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What changed in BROADWAY FINANCIAL CORP DE's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BROADWAY FINANCIAL CORP DE's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+316 added−344 removedSource: 10-K (2024-05-20) vs 10-K (2023-04-11)

Top changes in BROADWAY FINANCIAL CORP DE's 2023 10-K

316 paragraphs added · 344 removed · 199 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

91 edited+53 added−78 removed139 unchanged
Biggest changeIn addition, there can be no assurance that the OCC or other regulators, as a result of reviewing our loan portfolio and/or allowance, will not require us to materially increase our ALLL, thereby affecting our financial condition and earnings. 10 Table of Contents The following table details our allocation of the ALLL to the various categories of loans held for investment and the percentage of loans in each category to total loans at the dates indicated: December 31, 2022 2021 2020 2019 2018 Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans (Dollars in thousands) Single family $ 109 3.89 % $ 145 6.96 % $ 296 13.32 % $ 312 18.23 % $ 368 25.69 % Multi‑family 3,273 65.08 % 2,657 60.36 % 2,433 75.24 % 2,319 71.90 % 1,880 64.86 % Commercial real estate 449 14.85 % 236 14.29 % 222 6.71 % 133 3.68 % 52 1.62 % Church 65 2.04 % 103 3.45 % 237 4.60 % 362 5.33 % 604 7.25 % Construction 313 5.27 % 212 4.92 % 22 0.11 % 48 0.78 % 19 0.52 % Commercial 175 8.87 % 23 10.02 % 4 0.02 % 7 0.07 % 6 0.06 % Consumer 4 – % 15 – % 1 – % 1 0.01 % – – % Total allowance for loan losses $ 4,388 100. 00 % $ 3,391 100.00 % $ 3,215 100.00 % $ 3,182 100.00 % $ 2,929 100.00 % The following table shows the activity in our ALLL related to our loans held for investment for the years indicated: 2022 2021 2020 2019 2018 (Dollars in thousands) Allowance balance at beginning of year $ 3,391 $ 3,215 $ 3,182 $ 2,929 $ 4,069 Charge‑offs: Single family – – – – – Commercial real estate – – – – – Church – – – – – Commercial – – – – – Total charge‑offs – – – – – Recoveries: Single family – – 4 – – Commercial real estate – – – – – Church – – – 260 114 Commercial – – – – – Total recoveries – – 4 260 114 Loan loss provision (recapture) 997 176 29 (7 ) (1,254 ) Allowance balance at end of year (1) $ 4,388 $ 3,391 $ 3,215 $ 3,182 $ 2,929 Net charge‑offs (recoveries) to average loans, excluding loans receivable held for sale – % – % – % (0.07 %) (0.04 %) ALLL as a percentage of gross loans, excluding loans receivable held for sale (2) 0.57 % 0.52 % 0.88 % 0.79 % 0.82 % ALLL as a percentage of total non‑accrual loans 3,047.22 % 495.76 % 408.51 % 750.47 % 321.51 % ALLL as a percentage of total non‑performing assets 3,047.22 % 495.76 % 408.51 % 750.47 % 167.94 % (1) Including net deferred loan costs and premiums.
Biggest changeThe following table details our allocation of the ACL/ALLL to the various categories of loans held for investment and the percentage of loans in each category to total loans at the dates indicated: December 31, 2023 2022 2021 2020 2019 Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans (Dollars in thousands) Single-family $ 260 2.79 % $ 109 3.89 % $ 145 6.96 % $ 296 13.32 % $ 312 18.23 % Multi‑family 4,413 63.33 % 3,273 65.08 % 2,657 60.36 % 2,433 75.24 % 2,319 71.90 % Commercial real estate 1,094 13.47 % 449 14.85 % 236 14.29 % 222 6.71 % 133 3.68 % Church 72 1.43 % 65 2.04 % 103 3.45 % 237 4.60 % 362 5.33 % Construction 932 10.14 % 313 5.27 % 212 4.92 % 22 0.11 % 48 0.78 % Commercial 529 7.16 % 175 8.87 % 23 10.02 % 4 0.02 % 7 0.07 % SBA loans 48 1.68 % – – % – – % – – % – – % Consumer – – % 4 – % 15 – % 1 – % 1 0.01 % Total allowance for credit losses $ 7,348 100.00 % $ 4,388 100.00 % $ 3,391 100.00 % $ 3,215 100.00 % $ 3,182 100.00 % 10 Table of Contents The following table shows the activity in our ACL/ALLL related to our loans held for investment for the years indicated: 2023 2022 2021 2020 2019 (Dollars in thousands) Allowance balance at beginning of year $ 4,388 $ 3,391 $ 3,215 $ 3,182 $ 2,929 Charge‑offs: Single-family – – – – – Multi-family – – – – – Commercial real estate – – – – – Church – – – – – Construction – – – – – Commercial – – – – – SBA Loans – – – – – Consumer – – – – – Total charge‑offs – – – – – Recoveries: Single-family – – – 4 – Multi-family 109 – – – – Commercial real estate 107 – – – – Church – – – – 260 Construction – – – – – Commercial – – – – – SBA Loans – – – – – Consumer – – – – – Total recoveries 216 – – 4 260 Impact of CECL adoption 1,809 – – – – Loan loss provision (recapture) 935 997 176 29 (7 ) Allowance balance at end of year $ 7,348 $ 4,388 $ 3,391 $ 3,215 $ 3,182 Net charge‑offs (recoveries) to average loans, excluding loans receivable held for sale – % – % – % – % (0.07 %) ACL/ALLL as a percentage of gross loans, excluding loans receivable held for sale (1) 0.83 % 0.57 % 0.52 % 0.88 % 0.79 % ACL/ALLL as a percentage of total non‑accrual loans – % 3,047.22 % 495.76 % 408.51 % 750.47 % ACL/ALLL as a percentage of total non‑performing assets – % 3,047.22 % 495.76 % 408.51 % 750.47 % (1) The ACL/ALLL as of December 31, 2023 and 2022 does not include any ACL/ALLL for the remaining balance of loans acquired in the City First Merger, which totaled $126.8 million and $146.3 million, respectively.
