What changed in this filing

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Item 1. Business

2022-04-15 compared with 2021-03-31 · 612 added, 532 removed, 382 unchanged (75% of the section changed)

Broadway Financial Corporation (the “Company”) was incorporated under Delaware law in 1995 for the purpose of acquiring and holding all of the outstanding capital stock of Broadway Federal Savings and Loan Association

(“Broadway Federal” or the “Bank”) as part of the Bank’s conversion from a federally chartered mutual savings association to a federally chartered stock savings bank.

In connection with the conversion, the Bank’s name was changed to Broadway Federal

Association (“Broadway Federal”) as part of the Broadway Federal’s conversion from a federally chartered mutual savings association to a federally chartered stock savings bank.

In connection with the conversion, the Bank’s name was changed to

Broadway Federal Bank, f.s.b.

The conversion was completed, and the Bank became a wholly‑owned subsidiary of the Company, in January 1996.

The Company is currently regulated by the Board of Governors of the Federal Reserve System (“FRB”).

The Bank is currently regulated by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit

Insurance Corporation (“FDIC”).

On April 1, 2021, the Company completed its merger (the “Merger”) with CFBanc Corporation (“CFBanc”), with the Company continuing as the surviving entity.

Immediately following the Merger,

Broadway Federal Bank, f.s.b.

(“Broadway Federal”) 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 (combined with Broadway Federal, “City First”

or the “Bank”).

Concurrently with the Merger, the Bank changed its name to City First Bank, National Association.

Concurrently with the completion of the Merger, the Company converted to become a public benefit corporation.

The Company works to spur equitable economic development with a mission to

strengthen the overall well-being of historically excluded communities and has deployed loans and investments in the communities we serve that we believe has helped close funding gaps, preserved or increased access to affordable housing, created

and preserved jobs, and expanded critical social services.

We believe our status as a Delaware public benefit corporation aligns our business model of creating social, economic, and environmental value for underserved communities with a

stakeholder governance model that allows us to give careful consideration to the impact of our decisions on workers, customers, suppliers, community, the environment, and our impact on society;

and to align further our mission and values to our

organizational documents.

The Company is currently regulated by the Board of Governors of the Federal Reserve System (the “FRB”).

The Bank is currently regulated by the Office of the Comptroller of the

Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank’s deposits are insured up to applicable limits by the FDIC.

The Bank is also a member of the Federal Home Loan Bank of San Francisco (“FHLB”).

See “Regulation” for further descriptions of the regulatory

systems to which the Company and the Bank are subject.

On August 25, 2020, the Company entered into a definitive agreement to merge with CFBanc Corporation, a District of Columbia benefit corporation (“City First”).

The Merger Agreement provides that, among other things

and subject to the terms and conditions of the Merger Agreement, City First will merge with and into the Company (the “City First Merger”), with the Company continuing as the surviving entity.

At the effective time of the City First Merger, (1) each

share of City First’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 Effective Time (other than any shares owned by City First or the Company and

any Dissenting Shares (as defined in the Merger Agreement)) will be 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 will be renamed

Class A Common Stock, and a new class of non-voting common stock of the Company, par value $0.01 per share, which will be 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 City First (“City First Preferred Stock”) issued and outstanding immediately prior to the effective time of the City First Merger will be converted into one validly issued, fully paid and non-assessable share of a new series

of preferred stock of the Company, which new series will be 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 City First Preferred Stock than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof of City First Preferred

Immediately following the City First Merger, the Bank will merge with and into City First Bank of D.C., National Association (“CFB”), a wholly owned subsidiary of City First, with CFB continuing as the surviving entity.

On March 17, 2021, the stockholders of the Company and the stockholders of City First voted to approve the merger as described above.

The Company previously announced on January 4, 2021 that all regulatory approvals

necessary for consummation of the merger had been obtained.

The merger is expected to close on April 1, 2021.

Also, on March 17, 2021, the Company’s stockholders approved the proposed sale of 18,474,000 shares of Broadway 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.

These private placements of common stock are expected to close a few days after the merger.

At the same meeting, the Company’s stockholders also voted to approve an amendment to the

Company’s certificate of incorporation to increase the Company’s authorized number of shares of voting common stock to 75,000,000 and to convert the Company to a “public benefit corporation” under Delaware law.

Delaware law provides that a public

benefit corporation is a for-profit corporation that is intended to produce a public benefit or benefits specified in its certificate of incorporation and to operate in a responsible and sustainable manner.

The Bank is also a member of the Federal Home Loan Bank of Atlanta (the “FHLB”).

“Regulation” for further descriptions of the regulatory systems to which the Company and the Bank are subject.

Available Information

Our internet website address is www.broadwayfederalbank.com.

Our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports can be obtained free of

charge by sending a written request to Broadway Financial Corporation, 5055 Wilshire Boulevard, Suite 500, Los Angeles, California 90036 Attention:

The above reports are available on our website as soon as reasonably practicable after we

file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”).

Our internet website address is www.cityfirstbank.com.

Our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports are available on our website as

soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”) and can be obtained free of charge by sending a written request to Broadway Financial Corporation, 4160

Wilshire Boulevard, Suite 150, Los Angeles, California 90010 Attention:

Audrey Phillips.

Business Overview

We are headquartered in Los Angeles, California and our principal business is the operation of our wholly‑owned subsidiary, Broadway Federal, which has two offices in Los Angeles and one in the nearby city of

Inglewood, California.

Broadway Federal’s principal business consists of attracting deposits from the general public in the areas surrounding our branch offices and investing those deposits, together with funds generated from operations and

borrowings, primarily in mortgage loans secured by residential properties with five or more units (“multi‑family”) and commercial real estate.

Our assets also include mortgage loans secured by residential properties with one‑to‑four units (“single

family”) that we originated or purchased in prior years.

The Company is headquartered in Los Angeles, California and our principal business is the operation of our wholly‑owned subsidiary, City First, which has three offices:

two in California (in Los Angeles and the

nearby city of Inglewood) and one in Washington, D.C.

City First’s principal business consists of attracting deposits from the general public in the areas surrounding our branch offices and investing those deposits, together with funds generated

from operations and borrowings, primarily in mortgage loans secured by residential properties with five or more units (“multi‑family”) and commercial real estate.

Our assets also include mortgage loans secured by residential properties with

one‑to‑four units (“single family”) as well as loans secured by commercial business assets.

In addition, we invest in securities issued by federal government agencies, residential mortgage‑backed securities and other investments.

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Our principal costs are interest expenses that we incur on deposits and borrowings, together with general and administrative expenses.

earnings are significantly affected by general economic and competitive conditions, particularly monetary trends and conditions, including changes in market interest rates and the differences in market interest rates for the interest bearing deposits

and borrowings that are our principal funding sources and the interest yielding assets in which we invest, as well as government policies and actions of regulatory authorities.

Our earnings are significantly affected by general economic and competitive conditions, particularly monetary trends, and conditions, including changes in market interest rates and the differences in market interest rates for the interest bearing

deposits and borrowings that are our principal funding sources and the interest yielding assets in which we invest, as well as government policies and actions of regulatory authorities.

The ongoing COVID-19 pandemic (“Pandemic”) has caused significant disruption in the local, national and global economies and financial markets.

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quarantines, shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.

The Pandemic could disrupt our operations through its impact on our

employees, depositors, borrowers, and the tenants of our multi-family loan borrowers.

The Pandemic could disrupt our operations through its impact on

our employees, depositors, borrowers, and the tenants of our multi-family loan borrowers.

The disruptions in the economy may impair the ability of our borrowers to make their monthly loan payments, which could result in significant increases in

delinquencies, defaults, foreclosures, declining collateral values, and losses on our loans.

The Pandemic may also materially disrupt banking and other financial activity generally and in the Southern California area in which the Bank operates.

This may result in a decline in customer demand for our products

and services, including loans and deposits which could negatively impact our liquidity position and our growth strategy.

Any one or more of these developments could have a material adverse effect on our business, operations, consolidated financial

condition, and consolidated results of operations.

In response to the anticipated economic effects of the Pandemic, the FRB has taken a number of actions that have significantly affected the financial markets in the United States, including actions intended to result

in substantial decreases in market interest rates.

On March 3, 2020, the 10-year Treasury yield fell below 1.00% for the first time, and the Federal Reserve reduced the target federal funds rate by 50 basis points.

On March 15, 2020, the Federal

Reserve further reduced the target federal funds rate by 100 basis points and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the Pandemic.

On March 22, 2020, the Federal Reserve announced

that it would continue its quantitative easing program in amounts necessary to support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities.

We expect that these reductions in interest rates, among other

actions of the FRB and the Federal government generally, especially if prolonged, could adversely affect our net interest income, margins and profitability.

The Pandemic may also materially disrupt banking and other financial activity generally and in the areas in which the Bank operates.

This may result in a decline in customer demand for our products and services,

including loans and deposits which could negatively impact our liquidity position and our growth strategy.

Any one or more of these developments could have a material adverse effect on our business, operations, consolidated financial condition,

and consolidated results of operations.

Lending Activities

Our loan portfolio is comprised primarily of mortgage loans which are secured by multi‑family residential properties, single family residential properties and commercial real estate, including churches.

The remainder

of the loan portfolio consists of commercial business loans, construction loans and consumer loans.

At December 31, 2020, our net loan portfolio, excluding loans held for sale, totaled $360.1 million, or 75% of total assets.

We emphasize the origination of adjustable‑rate mortgage loans (“ARM Loans”), most of which are hybrid ARM Loans (ARM Loans having an initial fixed rate period, followed by an adjustable rate period), for our portfolio

of loans held for investment and held for sale.

We originate these loans in order to maintain a high percentage of loans that have provisions for periodic repricing, thereby reducing our exposure to interest rate risk.

At December 31, 2020, more than

97.2% of our mortgage loans had adjustable rate features.

However, most of our adjustable rate loans behave like fixed rate loans for periods of time because the loans may still be in their initial fixed‑rate period or may be subject to interest rate

ARM Loans in their initial fixed‑rate period totaled $293.3 million or 81.0% of our gross loan portfolio at December 31, 2020.

community facilities, and churches.

The remainder of the loan portfolio consists of commercial business loans, loans guaranteed by the Small Business Administration (the “SBA”) and construction-to-permanent loans.

At December 31, 2021, our net loan

portfolio, excluding loans held for sale, totaled $648.5 million, or 59.3% of total assets.

portfolio of loans held for investment and held for sale.

We originat e these loans in order to maintain a high percentage of loans that have provisions for periodic repricing, thereby reducing our exposure to

interest rate risk.

At December 31, 2021, more than 69% of our mortgage loans had adjustable rate features.

However, most of our adjustable rate loans behave like fixed rate loans for periods of time because the loans may still be in their

initial fixed‑rate period or may be subject to interest rate floors.

The types of loans that we originate are subject to federal laws and regulations.

The interest rates that we charge on loans are affected by the demand for such loans, the supply of money available for lending purposes

and the rates offered by competitors.

The interest rates that we charge on loans are affected by the demand for such loans, the supply of money available for lending

purposes and the rates offered by competitors.

These factors are in turn affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and legislative tax policies.

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Deferred loan costs, net

Credit and interest marks on purchased loans, net

Unamortized discounts

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The vast majority of our multi‑family loans amortize over 30 years.

As of December 31,

2020, our single largest multi‑family credit had an outstanding balance of $6.9 million, was current, and was secured by a 33‑unit apartment complex in Vista, California.

