ~~20,736~~47,187 shares of stock, respectively, to its directors under the ~~2018~~ LTIP, which were fully vested. The Company recorded $0$96 thousand and $84 thousand of compensation expense during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, respectively, based on the fair value of 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, the Company recorded $0 and $46 thousand of stock compensation expense.~~

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During March of 2022, the Company issued 495,262 shares to its officers and employees under the ~~2018 LTIP.~~LTIP of which 74,736 shares have been forfeited as of March 31, 2023. 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-~~three months ending March 31, 2023 and ~~nine-month periods ending September 30,~~ 2022, the company recorded ~~$35~~$38 thousand and ~~$93~~$15 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 granted prior to 2021.

No stock options were granted during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

~~Table of Contents~~

The following table summarizes stock option activity during the ~~nine~~three months ended ~~September 30, 2022 and 2021:~~March 31, 2023:

	September 30, 2022					September 30, 2021				March 31, 2023
	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		450,000	$	1.62		250,000	$	1.62
Granted during period		–			–		–		–		–		–
Exercised during period		–			–		–		–		–		–
Forfeited or expired during period		(200,000	)		–		–		–		–		–
Outstanding at end of period		250,000		$	1.62		450,000	$	1.62		250,000	$	1.62
Exercisable at end of period		250,000		$	1.62		450,000	$	1.62		250,000	$	1.62

The Company did not record any stock-based compensation expense related to stock options during the three ~~and nine~~ months ended ~~September 30, 2022~~ ~~since these stock options became fully vested~~March 31, 2023 and ~~all compensation 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, respectively.~~2022.

Options outstanding and exercisable at ~~September 30, 2022~~March 31, 2023 were as follows:

Outstanding	Outstanding						Exercisable						Outstanding						Exercisable
Number Outstanding	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value		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	2.88 years	$	1.62	$	–		250,000	$	1.62	$	–
	250,000	3.38 years	$	1.62	$	–		250,000	$	1.62	$	–

NOTE ~~(10)~~9 – ESOP Plan

Employees participate in an ~~Employee Stock Option Plan (“ESOP”)~~ESOP after attaining certain age and service requirements. In ~~December 2016,~~2022, the ESOP purchased ~~1,493,679~~466,955 shares of the Company’s common stock at ~~$1.59~~a cost of $1.07 per share for a total cost of ~~$2.4 million, of~~$500 thousand which ~~$1.2 million~~ was funded with a ~~loan~~$5.0 million line of credit from the Company. During the first quarter of 2023, the ESOP purchased 2,065,342 additional shares of the Company’s common stock at an average cost of $1.21 per share for a total cost of $2.5 million which was funded with the line of credit. 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 ~~$11~~$12 thousand and ~~$34~~$18 thousand for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $56 thousand and $81 thousand for the nine months ended September 30, 2022 and 2021,~~ respectively.

Shares held by the ESOP were as follows:

	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
	(Dollars in thousands)				(Dollars in thousands)

Allocated to participants		1,102,583		1,065,275		1,057,504		1,057,504
Committed to be released		–		10,236		19,784		9,892
Suspense shares		491,425		562,391		3,003,938		948,488
Total ESOP shares		1,594,008		1,637,902		4,081,226		2,015,884
Fair value of unearned shares	$	555	$	1,040	$	3,545	$	1,015

~~Unearned~~The value of unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were ~~$781 thousand~~$4.0 million and ~~$829 thousand~~$1.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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NOTE ~~(11)~~10 – 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 March 31, 2020. The ratio then rose to 8.5% for 2021 and was reestablished at 9% on January 1, 2022.~~

Actual and required capital amounts and ratios as of the dates indicated are presented ~~below.~~

below:

	Actual					Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions					Actual					Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)										(Dollars in thousands)
September 30, 2022:
March 31, 2023:
Community Bank Leverage Ratio	$	169,909		14.70	%	$	103,995		9.00	%	$	181,562		15.69	%	$	104,174		9.00	%
December 31, 2021:
December 31, 2022:
Community Bank Leverage Ratio	$	98,590		9.32	%	$	89,871		8.50	%	$	181,304		15.75	%	$	103,591		9.00	%

At ~~September 30, 2022,~~March 31, 2023, 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 ~~September 30~~March 31, ~~2022~~2023 that would materially adversely change the Bank’s capital classifications. From time to time, the Bank may need to raise additional capital to support its further growth and to maintain its “well capitalized” status.

NOTE ~~(12)~~11 – 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 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.