We originate loans in the Washington, D.C , Maryland, and Virginia under the SBA’s 7(a), SBA Express, International Trade and 504(a) loan programs, in conformity with SBA underwriting and documentation standards. SBA loans are similar to commercial business loans but have additional credit enhancement provided by the U.S Federal Government with guarantees between 50-85%.
We originate loans in Washington, D.C, Maryland, and Virginia under the SBA’s 7(a), SBA Express, International Trade and 504(a) loan programs, in conformity with SBA underwriting and documentation standards. SBA loans are similar to commercial business loans but have additional credit enhancement provided by the U.S. Federal Government with guarantees between 50-85%.
Allowance for Loan Losses In originating loans, we recognize that losses may be experienced on loans and that the risk of loss may vary as a result of many factors, including the type of loan being made, the creditworthiness of the borrower, general economic conditions and, in the case of a secured loan, the quality of the collateral for the loan.
Allowance for Credit Losses In originating loans, we recognize that losses may be experienced on loans and that the risk of loss may vary as a result of many factors, including the type of loan being made, the creditworthiness of the borrower, general economic conditions and, in the case of a secured loan, the quality of the collateral for the loan.
These deposits, together with funds generated from operations and borrowings, primarily in mortgage loans secured by residential properties with five or more units (“multi‑family”) and commercial real estate. Our assets also include mortgage loans secured by residential properties with one‑to‑four units (“single family”) as well as loans secured by commercial business assets.
These deposits, together with funds generated from operations and borrowings, primarily in loans secured by residential properties with five or more units (“multi‑family”) and commercial real estate. Our assets also include loans secured by commercial business assets as well as residential properties with one‑to‑four units (“single-family”).
The determination to purchase specific loans or pools of loans is subject to our underwriting policies, which consider, among other factors, the financial condition of the borrowers, the location of the underlying collateral properties and the appraised value of the collateral properties. We did not purchase any loans during the years ended December 31, 2022, 2021 or 2020.
The determination to purchase specific loans or pools of loans is subject to our underwriting policies, which consider, among other factors, the financial condition of the borrowers, the location of the underlying collateral properties and the appraised value of the collateral properties. We did not purchase any loans during the years ended December 31, 2023, 2022 or 2021.
We had no commitments to lend additional funds to borrowers whose loans were on non‑accrual status at December 31, 2022. We discontinue accruing interest on loans when the loans become 90 days delinquent as to their payment due date ( three missed payments).
We had no commitments to lend additional funds to borrowers whose loans were on non‑accrual status at December 31, 2023. We discontinue accruing interest on loans when the loans become 90 days delinquent as to their payment due date (three missed payments).
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.
The obligation to repurchase the securities is reflected as a liability in the Bank’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.
The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
The standards set forth in the guidelines are intended to promote the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Securities deemed held‑to‑maturity are classified as such because we have both the intent and ability to hold these securities to maturity. Held‑to‑maturity securities are reported at cost, adjusted for amortization of premium and accretion of discount. Available‑for‑sale securities are reported at fair value.
Securities deemed held‑to‑maturity are classified as such because we have both the intent and ability to hold these securities to maturity. Held‑to‑maturity securities are reported at cost, adjusted for amortization of premium and accretion of discount. Available‑for‑sale securities are reported at fair value. We currently have no securities classified as held‑to‑maturity securities.
Our standard pay practices are designed to ensure that we honor and adhere to pay equity analysis. Diversity, Equity, and Inclusion Our legacy and history matter at City First. We are proud of our expanded 75-year history with the merger with Broadway Federal.
Our standard pay practices are designed to honor and adhere to pay equity analysis. Diversity, Equity, and Inclusion Our legacy and history matter at City First. We are proud of our expanded 75-year history with the merger with Broadway Federal.
On June 7, 2022, the Company closed a private placement (the “Private Placement”) of shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series C, par value $0.01 (the “Series C Preferred Stock”), pursuant to a Letter Agreement (collectively with the annexes, exhibits and schedules thereto, including the Securities Purchase Agreement - Standard Terms, the “Purchase Agreement”), dated as of June 7, 2022, with the United States Department of the Treasury (the “Purchaser”).
On June 7, 2022, the Company closed a private placement (the “Private Placement”) of shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), pursuant to a Letter Agreement (collectively with the annexes, exhibits and schedules thereto, including the Securities Purchase Agreement - Standard Terms, the “Purchase Agreement”), dated as of June 7, 2022, with the United States Department of the Treasury (the “Purchaser”).
The Bank is also a member of the Federal Home Loan Bank of Atlanta (the “FHLB”). See “Regulation” for further descriptions of the regulatory systems to which the Company and the Bank are subject. Available Information Our internet website address is www.cityfirstbank.com.
The Bank is also a member of the Federal Home Loan Bank of Atlanta (the “FHLB”). See “Regulation” for further descriptions of the regulatory systems to which the Company and the Bank are subject. 1 Table of Contents Available Information Our internet website address is www.cityfirstbank.com.