At December 31, 2020, the average balance of a loan in our multi‑family

portfolio was $1.0 million.

December 31, 2021, our single largest multi‑family credit had an outstandi ng balance of $6.8 million, was current, and was secured by a 33‑unit apartment complex in Vista, California.

At December 31, 2021, the

average balance of a loan in our multi‑family portfolio was $1.1 million.

Our commercial real estate loans amounted to $93.2 million and $24.3 million at December 31, 2021 and 2020, respectively.

Commercial real estate loans represented 7% and 4% of our gross loan portfolios at December 31,

2020 and 2019, respectively.

All the commercial real estate loans outstanding at December 31, 2020 were ARM Loans.

Most commercial real estate loans are originated with principal repayments on a 30 year amortization schedule but are due in 10 years.

As of December 31, 2020, our single largest commercial real estate credit had an outstanding principal balance of $5.7 million, was current, and was secured by a charter school building located in Washington, D.

At December 31, 2020, the average

balance of a loan in our commercial real estate portfolio was $1.4 million.

The interest rates on multi‑family and commercial ARM Loans are based on a variety of indices, including the 6‑Month London InterBank Offered Rate Index (“6‑Month LIBOR”), the 1‑Year Constant Maturity Treasury Index

(“1‑Yr CMT”), the 12‑Month Treasury Average Index (“12‑MTA”), the 11th District Cost of Funds Index (“COFI”), and the Wall Street Journal Prime Rate (“Prime Rate”).

We currently offer adjustable rate loans with interest rates that adjust either

semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period.

Commercial real estate loans represented 14.29% and 6.71% of our gross loan portfolios at

December 31, 2021 and 2020, respectively.

Most commercial real estate loans are originated with principal repayments on a 25- to 30-year amortization schedule but are due in 5 years or 10 years.

December 31, 2021, our single largest commercial real estate credit had an outstanding principal ba lance of $9.7 million, was current, and was secured by a charter school building located in Washington, D.C.

December 31, 2021, the average balance of a loan in our commercial real estate portfolio was $866 thousand.

The interest rates on multi‑family and commercial ARM Loans are based on a variety of indices, including the Secured Overnight Financing Rate (“SOFR”), the 1‑Year Constant Maturity Treasury Index (“1‑Yr CMT”), the

12‑Month Treasury Average Index (“12‑MTA”), the 11th District Cost of Funds Index (“COFI”), and the Wall Street Journal Prime Rate (“Prime Rate”).

All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2021.

offer adjustable rate loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period.

Borrowers are required to make monthly payments under the terms of such loans.

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The primary factors considered include, among

other things, the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to required principal and interest payments, or debt service), and the ratio of

the loan amount to the lower of the purchase price or the appraised value of the collateral.

We seek to mitigate the risks associated with multi‑family and commercial real estate loans by applying appropriate underwriting requirements, which include limitations on loan‑to‑value ratios and debt service coverage

of the loan amount to the lower of the purchase price or the appraised value of the collateral.

coverage ratios.

Under our underwriting policies, loan‑to‑value ratios on our multi‑family and commercial real estate loans usually do not exceed 75% of the lower of the purchase price or the appraised value of the underlying property.

We also generally

require minimum debt service coverage ratios of 120% for multi‑family loans and 125% for commercial real estate loans.

generally require minimum debt service coverage ratios of 120% for multi‑family loans and commercial real estate loans.

Properties securing multi‑family and commercial real estate loans are appraised by management‑approved independent appraisers.

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secured by single family residential real estate.

Because payments on loans secured by multi‑family and commercial real properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject

to adverse conditions in the real estate market or general economy.

Adverse economic conditions in our primary lending market area could result in reduced cash flows on multi‑family and commercial real estate loans, vacancies and reduced rental rates

on such properties.

Because payments on loans secured by multi‑family and commercial real properties are often dependent on the successful operation or management of the properties, repayment of such loans may be

subject to adverse conditions in the real estate market or general economy.

Adverse economic conditions in our primary lending market area could result in reduced cash flows on multi‑family and commercial real estate loans, vacancies and reduced

rental rates on such properties.

We seek to reduce these risks by originating such loans on a selective basis and generally restrict such loans to our general market area.

In 2008, we ceased out‑of‑state lending for all types of loans.

In 2020, we resumed

out-of-state lending on a selective basis by originating two commercial real estate loans in Washington, D.

C., totaling $9.8 million.

As of December 31, 2020, our out‑of‑state loans totaled $11.0 million and our single largest out‑of‑state credit

had an outstanding balance of $5.7 million, was current, and was secured by a charter school building located in Washington, D.

Our church loans totaled $16.7 million and $21.3 million at December 31, 2020 and 2019, respectively, which represented 5% of our gross loan portfolio at December 31, 2020, and December 31, 2019.

We ceased originating

church loans in 2010.

As of December 31, 2020, our single largest church loan had an outstanding balance of $1.5 million, was current, and was secured by a church building in Los Angles, California.

At December 31, 2020, the average balance of a loan

in our church loan portfolio was $527 thousand.

In 2008, Broadway Federal ceased out‑of‑state lending for all types of

As a result of the Merger, in 2021 we resumed out-of-state lending on a s elective basis, however we currently do not have any loans outstanding that are outside of our market area, which consists of

Southern California and the Washington, D.C.

area (including parts of Maryland and Virginia).

Our church loans totaled $22.5 million and $16.7 million at December 31, 2021 and 2020, respectively, which represented 3.45% and 4.60% of our gross loan portfolio at December 31, 2021 and 2020, respectively.

Broadway Federal ceased originating church loans in 2010 in Southern California, however City First originates loans to churches in the Washington D.C.

area as part of its community development mission.

December 31, 2021, our single largest church loan had an outstanding balance of $3.8 million, was current, and was secured by a church building in Upper Marlboro, Maryland.

At December 31, 2021, the average balance of a loan in our church loan

portfolio was $726 thousand.

Single Family Mortgage Lending

While we have been primarily a multi‑family and commercial real estate lender, we also have purchased or originated ARM Loans secured by single family residential properties, including investor‑owned properties, with

maturities of up to 30 years.

Single family loans totaled $48.2 million and $72.9 million at December 31, 2020 and 2019, respectively.

Of the single family residential mortgage loans outstanding at December 31, 2020, more than 99% had adjustable rate

We did not purchase any single family loans during 2020 and 2019.

While we have historically been primarily a multi‑family and commercial real estate lender, we also

have purchased or originated loans secured by single family residential properties, including investor‑owned properties, with maturities of up to 30 years.

Single family loans totaled $45.4

million and $48.2 million at December 31, 2021 and 2020, respectively.

Of the single family residential mortgage loans outstanding at December 31, 2021, more than 51% had adjustable rate features.

We did not purchase any single family loans

during 2021 and 2020.

Of the $45.4 million of single family loans at December 31, 20 21, $23.3 million are secured by investor‑owned properties.

The interest rates for our single family ARM Loans are indexed to COFI, 1‑Month LIBOR, 6‑Month LIBOR, 12‑MTA and 1‑Yr.

We currently offer loans with interest rates that adjust either semi‑annually or semi‑annually

upon expiration of an initial three‑ or five‑year fixed rate period.

The interest rates for our single family ARM Loans are indexed to COFI, SOFR, 12‑MTA and 1‑Yr.

All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2021.

We currently offer loans with

interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period.

Borrowers are required to make monthly payments under the terms of such loans.

Most of our single family adjustable rate loans behave like fixed rate loans because the loans are

still in their initial fixed rate period or are subject to interest rate floors.

We qualify our ARM Loan borrowers based upon the fully indexed interest rate (LIBOR or other index plus an applicable margin) provided by the terms of the loan.

Most of our single family

adjustable rate loans behave like fixed rate loans because the loans are still in their initial fixed rate period or are subject to interest rate floors.

We qualify our ARM Loan borrowers based upon the fully indexed interest rate (SOFR or other index plus an applicable margin) provided by the terms of the loan.

However, we may discount the initial rate paid by the

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Construction Lending

Construction loans totaled $429 thousand and $3.1 million at December 31, 2020 and 2019, respectively, representing less than 1% of our gross loan portfolio.

We provide loans for the construction of single family,

multi‑family and commercial real estate projects and for land development.

We generally make construction and land loans at variable interest rates based upon the Prime Rate.

Generally, we require a loan‑to‑value ratio not exceeding 75% to 80% and a

loan‑to‑cost ratio not exceeding 70% to 80% on construction loans.

The Merger added a construction lending program

and portfolio to our existing lending operations and platform.

Construction loans totaled $32.1 million and $429 thousand at December 31, 2021 and 2020, respectively, and represented 4.92% of our gross loan portfolio at December 31, 2021.

acquired $19.8 million of construction loans in the Merger .

We provide loans for the construction of single family, multi‑family and commercial real estate projects and for land development.

make construction and land loans at variable interest rates based upon the Prime Rate, or the applicable Treasury Index plus a margin.

Generally, we require a loan‑to‑value ratio not exceeding 75% and a loan‑to‑cost ratio not exceeding 85% on

construction loans.

Construction loans involve risks that are different from those for completed project lending because we advance loan funds based upon the security and estimated value at completion of the project under construction.

the borrower defaults on the loan, we may have to advance additional funds to finance the project’s completion before the project can be sold.

Moreover, construction projects are affected by uncertainties inherent in estimating construction costs,

potential delays in construction schedules, market demand and the accuracy of estimates of the value of the completed project considered in the loan approval process.

In addition, construction projects can be risky as they transition to completion

and lease‑up.

Tenants who may have been interested in leasing a unit or apartment may not be able to afford the space when the building is completed, or may fail to lease the space for other reasons such as more attractive terms offered by competing

lessors, making it difficult for the building to generate enough cash flow for the owner to obtain permanent financing.

During 2020, $1.5 million of construction loans were originated, compared to $1.7 million during 2019.

If the borrower defaults on the loan, we may have to advance additional funds to finance the project’s completion before the project can be sold.

Moreover, construction projects are affected by uncertainties inherent in estimating construction

costs, potential delays in construction schedules due to supply chain or other issues, market demand and the accuracy of estimates of the value of the completed project considered in the loan approval process.

In addition, construction projects can

be risky as they transition to completion and lease‑up.

Tenants who may have been interested in leasing a unit or apartment may not be able to afford the space when the building is completed, or may fail to lease the space for other reasons such as

more attractive terms offered by competing lessors, making it difficult for the building to generate enough cash flow for the owner to obtain permanent financing.

We specialize in the origination of construction

loans for affordable housing developments where rents are subsidized by housing authority agencies.

During 2021, we originated $24.9 million of construction loans, compared to $1.5 million of construction loan originations during 2020.

Commercial Lending

The Merger also expanded our portfolio of loans and lending activities to businesses in our market area that are secured by business assets including inventory, receivables, machinery, and equipment.

As of December

31, 2021 and 2020, non-real estate commercial loans totaled $46.5 million and $57 thousand, respectively.

Commercial loans represented 10.02% of our loan portfolio as of December 31, 2021.

We acquired $36.1 million of commercial loans in the Merger, and originated another $26.5 million of commercial loans during the year ended December 31, 2021.

As of December 31, 2021, our single largest commercial

loan had an outstanding balance of $4.3 million.

At December 31, 2021, the average balance of a loan in our non-real estate commercial loan portfolio was $1.0 million.

The risks related to commercial loans differ from loans secured by real estate, and relate to the ability of borrowers to successfully operate their businesses and the difference between expected and actual cash

flows of the borrowers.

