What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-04-15 compared with 2021-03-31 · 352 added, 191 removed, 188 unchanged (74% of the section changed)

2 unchanged sentences

factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes

included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10 K.

Total assets increased by $43.0 million to $483.4 million at December 31, 2020 from $440.4 million at December 31, 2019.

The growth in total assets was primarily comprised of an increase of $80.5 million in

interest-bearing cash in other banks offset by a decrease of $37.7 million in net loans receivable held for investment.

The Bank had no REO as of December 31, 2019.

The following discussion should be read in conjunction with the Consolidated Financial Statements and

related Notes included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10 K.

Acquisition of CFBanc Corporation

On April 1, 2021, the Company completed its Merger with CFBanc, with Broadway Financial Corporation continuing as the surviving entity.

Prior to the acquisition, CFBanc was headquartered in Washington, D.C.

conducted its business through its wholly-owned national bank subsidiary, City First Bank of D.C., National Association.

Immediately following this merger, Broadway Federal, a subsidiary of Broadway Financial Corporation, merged with and into City

First Bank of D.C., National Association, with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association).

In connection with the Merger, in exchange for the then outstanding common and preferred shares of CFBanc, the Company issued to holders of CFBanc shares 13,999,879 shares of the Company’s Class A Common Stock and

11,404,621 of Class B Common Stock which were valued at $2.49 per share (which was the closing price of the Company’s shares the day prior to the acquisition), along with 3,000 shares of Series A Preferred Stock with a par value of $1,000 per share.

The total consideration paid on the acquisition date was valued at $66.3 million.

As of the Merger date, CFBanc had $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million of total deposits.

As a result of the Merger, the Company recorded goodwill of $26.0 million.

represents the future economic benefits rising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.

recognized in this transaction is not deductible for income tax purposes.

The Merger was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at

estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.

The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820:

Measurements.

Total assets increased by $610.1 million to $1.1 billion at December 31, 2021 from $483.4 million at December 31, 2020.

The increase in total assets was primarily due to the Merger, wh ich increased total assets by $501.2 million, as well as an increase of $108.9 million in asset growth since the Merger.

The growth in total assets mainly consisted of increases of $288.4 million in loans (including $225.9 million of loans

acquired in the Merger) and securities available-for-sale of $145.7 million (including the impact of $150.0 million of securities available-for-sale acquired in the Merger).

Total liabilities increased by $517.9 million to $952.4 million at December 31, 2021 from $434.5 million at December 31, 2020.

The increase in total liabilities during 2020 resulted primarily from increases of $26.5

million in FHLB advances and $17.9 million in total deposits, offset by a decrease of $1.0 million in junior subordinated debentures.

We recorded a net loss of $642 thousand for the year ended December 31, 2020 compared to a net loss of $206 thousand for the year ended December 31, 2019.

The loss during the year ended December 31, 2020 was primarily

due to an increase in professional service fees of $1.2 million, of which $960 thousand pertained to expenses related to the City First Merger and $243 thousand related to costs incurred to respond to actions by a former stockholder.

compensation expense increased by $1.0 million compared to the same period of 2019 primarily due to $580 thousand accrued for bonuses to key employees .

These items were partially offset by higher net interest income before loan loss provision of

$1.7 million compared to the same period of 2019 due to growth in the average loan portfolio, and decreases in the cost of funds.

In addition, an income tax credit adjustment of $273 thousand was received during 2020 due to a tax settlement with the

California Franchise Tax Board, which offset the additional tax expense associated with non-deductible merger costs.

The increase in total liabilities during 2021 resulted primarily from the assumption of the deposits, borrowings, and other liabilities at the completion of the Merger, and consisted of increases of $472.4 million in deposits and $66.0 million of other borrowings, offset by reductions in FHLB

advances of $24.5 million and junior subordinated debentures of $3.3 million due to repayments of amounts outstanding.

We recorde d a net loss of $4.1 million for the year ended December 31, 2021 or $(0.07) per share compared to a net loss of $642 thousand or $(0.02) per share for the year

ended December 31, 2020.

The increase in the net loss for 2021 was primarily due to an increase in non-interest expenses of $14.7 million, principally as a result of including the non-interest expenses of City First and its subsidiaries after the

The increase in non-interest expenses consisted mainly of Merger-related costs of $5.6 million, data processing conversion costs of $2.4 million (including non-recurring data processing costs of $2.0 million to migrate the Company’s

information systems to a common platform after the Merger), and additional employee-related expenses of $1.1 million during the fourth quarter.

These increased costs were partially offset by an increase in net interest income of $8.8 million in 2021 due to an increase in the average balance of interest-earning assets of $384.5 million.

Results for calendar 2021 were also positively impacted by an increase of $1.8 million in income from the U.S.

Treasury’s Community Development Financial Institution Fund grants compared to calendar 2020.

The following table summarizes the return on average assets, the return on average equity and the average equity to average assets ratios for the periods indicated:

For the Year Ended

For the Year Ended December 31,

Return on average assets

5 unchanged sentences

(interest earning assets) and interest expense is incurred from deposits and borrowings (interest bearing liabilities).

Typically, our results of operations are also affected by our provision for or loan loss provision recapture, non-interest income

generated from service charges and fees on loan and deposit accounts, gains or losses on the sale of loans and REO, non-interest expenses, and income taxes.

Typically, our results of operations are also affected by our provision for loan losses, non-interest income generated from

service charges and fees on loan and deposit accounts, gains or losses on the sale of loans and REO, non-interest expenses, and income taxes.

Net Interest Income

For the year ended December 31, 2020, net interest income increased by $1.7 million to $12.2 million, from $10.5 million for the same period in 2019.

Interest and fees on loans receivable increased by $1.2 million for the year ended December 31, 2020 compared to the same period a year ago.

The increase was primarily due to an increase of $43.7 million in the average

balance of loans receivable, including loans held for sale, which increased interest income by $1.8 million, partially offset by a decrease of 16 basis points in loan yield, which decreased interest income by $623 thousand.