In addition to deposits, we obtain funds from the amortization and prepayment of loans and investment securities, sales of loans and investment securities, advances from the FHLB, and cash flows generated by operations. Deposits We offer a variety of deposit accounts featuring a range of interest rates and terms.
In addition to deposits, we obtain funds from the amortization and prepayment of loans and investment securities, sales of loans and investment securities, advances from the FHLB, and cash flows generated by operations. 12 Table of Contents Deposits We offer a variety of deposit accounts featuring a range of interest rates and terms.
The Merger maintains the legacy of the constituent and honors the legacy of African American-led MDI’s across the country that were founded to address the unmet financing needs of the community.
The Merger maintains the legacy of the constituents and honors the legacy of African American-led MDI’s across the country that were founded to address the unmet financing needs of the community.
We generally make construction and land loans at variable interest rates based upon the Prime Rate, or the applicable Treasury Index plus a margin. Generally, we require a loan‑to‑value ratio not exceeding 75% and a loan‑to‑cost ratio not exceeding 85% on construction loans.
We generally make construction and land loans at variable interest rates based upon the applicable Treasury Index plus a margin. Generally, we require a loan‑to‑value ratio not exceeding 75% and a loan‑to‑cost ratio not exceeding 85% on construction loans.
At December 31, 2022, the average balance of a loan in our non-real estate commercial loan portfolio was $1.2 million. The risks related to commercial loans differ from loans secured by real estate, and relate to the ability of borrowers to successfully operate their businesses and the difference between expected and actual cash flows of the borrowers.
At December 31, 2023, the average balance of a loan in our non-real estate commercial loan portfolio was $2.0 million. The risks related to commercial loans differ from loans secured by real estate and relate to the ability of borrowers to successfully operate their businesses and the difference between expected and actual cash flows of the borrowers.
In the case of loans secured by accounts receivable, the recovery of our investment is dependent upon the borrower’s ability to collect amounts due from customers. SBA Guaranteed Loans City First is an approved SBA lender.
In the case of loans secured by accounts receivable, the recovery of our investment is dependent upon the borrower’s ability to collect amounts due from customers. 5 Table of Contents SBA Guaranteed Loans City First is an approved SBA lender.
In addition, we invest in securities issued by federal government agencies, residential mortgage‑backed securities and other investments. 1 Table of Contents Our revenue is derived primarily from interest income on loans and investments. Our principal costs are interest expenses that we incur on deposits and borrowings, together with general and administrative expenses.
In addition, we invest in securities issued by federal government agencies, residential mortgage‑backed securities and other investments. Our revenue is derived primarily from interest income on loans and investments. Our principal costs are interest expenses that we incur on deposits and borrowings, together with general and administrative expenses.
Commercial Lending Our commercial lending portfolio consists of loans and lending activities to businesses in our market area that are secured by business assets including inventory, receivables, machinery, and equipment. As of December 31, 2022 and 2021, non-real estate commercial loans totaled $64.8 million and $46.5 million, respectively.
Commercial Lending Our commercial lending portfolio consists of loans and lending activities to businesses in our market area that are secured by business assets including inventory, receivables, machinery, and equipment. As of December 31, 2023 and 2022, non-real estate commercial loans totaled $63.5 million and $64.8 million, respectively.
As of December 31, 2022, our single largest multi‑family credit had an outstanding balance of $11.8 million, was current, and was collateralized by a 53-unit apartment complex in Downey, California . At December 31, 2022, the average balance of a loan in our multi‑family portfolio was $1.3 million.
As of December 31, 2023, our single largest multi‑family credit had an outstanding balance of $11.6 million, was current, and was collateralized by a 53-unit apartment complex in Downey, California . At December 31, 2023, the average balance of a loan in our multi‑family portfolio was $1.3 million.
The following table shows our loan delinquencies by type and amount at the dates indicated: December 31, 2022 December 31, 2021 December 31, 2020 Loans delinquent Loans delinquent Loans delinquent 60-89 Days 90 days or more 60-89 Days 90 days or more 60-89 Days 90 days or more Number Amount Number Amount Number Amount Number Amount Number Amount Number Amount (Dollars in thousands) Commercial Real Estate – $ – – $ – 1 $ 2,423 – $ – – $ – – $ – Single family – – – – – – – – – – – – Total – $ – – $ – 1 $ 2,423 – $ – – $ – – $ – % of Gross Loans – % – % 0.37 % – % – % – % Non‑Performing Assets Non‑performing assets (“NPAs”) include non‑accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure (“REO”).
The following table shows our loan delinquencies by type and amount at the dates indicated: December 31, 2023 December 31, 2022 December 31, 2021 Loans delinquent Loans delinquent Loans delinquent 60-89 Days 90 days or more 60-89 Days 90 days or more 60-89 Days 90 days or more Number Amount Number Amount Number Amount Number Amount Number Amount Number Amount (Dollars in thousands) Commercial real estate – $ – – $ – – $ – – $ – 1 $ 2,423 – $ – Multi- family 1 401 – – – – – – – – – – Total 1 $ 401 – $ – – $ – – $ – 1 $ 2,423 – $ – % of Gross Loans 0.05 % – % - % – % 0.37 % – % Non‑Performing Assets Non‑performing assets (“NPAs”) include non‑accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure (“REO”).
Our Merger formed one of the largest Black-led Minority Depository Institutions (“ MDI ”) in the nation in the midst of a national reawakening to the systemic racial and economic disparities persisting and growing in our society.