In addition, the recoverability of our investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans.

The fair value of the collateral securing these loans may

fluctuate as market conditions change.

In the case of loans secured by accounts receivable, the recovery of our investment is dependent upon the borrower’s ability to collect amounts due from customers.

SBA Guaranteed Loans

City First is an approved SBA lender.

We originate loans in the District of Columbia, Maryland, and Virginia under the SBA’s 7(a), SBA Express, International Trade and 504(a) loan programs, in conformity with SBA

underwriting and documentation standards.

SBA loans are similar to commercial business loans but have additional credit enhancement provided by the U.S Federal Government with guarantees between 50-85%.

Certain loans classified as SBA are secured

by commercial real estate property.

All other SBA loans are secured by business assets.

As of December 31, 2021, SBA loans totaled $18.8 million and included $18.0 million of loans issued under the Paycheck Protection Program (“PPP”) loans.

loans have terms of two to five years and earn interest at 1%.

PPP loans are fully guaranteed by the SBA and have virtually no risk of loss.

The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA.

SBA loans totaled

2.89%% of our total loan portfolio as of December 31, 2021.

We had no such SBA or PPP loans as of December 31, 2020.

Loan Originations, Purchases and Sales

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Beginning balance

Loans acquired in the merger with CFBanc

Loans originated:

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Ending balance

Amount is before deferred origination costs, purchase premiums and discounts.

No loans were held for sale at December 31, 2020 and 2019.

At December 31, 2018, loans receivable held for sale totaled $6.2 million.

Amount is before deferred origination costs, purchase premiums and discounts, and the allowance for loan losses.

Loan originations are derived from various sources including our loan personnel, local mortgage brokers, and referrals from customers.

More than 90% of multi-family and commercial loan originations during 2020, 2019

and 2018 were sourced from wholesale loan brokers.

All construction loan originations were derived from our loan personnel.

No single family or consumer loans were originated during the last three years.

For all loans that we originate, upon receipt

of a loan application from a prospective borrower, a credit report is ordered, and certain other information is verified by an independent credit agency and, if necessary, additional financial information is requested.

An appraisal of the real estate

intended to secure the proposed loan is required to be performed by an independent licensed or certified appraiser designated and approved by us.

The Bank’s Board of Directors (the “Board”) annually reviews our appraisal policy.

Management reviews

annually the qualifications and performance of independent appraisers that we use.

More t han 90% of multi-family loan

originations during 2021, 2020 and 2019 were sourced from wholesale loan brokers.

All commercial real estate loans, construction loans, commercial loans and SBA loans were derived from our loan personnel.

No single family or consumer loans were

originated during the last three years.

For all loans that we originate, upon receipt of a loan application from a prospective borrower, a credit report is ordered, and certain other information is verified by an independent credit agency.

necessary, additional financial information is requested.

An appraisal of the real estate intended to secure the proposed loan is required to be performed by an independent licensed or certified appraiser designated and approved by us.

Board of Directors (the “Board”) annually reviews our appraisal policy.

Management reviews annually the qualifications and performance of independent appraisers that we use.

It is our policy to obtain title insurance on collateral for all real estate loans.

Borrowers must also obtain hazard insurance naming Broadway Federal as a loss payee prior to loan closing.

Borrowers must also obtain hazard insurance naming the Bank as a loss payee prior to loan closing.

If the original loan amount

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premiums, property taxes and hazard and flood insurance as required.

The Board has authorized the following loan approval limits:

if the total of the borrower’s existing loans and the loan under consideration is $1,000,000 or less, the new loan may be approved by a Senior Underwriter

plus a Loan Committee member, including the Chief Executive Officer or Chief Credit Officer of the Bank;

if the total of the borrower’s existing loans and the loan under consideration is from $1,000,001 to $2,000,000, the new loan must be approved by

a Senior Underwriter plus two Loan Committee members, including the Chief Executive Officer or Chief Credit Officer of the Bank;

if the total of the borrower’s existing loans and the loan under consideration is from $2,000,001 to $7,000,000, the new

loan must be approved by a Senior Underwriter plus two Loan Committee members, including the Chief Executive Officer and Chief Credit Officer of the Bank, and a majority of the Board‑appointed non‑management Loan Committee Directors.

In addition, it

is our practice that all loans approved be reported to the Loan Committee no later than the month following their approval and be ratified by the Board.

Each loan requires at least two (2) signatures for approval.

The Board has authorized loan approval limits for various management team members up to $7 million per individual, and up to $12 million for the Chief

Loans in excess of $7 million require review and approval by members of the Board Loan Committee.

In addition, it is our practice that all loans approved be reported to the Loan Committee no later than the month following their approval

and be ratified by the Board.

From time to time, we purchase loans originated by other institutions based upon our investment needs and market opportunities.

The determination to purchase specific loans or pools of loans is subject to our

underwriting policies, which consider, among other factors, the financial condition of the borrowers, the location of the underlying collateral properties and the appraised value of the collateral properties.

We did not purchase any loans during the

years ended December 31, 2020, 2019 or 2018.

did not purchase any loans du ring the years ended December 31, 2021, 2020 or 2019.

We originate loans for investment and for sale.

Loan sales are generally made from the loans held‑for‑sale portfolio.

During 2020, we originated $118.6 million of multi‑family loans for sale, sold $104.3 million of

multi‑family loans and transferred $13.7 million of multi family loans to held for investment from loans held for sale.

We transferred the $13.7 milion of multi-family loans to loans held for investment near the end of 2020 because there was room to

do so within the regulatory loan concentration guidelines.

During 2019, we originated $15.2 million of multi‑family loans for sale, transferred $1.5 million of multi‑family loans to held‑for‑sale from held‑for‑investment and sold $22.7 million of

multi‑family loans in order to comply with regulatory loan concentration guidelines.

We receive monthly loan servicing fees on loans sold and serviced for others, primarily insured financial institutions.

Generally, we collect these fees by retaining a portion of the loan collections in an amount equal

to an agreed percentage of the monthly loan installments, plus late charges and certain other fees paid by the borrowers.

Loan servicing activities include monthly loan payment collection, monitoring of insurance and tax payment status, responses to

borrower information requests and dealing with loan delinquencies and defaults, including conducting loan foreclosures.

At December 31, 2020 and 2019, we serviced $238 thousand and $1.2 million, respectively, of loans for others.

The servicing rights

associated with sold loans are recorded as assets based upon their fair values.

At December 31, 2020 and 2019, we had $3 thousand and $9 thousand, respectively, in mortgage servicing rights.

During 2021, we did not originate or sell any loans that were classified as held for sale.

2020, we originated $118.6 million of multi‑family loans for sale, sold $104.3 million of multi‑family loans and transferred $13.7 million of multi-family loans to held for investment from loans held for sale.

We transferred the $13.7 million of

multi-family loans to loans held for investment near the end of 2020 because there was room to do so within the regulatory loan concentration guidelines.

Loans are generally sold with the servicing released.

Loan Maturity and Repricing

The following table shows the contractual maturities of loans in our portfolio of loans held for investment at December 31, 2021 and does not reflect the effect of prepayments or scheduled principal amortization.

(In thousands)

After one year:

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One year or less

Loans in their initial fixed rate period totaled $293.3 million or 81% of our loan portfolio at December 31, 2020.

The average remaining initial fixed rate period as of December 31, 2020 was 2.3 years.

All loan types other than multi-family loans have fixed interest rates.

Certain multi-family loans have adjustable rate features based on SOFR, but are fixed for the first five years.

Our experience has shown that

these loans typically pay off during the first five years and do not reach the adjustable rate phase.

Multi-family loans in their initial fixed rate period totaled $326.0 million or 50% of our loan portfolio at December 31, 2021.

Asset Quality

The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of

the collateral securing the loan, if any.

A borrower’s ability to pay typically is dependent, in the case of single family residential loans and consumer loans, primarily on employment and other sources of income, and in the case of multi‑family and

commercial real estate loans, on the cash flow generated by the property, which in turn is impacted by general economic conditions.

Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s

ability to make loan payments.

of the collateral securing the loan, if any.

A borrower’s ability to pay, in the case of single family residential loans and consumer loans, typically is dependent primarily on employment and other sources of income.

Multi‑family and commercial

real estate loan borrowers’ ability to pay is typically dependent on the cash flow generated by the property, which in turn is impacted by general economic conditions.

Commercial business and SBA loan borrowers’ ability to pay is typically

dependent on the successful operation of their businesses or their ability to collect amounts due from their customers.

Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s ability to

make loan payments.

Collateral values, particularly real estate values, are also impacted by a variety of factors, including general economic conditions, demographics, property maintenance and collection or foreclosure delays.

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loan, we take several steps to induce the borrower to cure the delinquency and restore the loan to current status.

The procedures we follow with respect to delinquencies vary depending on the type of loan, the type of property securing the loan, and

the period of delinquency.

The procedures we follow with respect to delinquencies vary depending on the type of loan, the type of property securing the loan,

and the period of delinquency.

In the case of residential mortgage loans, we generally send the borrower a written notice of non‑payment promptly after the loan becomes past due.

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(Dollars in thousands)

Commercial Real Estate

Single family

% of Gross Loans

Includes loans receivable held for sale at December 31, 2018.

Non‑Performing Assets

Non‑performing assets (“NPAs”) include non‑accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure (“REO”).

NPAs at December 31, 2020 increased to $787 thousand, or 0.16% of total assets,

from $424 thousand, or 0.10% of total assets, at December 31, 2019.

NPAs at December 31, 2021 decreased to $684 thousand, or 0.06% of total

assets, from $787 thousand, or 0.16% of total assets, at December 31, 2020.

Non-accrual loans consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings (“TDRs”) that do not qualify for accrual status.

As of December 31, 2020, all our

non‑accrual loans were current in their payments, but were treated as non‑accrual primarily because of deficiencies in non‑payment matters related to the borrowers, such as lack of current financial information.

The $363 thousand increase in

non‑accrual loans during the year ended December 31, 2020 was due to a downgrade of $554 thousand of a church loan to non‑accrual status offset by a sale of $130 thousand of a church loan and repayments of $61 thousand.

As of December 31, 2021, all

our non‑accrual loans were current in their payments, but were treated as non‑accrual primarily because of deficiencies in non‑payment matters related to the borrowers, such as lack of current financial information.

The $103 thousand decrease in

non‑accrual loans during the year ended December 31, 2021 was the result of payments received from borrowers that were applied to the outstanding principal balance.

The following table provides information regarding our non‑performing assets at the dates indicated:

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We discontinue accruing interest on loans when the loans become 90 days delinquent as to their payment due date (missed three payments).

In addition, we reverse all previously accrued and uncollected interest for those

loans through a charge to interest income.

In addition, we reverse all previously accrued and uncollected interest for

those loans through a charge to interest income.

While loans are in non‑accrual status, interest received on such loans is credited to principal, until the loans qualify for return to accrual status.

Loans are returned to accrual status when all the

principal and interest amounts contractually due are brought current and future payments are reasonably assured.

We may agree to modify the contractual terms of a borrower’s loan.

In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a TDR.

Non‑accrual loans modified in a TDR remain on non‑accrual status until we determine that future collection of principal and interest is reasonably assured, which requires that the borrower demonstrate performance according to the restructured terms,

generally for a period of at least six months.

Loans are returned to accrual status when all

the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

We may from time to time agree to modify the contractual terms of a borrower’s loan.