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At ~~September 30, 2022,~~March 31, 2023, the Company maintained a $~~370~~369 thousand 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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NOTE ~~(13)~~12 – Concentration of Credit Risk

The Bank has a significant concentration of deposits with one customer that accounted for approximately ~~17%~~10% of its deposits as of ~~September~~March ~~30, 2022.~~31, 2023. The Bank also has a significant concentration of short-term borrowings from one customer that accounted for ~~79%~~75% of the outstanding balance of securities sold under agreements to repurchase as of March~~September~~ ~~30, 2022.~~31, 2023. The ~~Bank~~Company 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 1, Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. 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,~~“expect,” “estimate,” ~~“expect,~~“project,” ~~“project,~~“budget,” “forecast,” “anticipate,” “intend,” “plan,” ~~“forecast,~~“may,” ~~“intend,~~“will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” “poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” 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

Critical accounting policies are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to 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 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 to Consolidated Financial Statements in our ~~2021~~2022 Form 10-K to gain a better understanding of how our financial performance is measured and reported. Management has identified the Company’s critical accounting policies as follows:

Allowance for Credit Losses

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The allowance for credit losses (“ACL”) is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL for each of its loan segments using the weighted-average remaining maturity (“WARM”) method. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions. The Company’s ACL model also includes adjustments for qualitative factors, where appropriate.

Certain loans, such as those that are nonperforming or are considered to be collateral dependent, are deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent in which case the ACL is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

Allowance for Loan Losses

Prior to the adoption of ASC 326 on January 1, 2023, the ALLL was accounted for under the guidance of ASC 310 and 450. The ~~determination of the allowance for loan losses (“ALLL”) is~~ALLL was considered a critical estimate due to the high degree of judgment involved, the subjectivity of the underlying assumptions used, and the potential for changes in the economic environment that could ~~result~~have resulted in material changes in the amount of the ALLL considered necessary. The ALLL iswas evaluated on a regular basis by management and the Board of Directors and iswas based on a periodic review of the collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and feedback from regulatory examinations.

~~Business Combinations~~

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

~~Acquired Loans~~

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

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.

2325

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Goodwill and Intangible Assets

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

Income Taxes

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

Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Fair values are estimated using relevant market information and other assumptions, as more fully disclosed in Note 87 of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for items. Changes in assumptions or in market conditions could significantly affect the estimates.

Overview

Broadway Financial Corporation (the “Company”) merged with CFBanc Corporation (“CFBanc”) on April 1, 2022, with Broadway Financial Corporation continuing as the surviving 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 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 (the “Bank”), whereas results for the three months 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.

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 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 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 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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Total assets increased by ~~$76.1~~$20.8 million ~~during the first nine months of 2022~~ to $1.2 billion at ~~September 30,~~March 31, 2023 from December 31, 2022, primarily due to growth in cash and cash equivalents of $13.5 million, growth of $8.0 million in loans receivable held for investment, ~~securities available-for-sale~~net of ~~$176.3 million~~allowance, and ~~growth~~an increase in ~~net loans~~FHLB stock of ~~$74.2 million,~~$1.8 million. These increases were partially offset by ~~a decrease~~decreases of ~~$179.3~~$1.7 million in ~~cash~~Federal Reserve Bank (“FRB”) stock and ~~cash equivalents. The increase~~$1.0 million in ~~total~~deferred tax 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.net.

Total liabilities ~~decreased~~increased by ~~$60.4~~$20.6 million to ~~$892.1~~$925.2 million at ~~September 30, 2022~~March 31, 2023 from ~~$952.4~~$904.6 million at December 31, ~~2021.~~2022. The ~~decrease~~increase in total liabilities primarily consisted of ~~decreases~~increases of ~~$53.1~~$40.5 million in FHLB advances ~~$19.5~~and $7.5 million ~~in deposits and $1.2 million in other liabilities, which were partially offset by net increases~~ in securities sold under agreements to repurchase, which were partially offset by decreases in deposits of ~~$13.4~~$29.4 million.

During the ~~third~~first quarter of ~~2022, we recorded an increase in~~2023, net interest income ~~of $2.6~~increased by $1.1 million or ~~43.7%~~15.4% compared to the ~~third~~first quarter of ~~2021.~~2022. This increase resulted from anadditional interest income, primarily generated from growth of $81.4 million in average interest-earning assets. The increase in the ~~average balance of interest-earning assets, primarily from~~net interest margin was attributable to 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, which increased interest earning assets without any associated interest cost. Also, the net interest margin increased to ~~Bank which reduced~~2.96% for the ~~Bank’s multi-family and commercial real estate loan concentration levels.~~first quarter of 2023, compared to 2.76% for the first quarter of 2022, primarily due to an increase of 86 basis points in the average yield earned on interest-earning assets due to higher rates earned on investments in the increasing interest rate environment.

Partially offsetting these improvements ~~were~~was an increase in ~~loan loss provision~~income tax expense of ~~$656~~$311 thousand ~~a decrease in non-interest income of $244 million~~ and an increase in non-interest expenses of ~~$94~~$246 thousand during the three months ended ~~September 30, 2022,~~March 31, 2023, compared to the same period in ~~2021. Non-interest~~2022. The increase in tax expense reflected an increase of $924 thousand in pre-tax income ~~for~~between the ~~third quarter~~two periods.

Table 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.Contents

For the ~~nine months ended September 30, 2022,~~first quarter of 2023, the Company reported net income of ~~$4.1~~$1.6 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$982 thousand for the first ~~three and nine months~~quarter of ~~2022 reflect the consolidated operations of CFB after the Merger on April 1, 2021.~~2022.

