What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-23 compared with 2021-05-14 · 359 added, 188 removed, 65 unchanged (89% of the section changed)

4 unchanged sentences

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.

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.

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations, are described in the “Notes to

Consolidated Financial Statements” and in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies.

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

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 March 31, 2021, none of its

borrowers had requested loan modifications and the Bank had no delinquencies related to COVID-19.

As of March 31, 2021, the Bank had not participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) because the Bank did not historically offer SBA loans.

Instead, management focused on selective originations of multi-family residential loans and, to a lesser extent, other commercial real estate (“CRE”) loans, including construction loans.

Broadway Financial Corporation (the “Company”) merged with CFBanc Corporation on April 1, 2021, with Broadway Financial Corporation continuing as the surviving entity (the “CFBanc Merger”).

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.

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

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 first quarter of 2021 and for any period of 2020 referred to herein include the results of Broadway Financial Corporation and its subsidiary, Broadway Federal Bank, f.s.b., (the

“Bank”) on a standalone basis, and do not include any results of CFBanc Corporation and its subsidiaries.

Total assets decreased by $3.8 million to $479.6 million at March 31, 2021 from $483.4 million at December 31, 2020.

The decrease in total assets primarily consisted of decreases in cash and cash

equivalents of $8.0 million and investment securities available-for-sale of $675 thousand, offset by increases in loans receivable held for investment of $2.4 million, deferred tax assets of $1.5 million, and other assets of $1.2 million.

Total liabilities were $434.5 million at March 31, 2021 which were relatively unchanged from December 31, 2020.

However, during the first quarter of 2021, there were decreases in deposits of $3.3

million, advance payments by borrowers for taxes and insurance of $532 thousand, and junior subordinated debentures of $255 thousand.

These decreases were primarily offset by an increase in accrued expenses and other liabilities of $4.1 million.

For the first quarter of 2021, we recorded a consolidated net loss of $3.5 million, compared to a consolidated net loss of $33 thousand for the first quarter of 2020.

The loss during the first

quarter of 2021 was primarily due to merger-related expenses of $5.4 million, which included $3.4 million in severance and other compensation costs, $1.8 million in professional service expenses and $213 thousand for insurance.

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.

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

For the first quarter of 2021, net interest income was $2.8 million, compared to $2.9 million for the first quarter of 2020.

The decrease in net interest income primarily resulted from a decrease

of 7 basis points in the net interest margin which partially offset by an increase of $5.1 million in the average balance of interest-earning assets, compared to the first quarter of the prior year.

Interest and fees on loans receivable decreased by $715 thousand to $3.6 million for the first quarter of 2021, from $4.4 million for the first quarter of 2020.

The decrease in interest and fees

on loans receivable primarily resulted from a decrease of $64.8 million in the average balance of loans receivable, which decreased interest income by $654 thousand.

In addition, the average yield on loans decreased by 6 basis points to 4.03% from

4.09%, which decreased interest income by $61 thousand.

The decrease in loan yield was attributable to lower loan rates, as well as a lower level of recorded interest recoveries, during the first quarter of 2021 compared to the first quarter of

During the first quarter of 2021, the Bank recorded no interest recovery, compared to an interest recovery of $162 thousand upon the payoff of one non-accrual church loan sold during the first quarter of 2020.

Interest on investment securities decreased by $14 thousand to $56 thousand for the first quarter of 2021, from $70 thousand for the first quarter of 2021, compared to the first quarter of 2020.

The decrease in interest income on investment securities primarily resulted from a decrease of $533 thousand in the average balance of investment securities and a decrease of 41 basis points in the average interest rate earned on investment

Other interest income decreased by $65 thousand for the first quarter of 2021 compared to the first quarter of 2020.

The decrease was primarily due to a decrease of 111 basis points in the average

rate earned on interest-earning deposits in other banks which decreased interest income by $129 thousand, partially offset by an increase of $70.1 million in the average balance of interest-earning deposits in other banks, which increased interest

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.

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

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.

In addition, dividends earned on Federal Home Loan Bank of San Francisco (“FHLB”) stock decreased by $12 thousand during the first quarter of 2021, compared to the first quarter of 2020 due to a decrease of 202 basis points

in the average rate earned on FHLB stock, which decreased interest income by $17 thousand, partially offset by an increase of $309 thousand in the average balance of FHLB stock, which increased interest income by $5 thousand.