In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is

considered a TDR.

restructured terms, generally for a period of at least six months.

Loans modified in a TDR that are included in non‑accrual loans totaled $684 thousand at December 31, 2021 and $232 thousand at December 31, 2020.

Excluded from non‑accrual loans are restructured loans

that were not delinquent at the time of modification or loans that have complied with the terms of their restructured agreement for six months or such longer period as management deems appropriate for particular loans, and therefore have been

returned to accruing status.

Excluded from non‑accrual loans are restructured loans that were not delinquent at the time of modification or loans that have complied with the terms of their restructured agreement for six months or such longer period as management

deems appropriate for particular loans, and therefore have been returned to accruing status.

Restructured accruing loans totaled $1.6 million at December 31, 2021 and $4.2 million at December 31, 2020.

During 2021, gross interest income that would have been recorded on non‑accrual loans had they performed in accordance with their original terms, totaled $71 thousand.

Actual interest recognized on non‑accrual loans

and included in net income for the year 2020 was $162 thousand, reflecting interest recoveries on non‑accrual loans that were paid off.

was actually recognized during 2021 related to non-accrual loans.

On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (the “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 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, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith

basis in response to COVID-19 to borrowers who were current prior to any relief.

Under this guidance, nine months or less is provided as an example of short-term, and current is defined as 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 fi ling, two borrowers have requested applications, but no

applications for loan modifications have been formally submitted.

Both borrowers were current at the time modification program was implemented.

To date, no modifications have been granted.

We update our estimates of collateral value on loans when they become 90 days past due and to the extent the loans remain delinquent, every nine months thereafter.

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earlier than at 90 days past due for loans to borrowers who have filed for bankruptcy or for certain other loans when our Internal Asset Review Committee believes repayment of such loans may be dependent on the value of the underlying collateral.

single family loans, updated estimates of collateral value are obtained through appraisals and automated valuation models.

For multi‑family and commercial real estate properties, we estimate collateral value through appraisals or internal cash flow

analyses when current financial information is available, coupled with, in most cases, an inspection of the property.

Our policy is to make a charge against our allowance for loan losses, and correspondingly reduce the book value of a loan, to the

extent that the collateral value of the property securing a loan is less than our recorded investment in the loan.

See “Allowance for Loan Losses” for full discussion of the allowance for loan losses.

We also obtain updated collateral valuations for loans classified as substandard every year.

For single family loans, updated estimates of collateral value are obtained through appraisals and automated valuation models.

For multi‑family and

commercial real estate properties, we estimate collateral value through appraisals or internal cash flow analyses when current financial information is available, coupled with, in most cases, an inspection of the property.

For commercial loans, we

estimate the value of the collateral based on financial information provided by borrowers or valuations of business assets, depending on the nature of the collateral.

Our policy is to make a charge against our allowance for loan losses, and

correspondingly reduce the book value of a loan, to the extent that the collateral value of the property securing an impaired loan is less than our recorded investment in the loan.

See “Allowance for Loan Losses” for full discussion of the

allowance for loan losses.

REO is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at fair value less estimated selling costs.

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Thereafter, we charge non‑interest expense for the property maintenance and protection expenses incurred as a result of owning the property.

Any decreases in the property’s estimated fair value

after foreclosure are recorded in a separate allowance for losses on REO.

During 2020 and 2019, the Bank did not foreclose on any loans.

At December 31, 2018, the Bank had one REO which was sold during 2019.

Any decreases in the property’s estimated fair

value after foreclosure are recorded in a separate allowance for losses on REO.

During 2021 and 2020, the Bank did not foreclose on any loans and not have any property classified as REO.

As a result of the Merger, we 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, and are not treated as nonaccrual loans for purposes of financial reporting.

At acquisition we estimate 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

Expected cash flows continue to be estimated each quarter for each PCI loan.

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

If the present value of expected cash flows increases from the prior estimate, the increase is recognized as part of future interest income.

At the date of the Merger, we recorded an investment in PCI loans of $883 thousand.

December 31, 2021, our recorded investment in PCI loans was $845 thousand.

These PCI loans are not classified as NPAs as they are performing in accordance with the cash flows that were expected at the date of the Merger.

Classification of Assets

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of Directors monthly.

The following table provides information regarding our criticized loans (Watch and Special Mention) and classified assets (Substandard and REO) at the dates indicated:

The following table provides information regarding our criticized loans (Watch and Special Mention) and classified assets (Substandard) at the dates indicated:

December 31, 2021

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Total classified assets

Criticized assets increased to $2.1 million at December 31, 2020, from $822 thousand at December 31, 2019, primarily due to a downgrade of $1.5 million on a commercial real estate loan from the pass loan category to

Watch status and an upgrade of $657 thousand on a church loan from substandard status, offset by $822 thousand payoffs of all criticized loans carried from December 31, 2019.

Classified assets decreased to $3.1 million at December 31, 2020, from $4.2

million at December 31, 2019, primarily due to an upgrade of a church loan to Watch status and loan payoffs.

Criticized assets increased to $16.0 million at December 31, 2021, from $2.1 million at December 31, 2020.

City First has historically classified all newly originated construction loans as Watch

until a history of loan performance can be established or until the construction project is complete, which is the main reason for the increase in total criticized loans of $13.8 million during 2021.

The increase in substandard loans of $1.1

million was due to the down grade of one commercial real estate loan.

The loan was current as of December 31, 2021.

Allowance for Loan Losses

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The specific component relates to loans that are individually classified as impaired.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual

terms of the loan agreement.

contractual terms of the loan agreement.

Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.

Factors considered by management in determining impairment

include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case‑by‑case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the

delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Factors considered by management in

determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not

classified as impaired.

delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated to the loan so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of

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TDRs are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a TDR is considered to

be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less estimated selling costs.

For TDRs that subsequently default, we determine the amount of any necessary additional charge‑off based on internal analyses

and appraisals of the underlying collateral securing these loans.

If a TDR is considered

to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less estimated selling costs.

For TDRs that subsequently default, we determine the amount of any necessary additional charge‑off based on internal

analyses and appraisals of the underlying collateral securing these loans.

At December 31, 2021, impaired loans totaled $2.3 million and had an aggregate specific allowance allocation of $7 thousand.

The general component of the ALLL covers non‑impaired loans and is based on historical loss experience adjusted for qualitative factors.

Each month, we prepare an analysis which categorizes the entire loan portfolio by

certain risk characteristics such as loan type (single family, multi‑family, commercial real estate, construction, commercial and consumer) and loan classification (pass, watch, special mention, substandard and doubtful).

With the use of a migration

to loss analysis, we calculate our historical loss rate and assign estimated loss factors to the loan classification categories based on our assessment of the potential risk inherent in each loan type.

These factors are periodically reviewed for

appropriateness giving consideration to our historical loss experience, levels of and trends in delinquencies and impaired loans;

Each month, we prepare an analysis which categorizes the entire loan portfolio

by certain risk characteristics such as loan type (single family, multi‑family, commercial real estate, construction, commercial, SBA and consumer) and loan classification (pass, watch, special mention, substandard and doubtful).

With the use of a

migration to loss analysis, we calculate our historical loss rate and assign estimated loss factors to the loan classification categories based on our assessment of the potential risk inherent in each loan type.

These factors are periodically

reviewed for appropriateness giving consideration to our historical loss experience, levels of and trends in delinquencies and impaired loans;

levels of and trends in charge‑offs and recoveries;

trends in volume and terms of loans;

effects of any changes in risk

selection and underwriting standards;

effects of any

changes in risk selection and underwriting standards;

other changes in lending policies, procedures, and practices;

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comparison of peer group reserve percentages.

The qualitative review is used to reassess the overall determination of the ALLL and to ensure that directional changes in the ALLL and the provision for loan losses are supported by relevant internal and

external data.

Based on our evaluation of the housing and real estate markets and overall economy, including the unemployment rate, the levels and composition of our loan delinquencies and non‑performing loans (no forebearances and

no modifictions formally requested by the borrowers), our loss history and the size and composition of our loan portfolio, we determined that an ALLL of $3.2 million, or 0.88% of loans held for investment was appropriate at December 31, 2020,

compared to $3.2 million, or 0.79% of loans held for investment at December 31, 2019.

The increase in ALLL compared to the prior year was primarily due to uncertainty related to the COVID-19 Pandemic.

A federally chartered savings association’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OCC.

The OCC, in conjunction with the other

federal banking agencies, provides guidance for financial institutions on the responsibilities of management for the assessment and establishment of adequate valuation allowances, as well as guidance for banking agency examiners to use in determining

the adequacy of valuation allowances.

It is required that all institutions have effective systems and controls to identify, monitor and address asset quality problems, analyze all significant factors that affect the collectability of the portfolio in

a reasonable manner and establish acceptable allowance evaluation processes that meet the objectives of the guidelines issued by federal regulatory agencies.

and external data.

Loans acquired in the Merger were recorded at fair value at acquisition date without a carryover of the related ALLL.

Purchased credit impaired loans acquired are loans that have evidence of credit deterioration

since origination and as to which it is probable at the date of acquisition that the Company will not collect all of principal and interest payments according to the contractual terms.

These loans are accounted for under ASC 310-30.

the size and composition of our loan portfolio, we determined that an ALLL of $3.4 million, or 0.52% of loans held for investment, was appropriate at December 31, 2021, compared to $3.2 million, or 0.88% of loans held for investment at December 31,

The ALLL as a percentage of gross loans decreased because acquired loans are recorded at fair value without any ALLL at the acquisition date.

This decrease was partially offset by an increase in the required allowance due to an increase in

the outstanding balances of loans not acquired in the Merger.

A federally chartered bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OCC.

The OCC, in conjunction with the other federal banking

agencies, provides guidance for financial institutions on the responsibilities of management for the assessment and establishment of adequate valuation allowances, as well as guidance for banking agency examiners to use in determining the adequacy

of valuation allowances.

reasonable manner and establish acceptable allowance evaluation processes that meet the objectives of the guidelines issued by federal regulatory agencies.

While we believe that the ALLL has been established and maintained at adequate levels,

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Including net deferred loan costs and premiums.

The ALLL as of December 31, 2021 does not include any ALLL for the remaining balance of loans acquired in the City First Merger, which totaled $203.8 million as of that date.

Investment Activities

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Treasury, securities issued by federal and other government agencies and mortgage‑backed securities, mutual funds, municipal obligations, corporate bonds, and marketable equity securities.

Mortgage‑backed

securities consist principally of securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association which are backed by 30‑year amortizing hybrid ARM Loans,

structured with fixed interest rates for periods of three to seven years, after which time the loans convert to one‑year or six‑month adjustable rate mortgage loans.

At December 31, 2020, our securities portfolio, consisting primarily of federal

agency debt, mortgage‑backed securities and municipal bonds, totaled $10.7 million, or 2.2% of total assets.

Mortgage‑backed securities consist principally of securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association which are backed by 30‑year amortizing

hybrid ARM Loans, structured with fixed interest rates for periods of three to seven years, after which time the loans convert to one‑year or six‑month adjustable rate mortgage loans.

At December 31, 2021, our securities portfolio, consisting

primarily of federal agency debt, mortgage‑backed securities, bonds issued by the United States Treasury and the SBA, and municipal bonds, totaled $156.4 million, or 14.30% of total assets.

We classify investments as held‑to‑maturity or available‑for‑sale at the date of purchase based on our assessment of our internal liquidity requirements.