The Merger formed one of the largest Black-led Minority Depository Institutions (“MDI”) in the nation in the midst of a national reawakening to the systemic racial and economic disparities persisting and growing in our society.
We originate these loans in order to maintain a high percentage of loans that have provisions for periodic repricing, thereby reducing our exposure to interest rate risk. At December 31, 2022, more than 79% of our loans had adjustable rate features.
We originate these loans in order to maintain a high percentage of loans that have provisions for periodic repricing, thereby reducing our exposure to interest rate risk. At December 31, 2023, more than 82% of our loans had adjustable rate features.
While we believe that the ALLL has been established and maintained at adequate levels, future adjustments may be necessary if economic or other conditions differ materially from the conditions on which we based our estimates at December 31, 2022.
While we believe that the ACL has been established and maintained at adequate levels, future adjustments may be necessary if economic or other conditions differ materially from the conditions on which we based our estimates at December 31, 2023.
PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA. SBA loans totaled 0.47% of our total loan portfolio as of December 31, 2022.
PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The Bank expects the vast majority of the PPP loans to be fully forgiven by the SBA. SBA loans totaled 1.68% of our total loan portfolio as of December 31, 2023.
As of December 31, 2022, more than 80% of the Company’s employees self-identified as minority, approximately 64% of our employees were women, and other diverse groups such as veterans and people with disabilities were also represented.
As of December 31, 2023, more than 80% of the Company’s employees self-identified as minority, approximately 62% of our employees were women, and other diverse groups such as veterans and people with disabilities were also represented.
At December 31, 2022, our net loan portfolio totaled $768.0 million, or 64.9% of total assets. 2 Table of Contents We emphasize the origination of adjustable‑rate loans, most of which are hybrid loans (loans having an initial fixed rate period which are initially 5 years, followed by an adjustable rate period), for our portfolio of loans held for investment.
At December 31, 2023, our net loan portfolio totaled $880.5 million, or 64.0% of total assets. We emphasize the origination of adjustable‑rate loans, most of which are hybrid loans (loans having an initial fixed rate period which are initially 5 years, followed by an adjustable rate period), for our portfolio of loans held for investment.
We specialize in the origination of construction loans for affordable housing developments where rents are subsidized by housing authority agencies. During 2022, we originated $29.6 million of construction loans, compared to $24.9 million of construction loan originations during 2021.
We specialize in the origination of construction loans for affordable housing developments where rents are subsidized by housing authority agencies. During 2023, we originated $40.0 million of construction loans, compared to $29.6 million of construction loan originations during 2022.
Certain loans classified as SBA are secured by commercial real estate property. All other SBA loans are secured by business assets. As of December 31, 2022 and 2021, SBA loans totaled $3.6 million and $18.8 million, respectively. Our December 31, 2022 SBA loans included $2.7 million of loans issued under the Paycheck Protection Program (“PPP”) loans.
Certain loans classified as SBA are secured by commercial real estate property. All other SBA loans are secured by business assets. As of December 31, 2023 and 2022, SBA loans totaled $15.0 million and $3.6 million, respectively. Our December 31, 2023 SBA loans included $2.5 million of loans issued under the Paycheck Protection Program (“PPP”) loans.
City First has historically classified all newly originated construction loans as Watch until a history of loan performance can be established or until the construction project is complete, which is the main reason for the increase in total criticized loans of $31.9 million during 2022.
City First has historically classified all newly originated construction loans as Watch loans until a history of loan performance can be established or until the construction project is complete, which is the main driver for the increase in total criticized loans of $47.7 million during 2023.
The loan to the QALICB is secured by a Leasehold Deed of Trust from which the funds for repayment of the loan will be derived. Debt service payments received by CFC 45 from the QALICB are passed through to the brokerage firm, less a servicing fee which is retained by CFC 45.
The loan to the QALICB is secured by a Leasehold Deed of Trust from which the funds for repayment of the loan will be derived. Debt service payments received by CFC 45 from the QALICB are passed through to the brokerage firm, less a servicing fee which is retained by CFC 45. This note was paid off during January 2024.
The $540 thousand decrease in non‑accrual loans during the year ended December 31, 2022 was the result of the payoff of one non-accrual loan. 7 Table of Contents The following table provides information regarding our non‑performing assets at the dates indicated: December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Non‑accrual loans: Single family $ – $ – $ 1 $ 18 $ – Church 144 684 786 406 911 Total non‑accrual loans 144 684 787 424 911 Loans delinquent 90 days or more and still accruing – – – – – Real estate owned acquired through foreclosure – – – – 833 Total non‑performing assets $ 144 $ 684 $ 787 $ 424 $ 1,744 Non‑accrual loans as a percentage of gross loans, including loans receivable held for sale 0.02 % 0.10 % 0.22 % 0.11 % 0.25 % Non‑performing assets as a percentage of total assets 0.01 % 0.06 % 0.16 % 0.10 % 0.43 % There were no accrual loans that were contractually past due by 90 days or more at December 31, 2022 or 2021.
The following table provides information regarding our non‑performing assets at the dates indicated: December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Non‑accrual loans: Single-family $ – $ – $ – $ 1 $ 18 Church – 144 684 786 406 Total non‑accrual loans – 144 684 787 424 Loans delinquent 90 days or more and still accruing – – – – – Real estate owned acquired through foreclosure – – – – – Total non‑performing assets $ – $ 144 $ 684 $ 787 $ 424 Non‑accrual loans as a percentage of gross loans, including loans receivable held for sale - % 0.02 % 0.10 % 0.22 % 0.11 % Non‑performing assets as a percentage of total assets - % 0.01 % 0.06 % 0.16 % 0.10 % 7 Table of Contents There were no accrual loans that were contractually past due by 90 days or more at December 31, 2023 or 2022.
