BYFC

Business Context and Reporting Period

Company: Broadway Financial Corporation (BYFC), a Delaware public benefit corporation and holding company for City First Bank, National Association.

Reporting Period: Quarterly report (Form 10-Q) for the period ended June 30, 2026.

Operations: The Company operates a single banking segment focused on promoting equitable economic development in historically underserved communities, primarily in Southern California and the Washington, D.C. area. It is a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Balance Sheet Growth: Total assets increased by $218.1 million (16.2%) from December 31, 2025, driven by a $110.0 million increase in net loans and a $70.2 million increase in available-for-sale securities.
• Deposit Expansion: Deposits grew by $197.0 million (21.5%) to $1.11 billion, largely due to savings deposits and certificates of deposit, partially offset by decreases in liquid deposits.
• Profitability Turnaround: The Company reported net income of $2.30 million for the first six months of 2026, a significant improvement from a net loss of $1.95 million in the same period of 2025. This was driven by higher net interest income and a reduction in non-interest expenses.
• Non-Interest Income: Increased by $896 thousand (139.3%) year-over-year, primarily due to a $450 thousand loan fee related to New Market Tax Credit allocation and higher earnings on bank-owned life insurance.
• Provision for Credit Losses: Recorded a provision of $1.68 million for the six months ended June 30, 2026, compared to $1.46 million in the prior year period. The increase was due to loan growth and the establishment of a specific reserve on a non-accrual loan.

Guidance, Outlook, Risks, and Unusual Items

• Accounting Methodology Change: In Q1 2026, the Company transitioned from the Weighted Average Remaining Maturity (WARM) method to a Discounted Cash Flow (DCF) method for measuring the Allowance for Credit Losses (ACL). Management stated this change did not materially impact results but improved precision.
• Internal Control Weaknesses: Management concluded that disclosure controls and procedures were ineffective as of June 30, 2026, due to material weaknesses. Specifically, the Company lacked controls to identify unusual equity-related contracts and to consider subsequent appraisals for collateral-dependent loans. Remediation plans are underway.
• Concentration Risk: Significant concentration exists with five customers accounting for approximately 41% of total deposits. Additionally, 93% of securities sold under agreements to repurchase are from a single customer.
• Loan Portfolio Quality: Non-accrual loans totaled $11.2 million (0.98% of total loans). Past due loans greater than 90 days increased to $11.1 million, primarily driven by one construction loan.
• Liquidity: The Company maintains strong liquidity with $48.9 million in cash and $229.9 million in unpledged securities. It has an additional borrowing capacity of $148.4 million from the FHLB.

Investor Verification Checklist

• Internal Control Remediation: Verify the progress of remediation efforts regarding the identified material weaknesses in internal controls over financial reporting.
• Deposit Concentration: Assess the stability of the top five depositors who represent 41% of total deposits and the single counterparty representing 93% of repurchase agreements.
• Construction Loan Exposure: Review the specific details of the construction loan(s) driving the increase in past-due loans and non-accrual status.
• Preferred Stock Dividends: Note that net income attributable to common stockholders is significantly reduced by $1.5 million in annual preferred stock dividends (Series C ECIP).
• ACL Methodology Impact: Monitor future quarters to ensure the new DCF methodology for ACL remains stable and does not result in unexpected volatility in provisions.