Interest expense on deposits decreased to $383 thousand for the first quarter of 2021 from $1.1 million for the first quarter of 2020.

The decrease of $672 thousand in interest expense on deposits

was primarily due to a decrease of 87 basis points in the average cost of deposits, which decreased interest expense by $532 thousand, and a net change in the average balance of total interest-bearing deposits, which decreased interest expense by

$140 thousand, primarily related to certificates of deposit.

Interest expense on borrowings decreased by $69 thousand for the first quarter of 2021 compared to the first quarter of 2020.

The decrease in interest expense on borrowings was primarily due to a

decrease of $1.0 million in the average balance of the junior subordinated debentures, which decreased interest expense by $9 thousand and decreases of 21 basis points in the cost of FHLB advances, which decreased interest expense by $58 thousand and

169 basis points in the average cost of the junior subordinated debentures, which decreased interest expense by $16 thousand, offset by an increase of $2.6 million in the average balance of FHLB advances, which increased interest expense by $14

The following tables set forth average balances, average yields and costs, and certain other information for the periods indicated.

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;

however, the balance of these loans is included

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

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

(Dollars in Thousands)

2 unchanged sentences

Interest-earning assets:

Interest-earning deposits and other short term investments

Interest-earning deposits

Loans receivable (1)

FRB and FHLB stock

Total interest-earning assets

9 unchanged sentences

Junior subordinated debentures

Other borrowings

Total interest-bearing liabilities

5 unchanged sentences

Ratio of interest-earning assets to interest-bearing liabilities

Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs, loan premiums and loans receivable held for sale.

Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.

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

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

Loan Loss Provision/Recapture

The Bank did not record any loan loss provision or recapture during the first quarter of 2021, but recorded a net loan loss provision of $29 thousand during the first quarter of 2020.

loss provision for the first quarter of 2020 was recorded to increase our allowance for loan and lease losses (“ALLL”) because of the economic uncertainties related to the COVID-19 Pandemic.

There were no charge-offs during the quarters ended March

31, 2021 or March 31, 2020.

For the six months ended

June 30, 2021

June 30, 2020

(Dollars in Thousands)

Average Balance

Interest-earning assets:

Interest-earning deposits

Loans receivable (1)

Total interest-earning assets

Non-interest-earning assets

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Money market deposits

Passbook deposits

NOW and other demand deposits

Certificate accounts

Total deposits

FHLB advances

Junior subordinated debentures

Other borrowings

Total interest-bearing liabilities

Non-interest-bearing liabilities

Stockholders’ Equity

Total liabilities and stockholders’ equity

Net interest rate spread (2)

Net interest rate margin (3)

Ratio of interest-earning assets to interest-bearing liabilities

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.

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

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.

charge-offs were recorded during the three months or the six months ended June 30, 2020.

Non-interest Income

Non-interest income for the first quarter of 2021 totaled $123 thousand, compared to $197 thousand for the first quarter of 2020.

The decrease of $74 thousand in non-interest income was due to

decreases in service charges on deposits of $51 thousand, net gain on sales of loans of $7 thousand and other income of $16 thousand.

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

Total non-interest expense was $8.6 million for the first quarter of 2021, compared to total non-interest expense of $3.1 million for the first quarter of 2020.

The increase of $5.5 million was

primarily due to increases of $3.3 million in compensation and benefits expense, $1.7 million in professional services expense, and $214 thousand in insurance expense, primarily due to costs associated with the CFBanc Merger.

The merger-related

compensation expenses were primarily comprised of $3.2 million of severance for the Company’s executive officers, $120 thousand related to the termination of the Company’s Director Emeritus Policy, and $109 thousand from the accelerated vesting of

restricted stock awards.

The merger-related professional service expenses were primarily comprised of $933 thousand for financial advisory fees, $478 thousand for legal fees, $185 thousand for printing, mailing, and proxy solicitor costs, and $140

thousand for audit, tax, and consulting fees.

In addition, the Company incurred additional insurance costs of $213 thousand related to the CFBanc Merger for D&O tail insurance for the former directors and officers of the Company and the Bank.

Income taxes are computed by applying the statutory federal income tax rate of 21% and the California income tax rate of 10.84% to taxable income.