The FDIC has applied the credits each quarter that the reserve ratio was at least 1.38% to offset the regular deposit insurance assessments of institutions with credits. The Bank did not receive any assessment credits during 2022. During 2021, the Bank received two assessment credits totaling $49 thousand.
The FDIC has applied the credits each quarter that the reserve ratio was at least 1.38% to offset the regular deposit insurance assessments of institutions with credits. The Bank did not receive any assessment credits during 2023 or 2022.
Failure to meet capital requirements can result in supervisory or, potentially, enforcement action. To implement the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.
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.
We participate in and have previously been an “Allocatee” of the New Markets Tax Credit Program of the U.S. Department of the Treasury’s Community Development Financial Institutions Fund. In connection with the New Market Tax Credit activities of the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.
Department of the Treasury’s Community Development Financial Institutions Fund. In connection with the New Market Tax Credit activities of the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.
All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2022. We currently offer adjustable rate loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans.
We currently offer adjustable rate loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans.
At December 31, 2022, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies. ​ At December 31, ​ 2022 2021 2020 ​ Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value ​ (In thousands) Federal agency mortgage-backed securities $ 84,955 $ 74,169 $ 70,078 $ 70,030 $ 5,550 $ 5,807 Federal agency collateralized mortgage obligations (“CMO”) 27,776 26,100 9,391 9,287 – – Federal agency debt 55,687 51,425 38,152 37,988 2,682 2,827 Municipal bonds 4,866 4,197 4,898 4,915 2,000 2,019 U.S.
At December 31, 2023, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies. ​ At December 31, ​ 2023 2022 2021 ​ Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value ​ (In thousands) Federal agency mortgage-backed securities $ 76,091 $ 66,778 $ 84,955 $ 74,169 $ 70,078 $ 70,030 Federal agency collateralized mortgage obligations (“CMO”) 24,720 23,339 27,776 26,100 9,391 9,287 Federal agency debt 50,893 47,836 55,687 51,425 38,152 37,988 Municipal bonds 4,833 4,373 4,866 4,197 4,898 4,915 U.S.
Treasuries 165,997 160,589 18,169 17,951 – – SBA pools 14,048 12,269 16,241 16,225 – – Total $ 353,329 $ 328,749 $ 156,929 $ 156,396 $ 10,232 $ 10,653 The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of December 31, 2022.
Treasuries 167,055 163,880 165,997 160,589 18,169 17,951 SBA pools 12,386 10,744 14,048 12,269 16,241 16,225 Total $ 335,978 $ 316,950 $ 353,329 $ 328,749 $ 156,929 $ 156,396 The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of December 31, 2023.
Restrictions on Dividends and Other Capital Distributions In general, the prompt corrective action regulations prohibit a national bank from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person, such as its parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories set out in the regulations.
The FRB may also determine, based on the relevant facts and circumstances, that a company has otherwise acquired control of a bank holding company. 19 Table of Contents Restrictions on Dividends and Other Capital Distributions In general, the prompt corrective action regulations prohibit a national bank from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person, such as its parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories set out in the regulations.
At December 31, 2022, we had $128.3 million in outstanding FHLB advances and had the ability to borrow up to an additional $70.6 million based on available and pledged collateral.
At December 31, 2023, we had $209.3 million in outstanding FHLB advances and had the ability to borrow up to an additional $117.0 million based on available and pledged collateral.
At December 31, 2022, our securities portfolio, consisting primarily of federal agency debt, mortgage‑backed securities, bonds issued by the United States Treasury and the SBA, and municipal bonds, totaled $328.7 million, o r 27.76 % of t otal assets. We classify investments as held‑to‑maturity or available‑for‑sale at the date of purchase based on our assessment of our internal liquidity requirements.
At December 31, 2023, our securities portfolio, consisting primarily of federal agency debt, mortgage‑backed securities, bonds issued by the United States Treasury and the SBA, and municipal bonds, totaled $317.0 million, or 23.0% of total assets. 11 Table of Contents We classify investments as held‑to‑maturity or available‑for‑sale at the date of purchase based on our assessment of our internal liquidity requirements.
As of December 31, 2022 , our single largest church loan had an outstanding balance of $2.3 million, was current, and was collateralized by a church building and parcel of land in Baltimore, Maryland. At December 31, 2022 , the averag e balance of a loan in our church loan portfolio was $610 thousand.
As of December 31, 2023, our single largest church loan had an outstanding balance of $2.2 million, was current, and was collateralized by a church building and parcel of land in Baltimore, Maryland.
In October 2018, the OCC provided Broadway Federal with a letter of “no supervisory objection” permitting it to increase the non‑multifamily commercial real estate loan concentration limit to 100% of Tier 1 Capital plus ALLL, including a sublimit of 50% for land/construction loans, which brought the total CRE loan concentration limit to 600% of Tier 1 Capital plus ALLL. 18 Table of Contents Loans to One Borrower The Bank is in compliance with the statutory and regulatory limits applicable to loans to any one borrower.
In October 2018, the OCC provided Broadway Federal with a letter of “no supervisory objection” permitting it to increase the non‑multi-family commercial real estate loan concentration limit to 100% of Tier 1 Capital plus ALLL, including a sublimit of 50% for land/construction loans, which brought the total CRE loan concentration limit to 600% of Tier 1 Capital plus ALLL.