The decrease in loan

yield included the impact of a decrease in interest recoveries in 2020 compared to 2019 because $209 thousand of payoffs were received in 2020 on non-accrual loans.

Those payoffs decreased the loan yield in 2020 by 6 basis points.

Interest income

on loans receivable was also negatively impacted by loan sales during the year, which totaled $104.3 million.

Interest income on securities decreased by $106 thousand for the year ended December 31, 2020 compared to the prior year due to a decrease of $2.9 million in the average balance of securities, which decreased interest

income by $72 thousand and a decrease of 26 basis points in the average yield on securities, which decreased interest income by $34 thousand.

Other interest income decreased by $268 thousand for the year ended December 31, 2020 compared to the prior year.

The decrease in other interest income primarily resulted from a decrease of 185 basis points in the

average rate earned on interest-earnings deposits and other short-term investments, which decreased interest income by $551 thousand, offset by a net increase in the average balance of interest earning cash deposits in other banks of $29.9 million,

which increased interest income by $315 thousand.

In addition, interest income earned on FHLB stock decreased by $32 thousand, primarily due to a decrease of 200 basis points in the average rate earned during the year ended December 31, 2020.

Interest expense on deposits decreased by $1.1 million for the year ended December 31, 2020 compared to the prior year, primarily due to a decrease of 51 basis points in the average cost of deposits, offset by an

increase of $34.5 million in the average balance of total deposits.

The increase in deposits was primarily due to growth in NOW accounts, savings accounts and money market accounts due to large deposits from corporations and organizations that were

seeking to support Broadway’s mission and position as a Minority Depository Institution.

Interest expense on borrowings increased by $202 thousand for the year ended December 31, 2020 compared to the prior year, primarily due to a net increase of $317 thousand in interest expense on FHLB advances.

interest expense on FHLB advances increased due to an increase of $37.0 million in the average balance of FHLB advances, which increased interest expense by $740 thousand, partially offset by a decrease of 51 basis points in the average cost of FHLB

advances, which decreased interest expense by $423 thousand.

The increase in interest expense on FHLB advances was offset by a decrease of $115 thousand in interest expense on the Company’s junior subordinated debentures.

The interest expense on

the junior subordinated debentures decreased because the average balance of such junior subordinated debentures decreased by $983 thousand, which decreased interest expense by $44 thousand, and the average interest rate paid on the junior

subordinated debentures decreased by 167 basis points, which decreased interest expense by $71 thousand.

Net interest rate margin decreased by 2 basis points to 2.52% for the year ended December 31, 2020 from 2.54% for the same period in 2019, primarily due to the lower average rates earned on interest earning cash

deposits in other banks.

For the year ended December 31, 2021, net interest income before provision for loan losses increased by $8.8 million, or 72.6%, to $21.0 million, compared to $12.2 million for the year ended December 31, 2020.

increase in net interest income primarily resulted from additional net interest income earned on assets acquired in the Merger, and a decrease in the cost of funds.

Interest income and fees on loans receivable increased by $5.8 million during the year ended December 31, 2021, compared to the year ended December 31, 2020.

This increase was primarily due to an increase of $118.9

million in the average balance of loans receivable, primarily resulting from the Merger, which increased interest income by $5.0 million.

In addition, the average loan yield increased by 18 basis points during the year, from 4.06% for the year ended

December 31, 2020, to 4.24% for the year ended December 31, 2021, which increased interest income by $797 thousand.

The increase in the average loan yield primarily resulted from the higher yields earned on the commercial loan portfolio acquired in

Interest income on securities increased $1.1 million to $1.4 million for the year ended December 31, 2021, compared to $253 thousand for the year ended December 31, 2020.

The increase in interest income on securities

primarily resulted from an increase of $111.0 million in the average balance of securities resulting from the Merger, which increased interest income by $1.3 million.

This increase was partially offset by a decrease of 124 basis points in the

average interest yield earned on investment securities, which reflected the declining interest rate environment and reduced interest income by $196 thousand.

Other interest income increased by $150 thousand in 2021, compared to the same period in 2020, primarily due to higher average cash balances in other banks.

The average cash balances increased by $154.1 million during

the year ended December 31, 2021, compared to the year ended December 31, 2020.

The Company also recorded $51 thousand in higher interest income on regulatory stock during 2021, primarily due to interest earned on FRB and FHLB stock acquired in the

Merger, along with the existing holdings of FHLB stock.

Interest expense on deposits decreased by $1.5 million during calendar 2021, compared to calendar 2020, due to a decrease of 73 basis points in the average cost of deposits.

The average cost of deposits decreased to

0.26% for 2021, compared to 0.99% for 2020, which reduced interest expense by $2.5 million.

This decrease was partially offset by an increase of $322.6 million in the average balance of deposits, primarily due to deposits assumed in the Merger and

organic growth of deposits after the Merger, which increased interest expense by $1.1 million.

Interest expense on borrowings decreased by $239 thousand during the year ended December 31, 2021, compared to the year ended December 31, 2020, because of a change in the mix of borrowings that resulted in a decrease

of 57 basis points in the average borrowing rate.

Interest on borrowings decreased by $211 thousand because of a decrease of $13.5 million in the average balance of outstanding FHLB advances, and another $73 thousand from the pay-off of the Company’s

remaining junior subordinated debentures in September of 2021.

These decreases were partially offset by the effects of a net increase of $31.7 million in borrowings, due to the addition of average short-term borrowings of $46.8 million assumed in

the Merger at an average rate of ten (10) basis points, which increased interest expense by $45 thousand.

Net interest margin decreased by ten (10) basis points to 2.42% for calendar 2021, from 2.52% for calendar 2020, primarily due to lower rates earned on higher balances of interest-earning cash deposits in other banks

and lower rates earned on securities.

The effects of these lower rates were partially offset by higher loan yields and a lower cost of funds in 2021.