Securities purchased to meet investment‑related objectives such

as liquidity management or mitigating interest rate risk and which may be sold as necessary to implement management strategies, are designated as available‑for‑sale at the time of purchase.

Securities in the held‑to‑maturity category consist of

securities purchased for long‑term investment in order to enhance our ongoing stream of net interest income.

Securities deemed held‑to‑maturity are classified as such because we have both the intent and ability to hold these securities to maturity.

Securities purchased to meet investment‑related objectives

such as liquidity management or mitigating interest rate risk and which may be sold as necessary to implement management strategies, are designated as available‑for‑sale at the time of purchase.

Securities in the held‑to‑maturity category consist

of securities purchased for long‑term investment in order to enhance our ongoing stream of net interest in0come.

Securities deemed held‑to‑maturity are classified as such because we have both the intent and ability to hold these securities to

Held‑to‑maturity securities are reported at cost, adjusted for amortization of premium and accretion of discount.

Available‑for‑sale securities are reported at fair value.

We currently have no securities classified as held‑to‑maturity securities.

We currently have no securities classified as held‑to‑maturity

The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of December 31, 2021.

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Federal agency mortgage‑backed securities

Federal agency CMO

Federal agency debt

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At December 31, 2021, the securities in our portfolio had an estimated remaining life of 5.03 years.

During 2020, the Bank purchased five municipal bonds totaling $2.0 million at 1.38% weighted average rate, and a

weighted average remaining life of 6.4 years at December 31, 2020.

During 2021, the Bank purchased 5 federal agency mortgage-backed securities with total

amortized cost of $9.6 million, estimated fair value of $9.6 million at December 31, 2021 and an estimated average remaining life of 5.4 years;

2 federal agency debt with total amortized cost of $4.9 million, estimated fair value of $4.9 million at

December 31, 2021 and an estimated average remaining life of 4.7 years;

and 1 federal agency CMO with total amortized cost of $2.0 million, estimated fair value of $1.9 million at December 31, 2021 and an estimated average remaining life of 5.1

As a result of the merger with CFBanc, we acquired $76.5 million of Federal agency mortgage-backed securities, $33.2 million of Federal agency debt securities, $18.2 million of U.S.

Treasury securities, $15.2 million of SBA pool

securities, $3.9 million of Federal agency CMOs, and $2.9 million of municipal bonds.

There were no sales of securities during the year ended December 31, 2021.

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(Dollars in thousands)

Government Agencies

Mortgage-backed securities

Municipal securities

Federal agency mortgage-backed securities

Federal agency collateralized mortgage obligations (“CMO”)

Federal agency debt

Municipal bonds

Sources of Funds

Deposits are our primary source of funds for supporting our lending and other investment activities and general business purposes.

In addition to deposits, we obtain funds from the amortization and prepayment of loans

and investment securities, sales of loans and investment securities, advances from the FHLB, and cash flows generated by operations.

In addition to deposits, we obtain funds from the amortization and prepayment of

loans and investment securities, sales of loans and investment securities, advances from the FHLB, and cash flows generated by operations.

We offer a variety of deposit accounts featuring a range of interest rates and terms.

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of deposit at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network (“CDARS Reciprocal”).

We may also accept deposits from other institutions when we have no reciprocal deposit (“CDARS

One‑Way Deposits”).

We had approximately $35.8 million in CDARS Reciprocal and $9.6 million in CDARS One‑Way Deposits at December 31, 2020, compared to $39.3 million in CDARS Reciprocal and $40.7 million in CDARS One‑Way Deposits at December 31,

The decrease in CDARS One-Way Deposits during 2020 was impacted by an increase in the Bank’s overall liquidity and the intentional non-renewal of these deposits at maturity due to their high costs.

These deposits totaled $141.6 million and $35.8 million at December 31, 2021 and 2020,

respectively and are not considered to be brokered deposits.

We may also accept deposits from other institutions when we have no reciprocal deposit (“CDARS One‑Way Deposits”).

With the CDARS One-Way Deposits program, the Bank accepts deposits from CDARS even though there is no

customer account involved.

These one-way deposits, which are considered to brokered deposits, totaled $223 thousand and $9.6 million at December 31, 2021 and 2020, respectively.

The decrease in CDARS One-Way Deposits in 2021 was attributable to an

increase in the Bank’s overall liquidity and the intentional non-renewal of these deposits at maturity due to their high cost relative to other deposit sources.

At December 31, 2021 and 2020, the Bank had $5.0 million and $15.1 million in (non-CDARS) brokered deposits, respectively.

The following table details the maturity periods of our certificates of deposit in amounts of $100 thousand or more at December 31, 2021.

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For the Year Ended December 31,

cost of funds

(Dollars in thousands)

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accordance with the policies of the FHLB.

At December 31, 2020, we had $110.5 million in FHLB advances and had the ability to borrow up to an additional $40.3 million based on available and pledged collateral.

At December 31, 2021, we had $85.9 million in outstanding FHLB advances and had the ability to borrow up to an additional $14.4 million based on available and pledged collateral.

The following table summarizes information concerning our FHLB advances at or for the periods indicated:

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Weighted average maturity (in months)

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 available-for-sale accounts.

In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.

The outstanding balance of these borrowings totaled $52.0

million as of December 31, 2021.

There were no such borrowings as of December 31, 2020.

The market value of securities pledged totaled $53.2 million as of December 31, 2021 and included $13.3 million of U.S.

Government Agency securities and $39.9

million of mortgage-backed securities.

The weighted average rate paid on repurchase agreements was 0.10% for the year ended December 31, 2021.

We participate in and have previously been an “Allocatee” of the New Markets Tax Credit Program of the U.S.

Department of the Treasury’s Community Development Financial Institutions Fund.

In connection with the New Market Tax Credit activities

of the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.

In December 2015, a national brokerage firm made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 was the beneficiary of the loan

from the brokerage firm and passed the proceeds from that loan through to a Qualified Active Low-Income Community Business (“QALICB”).

The loan to the QALICB is secured by a Leasehold Deed of Trust from which the funds for repayment of the loan

will be derived.

Debt service payments received by CFC 45 from the QALICB are passed through to the brokerage firm, less a servicing fee which is retained by CFC 45.

The financial statements of CFC 45 are consolidated with those of the Bank and the

On March 17, 2004, we 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

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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 2.77% at

December 31, 2020.

On October 16, 2014, we made payments of $900 thousand of principal on the 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 required 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 is

required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024.

During 2020, the Company paid $1.8 million of scheduled principal.

The Debentures may be called for

redemption at any time.

On October 16, 2014, we made payments of $900 thousand of principal on the 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 required 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 was required to begin to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully

amortized on March 17, 2024.

In September of 2021, we redeemed the remaining amounts outstanding under the Debentures for $3.3 million.

Market Area and Competition

Broadway Federal is a community‑oriented savings institution offering a variety of financial services to meet the needs of the communities it serves.

Our retail banking network includes full service banking offices,

automated teller machines and internet banking capabilities that are available using our website at www.broadwayfederalbank.com.

We have two banking offices in Los Angeles and one banking office located in the nearby City of Inglewood as of December

As previously announced, the Bank plans to close one of the two banking offices in Los Angles in April 2021.

The Los Angeles metropolitan area is a highly competitive banking market for making loans and attracting deposits.

Although our offices are primarily located in low‑to‑moderate income communities that have historically

been under‑served by other financial institutions, we face significant competition for deposits and loans in our immediate market areas, including direct competition from mortgage banking companies, commercial banks and savings and loan associations.

The Bank is a Community Development Financial Institution (“CDFI”) and a certified B Corp, offering a variety of financial services to meet the needs of the communities it serves.

Our retail banking network includes

full service banking offices, automated teller machines and internet banking capabilities that are available using our website at www.ciytfirstbank.com.

We have three banking offices as of December 31, 2021:

two in California (in Los Angeles and in

the nearby City of Inglewood) and one in Washington, D.C.

Both the Washington D.C.

and the Los Angeles metropolitan areas are highly competitive banking markets for making loans and attracting deposits.

Although our offices are primarily located in low‑to‑moderate income

communities that have historically been under‑served by other financial institutions, we face significant competition for deposits and loans in our immediate market areas, including direct competition from mortgage banking companies, commercial

banks and savings and loan associations.

Most of these financial institutions are significantly larger than we are and have greater financial resources, and many have a regional, statewide, or national presence.

At December 31, 2020, we had 64 employees, which included 62 full‑time and 2 part‑time employees.

We believe that we have good relations with our employees, and none are represented by a collective bargaining group.

Broadway Federal Bank, f.s.b, is regulated by the OCC, as its primary federal regulator, and by the FDIC, as its deposit insurer.

The Bank is also a member of the Federal Home Loan Bank System and is subject to the

regulations of the FRB concerning reserves required to be maintained against deposits, transactions with affiliates, Truth in Lending and other consumer protection requirements and certain other matters.

Broadway Financial Corporation is regulated,

examined and supervised by the FRB and is also required to file certain reports and otherwise comply with the rules and regulations of the Securities and Exchange Commission (“SEC”) under the federal securities laws.

The OCC regulates and examines most of our Bank’s business activities, including, among other things, capital standards, general investment authority, deposit taking and borrowing authority, mergers and other business

combination transactions, establishment of branch offices, and permitted subsidiary investments and activities.

The OCC has primary enforcement responsibility over federal savings banks and has substantial discretion to impose enforcement actions on

an institution that fails to comply with applicable regulatory requirements, including with respect to capital requirements.

In addition, the FDIC has the authority to recommend to the OCC that enforcement actions be taken with respect to a

particular federal savings bank and, if recommended action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances.

In certain cases, the OCC has the authority to refer matters relating to federal fair lending

laws to the U.S.

Human Capital Management

Human Capital

We are a unified, commercial CDFI with a focused vision, mission, and strategy that equitably drives economic, social, and environmental justice for our clients and communities in which we work making them better

places to be.

We believe that our most important resource is our employees and in order to fulfill future and sustainable growth, our key objectives are to attract, select, retain, and develop top talent in the marketplace that closely align

their personal values with the organization’s values.

As such, our culture is defined by our Shared Values principles:

“Clients and Communities First”;

“We Think Big”;

“We Model Excellence”;

and “ONE City First”

City First’s Shared Values principles are derived from the most important beliefs and ingrained principles that guide the organization’s actions, behaviors, and culture towards our primary

Our Shared Values mean that we stand for something in how we view each other, the world, and our place of service in it.

With these values centered in all that we do, we work collaboratively with mission-aligned customers looking to

make an impact in under-resourced communities through affordable housing, charter schools, community health centers, nonprofits, and small to medium-sized businesses.

Our employees behave in a manner that is consistent with these beliefs.

While the Board of Directors oversees the strategic management of our human capital management, our internal Human Resources team drives the day-to-day management of our human capital

operations and strategy.

Talent Acquisition and Retention

As of December 31, 2021, we employed 78 full-time and 2 part-time employees.

Our employees are located in Los Angeles, CA and Washington, DC in our corporate offices, branches, and operating

Voluntary turnover was 18.5% in 2021.

None of our employees are subject to a collective bargaining agreement.

Compensation and Benefits

Our market competitive total employee compensation (salaries, bonuses and all benefits and rewards) is a critical tool enabling us to attract and retain talented people.