The Company recorded income tax benefits of $2.2

million and $50 thousand for the first quarter of 2021 and 2020, respectively.

The Company’s effective income tax rates were benefits of 38.4% and 60.2% for the first quarter of 2021 and the first quarter of 2020, respectively.

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 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.

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 decreased by $3.8 million to $479.6 million at March 31, 2021 from $483.4 million at December 31, 2020.

The decrease in total assets primarily consisted of decreases in cash and cash equivalents of

$8.0 million and investment securities available-for-sale of $675 thousand, offset by increases in loans receivable held for investment of $2.4 million, deferred tax assets of $1.5 million, and other assets of $1.2 million.

Loans Receivable Held for Investment

Loans receivable held for investment, net of the allowance for loan losses, increased by $2.4 million to $362.5 million at March 31, 2021, compared to $360.1 million at December 31, 2020.

increase was primarily due to loan originations of $23.9 million in multi-family, offset by loan repayments of $21.6 million during the first quarter of 2021.

During the first quarter of 2020, the Bank did not originate any loans for investment.

Allowance for Loan and Lease Losses

Our ALLL was $3.2 million or 0.88% of gross loans receivable held for investment at both March 31, 2021 and December 31, 2020.

The level of ALLL reflects the result of our quarterly reviews of the

adequacy of the ALLL.

As a small banking institution, the Bank is not required to adopt the CECL accounting standard until 2023;

consequently, the Bank’s ALLL is based on evidence available at the date of preparation of its financial statements,

rather than on 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 Bank’s portfolio, as well as various measures of the quality and safety of the portfolio, such as debt service and loan-to-value ratios.

We also consider such factors as the 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 (NPLs), net loan charge-offs, regulatory policies, general economic conditions, and other factors related to the

collectability of loans in the portfolio.

At March 31, 2021, the Bank had no delinquencies in its loan portfolio, compared to $14 thousand total delinquencies at March 31, 2020.

Management is continuing to monitor the loan portfolio and

regularly communicating with borrowers as necessary to determine the continuing adequacy of the ALLL.

Non-performing loans 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.

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.

30, 2021, NPLs totaled $735 thousand, compared to $787 thousand at December 31, 2020.

At March 31, 2021, the ALLL as a percentage of non-performing loans decreased to 423.0% from 1,146.8% at March 31, 2020.

The decrease in the ratio was primarily due to an increase in

non-performing loans from $280 thousand at March 31, 2020 to $760 thousand at March 31, 2021, primarily due to the addition of one church loan with a balance of $480 thousand.

There were no charge-offs during the quarters ended March 31, 2021 or

March 31, 2020.

In reviewing the adequacy of the ALLL, we also consider the impact of loan charge-offs, including changes and trends in loan charge-offs.

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.

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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.

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.

Due to increases in collateral values, the average recorded investment in NPLs was 51% of estimated fair value less estimated selling costs as of March 31, 2021.

Impaired loans were $4.7 million at both March 31, 2021 and December 31, 2020.

Specific reserves for impaired loans were $136 thousand, or 2.89% of the aggregate impaired loan amount at March 31,

2021, compared to $141 thousand, or 2.98% at December 31, 2020.

Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) was 0.88% at March 31, 2021, which was the same at

December 31, 2020.

Therefore, certain losses inherent in our total NPLs are recognized periodically through

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 (“TDRs”) 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 are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to

Under this guidance, six months 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.

Although the Bank has developed plans and policies for providing financial relief to borrowers that may experience difficulties in meeting the terms of their loans, as of March 31, 2021, no

borrowers have requested loan modification and the Bank has had no delinquencies related to COVID-19.

We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of March 31, 2021, but because of the current uncertainties posed by the COVID-19 Pandemic, there can

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.

Deferred Tax Assets

Management has assessed the likelihood of realization of the deferred tax assets based on positive and negative evidence, the amount of taxes paid in available carry back years, and the forecasts

of future income and tax planning strategies.

Based on this analysis, no valuation allowance was recorded on the Company’s deferred tax assets, which totaled $7.1 million and $5.6 million at March 31, 2021 and December 31, 2020, respectively.

increase in deferred tax assets as of March 31, 2021 was primarily due to timing differences related to the deductibility of accrued severance costs.

The Company expects to record a valuation allowance on its deferred tax assets during the second quarter of 2021 because the number of shares sold in the private placements completed on April 6,

2021 exceeded the threshold under the federal tax code that triggers limitations on the use of those assets.