Our commercial real estate loans amounted to $114.6 million and $93.2 million at December 31, 2022 and 2021, respectively. Commercial real estate loans represented 14.85% and 14.29% of our gross loan portfolios at December 31, 2022 and 2021, respectively.
Our commercial real estate loans amounted to $119.4 million and $114.6 million at December 31, 2023 and 2022, respectively. Commercial real estate loans represented 13.47% and 14.85% of our gross loan portfolios at December 31, 2023 and 2022, respectively.
The following table details the composition of our portfolio of loans held for investment by type, dollar amount and percentage of loan portfolio at the dates indicated: December 31, 2022 2021 2020 2019 2018 Amount Percent of total Amount Percent of total Amount Percent of total Amount Percent of total Amount Percent of total (Dollars in thousands) Single family $ 30,038 3.89 % $ 45,372 6.96 % $ 48,217 13.32 % $ 72,883 18.23 % $ 91,835 25.69 % Multi‑family 502,141 65.08 % 393,704 60.36 % 272,387 75.24 % 287,378 71.90 % 231,870 64.86 % Commercial real estate 114,574 14.85 % 93,193 14.29 % 24,289 6.71 % 14,728 3.68 % 5,802 1.62 % Church 15,780 2.04 % 22,503 3.45 % 16,658 4.60 % 21,301 5.33 % 25,934 7.25 % Construction 40,703 5.27 % 32,072 4.92 % 429 0.11 % 3,128 0.78 % 1,876 0.52 % Commercial 64,841 8.40 % 46,539 7.13 % 57 0.02 % 262 0.07 % 226 0.06 % SBA Loans 3,601 0.47 % 18,837 2.89 % – – % – – % – – % Consumer 11 – % – – % 7 – % 21 0.01 % 5 – % Gross loans 771,689 100.00 % 652,220 100.00 % 362,044 100.00 % 399,701 100.00 % 357,548 100.00 % Plus: Premiums on loans purchased 35 58 88 171 259 Deferred loan costs, net 1,723 1,471 1,218 1,211 721 Less: Credit and interest marks on purchased loans, net 1,010 1,842 – – – Unamortized discounts 3 3 6 54 43 Allowance for loan losses 4,388 3,391 3,215 3,182 2,929 Total loans held for investment $ 768,046 $ 648,513 $ 360,129 $ 397,847 $ 355,556 Multi‑Family and Commercial Real Estate Lending Our primary lending emphasis has been on the origination of loans for apartment buildings with five or more units.
See “Regulation” for more information on the government regulations to which we are subject. 2 Table of Contents The following table details the composition of our portfolio of loans held for investment by type, dollar amount and percentage of loan portfolio at the dates indicated: December 31, 2023 2022 2021 2020 2019 Amount Percent of total Amount Percent of total Amount Percent of total Amount Percent of total Amount Percent of total (Dollars in thousands) Single-family $ 24,702 2.79 % $ 30,038 3.89 % $ 45,372 6.96 % $ 48,217 13.32 % $ 72,883 18.23 % Multi‑family 561,447 63.33 % 502,141 65.08 % 393,704 60.36 % 272,387 75.24 % 287,378 71.90 % Commercial real estate 119,436 13.47 % 114,574 14.85 % 93,193 14.29 % 24,289 6.71 % 14,728 3.68 % Church 12,717 1.43 % 15,780 2.04 % 22,503 3.45 % 16,658 4.60 % 21,301 5.33 % Construction 89,887 10.14 % 40,703 5.27 % 32,072 4.92 % 429 0.11 % 3,128 0.78 % Commercial 63,450 7.16 % 64,841 8.40 % 46,539 7.13 % 57 0.02 % 262 0.07 % SBA Loans 14,954 1.68 % 3,601 0.47 % 2.89 2.89 % – – % – – % Consumer 13 – % 11 – % - – % 7 - % 21 0.01 % Gross loans 886,606 100.00 % 771,689 100.00 % 652,220 100.00 % 362,044 100.00 % 399,701 100.00 % Plus: Premiums on loans purchased 32 35 58 88 171 Deferred loan costs, net 1,940 1,723 1,471 1,218 1,211 Less: Credit and interest marks on purchased loans, net 772 1,010 1,842 – – Unamortized discounts 1 3 3 6 54 Allowance for credit/loan losses 7,348 4,388 3,391 3,215 3,182 Total loans held for investment $ 880,457 $ 768,046 $ 648,513 $ 360,129 $ 397,847 The following table presents loan categories by maturity for the period indicated.
Multi‑family and commercial real estate loans are generally viewed as exposing the lender to a greater risk of loss than single family residential loans and typically involve higher loan principal amounts than loans secured by single family residential real estate.
Properties securing multi‑family and commercial real estate loans are appraised by management‑approved independent appraisers. Title insurance is required on all loans. Multi‑family and commercial real estate loans are generally viewed as exposing the lender to a greater risk of loss than single-family residential loans and typically involve higher loan principal amounts than loans secured by single-family residential real estate.