In addition to base

compensation, these programs include commission-based incentives, corporate incentive compensation plans, restricted stock awards, a 401(k) Plan with an employer matching contribution, an employee stock ownership plan, healthcare, and insurance

benefits including telehealth connection services, health savings accounts, employee assistance program, will prep services, college tuition benefit programs, and vacation/sick/family leave.

Our methodology is to provide pay levels and pay opportunities that are internally fair, cost-effective, and externally competitive to market-based salaries.

To determine competitive market

compensation levels, we use market surveys and economic research to benchmark our positions utilizing salary and compensation data of companies with similar positions, asset size and geographical locations.

We annually review our salary

structures and grade ranges to keep pace with changes in the marketplace.

With the support of third-party experts in this field and within the banking industry, we conduct regular job evaluations to meet changing business needs or when the scope

of existing positions or organizational changes occur.

Our standard pay practices ensure that we honor and adhere to pay equity analysis.

Our employees are not represented by any collective bargaining group.

Diversity, Equity, and Inclusion

Our legacy and history matter at City First.

We are proud of our expanded 75-year history with the merger with Broadway Federal.

Our founders in Los Angeles and Washington, DC were local

leaders who saw a need in the community for a bank that addressed the lack of access to capital for historically excluded and disinvested urban majority minority communities.

Our Merger formed one of the largest Black-led Minority Depository Institutions (MDI) in the nation in the midst of a national reawakening to the systemic racial and economic disparities

persisting and growing in our society.

The Merger maintains the legacy of the constituent and honors the legacy of African American-led MDI’s across the country that were founded to address the unmet financing needs of the community.

purpose, and execution are grounded in our 75-year history of deep commitment to economic justice through the targeted provision of capital for historically excluded and disinvested urban majority minority communities.

Our ownership, responsibility, and commitment to diversity, equity, and inclusion is reflected in the

composition of our workforce, executive leadership team, and board of directors.

As of December 31, 2021, more than 80% of the Company’s employees self-identified as minority, approximately 68% of our employees were women, and other diverse

groups such as veterans and people with disabilities were also represented.

Workforce Training and Development

We align our talent strategy with our business strategy to provide guidance on the proper mix of skills, emerging talent and business needs or issues.

This investment to allow employees to

learn, grow, and be fulfilled in their work stems from our development of providing a multi-dimensional approach to curriculum design and competency-based learning centered around culture and technical skills.

Learning and development play a

critical and strategic role as we prepare our organization for the future by recognizing continuous needs to upskill or reskill in order to scale our business.

Our employees receive continuing education courses relevant to their respective roles within the organization, as well as access to on-demand learning solutions to enhance leadership

capabilities, advance communications skills and techniques, college credit courses, seminars, and training deeply embedded in cultural dynamics and awareness.

To support employees who wish to continue their development and education, we provide

reimbursement to employees who seek development to upskill or reskill while employed at the company.

We invest in our talent.

City First and Broadway Financial Corporation are subject to comprehensive regulation and supervision

by several different federal agencies.

City First is regulated by the OCC as its prim ary federal regulator.

The Bank’s deposits generally are insured up to a maximum of $250,000 per account;

the Bank also is regulated by the FDIC as its deposit insurer.

The Bank is a member of the Federal Reserve System and is subject to certain regulations of the FRB, including, for example, regulations concerning reserves required to be maintained

against deposits and regulations governing transactions with affiliates., Broadway Financial Corporation is regulated, examined, and supervised by the FRB and the Federal Reserve Bank of Richmond (“FRBR”) and is also required to file certain

reports and otherwise comply with the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

The Bank also is subject to consumer protection regulations promulgated by the Consumer Financial

Protection Bureau (“CFPB”).

The OCC regulates and examines the Bank’s business activities, including, among other things, capital

standards, investment authority and permissible activities, deposit taking and borrowing authority, mergers and other business combination transactions, establishment of branch offices, and the structure and permissible activities of any

subsidiaries of the Bank.

The OCC has primary enforcement responsibility over national banks and has substantial discretion to impose enforcement actions on an institution that fails to comply with applicable regulatory requirements, including

capital requirements, or that engages in practices that examiners determine to be unsafe or unsound.

In addition, the FDIC has “back-up” enforcement authority that enables it to recommend enforcement action to the OCC with respect to a national

bank and, if the recommended action is not taken by the OCC, to take such action under certain circumstances.

In certain cases, the OCC has the authority to refer matters relating to federal

fair lending laws to the U.S.

Department of Justice (“DOJ”) or the U.S.

Department of Housing and Urban Development (“HUD”) if the OCC determines violations of the fair lending laws may have occurred.

Changes in applicable laws or the regulations of the OCC, the FDIC, the FRB or other regulatory authorities, or changes in interpretations of such regulations or in agency policies or priorities, could have a material

adverse impact on the Bank and the Company, their operations, and the value of the Company’s debt and equity securities.

The Company and its stock are also subject to rules issued by The Nasdaq Stock Market LLC (“Nasdaq”), the stock exchange on which

the Company’s common stock is traded.

Failure of the Company to conform to Nasdaq’s rules could have an adverse impact on the Company and the value of the Company’s equity securities.

Changes in applicable laws or the regulations of the OCC, the FDIC, the FRB, the CFPB, or other regulatory authorities, or changes in interpretations of such regulations or in agency policies or priorities, could

have a material adverse impact on the Bank and our Company, our operations, and the value of our debt and equity securities.

We and our stock are also subject to rules issued by The Nasdaq Stock Market LLC (“Nasdaq”), the stock exchange on which

our voting common stock is traded.

Failure to conform to Nasdaq’s rules could have an adverse impact on us and the value of our equity securities.

The following paragraphs summarize certain laws and regulations that apply to the Company and the Bank.

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descriptions of all the provisions of those statutes and regulations and their possible effects on us, nor do they purport to identify every statute and regulation that applies to us.

In addition, the statutes and regulations that apply to the

Company and the Bank are subject to change, which can affect the scope and cost of their compliance obligations.

Dodd‑Frank Wall Street Reform and Consumer Protection Act

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system and prevent future economic and financial crises.

The Dodd‑Frank Act established increased compliance obligations across a number of areas in the banking business and, among other changes, required 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.

Under an existing FRB policy statement, bank holding companies with less than $500 million in total

consolidated assets were not subject to consolidated capital requirements.

In guidance effective as of May 15, 2015, the FRB formally applied the policy statement to savings and loan holding companies, such as the Company, and raised the applicable

asset threshold to $1 billion.

The Dodd‑Frank Act requires savings and loan holding companies to serve as a source of financial strength for any subsidiary of the holding company that is a depository institution by providing financial assistance in

the event of the financial distress of the depository institution.

The Dodd‑Frank Act also included provisions changing the assessment base for federal deposit insurance from the amount of insured deposits to the amount of consolidated assets less tangible capital, and making

permanent the $250,000 limit for federal deposit insurance that had initially been established on a temporary basis in reaction to the economic downturn in 2008.

The Dodd‑Frank Act also established the Consumer Financial Protection Bureau (“CFPB”).

The CFPB has authority to supervise compliance with and enforce consumer protection laws.

The CFPB has broad rule‑making authority

for a wide range of consumer protection laws that apply to banks and savings institutions of all sizes, including the authority to prohibit “unfair, deceptive or abusive” acts and practices.

Over the past several years, the CFPB has been active in

bringing enforcement actions against banks and nonbank financial institutions to enforce federal consumer financial laws and has developed a number of new enforcement theories and applications of these laws.

The CFPB’s supervisory authority does not

generally extend to insured depository institutions having less than $10 billion in assets.

The other federal financial regulatory agencies, however, as well as state attorneys general and state banking agencies and other state financial regulators,

have been active in this area with respect to institutions over which they have jurisdiction.

The Dodd‑Frank Act established increased compliance obligations across a number of areas in the banking business.

In particular, pursuant to the Dodd-Frank Act, the federal banking agencies (comprising the FRB, the

OCC, and the FDIC) substantially revised their consolidated and bank-level risk‑based and leverage capital requirements applicable to insured depository institutions, depository institution holding companies and certain non‑bank financial

Under an existing FRB policy statement, bank holding companies with less than $3 billion in total consolidated assets are not subject to consolidated capital requirements provided they satisfy the conditions in the policy statement.

Dodd‑Frank Act requires bank holding companies to serve as a source of financial strength for any subsidiary of the holding company that is a depository institution by providing financial assistance in the event of the financial distress of the

depository institution.

The Dodd‑Frank Act also established the CFPB.

The CFPB has broad rule‑making authority for a wide range of consumer protection laws that apply to banks and savings institutions of all sizes, including the authority

to prohibit “unfair, deceptive or abusive” acts and practices.

At times during the past several years, the CFPB has been active in bringing enforcement actions against banks and nonbank financial institutions to enforce federal consumer financial

laws and has developed a number of new enforcement theories and applications of these laws.

The CFPB’s supervisory authority does not generally extend to insured depository institutions, such as the Bank, that have less than $10 billion in assets.

The federal banking agencies, however, have authority to examine for compliance, and bring enforcement action for non-compliance, with respect to the CFPB’s regulations.

State attorneys general and state banking agencies and other state financial

regulators also may have authority to enforce applicable consumer laws with respect to institutions over which they have jurisdiction.

Capital Requirements

In July 2013, the federal banking regulators approved final rules (the “Basel III Capital Rules”) implementing the Basel III framework as well as certain provisions of the Dodd‑Frank Act.

The Basel III Capital Rules

substantially revised the risk‑based capital requirements applicable to depository institutions including Broadway Federal.

As stated above, the Company is a small savings and loan holding company that will be exempt from consolidated capital

requirements until its assets exceed $1.0 billion.

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments

meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions and adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expanded the scope of the

deductions and adjustments to capital as compared to previously existing regulations.

Under the Basel III Capital Rules, the current minimum capital ratios effective as of January 1, 2015 are:

4.5% CET1 to risk‑weighted assets;

6.0% Tier 1 capital (calculated as CET1 plus Additional Tier 1 capital) to risk‑weighted assets;

8.0% Total capital (calculated as Tier 1 capital plus Tier 2 capital) to risk‑weighted assets;

4.0% Tier 1 capital to average consolidated assets (known as the “leverage ratio”).

The Basel III Capital Rules also introduced a new “capital conservation buffer”, composed entirely of CET1, in addition to the minimum risk‑weighted capital to assets ratios.

The implementation of the capital

conservation buffer began on January 1, 2016 at the 0.625% level and increased by 0.625% on January 1 of each subsequent year, until it reached 2.5% on January 1, 2019.

As fully phased in, the Basel III Capital Rules now require the Bank to maintain

an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk‑weighted assets of at least 7%, (ii) Tier 1 capital to risk‑weighted assets of at least 8.5%, (iii) a minimum ratio of Total

capital to risk‑weighted assets of at least 10.5%, and (iv) a minimum leverage ratio of 4.0%.

The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk‑weighted

capital ratios.

Banking institutions with a ratio of CET1 to risk‑weighted assets below the effective minimum (4.5% plus the capital conservation buffer) will face constraints on dividends, equity repurchases, and compensation based on the amount of

the shortfall.

The Basel III Capital Rules also provide for several deductions from and adjustments to CET1.

These include, for example, the requirement that certain deferred tax assets and significant investments in non‑consolidated

financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1.

In addition, under the Basel III Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded automatically;

however, Broadway Federal qualified to make a one‑time permanent

election to continue to exclude these items.

It made this election to avoid significant variations in the level of its capital that might otherwise occur as a result of the impact of interest rate fluctuations on the fair value of its

available‑for‑sale securities portfolio.