Analysis of Net Interest Income

13 unchanged sentences

Loans receivable (1)

FHLB and FRB stock

Total interest‑earning assets

9 unchanged sentences

Junior subordinated debentures

Other borrowings

Total borrowings

Total interest‑bearing liabilities

8 unchanged sentences

Includes non-accrual interest of $567 thousand, reflecting interest recoveries on non-accrual loans that were paid off, and deferred cost amortization of $254 thousand for the year ended December 31, 2019.

Includes non-accrual interest of $40 thousand, reflecting interest recoveries on non-accrual loans that were paid off, and deferred cost amortization of $503 thousand for the year ended December 31, 2018.

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

18 unchanged sentences

Loans receivable, net

FHLB and FRB stock

Total interest‑earning assets

7 unchanged sentences

Junior subordinated debentures

Other borrowings

Total borrowings

Total interest‑bearing liabilities

Change in net interest income

Loan Loss Provision/Recapture

During the year ended December 31, 2020, we recorded a loan loss provision of $29 thousand due to economic uncertainties related to the COVID-19 Pandemic.

In addition, we recorded loan loss recoveries of $4 thousand

during the year ended December 31, 2020.

For the year ended December 31, 2019, we recorded a net loan loss provision recapture of $7 thousand, which was comprised of a loan loss provision recapture of $348 thousand in the first quarter due to

payoffs of non-accrual loans, offset by loan loss provisions of $47 thousand in the third quarter and $294 thousand in the fourth quarter due to growth in the loan portfolio.

Loan loss recoveries of $260 thousand were recorded during 2019.

“Allowance for Loan Losses” for additional information.

Loan Loss Provision

During the year ended December 31, 2021, we recorded a provision for loan losses of $176 thousand, compared to a loan loss provision of $29 thousand during the same period in 2020.

increase in the required loan loss provision in calendar 2021 was due to growth in the loan portfolio during the year.

No loan charge-offs or recoveries were recorded during the year ended December 31, 2021.

See “Allowance for Loan Losses” for

additional information.

Non‑Interest Income

For the year ended December 31, 2021, non-interest income totaled $3.2 million, compared to $1.0 million for the prior year.

The decrease of $27 thousand in non-interest income was primarily due to a decrease of $71

thousand in service charges on deposits and a decrease of $30 thousand in grant income from the U.S.

Department of the Treasury’s Community Development Financial Institution (“CDFI”) Fund, offset by an increase of $72 thousand in gains generated from

sales of loans during 2020 compared to 2019.

The increase of $2.2 million in non-interest income was primarily due an increase of $1.8

million in grant income from the CDFI Fund recognized during 2021 compared to 2020, and management fees of $154 thousand related to the NMTC projects managed by the Bank that were acquired in the Merger.

These increases were partially offset by the

absence of any gain on sale of loans for the year ended December 31, 2021, compared to a gain on sale of loans of $276 thousand during the year ended December 31, 2020.

Non‑Interest Expense

For the year ended December 31, 2020, non-interest expense totaled $14.2 million, compared to $12.1 million for the same period a year ago.

The increase of $2.1 million in non-interest expense was primarily due to

increases of $1.2 million in professional services expense and $1.0 million in compensation and benefits expense.

The increase of $1.2 million in professional services expense was primarily due to an increase of $863 thousand in legal fees and $317 thousand in financial advisory and consulting fees.

The increase in legal fees was

comprised of $704 thousand related to the City First Merger and $243 thousand related to legal expenses incurred to respond to activities conducted by a former stockholder against the Company, offset by a decrease of $84 thousand in miscellaneous

legal fees related to other matters.

Financial advisory and consulting services fees increased primarily due to $255 thousand of expenses related to the City First Merger.

The increase of $1.0 million in compensation and benefits expense was primarily due to increased bonus accruals of $580 thousand related to the City First Merger and planning for post-merger integration and the related private placements (See

“BUSINESS--General” for more detail), higher salary costs of $222 thousand, and increased vacation accruals of $53 thousand.

In addition, the Bank recorded lower deferred loan origination costs of $244 thousand during 2020 compared to the

prior year because there were fewer loans originated for the loans receivable held for investment portfolio during 2020 compared to the prior year.

Income Taxes.

We recorded income tax benefits of $407 thousand and $345 thousand for the year ended December 31, 2020 and 2019, respectively.

The increase of $62 thousand in income tax benefit was primarily due to a tax credit of

$273 thousand related to the resolution of an outstanding audit issue with the California Franchise Tax Board for tax years 2009 to 2013 and a tax benefit from the increase in pretax loss during the year, partially offset by additional tax expense

associated with non-deductible merger related expenses.

The deferred tax asset totaled $5.6 million at December 31, 2020 and $5.2 million at December 31, 2019.

Non-interest expenses totaled $28.9 million for the year ended December 31, 2021, compared to $14.2 million for the year ended December 31, 2020.

The increase of $14.7 million in non-interest expenses during 2021 was

primarily due to Merger-related expenses of $5.6 million ($4.2 million net of tax), $2.4 million in data processing conversion costs, the inclusion of non-interest expenses of the acquired operations of CFB and related compensation expenses.

The increase of $7.6 million in compensation and benefits expense during 2021 was primarily due additional costs related to the addition of CFBanc employees subsequent to the Merger date.

Subsequent to the Merger date,

the Company added additional employees to fill new roles based on the size of the combined organization (for example, a Chief Human Resources Director and an Information Technology Officer);

the creation and filling of these new roles, among others,

increased compensation and benefits expense during 2021 by $535 thousand.

Also, the increase was partially a result of an increase in accrued bonuses and retention payments, and a non-recurring expansion of the annual contribution to the Company’s

Employee Stock Ownership Plan (“ESOP”) to increase the equity ownership of the Company’s employees, especially those employees formerly with CFBanc, so that the interests of the employees would be better aligned with those of stockholders.

Information services expenses increased by $2.9 million to $3.8 million during the year ended December 31, 2021, compared to $937 thousand for the year ended December 31, 2020.

The current year’s results included

non-recurring data processing costs of $2.4 million to migrate the Company’s information systems to a common platform after the Merger.

