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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2021

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

For transition period from__________ to___________
Commission file number 001-39043
BROADWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

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

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

(323) 634-1700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company | ☒
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 12, 2021, 43,674,026 shares of the Registrant’s Class A voting common stock, 11,404,618 shares of the Registrant’s Class B non-voting common stock and 16,689,775 shares of the Registrant’s Class C non-voting common stock were outstanding.

TABLE OF CONTENTS
|  | Page
PART I. | FINANCIAL STATEMENTS | (to be updated)
| Item 1. | Consolidated Financial Statements (Unaudited) |
|  | Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020 | 1
|  | Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 | 2
|  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 | 3
|  | Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 | 4
|  | Notes to Consolidated Financial Statements | 6
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42
| Item 4. | Controls and Procedures | 42
PART II. | OTHER INFORMATION |
| Item 1. | Legal Proceedings | 44
| Item 1A. | Risk Factors | 44
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44
| Item 3. | Defaults Upon Senior Securities | 44
| Item 4. | Mine Safety Disclosures | 44
| Item 5. | Other Information | 44
| Item 6. | Exhibits | 44
| Signatures | 45

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

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | (Unaudited) |  |  |  |
Assets: |  |  |  |  |  |
Cash and due from banks |  | $ | 39,705 |  |  | $ | 71,110 |
Interest-bearing deposits in other banks |  |  | 168,982 |  |  |  | 24,999 |
Cash and cash equivalents |  |  | 208,687 |  |  |  | 96,109 |
Securities available-for-sale, at fair value |  |  | 157,628 |  |  |  | 10,698 |
Loans receivable held for investment, net of allowance of $3,661 and $3,215 |  |  | 642,198 |  |  |  | 360,129 |
Accrued interest receivable |  |  | 2,565 |  |  |  | 1,202 |
Federal Home Loan Bank (“FHLB”) stock |  |  | 2,708 |  |  |  | 3,431 |
Federal Reserve Bank (FRB) stock |  |  | 693 |  |  |  | - |
Office properties and equipment, net |  |  | 9,221 |  |  |  | 2,540 |
Bank owned life insurance |  |  | 3,179 |  |  |  | 3,147 |
Deferred tax assets, net |  |  | 5,645 |  |  |  | 5,633 |
Core deposit intangible, net |  |  | 3,067 |  |  |  | - |
Goodwill |  |  | 25,996 |  |  |  | - |
Other assets |  |  | 1,974 |  |  |  | 489 |
Total assets |  | $ | 1,063,561 |  |  | $ | 483,378 |
Liabilities and stockholders’ equity |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |
Deposits |  | $ | 749,645 |  |  | $ | 315,630 |
Securities sold under agreements to repurchase |  |  | 52,876 |  |  |  | - |
FHLB advances |  |  | 91,070 |  |  |  | 110,500 |
Junior subordinated debentures |  |  | - |  |  |  | 3,315 |
Notes payable |  |  | 14,000 |  |  |  | - |
Accrued expenses and other liabilities |  |  | 12,591 |  |  |  | 5,048 |
Total liabilities |  |  | 920,182 |  |  |  | 434,493 |
Cumulative Redeemable Perpetual Preferred stock, Series A, authorized 3,000 shares at September 30, 2021 and none at December 31, 2020; issued and outstanding 3,000 shares at September 30, 2021 and none at December 31, 2020, liquidation value $1,000 per share |  |  | 3,000 |  |  |  | - |
Common stock, Class A, $0.01 par value, voting, authorized 75,000,000 shares at September 30, 2021 and 50,000,000 shares at December 31, 2020; issued 46,291,852 shares at September 30, 2021 and 21,899,584 shares at December 31, 2020; outstanding 43,674,026 shares at September 30, 2021 and 19,281,758 shares at December 31, 2020 |  |  | 463 |  |  |  | 219 |
Common stock, Class B, $0.01 par value, non-voting, authorized 15,000,000 shares at September 30, 2021 and none at December 31, 2020; issued and outstanding 11,404,618 shares at September 30, 2021 and none at December 31, 2020 |  |  | 114 |  |  |  | - |
Common stock, Class C, $0.01 par value, non-voting, authorized 25,000,000 shares at September 30, 2021 and December 31, 2020; issued and outstanding 16,689,775 at September 30, 2021 and 8,756,396 shares at December 31, 2020 |  |  | 167 |  |  |  | 87 |
Additional paid-in capital |  |  | 140,275 |  |  |  | 46,851 |
Retained earnings |  |  | 5,149 |  |  |  | 7,783 |
Unearned Employee Stock Ownership Plan (ESOP) shares |  |  | (844 | ) |  |  | (893 | )
Accumulated other comprehensive income, net of tax |  |  | 325 |  |  |  | 164 |
Treasury stock-at cost, 2,617,826 shares at September 30, 2021 and at December 31, 2020 |  |  | (5,326 | ) |  |  | (5,326 | )
Total Broadway Financial Corporation and Subsidiary stockholders’ equity |  |  | 143,323 |  |  |  | 48,885 |
Non-controlling interes t |  |  | 56 |  |  |  | - |
Total liabilities and stockholders’ equity |  | $ | 1,063,561 |  |  | $ | 483,378 |

See accompanying notes to unaudited consolidated financial statements.
1

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

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
|  | (In thousands, except per share) |
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans receivable |  | $ | 6,296 |  |  | $ | 4,438 |  |  | $ | 16,240 |  |  | $ | 13,226 |
Interest on available for sale securities |  |  | 457 |  |  |  | 59 |  |  |  | 953 |  |  |  | 194 |
Other interest income |  |  | 156 |  |  |  | 77 |  |  |  | 377 |  |  |  | 293 |
Total interest income |  |  | 6,909 |  |  |  | 4,574 |  |  |  | 17,570 |  |  |  | 13,713 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on deposits |  |  | 446 |  |  |  | 631 |  |  |  | 1,306 |  |  |  | 2,653 |
Interest on borrowings |  |  | 472 |  |  |  | 566 |  |  |  | 1,607 |  |  |  | 1,754 |
Total interest expense |  |  | 918 |  |  |  | 1,197 |  |  |  | 2,913 |  |  |  | 4,407 |
Net interest income |  |  | 5,991 |  |  |  | 3,377 |  |  |  | 14,657 |  |  |  | 9,306 |
Loan loss provision |  |  | 365 |  |  |  | - |  |  |  | 446 |  |  |  | 29 |
Net interest income after loan loss provision |  |  | 5,626 |  |  |  | 3,377 |  |  |  | 14,211 |  |  |  | 9,277 |
Non-interest income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges |  |  | 76 |  |  |  | 93 |  |  |  | 205 |  |  |  | 331 |
Gain on sale of loans |  |  | - |  |  |  | 76 |  |  |  | - |  |  |  | 199 |
CDFI Grant |  |  | 217 |  |  |  | - |  |  |  | 2,043 |  |  |  | - |
Other |  |  | 316 |  |  |  | 37 |  |  |  | 676 |  |  |  | 115 |
Total non-interest income |  |  | 609 |  |  |  | 206 |  |  |  | 2,924 |  |  |  | 645 |
Non-interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation and benefits |  |  | 3,334 |  |  |  | 1,909 |  |  |  | 11,543 |  |  |  | 5,947 |
Occupancy expense |  |  | 392 |  |  |  | 332 |  |  |  | 1,327 |  |  |  | 967 |
Information services |  |  | 787 |  |  |  | 242 |  |  |  | 1,594 |  |  |  | 700 |
Professional services |  |  | 616 |  |  |  | 840 |  |  |  | 3,068 |  |  |  | 1,675 |
Supervisory costs |  |  | 139 |  |  |  | - |  |  |  | 386 |  |  |  | - |
Office services and supplies |  |  | 65 |  |  |  | 97 |  |  |  | 219 |  |  |  | 260 |
Corporate insurance |  |  | 47 |  |  |  | 30 |  |  |  | 301 |  |  |  | 94 |
Amortization of core deposit intangible |  |  | 131 |  |  |  | - |  |  |  | 262 |  |  |  | - |
Other |  |  | 467 |  |  |  | 282 |  |  |  | 1,279 |  |  |  | 640 |
Total non-interest expense |  |  | 5,978 |  |  |  | 3,732 |  |  |  | 19,979 |  |  |  | 10,283 |
Income (loss) before income taxes |  |  | 257 |  |  |  | (149 | ) |  |  | (2,844 | ) |  |  | (361 | )
Income tax expense (benefit) |  |  | 51 |  |  |  | 95 |  |  |  | (297 | ) |  |  | (300 | )
Net income (loss) |  | $ | 206 |  |  | $ | (244 | ) |  | $ | (2,547 | ) |  | $ | (61 | )
Less: Net income attributable to non-controlling interest |  |  | 24 |  |  |  | - |  |  |  | 57 |  |  |  | - |
Net Income (loss) Attributable to Broadway Financial Corporation |  | $ | 182 |  |  | $ | (244 | ) |  | $ | (2,604 | ) |  | $ | (61 | )
Other comprehensive (loss) income, net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized (loss) gain on securities available-for-sale arising during the period |  | $ | (640 | ) |  | $ | (40 | ) |  | $ | 224 |  |  | $ | 290 |
Income tax (benefit) expense |  |  | (180 | ) |  |  | (12 | ) |  |  | 63 |  |  |  | 86 |
Other comprehensive (loss) income, net of tax |  |  | (460 | ) |  |  | (28 | ) |  |  | 161 |  |  |  | 204 |
Comprehensive (loss) income |  | $ | (278 | ) |  | $ | (272 | ) |  | $ | (2,443 | ) |  | $ | 143 |
Earnings (loss) per common share-basic |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |
Earnings (loss) per common share-diluted |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |

See accompanying notes to unaudited consolidated financial statements.
2

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

|  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |
|  | (In thousands) |
Cash flows from operating activities: |  |  |  |  |  |
Net loss |  | $ | (2,547 | ) |  | $ | (61 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Loan loss provision |  |  | 446 |  |  |  | 29 |
Depreciation |  |  | 198 |  |  |  | 170 |
Net amortization of deferred loan origination costs |  |  | 457 |  |  |  | 183 |
Net amortization of premiums on available for sale securities |  |  | 705 |  |  |  | 30 |
Amortization of investment in affordable housing limited partnership |  |  | 39 |  |  |  | 79 |
Amortization of core deposit intangible |  |  | 262 |  |  |  | - |
Director compensation expense-common stock |  |  | 45 |  |  |  | 45 |
Accretion of premium on FHLB advances |  |  | (26 | ) |  |  | - |
Stock-based compensation expense |  |  | 369 |  |  |  | 279 |
Write down of deferred tax asset |  |  | 370 |  |  |  | - |
ESOP compensation expense |  |  | 81 |  |  |  | 50 |
Earnings on bank owned life insurance |  |  | (32 | ) |  |  | (35 | )
Originations of loans receivable held for sale |  |  | - |  |  |  | (118,626 | )
Proceeds from sales of loans receivable held for sale |  |  | - |  |  |  | 77,642 |
Repayments on loans receivable held for sale |  |  | - |  |  |  | 530 |
Gain on sale of loans receivable held for sale |  |  | - |  |  |  | (199 | )
Change in assets and liabilities: |  |  |  |  |  |  |  |
Net change in deferred taxes |  |  | (1,162 | ) |  |  | (175 | )
Net change in accrued interest receivable |  |  | 274 |  |  |  | (102 | )
Net change in other assets |  |  | 765 |  |  |  | 15 |
Net change in advance payments by borrowers for taxes and insurance |  |  | 310 |  |  |  | 508 |
Net change in accrued expenses and other liabilities |  |  | 3,359 |  |  |  | (125 | )
Net cash provided by (used in) operating activities |  |  | 3,913 |  |  |  | (39,763 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Cash acquired in merger |  |  | 84,745 |  |  |  | - |
Net change in loans receivable held for investment |  |  | (57,087 | ) |  |  | 35,843 |
Principal payments on available-for-sale securities |  |  | 12,662 |  |  |  | 1,744 |
Purchase of available-for-sale securities |  |  | (10,098 | ) |  |  | (850 | )
Purchase of FHLB stock |  |  | (152 | ) |  |  | (670 | )
Proceeds from redemption of FHLB stock |  |  | 1,243 |  |  |  | - |
Purchase of office properties and equipment |  |  | (119 | ) |  |  | (501 | )
Proceeds from disposals of office property and equipment |  |  | 3 |  |  |  | - |
Net cash provided by investing activities |  |  | 31,197 |  |  |  | 35,566 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Net change in deposits |  |  | 80,294 |  |  |  | 27,612 |
Net increase in securities sold under agreements to repurchase |  |  | (7,069 | ) |  |  | - |
Proceeds from sale of stock (net of costs) |  |  | 30,837 |  |  |  | - |
Distributions to non-controlling interest |  |  | (165 | ) |  |  | - |
Dividends paid on preferred stock |  |  | (30 | ) |  |  | - |
Proceeds from FHLB advances |  |  | 5,000 |  |  |  | 66,000 |
Repayments of FHLB advances |  |  | (27,570 | ) |  |  | (34,500 | )
Stock cancelled for income tax withholding |  |  | (514 | ) |  |  | - |
Repayments of junior subordinated debentures |  |  | (3,315 | ) |  |  | (765 | )
Net cash provided by financing activities |  |  | 77,468 |  |  |  | 58,347 |
Net change in cash and cash equivalents |  |  | 112,578 |  |  |  | 54,150 |
Cash and cash equivalents at beginning of the period |  |  | 96,109 |  |  |  | 15,566 |
Cash and cash equivalents at end of the period |  | $ | 208,687 |  |  | $ | 69,716 |
Supplemental disclosures of cash flow information: |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 2,424 |  |  | $ | 4,530 |
Cash paid for income taxes |  |  | 454 |  |  |  | 8 |
Assets acquired (liabilities assumed) in acquisition: |  |  |  |  |  |  |  |
Securities available for sale, at fair value |  | $ | 149,975 |  |  | $ | - |
Loans receivable |  |  | 225,885 |  |  |  | - |
Accrued interest receivable |  |  | 1,637 |  |  |  | - |
FHLB and FRB stock |  |  | 1,061 |  |  |  | - |
Office property and equipment |  |  | 6,953 |  |  |  | - |
Goodwill |  |  | 25,966 |  |  |  | - |
Core deposit intangible |  |  | 3,329 |  |  |  | - |
Other assets |  |  | 2,290 |  |  |  | - |
Deposits |  |  | (353,722 | ) |  |  | - |
FHLB advances |  |  | (3,166 | ) |  |  | - |
Securities sold under agreements to repurchase |  |  | (59,945 | ) |  |  | - |
Other borrowings |  |  | (14,000 | ) |  |  | - |
Deferred taxes |  |  | (717 | ) |  |  | - |
Accrued expenses and other liabilities |  |  | (4,063 | ) |  |  | - |
Preferred stock |  |  | (3,000 | ) |  |  | - |
Common stock |  |  | (63,257 | ) |  |  | - |