The Basel III Capital Rules prescribe a standardized approach for risk weightings that expanded both the number of risk‑weighting categories and the risk sensitivity of many categories.

The risk weights assigned to a

particular category of assets depend on the nature of the assets and range from 0% for U.S.

government and agency securities to 600% for certain equity exposures.

On balance, the new standards result in higher risk weights for a number of asset

Prompt Corrective Action

The Federal Deposit Insurance Act, as amended (“FDIA”), requires the federal banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.

The OCC performs this function with respect to the Bank.

The FDIA includes the following five capital tiers:

“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”

Generally, a capital restoration plan must be filed with the OCC within 45 days after the date a depository institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically

undercapitalized,” and the plan must be guaranteed by any parent holding company.

In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of

The Basel III Capital Rules included revisions to the prompt corrective action framework.

Under the prompt corrective action requirements, insured depository institutions are now required to meet the following

increased capital level requirements in order to qualify as “well capitalized:” (i) a new CET1 capital to risk weighted assets of 6.5%;

(ii) a Tier 1 capital to risk weighted assets of 8% (increased from 6%);

(iii) a total capital to risk weighted

assets of 10% (unchanged from previous rules);

and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

At December 31, 2020, the Bank’s level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory

Actual and required capital amounts and ratios at December 31, 2020 and 2019 are presented below.

The Bank’s capital requirements are administered by the OCC and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated in accordance with

regulations promulgated by the OCC jointly with the FRB and the FDIC.

Capital amounts and classifications are also subject to qualitative judgments by the OCC.

Failure to meet capital requirements can result in supervisory or, potentially,

enforcement action.

To implement the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (the ratio of a bank’s

tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.

A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage

requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.

The federal banking agencies have set the Community Bank Leverage Ratio at 9%.

The CARES Act temporarily lowered this

ratio to 8% beginning in the three months ended September 30, 2020.

The ratio then rose to 8.5% for 2021 and reestablished at 9% on January 1, 2022.

City First elected to adopt the CBLR option on April 1, 2020 as reflected in its September 30, 2020 Call Report.

Its CBLR as of December 31, 2021 is shown in the table below.

The Company’s

former subsidiary, Broadway Federal Bank, did not elect to adopt the CBLR and reported the December 31, 2020 capital ratios as shown in the table below.

Minimum Capital

Minimum Required

Capitalized Under

Prompt Corrective

Action Provisions

Minimum Required to

Be Well Capitalized

Corrective Action

(Dollars in thousands)

December 31, 2021:

Tier 1 (Leverage)

Common Equity Tier 1

Total Capital

Community Bank Leverage Ratio (1)

December 31, 2020:

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Total Capital

At the Merger on April 1, 2021, the Company’s former subsidiary, Broadway Federal Bank, was merged into City First Bank, with City First Bank.

as the surviving entity, which had

elected to adopt Community Bank Leverage Ratio option on April 1, 2020 as reflected in its September 30, 2020 Call Report.

At December 31, 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 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.

Deposit Insurance

The FDIC is an independent federal agency that insures deposits of federally insured banks, including federal savings banks, up to prescribed statutory limits for each depositor.

Pursuant to the Dodd‑Frank Act, the

maximum deposit insurance amount has been permanently increased to $250,000 per depositor, per ownership category.

The FDIC is an independent federal agency that insures deposits of federally insured banks, including national banks, up to prescribed statutory limits for each depositor.

Pursuant to the Dodd‑Frank Act, the maximum

deposit insurance amount has been permanently increased to $250,000 per depositor, per ownership category.

The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to the FDIC’s Deposit Insurance Fund (“DIF”).

The Bank’s DIF assessment is calculated by multiplying

its assessment rate by the assessment base, which is defined as the average consolidated total assets less the average tangible equity of the Bank.

The initial base assessment rate is based on an institution’s capital level, and capital adequacy,

asset quality, management, earnings, liquidity and sensitivity (“CAMELS”) ratings, certain financial measures to assess an institution’s ability to withstand asset related stress and funding related stress, and in some cases, additional discretionary

adjustments by the FDIC to reflect additional risk factors.

The Bank’s DIF assessment is calculated by

multiplying its assessment rate by the assessment base, which is defined as the average consolidated total assets less the average tangible equity of the Bank.

The initial base assessment rate is based on an institution’s capital level, and capital

adequacy, asset quality, management, earnings, liquidity, and sensitivity (“CAMELS”) ratings, certain financial measures to assess an institution’s ability to withstand asset related stress and funding related stress, and in some cases, additional

discretionary adjustments by the FDIC to reflect additional risk factors.

The FDIC’s overall premium rate structure is subject to change from time to time to reflect its actual and anticipated loss experience.

The financial crisis that began in 2008 resulted in substantially higher levels of

bank failures than had occurred in the immediately preceding years.

The financial crisis that began in 2008 resulted in substantially higher levels

of bank failures than had occurred in the immediately preceding years.

These failures dramatically increased the resolution costs incurred by the FDIC and substantially reduced the available amount of the DIF.

As required by the Dodd‑Frank Act, the FDIC adopted a new DIF restoration plan which became effective on January 1, 2011.

Among other things, the plan increased the minimum designated DIF reserve ratio from 1.15% to

1.35% of insured deposits, which must be reached by September 30, 2020, and provides that in setting the assessments necessary to meet the new requirement, the FDIC is required to offset the effect of this provision on insured depository institutions

with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by institutions with more than $10 billion in assets.

With the increase of the DIF reserve ratio to 1.17% on June 30, 2016,

the range of initial assessment rates has declined for all banks from five to 35 basis points on an annualized basis to three to 30 basis points on an annualized basis.

In order to reach a DIF reserve ratio of 1.35%, insured depository institutions

with $10 billion or more in total assets are required to pay a quarterly surcharge equal to an annual rate of 4.5 basis points, in addition to regular assessments.

The FDIC will impose a shortfall in the first quarter of 2020 on large banks that did

not have a reserve of at least 1.35% by December 31, 2019.

The FDIC will provide assessment credits to insured depository institutions, like Broadway Federal, with total consolidated assets of less than $10 billion for the portion of their regular

assessments that contribute to growth in the reserve ratio between 1.15% and 1.35%.

The FDIC will apply the credits each quarter that the reserve ratio is at least 1.38% to offset the regular deposit insurance assessments of institutions with

During 2020, the Bank received two assessment credits totaling $49 thousand compared to two assessment credits totaling $56 thousand during 2019.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that

pose a risk to the DIF or that may prejudice the interest of the bank’s depositors.

Consistent with the requirements of the Dodd‑Frank Act, the FDIC adopted its most recent DIF restoration plan in September 2020;

that plan is designed to enable the FDIC to achieve the statutorily required reserve

ratio of 1.35% by September 30, 2028.

The FDIC Board has set the designated reserve ratio for each of the years 2021 and 2022 at 2%.

The statute provides that in setting the amount of assessments necessary to meet the designated reserve ratio

requirement, the FDIC is required to offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by institutions

with more than $10 billion in assets.

Accordingly, the FDIC has provided assessment credits to insured depository institutions, like the Bank, with total consolidated assets of less than $10 billion for the portion of their regular assessments that

contribute to growth in the reserve ratio between 1.15% and 1.35%.

The FDIC has applied the credits each quarter that the reserve ratio was at least 1.38% to offset the regular deposit insurance assessments of institutions with credits.

did not receive any assessment credits during 2021.

During 2020, the Bank received two assessment credits totaling $49 thousand.

Although it rarely does so, the FDIC has the authority to terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution

has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors.

Guidance on Commercial Real Estate Lending

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and for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties.

The CRE Policy Statement details

risk‑management practices for loan workouts that support prudent and pragmatic credit and business decision‑making within the framework of financial accuracy, transparency, and timely loss recognition.

The CRE Policy Statement states that financial

institutions that implement prudent loan workout arrangements after performing comprehensive reviews of the financial condition of borrowers will not be subject to criticism for engaging in these efforts, even if the restructured loans have

weaknesses that result in adverse credit classifications.

The CRE Policy Statement

details risk‑management practices for loan workouts that support prudent and pragmatic credit and business decision‑making within the framework of financial accuracy, transparency, and timely loss recognition.

The CRE Policy Statement states that

financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of the financial condition of borrowers will not be subject to criticism for engaging in these efforts, even if the restructured loans

have weaknesses that result in adverse credit classifications.

In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely

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The CRE Policy Statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing an institution’s risk‑management practices for loan workout

In October 2018, the OCC provided the Bank with a letter of “no supervisory objection” permitting the Bank to increase the non‑multifamily commercial real estate loan concentration limit to 100% of Tier 1 Capital plus

ALLL, including a sublimit of 50% for land/construction loans, which brought the total CRE loan concentration limit to 600% of Tier 1 Capital plus ALLL.

In October 2018, the OCC provided Broadway Federal with a letter of “no supervisory objection” permitting it to increase the non‑multifamily commercial real estate loan concentration limit to 100% of Tier 1 Capital

plus ALLL, including a sublimit of 50% for land/construction loans, which brought the total CRE loan concentration limit to 600% of Tier 1 Capital plus ALLL.

Loans to One Borrower

Federal savings banks generally are subject to the lending limits that are applicable to national banks.

With certain limited exceptions, the maximum amount that a federal savings banks may lend to any borrower

(including certain related persons or entities of such borrower) is an amount equal to 15% of the savings institution’s unimpaired capital and unimpaired surplus, or $7.4 million for Broadway Federal at December 31, 2020, plus an additional 10% for

loans fully secured by readily marketable collateral.

Real estate is not included within the definition of “readily marketable collateral” for this purpose.

We are in compliance with the limits applicable to loans to any one borrower.

At December 31,

2020, our largest amount of loan to one borrower was $6.9 million, and the loan was performing in accordance with their terms and the borrower had no affiliation with Broadway Federal.

The Bank is in compliance with the statutory and regulatory limits applicable to loans to any one borrower.

As of December 31, 2021, the lending limit for City First is $15.3 million.

At December 31, 2021, our largest loan to a single borrower was $9.7 million;

that loan was performing in accordance with its terms and was otherwise in compliance with regulatory requirements.

Community Reinvestment Act and Fair Lending

The Community Reinvestment Act, as implemented by OCC regulations (“CRA”), requires each federal savings bank, as well as other lenders, to make efforts to meet the credit needs of the communities they serve, including

low‑ and moderate‑income neighborhoods.

The CRA requires the OCC to assess an institution’s performance in meeting the credit needs of its communities as part of its examination of the institution, and to take such assessments into consideration in

reviewing applications for mergers, acquisitions and other transactions.

The Community Reinvestment Act, as implemented by OCC regulations (“CRA”), requires each national bank to make efforts to meet the credit needs of the communities it serves, including low‑ and moderate‑income

neighborhoods.

for mergers, acquisitions, and other transactions.

An unsatisfactory CRA rating may be the basis for denying an application.

Community groups have successfully protested applications on CRA grounds.

In connection with the

assessment of a savings institution’s CRA performance, the OCC assigns ratings of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank’s CRA performance has been rated by OCC as “outstanding” since 1995, and the

Bank’s “outstanding” rating was recently reaffirmed by OCC in its most recent CRA examination completed in April 2019.

In connection with the assessment of a savings

institution’s CRA performance, the OCC assigns ratings of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” Both City First’s and Broadway Federal’s CRA performance was rated by OCC as “outstanding” in their most

recent CRA examinations;

both examinations were completed in 2019.