Based on currently available data and the stock price on the date of the CFBanc Merger, the valuation allowance is expected to be

approximately $700 thousand.

Deposits decreased by $3.3 million to $312.3 million at March 31, 2021 from $315.6 million at December 31, 2020, which consisted of a decrease of $20.4 million in certificates of deposit, offset by

an increase of $17.1 million in liquid deposits.

Certificates of deposit (“CDs”) decreased by $20.4 million during the first quarter of 2021 to $108.3 million at March 31, 2021, which represented 35% of total deposits, from $128.7 million at

December 31, 2020, which represented 41% of total deposits.

The decrease in CDs was primarily due to decreases in retail CDs of $17.6 million and CDARS deposits of $2.8 million.

Liquid deposits (NOW, demand, money market and passbook accounts) increased to $204.0 million at March 31, 2021, which represented 65%of total deposits, from $186.9 million at December 31, 2020,

which represented 59% of total deposits.

Two customer relationships accounted for approximately 13% of our deposits at March 31, 2021 and December 31, 2020.

We expect to maintain these relationships with the customers for the foreseeable

Total borrowings decreased by $255 thousand to $113.6 million at March 31, 2021 from $113.8 million at December 31, 2020 due to a quarterly principal payment on our junior subordinated floating

rate debentures.

There was no change in FHLB advances during the first quarter of 2021.

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

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 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.

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 $45.1 million, or 9.40% of the Company’s total assets, at March 31, 2021, compared to $48.9 million, or 10.11% of the Company’s total assets, at December 31, 2020.

Company’s book value was $1.62 per share as of March 31, 2021, compared to $1.74 per share as of December 31, 2020.

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.

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.

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.

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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 40% 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 $36.1 million at March 31, 2021.

addition, the Bank had an $11.0 million line of credit with another financial institution as of March 31, 2021.

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.

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 March 31, 2021 consisted of $88.2 million in cash and cash equivalents and $10.0 million in securities available-for-sale that were not pledged, compared to $96.1 million in cash and cash equivalent and $10.7 million in securities

available-for-sale that were not pledged at December 31, 2020.

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 and December

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 completed

the sale of 18,474,000 shares of common stock in private placements with institutional and accredited investors, raising $32.9 million in gross proceeds.

The Company recorded consolidated net cash outflows from operating activities of $2.1 million during the three months ended March 31, 2021, compared to consolidated net cash outflows from operating

activities of $46.2 million during the three months ended March 31, 2020.

Net cash outflows from operating activities during the three months ended March 31, 2021 decreased compared to the three months ended March 31, 2020 primarily due to a

decrease in originations of loans receivable held for sale during the three months ended March 31, 2021, compared to cash outflows of $45.5 million in originations of loans receivable held for sale during the three months ended March 31, 2021.

The Company recorded consolidated net cash outflows from investing activities of $1.9 million during the three months ended March 31, 2021, compared to consolidated net cash inflows of $16.2

million during the three months ended March 31, 2020.

Net cash outflows from investing activities during the three months ended March 31, 2021 were primarily attributable to originations of loans receivable held for investment of $2.4 million, net of

repayments, while net cash inflows from investment activities during the three months ended March 31, 2020 were primarily attributable to a net repayments of loans receivable held for investment of $16.4 million.

The Company recorded consolidated net cash outflows from financing activities of $4.0 million during the three months ended March 31, 2021, compared to consolidated net cash inflows from financing

activities of $66.2 million during the three months ended March 31, 2020.

Net cash outflows from financing activities during the three months ended March 31, 2021 were primarily attributable to a net decrease in deposits of $3.3 million, while cash

inflows from financing activities during the three months ended March 31, 2020 were primarily due to a net increase in deposits of $35.4 million and a net increase in FHLB advances of $31.0 million.

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

Our principal subsidiary, Broadway Federal Bank, must comply with capital standards established by the OCC in the conduct of its business.

Failure to comply with such capital requirements may

result in significant limitations on its business or other sanctions.

The Dodd-Frank Act requires the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository

institution holding companies and certain non-bank financial companies that are no less than those to which insured depository institutions have been previously subject.

The current regulatory capital requirements are described in Note 11 of the

Notes to Consolidated Financial Statements.

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.)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis