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BYFC Broadway Financial

Filed: 23 Aug 21, 5:22pm

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

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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

For transition period from__________ to___________

Commission file number      001-39043

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

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

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

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

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

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

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

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

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

Large accelerated filer
Accelerated filer
    
Non-accelerated filer
Smaller reporting company

  
Emerging growth company


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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of August 16, 2021, 43,674,046 shares of the Registrant’s Class A voting common stock, 11,404,621 shares of the Registrant’s Class B non-voting common stock and 16,689,775 shares of the Registrant’s Class C non-voting common stock were outstanding.



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

  June 30, 2021  December 31, 2020 
  (Unaudited)    
Assets:      
Cash and due from banks 
$
41,730
  
$
71,110
 
Interest-bearing deposits in other banks  
168,653
   
24,999
 
Cash and cash equivalents  
210,383
   
96,109
 
Securities available-for-sale, at fair value  
158,832
   
10,698
 
Loans receivable held for investment, net of allowance of $3,296 and $3,215
  
614,718
   
360,129
 
Accrued interest receivable  
2,572
   
1,202
 
Federal Home Loan Bank (FHLB) stock
  
2,896
   
3,431
 
Federal Reserve Bank (FRB) stock
  693
   0
 
Office properties and equipment, net  
9,159
   
2,540
 
Bank owned life insurance  
3,168
   
3,147
 
Deferred tax assets, net  
5,513
   
5,633
 
Core deposit intangible, net
  3,198
   0
 
Goodwill  25,996
   0
 
Other assets  
3,870
   
489
 
Total assets $1,040,998  $483,378 
         
Liabilities and stockholders’ equity        
Liabilities:        
Deposits 
$
705,041
  
$
315,630
 
Securities sold under agreements to repurchase
  70,660   0 
FHLB advances  
96,022
   
110,500
 
Junior subordinated debentures  
2,805
   
3,315
 
Notes payable  14,000
   0
 
Accrued expenses and other liabilities  
8,975
   
5,048
 
Total liabilities  897,503  
434,493 
Cumulative Redeemable Perpetual Preferred stock, Series A, authorized 3,000 shares at June 30, 2021 and NaN at December 31, 2020; issued and outstanding 3,000 shares at June 30, 2021 and NaN at December 31, 2020, liquidation value $1,000 per share
  
3,000
   
0
 
Common stock, Class A, $0.01 par value, voting, authorized 75,000,000 shares at June 30, 2021 and 50,000,000 shares at December 31, 2020; issued 46,248,710 shares at June 30, 2021 and 21,899,584 shares at December 31, 2020; outstanding 43,630,884 shares at June 30, 2021 and 19,281,758 shares at December 31, 2020  
462
   
219
 
Common stock, Class B, $0.01 par value, non-voting, authorized 15,000,000 shares at June 30, 2021 and  0ne at December 31, 2020; issued and outstanding 11,404,621 shares at June 30, 2021 and 0ne at December 31, 2020
  114
   0
 
Common stock, Class C, $0.01 par value, non-voting, authorized 25,000,000 shares at June 30, 2021 and December 31, 2020; issued and outstanding 16,689,775 at June 30, 2021 and 8,756,396 shares at December 31, 2020  
167
   
87
 
Additional paid-in capital  
140,125
   
46,851
 
Retained earnings  
4,997
   
7,783
 
Unearned Employee Stock Ownership Plan (ESOP) shares  
(861
)
  
(893
)
Accumulated other comprehensive income, net of tax  
785
   
164
 
Treasury stock-at cost, 2,617,826 shares at June 30, 2021 and at December 31, 2020
  
(5,326
)
  
(5,326
)
Total Broadway Financial Corporation and Subsidiary stockholders’ equity  143,463   48,885 
Non-controlling interest  32   0 
Total liabilities and stockholders’ equity $1,040,998  $483,378 

See accompanying notes to unaudited consolidated financial statements.

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

  
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
  2021
  2020
  2021
  2020
 
  (In thousands, except per share) 
             
Interest income:            
Interest and fees on loans receivable $6,300  $4,429  $9,944  $8,788 
Interest on available for sale securities  440   65   496   135 
Other interest income  144   74   221   216 
Total interest income  6,884   4,568   10,661   9,139 
                 
Interest expense:                
Interest on deposits  477   967   860   2,022 
Interest on borrowings  586   570   1,135   1,188 
Total interest expense  1,063   1,537   1,995   3,210 
                 
Net interest income  5,821   3,031   8,666   5,929 
Loan loss provision
  81   0   81   29 
Net interest income after loan loss provision  5,740   3,031   8,585   5,900 
                 
Non-interest income:                
Service charges  36   94   129   238 
Gain on sale of loans  0   116   0   123 
CDFI Grant  1,826   0   1,826   0 
Other  330   32   360   78 
Total non-interest income  2,192   242   2,315   439 
                 
Non-interest expense:                
Compensation and benefits  2,819   1,983   8,209   4,038 
Occupancy expense  627   320   935   635 
Information services  566   221   807   458 
Professional services  513   571   2,452   835 
Supervisory costs
  177   95   247   112 
Office services and supplies  59   87   154   163 
Corporate insurance  8   32   254   64 
Amortization of core deposit intangible  131   0   131   0 
Other  474   93   812   246 
Total non-interest expense  5,374   3,402   14,001   6,551 
                 
Income (loss) before income taxes  2,558   (129)  (3,101)  (212)
Income tax expense (benefit)  1,824   (345)  (348)  (395)
Net income (loss) $734  $216  $(2,753) $183 
Less: Net income attributable to non-controlling interest
  (33)  0   (33)  0 
Net Income (loss) Attributable to Broadway Financial Corporation
 $
701  $
216  $
(2,786) $
183 

                
Other comprehensive income, net of tax:                
Unrealized gains on securities available-for-sale arising during the period $1,022  $155  $864  $330 
Income tax expense  290   46   243   98 
Other comprehensive income, net of tax  732   109   621   232 
                 
Comprehensive income (loss) $1,433  $325  $(2,165) $415 
                 
Earnings (loss) per common share-basic $0.01  
$
0.01
  $(0.06) $0.01 
Earnings (loss) per common share-diluted $0.01  $0.01  $(0.06) $0.01 

See accompanying notes to unaudited consolidated financial statements.

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

  Six Months Ended June 30, 
  2021
  2020
 
  (In thousands) 
Cash flows from operating activities:
      
Net (loss) income 
$
(2,753
)
 
$
183
 
Adjustments to reconcile net income to net cash used in operating activities:        
Loan loss provision
  
81
   
29
 
Depreciation  
345
   
115
 
Net amortization of deferred loan origination costs  
964
   
136
 
Net amortization of premiums on available for sale securities  
231
   
19
 
Amortization of investment in affordable housing limited partnership
  26
   53
 
Amortization of core deposit intangible
  131   0 
Director compensation expense-common stock  
45
   
45
 
Accretion of premium on FHLB advances  (7)  0 
Stock-based compensation expense  
169
   
179
 
Valuation allowance on deferred tax asset
  370   0 
ESOP compensation expense  
47
   
32
 
Earnings on bank owned life insurance  
(21
)
  
(23
)
Originations of loans receivable held for sale  
0
   
(110,908
)
Proceeds from sales of loans receivable held for sale  
0
   
60,997
 
Repayments on loans receivable held for sale
  0
   315
 
Gain on sale of loans receivable held for sale  
0
   
(123
)
Change in assets and liabilities:        
Net change in deferred taxes  
(1,210
)
  
(271
)
Net change in accrued interest receivable  
267
   
(68
)
Net change in other assets  
(1,118
)
  
(349
)
Net change in advance payments by borrowers for taxes and insurance  
310
   
43
 
Net change in accrued expenses and other liabilities  
(447
)
  
442
 
Net cash used in operating activities  
(2,570
)
  
(49,154
)
         
Cash flows from investing activities:        
Cash acquired in merger
  84,745   0 
Net change in loans receivable held for investment  
(29,749
)
  
23,265
 
Principal payments on available-for-sale securities  
6,547
   
1,125
 
Purchase of available-for-sale securities
  (4,073)  0
 
Purchase of FHLB stock  
(152
)
  
(670
)
Proceeds from redemption of FHLB stock
  1,055
   0
 
Purchase of office properties and equipment  
(56
)
  
(328
)
Proceeds from disposals of office property and equipment  45   0 
Net cash provided by investing activities  
58,362
   
23,392
 
         
Cash flows from financing activities:        
Net change in deposits  
35,690
   
18,054
 
Net increase in securities sold under agreements to repurchase
  10,613   0 
Proceeds from sale of stock (net of costs)  30,837   0 
Distributions to non-controlling interest  (165)  0 
Proceeds from FHLB advances  
5,000
   
66,000
 
Repayments of FHLB advances  
(22,535
)
  
(33,500
)
Stock cancelled for income tax withholding
  (448)  0 
Repayments of junior subordinated debentures  
(510
)
  
(510
)
Net cash provided by financing activities  
58,482
   
50,044
 
Net change in cash and cash equivalents  
114,274
   
24,282
 
Cash and cash equivalents at beginning of the period  
96,109
   
15,566
 
Cash and cash equivalents at end of the period 
$
210,383
  
$
39,848
 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest 
$
1,803
  
$
3,290
 
Cash paid for income taxes  
429
   
3
 
Assets acquired (liabilities assumed) in acquisition:
        
Securities available for sale, at fair value
 $149,975  $0 
Loans receivable
  225,885
   0
 
Accrued interest receivable
  1,637
   0
 
FHLB and FRB stock
  1,061
   0
 
Office property and equipment
  6,953
   0
 
Goodwill
  25,966
   0
 
Core deposit intangible  3,329   0 
Other assets  2,290   0 
Deposits  (353,722)  0 
FHLB advances  (3,166)  0 
Securities sold under agreements to repurchase  (59,945)  0 
Other borrowings  (14,000)  0 
Deferred taxes  (717)  0 
Accrued expenses and other liabilities  (4,063)  0 
Preferred stock  (3,000)  0 
Common stock  (63,257)  0 

See accompanying notes to unaudited consolidated financial statements.