Corporate insurance increased by $219 thousand to primarily due to higher costs for director’s and officer’s insurance, workers compensation insurance and general liability insurance for the combined operations of the

Bank after the Merger.

Supervisory costs increased by $294 thousand to $493 thousand for 2021 from $199 thousand for 2020 due to the higher asset size after the Merger and the increase in deposit insurance due to growth in deposits from

$315.6 million at December 31, 2020 to $788.1 million at December 31, 2021.

Deposits of $353.7 million were assumed in the Merger.

Professional services expenses were $3.8 million for the year ended December 31, 2021, an increase of

$1.4 million from $2.3 million for the year ended December 31, 2020.

The increase largely related to costs associated with the completion of the Merger and the increased costs of operating a

larger institution post-Merger.

Other operating costs increased by $1.5 million to $2.1 million for 2021 from $649 thousand in 2020 due to increases in public company costs, CDARS and ICS costs, business development costs, branch security costs,

travel costs, board fees, costs associated with New Market Tax Credits and other costs associated with operating a larger institution post-Merger.

Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21%.

State taxes are recorded at the State of California tax rate and apportioned based on an allocation schedule to

reflect that a portion of the Bank’s operations are conducted in the Washington, D.C.

The Company recorded an income tax benefit of $937 thousand for the year ended December 31, 2021, representing an effective tax rate of 19.2%, compared to an

income tax benefit of $407 thousand for the year ended December 31, 2020, representing an effective tax rate of 38.8%.

The income tax benefit for the calendar 2021 is net of a valuation allowance of $369 thousand on the Company’s deferred tax assets

to record the write down of the tax benefits from net operating losses for the State of California, net of the federal tax benefit.

This change in the valuation allowance was required because the shares of common stock issued in private placements

that closed a few days after the Merger triggered a limitation on the use of net operating loss carryforwards.

Our deferred tax asset totaled $6.1 million at December 31, 2021 and $5.6 million at December 31, 2020.

See Note 1 “Summary of Significant Accounting Policies” and Note 17 “Income Taxes” of the Notes to Consolidated

Financial Statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense (benefit).

Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize net operating loss carryforwards, tax credit carryovers and other income tax attributes when there is an ownership

Generally, the rules provide that an ownership change is deemed to have occurred when the cumulative increase of each 5% or more stockholder and certain groups of stockholders treated as 5% or more stockholders, as determined under Section

382, exceeds 50% over a specified “testing” period, generally equal to three years.

Section 382 applies rules regarding the treatment of new groups of stockholders treated as 5% stockholders due to issuances of stock and other equity transactions,

which may cause a change of control to occur.

The Company has performed an analysis of the potential impact of Section 382 and has determined that the Company did not undergo an ownership change during 2020 or 2019 and any potential limitations

imposed under Section 382 do not currently apply as of December 31, 2020.

However, upon the completion of the private placements, there could be a triggering event which may result in a change of control.

Based on management’s preliminary estimates,

there could be limitations on our deferred tax assets that may require an impairment allowance of approximately $2.4 million.

Financial Statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to the actual income tax benefit.

Comparison of Financial Condition at December 31, 2021 and 2020

Total assets increased by $43.0 million to $483.4 million at December 31, 2020 from $440.4 million at December 31, 2019.

The growth in total assets was primarily comprised of increases of $80.5 million in cash and

cash equivalents, offset by decreases of $37.7 million in net loans receivable held for investment.

Total assets increased by $610.1 million to $1.1 billion at December 31, 2021, from $483.4 million at December 31, 2020.

The increase in total assets was primarily due to the Merger, which increased total assets by

$501.1 million, as well as $108.9 million in asset growth since the Merger.

Securities Available-For-Sale

As of December 31, 2021, we had $156.4 million of investment securities classified as available-for-sale, compared to $10.7 million at December 31, 2020.

The increase during 2021 was primarily due to the acquisition of

$150.0 million of securities in the Merger, $14.4 million in investment purchases since the merger, paydowns of $17.5 million, amortization of premiums and discounts of $628 thousand and decreases in market value of $532 thousand.

Loans Receivable Held for Sale

The Bank had no loans held for sale as of December 31, 2021 and 2020.

During 2020, the Bank originated $118.6 million in loans held for sale, sold $104.3 million in loans held for sale, transferred $13.7 million from

loans held for sale to loans held for investment, and received $637 thousand in loan repayments.

During 2019, the Bank originated $15.1 million in loans held for sale, sold $22.7 million in loans held for sale, transferred $1.5 million to loans held

for sale from loans held for investment, and received $115 thousand in loan repayments.

During 2021, the Bank did not originate any loans for sale, transfer loans between the held for sale and held for investment categories, or sell

any loans that were classified as held for sale.

During 2020, the Bank originated $118.6 million in loans held for sale, sold $104.3 million in loans held for sale, transferred $13.7 million from loans held for sale to loans held for investment, and

received $637 thousand in loan repayments.

Loans Receivable Held for Investment

Loans receivable held for investment, net of the allowance for loan losses, totaled $648.5 million at December 31, 2021, compared to $360.1 million at December 31, 2020.

During 2020, the Bank originated $134.3 million

in new loans, $120.8 million of which were multi-family loans, $11.9 million of which were commercial real estate loans, $1.5 million of which construction loans, and $66 thousand of which were commercial loans.

Of the multi-family loans originated

in 2020, we allocated $118.6 million, or 98%, to loans held for sale and $2.2 million, or 2%, to loans held for investment.

In addition, we transferred $13.7 million to loans held for investment from loans held for sale.

During 2019, the Bank originated $114.4 million in new loans, $103.1 million of which were multi-family loans, $9.5 million of which were commercial real estate loans, $1.7 million of which were construction loans, and

The increase of $288.4 million in loans

receivable held for investment during 2021 was primarily due to loans of $225.9 million acquired in the Merger.

Since the Merger, the Bank has originated $143.2 million of multi-family loans, $43.6 million of commercial real estate loans, $26.5

million of PPP loans, $24.9 million of construction loans and $4.9 million of other loans.