See accompanying notes to unaudited consolidated financial statements.
3

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

|  |  |  |  | Three-Month Period Ended September 30, 2021 and 2020 |  |  |  |  |  |  |  |  |  |
|  | Preferred Stock Non-Voting |  |  | Common Stock Voting |  |  | Common Stock Non-Voting |  |  | Additional Paid‑in Capital |  |  | Accumulated Other Comprehensive Income |  |  | Retained Earnings (Substantially Restricted) |  |  | Unearned ESOP Shares |  |  | Treasury Stock |  |  | Non-controlling Interest |  |  | Total Stockholders’ Equity |
|  |  |  |  |  |  |  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2021 |  | $ | 3000 |  |  | $ | 462 |  |  | $ | 281 |  |  | $ | 140,125 |  |  | $ | 785 |  |  | $ | 4,997 |  |  | $ | (861 | ) |  | $ | (5,326 | ) |  | $ | 32 |  |  | $ | 143,495 |
Net income for the three months ended September 30, 2021 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 182 |  |  |  | - |  |  |  | - |  |  |  | 24 |  |  |  | 206 |
Release of unearned ESOP shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | - |  |  |  | - |  |  |  | 34 |
Dividends paid on preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | )
Common stock cancelled for payment of tax withholdings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (66 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (66 | )
Restricted stock compensation expense |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 199 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 200 |
Other comprehensive loss, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (460 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (460 | )
Balance at September 30, 2021 |  | $ | 3,000 |  |  | $ | 463 |  |  | $ | 281 |  |  | $ | 140,275 |  |  | $ | 325 |  |  | $ | 5,149 |  |  | $ | (844 | ) |  | $ | (5,326 | ) |  | $ | 56 |  |  | $ | 143,379 |
Balance at June 30, 2020 |  | $ | - |  |  | $ | 219 |  |  | $ | 87 |  |  | $ | 46,650 |  |  | $ | 209 |  |  | $ | 8,608 |  |  | $ | (927 | ) |  | $ | (5,326 | ) |  | $ | - |  |  | $ | 49,520 |
Net loss for the three months ended September 30, 2020 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (244 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (244 | )
Release of unearned ESOP shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 18 |  |  |  | - |  |  |  | - |  |  |  | 18 |
Restricted stock Compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 90 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 90 |
Stock option compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10 |
Other comprehensive loss, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (28 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (28 | )
Balance at September 30, 2020 |  | $ | - |  |  | $ | 219 |  |  | $ | 87 |  |  | $ | 46,750 |  |  | $ | 181 |  |  | $ | 8,364 |  |  | $ | (909 | ) |  | $ | (5,326 | ) |  | $ | - |  |  | $ | 49,366 |

See accompanying notes to unaudited consolidated financial statements.
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|  |  |  |  | Nine-Month Period Ended September 30, 2021 and 2020 |  |  |  |  |  |  |  |  |  |
|  | Preferred Stock Non-Voting |  |  | Common Stock Voting |  |  | Common Stock Non-Voting |  |  | Additional Paid‑in Capital |  |  | Accumulated Other Comprehensive Income |  |  | Retained Earnings (Substantially Restricted) |  |  | Unearned ESOP Shares |  |  | Treasury Stock |  |  | Non-controlling interest |  |  | Total Stockholders’ Equity |
|  |  |  |  |  |  |  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2020 |  | $ | - |  |  | $ | 219 |  |  | $ | 87 |  |  | $ | 46,851 |  |  | $ | 164 |  |  | $ | 7,783 |  |  | $ | (893 | ) |  | $ | (5,326 | ) |  | $ | - |  |  | $ | 48,885 |
Net (loss) income for the nine months ended September 30, 2021 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,604 | ) |  |  | - |  |  |  | - |  |  |  | 57 |  |  |  | (2,547 | )
Preferred shares issued in business combination |  |  | 3,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,000 |
Dividends paid on preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | )
Common shares issued in business combination |  |  | - |  |  |  | 140 |  |  |  | 114 |  |  |  | 62,839 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 164 |  |  |  | 63,257 |
Shares transferred from voting to non-voting after business combination |  |  | - |  |  |  | (7 | ) |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Common shares issued in private placement |  |  | - |  |  |  | 112 |  |  |  | 73 |  |  |  | 30,652 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 30,837 |
Release of unearned ESOP shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 32 |  |  |  | - |  |  |  | - |  |  |  | 49 |  |  |  | - |  |  |  | - |  |  |  | 81 |
Restricted stock compensation expense |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 361 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 362 |
Stock awarded to directors |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 45 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 45 |
Stock option compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7 |
Common stock cancelled for payment of tax withholdings |  |  | - |  |  |  | (2 | ) |  |  | - |  |  |  | (512 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (514 | )
Payment to non-controlling interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (165 | ) |  |  | (165 | )
Other comprehensive income, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 161 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 161 |
Balance at September 30, 2021 |  | $ | 3,000 |  |  | $ | 463 |  |  | $ | 281 |  |  | $ | 140,275 |  |  | $ | 325 |  |  | $ | 5,149 |  |  | $ | (844 | ) |  | $ | (5,326 | ) |  | $ | 56 |  |  | $ | 143,379 |
Balance at December 31, 2019 |  | $ | - |  |  | $ | 218 |  |  | $ | 87 |  |  | $ | 46,426 |  |  | $ | (23 | ) |  | $ | 8,425 |  |  | $ | (959 | ) |  | $ | (5,326 | ) |  | $ | - |  |  | $ | 48,848 |
Net loss for the nine months ended September 30, 2020 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (61 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (61 | )
Release of unearned ESOP shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 50 |  |  |  | - |  |  |  | - |  |  |  | 50 |
Restricted stock compensation expense |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 250 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 251 |
Stock awarded to directors |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 45 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 45 |
Stock option compensation expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 29 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 29 |
Other comprehensive loss, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 204 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 204 |
Balance at September 30, 2020 |  | $ | - |  |  | $ | 219 |  |  | $ | 87 |  |  | $ | 46,750 |  |  | $ | 181 |  |  | $ | 8,364 |  |  | $ | (909 | ) |  | $ | (5,326 | ) |  | $ | - |  |  | $ | 49,366 |

See accompanying notes to unaudited consolidated financial statements.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

NOTE (1) – Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, City First Bank, National Association (the “Bank” and, together with the Company, “City First Broadway”). Also included in the unaudited consolidated financial statements are the following subsidiaries of City First Bank: 1432 U Street LLC, Broadway Service Corporation, City First Real Estate LLC, City First Real Estate II LLC, City First Real Estate III LLC, City First Real Estate IV LLC, and CF New Markets Advisors, LLC (“CFNMA”). In addition, CFNMA also consolidates CFC Fund Manager II, LLC; City First New Markets Fund II, LLC; City First Capital IX, LLC; and City First Capital 45, LLC (“CFC 45”) into its financial results. The results of Broadway Service Corporation, a wholly owned subsidiary of the Bank, are also included in the unaudited consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q. These unaudited consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) and, accordingly, should be read in conjunction with such audited consolidated financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Subsequent events have been evaluated through November 15, 2021, which is the date these financial statements were issued.
Except as discussed below, our accounting policies are described in Note 1 – Summary of Significant Accounting Policies of our audited consolidated financial statements included in (the “2020 Form 10-K”).
Purchased Credit Impaired Loans
As part our recent merger, see Note 2 – Business Combination, the Company acquired certain loans that have shown evidence of credit deterioration since origination; these loans are referred to as purchased credit impaired loans (“PCI loans”). These PCI loans are recorded at their fair value at acquisition, such that there is no carryover of the seller’s allowance for loan losses. Such PCI loans are accounted for individually. The Company estimates the amount and timing of expected cash flows for each PCI loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the PCI loan, expected cash flows continue to be estimated each quarter. If the present value of expected cash flows decreases from the prior estimate, a provision for loan losses is recorded and an allowance for loan losses is established. If the present value of expected cash flows increases from the prior estimate, the increase is recognized as part of future interest income. If the timing and amount of cash flows is uncertain, then cash payments received will be recognized as a reduction of the recorded investment.
Business Combinations
Business combinations are accounted for using the acquisition accounting method. Under the purchase accounting method, the Company measures the identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination at fair value on the acquisition date. Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. See Note 2 - Business Combination and Note 7 - Goodwill and Intangible Assets for further information.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has selected November 30th as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated statement of financial condition.
Core deposit intangible assets arising from mergers and acquisitions are amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.
Variable Interest Entities (“VIE”)
An entity is considered to be a VIE when it does not have sufficient equity investment at risk, the equity investors as a group lack the characteristics of a controlling financial interest, or the entity is structured with disproportionate voting rights and substantially all of the entity’s activities are conducted on behalf of an investor with disproportionately few voting rights. The Company is required to consolidate a VIE when it holds a variable interest in the VIE and is also the primary beneficiary of the VIE. CFC 45 is a Community Development Entity (“CDE”), and is considered to be a VIE. The Company is the primary beneficiary because it has the power to direct activities that most significantly affect the economic performance of CFC 45 and has the obligation to absorb the majority of the losses or benefits of its financial performance.
Noncontrolling Interests
For consolidated subsidiaries that are less than wholly-owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The portion of net income attributable to noncontrolling interests for such subsidiaries is presented as net income applicable to noncontrolling interests on the consolidated statements of operations and comprehensive income, and the portion of the stockholders’ equity of such subsidiaries is presented as noncontrolling interests on the consolidated statements of financial condition and consolidated statements of changes in stockholders’ equity.
Recent Accounting Guidance
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions regarding the accounting related to the modifications of certain contracts, relationships and other transactions that are affected by reference rate reform related to contracts that reference LIBOR or other reference rates that could be discontinued due to reference rate reform. This guidance was effective immediately and the amendments may be applied prospectively through December 31, 2022. The estimated financial impact has not yet been determined.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments are also intended to improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance did not have a significant impact on the Company’s consolidated financial statements.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

Accounting Pronouncements Yet to Be Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsuranc e receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For debt securities with other-than-temporary impairment, the guidance will be applied prospectively. Existing purchased credit impaired assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective.
On October 16, 2019, the FASB voted to affirm the proposed amended effective date for ASU 2016-13 for smaller reporting companies (“SRCs”) as defined by the SEC. The final ASU, which was issued in November 2019, delays the implementation date for ASU 2016-13 to fiscal years beginning after December 15, 2022. SRCs are defined as companies with less than $250 million of public float or less than $100 million in annual revenues for the previous year and no public float or public float of less than $700 million. The Company qualifies as an SRC, and management will implement ASU 2016-13 in the first quarter of 2023. The estimated financial impact has not yet been determined.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU is effective January 1, 2020 and clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. The amendments to Topic 326 have the same effective dates as ASU 2016-13. This guidance did not have a significant impact on the Company’s consolidated financial statements.
In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This ASU allows entities to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible financial assets measured at amortized cost basis upon adoption of the credit loss standards. The effective date for this ASU is the same as for ASU 2016-13. We will evaluate this ASU in conjunction with ASU 2016-13 to determine its impact on our financial condition and results of operations.
NOTE (2) – Business Combination
The Company completed its merger with CFBanc Corporation (“CFBanc”) on April 1, 2021, with the Company continuing as the surviving entity (the “CFBanc Merger”). Immediately following this merger, Broadway Federal Bank, f.s.b., a subsidiary of Broadway Financial Corporation, merged with and into City First Bank of D.C., National Association, with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association). As of the acquisition date, CFBanc Corporation had $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million of total deposits.
On April 1, 2021, (1) each share of CFBanc Corporation’s Class A Common Stock, par value $0.50 per share, and Class B Common Stock, par value $0.50 per share, issued and outstanding immediately prior to the CFBanc Merger was converted into 13.626 validly issued, fully paid and nonassessable shares, respectively, of the voting common stock of the Company, par value $0.01 per share, which were renamed Class A Common Stock, and a new class of non-voting common stock of the Company, par value $0.01 per share, which was named Class B Common Stock, and (2) each share of Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series B, par value $0.50 per share, of CFBanc Corporation (“CFBanc Corporation Preferred Stock”) issued and outstanding immediately prior to the effective time of the CFBanc Merger was converted into one validly issued, fully paid and non-assessable share of a new series of preferred stock of the Company, which was designated as the Company’s Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series A, with such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, which taken as a whole, are not materially less favorable to the holders of CFBanc Corporation Preferred Stock than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof of CFBanc Corporation Preferred Stock. The total value of the consideration transferred to CFBanc Corporation shareholders was approximately $66.3 million, which was based on the closing price of the Company’s common stock on March 31, 2021, the last trading day prior to the consummation of the merger.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

The Company accounted for the CFBanc Merger under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the acquired assets and assumed liabilities with the assistance of third-party valuation firms. G oodwill in the amount of $26.0 million was recognized in the CFBanc Merger. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and are attributable to synergies expected to be derived from the combination of the two entities. Goodwill is not amortized for financial reporting purposes; rather, it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. Goodwill recognized in this transaction is not deductible for income tax purposes.
The following table represents the assets acquired and liabilities assumed in the CFBanc Merger as of April 1, 2021, and the fair value adjustments and amounts recorded by the Company as of the same date under the acquisition method of accounting:

|  | CFBanc Book Value |  | Fair Value Adjustments |  | Fair Value |
Assets acquired | (In thousands) |
Cash and cash equivalents |  | $ | 84,745 |  |  | $ | - |  |  | $ | 84,745 |
Securities available-for-sale |  |  | 150,052 |  |  |  | (77 | ) |  |  | 149,975 |
Loans receivable held for investment: |  |  |  |  |  |  |  |  |  |  |  |
Gross loans receivable held for investment |  |  | 227,669 |  |  |  | (1,784 | ) |  |  | 225,885 |
Deferred fees and costs |  |  | (315 | ) |  |  | 315 |  |  |  | - |
Allowance for loan losses |  |  | (2,178 | ) |  |  | 2,178 |  |  |  | - |
|  |  | 225,176 |  |  |  | 709 |  |  |  | 225,885 |
Accrued interest receivable |  |  | 1,637 |  |  |  | - |  |  |  | 1,637 |
FHLB and FRB stock |  |  | 1,061 |  |  |  | - |  |  |  | 1,061 |
Office properties and equipment |  |  | 5,152 |  |  |  | 1,801 |  |  |  | 6,953 |
Deferred tax assets, net |  |  | 890 |  |  |  | (1,608 | ) |  |  | (718 | )
Core deposit intangible |  |  | - |  |  |  | 3,329 |  |  |  | 3,329 |
Other assets |  |  | 2,290 |  |  |  | - |  |  |  | 2,290 |
Total assets |  | $ | 471,003 |  |  | $ | 4,154 |  |  | $ | 475,157 |
Liabilities assumed |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 353,671 |  |  | $ | 51 |  |  | $ | 353,722 |
Securities sold under agreements to repurchase |  |  | 59,945 |  |  |  | - |  |  |  | 59,945 |
FHLB advances |  |  | 3,057 |  |  |  | 109 |  |  |  | 3,166 |
Notes payable |  |  | 14,000 |  |  |  | - |  |  |  | 14,000 |
Accrued expenses and other liabilities |  |  | 4,063 |  |  |  | - |  |  |  | 4,063 |
Total liabilities |  | $ | 434,736 |  |  | $ | 160 |  |  | $ | 434,896 |
Excess of assets acquired over liabilities assumed |  | $ | 36,267 |  |  | $ | 3,994 |  |  | $ | 40,261 |
Consideration paid |  |  |  |  |  |  |  |  |  | $ | 66,257 |
Goodwill recognized |  |  |  |  |  |  |  |  |  | $ | 25,996 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

The fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. These changes could differ materially from what is presented above.
The contractual amounts due, expected cash flows to be collected, the interest component, and the fair value of loans acquired from CFBanc as of the acquisition date were as follows:

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

A component of total loans acquired from CFBanc were loans that were considered to be PCI loans. Refer to Note 6 for additional information regarding PCI loans. The following table presents the amounts that comprise the fair value of PCI loans (in thousands):

Contractual amounts due |  | $ | 1,825 |
Non-accretable difference (cash flows not expected to be collected) |  |  | (634 | )
Expected cash flows |  |  | 1,191 |
Accretable yield |  |  | (346 | )
Fair value of acquired loans |  | $ | 845 |

In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded on loans by CFBanc.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

The following table presents the net interest income, net income, and earnings per share as if the CFBanc Merger was effective as of January 1, 2020. The unaudited pro forma financial information included in the table below is based on various estimates and is presented for informational purposes only and does not indicate the financial condition or results of operations of the combined Company that would have been achieved for the periods presented had the transactions been completed as of the date indicated or that may be achieved in the future.

| Three Months Ended |  |  | Nine Months Ended |
| September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
| (Dollars in thousands except per share amounts) |
Net interest income |  | $ | 5,978 |  |  | $ | 5,738 |  |  | $ | 16,988 |  |  | $ | 16,068 |
Net income (loss) |  |  | 191 |  |  |  | (343 | ) |  |  | (3,348 | ) |  |  | (157 | )
Basic earnings per share |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |
Diluted earnings per share |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |

NOTE (3) – Capital Raise
On April 6, 2021, the Company completed the sale of 18,474,000 shares of Broadway Financial Corporation common stock in private placements to institutional and accredited investors at a purchase price of $1.78 per share for an aggregate purchase price of $32.9 million (net of expenses).
The following table shows the common stock issued on April 1, 2021 as a result of the merger and on April 6, 2021 as a result of the private placements by class:

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

NOTE (4) – Earnings Per Share of Common Stock
Basic earnings per share of common stock is computed pursuant to the two-class method by dividing net income available to common stockholders less dividends paid on participating securities (unvested shares of restricted common stock) and any undistributed earnings attributable to participating securities by the weighted average common shares outstanding during the period. The weighted average common shares outstanding includes the weighted average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted common stock. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per share of common stock includes the dilutive effect of unvested stock awards and additional potential common shares issuable under stock options.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

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

|  | For the three months ended September 30, |  |  | For the nine months ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
|  | (Dollars in thousands, except per share ) |
Net income (loss) attributable to Broadway Financial Corporation |  | $ | 182 |  |  | $ | (244 | ) |  | $ | (2,604 | ) |  | $ | (61 | )
Less net income attributable to participating securities |  |  | - |  |  |  | (2) |  |  |  | - |  |  |  | (1) |
Income (loss) available to common stockholders |  | $ | 182 |  |  | $ | (242 | ) |  | $ | (2,604 | ) |  | $ | (61 | )
Weighted average common shares outstanding for basic earnings (loss) per common share |  |  | 71,222,869 |  |  |  | 27,224,344 |  |  |  | 56,403,545 |  |  |  | 27,114,022 |
Add: dilutive effects of unvested restricted stock awards |  |  | 228,082 |  |  |  | - |  |  |  | - |  |  |  | - |
Weighted average common shares outstanding for diluted earnings (loss) per common share |  |  | 71,450,951 |  |  |  | 27,224,344 |  |  |  | 56,403,545 |  |  |  | 27,114,022 |
Earnings (loss) per common share - basic |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |
Earnings (loss) per common share - diluted |  | $ | 0.00 |  |  | $ | (0.01 | ) |  | $ | (0.05 | ) |  | $ | 0.00 |

Stock options for 450,000 shares of common stock for the nine months ended September 30, 2021 were not considered in computing diluted earnings per common share for three months ended September 30, 2020, the nine months ended September 30, 2021 or the nine months ended September 30, 2020 because they were anti-dilutive due to the net loss. There were no unvested restricted stock awards outstanding during the three months ended September 30, 2021.
NOTE (5) – Securities
The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios as of the periods indicated and the corresponding amounts of unrealized gains and losses that were recognized in accumulated other comprehensive income (loss):

| Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
| (In thousands) |
September 30, 2021: |  |
Federal agency mortgage-backed securities |  | $ | 81,943 |  |  | $ | 506 |  |  | $ | (84 | ) |  | $ | 82,365 |
Federal agency CMO |  |  | 5,509 |  |  |  | - |  |  |  | (31 | ) |  |  | 5,478 |
Federal agency debt |  |  | 35,724 |  |  |  | 348 |  |  |  | (11 | ) |  |  | 36,061 |
Municipal bonds |  |  | 4,906 |  |  |  | 33 |  |  |  | (6 | ) |  |  | 4,933 |
U. S. Treasuries |  |  | 18,180 |  |  |  | - |  |  |  | (13 | ) |  |  | 18,167 |
SBA pools |  |  | 10,676 |  |  |  | 40 |  |  |  | (92 | ) |  |  | 10,624 |
Total available-for-sale securities |  | $ | 156,938 |  |  | $ | 927 |  |  | $ | (237 | ) |  | $ | 157,628 |
December 31, 2020: |  |
Federal agency mortgage-backed securities |  | $ | 5,550 |  |  | $ | 257 |  |  | $ | - |  |  | $ | 5,807 |
Federal agency debt |  |  | 2,682 |  |  |  | 190 |  |  |  | - |  |  |  | 2,872 |
Municipal bonds |  |  | 2,000 |  |  |  | 19 |  |  |  | - |  |  |  | 2,019 |
Total available-for-sale securities |  | $ | 10,232 |  |  | $ | 466 |  |  | $ | - |  |  | $ | 10,698 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

At September 30, 2021, the Bank had thirteen (13) federal agency debt securities with a total amortized cost of $35.7 million, estimated total fair value of $36.1 million and an estimated average remaining life of 6.1 years; ninety-nine (99) federal agency mortgage-backed securities with a total amortized cost of $81.9 million, estimated total fair value of $82.4 million and an estimated average remaining life of 4.8 years; eight (8) federal agency mortgage-backed securities with a total amortized cost of $5.5 million, estimated total fair value of $5.5 million and an estimated average remaining life of 3.7 years; nine (9) U.S. treasury securities with a total amortized cost of $18.2 million, estimated total fair value of $18.2 million and an estimated average remaining life of 3.8 years; five (5) SBA pools securities with a total amortized cost of $10.7 million, estimated total fair value of $10.6 million and an estimated average remaining life of 5.8 years; nine (9) municipal bonds with a total amortized cost of $4.9 million, estimated total fair value of $4.9 million and an estimated average remaining life of 7.0 years. The entire securities portfolio at September 30, 2021, consisted of one hundred forty-five securities (145) with an estimated average remaining life of 4.0 years. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
The amortized cost and estimated fair value of all investment securities available-for-sale at September 30, 2021, by contractual maturities are shown below. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

| Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
| (In thousands) |
Due in one year or less |  | $ | 1,019 |  |  | $ | 1 |  |  | $ | (11 | ) |  | $ | 1,009 |
Due after one year through five years |  |  | 30,034 |  |  |  | 128 |  |  |  | (13 | ) |  |  | 30,149 |
Due after five years through ten years |  |  | 20,453 |  |  |  | 166 |  |  |  | (6 | ) |  |  | 20,613 |
Due after ten years (1) |  |  | 105,432 |  |  |  | 632 |  |  |  | (207 | ) |  |  | 105,857 |
|  | $ | 156,938 |  |  | $ | 927 |  |  | $ | (237 | ) |  | $ | 157,628 |

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

The Bank held 58 securities with unrealized losses of $237 thousand at September 30, 2021. None of these securities has been in a loss position for greater than one year. The Bank’s securities were primarily issued by the federal government or its agencies. The unrealized gains or losses on our available-for-sale securities at September 30, 2021 were primarily caused by movements in market interest rates subsequent to the purchase of such securities.
Securities with a market value of $71.4 million were pledged as collateral for securities sold under agreements to repurchase as of September 30, 2021 and included $23.4 million of U.S. Government Agency securities, $43.8 million of mortgage-backed securities, and $4.2 million of collateralized mortgage obligations. (See Note 9 – Borrowings.) There were no securities pledged as collateral for securities sold under agreements to repurchase as December 31, 2020. There were no securities pledged to secure public deposits at September 30, 2021 or December 31, 2020.
At September 30, 2021 and December 31, 2020, there were no holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
There were no sales of securities during the three and nine months ended September 30, 2021 and 2020.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

NOTE (6) – Loans Receivable Held for Investment
Loans receivable held for investment were as follows as of the dates indicated:

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | (In thousands) |
Real estate: |  |  |  |  |  |
Single family |  | $ | 50,880 |  |  | $ | 48,217 |
Multi-family |  |  | 383,401 |  |  |  | 272,387 |
Commercial real estate |  |  | 98,411 |  |  |  | 24,289 |
Church |  |  | 15,057 |  |  |  | 16,658 |
Construction |  |  | 21,076 |  |  |  | 429 |
Commercial – other |  |  | 47,306 |  |  |  | 57 |
SBA loans (1) |  |  | 28,873 |  |  |  | - |
Consumer |  |  | 12 |  |  |  | 7 |
Gross loans receivable before deferred loan costs and premiums |  |  | 645,016 |  |  |  | 362,044 |
Unamortized net deferred loan costs and premiums |  |  | 843 |  |  |  | 1,300 |
Gross loans receivable |  |  | 645,859 |  |  |  | 363,344 |
Allowance for loan losses |  |  | (3,661 | ) |  |  | (3,215 | )
Loans receivable, net |  | $ | 642,198 |  |  | $ | 360,129 |

(1) Including Paycheck Protection Program (PPP) loans.
Purchased Credit Impaired (PCI) Loans
As part of the CFBanc Merger, the Company acquired loans for which there was, at acquisition, evidence of credit deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. Prior to the CFBanc Merger, there were no such acquired loans. The carrying amount of those loans as of September 30, 2021, was as follows:

|  | September 30, 2021 |
|  | (In thousands) |
Real estate: |  |  |
Single family |  | $ | 558 |
Commercial real estate |  |  | 221 |
Commercial - other |  |  | 104 |
|  | $ | 883 |

On the acquisition date, the amount by which the undiscounted expected cash flows of the PCI loans exceeded the estimated fair value of the loan is the accretable yield. The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted cash flows and the current carrying value of the PCI loan. At September 30, 2021, none of the Company’s PCI loans were classified as nonaccrual.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

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

|  | Three Months Ended September 30, 2021 |  |  | Nine Months Ended September 30, 2021 |
|  | (In thousands) |
Balance at the beginning of the period |  | $ | 327 |  |  | $ | - |
Additions |  |  | - |  |  |  | 346 |
Accretion |  |  | (19 | ) |  |  | (38 | )
Balance at the end of the period |  | $ | 308 |  |  | $ | 308 |

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

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

|  | Three Months Ended September 30, 2020 |
|  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Single family |  |  | Multi- family |  |  | Commercial real estate |  |  | Church |  |  | Construction |  |  | Commercial - other |  |  | SBA Loans |  |  | Consumer |  |  | Total |
|  | (In thousands) |  |  |  |
Beginning balance |  | $ | 312 |  |  | $ | 2,424 |  |  | $ | 169 |  |  | $ | 282 |  |  | $ | 22 |  |  | $ | 6 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,215 |
Provision for (recapture of) loan losses |  |  | 9 |  |  |  | 1 |  |  |  | 17 |  |  |  | (28 | ) |  |  | - |  |  |  | (1 | ) |  |  | - |  |  |  | 2 |  |  |  | - |
Recoveries |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Loans charged off |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Ending balance |  | $ | 321 |  |  | $ | 2,425 |  |  | $ | 186 |  |  | $ | 254 |  |  | $ | 22 |  |  | $ | 5 |  |  | $ | - |  |  | $ | 2 |  |  | $ | 3,215 |

|  | Nine Months Ended September 30, 2021 |
|  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Single family |  |  | Multi-family |  |  | Commercial real estate |  |  | Church |  |  | Construction |  |  | Commercial - other |  |  | SBA Loans |  |  | Consumer |  |  | Total |
|  |  |  |  | (In thousands) |
Beginning balance |  | $ | 296 |  |  | $ | 2,433 |  |  | $ | 222 |  |  | $ | 237 |  |  | $ | 22 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 1 |  |  | $ | 3,215 |
Provision for (recapture of) loan losses |  |  | (136 | ) |  |  | 498 |  |  |  | 37 |  |  |  | (47 | ) |  |  | 94 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 446 |
Recoveries |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Loans charged off |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Ending balance |  | $ | 160 |  |  | $ | 2,931 |  |  | $ | 259 |  |  | $ | 190 |  |  | $ | 116 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 1 |  |  | $ | 3,661 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

|  | Nine Months Ended September 30, 2020 |
|  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Single family |  |  | Multi-family |  |  | Commercial real estate |  |  | Church |  |  | Construction |  |  | Commercial - other |  |  | SBA Loans |  |  | Consumer |  |  | Total |
|  |  |  |  | (In thousands) |
Beginning balance |  | $ | 312 |  |  | $ | 2,319 |  |  | $ | 133 |  |  | $ | 362 |  |  | $ | 48 |  |  | $ | 7 |  |  | $ | - |  |  | $ | 1 |  |  | $ | 3,182 |
Provision for (recapture of) loan losses |  |  | 5 |  |  |  | 106 |  |  |  | 53 |  |  |  | (108 | ) |  |  | (26 | ) |  |  | (2 | ) |  |  | - |  |  |  | 1 |  |  |  | 29 |
Recoveries |  |  | 4 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4 |
Loans charged off |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Ending balance |  | $ | 321 |  |  | $ | 2,425 |  |  | $ | 186 |  |  | $ | 254 |  |  | $ | 22 |  |  | $ | 5 |  |  | $ | - |  |  | $ | 2 |  |  | $ | 3,215 |

The following tables present the balance in the allowance for loan losses and the recorded investment (unpaid contractual principal balance less charge-offs, less interest applied to principal, plus unamortized deferred costs and premiums) by loan type and based on impairment method as of the dates indicated:

|  | September 30, 2021 |
|  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Single family |  |  | Multi- family |  |  | Commercial real estate |  |  | Church |  |  | Construction |  |  | Commercial - other |  |  | SBA Loans |  |  | Consumer |  |  | Total |
|  | (In thousands) |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 3 |  |  | $ | - |  |  | $ | - |  |  | $ | 27 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 30 |
Collectively evaluated for impairment |  |  | 157 |  |  |  | 2,931 |  |  |  | 259 |  |  |  | 163 |  |  |  | 116 |  |  |  | 4 |  |  |  | - |  |  |  | 1 |  |  |  | 3,631 |
Total ending allowance balance |  | $ | 160 |  |  | $ | 2,931 |  |  | $ | 259 |  |  | $ | 190 |  |  | $ | 116 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 1 |  |  | $ | 3,661 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 65 |  |  | $ | 286 |  |  | $ | - |  |  | $ | 3,357 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 3,708 |
Loans collectively evaluated for impairment |  |  | 50,922 |  |  |  | 384,959 |  |  |  | 98,384 |  |  |  | 11,371 |  |  |  | 20,907 |  |  |  | 47,306 |  |  |  | 28,290 |  |  |  | 12 |  |  |  | 642,151 |
Total ending loans balance |  | $ | 50,987 |  |  | $ | 385,245 |  |  | $ | 98,384 |  |  | $ | 14,728 |  |  | $ | 20,907 |  |  | $ | 47,306 |  |  | $ | 28,290 |  |  | $ | 12 |  |  | $ | 645,859 |

|  | December 31, 2020 |
|  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Single family |  |  | Multi- family |  |  | Commercial real estate |  |  | Church |  |  | Construction |  |  | Commercial - other |  |  |  | SBA Loans |  |  | Consumer |  |  | Total |
|  | (In thousands) |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 89 |  |  | $ | - |  |  | $ | - |  |  | $ | 52 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 141 |
Collectively evaluated for impairment |  |  | 207 |  |  |  | 2,433 |  |  |  | 222 |  |  |  | 185 |  |  |  | 22 |  |  |  | 4 |  |  |  | - |  |  |  | 1 |  |  |  | 3,074 |
Total ending allowance balance |  | $ | 296 |  |  | $ | 2,433 |  |  | $ | 222 |  |  | $ | 237 |  |  | $ | 22 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 1 |  |  | $ | 3,215 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 573 |  |  | $ | 298 |  |  | $ | - |  |  | $ | 3,813 |  |  | $ | - |  |  | $ | 47 |  |  | $ | - |  |  | $ | - |  |  | $ | 4,731 |
Loans collectively evaluated for impairment |  |  | 47,784 |  |  |  | 273,566 |  |  |  | 24,322 |  |  |  | 12,495 |  |  |  | 430 |  |  |  | 9 |  |  |  | - |  |  |  | 7 |  |  |  | 358,613 |
Total ending loans balance |  | $ | 48,357 |  |  | $ | 273,864 |  |  | $ | 24,322 |  |  | $ | 16,308 |  |  | $ | 430 |  |  | $ | 56 |  |  | $ | - |  |  | $ | 7 |  |  | $ | 363,344 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

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

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | Unpaid Principal Balance |  |  | Recorded Investment |  |  | Allowance for Loan Losses Allocated |  |  | Unpaid Principal Balance |  |  | Recorded Investment |  |  | Allowance for Loan Losses Allocated |
|  | (In thousands) |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single family |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 2 |  |  | $ | 1 |  |  | $ | - |
Multi-family |  |  | 286 |  |  |  | 286 |  |  |  | - |  |  |  | 298 |  |  |  | 298 |  |  |  | - |
Church |  |  | 2,468 |  |  |  | 1,879 |  |  |  | - |  |  |  | 2,527 |  |  |  | 1,970 |  |  |  | - |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single family |  |  | 65 |  |  |  | 65 |  |  |  | 3 |  |  |  | 573 |  |  |  | 573 |  |  |  | 88 |
Church |  |  | 1,478 |  |  |  | 1,478 |  |  |  | 27 |  |  |  | 1,842 |  |  |  | 1,842 |  |  |  | 52 |
Commercial - other |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 47 |  |  |  | 47 |  |  |  | 1 |
Total |  | $ | 4,297 |  |  | $ | 3,708 |  |  | $ | 30 |  |  | $ | 5,289 |  |  | $ | 4,731 |  |  | $ | 141 |

The recorded investment in loans excludes accrued interest receivable due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.
The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:

|  | Three Months Ended September 30, 2021 |  |  | Three Months Ended September 30, 2020 |
|  | Average Recorded Investment |  |  | Cash Basis Interest Income Recognized |  |  | Average Recorded Investment |  |  | Cash Basis Interest Income Recognized |
|  | (In thousands) |
Single family |  | $ | 65 |  |  | $ | 4 |  |  | $ | 589 |  |  | $ | 7 |
Multi-family |  |  | 288 |  |  |  | 5 |  |  |  | 305 |  |  |  | 5 |
Church |  |  | 3,614 |  |  |  | 64 |  |  |  | 3,938 |  |  |  | 67 |
Commercial - other |  |  | - |  |  |  | - |  |  |  | 50 |  |  |  | 1 |
Total |  | $ | 3,967 |  |  | $ | 73 |  |  | $ | 4,882 |  |  | $ | 80 |

|  | Nine Months Ended September 30, 2021 |  |  | Nine Months Ended September 30, 2020 |
|  | Average Recorded Investment |  |  | Cash Basis Interest Income Recognized |  |  | Average Recorded Investment |  |  | Cash Basis Interest Income Recognized |
|  | (In thousands) |
Single family |  | $ | 318 |  |  | $ | 14 |  |  | $ | 596 |  |  | $ | 22 |
Multi-family |  |  | 292 |  |  |  | 15 |  |  |  | 308 |  |  |  | 16 |
Church |  |  | 3,710 |  |  |  | 190 |  |  |  | 4,094 |  |  |  | 376 |
Commercial - other |  |  | 18 |  |  |  | 1 |  |  |  | 57 |  |  |  | 3 |
Total |  | $ | 4,338 |  |  | $ | 220 |  |  | $ | 5,055 |  |  | $ | 417 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off. Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible or paid off. When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan. Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $19 thousand and $22 thousand for the three months ended September 30, 2021 and 2020, respectively, and $38 thousand and $67 thousand for the nine months ended September 30, 2021 and 2020, respectively, and were not included in the consolidated results of operations.
As of September 30, 2021, the Bank had $249 thousand of loans delinquent 30 to 89 days, and no loans were past due 90 days or more. The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:

|  | September 30, 2021 |
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total |
|  | (In thousands) |
Loans receivable held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single family |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 50,987 |  |  | $ | 50,987 |
Multi-family |  |  | 249 |  |  |  | - |  |  |  | - |  |  |  | 249 |  |  |  | 384,996 |  |  |  | 385,245 |
Commercial real estate |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 98,384 |  |  |  | 98,384 |
Church |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14,728 |  |  |  | 14,728 |
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,907 |  |  |  | 20,907 |
Commercial - other |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 47,306 |  |  |  | 47,306 |
SBA loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28,290 |  |  |  | 28,290 |
Consumer |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12 |  |  |  | 12 |
Total |  | $ | 249 |  |  | $ | - |  |  | $ | - |  |  | $ | 249 |  |  | $ | 645,610 |  |  | $ | 645,859 |

|  | December 31, 2020 |
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total |
|  | (In thousands) |
Loans receivable held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Single family |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 48,357 |  |  | $ | 48,357 |
Multi-family |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 273,864 |  |  |  | 273,864 |
Commercial real estate |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 24,322 |  |  |  | 24,322 |
Church |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 16,308 |  |  |  | 16,308 |
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 430 |  |  |  | 430 |
Commercial - other |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 56 |  |  |  | 56 |
Consumer |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7 |  |  |  | 7 |
Total |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 363,344 |  |  | $ | 363,344 |

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

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | (In thousands) |
Loans receivable held for investment: |  |  |  |  |  |
Single-family residence |  | $ | - |  |  | $ | 1 |
Church |  |  | 709 |  |  |  | 786 |
Total non-accrual loans |  | $ | 709 |  |  | $ | 787 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2021 or December 31, 2020. None of the church non-accrual loans were delinquent, but none qualified for accrual status as of the periods indicated.
Troubled Debt Restructurings (TDRs)
In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months or less is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as non-accrual loans during the term of the modification.
The Bank has implemented a loan modification program for the effects of COVID-19 on its borrowers. At the date of this filing, no borrowers have requested loan modifications. To date, no modifications have been granted.
At September 30, 2021, loans classified as TDRs totaled $3.7 million, of which $405 thousand were included in non-accrual loans and $3.3 million were on accrual status. At December 31, 2020, loans classified as TDRs totaled $4.2 million, of which $232 thousand were included in non-accrual loans and $4.0 million were on accrual status. The Company has allocated $30 thousand and $141 thousand of specific reserves for accruing TDRs as of September 30, 2021 and December 31, 2020, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required. As of September 30, 2021 and December 31, 2020, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. No loans were modified during the three or nine months ended September 30, 2021 and 2020.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For single family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere within this footnote. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

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

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral. Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms. Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:

|  | September 30, 2021 |
|  | Pass |  |  | Watch |  |  | Special Mention |  |  | Substandard |  |  | Doubtful |  |  | Loss |
|  | (In thousands) |
Single family |  | $ | 50,987 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Multi-family |  |  | 384,897 |  |  |  | - |  |  |  | - |  |  |  | 348 |  |  |  | - |  |  |  | - |
Commercial real estate |  |  | 96,918 |  |  |  | - |  |  |  | - |  |  |  | 1,466 |  |  |  | - |  |  |  | - |
Church |  |  | 13,045 |  |  |  | 641 |  |  |  | - |  |  |  | 1,042 |  |  |  | - |  |  |  | - |
Construction |  |  | 20,907 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Commercial - other |  |  | 47,306 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
SBA loans |  |  | 28,290 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Consumer |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 642,362 |  |  | $ | 641 |  |  | $ | - |  |  | $ | 2,856 |  |  | $ | - |  |  | $ | - |

|  | December 31, 2020 |
|  | Pass |  |  | Watch |  |  | Special Mention |  |  | Substandard |  |  | Doubtful |  |  | Loss |
|  | (In thousands) |
Single family |  | $ | 48,357 |  |  | $ | - |  |  | $ | - |  |  | $ | 1 |  |  | $ | - |  |  | $ | - |
Multi-family |  |  | 273,501 |  |  |  | - |  |  |  | - |  |  |  | 362 |  |  |  | - |  |  |  | - |
Commercial real estate |  |  | 22,834 |  |  |  | 1,488 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Church |  |  | 12,899 |  |  |  | 657 |  |  |  | - |  |  |  | 2,752 |  |  |  | - |  |  |  | - |
Construction |  |  | 430 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Commercial - other |  |  | 9 |  |  |  | - |  |  |  | - |  |  |  | 47 |  |  |  | - |  |  |  | - |
Consumer |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 358,037 |  |  | $ | 2,145 |  |  | $ | - |  |  | $ | 3,162 |  |  | $ | - |  |  | $ | - |

In 2015, CFC 45 was formed to, in effect, act as a pass-through entity for a Merrill Lynch NMTC Corp. (“Merrill Lynch”) allocation of funds in connection with the Bank’s participation in the New Markets Tax Credit (“NMTC”) Program totaling $14.0 million. (See Note 9 - Borrowings.) The financial statements for CFC 45 are consolidated with those of the Company, and as such the Company has reflected a $14.0 million loan made by CFC 45 to a Qualified Active Low Income Business in gross loans above as of September 30, 2021, in connection with the NMTC Program.
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NOTE (7) – Leases
Effective October 1, 2021, the Bank entered into an operating lease for its administrative offices in Los Angeles. The ROU asset and operating lease liability will be recorded in fixed assets and other liabilities, respectively, in the consolidated statements of financial condition as of that date.
The ROU asset represents our right to use the underlying asset during the lease term. Operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the date of implementation of the new accounting standard.
The operating lease has one 5-year extension option at the then fair market rate. As this extension option is not reasonably certain of exercise, it is not included in the lease term. The Bank has no finance leases.
As the lease term started on October 1, 2021, there is no rent expense under the operating lease for the three months or nine months ended September 30, 2021.
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NOTE (8) – Goodwill and Intangible Assets
In connection with the CFBanc Merger (See Note 2 - Business Combination.), the Company recognized goodwill of $26.0 million and a core deposit intangible of $3.3 million. The following table presents the changes in the carrying amounts of goodwill and core deposit intangibles for the three months ended September 30, 2021:

|  | Goodwill |  |  | Core Deposit Intangible |
|  | (In thousands) |
Balance at the beginning of the period |  | $ | - |  |  | $ | - |
Additions |  |  | 25,996 |  |  |  | 3,329 |
Amortization |  |  | - |  |  |  | (262 | )
Impairment |  |  | - |  |  |  | - |
Balance at the end of the period |  | $ | 25,996 |  |  | $ | 3,067 |

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

|  | (In thousands) |
Core deposit intangible acquired |  | $ | 3,329 |
Less: accumulated amortization |  |  | (262 | )
|  | $ | 3,067 |

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

|  | (In thousands) |
2021 |  | $ | 131 |
2022 |  |  | 435 |
2023 |  |  | 390 |
2024 |  |  | 336 |
2025 |  |  | 315 |
Thereafter |  |  | 1,460 |
|  | $ | 3,067 |

NOTE (9) – Borrowings
The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. As of September 30, 2021, securities sold under agreements to repurchase totaled $52.9 million at an average rate of 0.10%. The market value of securities pledged totaled $71.4 million as of September 30, 2021 and included $23.4 million of U.S. Government Agency securities, $43.8 million of mortgage-backed securities, and $4.2 million of collateralized mortgage obligations. There were no securities pledged as of December 31, 2020.
At September 30, 2021 and December 31, 2020, the Bank had outstanding Advances from the FHLB totaling $91.1 million and $110.5 million, respectively. The weighted interest rate was 1.91% and 1.94% as of September 30, 2021 and December 31, 2020, respectively. The weighted average contractual maturity was 26 months and 27 months as of September 30, 2021 and December 31, 2020, respectively. The advances were collateralized by loans with a market value of $176.5 million at September 30, 2021.
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On September 17, 2021, the Company fully redeemed its Floating Rate Junior Subordinated Debentures.
In connection with the New Market Tax Credit activities of City First Bank CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This CDE acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a Qualified Active Low-Income Business (“QALICB”). The loan to the QALICB is secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee. The financial statements of CFC 45 are consolidated with those of the Bank and the Company.
There are two notes for CFC 45. Note A is in the amount of $9.9 million with a fixed interest rate of 5.2% per annum. Note B is in the amount of $4.1 million with a fixed interest rate of 0.24% per annum. Quarterly interest only payments commenced in March 2016 and will continue through March 2023 for Notes A and B. Beginning in September 2023, quarterly principal and interest payments will be due for Notes A and B. Both notes will mature on December 1, 2040.
NOTE (10) – Fair Value
The Company used the following methods and significant assumptions to estimate fair value:
The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral, which is obtained from recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated every nine months. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.
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Assets Measured on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized below:

|  | Fair Value Measurement |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
|  | (In thousands) |
At September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale – federal agency mortgage-backed |  | $ | - |  |  | $ | 82,365 |  |  | $ | - |  |  | $ | 82,365 |
Securities available-for-sale – federal agency CMO |  |  | - |  |  |  | 5,478 |  |  |  | - |  |  |  | 5,478 |
Securities available-for-sale – federal agency debt |  |  | - |  |  |  | 36,061 |  |  |  | - |  |  |  | 36,061 |
Municipal bonds |  |  | - |  |  |  | 4,933 |  |  |  | - |  |  |  | 4,933 |
U. S. Treasuries |  |  | - |  |  |  | 18,167 |  |  |  | - |  |  |  | 18,167 |
SBA pools |  |  | - |  |  |  | 10,624 |  |  |  | - |  |  |  | 10,624 |
At December 31, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale – federal agency mortgage-backed |  | $ | - |  |  | $ | 5,807 |  |  | $ | - |  |  | $ | 5,807 |
Securities available-for-sale – federal agency debt |  |  | - |  |  |  | 2,872 |  |  |  | - |  |  |  | 2,872 |
Municipal bonds |  |  | - |  |  |  | 2,019 |  |  |  | - |  |  |  | 2,019 |

There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2021 and 2020.
Assets Measured on a Non-Recurring Basis
Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the statements of financial condition. Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value.
As of September 30, 2021 and December 31, 2020, the Bank did not have any impaired loans carried at fair value of collateral.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

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

|  |  |  |  | Fair Value Measurements at September 30, 2021 |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 208,687 |  |  | $ | 208,687 |  |  | $ | - |  |  | $ | - |  |  | $ | 208,687 |
Securities available-for-sale |  |  | 157,628 |  |  |  | - |  |  |  | 157,628 |  |  |  | - |  |  |  | 157,628 |
Loans receivable held for investment |  |  | 642,198 |  |  |  | - |  |  |  | - |  |  |  | 647,988 |  |  |  | 647,988 |
Accrued interest receivables |  |  | 2,565 |  |  |  | 206 |  |  |  | 275 |  |  |  | 2,084 |  |  |  | 2,565 |
Bank owned life insurance |  |  | 3,179 |  |  |  | 3,179 |  |  |  | - |  |  |  | - |  |  |  | 3,179 |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 749,645 |  |  | $ | - |  |  | $ | 749,645 |  |  | $ | - |  |  | $ | 749,645 |
Securities sold under agreements to repurchase |  |  | 52,876 |  |  |  | - |  |  |  | 52,332 |  |  |  | - |  |  |  | 52,332 |
Federal Home Loan Bank advances |  |  | 91,070 |  |  |  | - |  |  |  | 92,836 |  |  |  | - |  |  |  | 92,836 |
Note payable |  |  | 14,000 |  |  |  | - |  |  |  | - |  |  |  | 14,000 |  |  |  | 14,000 |
Accrued interest payable |  |  | 99 |  |  |  | - |  |  |  | 99 |  |  |  | - |  |  |  | 99 |

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

In accordance with ASU No. 2016-01, the fair value of certain financial assets and liabilities, including loans and time deposits as of September 30, 2021 and December 31, 2020 was measured using an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

NOTE (11) – Stock-based Compensation
The Long-Term Incentive Plan, which was adopted by the Company and approved by the stockholders in 2018 (the “LTIP”), permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards. The plan is in effect for ten years. The maximum number of shares that can be awarded under the plan is 1,293,109 shares of common stock as of December 31, 2018. As of September 30, 2021, 533,169 shares had been awarded and 759,940 shares are available under the LTIP.
During the third quarter of 2021, the Company issued 64,516 shares of stock that vested immediately to its Chief Executive Officer at a cost of $200 thousand. As permitted by the LTIP, 21,354 of these shares were cancelled to pay income taxes. At September 30, 2021, no unvested restricted stock awards were outstanding.
No stock options were granted during the nine months ended September 30, 2021 and 2020.
The following table summarizes stock option activity during the nine months ended September 30, 2021 and 2020:

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

T he Company did not record any stock-based compensation expense related to stock options during the three months ended September 30, 2021 as these options became fully vested and all compensation cost was recognized in February 2021. For the nine months ended September 30, 2021, the Company recorded $7 thousand expense related to stock options. During the three and nine months ended September 30, 2020, the Company recorded $10 thousand and $20 thousand of stock-based compensation expense related to stock options, respectively.
Options outstanding and exercisable at September 30, 2021 were as follows:

|  | Outstanding |  |  | Exercisable |
Grant Date |  | Number Outstanding |  | Weighted Average Remaining Contractual Life |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value |  |  | Number Outstanding |  |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value |
February 24, 2016 |  |  | 450,000 |  |  |  | $ | 1.62 |  |  |  |  |  |  | 450,000 |  |  | $ | 1.62 |  |  |  |
|  |  | 450,000 |  | 4.40 years |  | $ | 1.62 |  |  | $ | 481,500 |  |  |  | 450,000 |  |  | $ | 1.62 |  |  | $ | 481,500 |

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

NOTE (12) – ESOP Plan
Employees participate in an Employee Stock Option Plan (“ESOP”) after attaining certain age and service requirements. In December 2016, the ESOP purchased 1,493,679 shares of the Company’s common stock at $1.59 per share, for a total cost of $2.4 million, of which $1.2 million was funded with a loan from the Company. The loan will be repaid from the Bank’s annual discretionary contributions to the ESOP, net of dividends paid, over a period of 20 years. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. When loan payments are made, shares are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. Any dividends on allocated shares increase participant accounts. Any dividends on unallocated shares will be used to repay the loan. Participants will receive shares for their vested balance at the end of their employment. Compensation expense related to the ESOP was $34 thousand and $18 thousand for the three months ended September 30, 2021 and 2020, respectively, and $81 thousand and $50 thousand for the nine months ended September 30, 2021 and 2020, respectively.
Shares held by the ESOP were as follows:

|  | September 30, 2021 |  |  | December 31, 2020 |
|  | (Dollars in thousands) |
Allocated to participants |  |  | 1,092,033 |  |  |  | 1,065,275 |
Committed to be released |  |  | - |  |  |  | 10,236 |
Suspense shares |  |  | 531,682 |  |  |  | 562,391 |
Total ESOP shares |  |  | 1,623,715 |  |  |  | 1,637,902 |
Fair value of unearned shares |  | $ | 1,458 |  |  | $ | 1,040 |

Unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were $844 thousand and $893 thousand at September 30, 2021 and December 31, 2020, respectively.
NOTE (13) – Regulatory Matters
The Bank’s capital requirements are administered by the Office of the Comptroller of the Currency (“OCC”) and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC. Failure to meet capital requirements can result in regulatory action.
As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. The CARES Act temporarily lowered this ratio to 8% beginning in the three months ended September 30, 2020. The ratio then rose to 8.5% for 2021 and reestablishes at 9% on January 1, 2022.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

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

|  | Actual |  |  | Minimum Capital Requirements |  |  | Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions |
|  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |
|  | (Dollars in thousands) |
September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Community Bank Leverage Ratio (1) |  | $ | 98,009 |  |  |  | 9.41 | % |  | $ |  |  |  |  |  |  |  | $ | 88,576 |  |  |  | 8.50 | %
December 31, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tier 1 (Leverage) |  | $ | 46,565 |  |  |  | 9.54 | % |  | $ | 19,530 |  |  |  | 4.00 | % |  | $ | 24,413 |  |  |  | 5.00 | %
Common Equity Tier 1 |  | $ | 46,565 |  |  |  | 18.95 | % |  | $ | 11,059 |  |  |  | 4.50 | % |  | $ | 15,975 |  |  |  | 6.50 | %
Tier 1 |  | $ | 46,565 |  |  |  | 18.95 | % |  | $ | 14,746 |  |  |  | 6.00 | % |  | $ | 19,661 |  |  |  | 8.00 | %
Total Capital |  | $ | 49,802 |  |  |  | 20.20 | % |  | $ | 19,661 |  |  |  | 8.00 | % |  | $ | 24,577 |  |  |  | 10.00 | %

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

At September 30, 2021, the Company and the Bank met all the capital adequacy requirements to which they were subject. In addition, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2020 that would materially adversely change the Bank’s capital classifications. From time to time, we may need to raise additional capital to support the Bank’s further growth and to maintain the “well capitalized” status.
NOTE (14) – Income Taxes
T he Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies.
The Company’s tax expense for the nine months ended September 30, 2021 included a $370 thousand impairment allowance on its deferred tax assets because the number of shares sold in the private placements completed on April 6, 2021 triggered limitations on the use of certain tax attributes under the Section 382 of the federal tax code. The ability to use net operating losses (“NOLs”) to offset future taxable income will be restricted and these NOLs could expire or otherwise be unavailable. In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period.
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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements

NOTE (15) – Concentration of Credit Risk
The Bank has a significant concentration of deposits with one customer that accounted for approximately 9% of its deposits as of September 30, 2021. The Bank also has a significant concentration of short term borrowings from one customer that accounted for 66% of the outstanding balance of securities sold under agreements to repurchase as of September 30, 2021. The Bank expects to maintain the relationships with these customers for the foreseeable future.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I Item 1, “Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q and Item 8 of Part II, “Financial Statements and Supplementary Data” of our 2020 Form 10-K. Certain statements herein are forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the U.S. Securities Act of 1933, as amended that reflect our current views with respect to future events and financial performance. Forward-looking statements typically include words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions. These forward-looking statements are subject to risks and uncertainties, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
Critical Accounting Policies and Estimates
Our significant accounting policies, which are essential to understanding MD&A, are described in the “Notes to Consolidated Financial Statements” and in the “Critical Accounting Policies” section of MD&A in our 2020 Form 10-K.
As a result of the Company’s acquisition of CFBanc Corporation on April 1, 2021, the accounting policy related to business combinations has been added to our critical accounting policies during the nine months ended September 30, 2021. See Note 1 - Basis of Financial Statement Presentation in the accompanying Notes to Unaudited Consolidated Financial Statements contained in Item 1-- Consolidated Financial Statements (Unaudited).
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COVID-19 Pandemic Impact
The Company continues to monitor the impact of the lingering COVID-19 pandemic on its operations. To date, the Bank has not implemented layoffs or furloughs of any employees because of the pandemic.
Although the Bank developed plans and policies for providing financial relief to borrowers that may experience difficulties in meeting the terms of their loans, as of September 30, 2021, none of its borrowers had requested loan modifications and the Bank had no delinquencies related to COVID-19.
As of September 30, 2021, the Company participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) by way of its merger with CFBanc Corporation. The Bank has originated $26.5 million in PPP since the merger. No PPP loans were originated during the three months ended September 30, 2021 as the program ended in June of 2021.
Overview
The Company merged withCFBanc on April 1, 2021, with Broadway Financial Corporation continuing as the surviving entity. Immediately following the CFBanc Merger, Broadway Federal Bank, f.s.b. merged with and into City First Bank of D.C, National Association with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association). Accordingly, results for the third quarter of 2021 include the operations of Broadway Financial Corporation and its subsidiary, City First Bank, National Association. Results for the nine months ended September 30, 2021 include the operations of Broadway Financial Corporation and the results of Broadway Federal Bank, f.s.b., its former subsidiary, for the first quarter and the results for Broadway Financial Corporation and City First Bank, N.A. for the second and third quarters. Results for the three months ended September 30, 2020 and the nine months ended September 30, 2020 include the results of Broadway Financial Corporation and Broadway Federal Bank, f.s.b.
Total assets increased by $580.2 million to $1.064 billion at September 30, 2021 from $483.4 million at December 31, 2020. The increase in total assets was primarily due to assets acquired in the merger, which increased total assets by $501.2 million for the period. The increase in total assets was also due to a net increase in cash of $35.8 million since the merger and an increase in the loan portfolio of $53.8 million since the merger, which was primarily due to loan originations of $173.3 million, net of loan repayments and payoffs of $120.8 million for the nine months ended September 30, 2021.
Total liabilities increased by $485.7 million to $920.2 million at September 30, 2021 from $434.5 million at December 31, 2020. The increase in total liabilities primarily consisted of the assumption of $353.7 million of deposits, $3.2 million of FHLB advances, and $73.9 million of other borrowings in the CFBanc Merger. Since the merger, deposits have increased by $83.6 million, FHLB advances have decreased by $22.7 million, short term borrowings have decreased by $7.1 million and the junior subordinated debt, which was $3.3 million at December 31, 2020, was fully paid off.
Net income for the third quarter of 2021 increased by $426 thousand compared to the third quarter of 2020 primarily due to an increase of $2.2 million in net interest income after loan loss provision and an increase of $496 thousand in grant and fee income, which were offset by additional operating expenses of $2.2 million due to the combined operations of the two banks after the merger and higher data processing costs after the merger. Results for the second quarter of 2021 were $519 thousand higher than the third quarter of 2021 primarily due to a special grant award of $1.8 million, offset by a higher effective tax rate and a tax adjustment of $370 thousand during the second quarter for a valuation allowance on the deferred tax asset due to a limitation on the use of net operating loss carryforwards.
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For the year-to-date period ended September 30, 2021, the Company reported a net loss of $2.6 million, or $(0.05) per share, compared to a net loss of $61 thousand or $0.00 per share for the first nine months of 2020. The net loss during 2021 was due to merger-related costs of $5.6 million, ($4.2 million net of tax) and one-time costs of $408 thousand associated with the data processing conversion. The net loss during the first nine months of 2020 was due to merger-related expenses of $710 thousand as well as $210 thousand in higher professional services costs due to actions by a former shareholder.
Net Interest Income
Third Quarter of 2021 Compared to Third Quarter of 2020
Net interest income for the third quarter of 2021 totaled $6.0 million, representing an increase of $2.6 million over net interest income of $3.4 million for the third quarter of 2020. The increase resulted from higher interest income, primarily due to growth of $508.1 million in average interest-earning assets during the third quarter of 2021 compared to the third quarter of 2020 due to the acquisition of loans, securities, and cash equivalents in the Merger on April 1, 2021.
Interest income and fees on loans receivable increased by $1.9 million to $6.0 million for the third quarter of 2021, from $4.4 million for the third quarter of 2020 due to an increase of $189.5 million in the average balance of loans receivable, which increased interest income by $1.9 million, and an 8 basis point decrease in the average yield on loans, which decreased interest income by $90 thousand.
Interest income on securities increased by $398 thousand for the third quarter of 2021, compared to the third quarter of 2020. The increase in interest income on securities primarily resulted from growth of $146.9 million in the average balance, which resulted from securities acquired in the Merger of $150 million, net of purchases of $10.1 million and payoffs and amortization of $12.7 million since the Merger. The higher average balance of securities increased interest income by $441 thousand. This increase was partially offset by the effects of a decrease of 114 basis points in the average interest rate earned on securities, which decreased interest income by $43 thousand.
Other interest income increased by $79 thousand during the third quarter of 2021 compared to the third quarter of 2020 primarily due to higher interest earned on cash deposits in other banks which increased by $69 thousand for the third quarter of 2021 compared to the third quarter of 2020. The average balance increased by $172.0 million, which increased interest income by $85 thousand. This increase was partially offset by the effects of lower rates earned on interest-earning deposits in other banks, which decreased by 11 basis points and lowered interest income by $16 thousand. Also, interest income on Federal Reserve Bank (“FRB”) stock and Federal Home Loan Bank (“FHLB”) stock increased by $10 thousand during the third quarter of 2021 compared to the third quarter of 2020.
Interest expense for the third quarter of 2021 decreased by $279 thousand compared to the third quarter of 2020 due to a decrease of 66 basis points in the cost of funds. The lower rates paid offset the impact of an increase of $405.9 million in average interest-bearing liabilities, due to the assumption of $307.6 million of interest-bearing deposits, $73.9 million of borrowings, and $3.2 million of FHLB advances in the Merger. In addition, $46.1 million of non-interest-bearing deposits were assumed in the Merger.
Interest expense on deposits decreased by $185 thousand for the third quarter of 2021, compared to the third quarter of 2020. The decrease was primarily attributable to a decrease of 54 basis points in the average rate paid on deposits, which caused interest expense on deposits to decrease by $605 thousand. This decrease was partially offset by the effects of an increase of $365.6 million in the average balance of deposits, primarily because of the Merger, which increased interest expense by $420 thousand.
Interest expense on borrowings decreased by $94 thousand for the third quarter of 2021, compared to the third quarter of 2020. The decrease was attributable to a decrease of 71 basis points in the average borrowing rate, which decreased interest expense by $251 thousand, offset by an increase in average borrowings of $40.3 million during the period, which increased interest expense by $157 thousand. The increase in borrowings was due to an increase of $51.7 million in the average balance of short term borrowings (securities sold under agreements to repurchase), offset by a decrease of $24.5 million in average borrowings from the FHLB and a decrease of $860 in the average balance of the Company’s junior subordinated debentures during the third quarter of 2021 compared to the third quarter of 2020.
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The net interest margin decreased to 2.43% for the third quarter of 2021 from 2.82% for the third quarter of 2020 primarily due to lower rates earned on higher balances of interest-earning cash deposits in other banks, which grew to an average balance of $214.4 million during the third quarter of 2021 compared to an average balance of $42.4 million during the third quarter of 2020. During the third quarter of 2021, the average interest rate earned on cash deposits decreased to 0.19% from an average rate of 0.30% earned during the third quarter of 2020.
First Nine Months of 2021 Compared to the First Nine Months of 2020
For the first nine months of 2021, net interest income before provisions increased by $5.4 million to $14.7 million compared to $9.3 million for the first nine months of 2020. The increase in net interest income primarily resulted from additional net interest income earned on assets acquired in the Merger.
Interest income and fees on loans receivable increased by $3.0 million during the first nine months of 2021, compared to the first nine months of 2020, due to an increase of $108.5 million in the average balance of loans receivable, primarily resulting from the Merger, which increased interest income by $3.3 million, and a decrease of 8 basis points in the average loan yield, which decreased interest income by $254 thousand.
Interest income on securities increased by $759 thousand for the first nine months of 2021, compared to the first nine months of 2020. The increase in interest income on securities primarily resulted from an increase of $110.4 million in the average balance of securities because of the Merger, which increased interest income by $930 thousand. This increase was partially offset by the effects of a decrease of 140 basis points in the average interest yield earned on investment securities, which decreased interest income by $171 thousand.
Other interest income increased by $42 thousand during the first nine months of 2021, compared to the first nine months of 2020 due to higher average cash balances in other banks, which increased by an average of $161.9 million during the first nine months of 2021 compared to the first nine months of 2020. The Company also recorded $42 thousand in higher interest income on regulatory stock during the first nine months of 2021, primarily due to interest earned on FRB and FHLB stock acquired in the Merger, along with the existing holdings of FHLB stock.
During the first nine months of 2021, interest expense on deposits decreased by $1.3 million, compared to the first nine months of 2020, due to a decrease of 81 basis points in the average cost of deposits, which decreased interest expense by $2.6 million. This decrease was partially offset by an increase of $261.4 million in the average balance of deposits, primarily due to deposits assumed in the Merger, which increased interest expense by $1.3 million.
During the first nine months of 2021, interest expense on borrowings decreased by $147 thousand compared to the first nine months of 2020 due to a decrease of 60 basis points in the average cost of borrowings, which decreased interest expense by $612 thousand. This decrease was offset by an increase of $37.1 million in average outstanding borrowings, which increased interest expense by $465 thousand. The increase in average borrowings was due primarily due to short-term borrowings assumed in the Merger.
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The net interest margin decreased by 31 basis points to 2.26% for the first nine months of 2021 from 2.57% for the same period in 2020.

|  | For the three months ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in Thousands) |  | Average Balance |  |  | Interest |  |  | Average Yield/ Cost |  |  | Average Balance |  |  | Interest |  |  | Average Yield/ Cost |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning deposits |  | $ | 214,366 |  |  | $ | 101 |  |  |  | 0.19 | % |  | $ | 42,406 |  |  | $ | 32 |  |  |  | 0.30 | %
Securities |  |  | 157,142 |  |  |  | 457 |  |  |  | 1.16 | % |  |  | 10,242 |  |  |  | 59 |  |  |  | 2.30 | %
Loans receivable (1) |  |  | 612,755 |  |  |  | 6,296 |  |  |  | 4.12 | % |  |  | 423,305 |  |  |  | 4,438 |  |  |  | 4.19 | %
FRB and FHLB stock |  |  | 3,401 |  |  |  | 55 |  |  |  | 6.47 | % |  |  | 3,586 |  |  |  | 45 |  |  |  | 5.02 | %
Total interest-earning assets |  |  | 987,664 |  |  | $ | 6,909 |  |  |  | 2.80 | % |  |  | 479,539 |  |  | $ | 4,574 |  |  |  | 3.82 | %
Non-interest-earning assets |  |  | 61,615 |  |  |  |  |  |  |  |  |  |  |  | 10,663 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 1,049,279 |  |  |  |  |  |  |  |  |  |  | $ | 490,202 |  |  |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market deposits |  | $ | 199,577 |  |  | $ | 159 |  |  |  | 0.16 | % |  | $ | 50,238 |  |  | $ | 60 |  |  |  | 0.48 | %
Passbook deposits |  |  | 74,223 |  |  |  | 61 |  |  |  | 0.11 | % |  |  | 58,377 |  |  |  | 55 |  |  |  | 0.38 | %
NOW and other demand deposits |  |  | 210,014 |  |  |  | 37 |  |  |  | 0.02 | % |  |  | 60,835 |  |  |  | 5 |  |  |  | 0.03 | %
Certificate accounts |  |  | 197,746 |  |  |  | 189 |  |  |  | 0.07 | % |  |  | 146,469 |  |  |  | 511 |  |  |  | 1.40 | %
Total deposits |  |  | 681,560 |  |  |  | 446 |  |  |  | 0.26 | % |  |  | 315,919 |  |  |  | 631 |  |  |  | 0.80 | %
FHLB advances |  |  | 91,000 |  |  |  | 440 |  |  |  | 1.98 | % |  |  | 115,500 |  |  |  | 538 |  |  |  | 1.86 | %
Junior subordinated debentures |  |  | 2,923 |  |  |  | 17 |  |  |  | 2.67 | % |  |  | 3,783 |  |  |  | 28 |  |  |  | 2.96 | %
Other borrowings |  |  | 65,657 |  |  |  | 15 |  |  |  | 0.09 | % |  |  | - |  |  |  | - |  |  |  | - |
Total borrowings |  |  | 159,580 |  |  |  | 472 |  |  |  | 1.18 | % |  |  | 119,283 |  |  |  | 566 |  |  |  | 1.90 | %
Total interest-bearing liabilities |  |  | 841,140 |  |  | $ | 918 |  |  |  | 0.44 | % |  |  | 435,202 |  |  | $ | 1,197 |  |  |  | 1.10 | %
Non-interest-bearing liabilities |  |  | 64,271 |  |  |  |  |  |  |  |  |  |  |  | 5,281 |  |  |  |  |  |  |  |  |
Stockholders’ Equity |  |  | 143,868 |  |  |  |  |  |  |  |  |  |  |  | 49,719 |  |  |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 1,049,279 |  |  |  |  |  |  |  |  |  |  | $ | 490,202 |  |  |  |  |  |  |  |  |
Net interest rate spread (2) |  |  |  |  |  | $ | 5,991 |  |  |  | 2.36 | % |  |  |  |  |  | $ | 3,377 |  |  |  | 2.72 | %
Net interest rate margin (3) |  |  |  |  |  |  |  |  |  |  | 2.43 | % |  |  |  |  |  |  |  |  |  |  | 2.82 | %
Ratio of interest-earning assets to interest-bearing liabilities |  |  |  |  |  |  |  | 117.4 | % |  |  |  |  |  |  |  |  |  |  | 110.19 | %

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

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

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

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|  | For the nine months ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in Thousands) |  | Average Balance |  |  | Interest |  |  | Average Yield/ Cost |  |  | Average Balance |  |  | Interest |  |  | Average Yield/ Cost |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning deposits |  | $ | 198,922 |  |  | $ | 207 |  |  |  | 0.14 | % |  | $ | 36,989 |  |  | $ | 165 |  |  |  | 0.59 | %
Securities |  |  | 120,952 |  |  |  | 953 |  |  |  | 1.05 | % |  |  | 10,539 |  |  |  | 194 |  |  |  | 2.45 | %
Loans receivable (1) |  |  | 539,811 |  |  |  | 16,240 |  |  |  | 4.01 | % |  |  | 431,330 |  |  |  | 13,226 |  |  |  | 4.09 | %
FHLB stock |  |  | 3,718 |  |  |  | 170 |  |  |  | 6.10 | % |  |  | 3,410 |  |  |  | 128 |  |  |  | 5.00 | %
Total interest-earning assets |  |  | 863,403 |  |  | $ | 17,570 |  |  |  | 2.71 | % |  |  | 482,268 |  |  | $ | 13,713 |  |  |  | 3.79 | %
Non-interest-earning assets |  |  | 34,696 |  |  |  |  |  |  |  |  |  |  |  | 10,530 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 898,099 |  |  |  |  |  |  |  |  |  |  | $ | 492,798 |  |  |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market deposits |  | $ | 162,230 |  |  | $ | 463 |  |  |  | 0.38 | % |  | $ | 44,853 |  |  | $ | 277 |  |  |  | 0.82 | %
Passbook deposits |  |  | 69,728 |  |  |  | 175 |  |  |  | 0.33 | % |  |  | 53,451 |  |  |  | 224 |  |  |  | 0.56 | %
NOW and other demand deposits |  |  | 165,646 |  |  |  | 84 |  |  |  | 0.07 | % |  |  | 52,655 |  |  |  | 12 |  |  |  | 0.03 | %
Certificate accounts |  |  | 183,569 |  |  |  | 584 |  |  |  | 0.42 | % |  |  | 168,812 |  |  |  | 2,140 |  |  |  | 1.69 | %
Total deposits |  |  | 581,173 |  |  |  | 1,306 |  |  |  | 0.30 | % |  |  | 319,771 |  |  |  | 2,653 |  |  |  | 1.11 | %
FHLB advances |  |  | 104,366 |  |  |  | 1,516 |  |  |  | 1.94 | % |  |  | 114,234 |  |  |  | 1,646 |  |  |  | 1.92 | %
Junior subordinated debentures |  |  | 3,113 |  |  |  | 60 |  |  |  | 2.57 | % |  |  | 4,036 |  |  |  | 108 |  |  |  | 3.57 | %
Other borrowings |  |  | 47,863 |  |  |  | 31 |  |  |  | 0.09 | % |  |  | - |  |  |  | - |  |  |  | - |
Total borrowings |  |  | 155,342 |  |  |  | 1 607 |  |  |  | 1.38 | % |  |  | 118,270 |  |  |  | 1,754 |  |  |  | 1.98 | %
Total interest-bearing liabilities |  |  | 736,515 |  |  | $ | 2,913 |  |  |  | 0.53 | % |  |  | 438,041 |  |  | $ | 4,407 |  |  |  | 1.34 | %
Non-interest-bearing liabilities |  |  | 49,696 |  |  |  |  |  |  |  |  |  |  |  | 5,476 |  |  |  |  |  |  |  |  |
Stockholders’ Equity |  |  | 111,889 |  |  |  |  |  |  |  |  |  |  |  | 49,281 |  |  |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 898,099 |  |  |  |  |  |  |  |  |  |  | $ | 492,798 |  |  |  |  |  |  |  |  |
Net interest rate spread (2) |  |  |  |  |  | $ | 14,657 |  |  |  | 2.19 | % |  |  |  |  |  | $ | 9,306 |  |  |  | 2.45 | %
Net interest rate margin (3) |  |  |  |  |  |  |  |  |  |  | 2.26 | % |  |  |  |  |  |  |  |  |  |  | 2.57 | %
Ratio of interest-earning assets to interest-bearing liabilities |  |  |  |  |  |  |  | 117.2 | % |  |  |  |  |  |  |  |  |  |  | 110.10 | %

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

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

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

Loan Loss Provision
The Company recorded a loan loss provision of $365 thousand for the three months ended September 30, 2021 and $446 thousand for the nine months ended September 30, 2021 due to growth in the loan portfolio. No loan charge-offs were recorded during the three months or the nine months ended September 30, 2021. The Allowance for Loan and Lease Losses (“ALLL”) increased to $3.7 million as of September 30, 2021 compared to $3.2 million as of December 31, 2020.
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The Bank did not record a loan loss provision or recapture during the three months ended September 30, 2020, but a loan loss provision of $29 thousand and a loan loss recapture of $4 thousand were recorded during the nine months ended September 30, 2020. Due to economic uncertainty related to the COVID-19 Pandemic, the Bank maintained its ALLL at $3.2 million as of September 30, 2020 despite a net decrease of $36.1 million in loans held for investment portfolio during the nine months ended September 30, 2020. No loan charge-offs were recorded during the three months or the nine months ended September 30, 2020.
Non-interest Income
Non-interest income for the third quarter of 2021 totaled $609 thousand compared to $206 thousand for the third quarter of 2020. Non-interest income increased due to $217 thousand in CDFI grant income recognized during the third quarter. No grant income was recorded during the third quarter of 2020. Other non-interest income during the third quarter of 2021 also included $154 thousand in management fees related to New Market Tax Credit projects managed by City First Bank in Washington, D.C. No gain on the sale of loans was recorded during the third quarter and first nine months of 2021 compared to gains of $76 thousand recorded during the third quarter of 2020 and $199 thousand during the first nine months of 2020.
For the first nine months of 2021, non-interest income totaled $2.9 million compared to $645 thousand for the same period in the prior year. The increase of $2.3 million in non-interest income was primarily due to the grant of $1.8 million from the CDFI Fund recognized in the second quarter of 2021, grant income of $217 thousand recognized in the third quarter, and management fees of $307 thousand related to the NMTC projects managed by City First Bank in Washington, D.C.
Non-interest Expense
Non-interest expense for the third quarter of 2021 totaled $6.0 million, compared to $3.7 million for the third quarter of 2020. The increase of $2.3 million in non-interest expense during the third quarter of 2021 compared to the same quarter of 2020 was primarily due to the inclusion of non-interest expenses of the acquired operations of the Bank. In addition, non-interest expense for the third quarter of 2021 included $359 thousand in one-time costs associated with the data processing conversion and $131 thousand in amortization of the core deposit intangible that was recorded in connection with the Merger.
For the first nine months of 2021, non-interest expense totaled $20.0 million, compared to $10.3 million for the same period in the prior year. The increase of $9.7 million in non-interest expense was primarily due to Merger-related expenses of $5.6 million and data processing conversion expenses of $359 thousand during the first nine months of 2021, as well as the inclusion of non-interest expenses of the acquired operations of the Bank.
Income Tax Expense or Benefit
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. area. The Company recorded income tax expense of $51 thousand during the third quarter, representing an effective rate of 19.8%, and a tax benefit of $297 thousand during the first nine months of 2021, representing an effective tax rate of 10.4%. Income tax expense for the first nine months of 2021 includes a $369 thousand valuation allowance 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 the private placements that closed a few days after the Merger triggered a limitation on the use of net operating loss carryforwards.
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Financial Condition
Total Assets
Total assets increased by $580.2 million to $1.064 billion at September 30, 2021 from $483.4 million at December 31, 2020. The increase in total assets was primarily due to the Merger, which increased total assets by $501.2 million, and $82.8 million in asset growth since the merger.
Securities Available-For-Sale
Securities available-for-sale totaled $157.6 million at September 30, 2021, compared with $10.7 million at December 31, 2020. The $146.9 million of increase in securities available-for-sale during the nine months ended September 30, 2021 was primarily due to the addition of $150.0 million of securities as a result of the CFBanc Merger, as well as additional purchases of securities of $10.0 million. These increases were partially offset by net amortizations and paydowns of investment securities of $12.7 million.
Loans Receivable
Loans receivable increased by $282.1 million during the first nine months of 2021 primarily due to loans of $225.9 million acquired in the Merger on April 1, 2021. Since the merger, the Bank originated $103.1 million multi-family loans, $23.4 million of commercial real estate loans, $26.5 million in PPP loans, $16.1 million in construction loans and $4.2 million of other loans. Loan repayments since the merger totaled $120.8 million.
Allowance for Loan Losses
As a smaller reporting company as defined by the SEC, the Company is not required to adopt the current expected credit losses (“CECL”) accounting standard until 2023; consequently, the Bank’s ALLL is based on probable incurred losses at the date of the consolidated balance sheet, rather than projections of future economic conditions over the life of the loans. In determining the adequacy of the ALLL within the context of the current uncertainties posed by the COVID-19 Pandemic, management has considered the historical and current performance of the Company’s portfolio, as well as various measures of the quality and safety of the portfolio, such as debt servicing and loan-to-value ratios. Management is continuing to monitor the loan portfolio and regularly communicating with borrowers to determine the continuing adequacy of the ALLL.
We record a provision for loan losses as a charge to earnings when necessary in order to maintain the ALLL at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio. At least quarterly we assess the overall quality of the loan portfolio and general economic trends in the local markets in which we operate. The determination of the appropriate level for the allowance is based on these reviews, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.
The ALLL was $3.7 million or 0.57% of gross loans held for investment at September 30, 2021, compared to $3.2 million, or 0.88% of gross loans held for investment, at December 31, 2020. The decrease in the ALLL as a percentage of gross loans is because there is no ALLL associated with the loans acquired in the merger. The increase in the dollar amount of ALLL during the nine months ended September 30, 2021 was the result of additional loan loss provisions due to loan growth during the period.
As of September 30, 2021, loan delinquencies totaled $249 thousand, compared to $0 at December 31, 2020. None of these loans were greater than 90 days delinquent. The slight increase in delinquencies was due to one commercial real estate loan acquired in the merger.
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Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status. At September 30, 2021, NPLs totaled $709 thousand, compared to $787 thousand at December 31, 2020. The decrease of $78 thousand in NPLs during the nine months ended September 30, 2021 was due to loan repayments. The Bank did not have any real estate owned from foreclosures (“REO”) at September 30, 2021 or December 31, 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 September 30, 2021, all our non-performing loans were current in their payments. Also, in determining the ALLL, we evaluate the ratio of the ALLL to NPLs, which was 516.4% at September 30, 2021 compared to 408.5% at December 31, 2020.
When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends in loan charge-offs. There have been no loan charge-offs since 2015. In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every twelve months. If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs. Therefore, certain losses inherent in our total NPLs are recognized periodically through charge-offs. The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans.
There were no recoveries or charge-offs recorded during the nine months ended September 30, 2021 compared to $4 thousand in recoveries recorded during the nine months ended September 30, 2020.
Impaired loans at September 30, 2021 were $3.7 million, compared to $4.7 million at December 31, 2020. The decrease of $1.0 million in impaired loans during the nine months ended September 30, 2021 was primarily due to loan repayments. Specific reserves for impaired loans were $30 thousand, or 0.82% of the aggregate impaired loan amount at September 30, 2021, compared to $141 thousand, or 2.98% at December 31, 2020.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) was signed into law by Congress. The CARES Act provides financial institutions, under specific circumstances, the opportunity to temporarily suspend certain requirements under generally accepted accounting principles related to Troubled Debt Restructurings (“TDR’s”) for a limited period of time to account for the effects of COVID-19. In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant payment delays, are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, 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 September 30, 2021, but because of the current uncertainties posed by the COVID-19 Pandemic, there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ALLL as an integral part of their examination process. These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.
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Office Properties and Equipment
Net office properties and equipment increased by $6.6 million to $9.2 million at September 30, 2021 from $2.5 million as of December 31, 2020. The large increase was due to the result of the merger, as CFBanc owned the land and building that in which it operates its headquarters and branch. Office properties and equipment, net increased by $7.0 million as of the date of the merger.
Goodwill and Intangible Assets
As a result of the merger, the Company recorded $26.0 million of goodwill and $3.3 million of core deposit intangible assets. Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.
The core deposit intangible asset is amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years. During the nine months ended September 30, 2021, the Company recorded $262 thousand of amortization expense related to the core deposit intangible.
No impairment charges were recorded during 2021 for goodwill or the core deposit intangible.
Total Liabilities
Total liabilities increased by $463.0 million to $920.2 million at September 30, 2021 from $434.5 million at December 31, 2020. The increase in total liabilities was largely the result of liabilities assumed in the CFB merger, plus additional activity since the merger date.
Deposits
Deposits increased to $749.6 million at September 30, 2021 from $315.6 million at December 31, 2020, due to deposits of $353.7 million that were assumed in the Merger and additional growth in deposits of $83.6 million since the Merger, primarily in money market and demand deposit accounts.
Single customer relationships accounted for approximately 9% and 13% of deposits at September 30, 2021 and December 31, 2020, respectively. We expect to maintain these relationships for the foreseeable future.
Borrowings
Total borrowings increased by $44.1 million to $157.9 million at September 30, 2021 from $113.8 million at December 31, 2020. The increase consisted of the addition of $77.1 million of borrowings assumed at the merger date, and decreases of $10.0 million in short term borrowings, payoffs of $22.7 million in FHLB advances and payoffs of subordinated debt of $3.1 million.
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The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Banks’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. The outstanding balance of these borrowings totaled $52.9 million as of September 30, 2021. There were no such borrowings as of December 31, 2020. The market value of securities pledged totaled $71.4 million as of September 30, 2021 and included $23.4 million of U.S. Government Agency securities, $43.8 million of mortgage-backed securities, and $4.2 million of collateralized mortgage obligations. The weighted average rate paid on repurchase agreements was 0.10% for the three months ended September 30, 2021.
Agreements to sell securities subject to obligations to repurchase with a single customer totaled $34.7 million as of September 30, 2021. There were no such agreements as of December 31, 2020. We expect to maintain these relationships for the foreseeable future.
Borrowings from the FHLB totaled $91.1 million as of September 30, 2021 at a weighted average interest rate of 1.91% at September 30, 2021, compared with borrowings of $110.5 million at a rate of 1.94% at December 31, 2020. The Company has not been renewing FHLB advances since the merger.
The Company paid off its Junior Subordinated Debt in September of 2021. The balance outstanding as of December 31, 2020 was $3.3 million.
Stockholders’ Equity
Stockholders’ equity was $143.3 million, or 13.48% of the Company’s total assets, at September 30, 2021, compared to $48.9 million, or 10.1% of the Company’s total assets at December 31, 2020. The Company issued $63.3 million in common stock at a price per share of $2.49 and $3.0 million in preferred stock in connection with the merger. In addition, the Company raised $30.9 million in net proceeds from the sale of common stock in private placements immediately following the merger on April 6, 2021.
The Company’s book value was $1.96 per share at September 30, 2021, and its tangible book value was $1.55 per share as of September 30, 2021 after adjusting for goodwill of $26.0 million and the net unamortized core deposit intangible of $3.1 million, which were both originally recorded in connection with the merger. The Company’s tangible book value per share was $1.74 per share as of December 31, 2020.
A capital contribution of $20 million was made from the Company to the Bank in June of 2021. The Bank (City First Bank, N.A.) elected to adopt the CBLR as of April 1, 2020 as reflected in its September 30, 2020 Call Report. The Bank’s CBLR was 9.41% at September 30, 2021.
Prior to the Merger, the Company’s former subsidiary, Broadway Federal Bank, f.s.b., did not elect to adopt the CBLR and reported a Total Capital ratio of 20.20% and a Leverage ratio of 9.54% at December 31, 2020.
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Liquidity
The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis. The Bank’s sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities. The Bank is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets 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 $16.9 million at September 30, 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. Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank invests in federal funds with the Federal Reserve Bank or in money market accounts with other financial institutions. The Bank’s liquid assets at September 30, 2021 consisted of $208.7 million in cash and cash equivalents and $49.7 million in securities available-for-sale that were not pledged, compared to $96.1 million in cash and cash equivalents and $10.7 million in securities available-for-sale that were not pledged at December 31, 2020. The increases were due to liquid assets acquired in the CFBanc Merger. Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future.
The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed in August 2013, October 2014, December 2016, and April 2021 and dividends received from the Bank in 2021 and 2020. The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.
The Company recorded consolidated net cash inflows from operating activities of $3.9 million during the nine months ended September 30, 2021, compared to consolidated net cash outflows from operating activities of $39.8 million during the nine months ended September 30, 2020. Net cash inflows from operating activities during the nine months ended September 30, 2021 were primarily attributable to increases in accrued liabilities, whereas net cash outflows from operating activities for the nine months ended September 30, 2020 were primarily due to originations of loans receivable held for sale of $118.6 million, offset primarily by proceeds from sales of loans receivable held for sale of $77.6 million.
The Company recorded consolidated net cash inflows from investing activities of $31.2 million during the nine months ended September 30, 2021, compared to consolidated net cash inflows of $35.6 million during the nine months ended September 30, 2020. Net cash inflows from investing activities during the nine months ended September 30, 2021 were primarily due to net cash acquired in the merger with City First Bank N.A. of $84.7 million, net payments on securities of $12.7 million, and redemptions of FHLB stock of $1.2 million, offset by cash used to fund new loans receivable held for investment of $57.1 million. In comparison, cash inflows from investing activities million during the nine months ended September 30, 2020 were primarily due to principal payments on loans receivable held for investment
The Company recorded consolidated net cash inflows from financing activities of $77.5 million during the nine months ended September 30, 2021, compared to consolidated net cash inflows from financing activities of $58.3 million during the nine months ended September 30, 2020. Net cash inflows from financing activities during the nine months ended September 30, 2021 were primarily attributable to a net increase in deposits of $80.3 million and proceeds from the sale of stock of $30.8 million. These increases were offset by a net decrease in FHLB advances of $22.6 million, a decrease in securities sold under agreements to repurchase of $7.1 million since the merger, and the payoff of subordinated debt of $3.3 million. During the nine months ended September 30, 2020, net cash inflows from financing activities were primarily due to a net increase in deposits of $27.6 million and net proceeds from FHLB advances of $31.5 million.
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Capital Resources and Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of September 30, 2021 and December 31, 2020, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” As of April 1, 2020, the Bank elected to follow the CBLR guidelines. (See Note 13 – Regulatory Matters.)

ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as of September 30, 2021. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as noted below.
We completed the CFBanc Merger during the second quarter of 2021. (See Note 2 - Business Combination.) We are currently integrating CFBanc into our operations and internal control processes. As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the CFBanc business, which we expect to complete within one year after the date of acquisition. Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2021 may exclude CFBanc to the extent that they are not yet integrated into our internal controls environment.
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Inherent Limitations on Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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PART II. OTHER INFORMATION

Item 1. | LEGAL PROCEEDINGS

None

Item 1A. | RISK FACTORS

Not Applicable

Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. | DEFAULTS UPON SENIOR SECURITIES

None

Item 4. | MINE SAFETY DISCLOSURES

Not Applicable

Item 5. | OTHER INFORMATION

None .

Item 6. | EXHIBITS

Exhibit Number* |
3.1 | Amended and Restated Certificate of Incorporation of Broadway Financial Corporation effective as of April 1, 2021 (Exhibit 3.1 to Form 8-K filed by Registrant on April 5, 2021)
3.2 | Bylaws of Registrant (Exhibit 3.2 to Form 8-K filed by Registrant on August 24, 2020)
31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH | XBRL Taxonomy Extension Schema Document
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB | XBRL Taxonomy Extension Label Linkbase Document
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document

* | Exhibits followed by a parenthetical reference are incorporated by reference herein from the document filed by the Registrant with the SEC described therein. Except as otherwise indicated, the SEC File No. for each incorporated document is 000-27464.

** | Management contract or compensatory plan or arrangement

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| Broadway Financial Corporation
Date: November 15, 2021 | By: | /s/ Brian Argrett
|  | Brian Argrett
|  | Chief Executive Officer
Date: November 15, 2021 | By: | /s/ Brenda J. Battey
|  | Brenda J. Battey
|  | Chief Financial Officer

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