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


               
     Three-Month Period Ended June 30, 2021 and 2020          
  
Preferred Stock Non-Voting
  
Common
Stock
Voting
  
Common
Stock Non-Voting
  
Additional
Paid‑in
Capital
  
Accumulated Other Comprehensive Income
  
Retained Earnings (Substantially Restricted)
  
Unearned
ESOP Shares
  
Treasury
Stock
  
Non-controlling Interest
  
Total
Stockholders’
Equity
 
              
(In thousands)
                
Balance at March 31, 2021 $
0  $
218  $
87  $
46,625  $
53  $
4,296   $(877) $
(5,326) $
0  $
45,076 
Net income for the three months ended June 30, 2021
  0   0   0   0   0   701   0   0  
33

   
734

 
Preferred shares issued in  business combination  
3,000

   
0

   
0

   
0

   
0

   
0

   
0

   
0

  
0

   
3,000

 
Common shares issued in business combination  
0

   
140

   
114

   
62,839

   
0

   
0

   
0

   
0

  
164

   
63,257

 
Shares transferred from voting to non-voting after business combination  
0

   
(7

)

  
7

   
0

   
0

   
0

   
0

   
0

  
0

   
0

 
Common shares issued in private placement  
0

   
112

   
73

   
30,652

   
0

   
0

   
0

   
0

  
0

   
30,837

 
Release of unearned ESOP shares  
0

   
0

   
0

   
9

   
0

   
0

   
16

   
0

  
0

   
25

 
Common stock cancelled for payment of tax withholdings  
0

   
(1

)

  
0

   
0

   
0

   
0

   
0

   
0

  
0

   
(1

)

Payment to non-controlling interest  
0

   
0

   
0

   
0

   
0

   
0

   
0

   
0

  
(165

)

  
(165

)

Other comprehensive income, net of tax  
0

   
0

   
0

   
0

   
732

   
0

   
0

   
0

  
0
   
732
 
Balance at June 30, 2021 $
3,000
  $
462
  $
281
  $
140,125
  $
785
  $
4,997
  $
(861
)
 $
(5,326
)
 $
32
  $
143,495
 
                                         
Balance at March 31, 2020 $
0  $
219  $87  $
46,550  $
100  $
8,392  $
(942) $
(5,326) $
0  $
49,080 
Net income for the three months ended June 30, 2020
  0   0   0   0   0   216   0   0   0
   216 
Release of unearned ESOP shares  0   0   0   0   0   0   15   0   0
   15 
Restricted stock Compensation expense  0   0   0   90   0   0   0   0   0
   90 
Stock option compensation expense  0   0   0   10   0   0   0   0   0
   10 
Other comprehensive income, net of tax  
0
   
0
   
0
   
0
   
109
   
0
   
0
   
0
   0
   
109
 
Balance at June 30, 2020 $
0
  $
219
  $
87
  $
46,650
  $
209
  $
8,608
  $
(927
)
 $
(5,326
)
 $
0
  $
49,520
 

See accompanying notes to unaudited consolidated financial statements.
      Six-Month Period Ended June 30, 2021 and 2020          
  
Preferred Stock Non-Voting
  
Common
Stock
Voting
  
Common
Stock Non-Voting
  
Additional
Paid‑in
Capital
  
Accumulated Other Comprehensive Income
  
Retained Earnings (Substantially Restricted)
  
Unearned
ESOP Shares
  
Treasury
Stock
  
Non-controlling interest
  
Total
Stockholders’
Equity
 
              
(In thousands)
                
Balance at January 1, 2021 $
0  $
219  $
87  $
46,851  $
164  $
7,783  $
(893) $
(5,326) $
0  $
48,885 
Net income (loss) for the six months ended June 30, 2021
  0   0   0   0   0   (2,786)  0   0   33   (2,753)
Preferred shares issued in  business combination  3,000   0   0   0   0   0   0   0   0   3,000 
Common shares issued in business combination  0   140   114   62,839   0   0   0   0   164   63,257 
Shares transferred from voting to non-voting after business combination  0   (7)  7   0   0   0   0   0   0   0 
Common shares issued in private placement  0   112   73   30,652   0   0   0   0   0   30,837 
Release of unearned ESOP shares  0   0   0   15   0   0   32   0   0   47 
Restricted stock compensation expense  0   0   0   162   0   0   0   0   0   162 
Stock awarded to directors  0   0   0   45   0   0   0   0   0   45 
Stock option compensation expense  0   0   0   7   0   0   0   0   0   7 
Common stock cancelled for payment of tax withholdings  0   (2)  0   (446)  0   0   0   0   0   (448)
Payment to non-controlling interest  0   0   0   0   0   0   0   0   (165)  (165)
Other comprehensive income, net of tax  
0
   
0
   
0
   
0
   
621
   
0
   
0
   
0
   
0
   
621
 
Balance at June 30, 2021 $
3,000
  $
462
  $
281
  $
140,125
  $
785
  $
4,997
  $
(861
)
 $
(5,326
)
 $
32
  $
143,495
 
                                         
Balance at January 1, 2020 $
0  $
218  $
87  $
46,426  $
(23) $
8,425  $
(959) $
(5,326) $
0
  $
48,848 
Net income for the six months ended June 30, 2020
  0   0   0   0   0   183   0   0   0
   183 
Release of unearned ESOP shares  0   0   0   0   0   0   32   0   0
   32 
Restricted stock compensation expense  0   1   0   160   0   0   0   0    0
   161 
Stock awarded to directors  0   0   0   45   0   0   0   0   0
   45 
Stock option compensation expense  0   0   0   19   0   0   0   0   0
   19 
Other comprehensive loss, net of tax  
0
   
0
   
0
   
0
   
232
   
0
   
0
   
0
   0
   
232
 
Balance at June 30, 2020 $
0
  $
219
  $
87
  $
46,650
  $
209
  $
8,608
  $
(927
)
 $
(5,326
)
 $
0
  $
49,520
 

See accompanying notes to unaudited consolidated financial statements.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

NOTE (1) – Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, City First Bank, National Association (the “Bank” and, together with the Company, “City First Broadway”). Also included in the unaudited consolidated financial statements are the following subsidiaries of City First Bank: 1432 U Street LLC, Broadway Service Corporation, City First Real Estate LLC, City First Real Estate II LLC, City First Real Estate III LLC, City First Real Estate IV LLC, and CF New Markets Advisors, LLC (“CFNMA”). In addition, CFNMA also consolidates CFC Fund Manager II, LLC; City First New Markets Fund II, LLC; City First Capital IX, LLC; and City First Capital 45, LLC (“CFC 45”) into its financial results. The results of Broadway Service Corporation, a wholly owned subsidiary of the Bank, are also included in the unaudited consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.


The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q.  These unaudited consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 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 six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.


Subsequent events have been evaluated through August 23, 2021, which is the date these financial statements were issued.

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

Purchased Credit Impaired Loans


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

Business Combinations


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

6


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

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



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

Variable Interest Entities (“VIE”)
 

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

Noncontrolling Interests


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

Recent Accounting Guidance
 

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


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

7


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


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



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



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



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

NOTE (2) – Business Combination


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


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


8


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The Company accounted for the CFBanc Merger under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the acquired assets and assumed liabilities with the assistance of third-party valuation firms.  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
  
$
0
  
$
84,745
 
Securities available-for-sale  
150,052
   
(77
)
  
149,975
 
Loans receivable held for investment:
            
Gross loans receivable held for investment  
227,669
   
(1,784
)
  
225,885
 
Deferred fees and costs  
(315
)
  
315
   
0
 
Allowance for loan losses  
(2,178
)
  
2,178
   
0
 
   
225,176
   
709
   
225,885
 
Accrued interest receivable  
1,637
   
0
   
1,637
 
FHLB and FRB stock  
1,061
   
0
   
1,061
 
Office properties and equipment  
5,152
   
1,801
   
6,953
 
Deferred tax assets, net  
890
   
(1,608
)
  
(718
)
Core deposit intangible  
0
   
3,329
   
3,329
 
Other assets  
2,290
   
0
   
2,290
 
Total assets $471,003  $4,154  $475,157 
             
Liabilities assumed            
Deposits $
353,671
  $
51
  $
353,722
 
Securities sold under agreements to repurchase
  59,945
   0
   59,945
 
FHLB advances  
3,057
   
109
   
3,166
 
Notes payable
  
14,000
   
0
   
14,000
 
Accrued expenses and other liabilities  
4,063
   
0
   
4,063
 
Total liabilities $
434,736  $
160  $
434,896 
             
Excess of assets acquired over liabilities assumed $36,267  $3,994  $
40,261 
Consideration paid         $
66,257 
Goodwill recognized         $25,996 


9


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

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


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

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



A component of total loans acquired from CFBanc were loans that were considered to be purchased credit impaired loans (PCI loans). Refer to Note 6 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 operating results of CFBanc for the three and six months ended June 30, 2021 are included in the operating results of the Company since the merger date. The following table presents the amounts related to CFBanc’s operations included in the Company’s consolidated statement of operations from April 1 through June 30, 2021:

  (In thousands) 
Net interest income  $
2,896
 
Net income  $
966
 


10


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table presents the net interest income, net income, and earnings per share as if the CFBanc Merger was effective as of January 1, 2020. 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  
Six Months Ended
 
 
June 30,
2021
 
June 30,
2020
  June 30, 2021 
June 30,
2020
 
 (Dollars in thousands except per share amounts) 
Net interest income $5,821  $5,173  $11,011  $10,331 
Net income (loss)  723   476   (3,539)  189 
                 
Basic earnings per share $0.01  $0.01  $(0.06) $0.00 
Diluted earnings per share $0.01  $0.01  $(0.06) $0.00
 

NOTE (3) – Capital Raise





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


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

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

 NOTE (4) Earnings Per Share of Common Stock
 

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


11


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
 

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

  
For the three months ended
June 30,
  
For the six months ended
June 30,
 
  2021
  2020
  2021  2020 
  (Dollars in thousands, except per share ) 
             
Net income (loss) attributable to Broadway Financial Corporation
 $701  $216  $(2,786) $183 
Less net income (loss) attributable to participating securities  0   2   0   2 
Income (loss) available to common stockholders $701  $214  $(2,786) $181 
                 
Weighted average common shares outstanding for basic earnings (loss) per common share  70,163,639   27,143,340   48,873,496   27,055,750 
Add: dilutive effects of unvested restricted stock awards
  140,247   307,376   0   337,097 
Weighted average common shares outstanding for diluted earnings (loss) per common share  70,303,886   27,450,716   48,873,496   27,392,847 
                 
Earnings (loss) per common share - basic $0.01  $0.01  $(0.06) $0.01 
Earnings (loss) per common share - diluted $0.01  $0.01  $(0.06) $0.01 
  



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


NOTE (5) – Securities

 

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


 Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
 (In thousands) 
June 30, 2021:  
Federal agency mortgage-backed securities $83,687  $629  $(60) $84,256 
Federal agency debt  33,207   199   0   33,406 
Municipal bonds  4,914   63   (5)  4,972 
U. S. Treasuries  18,191   24   0   18,215 
SBA pools  17,581   403   (1)  17,983 
       Total available-for-sale securities $157,580  $1,318  $(66) $158,832 
December 31, 2020:  
Federal agency mortgage-backed securities $5,550  $257  $0  $5,807 
Federal agency debt  2,682   190   0   2,872 
Municipal bonds  2,000   19   0   2,019 
       Total available-for-sale securities $10,232  $466  $0  $10,698 

12


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

At June 30, 2021, the Bank had 13 (13) federal agency debt securities with total amortized cost of $33.2 million, estimated total fair value of $33.4 million and an estimated average remaining life of 6.1 years; NaN (94) federal agency mortgage-backed securities with total amortized cost of $83.7 million, estimated total fair value of $84.3 million and an estimated average remaining life of 4.6 years; 9 (9) U.S. treasury securities with total amortized cost of $18.2 million, estimated total fair value of $18.2 million and an estimated average remaining life of 4.1 years; 17 (17) SBA pools securities with total amortized cost of $17.6 million, estimated total fair value of $18.0 and an estimated average remaining life of 5.4 years; 2 (2) municipal bond – taxable securities with total amortized cost of $1.2 million, estimated total fair value of $1.2 million and an estimated average remaining life of 4.1 years; 7 (7) municipal bonds – exempt  pools  securities with total amortized cost of $3.7 million, estimated total fair value of $3.8 million and an estimated average remaining life of 12.5 years . The entire securities portfolio at June 30, 2021, consisted of NaN securities (142) with an estimated average remaining life of 4.7 years.  Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties



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


 Amortized Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
 (In thousands) 
   
Due in one year or less $0  $0  $0  $0 
Due after one year through five years  30,244   42   0   30,286 
Due after five years through ten years  23,002   294   (11)  23,285 
Due after ten years (1)
  104,334   982   (55)  105,261 
  $157,580  $1,318  $(66) $158,832 

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



The Bank held 32 securities with unrealized losses of $66 thousand at June 30, 2021. NaNne of these securities has been in a loss position for greater than one year.  The Bank’s securities were primarily issued by the federal government or its agencies. The unrealized gains or losses on our available-for-sale securities at June 30, 2021 were primarily caused by movements in market interest rates subsequent to the purchase of such securities


Securities with a market value of $71.9 million were pledged as collateral for securities sold under agreements to repurchase as of June 30, 2021 and included $17.8 million of U.S. Government Agency securities, $47.5 million of mortgage-backed securities, and $6.6 million of collateralized mortgage obligations. (See Note 8 – Borrowings.) There were 0 securities pledged as collateral for securities sold under agreements to repurchase as December 31, 2020. There were 0 securities pledged to secure public deposits at June 30, 2021 or December 31, 2020.


At June 30, 2021 and December 31, 2020, there were 0 holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.


There were 0 sales of securities during the three and six months ended June 30, 2021 and 2020.

13


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


Loans receivable held for investment were as follows as of the dates indicated:
  
  June 30, 2021  December 31, 2020 
  (In thousands) 
Real estate:      
Single family $53,556  $48,217 
Multi-family  346,192   272,387 
Commercial real estate  92,491   24,289 
Church  15,652   16,658 
Construction  22,677   429 
Commercial – other  46,973   57 
SBA loans (1)
  40,027   0 
Consumer  73   7 
Gross loans receivable before deferred loan costs and premiums  617,641   362,044 
Unamortized net deferred loan costs and premiums  373   1,300 
Gross loans receivable  618,014   363,344 
Allowance for loan losses  (3,296)  (3,215)
Loans receivable, net $614,718  $360,129 
  
    (1)          Including Paycheck Protection Program (PPP) loans.
 

Purchased Credit Impaired (PCI) Loans


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

  
June 30, 2021
 
  
(In thousands)
 
Real estate:   
Single family 
$
534
 
Commercial real estate  
187
 
Commercial - other  
84
 
  
$
805
 


On the acquisition date, the amount by which the undiscounted expected cash flows of the purchased credit impaired 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 purchased credit impaired loan. At June 30, 2021, NaN of the Company’s purchased credit impaired loans were classified as nonaccrual.

14


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table summarizes the accretable yield on the purchased credit impaired loans for the three and six months ended June 30, 2021:

  
Three Months Ended
June 30, 2021
  
Six Months Ended
June 30, 2021
 
  
(In thousands)
 
Balance at the beginning of the period 
$
0
  
$
0
 
Additions  346   346 
Accretion  
(19
)
  
(19
)
Balance at the end of the period 
$
327
  
$
327
 


The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:
 
  Three Months Ended June 30, 2021 
  Real Estate             
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
  (In thousands)       
Beginning balance $275  $2,473  $219  $221  $22  $5  $0  $0  $3,215 
Provision for (recapture of) loan losses  (105)  133   8   (13)  59   (1)  0   0   81 
Recoveries  0   0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $170  $2,606  $227  $208  $81  $4  $0  $0  $3,296 
   
  Three Months Ended June 30, 2020 
  Real Estate             
  Single
family
  
Multi-
family
  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
  (In thousands)    
Beginning balance $308  $2,408  $140  $323  $24  $7  $0  $1  $3,211 
Provision for (recapture of) loan losses  0   16   29   (41)  (2)  (1)  0   (1)  0 
Recoveries  4   0   0   0   0   0   0   0   4 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $312  $2,424  $169  $282  $22  $6  $
0  $0  $3,215 
 
  Six Months Ended June 30, 2021 
  Real Estate             
  Single family  Multi-family  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
     (In thousands) 
Beginning balance $296  $2,433  $222  $237  $22  $4  $0  $1  $3,215 
Provision for (recapture of)    loan losses  (126)  173   5   (29)  59   0   0   (1)  81 
Recoveries  0   0   0   0   0   0   0   0   0 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $170  $2,606  $227  $208  $81  $4  $0  $0  $3,296 


15


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
  Six Months Ended June 30, 2020 
  Real Estate             
  Single family  Multi-family  Commercial real estate  Church  Construction  Commercial - other  
SBA
Loans
  Consumer  Total 
     (In thousands) 
Beginning balance $312  $2,319  $133  $362  $48  $7  $0  $1  $3,182 
Provision for (recapture of)    loan losses  (4)  105   36   (80)  (26)  (1)  0   (1)  29 
Recoveries  4   0   0   -   0   0   0   0   4 
Loans charged off  0   0   0   0   0   0   0   0   0 
Ending balance $312  $2,424  $169  $282  $22  $6  $0  $0  $3,215 

 

The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of the dates indicated:
   
  June 30, 2021 
  Real Estate             
  
Single
family
  
Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other  SBA
Loans
  Consumer  Total 
  (In thousands) 
Allowance for loan losses:                           
Ending allowance balance attributable to loans:                                    
Individually evaluated for impairment $3  $0  $0  $42  $0  $0   $0  $0  $45 
Collectively evaluated for impairment  167   2,606   227   166   81   4   0   0   3,251 
Total ending allowance balance $170  $2,606  $227  $208  $81  $4   $0  $0  $3,296 
Loans:                                    
Loans individually evaluated for impairment $66  $290  $0  $3,718  $0  $0   $0  $0  $4,074 
Loans collectively evaluated for impairment  53,600   347,540   92,491   11,602   22,583   46,973   39,078   73   613,940 
Total ending loans balance $53,666  $347,830  $92,491  $15,320  $22,583  $46,973   $39,078  $73  $618,014 
   
                December 31, 2020 
  Real Estate              
  
Single
family
  Multi-
family
  
Commercial
real estate
  Church  Construction  Commercial - other   
 SBA
Loans
  Consumer  Total 
  (In thousands) 
Allowance for loan losses:                            
Ending allowance balance attributable to loans:                                    
Individually evaluated for impairment $89  $0  $0  $52  $0  $0   $0  $0  $141 
Collectively evaluated for impairment  207   2,433   222   185   22   4   0   1   3,074 
Total ending allowance balance $296  $2,433  $222  $237  $22  $4   $0  $1  $3,215 
Loans:                                    
Loans individually evaluated for impairment $573  $298  $0  $3,813  $0  $47   $0  $0  $4,731 
Loans collectively evaluated for impairment  47,784   273,566   24,322   12,495   430   9   0   7   358,613 
Total ending loans balance $48,357  $273,864  $24,322  $16,308  $430  $56   $0  $7  $363,344 
 
16


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

The following table presents information related to loans individually evaluated for impairment by loan type as of the periods indicated:
  
  June 30, 2021  December 31, 2020 
  
Unpaid
Principal
Balance
  
Recorded
Investment
  
Allowance
for Loan
Losses
Allocated
  Unpaid
Principal
Balance
  
Recorded
Investment
  
Allowance
for Loan
Losses
Allocated
 
  (In thousands) 
With no related allowance recorded:                  
Single family $0  $0  $-  $2  $1  $- 
Multi-family 
290  
290  
-   298   298   - 
Church 
2,487  
1,914  
-   2,527   1,970   - 
With an allowance recorded:                        
Single family  66   66   3   573   573   88 
Church  1,804   1,804   42   1,842   1,842   52 
Commercial - other  0   0   0   47   47   1 
Total $4,647  $4,074  $45  $5,289  $4,731  $141 
 
 The recorded investment in loans excludes accrued interest receivable due to immateriality.  For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.
  

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:
   
  Three Months Ended June 30, 2021  Three Months Ended June 30, 2020 
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
 
  (In thousands) 
Single family $316  $4  $597  $7 
Multi-family  292   5   308   5 
Church  3,742   63   4,160   74 
Commercial - other  11   0   59   1 
Total $4,361  $72  $5,124  $87 

  Six Months Ended June 30, 2021  Six Months Ended June 30, 2020 
  
Average
Recorded Investment
  
Cash Basis
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Cash Basis
Interest
Income
Recognized
 
  (In thousands) 
Single family $426  $10  $599  $14 
Multi-family  294   10   309   11 
Church  3,766   126   4,190   309 
Commercial - other  26   1   60   2 
Total $4,512  $147  $5,158  $336 

17


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off.  Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible or paid off.  When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan.  Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $19 thousand and $22 thousand for the three months ended June 30, 2021 and 2020, respectively, and $38 thousand and $45 thousand for the six months ended June 30, 2021 and 2020, respectively, and were not included in the consolidated results of operations.
As of June 30, 2021, the Bank had $1.9 million in 30 to 89 days delinquencies, and 0 loans were past due 90 days or more. The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:

  June 30, 2021 
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total 
  (In thousands) 
Loans receivable held for investment:                  
Single family $0  $0  $0  $0  $53,666  $53,666 
Multi-family  0   0   0   0   347,830   347,830 
Commercial real estate  1,554   0   0   1,554   90,937   92,491 
Church  0   0   0   0   15,320   15,320 
Construction  0   0   0   0   22,583   22,583 
Commercial - other  0   310   0   310   46,663   46,973 
 SBA loans  21
   0
   0   21   39,057
   39,078
 
Consumer  0   0   0   0   73   73 
Total $1,575  $310  $0  $1,885  $616,129  $618,014 
   
  December 31, 2020 
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
Greater
than
90 Days
Past Due
  
Total
Past Due
  Current  Total 
  (In thousands) 
Loans receivable held for investment:                  
Single family $0  $0  $0  $0  $48,357  $48,357 
Multi-family  0   0   0   0   273,864   273,864 
Commercial real estate  0   0   0   0   24,322   24,322 
Church  0   0   0   0   16,308   16,308 
Construction  0   0   0   0   430   430 
Commercial - other  0   0   0   0   56   56 
Consumer  0   0   0   0   7   7 
Total $0  $0  $0  $0  $363,344  $363,344 


The following table presents the recorded investment in non-accrual loans by loan type as of the periods indicated:
   
  June 30, 2021  December 31, 2020 
  (In thousands) 
Loans receivable held for investment:      
Single-family residence $0  $1 
Church 
735   786 
Total non-accrual loans $735  $787 

18


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

There were 0 loans 90 days or more delinquent that were accruing interest as of June 30, 2021 or December 31, 2020. NaN of the church non-accrual loans were delinquent, but none qualified for accrual status as of the periods indicated.
   
Troubled Debt Restructurings (TDRs)


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



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

At June 30, 2021, loans classified as TDRs totaled $4.1 million, of which $408 thousand were included in non-accrual loans and $3.7 million were on accrual status.  At December 31, 2020, loans classified as TDRs totaled $4.2 million, of which $232 thousand were included in non-accrual loans and $4.0 million were on accrual status.  The Company has allocated $45 thousand and $141 thousand of specific reserves for accruing TDRs as of June 30, 2021 and December 31, 2020, respectively.  TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest.  TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified.  A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required.  As of June 30, 2021 and December 31, 2020, the Company had 0 commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs.  NaN loans were modified during the three or six months ended June 30, 2021 and 2020.
  
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.
19


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements


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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral.  Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms.  Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:
   
  June 30, 2021 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss 
  (In thousands) 
Single family $53,666  $0  $0  $0  $0  $0 
Multi-family  347,477   0
   0   353   0   0 
Commercial real estate  91,018   0   0   1,473   0   0 
Church  13,615   647   0   1,058   0   0 
Construction  22,583   0   0   0   0   0 
Commercial - other  46,973   0   0   0   0   0 
SBA loans  39,078
   0
   0
   0
   0
   0
 
Consumer  73   0   0   0   0   0 
Total $614,483  $647  $0  $2,884  $0  $0 

  
 
December 31, 2020
 
  Pass  Watch  Special Mention  Substandard  Doubtful  Loss 
  (In thousands) 
Single family $48,357  $0  $
0  $
1  $0  $0 
Multi-family  273,501   0   0   362   0   0 
Commercial real estate  22,834   1,488   0   0   0   0 
Church  12,899   657   0   2,752   0   0 
Construction  430   0   0   0   0   0 
Commercial - other  9   0   0   47   0   0 
Consumer  7   0   0   0   0   0 
Total $358,037  $2,145  $0  $3,162  $0  $0 
  
  In 2015, CFC 45 was formed to, in effect, act as a pass-through entity for a Merrill Lynch NMTC Corp. (“Merrill Lynch”) allocation of funds in connection with the Bank’s participation in the New Markets Tax Credit (“NMTC”) Program totaling $14.0 million. (See Note 8 - Borrowings.) The financial statements for CFC 45 are consolidated with those of the Company, and as such the Company has reflected a $14.0 million loan made by CFC 45 to a Qualified Active Low Income Business in gross loans above as of June 30, 2021, in connection with the NMTC Program.
20


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

NOTE (7) Goodwill and Intangible Assets



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


  Goodwill
  
Core Deposit
Intangible
 
  (In thousands)
 
Balance at the beginning of the period 
$
0
  $0 
Additions  25,996
   3,329
 
Accretion  0
   (131)
Impairment  0
   0
 
Balance at the end of the period $25,996  $3,198 



 The carrying amount of the core deposit intangible consisted of the following at June 30, 2021:


  (In thousands) 
Core deposit intangible acquired $3,329 
Less: accumulated amortization  (131)

 $3,198 

 

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


  (In thousands) 
2021 $262 
2022  435 
2023  390 
2024  336 
2025  315 
Thereafter  1,460 
  $3,198 

NOTE (8) Borrowings

The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. As of June 30, 2021, securities sold under agreements to repurchase totaled $70.7 million at an average rate of 0.10%. The market value of securities pledged totaled $71.9 million as of June 30, 2021 and included $17.8 million of U.S. Government Agency securities, $47.5 million of mortgage-backed securities,  and $6.6 million of collateralized mortgage obligations. There were 0 securities pledged as of December 31, 2020.

 

At June 30, 2021 and December 31, 2020, the Bank had outstanding Advances from the Federal Home Loan Bank (“FHLB”) totaling $96.0 million and $110.5 million, respectively. The weighted rate interest rate was 1.95% and 1.94% as of June 30, 2021 and December 31, 2020, respectively. The weighted average contractual maturity was 26 months and 27 months as of June 30, 2021 and December 31, 2020, respectively. The advances were collateralized by loans with a market value of $193.6 million at June 30, 2021.


21


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks.  Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%.  The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.69% at June 30, 2021.  On October 16, 2014, the Company made payments of $900 thousand of principal on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof.  The modified terms of the Debentures require quarterly payments of interest only through March 2019 at the original rate of 3-Month LIBOR plus 2.54%.  Starting in June 2019, the Company began making quarterly payments of equal amounts of principal, plus interest, and will continue until the Debentures are fully amortized on March 17, 2024. At June 30, 2021, the Company had repaid a total of $2.2 million of the scheduled principal. The Debentures may be called for redemption at any time by the Company.



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


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

NOTE (9) Fair Value


The Company used the following methods and significant assumptions to estimate fair value:



The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).


The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral, which is obtained from recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.


Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals which are updated every nine months.  These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

22


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets Measured on a Recurring Basis


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

  Fair Value Measurement 
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant Unobservable
Inputs
(Level 3)
  Total 
  (In thousands) 
At June 30, 2021:
            
Securities available-for-sale – federal agency mortgage-backed $0  $84,256  $0  $84,256 
Securities available-for-sale – federal agency debt  0   33,406   0   33,406 
Municipal bonds  0   4,972   0   4,972 
U. S. Treasuries  0   18,215   0   18,215 
SBA pools  0   17,983   0   17,983 
                 
At December 31, 2020:
                
Securities available-for-sale – federal agency mortgage-backed $0  $5,807  $0  $5,807 
Securities available-for-sale – federal agency debt  0   2,872   0   2,872 
Municipal bonds  0   2,019   0   2,019 


There were 0 transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2021 and 2020.

Assets Measured on a Non-Recurring Basis


Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the statements of financial condition.  Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value.


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

23


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


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

     Fair Value Measurements at June 30, 2021 
  
Carrying
Value
  Level 1  Level 2  Level 3  Total 
  (In thousands) 
Financial Assets:               
Cash and cash equivalents $210,383  $210,383  $0  $0  $210,383 
Securities available-for-sale
  158,832
   0
   158,832
   0
   158,832
 
Loans receivable held for investment  614,718   0   0   612,712   612,712 
Accrued interest receivables
  2,572
   206
   282
   2,084
   2,572
 
Bank owned life insurance
  3,168
   3,168
   0
   0
   3,168
 
                     
Financial Liabilities:                    
Deposits $705,041  $0  $705,199  $0  $705,199 
Securities sold under agreements to repurchase
  70,660   0   70,063   0   70,063 
Federal Home Loan Bank advances  96,022   0   98,160   0   98,160 
Junior subordinated debentures  2,805   0   0   2,344   2,344 
Note payable
  14,000   0   0   14,000   14,000 
Accrued interest payable
  104
   0
   104
   0
   104
 

     Fair Value Measurements at December 31, 2020 
  
Carrying
Value
  Level 1  Level 2  Level 3  Total 
  (In thousands) 
                
Financial Assets:               
Cash and cash equivalents $96,109  $96,109  $0  $0  $96,109 
Securities available-for-sale  10,698   0   10,698   0   10,698 
Loans receivable held for investment  360,129   0   0   366,279   366,279 
Accrued interest receivables  1,202   60   14   1,128   1,202 
Bank owned life insurance  3,147   3,147   0   0   3,147 
                     
Financial Liabilities:                    
Deposits $315,630  $0  $312,725  $0  $312,725 
Federal Home Loan Bank advances  110,500   0   113,851   0   113,851 
Junior subordinated debentures  3,315   0   0   2,798   2,798 
 Accrued interest payable
  88   0   84   4   88 


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

24


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (10) – 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 June 30, 2021, 490,007 shares had been awarded and 803,102 shares are available under the 2018 LTIP.


At June 30, 2021, 0 restricted stock awards were outstanding, and during the first half of June 2021, the Company did 0t grant any restricted stock awards to its officers and employees.


No stock options were granted during the six months ended June 30, 2021 and 2020.


The following table summarizes stock option activity during the six months ended June, 2021 and 2020:


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


The Company did 0t record any stock-based compensation expense related to stock options during the three months ended June 30, 2021 since these options became fully vested and all compensation cost was recognized in February 2021.  For the six months ended June 30, 2021, the Company recorded $7 thousand expense related to stock options. During the three and six months ended June 30, 2020, the Company recorded $10 thousand and $19 thousand of stock-based compensation expense related to stock options, respectively.


Options outstanding and exercisable at June 30, 2021 were as follows:

  Outstanding  Exercisable 
Grant Date 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
  
Number
Outstanding
  
Weighted
Average
Exercise
Price
  
 
 
Aggregate
Intrinsic
Value
 
February 24, 2016  450,000 4.65 years $1.62      450,000  $1.62    
   450,000 4.65 years $1.62  $481,500   450,000  $1.62  $481,500 

25


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
NOTE (11) – ESOP Plan


Employees participate in an Employee Stock Option Plan (“ESOP”) after attaining certain age and service requirements.  In December 2016, the ESOP purchased 1,493,679 shares of the Company’s common stock at $1.59 per share, for a total cost of $2.4 million, of which $1.2 million was funded with a loan from the Company.  The loan will be repaid from the Bank’s annual discretionary contributions to the ESOP, net of dividends paid, over a period of 20 years.  Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants.  When loan payments are made, shares are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants.  As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released.  To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital.  Any dividends on allocated shares increase participant accounts.  Any dividends on unallocated shares will be used to repay the loan.  Participants will receive shares for their vested balance at the end of their employment.  Compensation expense related to the ESOP was $25 thousand and $15 thousand for the  three months ended June 30, 2021 and 2020, respectively, and $47 thousand and $32 thousand for the six months ended June 30, 2021 and 2020, respectively.


Shares held by the ESOP were as follows:

  June 30, 2021  December 31, 2020 
  (Dollars in thousands) 
       
Allocated to participants  1,051,088   1,065,275 
Committed to be released  30,708   10,236 
Suspense shares  541,919   562,391 
Total ESOP shares  1,623,715   1,637,902 
Fair value of unearned shares $1,458  $1,040 


At June 30, 2021, 30,708 of ESOP shares were committed to be allocated to participants during 2021.  During 2021 and 2020, 41,665 and 43,321 of ESOP shares were released for allocation to participants, respectively.  Unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were $861 thousand and $893 thousand at June 30, 2021 and December 31, 2020, respectively.

NOTE (12) – Regulatory Matters


The Bank’s capital requirements are administered by the Office of the Comptroller of the Currency (“OCC”) and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by the OCC.  Failure to meet capital requirements can result in regulatory action.


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 June 30, 2020. The ratio then rose to 8.5% for 2021 and reestablishes at 9% on January 1, 2022.

26


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements

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


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

  Actual  
Minimum Capital
Requirements
  
Minimum Required to
Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 
  Amount  Ratio  Amount  
Ratio
  Amount  Ratio 
  (Dollars in thousands) 
June 30, 2021:
                  
Community Bank Leverage Ratio (1)
 $97,639   10.10% $





 $82,171   8.50%
December 31, 2020:
                        
Tier 1 (Leverage) $46,565   9.54% $19,530   4.00 % $24,413   5.00 %
Common Equity Tier 1 $46,565   18.95% $11,059   4.50 % $15,975   6.50 %
Tier 1 $46,565   18.95% $14,746   6.00 % $19,661   8.00 %
Total Capital $49,802   20.20% $19,661   8.00 % $24,577   10.00 %



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


At June 30, 2021, the Company and the Bank met all the capital adequacy requirements to which they were subject. In addition, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2020 that would materially adversely change the Bank’s capital classifications. From time to time, we may need to raise additional capital to support the Bank’s further growth and to maintain the “well capitalized” status.

NOTE (13) – Income Taxes


The Company and its subsidiary are subject to U.S. federal and state income taxes.  Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.  In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies.



The Company recorded a $370 thousand impairment allowance on its deferred tax assets during the three months ended June 30, 2021 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.

27


BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements


NOTE (14) – Concentration of Credit Risk
  

The Bank has a significant concentration of deposits with 1 customer that accounted for approximately 9% of its deposits as of June 30, 2021. The Bank also has a significant concentration of short term borrowings from 1 customer that accounted for 80% of the outstanding balance of securities sold under agreements to repurchase as of June 30, 2021. The Bank expects to maintain the relationships with these customers for the foreseeable future.

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, 2020.  Certain statements herein are forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the U.S. Securities Act of 1933, as amended that reflect our current views with respect to future events and financial performance.  Forward-looking statements typically include words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions.  These forward-looking statements are subject to risks and uncertainties, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements.  Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-Q.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

Critical Accounting Policies and Estimates

Our significant accounting policies, which are essential to understanding MD&A, are described in the “Notes to Consolidated Financial Statements” and in the “Critical Accounting Policies” section of MD&A in our Annual Report on Form 10-K for the year ended December 31, 2020.

As a result of the Company’s acquisition of CFBanc Corporation on April 1, 2021, the accounting policy related to business combinations has been added to our critical accounting policies during the six months ended June 30, 2021. See Note 1 - Basis of Financial Statement Presentation in the accompanying Notes to Unaudited Consolidated Financial Statements contained in Item 1. Consolidated Financial Statements (Unaudited).

COVID-19 Pandemic Impact

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

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

As of June 30, 2021, the Company participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) by way of its merger with CFBanc Corporation. The Bank originated $26.4 million in PPP loans during the three months ended June 30, 2021.