Before the Merger, the Bank originated $23.9 million of multi-family loans.

Loan repayments during 2021 totaled $202.5 million with $180.9 million having

occurred since the merger and $21.6 million having occurred prior to the Merger.

During 2020, the Bank originated $134.3 million in new loans, $120.8 million of which were multi-family loans, $11.9 million of which were commercial real estate loans, $1.5 million of which construction loans, and $66

thousand of which were commercial loans.

Of the multi-family loans originated in 2019, we allocated $87.9 million, or 85%, to loans held for investment and $15.2 million, or 15%, to loans held for sale.

In addition, we transferred net loans of

$1.5 million to loans held for sale from loans held for investment.

Broadway did not participate in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) because the Bank has not historically offered SBA loans.

Of the multi-family loans originated in 2020, we allocated $118.6 million, or 98%, to loans held for sale and $2.2 million, or 2%, to loans held for investment.

In addition, we transferred $13.7 million to

loans held for investment from loans held for sale.

Allowance for Loan Losses

As a smaller reporting company as defined by the SEC, we are not required to adopt the current expected credit losses, or CECL, accounting standard until January 1, 2023;

consequently, the Bank’s ALLL is based on

evidence available at the date of preparation of its financial statements (incurred loss method), rather than projections of future economic conditions over the life of the loans.

In determining the adequacy of the ALLL within the context of the

current uncertainties posed by the COVID-19 Pandemic and the economic environment, management has considered the historical and current performance of the Bank’s portfolio, as well as various measures of the quality and safety of the portfolio, such

as debt service coverage and loan-to-value ratios.

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the ALLL at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio.

3 unchanged sentences

policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

As of December 31, 2020, the Bank had no delinquencies, deferrals or modifications.

Our ALLL was $3.4 million or 0.52% of our gross loans receivable held for investment at December 31, 2021 compared to $3.2 million, or 0.88% of our gross loans receivable held for investment at December 31, 2020.

During the year ended December 31, 2020, we recorded a loan loss provision of $29 thousand and recorded loan loss recoveries of $4 thousand.

For the year ended December 31, 2019, we recorded a net loan loss provision recapture of $7 thousand, which

was comprised of a loan loss provision recapture of $348 thousand in the first quarter due to payoffs of non-accrual loans, offset by loan loss provisions of $47 thousand in the third quarter and $294 thousand in the fourth quarter due to growth in

the loan portfolio.

In addition, we recorded loan loss recoveries of $260 thousand during 2019.

As of December 31, 2020, we had no loan delinquencies compared to total loan delinquencies of $18 thousand at December 31, 2019.

Our non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more

past due and other loans, including troubled debt restructurings that do not qualify for accrual status.

At December 31, 2020, NPLs totaled $787 thousand compared to $424 thousand at December 31, 2019.

The increase of $363 thousand in NPLs was

primarily due to an addition of a church loan of $554 thousand to non-accrual status during the second quarter of 2020, offset by a sale of $123 thousand and repayments of $68 thousand.

ALLL as a percentage of gross loans decreased during 2021 because the loans that were acquired in the Merger are recorded at fair value without any ALLL at the acquisition date.

During the years ended December 31, 2021 and 2020, we recorded loan loss

provisions of $176 thousand and $29 thousand, respectively.

As of December 31, 2021, we had $2.4 million of total delinquent loans compared to no loan delinquencies

at December 31, 2020.

Total delinquent loans at December 31, 2021, which were all less than 90 days past due, represented 0.37% of gross loans.

Our NPLs consist of delinquent loans that are 90

days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status.

At December 31, 2021, NPLs totaled $684 thousand (or 0.10% of gross loans) compared to $787 thousand (or 0.22% of gross loans) at

December 31, 2020.

The decrease in NPLs was the result of payments received from borrowers that were applied to the outstanding principal balance.

The Bank did not have any REO at December 31, 2021 or 2020.

In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as

lack of current financial information and an insufficient period of satisfactory performance.

As of December 31, 2020, all $787 thousand of NPLs were current in their payments.

As of December 31, 2021 and 2020, all of our NPLs were current in their payments.

Also, in determining the ALLL, we evaluate the ratio of the ALLL to NPLs,

which was 495.8% at December 31, 2021 compared to 408.5% at December 31, 2020.

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

There were no loan charge‑offs during 2020 and 2019.

In determining

charge‑offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months.

If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the

loan, a charge‑off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs.

There were no loan charge‑offs during 2021 or 2020.

In determining charge‑offs,

we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months.

If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a

charge‑off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs.

Therefore, any losses inherent in our total NPLs are recognized periodically through charge‑offs.

The impact of updating

these estimates of collateral value and recognizing any required charge‑offs is to increase charge‑offs and reduce the ALLL required on these loans.

Due to prior charge‑offs and increases in collateral values, the average recorded investment in NPLs

was only 35% of estimated fair value less estimated selling costs as of December 31, 2020.

Loan loss recoveries totaled $4 thousand during 2020 and $260 thousand during 2019.

Recoveries during 2020 and 2019 primarily resulted from the payoffs of non‑accrual loans which had been previously partially charged

The impact of updating these

estimates of collateral value and recognizing any required charge‑offs is to increase charge‑offs and reduce the ALLL required on these loans.

Due to prior charge‑offs and increases in collateral values, the

average recorded investment in NPLs was only 42% of estimated fair value less estimated selling costs as of December 31, 2021.

We had no loan charge-offs or recoveries during the year ended December 31, 2021.

Loan loss recoveries totaled $4 thousand during 2020, resulting from the payoffs of non‑accrual loans which had been previously

partially charged off.

Impaired loans at December 31, 2021 were $2.3 million, compared to $4.7 million at December 31, 2020.

The decrease of $611 thousand in impaired loans was primarily due to payoffs and repayments.

Specific reserves for

impaired loans were $141 thousand or 2.98% of the aggregate impaired loan amount at December 31, 2020 compared to $147 thousand, or 2.74% of the aggregate impaired loan amount at December 31, 2019.

Excluding specific reserves for impaired loans, our

coverage ratio (general allowance as a percentage of total non‑impaired loans) was 0.85% at December 31, 2020 compared to 0.76% at December 31, 2019.

The increase in the coverage ratio during 2020 was primarily due to an increase in unallocated

reserves due to the COVID-19 Pandemic and a decrease in the loan portfolio balance.

We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of December 31, 2020, but there can be no assurance that actual losses will not exceed the estimated amounts.

the OCC and the FDIC periodically review the ALLL as an integral part of their examination process.

These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

decrease of $2.4 million in impaired loans was primarily due to payoffs and repayments.

Specific reserves for impaired loans were $7 thousand or 0.30% of the aggregate impaired loan amount at

December 31, 2021 compared to $141 thousand, or 2.98% of the aggregate impaired loan amount at December 31, 2020.

Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non‑impaired loans) was

0.52% at December 31, 2021 compared to 0.85% at December 31, 2020.

The decrease in the coverage ratio during 2021 was primarily due to an increase in non-impaired loans acquired in the Merger that did not require an ALLL at December 31, 2021.

remaining balance of loans acquired in the Merger totaled $202.7 million at December 31, 2021.

On March 27, 2020, 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

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 filing, two borrowers have requested applications, but no applications for

loan modifications have been formally submitted.

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

To date, no modifications have been granted.

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

uncertainties, there can be no assurance that actual losses will not exceed the estimated amounts.

In addition, the OCC and the FDIC periodically review the ALLL as an integral part of their examination process.

These agencies may require an

increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

Office Properties and Equipment, Net

Net office properties and equipment increased by $7.8 million to $10.3 million at December 31, 2021 from $2.5 million as of December 31, 2020.

The large increase was due to the merger, as CFBanc owned the land and

building in which it operated its headquarters and branch.

Office properties and equipment, net increased by $7.0 million as of the date of the merger.

The remaining increase after the Merger was the result of building and leasehold improvements.

Goodwill and Intangible Assets

As a result of the merger, the Company recorded $26.0 million of goodwill.

Goodwill acquired in a purchase business combination that is determined to have an indefinite useful life is not amortized, but is tested for

impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.

No impairment charges were recorded during 2021 for goodwill impairment.

Management’s assessment of goodwill is performed in accordance with ASC 350-20 – Intangibles-Goodwill and Other, which allows the Company to

perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value.

The Company performed its qualitative assessment as of November 30, 2021.

relatively short amount of time that has passed between the acquisition date, the fact that the combined Company is realizing the intended benefits of the Merger (i.e.

lower cost of funds, increased ability to lend, etc.), and the Company’s stock

price post-acquisition, no impairment charges were recorded during 2021 for goodwill

The Company recorded $3.3 million of core deposit intangible asset as a result of the merger.

The core deposit intangible asset is amortized on an accelerated basis reflecting the pattern in which the economic benefits

of the intangible asset are consumed or otherwise used up.

The estimated life of the core deposit intangible is approximately 10 years.

During the year ended December 31, 2021, the Company recorded $393 thousand of amortization expense related to the

core deposit intangible asset.

The following table outlines the estimated amortization expense related to the core deposit intangible asset during the next five fiscal years and thereafter:

(In thousands)

Total Liabilities

Total liabilities increased by $517.9 million to $952.4 million at December 31, 2021 from $434.5 million at December 31, 2020.

The increase in total liabilities was primarily comprised of increases of $26.5 million in

FHLB advances and $17.9 million in deposits, offset by a decrease of $1.0 million in junior subordinated debentures.

Deposits increased by $17.9 million to $315.6 million at December 31, 2020 from $297.7 million at December 31, 2019, which consisted of an increase of $79.4 million in liquid deposits and a decrease of $61.5 million in

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

We expect to maintain this relationship with the customer for the foreseeable future.

Total borrowings at December 31, 2020 consisted of advances to the Bank from the FHLB of $110.5 million, and junior subordinated debentures issued by the Company of $3.3 million, compared to advances from the FHLB of

$84.0 million and junior subordinated debentures of $4.3 million at December 31, 2019.

During 2020, the Bank paid off $33.5 million in maturing FHLB advances, borrowed $60.0 million in new advances from the FHLB and repaid $1.0 million of its junior

subordinated debentures.

The weighted average cost of FHLB advances decreased by 48 basis points to 1.94% at December 31, 2020 from 2.42% at December 31, 2019 primarily due to lower interest rates.

The increase in total liabilities was primarily comprised of increases of $472.4 million

in deposits and $66.0 million in other borrowings, offset by decreases in FHLB advances and junior subordinated debentures of $24.5 million and $3.3 million, respectively.

Deposits at December 31, 2021 were $788.1 million compared to $315.6 million at December 31, 2020.

The increase in deposits of $472.4 million was due to deposits of $353.7 million assumed in the Merger and additional

growth in deposits of $122.0 million since the Merger, primarily in money market and demand deposit accounts.

Five customer relationships accounted for approximately 22% of our deposit balances at December 31, 2021.

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

Total borrowings at December 31, 2021 consisted of advances to the Bank from the FHLB of $86.0 million, repurchase agreements of $52.0 million, and borrowings associated with our Qualified Active Low-Income Business

lending activities of $14.0 million, compared to advances from the FHLB of $110.5 million and junior subordinated debentures of $3.3 million at December 31, 2020.

Balances of outstanding FHLB advances decreased to $86.0 million at December 31, 2021, from $110.5 million at December 31, 2020, due to the payoff of $27.7 million in advances that matured during the year, which

payoffs were partially offset by $3.2 million in advances assumed in the Merger (net of payments).

The weighted average rate on FHLB advances was 1.85% at December 31, 2021, compared to 1.94% at December 31, 2020.

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.

Two customer relationships accounted for 84% of our balance of securities sold under agreements to repurchase .

We expect to maintain these relationships for the foreseeable future.

In connection with the New Market Tax Credit activities of City First Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.

This CDE acts in effect as a pass-through for a

Merrill Lynch allocation totaling $14.0 million that needed to be deployed.

In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a QALICB.

The loan to the QALICB is secured by a

Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45.

Debt service payments received by CFC 45 from the QALICB are passed through to Merrill

Lynch in return for which CFC 45 receives a servicing fee.

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

On September 17, 2021, the Company fully redeemed its Floating Rate Junior Subordinated Debentures.

Stockholders’ Equity

Stockholders’ equity was $141.0 million, or 12.89% of the Company’s total assets, at December 31, 2021, compared to $48.9 million, or 10.11% of the Company’s total assets, at December 31, 2020.

The Company’s book value

was $1.74 per share as of December 31, 2020, compared to $1.75 per share as of December 31, 2019.

The Company issued

$63.3 million in common stock at a price per share of $2.49 and $3.0 million in preferred stock in connection with the Merger.

In addition, the Company raised $30.8 million in net proceeds (after costs of $2.0 million) from the sale of 18,474,000

shares of common stock in private placements at a price of $1.78 per share immediately following the Merger on April 6, 2021.

The Company’s book value per common share was $1.92 at December 31, 2021, and its tangible book value per common share was $1.52 at December 31, 2021.

Tangible book value per common share is a non-GAAP measurement

that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the Merger.

The Company uses this non-GAAP financial measure to provide meaningful supplemental information

regarding the Company’s financial condition and operational performance.

A reconciliation between book value and tangible book value per common share is shown as follows:

Common Equity

(dollars in thousands)

Common book value

Net unamortized core deposit intangible

Tangible book value:

Capital Resources

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

Failure to comply with such capital requirements may result in significant

limitations on its business or other sanctions.

Our principal subsidiary, City First, must comply with capital standards established by the OCC in the conduct of its business.

Failure to comply with such capital requirements may result in significant limitations on

its business or other sanctions.

As a “small bank holding company”, we are not subject to consolidated capital requirements under the new Basel III capital rules.

The current regulatory capital requirements and possible consequences of

failure to maintain compliance are described in Part I, Item 1 “Business‑Regulation” and in Note 15 of the Notes to Consolidated Financial Statements.

The current regulatory capital requirements and possible consequences of failure to

maintain compliance are described in Part I, Item 1 “Business‑Regulation” and in Note 19 of the Notes to Consolidated Financial Statements.

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis.

The Bank’s sources of funds include deposits,

advances from the FHLB, other borrowings, proceeds from the sale of loans, REO, and investment securities, and payments of principal and interest on loans and investment securities.

The Bank is currently approved by the FHLB to borrow up to 40% of

total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.

The approved limit and collateral requirement would have permitted the Bank to borrow an additional $40.3 million at December 31, 2020.

advances from the FHLB, other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities.

The Bank is currently approved by the FHLB of Atlanta to borrow up to 25%

of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.

This approved limit and collateral requirement would have permitted the Bank to borrow an additional $14.4 million at December 31, 2021 based on

pledged collateral.

In addition, the Bank had additional lines of credit of $11.0 million with other financial institutions as of that date.

The Bank’s primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating expenses.

1 unchanged sentence

funds than required for reserve requirements or short‑term liquidity needs, the Bank invests excess cash with the Federal Reserve Bank or other financial institutions.

The Bank’s liquid assets at December 31, 2020 consisted of $96.1 million in cash

and cash equivalents and $10.7 million in securities available‑for‑sale that were not pledged, compared to $15.6 million in cash and cash equivalents and $11.0 million in securities available‑for‑sale that were not pledged at December 31, 2019.

believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

The Company’s liquidity, separate from the Bank, is based primarily on proceeds from financing transactions, including the private placements completed in August 2013, October 2014, December 2016 and the private

placements expected to be completed shortly after the closing of the City First Merger, as well as dividends received from the Bank in 2017, 2018, 2019 and 2020.

The Bank is currently under no prohibition to pay dividends but is subject to

restrictions as to the amount of the dividends it can pay based on normal regulatory guidelines.

The Company recorded consolidated net cash outflows from operating activities of $13.6 million during the year ended December 31, 2020 and net cash inflows from operating activities of $8.5 million during the year

The Bank’s liquid assets at December 31, 2021 consisted of $231.5 million in cash and cash equivalents and $52.4 million in securities available‑for‑sale that were not pledged, compared to $96.1 million in cash and cash equivalents and $10.7 million in securities available‑for‑sale that

were not pledged at December 31, 2020.

We believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed in December 2016, and April 2021 and dividends received from the

Bank in 2020 and 2021.

The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

The Company recorded consolidated net cash inflows from operating activities of $565 thousand during the year ended December 31, 2021 and net cash outflows from operating activities of $13.6 million during the year

ended December 31, 2020.

Net cash outflows from operating activities during 2020 were primarily attributable to originations of loans receivable held for sale of $118.6 million offset by proceeds from sales and repayments of loans receivable held for

sale of $105.2 million.

Net cash inflows from operating activities during 2019 were primarily attributable to proceeds from sales and repayments of loans receivable held for sale of $23.1 million, offset by originations of loans receivable held for

sale of $15.2 million.

The Company recorded consolidated net cash inflows from investing activities of $50.7 million during the year ended December 31, 2020 and net cash outflows from investing activities of $39.1 million during the year

Net cash inflows from operating activities during 2021 were primarily attributable to an increase in accrued expenses and other liabilities.

Net cash outflows from operating activities during 2020 were primarily attributable

to originations of loans receivable held for sale of $118.6 million offset by proceeds from sales and repayments of loans receivable held for sale of $105.2 million.

The Company recorded consolidated net cash inflows from investing activities of $25.0 million during the year ended December 31, 2021 and net cash inflows from investing activities of $50.7 million during the year

ended December 31, 2020.

Net cash inflows from investing activities during 2021 were primarily attributable to $84.7 million of cash acquired in the Merger offset by net loan originations of $62.4 million and purchases of available for sale

securities of $16.5 million.

Net cash inflows from investing activities during 2020 were primarily attributable to a net decrease in loans receivable held for investment of $51.1 million and principal repayments on available-for-sale securities of

$2.5 million, offset by purchases of available-for-sale municipal bonds of $2.0 million and purchase of FHLB stock of $742 thousand.

Net cash outflows from investing activities during 2019 were primarily attributable to a net increase in loans receivable

held for investment of $44.0 million, offset by principal repayments on available‑for‑sale securities of $4.1 million and proceeds from the sale of REO of $820 thousand.

The Company recorded consolidated net cash inflows from financing activities of $43.4 million and $29.5 million during the year ended December 31, 2020 and 2019, respectively.

The Company recorded consolidated net cash inflows from financing activities of $109.8 million and $43.4 million during the years ended December 31, 2021 and 2020, respectively.

Net cash inflows from financing

activities during 2020 were primarily attributable to an increase in proceeds from FHLB advances of $60.0 million and a net inflow of deposits of $17.9 million, offset by repayments of FHLB advances of $33.5 million and repayments of junior

subordinated debentures of $1.0 million.

Net cash inflows from financing activities during 2019 were primarily attributable to an increase in proceeds from FHLB advances of $22.0 million and an increase in deposits of $16.3 million, offset by

repayments of FHLB advances of $8.0 million and repayments of junior subordinated debentures of $765 thousand.

activities during 2021 were primarily attributable to a net inflow of deposits of $118.7 million and net proceeds of $30.8 million from the issuance of common stock, offset by net repayments of FHLB advances of $27.7 million, repayments of securities

sold under agreements to repurchase of $8.0 million, and repayments of junior subordinated debentures of $3.3 million.

Net cash inflows from financing activities during 2020 were primarily attributable to an increase in proceeds from FHLB advances

of $60.0 million and a net inflow of deposits of $17.9 million, offset by repayments of FHLB advances of $33.5 million and repayments of junior subordinated debentures of $1.0 million.

Off‑Balance‑Sheet Arrangements and Contractual Obligations

20 unchanged sentences

FHLB advances

Junior subordinated debentures

Commitments to originate loans

Commitments to fund construction loans

Commitments to fund unused lines of credit

10 unchanged sentences

price of goods and services.

As a result, the Bank’s performance is influenced by general economic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies.

Federal Reserve implements national monetary policies (such as seeking to curb inflation and combat recession) by its open-market operations in U.S.

government securities, by adjusting the required level of reserves for financial institutions subject

to its reserve requirements, and by varying the discount rate applicable to borrowings by banks from the Federal Reserve Banks.

The actions of the Federal Reserve in these areas can influence the growth of loans, investments, and deposits, and also

affect interest rates charged on loans, and deposits.

The nature and impact of any future changes in monetary policies cannot be predicted.

Critical Accounting Policies

2 unchanged sentences

All accounting policies are important, however, and therefore you are encouraged to review each of the policies included in Note 1 “Summary of Significant

Accounting Principles” of the Notes to Consolidated Financial Statements beginning at page F‑6 to gain a better understanding of how our financial performance is measured and reported.

Management has identified the Company’s critical accounting

policies as follows:

Accounting Principles” of the Notes to Consolidated Financial Statements to gain a better understanding of how our financial performance is measured and reported.

Management has identified the Company’s critical accounting policies as follows:

Allowance for Loan Losses

2 unchanged sentences

The allowance is evaluated on a regular basis by management and the Board of Directors and is based on a periodic review of the

collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, prevailing economic conditions

and feedback from regulatory examinations.

conditions, and feedback from regulatory examinations.

See Item 1, “Business – Asset Quality – Allowance for Loan Losses” for a full discussion of the allowance for loan losses.

Business Combinations

Business combinations are accounted for using the acquisition accounting method.

Under the acquisition method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and

liabilities assumed in a business combination at fair value on the acquisition date.

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the

acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Changes to the acquisition date fair values of assets acquired and liabilities assumed may be made as adjustments to goodwill over a 12-month

measurement period following the date of acquisition.

Such adjustments are attributable to additional information obtained related to fair value estimates of the assets acquired and liabilities assumed.

Acquired Loans

Acquired loans that are not considered to be purchased credit impaired (“PCI”) loans are recognized at fair value at the acquisition date, with the resulting credit and non-credit discount or premium being amortized or

accreted into interest income using the level yield method.

Acquired loans that in management’s judgement have shown evidence of deterioration in credit quality since origination are classified as PCI loans.

Factors that indicate a loan may have

shown evidence of credit deterioration include delinquency, downgrades in credit rating, non-accrual status, and other negative factors identified by management at the time of initial assessment.

The Company estimates the amount and timing of

expected cash flows for each PCI loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan’s contractual principal and

interest over expected cash flows is not recorded (non-accretable difference).

Over the life of the PCI loan, expected cash flows continue to be estimated each quarter.

If the present value of expected cash flows decreases from the prior estimate, a

provision for loan losses is recorded and an allowance for loan losses is established.

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

The estimates used to determine the fair values of non-PCI and PCI acquired loans can be complex and require significant judgment regarding items such as default rates, timing and amount of future cash flows,

prepayment rates and other factors.

Goodwill and Intangible Assets

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if

events and circumstances exist that indicate the necessity for such impairment tests to be performed.

The Company has selected November 30th as the date to perform the annual impairment test.

Intangible assets with definite useful lives are amortized

over their estimated useful lives to their estimated residual values.

Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated statement of financial condition.

Deferred tax assets and liabilities are determined using the liability (or balance sheet) method.

7 unchanged sentences

is updated quarterly.

Based on this analysis, we determined that no valuation allowance was required on our deferred tax assets, which totaled $5.6 million and $5.2 million at December 31, 2020 and 2019, respectively.

See Note 13 “Income Taxes” of

the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.”

See Note 17 “Income Taxes” of the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.”

Fair Value Measurements

16 unchanged sentences

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 7. Management’s Discussion and Analysis