For the Years Ended December 31, 2022 2021 2020 Average balance Percent of total Weighted average cost of funds Average balance Percent of total Weighted average cost of funds Average balance Percent of total Weighted average cost of funds (Dollars in thousands) Money market deposits $ 192,835 26.34 % 0.67 % $ 159,157 24.77 % 0.41 % $ 47,611 14.88 % 0.71 % Savings deposits 66,033 9.02 % 0.09 % 67,660 10.53 % 0.30 % 55,985 17.51 % 0.50 % Interest checking and other demand deposits 291,114 39.77 % 0.08 % 223,003 34.70 % 0.05 % 55,003 17.17 % 0.03 % Certificates of deposit 182,050 24.87 % 0.30 % 192,795 30.00 % 0.37 % 161,409 50.44 % 1.56 % Total $ 732,032 100.00 % 0.29 % $ 642,615 100.00 % 0.26 % $ 320,008 100.00 % 0.99 % 13 Table of Contents Borrowings We utilize short‑term and long‑term advances from the FHLB as an alternative to retail deposits as a funding source for asset growth.
For the Years Ended December 31, 2023 2022 2021 Average Balance Percent of Total Weighted Average Cost of Funds Average Balance Percent of Total Weighted Average Cost of Funds Average Balance Percent of Total Weighted Average Cost of Funds (Dollars in thousands) Money market deposits $ 126,831 21.97 % 3.37 % $ 192,835 26.34 % 0.67 % $ 159,157 24.77 % 0.41 % Savings deposits 59,928 10.38 % 0.25 % 66,033 9.02 % 0.09 % 67,660 10.53 % 0.30 % Interest checking and other demand deposits 236,244 40.92 % 0.15 % 291,114 39.77 % 0.08 % 223,003 34.70 % 0.05 % Certificates of deposit 154,275 26.73 % 1.77 % 182,050 24.87 % 0.30 % 192,795 30.00 % 0.37 % Total $ 577,278 100.00 % 1.30 % $ 732,032 100.00 % 0.29 % $ 642,615 100.00 % 0.26 % 13 Table of Contents Borrowings We utilize short‑term and long‑term advances from the FHLB as an alternative to retail deposits as a funding source for asset growth.
Treasuries and $11.9 million of federal agency mortgage-backed securities. As of December 31, 2021, securities sold under agreements to repurchase totaled $52.0 million at an average rate of 0.10%.
Treasuries, $30.2 million of federal agency debt, and $11.0 million of federal agency mortgage-backed securities. As of December 31, 2022, securities sold under agreements to repurchase totaled $63.5 million at an average rate of 0.38%.
Our church loans totaled $15.8 million and $22.5 million at December 31, 2022 and 2021, respectively, which represented 2.04% and 3.45% of our gross loan portfolio at December 31, 2022 and 2021, respectively.
Our church loans totaled $12.7 million and $15.8 million at December 31, 2023 and 2022, respectively, which represented 1.43% and 2.04% of our gross loan portfolio at December 31, 2023 and 2022, respectively.
These multi‑family loans amounted to $502.1 million and $393.7 million at December 31, 2022 and 2021, respectively. Multi‑family loans represented 65.08% of our gross loan portfolio at December 31, 2022 compared to 60.36% of our gross loan portfolio at December 31, 2021. The vast majority of our multi‑family loans amortize over 30 years.
These multi‑family loans amounted to $561.4 million and $502.1 million at December 31, 2023 and 2022, respectively. Multi‑family loans represented 63.33% of our gross loan portfolio at December 31, 2023 compared to 65.08% of our gross loan portfolio at December 31, 2022. Most of our multi‑family loans amortize over 30 years.
Commercial loans represented 8.40% of our loan portfolio as of December 31, 2022. For the year ended December 31, 2022, we originated $26.9 million of commercial loans. As of December 31, 2022, our single largest commercial loan had an outstanding balance of $10.0 million.
Commercial loans represented 7.16% of our loan portfolio as of December 31, 2023. For the year ended December 31, 2023, we originated $43.3 million of commercial loans. As of December 31, 2023, our single largest commercial loan had an outstanding balance of $15.0 million.
Single Family Mortgage Lending While we have historically been primarily a multi‑family and commercial real estate lender, we also have purchased or originated loans secured by single family residential properties, including investor‑owned properties, with maturities of up to 30 years. Single family loans totaled $30.0 million and $45.4 million at December 31, 2022 and 2021, respectively.
At December 31, 2023, the average balance of a loan in our church loan portfolio was $636 thousand. 4 Table of Contents Single-Family Mortgage Lending While we have historically been primarily a multi‑family and commercial real estate lender, we also have purchased or originated loans secured by single-family residential properties, including investor‑owned properties, with maturities of up to 30 years.
Construction loans totaled $40.7 million and $32.1 million at December 31, 2022 and 2021, respectively, and represented 5.27% and 4.92% of our gross loan portfolio at December 31, 2022 and 2021. We acquired $19.8 million of construction loans in the Merger. We provide loans for the construction of single family, multi‑family and commercial real estate projects and for land development.
Construction Lending Construction loans totaled $89.9 million and $40.7 million at December 31, 2023 and 2022, respectively, and represented 10.14% and 5.27% of our gross loan portfolio at December 31, 2023 and 2022. We provide loans for the construction of quality, affordable single-family, multi‑family and commercial real estate projects and for land development.
Actual Minimum Required to be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio (Dollars in thousands) December 31, 2022: Community Bank Leverage Ratio $ 181,304 15.75 % $ 103,591 9.00 % December 31, 2021: Community Bank Leverage Ratio $ 98,590 9.32 % $ 89,871 8.50 % At December 31, 2022, the Company and the Bank met all the capital adequacy requirements to which they were subject.
Actual and required capital amounts and ratios as of the dates indicated are presented below: Actual Minimum Required to be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio (Dollars in thousands) December 31, 2023: Community Bank Leverage Ratio $ 185,773 14.97 % $ 111,696 9.00 % December 31, 2022: Community Bank Leverage Ratio $ 181,304 15.75 % $ 103,591 9.00 % At December 31, 2023, the Company and the Bank met all the capital adequacy requirements to which they were subject.