Results of Operations

Net Interest Income

Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to the Three Months Ended ~~September 30, 2021~~March 31, 2022

Net interest income ~~before loan loss provision~~ for the ~~third~~first quarter of ~~2022~~2023 totaled ~~$8.6~~$8.3 million, representing an increase of ~~$2.6~~$1.1 million, or ~~43.7%~~15.4%, over net interest income ~~before loan loss provision~~ of ~~$6.0~~$7.2 million for the ~~third~~first quarter of ~~2021.~~2022. The increase resulted from additional interest income, primarily generated from growth of ~~$152.9~~$81.4 million in average interest-earning assets during the ~~third~~first quarter of ~~2022,~~2023, compared to the ~~third~~first quarter of ~~2021. Net interest income in the third quarter of 2021 also benefited from a reduction of 16 basis points in the overall rate paid on average interest-bearing liabilities.~~2022.

Interest income and fees on loans receivable increased by ~~$224 thousand,~~$1.2 million, or ~~3.6%~~16.3%, to ~~$6.5~~$8.5 million for the ~~third~~first quarter of ~~2022,~~2023, from ~~$6.3~~$7.3 million for the ~~third~~first quarter of ~~2021~~2022 due to an increase of ~~$70.3~~$109.2 million in the average balance of loans receivable, which increased interest income by $691 thousand, which was offset by a decrease of 29 basis points in the average yield on loans, which decreased interest income by $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.$1.2 million.

Interest income on securities increased by $1.6 million, or ~~352.7%~~294.2%, for the ~~third~~first quarter of ~~2022,~~2023, compared to the ~~third~~first quarter of ~~2021.~~2022. The increase in interest income on securities primarily resulted from an increase of ~~147~~128 basis points in the average interest rate earned on securities, which increased interest income by ~~$901~~$767 thousand, and an increase of ~~$156.8~~$167.8 million in the average balance of securities, which increased interest income by ~~$711~~$860 thousand. The increase in the average balance of 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~~federal funds to higher yielding investment securities.

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~~Other interest income increased by $483 thousand, or 309.6%, during the third quarter of 2022 compared to the third quarter of 2021.~~ Interest income on interest-earning cash in other banks increased by ~~$493~~$35 thousand primarily due to an increase of ~~149~~264 basis points in the average interest rate earned on cash deposits, which increased interest income by ~~$539~~$180 thousand, and was partially offset by a decrease of ~~$73.1~~$203.2 million in average cash deposits, which ~~decreased~~reduced interest income by ~~$46~~$145 thousand. ~~This net increase was partially offset by a decrease of $10 thousand in dividend~~Dividend income on ~~Federal Home Loan Bank (“FHLB”)~~FHLB and ~~Federal Reserve Board (“FRB”)~~FRB stock also increased by $171 thousand between the two periods.

Interest expense on deposits increased by ~~$28~~$953 thousand, or ~~6.3%~~272.3%, for the ~~third~~first quarter of ~~2022,~~2023, compared to the ~~third~~first quarter of ~~2021.~~2022. The increase was attributable to an increase of ~~$96.0 million in the average deposits which increased interest income by $60 thousand. This increase was partially offset by a decrease of 2~~70 basis points paid on interest-bearing deposits, which caused interest expense on deposits to increase by $1.0 million. This was partially offset by a decrease of $124.2 million in the average balance of interest-bearing deposits which reduced interest expense by ~~$32~~$72 thousand.

Interest expense on borrowings ~~decreased~~increased by ~~$326~~$977 thousand, or ~~69.1%~~199.8%, for the ~~third~~first quarter of ~~2022,~~2023, compared to the ~~third~~first quarter of ~~2021.~~2022. Interest expense on FHLB advances ~~decreased~~increased by ~~$329~~$981 thousand between the two periods due to ~~a decrease~~an increase of ~~$58.1~~$67.4 million in the average balance of FHLB advances, which ~~decreased~~increased interest expense by ~~$223~~$438 thousand, and ~~a decrease~~an increase of 59189 basis points in the average rate paid, which ~~decreased~~increased interest expense by ~~$106~~$543 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~~decreased by ~~$20~~$4 thousand between the two periods. The average rate on other borrowings increased by 94 basis points, which increased interest expense by ~~$16~~$7 thousand and the average balance increased by ~~$13.4~~$1.6 million, which increased interest expense by $3 thousand.

~~The~~As a result of the changes discussed above, 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~~2.96% for the first ~~nine months~~quarter of ~~2022,~~2023 from ~~$16.2 million~~2.76% 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.

~~Table of Contents~~

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 $162.4 million in the average balance of deposits, primarily because of the Merger, which increased interest expense by $312 thousand.

Interest expense on borrowings decreased by $990 thousand, or 61.6%, for the nine months ended September 30, 2022, compared to the 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 $704 thousand, and a decrease in average borrowings of $32.5 million during the period, which decreased interest expense by $286 thousand. The decrease in the average balance of borrowings was due to a decrease of $53.3 million in average borrowings from the FHLB and a decrease of $3.1 million in the average balance of the Company’s junior subordinated debentures, which were paid off in the third quarter of ~~2021, partially offset by an increase of $23.9 million in the average balance of short-term borrowings (primarily securities sold under agreements to repurchase assumed in the Merger).~~

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

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

For the Three Months Ended
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 $ 141,281 $ 594 1.68 % $ 214,366 $ 101 0.19 %
Securities 313,983 2,069 2.64 % 157,142 457 1.16 %
Loans receivable ⁽¹⁾
683,085 6,520 3.82 % 612,755 6,296 4.11 %
FRB and FHLB stock 2,166 45 8.31 % 3,401 55 6.47 %
Total interest-earning assets 1,140,515 $ 9,228 3.24 % 987,664 $ 6,909 2.80 %
Non-interest-earning assets 51,845 61,615
Total assets $ 1,192,360 $ 1,049,279

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits $ 180,865 $ 271 0.60 % $ 199,577 $ 159 0.32 %
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 176,433 114 0.26 % 197,746 189 0.38 %
Total deposits 777,550 474 0.24 % 681,560 446 0.26 %
FHLB advances 32,913 111 1.35 % 91,000 440 1.93 %
Junior subordinated debentures – – – % 2,923 17 2.33 %
Other borrowings 79,025 35 0.18 % 65,657 15 0.09 %
Total borrowings 111,938 146 0.52 % 159,580 472 1.18 %
Total interest-bearing liabilities 889,488 $ 620 0.28 % 841,140 $ 918 0.44 %
Non-interest-bearing liabilities 21,852 64,271
Stockholders’ Equity 281,020 143,868
Total liabilities and stockholders’ equity $ 1,192,360 $ 1,049,279

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

Table of Contents

	For the Three Months Ended
	March 31, 2023							March 31, 2022
(Dollars in Thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	17,044	$	119		2.79	%	$	220,266	$	84		0.15	%
Securities		328,767		2,180		2.65	%		160,968		553		1.37	%
Loans receivable ⁽¹⁾		762,669		8,535		4.48	%		653,493		7,336		4.49	%
FRB and FHLB stock		10,665		209		7.84	%		3,046		38		4.99	%
Total interest-earning assets		1,119,145	$	11,043		3.95	%		1,037,773	$	8,011		3.09	%
Non-interest-earning assets		67,947							74,542
Total assets	$	1,187,092						$	1,112,315

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	134,047	$	771		2.30	%	$	207,078	$	189		0.37	%
Savings deposits		61,317		13		0.08	%		66,825		8		0.05	%
Interest checking and other demand deposits		239,024		77		0.13	%		230,461		39		0.07	%
Certificate accounts		147,260		442		1.20	%		201,446		114		0.23	%
Total deposits		581,648		1,303		0.90	%		705,810		350		0.20	%
FHLB advances		145,201		1,323		3.64	%		77,849		342		1.76	%
Other borrowings		69,618		143		0.82	%		68,019		147		0.86	%
Total borrowings		214,819		1,466		2.73	%		145,868		489		1.34	%
Total interest-bearing liabilities		796,467	$	2,769		1.39	%		851,678	$	839		0.39	%
Non-interest-bearing liabilities		109,955							121,912
Stockholders’ equity		280,670							138,725
Total liabilities and stockholders’ equity	$	1,187,092						$	1,112,315

Net interest rate spread ⁽²⁾			$	8,274		2.56	%			$	7,172		2.69	%
Net interest rate margin⁽³⁾						2.96	%						2.76	%
Ratio of interest-earning assets to interest-bearing liabilities						140.51	%						121.85	%

(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.

~~Table of Contents~~

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.~~

~~Table of Contents~~

~~Loan~~Credit loss provision

~~The Company's bank subsidiary, City First Bank, National Association (the "Bank")~~For the quarter ended March 31, 2023, the Company recorded a ~~loan loss~~ provision for credit losses under CECL of ~~$1.0 million for the three months ended September 30, 2022, as~~$88 thousand, compared to a loan loss provision under the previously used incurred loss model of ~~$365~~$148 thousand for the ~~three-month period~~quarter ended September 30, 2021 due to growth in the loan 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.March 31, 2022. No loan charge-offs were recorded during the ~~three- and nine-month periods~~quarters ended ~~September 30, 2022 and 2021.~~March 31, 2023 or March 31, 2022. The ~~ALLL~~ACL increased to ~~$4.0~~$6.3 million as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$3.4~~$4.4 million as of December 31, ~~2021.~~2022. The increase was due to the implementation of the CECL methodology adopted by the Company effective January 1, 2023, which increased the ACL by $1.8 million. In addition, the Company recorded an additional increase in the provision for credit losses of $88 thousand during the first quarter of 2023 as a result of growth in the loan portfolio.

Non-interest Income

Non-interest income for the three months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$365~~$289 thousand compared to ~~$609~~$281 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. 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, 2022,~~increase in non-interest income ~~totaled $907~~was due to an increase in other non-interest income of $11 thousand, ~~compared to $2.9 million for the same period~~partially offset by a decrease in ~~the prior year. The decrease~~service charges of ~~$2.0 million was 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.~~$3 thousand.

Non-interest Expense

Total non-interest expense was ~~$6.1~~$6.2 million for the ~~third~~first quarter of ~~2022,~~2023, compared to $6.0 million for the ~~third~~first quarter of ~~2021.~~2022. The increase in non-interest ~~expenses~~expense was ~~mainly~~primarily due to ~~increases~~an increase in other non-interest expense of ~~$106~~$286 thousand, an increase in professional services of $141 thousand and in increase of compensation and benefits ~~expenses and $245~~of $130 thousand, ~~in professional services expenses.~~ ~~These increases were~~ partially offset by decreases ~~in supervisory/regulatory costs of $135~~$150 thousand ~~and information services expenses of $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 professional services expenses of $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~~and $139 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 reflect the consolidated operations of CFB since the Merger on April 1, 2021.occupancy expense.

Income Taxes

Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21%. to the Company’s pre-tax net income. 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 Company’s operations are conducted in the Washington, D.C. area. The Company recorded income tax expense of ~~$534~~$674 thousand ~~for~~during the ~~third~~first quarter of 2023, representing an effective rate of 29.7%, and a tax expense of $363 thousand during the first quarter of 2022, ~~and $51 thousand for the third quarter of 2021. The~~representing an 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 2022 reflects changes in the assumptions used to estimate the Company’s annual income tax expense. Income tax expense for the three months ended September 30, 2021 also included an increase of $370 thousand in the valuation allowance on the Company’s deferred tax assets to record an allowance against net operating loss carryforwards for the State of California, net of federal tax benefit. This change in the valuation allowance was required because shares of common stock that the Company issued in private placements in the 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.27.0%.

2928

Table of Contents

Financial Condition

Total Assets

Total assets increased by ~~$76.1~~$20.8 million ~~to $1.2 billion~~ at ~~September 30, 2022 from $1.1 billion at~~March 31, 2023, compared to December 31, ~~2021. The increase in total assets was primarily due to~~2022, reflecting growth in ~~$176.3~~cash and cash equivalents of $13.5 million ~~in investment securities available-for-sale~~ and growth in net loans of ~~$74.2 million, partially offset by a decrease of $179.3 million in cash and cash equivalents.~~$8.0 million.

Securities Available-For-Sale

Securities available-for-sale totaled ~~$332.7~~$329.0 million at ~~September 30, 2022,~~March 31, 2023, compared with ~~$156.4~~$328.7 million at December 31, ~~2021.~~2022. The ~~$176.3~~$0.3 million of increase in securities available-for-sale during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was primarily due to the deployment of $15.0 million of the $150.0 million ECIP funds into securities in June. The remainder of the increase was due to investing liquidity dollars into higher-yielding short-term securities. This increase was partially offset by an increase ~~in accumulated other comprehensive loss~~ of ~~$9.4~~$3.4 million ~~since the end of 2021 due to a decline~~ in the fair value of ~~investment~~the securities ~~available-for-sale, net of taxes. These decreases in the fair values of available-for-sale investment securities during 2022 were the~~as a result of ~~increases~~favorable changes in ~~market~~ interest rates ~~which caused~~during the ~~fair value~~quarter. These increases were partially offset by proceeds from principal paydowns on the balance of these securities of $3.4 million during 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.~~quarter.

Loans Receivable

Loans receivable increased by ~~$74.2~~$8.0 million during first ~~nine~~three months of ~~2022~~2023 primarily due to loan originations of ~~$141.1~~$32.9 million which consisted of $18.5 million in construction loans, $11.6 million in multi-family loans, and ~~$62.3~~$2.8 million ofin other commercial ~~real estate~~ loans, ~~and commercial loans. Loan~~offset in part by loan payoffs and repayments ~~totaled $132.4million during the first nine months~~ of ~~2022.~~$24.9 million.

Allowance for ~~Loan~~Credit Losses

~~As a smaller reporting company as defined by the SEC,~~Effective January 1, 2023, the Company ~~is not required to adopt the current expected~~accounts for 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, 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 communicatingloans in accordance with ~~borrowers~~ASC 326 – Financial Instruments-Credit Losses, to determine the ~~continuing adequacy~~ACL. ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the ~~ALLL.~~

~~We record~~lifetime expected credit loss associated with a ~~provision for~~ loan ~~losses as a charge~~given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to ~~earnings when necessary in order to maintain the ALLL at a level sufficient, in~~change based on management’s ~~judgment, to absorb probable incurred losses in the loan portfolio. At least quarterly we conduct an~~on-going assessment of the ~~overall~~credit quality of the loan portfolio and ~~general~~changes in economic ~~trends~~forecasts used in the ~~local market.~~model. The ~~determination~~Company uses the WARM method when determining estimates for the ACL for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

Since historical information (such as historical net losses) may not always, by itself, provide a sufficient basis for determining future expected credit losses, the Company periodically considers the need for qualitative adjustments to the ACL.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. The ACL for collateral dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

The estimation of the appropriate level ~~for~~of the ~~allowance is~~ACL requires significant judgment by management. Although management uses the best information available to make these estimations, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Changes in management’s estimates of forecasted net losses could materially change the level of the ACL. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ACL based on ~~that review, considering such factors as historical loss experience for each type~~judgments different from those 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.management.

The ~~ALLL~~ACL, formerly known as the allowance for loan losses, was ~~$4.0~~$6.3 million or ~~0.55%~~0.80% of gross loans held for investment at ~~September 30, 2022,~~March 31, 2023, compared to ~~$3.4~~an ALLL of $4.4 million, or ~~0.52%~~0.57% of gross loans held for investment, at December 31, ~~2021.~~2022.

~~In connection with our review~~

Table 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 considered the ratio of the ALLL to NPLs, which was 655.1% at September 30, 2022 compared to 495.8% at December 31, 2021.Contents

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 ~~three- or nine-month periods~~three month period ending ~~September 30, 2022 or 2021.~~March 31, 2023 and 2022.

Collateral dependent loans at March 31, 2023 were $1.2 million, which had an associated ACL of $53 thousand.

Impaired loans at ~~September 30,~~December 31, 2022 were ~~$2.4~~$1.7 million ~~compared to $2.3 million at December 31, 2021. The increase~~which had specific reserves of ~~$160 thousand in impaired loans was primarily due to paydowns. Specific reserves for impaired loans were~~ $7 thousand or~~0.28%~~ of the aggregate impaired loan ~~amount at September 30, 2022, compared to $7 thousand, or 0.30% of the aggregate impaired loan amount at December 31, 2021.~~amount.

~~Table of Contents~~

Delinquent loans greater than 30 days as of ~~September 30, 2022,~~March 31, 2023, were ~~$10.2 million~~$406 thousand as compared to ~~$2.4 million~~none at December 31, ~~2021.~~2022. The ~~$4.4 million~~$406 thousand 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~~March 31, 2023 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,~~The Company did not have any NPLs ~~totaled $608 thousand, compared to $684 thousand at~~as of March 31, 2023. NPLs as of December 31, ~~2021. The decrease of $76 thousand in NPLs was due to repayments.~~2022 totaled $144 thousand.

We believe that the ~~ALLL~~ACL is adequate to cover ~~probable incurred~~currently expected losses in the loan portfolio as of ~~September 30, 2022,~~March 31, 2023, but there can be no assurance that actual losses will not exceed the estimated amounts. The OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ~~ALLL~~ACL as an integral part of their examination process. These agencies may require an increase in the ~~ALLL~~ACL based on their judgments of the information available to them at the time of their examinations.

Goodwill and Intangible Assets

As a result of the 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 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,~~March 31, 2023 and 2022, the Company recorded ~~$109~~$98 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$109 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,~~December 31, 2022, in which no impairment was determined. No impairment charges were recorded during ~~2022~~the three months ended March 31, 2023 or ~~2021~~2022, for goodwill or the core deposit intangible.

~~Total Liabilities~~Deposits

~~Total liabilities~~Deposits decreased by ~~$60.4~~$29.4 million to ~~$892.1~~$657.5 million at ~~September 30, 2022~~March 31, 2023, from ~~$952.4~~$686.9 million at December 31, ~~2021, largely due to a~~2022. The decrease in ~~FHLB borrowings~~deposits was attributable to decreases of $50.0 million in liquid deposits (demand, interest checking and money market accounts), $2.2 million in savings deposits, $1.5 million in other certificates of deposit accounts, and $226 thousand in Insured Cash Sweep (“ICS”) deposits (ICS deposits are the Company’s money market deposit accounts in excess of FDIC insured limits whereby the Company makes reciprocal arrangements for insurance with other banks), partially offset by an increase ~~in securities sold under agreements to repurchase.~~

~~Deposits~~

~~Deposits decreased to $768.5 million at September 30, 2022 from $788.1 million at December 31, 2021, which consisted~~ of ~~decreases of $29.3~~$24.5 million in ~~CDARS~~Certificate of Deposit Registry Service (“CDARS”) deposits (CDARS deposits are similar to ICS deposits, but involve certificates of deposit, instead of money market accounts)~~, decreases~~. The decrease in deposits was primarily due to customers who left the Company for higher interest rates available elsewhere, even after management made reasonable attempts to be responsive to the higher interest rate environment. As of ~~$69.1 million in liquid~~March 31, 2023, our uninsured deposits (NOW, demand, money market, and passbook accounts) and decreases of $9.8 million in other certificates of deposit 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 relationship accounted forrepresented approximately ~~17%~~25% of our total deposits, ~~at September 30,~~as compared to approximately 31% as of December 31, 2022. ~~We expect to maintain this relationship for the foreseeable future.~~

Borrowings

Total borrowings increased by $47.9 million to $253.8 million at ~~September 30,~~March 31, 2023, from $205.8 million at December 31, 2022, ~~consisted of~~primarily due to $40.5 million in advances ~~to the Bank~~ from the FHLB of ~~$32.9~~Atlanta and $7.5 million ~~repurchase~~in additional securities sold under agreements ~~of $65.4 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million compared~~ to 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.repurchase.

~~Balances of outstanding FHLB advances decreased~~From time to $32.9 million at September 30, 2022, compared to $86.0 million at December 31, 2021, due to the early payoff of $40.0 million in higher rate advances during the year. The weighted average rate on FHLB advances decreased to 1.34% at September 30, 2022, compared to 1.85% at December 31, 2021 due to the payoff of higher rate advances.

~~Table of Contents~~

~~The Bank enters~~time we enter into agreements under which itthe Company sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the ~~Bank~~Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the ~~Bank~~Company 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 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 ~~$65.4~~$70.9 million and ~~$52.0~~$63.5 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and the interest rate ~~was~~paid on the borrowings were 0.24% and ~~0.10%~~0.38%, respectively. These agreements mature on a daily basis. As of ~~September 30, 2022,~~March 31, 2023, securities with a market value of ~~$70.0~~$87.6 million were pledged as collateral for securities sold under agreements to repurchase and included ~~$34.1~~$33.9 million of U.S. Treasuries, $26.0 million of U.S. Government Agency securities, ~~$29.4~~$22.2 million of mortgage-backed securities, ~~$829~~$5.3 million of SBA pool securities and $273 thousand of federal agency ~~CMO and $5.6 million of SBA Pool securities.~~CMO. The market value of securities pledged totaled ~~$53.2~~$64.4 million as of December 31, ~~2021~~2022 and included ~~$13.3~~$33.3 million of federal agency debt, $19.2 million of U.S. ~~Government Agency securities~~Treasuries and ~~$39.9~~$11.9 million of federal agency mortgage-backed securities.

Table of Contents

One relationship accounted for ~~79%~~75% of our balance of securities sold under agreements to repurchase as of ~~September 30, 2022.~~March 31, 2023. We expect to maintain this relationship for the foreseeable future.

In connection with the New Market Tax Credit activities of the ~~Bank,~~Company, 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 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.

Stockholders’ Equity

Stockholders’ equity was ~~$277.4~~$279.7 million, or ~~23.7%~~23.2%, of the Company’s total assets, at ~~September 30, 2022,~~March 31, 2023, compared to ~~$141.0~~$279.5 million, or ~~12.9%~~23.6% of the Company’s total assets at December 31, ~~2021.~~2022. The increase in total stockholders’ equity iswas 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 loss, net of tax of $2.4 million, and net income for the quarter of ~~$17.9~~$1.6 million, ~~since the end~~offset by an increase of ~~2021 due to a decline~~$2.5 million of unearned shares in the ~~fair value of investment securities available-for-sale,~~employee stock ownership plan and the $1.3 million charge, net of ~~taxes. These decreases in~~tax, to retained earnings for the ~~fair values~~implementation 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.CECL.

~~Subsequent to the closing of the private placement of the Series C Preferred Stock, the Company contributed $75.0 million of the proceeds to the Bank. As a result, the~~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%~~15.69% at March 31, ~~2022,~~2023 and ~~9.32%~~15.75% at December 31, ~~2021. The decrease in the CBLR during the quarter was due to growth in average assets which resulted from loan originations and investment purchases.~~2022.

During the first quarter of 2022, the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3 million, plus accrued dividends, for 1,193,317 shares of Class A Common Stock at an exchange price of $2.51 per share of Class A Common Stock. In addition, during the first quarter of 2022, the Company 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 36 months to 60 months, and 47,187 shares of unrestricted stock to directors which vested immediately.

The Company’s book value per share was ~~$1.74~~$1.76 per share as of ~~September 30, 2022 compared to $1.92 per share as of~~both March 31, 2023 and December 31, ~~2021. The decrease in book value per share during the third quarter of 2022 was due to the decrease in equity related to the $18.3 million unrealized losses in the investment portfolio.~~2022.

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.~~merger. The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s financial condition and operational performance. A reconciliation between book value and tangible book value per common share is shown as follows:

~~Table of Contents~~

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.~~

	Common Equity Capital		Shares Outstanding		Per Share Amount
	(Dollars in thousands)
March 31, 2023:
Common book value	$	129,385		73,503,292	$	1.76
Less:
Goodwill		25,858
Net unamortized core deposit intangible		2,403
Tangible book value	$	101,124		73,503,292	$	1.38

December 31, 2022:
Common book value	$	129,482		73,432,517	$	1.76
Less:
Goodwill		25,858
Net unamortized core deposit intangible		2,501
Tangible book value	$	101,123	$	73,432,517	$	1.38

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~~$301.4 million, to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. Based on FHLB stock held and collateral pledged as of ~~September 30, 2022,~~March 31, 2023, the Bank had the ability to borrow ~~and~~an additional ~~$101.7~~$157.2 million from the FHLB of Atlanta. In addition, the Bank had additional lines of credit of ~~$11.0~~$10.0 million with other financial institutions as of ~~September 30, 2022.~~March 31, 2023.

Table of Contents

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, 2022~~March 31, 2023 consisted of ~~$52.2~~$29.6 million in cash and cash equivalents and ~~$153.6~~$242.7 million in securities available-for-sale that were not pledged, compared to ~~$231.5~~$16.1 million in cash and cash equivalents and ~~$52.4~~$250.3 million in securities available-for-sale that were not pledged at December 31, ~~2021.~~2022. 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%~~10% of its deposits as of ~~September 30, 2022.~~March 31, 2023. The Bank also has a significant concentration of short-term borrowings from one customer that accounted for ~~79%~~75% of the outstanding balance of securities sold under agreements to repurchase as of ~~September 30, 2022.~~March 31, 2023. 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 placement completed in June of 2022 and previous private ~~placements including in April of 2021.~~placements. 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.

On a consolidated basis, the Company recorded net cash inflows from operating activities of ~~$5.3~~$3.8 million the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to consolidated net cash ~~inflows~~outflows from operating activities of ~~$4.0~~$1.8 million during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash inflows from operating activities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 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 an increase in other liabilities.~~quarter.

The Company recorded consolidated net cash outflows from investing activities of ~~$275.4~~$6.3 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to consolidated net cash ~~inflows~~outflows from investing activities of ~~$31.1~~$26.3 million during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash outflows from investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 were primarily due to the funding of new loans, offset by repayments of principal on loan balances of $9.7 million and purchases of FHLB stock of $1.8 million, partially offset by proceeds from principal paydowns from available-for-sale securities of $3.4 million. Net cash outflows from investing activities during the three months ended March 31, 2022 were primarily due to ~~the purchase~~purchases of $215.5 million of available-for-sale securities and a net increase in loans of $17.1 million. 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 oninvestment securities of ~~$12.7 million, and redemptions of FHLB stock of $1.2 million, offset by cash used to fund new loans receivable held for investment of $57.1~~$26.9 million.

~~Table of Contents~~

The Company recorded consolidated net cash inflows from financing activities of ~~$90.9~~$16.1 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to consolidated net cash inflows of ~~$77.5~~$42.7 million during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash inflows from ~~investing~~financing activities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 were primarily due to ~~cash received~~proceeds 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~~$40.5 million ~~and decreased~~along with an increase in securities sold under agreements to repurchase of $7.5 million cash, partially offset by a decrease in deposits of ~~$19.5~~$29.4 million. Net cash inflows from ~~investing~~financing activities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 were primarily attributable to a net increase in deposits of ~~$80.3~~$51.7 million and ~~proceeds from the sale~~a net increase of ~~stock~~$4.0 million in securities sold under agreements to repurchase, net of ~~$30.8 million, offset by~~ repayments of FHLB advances of ~~$27.6~~$13.0 million.

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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” (See Note 1110 – Stockholders’ Equity and Regulatory Matters.)

3432

Table of Contents

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, 2022.~~March 31, 2023. 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, 2022.~~March 31, 2023.

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, 2022,~~March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

3533

Table of Contents

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~~Registrant effective as of April 1, 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 Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer 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
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.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.

3634

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 14, 2022~~May 16, 2023	By:	/s/ Brian Argrett
		Brian Argrett
		Chief Executive Officer

Date: ~~November 14, 2022~~May 16, 2023	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.)

4601 Wilshire Boulevard, Suite 150 Los Angeles, California		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		Nasdaq Capital Market

Large accelerated filer	☐	Accelerated filer	☐

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)									(In thousands)
Due in one year or less	$	1,000	$	–	$	–		$	1,000	$	24,876	$	–	$	(493	)	$	24,383
Due after one year through five years		221,154		6		(9,476	)		211,684		194,958		–		(6,682	)		188,276
Due after five years through ten years		64,541		44		(5,934	)		58,651		35,270		–		(2,839	)		32,431
Due after ten years ⁽¹⁾		71,863		12		(10,465	)		61,410		95,069		11		(11,144	)		83,936
	$	358,558	$	62	$	(25,875	)	$	332,745	$	350,173	$	11	$	(21,158	)	$	329,026

TABLE OF CONTENTS
			Page
PART I.	FINANCIAL STATEMENTS

	Item 1.	Consolidated Financial Statements (Unaudited)

		Consolidated Statements of Financial Condition as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	1

		Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	2

		Consolidated Statements of Cash Flows for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3

		Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4

		Notes to Consolidated Financial Statements	65

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2325

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3533

	Item 4.	Controls and Procedures	3533

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	3634

	Item 1A.	Risk Factors	36 34

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3634

	Item 3.	Defaults Upon Senior Securities	3634

	Item 4.	Mine Safety Disclosures	3634

	Item 5.	Other Information	3634

	Item 6.	Exhibits	3634

	Signatures		37 35

	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

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

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

	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	)

	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	)

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
	(In thousands)

Balance at the beginning of the period	$	160		$	883
Deduction due to payoffs		(71	)		(810	)
Accretion		(4	)		(20	)
Balance at the end of the period	$	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

	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
	(In thousands)
Single family	$	60	$	1	$	65	$	4
Multi-family		268		5		288		5
Church		2,172		25		3,614		64
Commercial - other		–		–		–		–
Total	$	2,500	$	31	$	3,967	$	73

	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

	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	%

	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