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OFFON

BROADWAY FINANCIAL CORPORATION

(BYFC)
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BROADWAY FINANCIAL : DE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

03/31/2021 | 05:34pm EDT
The following discussion 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 other factors that
have affected our reported results of operations and financial condition or may
affect our future results or financial condition. Our MD&A should be read in
conjunction with the Consolidated Financial Statements and related Notes
included in Item 8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10 K.

Overview


Total assets increased by $43.0 million to $483.4 million at December 31, 2020
from $440.4 million at December 31, 2019.  The growth in total assets was
primarily comprised of an increase of $80.5 million in interest-bearing cash in
other banks offset by a decrease of $37.7 million in net loans receivable held
for investment.  The Bank had no REO as of December 31, 2019.

Total liabilities increased by $43.0 million to $434.5 million at December 31,
2020 from $391.5 million at December 31, 2019. The increase in total liabilities
during 2020 resulted primarily from increases of $26.5 million in FHLB advances
and $17.9 million in total deposits, offset by a decrease of $1.0 million in
junior subordinated debentures.

We recorded a net loss of $642 thousand for the year ended December 31, 2020
compared to a net loss of $206 thousand for the year ended December 31, 2019.
The loss during the year ended December 31, 2020 was primarily due to an
increase in professional service fees of $1.2 million, of which $960 thousand
pertained to expenses related to the City First Merger and $243 thousand related
to costs incurred to respond to actions by a former stockholder. In addition,
compensation expense increased by $1.0 million compared to the same period of
2019 primarily due to $580 thousand accrued for bonuses to key employees .
These items were partially offset by higher net interest income before loan loss
provision of $1.7 million compared to the same period of 2019 due to growth in
the average loan portfolio, and decreases in the cost of funds.  In addition, an
income tax credit adjustment of $273 thousand was received during 2020 due to a
tax settlement with the California Franchise Tax Board, which offset the
additional tax expense associated with non-deductible merger costs.

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

                                          For the Year Ended
                                    2020         2019         2018

Return on average assets             (0.13 %)     (0.05 %)      0.20 %
Return on average equity             (1.30 %)     (0.42 %)      1.71 %

Average equity to average assets 10.00 % 11.58 % 11.58 %

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Comparison of Operating Results for the Years Ended December 31, 2020 and 2019

General


Our most significant source of income is net interest income, which is the
difference between our interest income and our interest expense. Generally,
interest income is generated from our loans and investments (interest earning
assets) and interest expense is incurred from deposits and borrowings (interest
bearing liabilities). Typically, our results of operations are also affected by
our provision for or loan loss provision recapture, non-interest income
generated from service charges and fees on loan and deposit accounts, gains or
losses on the sale of loans and REO, non-interest expenses, and income taxes.

Net Interest Income

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


Interest and fees on loans receivable increased by $1.2 million for the year
ended December 31, 2020 compared to the same period a year ago. The increase was
primarily due to an increase of $43.7 million in the average balance of loans
receivable, including loans held for sale, which increased interest income by
$1.8 million, partially offset by a decrease of 16 basis points in loan yield,
which decreased interest income by $623 thousand.  The decrease in loan yield
included the impact of a decrease in interest recoveries in 2020 compared to
2019 because $209 thousand of payoffs were received in 2020 on non-accrual
loans.  Those payoffs decreased the loan yield in 2020 by 6 basis points.
Interest income on loans receivable was also negatively impacted by loan sales
during the year, which totaled $104.3 million.

Interest income on securities decreased by $106 thousand for the year ended
December 31, 2020 compared to the prior year due to a decrease of $2.9 million
in the average balance of securities, which decreased interest income by $72
thousand and a decrease of 26 basis points in the average yield on securities,
which decreased interest income by $34 thousand.

Other interest income decreased by $268 thousand for the year ended December 31,
2020 compared to the prior year.  The decrease in other interest income
primarily resulted from a decrease of 185 basis points in the average rate
earned on interest-earnings deposits and other short-term investments, which
decreased interest income by $551 thousand, offset by a net increase in the
average balance of interest earning cash deposits in other banks of $29.9
million, which increased interest income by $315 thousand.  In addition,
interest income earned on FHLB stock decreased by $32 thousand, primarily due to
a decrease of 200 basis points in the average rate earned during the year ended
December 31, 2020.

Interest expense on deposits decreased by $1.1 million for the year ended
December 31, 2020 compared to the prior year, primarily due to a decrease of 51
basis points in the average cost of deposits, offset by an increase of $34.5
million in the average balance of total deposits.  The increase in deposits was
primarily due to growth in NOW accounts, savings accounts and money market
accounts due to large deposits from corporations and organizations that were
seeking to support Broadway's mission and position as a Minority Depository
Institution.

Interest expense on borrowings increased by $202 thousand for the year ended
December 31, 2020 compared to the prior year, primarily due to a net increase of
$317 thousand in interest expense on FHLB advances.  The interest expense on
FHLB advances increased due to an increase of $37.0 million in the average
balance of FHLB advances, which increased interest expense by $740 thousand,
partially offset by a decrease of 51 basis points in the average cost of FHLB
advances, which decreased interest expense by $423 thousand.  The increase in
interest expense on FHLB advances was offset by a decrease of $115 thousand in
interest expense on the Company's junior subordinated debentures.  The interest
expense on the junior subordinated debentures decreased because the average
balance of such junior subordinated debentures decreased by $983 thousand, which
decreased interest expense by $44 thousand, and the average interest rate paid
on the junior subordinated debentures decreased by 167 basis points, which
decreased interest expense by $71 thousand.

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

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Analysis of Net Interest Income


Net interest income is the difference between income on interest earning assets
and the expense on interest bearing liabilities. Net interest income depends
upon the relative amounts of interest earning assets and interest bearing
liabilities and the interest rates earned or paid on them. The following table
sets forth average balances, average yields and costs, and certain other
information for the years indicated. All average balances are daily average
balances. The yields set forth below include the effect of deferred loan fees,
deferred origination costs, and discounts and premiums that are amortized or
accreted to interest income or expense. We do not accrue interest on loans that
are on non-accrual status; however, the balance of these loans is included in
the total average balance, which has the effect of reducing average loan yields.

                                                                     For the year ended December 31,
                                        2020                                       2019                                      2018
                                                     Average                                   Average                                    Average
(Dollars in              Average                     Yield/        Average                      Yield/        Average                     Yield/
Thousands)               Balance      Interest        Cost         Balance      Interest         Cost         Balance      Interest        Cost
Assets
Interest­earning
assets:
Interest­earning
deposits and other
short­term
investments             $  49,377     $     203          0.41 %   $  19,447     $     439           2.26 %   $  15,470     $     294          1.90 %
Securities                 10,605           253          2.39 %      13,531           359           2.65 %      16,019           413          2.58 %

Loans receivable (1) 418,952 17,016 (2)4.06 % 375,206

       15,845       (3) 4.22 %     366,453        14,279       (4)3.90 %
FHLB stock                  3,438           172          5.00 %       2,916           204           7.00 %       2,916           251          8.61 %
Total
interest­earning
assets                    482,372     $  17,644          3.66 %     411,100     $  16,847           4.10 %     400,858     $  15,237          3.80 %

Non­interest­earning

assets                     10,530                                    10,809                                     10,225
Total assets            $ 492,902                                 $ 421,909                                  $ 411,083
Liabilities and
Stockholders' Equity
Interest­bearing
liabilities:
Money market deposits   $  47,611     $     340          0.71 %   $  25,297     $     222           0.88 %   $  37,489     $     320          0.85 %
Passbook deposits          55,985           281          0.50 %      45,548           285           0.63 %      41,975           175          0.42 %
NOW and other demand
deposits                   55,003            19          0.03 %      34,091            11           0.03 %      34,779            31          0.09 %

Certificate accounts 161,409 2,523 1.56 % 180,611

        3,758           2.08 %     164,703         2,563          1.56 %
Total deposits            320,008         3,163          0.99 %     285,547         4,276           1.50 %     278,946         3,089          1.11 %
FHLB advances             114,020         2,179          1.91 %      77,049         1,862           2.42 %      74,729         1,590          2.13 %
Junior subordinated
debentures                  3,908           133          3.40 %       4,891           248           5.07 %       5,100           250          4.90 %
Total
interest­bearing
liabilities               437,936     $   5,475          1.25 %     367,487     $   6,386           1.74 %     358,775     $   4,929          1.37 %

Non­interest­bearing

liabilities                 5,655                                     5,566                                      4,699
Stockholders' Equity       49,311                                    48,856                                     47,609
Total liabilities and
stockholders' equity    $ 492,902                                 $ 421,909                                  $ 411,083

Net interest rate
spread (5)                            $  12,169          2.41 %                 $  10,461           2.36 %                 $  10,308          2.43 %
Net interest rate
margin (6)                                               2.52 %                                     2.54 %                                    2.57 %
Ratio of
interest­earning
assets to
interest­bearing
liabilities                                            110.15 %                                   111.87 %                                  111.73 %


--------------------------------------------------------------------------------

(1) Amount is net of deferred loan fees, loan discounts and loans in process, and

includes deferred origination costs, loan premiums and loans receivable held

for sale.

(2) Includes non­accrual interest of $162 thousand, reflecting interest

recoveries on non­accrual loans that were paid off for the year ended

December 31, 2020.

(3) Includes non-accrual interest of $567 thousand, reflecting interest

recoveries on non-accrual loans that were paid off, and deferred cost

amortization of $254 thousand for the year ended December 31, 2019.

(4) Includes non-accrual interest of $40 thousand, reflecting interest recoveries

on non-accrual loans that were paid off, and deferred cost amortization of

$503 thousand for the year ended December 31, 2018.

(5) Net interest rate spread represents the difference between the yield on

average interest­earning assets and the cost of average interest­bearing

liabilities.

(6) Net interest rate margin represents net interest income as a percentage of

average interest­earning assets.




Changes in our net interest income are a function of changes in both rates and
volumes of interest earning assets and interest bearing liabilities. The
following table sets forth information regarding changes in our interest income
and expense for the years indicated. Information is provided in each category
with respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the total change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

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                              Year ended December 31, 2020                 

Year ended December 31, 2019

                                      Compared to                           

Compared to

                              Year ended December 31, 2019                 

Year ended December 31, 2018

                               Increase (Decrease) in Net                   

Increase (Decrease) in Net

                                    Interest Income                               Interest Income
                          Due to          Due to                       Due to           Due to
                          Volume           Rate          Total         Volume            Rate          Total
                                                            (In thousands)
Interest­earning
assets:
Interest­earning
deposits and other
short­term
investments             $      315       $    (551 )   $    (236 )   $       84       $       61     $     145
Securities                     (72 )           (34 )        (106 )          (66 )             12           (54 )
Loans receivable, net        1,794            (623 )       1,171            347            1,219         1,566
FHLB stock                      33             (65 )         (32 )            -              (47 )         (47 )
Total
interest­earning
assets                       2,070          (1,273 )         797            365            1,245         1,610
Interest­bearing
liabilities:
Money market deposits          166             (48 )         118           (107 )              9           (98 )
Passbook deposits               58             (62 )          (4 )           16               94           110
NOW and other demand
deposits                         7               1             8             (1 )            (19 )         (20 )
Certificate accounts          (370 )          (865 )      (1,235 )          266              929         1,195
Total deposits                (139 )          (974 )      (1,113 )          174            1,013         1,187
FHLB advances                  740            (423 )         317             51              221           272
Junior subordinated
debentures                     (44 )           (71 )        (115 )          (10 )              8            (2 )
Total
interest­bearing
liabilities                    557          (1,468 )        (911 )          215            1,242         1,457
Change in net
interest income         $    1,513       $     195     $   1,708     $      150       $        3     $     153



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Loan Loss Provision/Recapture


During the year ended December 31, 2020, we recorded a loan loss provision of
$29 thousand due to economic uncertainties related to the COVID-19 Pandemic.  In
addition, we recorded loan loss recoveries of $4 thousand during the year ended
December 31, 2020.  For the year ended December 31, 2019, we recorded a net loan
loss provision recapture of $7 thousand, which was comprised of a loan loss
provision recapture of $348 thousand in the first quarter due to payoffs of
non-accrual loans, offset by loan loss provisions of $47 thousand in the third
quarter and $294 thousand in the fourth quarter due to growth in the loan
portfolio.  Loan loss recoveries of $260 thousand were recorded during 2019.
See "Allowance for Loan Losses" for additional information.

Non­Interest Income


For the year ended December 31, 2020, non-interest income totaled $1.0 million
compared to $1.1 million for the prior year.  The decrease of $27 thousand in
non-interest income was primarily due to a decrease of $71 thousand in service
charges on deposits and a decrease of $30 thousand in grant income from the U.S.
Department of the Treasury's Community Development Financial Institution
("CDFI") Fund, offset by an increase of $72 thousand in gains generated from
sales of loans during 2020 compared to 2019.

Non­Interest Expense


For the year ended December 31, 2020, non-interest expense totaled $14.2
million, compared to $12.1 million for the same period a year ago.  The increase
of $2.1 million in non-interest expense was primarily due to increases of $1.2
million in professional services expense and $1.0 million in compensation and
benefits expense.

The increase of $1.2 million in professional services expense was primarily due
to an increase of $863 thousand in legal fees and $317 thousand in financial
advisory and consulting fees.  The increase in legal fees was comprised of $704
thousand related to the City First Merger and $243 thousand related to legal
expenses incurred to respond to activities conducted by a former stockholder
against the Company, offset by a decrease of $84 thousand in miscellaneous legal
fees related to other matters.  Financial advisory and consulting services fees
increased primarily due to $255 thousand of expenses related to the City First
Merger.

The increase of $1.0 million in compensation and benefits expense was primarily
due to increased bonus accruals of $580 thousand related to the City First
Merger and planning for post-merger integration and the related private
placements (See ITEM 1. "BUSINESS--General" for more detail), higher salary
costs of $222 thousand, and increased vacation accruals of $53 thousand.  In
addition, the Bank recorded lower deferred loan origination costs of $244
thousand during 2020 compared to the prior year because there were fewer loans
originated for the loans receivable held for investment portfolio during 2020
compared to the prior year.

Income Taxes.

We recorded income tax benefits of $407 thousand and $345 thousand for the year
ended December 31, 2020 and 2019, respectively. The increase of $62 thousand in
income tax benefit was primarily due to a tax credit of $273 thousand related to
the resolution of an outstanding audit issue with the California Franchise Tax
Board for tax years 2009 to 2013 and a tax benefit from the increase in pretax
loss during the year, partially offset by additional tax expense associated with
non-deductible merger related expenses.

The deferred tax asset totaled $5.6 million at December 31, 2020 and $5.2 million at December 31, 2019. See Note 1 "Summary of Significant Accounting Policies" and Note 13 "Income Taxes" of the Notes to Consolidated Financial Statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense (benefit).


Section 382 of the Internal Revenue Code imposes limitations on a corporation's
ability to utilize net operating loss carryforwards, tax credit carryovers and
other income tax attributes when there is an ownership change. Generally, the
rules provide that an ownership change is deemed to have occurred when the
cumulative increase of each 5% or more stockholder and certain groups of
stockholders treated as 5% or more stockholders, as determined under Section
382, exceeds 50% over a specified "testing" period, generally equal to three
years. Section 382 applies rules regarding the treatment of new groups of
stockholders treated as 5% stockholders due to issuances of stock and other
equity transactions, which may cause a change of control to occur. The Company
has performed an analysis of the potential impact of Section 382 and has
determined that the Company did not undergo an ownership change during 2020 or
2019 and any potential limitations imposed under Section 382 do not currently
apply as of December 31, 2020.  However, upon the completion of the private
placements, there could be a triggering event which may result in a change of
control. Based on management's preliminary estimates, there could be limitations
on our deferred tax assets that may require an impairment allowance of
approximately $2.4 million.

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Comparison of Financial Condition at December 31, 2020 and 2019

Total Assets


Total assets increased by $43.0 million to $483.4 million at December 31, 2020
from $440.4 million at December 31, 2019.  The growth in total assets was
primarily comprised of increases of $80.5 million in cash  and cash equivalents,
offset by decreases of $37.7 million in net loans receivable held for
investment.

Loans Receivable Held for Sale


The Bank had no loans held for sale as of December 31, 2020 and 2019.  During
2020, the Bank originated $118.6 million in loans held for sale, sold $104.3
million in loans held for sale, transferred $13.7 million from loans held for
sale to loans held for investment, and received $637 thousand in loan
repayments.  During 2019, the Bank originated $15.1 million in loans held for
sale, sold $22.7 million in loans held for sale, transferred $1.5 million to
loans held for sale from loans held for investment, and received $115 thousand
in loan repayments.

Loans Receivable Held for Investment


Loans receivable held for investment, net of the allowance for loan losses,
totaled $360.1 million at December 31, 2020, compared to $397.8 million at
December 31, 2019.  During 2020, the Bank originated $134.3 million in new
loans, $120.8 million of which were multi-family loans, $11.9 million of which
were commercial real estate loans, $1.5 million of which construction loans, and
$66 thousand of which were commercial loans. Of the multi-family loans
originated in 2020, we allocated $118.6 million, or 98%, to loans held for sale
and $2.2 million, or 2%, to loans held for investment.  In addition, we
transferred $13.7 million to loans held for investment from loans held for sale.

During 2019, the Bank originated $114.4 million in new loans, $103.1 million of
which were multi-family loans, $9.5 million of which were commercial real estate
loans, $1.7 million of which were construction loans, and $49 thousand of which
were commercial loans.  Of the multi-family loans originated in 2019, we
allocated $87.9 million, or 85%, to loans held for investment and $15.2 million,
or 15%, to loans held for sale. In addition, we transferred net loans of $1.5
million to loans held for sale from loans held for investment.

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

Allowance for Loan Losses


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 market. The determination of the appropriate level for the allowance
is based on that review, considering such factors as historical loss experience
for each type of loan, the size and composition of our loan portfolio, the
levels and composition of our loan delinquencies, non­performing loans and net
loan charge­offs, 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.  As of December 31, 2020, the Bank
had no delinquencies, deferrals or modifications.

Our ALLL was $3.2 million or 0.88% of our gross loans receivable held for
investment at December 31, 2020 compared to $3.2 million, or 0.79% of our gross
loans receivable held for investment at December 31, 2019.  During the year
ended December 31, 2020, we recorded a loan loss provision of $29 thousand and
recorded loan loss recoveries of $4 thousand. For the year ended December 31,
2019, we recorded a net loan loss provision recapture of $7 thousand, which was
comprised of a loan loss provision recapture of $348 thousand in the first
quarter due to payoffs of non-accrual loans, offset by loan loss provisions of
$47 thousand in the third quarter and $294 thousand in the fourth quarter due to
growth in the loan portfolio.  In addition, we recorded loan loss recoveries of
$260 thousand during 2019.

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As of December 31, 2020, we had no loan delinquencies compared to total loan
delinquencies of $18 thousand at December 31, 2019.  Our non-performing loans
("NPLs") consist of delinquent loans that are 90 days or more past due and other
loans, including troubled debt restructurings that do not qualify for accrual
status. At December 31, 2020, NPLs totaled $787 thousand compared to $424
thousand at December 31, 2019. The increase of $363 thousand in NPLs was
primarily due to an addition of a church loan of $554 thousand to non-accrual
status during the second quarter of 2020, offset by a sale of $123 thousand and
repayments of $68 thousand.

In connection with our review of the adequacy of our ALLL, we track the amount
and percentage of our NPLs that are paying currently, but nonetheless must be
classified as NPL for reasons unrelated to payments, such as lack of current
financial information and an insufficient period of satisfactory performance. As
of December 31, 2020, all $787 thousand of NPLs were current in their payments.

When reviewing the adequacy of the ALLL, we also consider the impact of
charge­offs, including the changes and trends in loan charge­offs. There were no
loan charge­offs during 2020 and 2019. In determining charge­offs, we update our
estimates of collateral values on NPLs by obtaining new appraisals at least
every nine months. If the estimated fair value of the loan collateral less
estimated selling costs is less than the recorded investment in the loan, a
charge­off for the difference is recorded to reduce the loan to its estimated
fair value, less estimated selling costs. Therefore, any losses inherent in our
total NPLs are recognized periodically through charge­offs. The impact of
updating these estimates of collateral value and recognizing any required
charge­offs is to increase charge­offs and reduce the ALLL required on these
loans. Due to prior charge­offs and increases in collateral values, the average
recorded investment in NPLs was only 35% of estimated fair value less estimated
selling costs as of December 31, 2020.

Loan loss recoveries totaled $4 thousand during 2020 and $260 thousand during
2019. Recoveries during 2020 and 2019 primarily resulted from the payoffs of
non­accrual loans which had been previously partially charged off.

Impaired loans at December 31, 2020 were $4.7 million, compared to $5.3 million
at December 31, 2019. The decrease of $611 thousand in impaired loans was
primarily due to payoffs and repayments. Specific reserves for impaired loans
were $141 thousand or 2.98% of the aggregate impaired loan amount at December
31, 2020 compared to $147 thousand, or 2.74% of the aggregate impaired loan
amount at December 31, 2019. Excluding specific reserves for impaired loans, our
coverage ratio (general allowance as a percentage of total non­impaired loans)
was 0.85% at December 31, 2020 compared to 0.76% at December 31, 2019. The
increase in the coverage ratio during 2020 was primarily due to an increase in
unallocated reserves due to the COVID-19 Pandemic and a decrease in the loan
portfolio balance.

We believe that the ALLL is adequate to cover probable incurred losses in the
loan portfolio as of December 31, 2020, but there can be no assurance that
actual losses will not exceed the estimated amounts. In addition, the OCC and
the FDIC periodically review the ALLL as an integral part of their examination
process. These agencies may require an increase in the ALLL based on their
judgments of the information available to them at the time of their
examinations.

Total Liabilities


Total liabilities increased by $43.0 million to $434.5 million at December 31,
2020 from $391.5 million at December 31, 2019.  The increase in total
liabilities was primarily comprised of increases of $26.5 million in FHLB
advances and $17.9 million in deposits, offset by a decrease of $1.0 million in
junior subordinated debentures.

Deposits


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

Two customer relationships accounted for approximately 13% of our deposits at
December 31, 2020. We expect to maintain this relationship with the customer for
the foreseeable future.

Borrowings

Total borrowings at December 31, 2020 consisted of advances to the Bank from the
FHLB of $110.5 million, and junior subordinated debentures issued by the Company
of $3.3 million, compared to advances from the FHLB of $84.0 million and junior
subordinated debentures of $4.3 million at December 31, 2019. During 2020, the
Bank paid off $33.5 million in maturing FHLB advances, borrowed $60.0 million in
new advances from the FHLB and repaid $1.0 million of its junior subordinated
debentures.

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

Stockholders' Equity


Stockholders' equity was $48.9 million, or 10.11% of the Company's total assets
at December 31, 2020, compared to $48.8 million, or 11.09% of the Company's
total assets at December 31, 2019. The Company's book value was $1.74 per share
as of December 31, 2020, compared to $1.75 per share as of December 31, 2019.

Capital Resources


Our principal subsidiary, Broadway Federal, must comply with capital standards
established by the OCC in the conduct of its business. Failure to comply with
such capital requirements may result in significant limitations on its business
or other sanctions. As a "small bank holding company", we are not subject to
consolidated capital requirements under the new Basel III capital rules. The
current regulatory capital requirements and possible consequences of failure to
maintain compliance are described in Part I, Item 1 "Business­Regulation" and in
Note 15 of the Notes to Consolidated Financial Statements.

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
cost­effective basis. The Bank's sources of funds include deposits, advances
from the FHLB, other borrowings, proceeds from the sale of loans, REO, and
investment securities, and payments of principal and interest on loans and
investment securities. The Bank is currently approved by the FHLB to borrow up
to 40% of total assets to the extent the Bank provides qualifying collateral and
holds sufficient FHLB stock. The approved limit and collateral requirement would
have permitted the Bank to borrow an additional $40.3 million at December 31,
2020.

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 short­term liquidity needs, the Bank invests excess
cash with the Federal Reserve Bank or other financial institutions. The Bank's
liquid assets at December 31, 2020 consisted of $96.1 million in cash and cash
equivalents and $10.7 million in securities available­for­sale that were not
pledged, compared to $15.6 million in cash and cash equivalents and $11.0
million in securities available­for­sale that were not pledged at December 31,
2019. 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 proceeds
from financing transactions, including the private placements completed in
August 2013, October 2014, December 2016 and the private placements expected to
be completed shortly after the closing of the City First Merger, as well as
dividends received from the Bank in 2017, 2018, 2019 and 2020. The Bank is
currently under no prohibition to pay dividends but is subject to restrictions
as to the amount of the dividends it can pay based on normal regulatory
guidelines.

The Company recorded consolidated net cash outflows from operating activities of
$13.6 million during the year ended December 31, 2020 and net cash inflows from
operating activities of $8.5 million during the year ended December 31, 2019.
Net cash outflows from operating activities during 2020 were primarily
attributable to originations of loans receivable held for sale of $118.6 million
offset by proceeds from sales and repayments of loans receivable held for sale
of $105.2 million.  Net cash inflows from operating activities during 2019 were
primarily attributable to proceeds from sales and repayments of loans receivable
held for sale of $23.1 million, offset by originations of loans receivable held
for sale of $15.2 million.

The Company recorded consolidated net cash inflows from investing activities of
$50.7 million during the year ended December 31, 2020 and net cash outflows from
investing activities of $39.1 million during the year ended December 31, 2019.
Net cash inflows from investing activities during 2020 were primarily
attributable to a net decrease in loans receivable held for investment of $51.1
million and principal repayments on available-for-sale securities of $2.5
million, offset by purchases of available-for-sale municipal bonds of $2.0
million and purchase of FHLB stock of $742 thousand.  Net cash outflows from
investing activities during 2019 were primarily attributable to a net increase
in loans receivable held for investment of $44.0 million, offset by principal
repayments on available­for­sale securities of $4.1 million and proceeds from
the sale of REO of $820 thousand.

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The Company recorded consolidated net cash inflows from financing activities of
$43.4 million and $29.5 million during the year ended December 31, 2020 and
2019, respectively.  Net cash inflows from financing activities during 2020 were
primarily attributable to an increase in proceeds from FHLB advances of $60.0
million and  a net inflow of deposits of $17.9 million, offset by repayments of
FHLB advances of $33.5 million and repayments of junior subordinated debentures
of $1.0 million.  Net cash inflows from financing activities during 2019 were
primarily attributable to an increase in proceeds from FHLB advances of $22.0
million and an increase in deposits of $16.3 million, offset by repayments of
FHLB advances of $8.0 million and repayments of junior subordinated debentures
of $765 thousand.

Off­Balance­Sheet Arrangements and Contractual Obligations


We are party to financial instruments with off­balance­sheet risk in the normal
course of our business, primarily in order to meet the financing needs of our
customers. These instruments involve, to varying degrees, elements of credit,
interest rate and liquidity risk. In accordance with GAAP, these instruments are
either not recorded in the consolidated financial statements or are recorded in
amounts that differ from the notional amounts. Such instruments primarily
include lending commitments and lease commitments as described below.

Lending commitments include commitments to originate loans and to fund lines of
credit. Commitments to extend credit are agreements to lend to a customer if
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the borrower. Since some of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. We evaluate creditworthiness
on a case­by­case basis. Our maximum exposure to credit risk is represented by
the contractual amount of the instruments.

In addition to our lending commitments, we have contractual obligations related
to operating lease commitments. Operating lease commitments are obligations
under various non­cancellable operating leases on buildings and land used for
office space and banking purposes. The following table details our contractual
obligations at December 31, 2020.

                                                   More than          More than
                                  Less than       one year to      three years to       More than
                                   one year       three years        five years         five years        Total
                                                              (Dollars in thousands)
Certificates of deposit           $  113,221     $      14,904     $           516     $         75     $ 128,716
FHLB advances                         27,500            48,000              35,000                ­       110,500
Junior subordinated debentures         2,040             1,275                   -                -         3,315
Commitments to originate loans             -                 ­                   ­                ­             -
Commitments to fund unused
lines of credit                        1,981                 ­                   ­              491         2,472
Operating lease obligations              194                 -                   ­                ­           194

Total contractual obligations $ 144,936 $ 64,179 $ 35,516 $ 566 $ 245,197




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Impact of Inflation and Changing Prices


Our consolidated financial statements, including accompanying notes, have been
prepared in accordance with GAAP which require the measurement of financial
position and operating results primarily in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in increased costs of our
operations. Unlike industrial companies, nearly all our assets and liabilities
are monetary in nature. As a result, interest rates have a greater impact on our
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

Critical Accounting Policies


Critical accounting policies are those that involve significant judgments and
assessments by management, and which could potentially result in materially
different results under different assumptions and conditions. This discussion
highlights those accounting policies that management considers critical. All
accounting policies are important, however, and therefore you are encouraged to
review each of the policies included in Note 1 "Summary of Significant
Accounting Principles" of the Notes to Consolidated Financial Statements
beginning at page F­6 to gain a better understanding of how our financial
performance is measured and reported. Management has identified the Company's
critical accounting policies as follows:

Allowance for Loan Losses


The determination of the allowance for loan losses is considered critical due to
the high degree of judgment involved, the subjectivity of the underlying
assumptions used, and the potential for changes in the economic environment that
could result in material changes in the amount of the allowance for loan losses
considered necessary. The allowance is evaluated on a regular basis by
management and the Board of Directors and is based on a periodic review of the
collectability of the loans in light of historical experience, the nature and
size of the loan portfolio, adverse situations that may affect borrowers'
ability to repay, the estimated value of any underlying collateral, prevailing
economic conditions and feedback from regulatory examinations. See Item 1,
"Business - Asset Quality - Allowance for Loan Losses" for a full discussion of
the allowance for loan losses.

Income Taxes


Deferred tax assets and liabilities are determined using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences
between the book and tax bases of the various balance sheet assets and
liabilities and gives current recognition to changes in tax rates and laws. A
valuation allowance is established against deferred tax assets when, based upon
the available evidence including historical and projected taxable income, it is
more likely than not that some or all the deferred tax asset will not be
realized. In assessing the realization of deferred tax assets, management
evaluates both positive and negative evidence, including the existence of any
cumulative losses in the current year and the prior two years, the amount of
taxes paid in available carry­back years, forecasts of future income and
available tax planning strategies. This analysis is updated quarterly. Based on
this analysis, we determined that no valuation allowance was required on our
deferred tax assets, which totaled $5.6 million and $5.2 million at December 31,
2020 and 2019, respectively. See Note 13 "Income Taxes" of the Notes to
Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data."

Fair Value Measurements


Fair value is the exchange price that would be received for an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants
on the measurement date. There are three levels of inputs that may be used to
measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.


Level 2: Significant observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.

Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Fair values are estimated using relevant market information and other
assumptions, as more fully disclosed in Note 8 of the Notes to Consolidated
Financial Statements. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for items. Changes in
assumptions or in market conditions could significantly affect the estimates.

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