The Bank is also subject to federal fair lending laws, including the Equal Credit Opportunity Act (“ECOA”) and the Federal Housing Act (“FHA”), which prohibit discrimination in credit and residential real estate

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prohibited basis.

The compliance of federal savings banks of the Bank’s size with these acts is primarily supervised and enforced by the OCC.

If the OCC determines that a lender has engaged in a pattern or practice of discrimination in violation of

ECOA, the OCC refers the matter to the DOJ.

The compliance of national banks of the Bank’s size with these acts is primarily supervised and enforced by the OCC.

If the OCC determines that a lender has engaged in a pattern or practice of discrimination in violation of ECOA,

the OCC refers the matter to the DOJ.

Similarly, HUD is notified of violations of the FHA.

Qualified Thrift Lender Test

The Home Owners Loan Act (“HOLA”) requires all federal savings banks to meet a Qualified Thrift Lender (“QTL”) test.

Under the QTL test, a federal savings bank is required to maintain at least 65% of its portfolio

assets (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the value of property used to conduct business) in certain “qualified thrift investments” on a monthly basis during at

least 9 out of every 12 months.

Qualified thrift investments include, in general, loans, securities and other investments that are related to housing, shares of stock issued by any Federal Home Loan Bank, loans for educational purposes, loans to

small businesses, loans made through credit cards or credit card accounts and certain other permitted thrift investments.

The failure of a federal savings bank to remain a QTL may result in required conversion of the institution to a bank charter,

which would change the federal savings bank’s permitted business activities in various respects, including operation under certain restrictions, such as limitations on new investments and activities, the imposition of restrictions on branching and

the payment of dividends that apply to national banks.

At December 31, 2020, the Bank was in compliance with the QTL test requirements.

The USA Patriot Act, Bank Secrecy Act (“BSA”), and Anti‑Money Laundering (“AML”) Requirements

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Privacy Protection

Broadway Federal is subject to OCC regulations implementing the privacy protection provisions of federal law.

These regulations require Broadway Federal to disclose its privacy policy, including identifying with whom

it shares “nonpublic personal information,” to customers at the time of establishing the customer relationship and annually thereafter.

The regulations also require Broadway Federal to provide its customers with initial and annual notices that

accurately reflect its privacy policies and practices.

In addition, to the extent its sharing of such information is not covered by an exception, Broadway Federal is required to provide its customers with the ability to “opt‑out” of having Broadway

Federal share their nonpublic personal information with unaffiliated third parties.

Broadway Federal is also subject to regulatory guidelines establishing standards for safeguarding customer information.

The guidelines describe the agencies’ expectations for the creation, implementation and

maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.

City First is subject to OCC regulations implementing the privacy protection provisions of federal law.

These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares

“nonpublic personal information,” to customers at the time of establishing the customer relationship and annually thereafter.

The regulations also require City First to provide its customers with initial and annual notices that accurately reflect

its privacy policies and practices.

In addition, to the extent its sharing of such information is not covered by an exception, the Bank is required to provide its customers with the ability to “opt‑out” of having City First share their nonpublic

personal information with unaffiliated third parties.

City First is also subject to regulatory guidelines establishing standards for safeguarding customer information.

The guidelines describe the agencies’ expectations for the creation, implementation, and maintenance

of an information security program, which would include administrative, technical, and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.

The standards set forth in the

guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use

of such records or information that could result in substantial harm or inconvenience to any customer.

use of such records or information that could result in substantial harm or inconvenience to any customer.

Cybersecurity

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data.

We employ an in‑depth, layered, defensive approach that leverages

people, processes and technology to manage and maintain cybersecurity controls.

We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected

persistent threats.

Notwithstanding the strength of our defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

date we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third‑party service providers are under constant threat and it

is possible that we could experience a significant event in the future.

The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a banking organization’s the board of

These guidelines, along with related regulatory materials, increasingly focus on risk management, processes related to information technology and operational resiliency, and the use of third parties in the provision of financial services.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of

internet banking, mobile banking and other technology‑based products and services by us and our customers.

Savings and Loan Holding Company Regulation

As a savings and loan holding company, we are subject to the supervision, regulation, and examination of the FRB.

In addition, the FRB has enforcement authority over the Company and our subsidiary Broadway Federal.

Applicable statutes and regulations administered by FRB place certain restrictions on our activities and investments.

Among other things, we are generally prohibited, either directly or indirectly, from acquiring more than 5% of the voting shares of

any savings association or savings and loan holding company that is not a subsidiary of the Company.

The Change in Bank Control Act prohibits a person, acting directly or indirectly or in concert with one or more persons, from acquiring control of a savings and loan holding company unless the FRB has been given 60

days prior written notice of such proposed acquisition and within that time period the FRB has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which a disapproval may be issued.

term “control” is defined for this purpose to include ownership or control of, or holding with power to vote, 25% or more of any class of a savings and loan holding company’s voting securities.

Under a rebuttable presumption contained in the

regulations of the FRB, ownership or control of, or holding with power to vote, 10% or more of any class of voting securities of a savings and loan holding company will be deemed control for purposes of the Change in Bank Control Act if the

institution (i) has registered securities under Section 12 of the Exchange Act, or (ii) no person will own, control, or have the power to vote a greater percentage of that class of voting securities immediately after the transaction.

In addition, any

company acting directly or indirectly or in concert with one or more persons or through one or more subsidiaries would be required to obtain the approval of the FRB under the Home Owners’ Loan Act before acquiring control of a savings and loan

holding company.

For this purpose, a company is deemed to have control of a savings and loan holding company if the company (i) owns, controls, holds with power to vote, or holds proxies representing, 25% or more of any class of voting shares of the

holding company, (ii) contributes more than 25% of the holding company’s capital, (iii) controls in any manner the election of a majority of the holding company’s directors, or (iv) directly or indirectly exercises a controlling influence over the

management or policies of the savings bank or other company.

The FRB may also determine, based on the relevant facts and circumstances, that a company has otherwise acquired control of a savings and loan holding company.

We employ an in‑depth, layered, defensive approach that

leverages people, processes, and technology to manage and maintain cybersecurity controls.

We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any

suspected persistent threats.

While to date we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third‑party service providers are under

constant threat and it is possible that we could experience a significant event in the future.

of directors.

of internet banking, mobile banking and other technology‑based products and services by us and our customers.

Bank Holding Company Regulation

As a bank holding company, we are subject to the supervision, regulation, and examination of the FRB and the FRBR.

In addition, the FRB has enforcement authority over the Company.

Applicable statutes and regulations

administered by the FRB place certain restrictions on our activities and investments.

Among other things, we are generally prohibited, either directly or indirectly, from acquiring more than 5% of the voting shares of any depository or depository

holding company that is not a subsidiary of the Company.

The Change in Bank Control Act prohibits a person, acting directly or indirectly or in concert with one or more persons, from acquiring control of a bank holding company unless the FRB has been given 60 days prior

written notice of such proposed acquisition and within that time period the FRB has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which a disapproval may be issued.

“control” is defined for this purpose to include ownership or control of, or holding with power to vote, 25% or more of any class of a bank holding company’s voting securities.

Under a rebuttable presumption contained in the regulations of the FRB,

ownership or control of, or holding with power to vote, 10% or more of any class of voting securities of a bank company will be deemed control for purposes of the Change in Bank Control Act if the institution (i) has registered securities under

Section 12 of the Exchange Act, or (ii) no person will own, control, or have the power to vote a greater percentage of that class of voting securities immediately after the transaction.

In addition, any company acting directly or indirectly or in

concert with one or more persons or through one or more subsidiaries would be required to obtain the approval of the FRB under the Bank Holding Company Act of 1956, as amended, before acquiring control of a bank holding company.

For this purpose, a

company is deemed to have control of a bank holding company if the company (i) owns, controls, holds with power to vote, or holds proxies representing, 25% or more of any class of voting shares of the holding company, (ii) contributes more than 25%

of the holding company’s capital, (iii) controls in any manner the election of a majority of the holding company’s directors, or (iv) directly or indirectly exercises a controlling influence over the management or policies of the national bank or

other company.

The FRB may also determine, based on the relevant facts and circumstances, that a company has otherwise acquired control of a bank holding company.

Restrictions on Dividends and Other Capital Distributions

In general, the prompt corrective action regulations prohibit a federal savings bank from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person, such as its

parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories.

In addition to the prompt corrective action restriction on paying dividends, OCC regulations limit

certain “capital distributions” by savings associations.

In general, the prompt corrective action regulations prohibit a national bank from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person, such as its

parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories set out in the regulations.

In addition to the prompt corrective action restriction on paying dividends,

OCC regulations limit certain “capital distributions” by national banks.

Capital distributions are defined to include, among other things, dividends and payments for stock repurchases and payments of cash to stockholders in mergers.

Under the OCC capital distribution regulations, a federal savings bank that is a subsidiary of a savings and loan holding company must notify the OCC at least 30 days prior to the declaration of any capital

distribution by its federal savings bank subsidiary.

Under the OCC capital distribution regulations, a national bank that is a subsidiary of a bank holding company must notify the OCC at least 30 days prior to the declaration of any capital distribution by its national

bank subsidiary.

The 30‑day period provides the OCC an opportunity to object to the proposed dividend if it believes that the dividend would not be advisable.

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on the institution by the OCC.

The Bank’s ability to pay dividends to the Company is also subject to a restriction on the payment of dividends by the Bank to the Company if the Bank’s regulatory capital would be reduced below the amount required for

the liquidation account established in connection with the conversion of the Bank from the mutual to the stock form of organization.

See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Note 14 of the Notes to Consolidated Financial Statements for a further description of

dividend and other capital distribution limitations to which the Company and the Bank are subject.

for the liquidation account established in connection with the conversion of the Bank from the mutual to the stock form of organization.

See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for a further description of dividend and other capital distribution limitations to which the

Company and the Bank are subject.

Federal Income Taxes

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California Taxes

As a savings and loan holding company filing California franchise tax returns on a combined basis with its subsidiaries, the Company is subject to California franchise tax at the rate applicable to “financial

corporations.” The applicable statutory tax rate is 10.84%.

We conduct our business through three branch offices and a corporate office.

Our loan service operation is also conducted from one of our branch offices.

Our administrative and corporate operations are conducted from

our corporate facility located at 5055 Wilshire Boulevard, Suite 500, Los Angeles.

There are no mortgages, material liens or encumbrances against any of our owned properties.

We believe that all the properties are adequately covered by insurance, and

that our facilities are adequate to meet our present needs.

As of December 31, 2020, the net book value of our investment in premises, equipment and fixtures, excluding computer equipment, was $2.5 million.

Total occupancy expense, inclusive of rental payments and furniture and

equipment expense, for the year ended December 31, 2020 was $1.3 million.

Total annual rental expense (exclusive of operating charges and real property taxes) was approximately $598 thousand during 2020.

Administrative/Loan Origination Center:

5055 Wilshire Blvd, Suite 500

Los Angeles, CA

Branch Offices:

5055 Wilshire Blvd, Suite 100

Los Angeles, CA

Market Street

Inglewood, CA

(Branch Office/Loan Service Center)

4001 South Figueroa Street

Los Angeles, CA

As a bank holding company filing California franchise tax returns on a combined basis with its subsidiaries, the Company is subject to California franchise tax at the rate applicable to “financial corporations.” The

applicable statutory tax rate is 10.84%.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business