Overview

Broadway Financial Corporation (the “Company”) merged with CFBanc Corporation (“CFBanc”) on April 1, 2021, 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 June 30, 2021 reflect the contribution of the consolidated operations of CFBanc Corporation.  Accordingly, results for the second quarter include the operations of Broadway Financial Corporation and its subsidiary, City First Bank, National Association (the “Bank”), whereas results for the first quarter of 2021 and the first half of 2020 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, 2021 and the resultant bank was renamed City First Bank, National Association.

Total assets increased by $557.6 million to $1.041 billion at June 30, 2021 from $483.4 million at December 31, 2020.  The increase in total assets was primarily due to the merger, which increased total assets by $501.2 million for the period. The increase in total assets was also the result of loan originations of $89.1 million for the six months ended June 30, 2021.

Total liabilities increased by $463.0 million to $897.5 million at June 30, 2021 from $434.5 million at December 31, 2020. The increase in total liabilities primarily consisted of the assumption of $353.7 million of deposits, $3.2 million of FHLB advances, and $73.9 million of other borrowings in the CFBanc Merger.

We recorded net income of $701 thousand and a net loss of $2.8 million for the three and six months ended June 30, 2021, respectively, compared to net income of $216 thousand and $183 thousand for the three and six months ended June 30, 2020, respectively.

Our net income increased by $485 thousand during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to an increase of $2.7 million, or 89.4%, in net interest income after loan loss provision, and a grant award of $1.8 million from the U.S. Department of the Treasury’s Community Development Financial Institution (“CDFI”) Fund.  Results for the quarter were negatively impacted by an increase in non-interest expenses as a result of the merger, and an effective tax rate of 71.3%, which reflected changes in assumptions for the Company’s estimated annualized tax expense and an increase of $370 thousand in the valuation allowance on the Company’s deferred tax assets.  The issuance of 18,474,000 shares of common stock in the private placements that closed a few days after the Merger triggered a limitation on the use of the Company’s deferred tax assets.  As previously disclosed in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”), the Company raised $32.9 million in gross proceeds from the sale of common stock in the private placements in the three months ended June 30, 2021. Net proceeds after expenses were $30.8 million.

For the six months ended June 30, 2021, the Company reported a net loss of $2.8 million compared to net income of $183 thousand for the six months ended June 30, 2020.  Merger-related costs of $5.6 million were recorded during the six months ended June 30, which significantly impacted the results for the period. However, during the six months ended June 30, 2021, net interest income increased by $2.7 million, and a gain of $1.8 million was recognized from the grant from the CDFI Fund discussed above. These increases were offset by an increase in non-interest expenses of $7.5 million, which included the merger-related costs discussed above and the inclusion of the non-interest expenses of CFBanc after the merger date.

Results of Operations

Net Interest Income

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2021

Net interest income before loan loss provisions for the three months ended June 30, 2021 totaled $5.8 million, compared to $3.0 million for the three months ended June 30, 2020.  The increase primarily resulted from an increase in interest income of $2.3 million during the three months ended June 30, 2021 due to the higher interest income and fees on loans receivable of $1.9 million and interest on investment securities of $375 thousand. These increases were primarily the result of the CFBanc Merger. Total interest expense decreased during the period by $474 thousand to $1.1 million for the three months ended June 30, 2021, compared to $1.5 million for the three months ended June 30, 2020. The decrease was largely due to the decrease in interest expense on interest bearing deposits, which decreased by $490 thousand compared to the same period in the prior year as a result of a reduction in the rates offered on deposit accounts during the period. The cost of interest bearing deposits for the three months ended June 30, 2021, was 0.30% compared to 1.17% for the three months ended June 30, 2020. The net interest margin for the three months ended June 30, 2021 was 2.33%, compared to 2.43% for the three months ended June 30, 2020, a change of 10 basis points.

Interest income and fees on loans receivable increased by $1.9 million to $6.3 million for the three months ended June 30, 2021, from $4.4 million for the three months ended June 30, 2020 due to an increase of $166.6 million in the average balance of loans receivable, which increased interest income by $1.7 million. The average yield on loans also increased by 13 basis points from the three months ended June 30, 2020 to the three months ended June 30, 2021, which increased interest income by $159 thousand.

Interest income on securities increased by $375 thousand for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.  The increase in interest income on securities was the result of an increase in the average balance of securities of $148.2 million due to the addition of the securities in the CFBanc Merger. The higher average balance of securities increased interest income by $430 thousand. This increase was partially offset by the effects of a decrease of 138 basis points in the average interest rate earned on securities, which decreased interest income by $55 thousand.

Other interest income increased by $70 thousand for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.  The increase was primarily due to an increase in the average balance of interest earnings cash deposits of $186.6 million, which resulted in an increase of $79 thousand in other interest income. Other interest income was also positively impacted by an increase in the yield of FRB and FHLB stock, which increased to 7.14% for the three months ended June 30, 2021 compared to 3.18% for the three months ended June 30, 2020, resulting in an increase in other interest income of $40 thousand. Offsetting these increases was a reduction in the yield earned on interest earning deposits of 33 basis points, from 0.46% for the three months ended June 30, 2020, to 0.13% for the three months ended June 30, 2021. This decrease resulted in a reduction of other interest income of $54 thousand.

Interest expense on deposits decreased by $490 thousand for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.  The decrease was attributable to a decrease of 87 basis points in the average rate paid on deposits, which caused interest expense on deposits to decrease by $797 thousand.  This decrease was partially offset by the effects of an increase of $306.1 million in the average balance of deposits, primarily because of the merger, which increased interest expense by $307 thousand.

Interest expense on borrowings increased by $16 thousand for the three months ended June 30, 2021, compared to the three months ended June 30, 2020 primarily due to an increase in average short term borrowings (securities sold under agreements to repurchase) of $60.1 million and a long term borrowing of $14 million that were assumed in the Merger at an average rate of 0.09%.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

For the six months ended June 30, 2021, net interest income before provisions increased by $2.7 million to $8.7 million compared to $5.9 million for the six months ended June 30, 2020.  The increase in net interest income during the six months ended June 30, 2021 primarily resulted from an increase in interest income of $1.5 million due to higher interest income on loans receivable due to loans added in the CFBanc Merger. The increase in net interest income was also the result of a decrease in total interest expense of $1.2 million due to a reduction in rates paid on interest bearing liabilities from 1.46% for the six months ended June 30, 2020, to 0.64% for the six months ended June 30, 2021.

Interest income and fees on loans receivable increased by $1.2 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to an increase of $50.9 million in the average balance of loans receivable, primarily resulting from the Merger, which increased interest income by over $1.0 million, and an increase of 5 basis points in the average loan yield, due to a higher average yield on the loan portfolio acquired from City First Bank in the Merger, which increased interest income by $116 thousand.

Interest income on securities increased by $361 thousand for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.  The increase in interest income on securities primarily resulted from an increase of $73.8 million in the average balance of securities because of the merger, which increased interest income by $469 thousand, partially offset by a decrease of 135 basis points in the average interest yield earned on investment securities, which decreased interest income by $108 thousand.

Other interest income increased $5 thousand during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.  The Company recorded higher interest income on regulatory stock during the six months ended June 30, 2021, primarily due to interest earned on FRB and FHLB stock acquired from the CFBanc Merger during the period, which combined with interest on Broadway Federal Bank’s holdings of FHLB stock, increased interest income by $32 thousand.  This increase was partially offset by a decrease of $27 thousand in interest income generated on interest-earning cash in other banks for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.  The decrease was primarily due to a decrease of 65 basis points in the average rate earned on interest-earning cash, which more than offset the positive effects of an increase of $128.4 million in the average balance of interest-earning cash because of the merger.

During the six months ended June 30, 2021, interest expense on deposits decreased by $1.2 million due to a decrease of 90 basis points in the average cost of deposits, which decreased interest expense by $1.3 million, partially offset by the effects of an increase of $155.2 million in the average balance of deposits, largely because of the deposits assumed in the merger, which increased interest expense by $145 thousand.

During the six months ended June 30, 2021, interest expense on borrowings decreased by $53 thousand, compared to the first half of 2020.  The lower interest expense on borrowings during the first half of 2021 reflected a reduction in the average balance of FHLB advances of $2.8 million, which reduced interest expense by $27 thousand, as well as a reduction in the interest rate paid on subordinated debt of 116 basis points, which reduced interest expense by $21 thousand. These decreases were offset by an increase in interest expense on other borrowings assumed in the merger with CFBanc of $16 thousand, although the rate paid on these borrowings was only 0.09%.

The net interest margin decreased by 10 basis points to 2.35% for the six months ended June 30, 2021 from 2.45% for the same period in 2020.

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 
  June 30, 2021  June 30, 2020 
(Dollars in Thousands) Average Balance  Interest  
Average
Yield/
Cost
  Average Balance  Interest  
Average
Yield/
Cost
 
Assets                  
Interest-earning assets:                  
Interest-earning deposits 
$
227,043
  
$
71
   
0.13
%
 
$
40,416
  
$
46
   
0.46
%
Securities  
158,608
   
440
   
1.11
%
  
10,431
   
65
   
2.49
%
Loans receivable (1)  
611,092
   
6,300
   
4.12
%
  
444,530
   
4,429
   
3.99
%
FRB and FHLB stock  
4,087
   
73
   
7.14
%
  
3,518
   
28
   
3.18
%
Total interest-earning assets  
1,000,830
  
$
6,884
   
2.75
%
  
498,895
  
$
4,568
   
3.66
%
Non-interest-earning assets  
33,296
           
10,466
         
Total assets 
$
1,034,126
          
$
509,361
         
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Money market deposits 
$
178,819
  
$
223
   
0.50
%
 
$
46,364
  
$
112
   
0.97
%
Passbook deposits  
69,401
   
57
   
0.33
%
  
53,167
   
81
   
0.61
%
NOW and other demand deposits  
190,734
   
40
   
0.08
%
  
54,362
   
3
   
0.02
%
Certificate accounts  
198,403
   
157
   
0.32
%
  
177,392
   
771
   
1.74
%
Total deposits  
637,357
   
477
   
0.30
%
  
331,285
   
967
   
1.17
%
FHLB advances  
111,120
   
549
   
1.98
%
  
119,315
   
536
   
1.80
%
Junior subordinated debentures  
3,144
   
21
   
2.67
%
  
4,038
   
34
   
3.37
%
Other borrowings  
74,136
   
16
   
0.09
%
  
-
   
-
   
-
 
Total interest-bearing liabilities  
825,757
  
$
1,063
   
0.51
%
  
454,638
  
$
1,537
   
1.35
%
Non-interest-bearing liabilities  
66,279
           
5,523
         
Stockholders’ Equity  
142,090
           
49,200
         
Total liabilities and stockholders’ equity 
$
1,034,126
          
$
509,361
         
                         
Net interest rate spread (2)     
$
5,821
   
2.24
%
     
$
3,031
   
2.31
%
Net interest rate margin (3)          
2.33
%
          
2.43
%
Ratio of interest-earning assets to interest-bearing liabilities
       
121.20
%
          
109.73
%
 
(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.
 
  For the six months ended 
  June 30, 2021  June 30, 2020 
(Dollars in Thousands) Average Balance  Interest  
Average
Yield/
Cost
  Average Balance  Interest  
Average
Yield/
Cost
 
Assets                  
Interest-earning assets:                  
Interest-earning deposits 
$
162,630
  
$
106
   
0.13
%
 
$
34,250
  
$
133
   
0.78
%
Securities  
84,509
   
496
   
1.17
%
  
10,689
   
135
   
2.53
%
Loans receivable (1)  
486,317
   
9,944
   
4.09
%
  
435,388
   
8,788
   
4.04
%
FHLB stock  
3,759
   
115
   
6.12
%
  
3,320
   
83
   
5.00
%
Total interest-earning assets  
737,215
  
$
10,661
   
2.89
%
  
483,647
  
$
9,139
   
3.78
%
Non-interest-earning assets  
22,425
           
10,464
         
Total assets 
$
759,640
          
$
494,111
         
                         
Liabilities and Stockholders’ Equity                        
Interest-bearing liabilities:                        
Money market deposits 
$
127,807
  
$
304
   
0.48
%
 
$
42,130
  
$
217
   
1.03
%
Passbook deposits  
66,800
   
114
   
0.34
%
  
50,936
   
169
   
0.66
%
NOW and other demand deposits  
122,712
   
47
   
0.08
%
  
48,545
   
6
   
0.02
%
Certificate accounts  
159,572
   
395
   
0.50
%
  
180,106
   
1,630
   
1.81
%
Total deposits  
476,891
   
860
   
0.36
%
  
321,717
   
2,022
   
1.26
%
FHLB advances  
110,803
   
1,076
   
1.94
%
  
113,595
   
1,108
   
1.95
%
Junior subordinated debentures  
3,209
   
43
   
2.68
%
  
4,164
   
80
   
3.84
%
Other borrowings  
37,068
   
16
   
0.09
%
  
-
   
-
   
-
 
Total interest-bearing liabilities  
627,971
  
$
1,995
   
0.64
%
  
439,476
  
$
3,210
   
1.46
%
Non-interest-bearing liabilities  
36,030
           
5,574
         
Stockholders’ Equity  
95,639
           
49,061
         
Total liabilities and stockholders’ equity 
$
759,640
          
$
494,111
         
                         
Net interest rate spread (2)     
$
8,666
   
2.26
%
     
$
5,929
   
2.32
%
Net interest rate margin (3)          
2.35
%
          
2.45
%
Ratio of interest-earning assets to interest-bearing liabilities
       
117.40
%
          
110.05
%


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

The Company recorded a loan loss provision of $81 thousand for the three months ended June 30, 2021. No loan loss provision was recorded during the first quarter of 2021, so the loan loss provision for the six months ended June 30, 2021, was also $81 thousand. The provision recorded for the three months ended June 30, 2021, was the result of growth in the loan portfolio. There were no loan charge-offs recorded during the six months ended June 30, 2021.

The Bank did not record a loan loss provision or recapture during the three months ended June 30, 2020 and recorded a loan loss provision of $29 thousand during the six months ended June 30, 2020.  During the three months ended June 30, 2020 the Bank recorded additional provisions to increase the Allowance for Loan and Lease Losses (“ALLL”) for economic uncertainties related to the COVID-19 Pandemic.  During the three months ended June 30, 2020, the Bank maintained its ALLL at $3.2 million, after adjusting for a loan loss recovery of $4 thousand, despite a net decrease of $6.9 million in the loans held for investment portfolio during the three months ended June 30, 2020.  No loan charge-offs were recorded during the three months or the six months ended June 30, 2020.

Non-interest Income

Non-interest income for the three months ended June 30, 2021 totaled $2.2 million compared to $242 thousand for the three months ended June 30, 2020.  Non-interest income increased by $2.0 million primarily due to a grant of $1.8 million from the CDFI Fund during the second quarter.  The Bank fulfilled the requirements to receive the award during the second quarter.  Other income during the three months ended June 30, 2021 included $154 thousand in management fees related to New Market Tax Credit projects managed by City First Bank in Washington, D.C.  No gain on sale of loans was recorded during the three months and six months ended June 30, 2021 compared to gains of $116 thousand recorded during the three months ended June 30, 2020.

For the six months ended June 30, 2021, non-interest income totaled $2.3 million compared to $439 thousand for the same period in the prior year.  The increase of $1.9 million in non-interest income was primarily due to the grant of $1.8 million received from the CDFI Fund during the three months ended June 30, 2021.

Non-interest Expense

Non-interest expense for the three months ended June 30, 2021 totaled $5.4 million, compared to $3.4 million for the three months ended June 30, 2020.  The increase of $2.0 million in non-interest expense during the three months ended June 30, 2021 compared to the same quarter of 2020 was primarily due to the inclusion of the non-interest expenses for the merged Bank, which included increases of $836 thousand in compensation and benefits expense, $345 thousand in information services expense, $307 thousand in occupancy expense, $93 thousand in loan related expenses, and $82 thousand in supervisory costs.  In addition, non-interest expense for the three months ended June 30, 2021 included $207 thousand in Merger-related costs and $131 thousand in amortization of the core deposit intangible that was recorded in connection with the Merger.

For the six months ended June 30, 2021, non-interest expense totaled $14.0 million, compared to $6.6 million for the same period in the prior year.  The increase of $7.4 million in non-interest expense was primarily due to merger-related expenses of $5.6 million in 2021, as well as the inclusion of the non-interest expenses of the acquired operations of the Bank.

Income Taxes

Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21%.  State taxes are recorded at the State of California tax rate and apportioned based on an allocation schedule to reflect that a portion of the Company’s operations are conducted in the Washington, D.C. area.  The Company recorded income tax expense of $1.8 million during the second quarter, representing an effective rate of 71.3%, and a benefit of $348 thousand during the six months ended June 30, 2021.  The high effective income tax for the second quarter reflects changes in the assumptions used to estimate the Company’s annual income tax expense.  Income tax expense for the three months and six months ended June 30, 2021 also includes 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 issued in the private placements that closed a few days after the merger triggered a limitation on the use of the deferred tax assets.

The Company recorded income tax benefits of $345 thousand and $395 thousand for the three and six months ended June 30, 2020, respectively. The income tax benefit during the three months and six months ended June 30, 2020 was primarily due to a tax adjustment of $273 thousand upon the resolution of an outstanding audit issue with the California Franchise Tax Board for tax years 2009 to 2013. In addition, the Company recorded low-income housing tax credits of $29 thousand and $58 thousand during the three months and six months ended June 30, 2020, respectively.

Financial Condition

Total Assets

Total assets increased by $557.6 million to $1.041 billion at June 30, 2021 from $483.4 million at December 31, 2020.  The increase in total assets was primarily due to the addition of assets in the CFBanc Merger, which increased total assets by $501.2 million on the merger date.

Securities Available-For-Sale

Securities available-for-sale totaled $158.8 million at June 30, 2021, compared with $10.7 million at December 31, 2020. The $148.1 million of increase in securities available-for-sale during the six months ended June 30, 2021 was primarily due to the addition of $150.0 million of securities as a result of the CFBanc Merger, as well as additional purchases of securities of $4.1 million. These increases were partially offset by net amortizations and paydowns of mortgage-backed securities of $6.5 million.

Allowance for Loan Losses

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

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the ALLL at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio.  At least quarterly we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market.  The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

The ALLL was $3.3 million or 0.53% of gross loans held for investment at June 30, 2021, compared to $3.2 million, or 0.88% of gross loans held for investment, at December 31, 2020.  The decrease in the ALLL as a percentage of gross loans is because there is no ALLL associated with the loans acquired in the merger.  The increase in balance of the ALLL during the six months ended June 30, 2021 was the result of additional loan loss provisions due to loan growth during the period.

As of June 30, 2021, loan delinquencies totaled $1.9 million, compared to $0 at December 31, 2020.  None of these loans were greater than 90 days delinquent. The increase in delinquencies was due to commercial real loans and commercial loans acquired in the merger.

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 June 30, 2021, NPLs totaled $735 thousand, compared to $787 thousand at December 31, 2020.  The decrease of $50 thousand in NPLs was due to repayments.

In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as lack of current financial information and an insufficient period of satisfactory performance.  As of June 30, 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 448.4% at June 30, 2021 compared to 408.5% at December 31, 2020.

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 the first half of 2021 and $4 thousand in recoveries were recorded during the first half of 2020.

Impaired loans at June 30, 2021 were $4.1 million, compared to $4.7 million at December 31, 2020.  The  decrease of $657 thousand in impaired loans was primarily due to the payoff of a $30 thousand commercial loan and loan repayments.  Specific reserves for impaired loans were $45 thousand, or 1.10% of the aggregate impaired loan amount at June 30, 2021, compared to $141 thousand, or 2.98% at December 31, 2020.

On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) was signed into law by Congress. The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to Troubled Debt Restructurings (“TDR’s”) for a limited period of time to account for the effects of COVID-19.  In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented.  The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.

The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, two borrowers have requested loan modifications. Both borrowers were current at the time modification program was implemented.  To date, no modifications have been granted.

We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of June 30, 2021, but because of the current uncertainties posed by the COVID-19 Pandemic, there can be no assurance that actual losses will not exceed the estimated amounts.  In addition, the OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ALLL as an integral part of their examination process.  These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

Office Properties and Equipment

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

Goodwill and Intangible Assets

As a result of the merger, 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 six months ended June 30, 2021, the Company recorded $131 thousand of amortization expense related to the core deposit intangible.

No impairment charges were recorded during 2021 for goodwill or the core deposit intangible.

Total Liabilities

Total liabilities increased by $463.0 million to $897.5 million at June 30, 2021 from $434.5 million at December 31, 2020.  The increase in total liabilities was largely the result of the liabilities assumed in the CFB merger, and was primarily comprised of an increase of $ 389.4 million in deposits and $84.7 million of other borrowings, offset by reductions of $14.5 million in FHLB advances during the period.

Deposits

Deposits increased to $705.0 million at June 30, 2021 from $315.6 million at December 31, 2020, due to deposits of $353.7 million that were assumed in the Merger and additional growth in deposits of $39.0 million since the Merger, primarily in money market and demand deposit accounts.

Single customer relationships accounted for approximately 9% and 13% of our deposits at June 30, 2021 and December 31, 2020, respectively.  We expect to maintain this relationship with these customers for the foreseeable future.

Borrowings

Total borrowings increased by $69.7 million to $183.5 million at June 30, 2021 from $113.8 million at December 31, 2020. The increase consisted of the addition of $73.9 million of other borrowings at the merger date, which further increased to $84.7 million as of June 30, 2021.  This increase was offset by reductions in FHLB advances of $14.5 million and in our junior subordinated floating rate debentures of $510 thousand.

The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets.  As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. The securities that have been pledged as collateral include $17.6 million of U.S. Government Agency securities, $47.2 million of mortgage-backed securities,  and $6.5 million of collateralized mortgage obligations as of June 30, 2021.   The weighted average rate paid on repurchase agreements was 0.10% for the three months ended June 30, 2021.

The weighted average interest rate on the FHLB Advances was 1.95% at June 30, 2021, compared with 1.94% at December 31, 2020. The weighted average interest rate on the subordinated floating rate debentures decreased to 2.69% at June 30, 2021 from 2.77% at December 31, 2020, primarily due to decreases in LIBOR.

Stockholders’ Equity

Stockholders’ equity was $143.5 million, or 13.8% of the Company’s total assets, at June 30, 2021, compared to $48.9 million, or 10.1% of the Company’s total assets at December 31, 2020.  The Company issued $63.3 million in common stock at a price per share of $2.49 and $3.0 million in preferred stock in connection with the merger.  In addition, the Company raised $30.9 million in net proceeds from the sale of common stock in private placements immediately following the merger on April 6, 2021.

The Company’s book value was $1.96 per share at June 30, 2021, and its tangible book value was $1.55 per share as of June 30, 2021 after adjusting for goodwill of $26.0 million and the net unamortized core deposit intangible of $3.2 million, which were both originally recorded in connection with the merger. The Company’s tangible book value per share was $1.74 per share as of December 31, 2021.

A capital contribution of $20 million was made to the Bank from the Company during the three months ended June 30, 2021.  The Bank (City First Bank, N.A.) elected to adopt the Community Bank Leverage Ratio (“CBLR”) as of April 1, 2020 as reflected in its June 30, 2020 Call Report. The Bank’s CBLR was 10.10% at June 30, 2021.

Prior to Merger, the Company’s former subsidiary, Broadway Federal Bank, f.s.b., did not elect to adopt the CBLR and reported a Total Capital ratio of 20.20% and a Leverage ratio of 9.54% at December 31, 2020.

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 to borrow up to 25% of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.  This approved limit and collateral requirement would have permitted the Bank to borrow an additional $24.6 million at June 30, 2021.  In addition, the Bank has additional lines of credit of  $11 million with other financial institutions.

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 June 30, 2021 consisted of $210.4 million in cash and cash equivalents and $68.4 million in securities available-for-sale that were not pledged, compared to $96.1 million in cash and cash equivalents and $10.7 million in securities available-for-sale that were not pledged at December 31, 2020.  The increases were due to assets acquired in the CFBanc Merger. Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

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

The Company recorded consolidated net cash outflows from operating activities of $2.6 million during the six months ended June 30, 2021, compared to consolidated net cash outflows from operating activities of $49.2 million during the six months ended June 30, 2020.  Net cash outflows from operating activities during the six months ended June 30, 2021 were primarily attributable to the Company’s net loss, whereas net cash outflows from operating activities for the six months ended June 30, 2020 were primarily due to originations of loans receivable held for sale of $110.9 million, offset primarily by proceeds from sales of loans receivable held for sale of $61.0 million.

The Company recorded consolidated net cash inflows from investing activities of $58.4 million during the six months ended June 30, 2021, compared to consolidated net cash inflows of $23.4 million during the six months ended June 30, 2020.  Net cash inflows from investing activities during the six months ended June 30, 2021 were primarily due to net cash acquired in the merger with City First Bank N.A. of $84.7 million, offset by cash used to fund new loans receivable held for investment of $29.7 million. In comparison, cash inflows from investing activities million during the six months ended June 30, 2020 were primarily due to principal payments on loans receivable held for investment

The Company recorded consolidated net cash inflows from financing activities of $58.5 million during the six months ended June 30, 2021, compared to consolidated net cash inflows from financing activities of $50.0 million during the six months ended June 30, 2020.  Net cash inflows from financing activities during the six months ended June 30, 2021 were primarily attributable to a net increase in deposits of $35.9 million and proceeds from the sale of stock of $30.8 million, and $10.6 million in additional securities sold under agreements to repurchase, offset by a net decrease of $17.5 million in FHLB advances. During the six months ended June 30, 2020, net cash inflows from financing activities were primarily due to a net increase in deposits of $18.1 million and net proceeds from FHLB advances of $32.5 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 June 30, 2021 and December 31, 2020, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” As of April 1, 2020, the Bank elected to follow the Community Bank Leverage Ratio guidelines. (See Note 12 – Regulatory Matters.)

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 June 30, 2021.  Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2021.

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 June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as noted below.

During the three months ended June 30, 2021, we completed the CFBanc Merger.  (See Note 2 - Business Combination.)  We are currently integrating CFBanc into our operations and internal control processes. As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the CFBanc business, which we expect to complete within one year after the date of acquisition. Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2021 may exclude CFBanc to the extent that they are not yet integrated into our internal controls environment.

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.

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

On August 12, 2020, the Board of Directors of the Company approved an amendment and restatement of the Bylaws of the Company to, among other things, conform the deadlines for stockholder director nominations and new business proposals under the Bylaws, such that both are due in writing to the Corporate Secretary not less than 90 days nor more than 120 days in advance of the anniversary of the previous year’s annual meeting; provided, however, that if the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date, the stockholder notice must be received by the Corporate Secretary not later than 90 days prior to the annual meeting or, if later, 10 days following the day on which public disclosure of the date of the annual meeting is first made by the Company.

Item 6.
EXHIBITS

Exhibit
Number*

Amended and Restated Certificate of Incorporation of Broadway Financial Corporation effective as of April 1, 2021 (Exhibit 3.1 to Form 8-K filed by Registrant on April 5, 2021)
Bylaws of Registrant (Exhibit 3.2 to Form 8-K filed by Registrant on August 24, 2020)
Employment Agreement, dated as of December 29, 2017, by and among City First Bank of D.C., National Association, CFBanc Corporation and Brian Argrett. **.
City First Bank Deferred Compensation Plan for Brian Argrett.**
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


*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

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:    August 23, 2021By:/s/ Brian Argrett
  Brian Argrett
  Chief Executive Officer
   
Date:    August 23, 2021By:/s/ Brenda J. Battey
  Brenda J. Battey
  Chief Financial Officer


43