Of the single family residential mortgage loans outstanding at December 31, 2022, more than 22% had adjustable rate features. We did not purchase any single family loans during 2022 and 2021. Of the $30.0 million of single family loans at December 31, 2022, $19.5 million are secured by investor‑owned properties.
Single-family loans totaled $24.7 million and $30.0 million at December 31, 2023 and 2022, respectively. Of the single-family residential mortgage loans outstanding at December 31, 2023, more than 23% had adjustable rate features. We did not purchase any single-family loans during 2023 and 2022.
Deposit Insurance The FDIC is an independent federal agency that insures deposits of federally insured banks, including national banks, up to prescribed statutory limits for each depositor.
Deposit Insurance The FDIC is an independent federal agency that insures deposits of federally insured banks, including national banks, up to prescribed statutory limits for each depositor. Pursuant to the Dodd‑Frank Act, the maximum deposit insurance amount has been permanently increased to $250,000 per depositor, per ownership category.
Loan Originations, Purchases and Sales The following table summarizes loan originations, purchases, sales, and principal repayments for the periods indicated: 2022 2021 2020 (In thousands) Gross loans: (1) Beginning balance $ 652,220 $ 362,044 $ 399,701 Loans acquired in the merger with CFBanc – 225,885 – Loans originated: Multi‑family 141,625 167,097 120,809 Commercial real estate 75,302 43,567 11,870 PPP Loans – 26,497 – Construction 29,628 24,884 1,529 Commercial 26,877 4,942 66 Total loans originated 273,432 266,987 134,274 Less: Principal repayments 153,963 202,696 67,858 Sales of loans – – 104,073 Ending balance $ 771,689 $ 652,220 $ 362,044 (1) Amount is before deferred origination costs, purchase premiums and discounts, and the allowance for loan losses. 5 Table of Contents Loan originations are derived from various sources including our loan personnel, local mortgage brokers, and referrals from customers.
Loan Originations, Purchases and Sales The following table summarizes loan originations, purchases, sales, and principal repayments for the periods indicated: 2023 2022 2021 (In thousands) Gross loans: (1) Beginning balance $ 771,689 $ 652,220 $ 362,044 Loans acquired in the Merger – – 225,885 Loans originated: Multi‑family 78,873 141,625 167,097 Commercial real estate 28,282 75,302 43,567 PPP Loans – – 26,497 Construction 39,950 29,628 24,884 Commercial 15,000 26,877 4,942 Total loans originated 162,105 273,432 266,987 Less: Principal repayments 47,188 153,963 202,696 Sales of loans – – – Ending balance $ 886,606 $ 771,689 $ 652,220 (1) Amount is before deferred origination costs, purchase premiums and discounts, and the allowance for credit losses.
As of December 31, 2022, securities sold under agreements to repurchase totaled $63.5 million at an average rate of 0.38%. These agreements mature on a daily basis. The market value of securities pledged totaled $64.4 million as of December 31, 2022 and included $33.3 million of federal agency debt, $19.2 million of U.S.
As of December 31, 2023, securities sold under agreements to repurchase totaled $73.5 million at an average rate of 2.60%. These agreements mature on a daily basis. The fair value of securities pledged totaled $89.0 million as of December 31, 2023 and included $47.8 million of U.S.
Our percentage of uninsured deposits was 31% as of December 31, 2022. Lending Activities General Our loan portfolio is comprised primarily of mortgage loans which are secured by multi‑family residential properties, single family residential properties and commercial real estate, including charter schools, community facilities, and churches.
Lending Activities General Our loan portfolio is comprised primarily of mortgage loans which are secured by multi‑family residential properties, single-family residential properties and commercial real estate, including charter schools, community facilities, and churches. The remainder of the loan portfolio consists of commercial business loans, loans guaranteed by the Small Business Administration (the “SBA”) and construction-to-permanent loans.
NPAs at December 31, 2022 decreased to $144 thousand, or 0.01% of total assets, from $684 thousand, or 0.06% of total assets, at December 31, 2021. Non-accrual loans consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings (“TDRs”) that do not qualify for accrual status.
We had no NPAs at December 31, 2023 compared to $ 144 thousand, or 0.01% of total assets, at December 31, 2022. Non-accrual loans consist of delinquent loans that are 90 days or more past due and other loans, including loans modified in response to a borrower’s financial difficulty, that do not qualify for accrual status.
Compensation and Benefits Our market competitive total employee compensation (salaries, bonuses and all benefits and rewards) is a critical tool enabling us to attract and retain talented people.
We also employ several remote workers who are in various locations throughout the U.S. Compensation and Benefits Our market competitive total employee compensation (salaries, bonuses and all benefits and rewards) is a critical tool enabling us to attract and retain talented people.
Multi-family loans in their initial fixed rate period totaled $446.6 million or 58% of our loan portfolio at December 31, 2022. 6 Table of Contents Asset Quality General The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral securing the loan, if any.
During 2023 and 2022, we did not originate or sell any loans that were classified as held for sale. 6 Table of Contents Asset Quality General The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral securing the loan, if any.
Consistent with the requirements of the Dodd‑Frank Act, the FDIC adopted its most recent DIF restoration plan in September 2020; that plan is designed to enable the FDIC to achieve the statutorily required reserve ratio of 1.35% by September 30, 2028. The FDIC Board has set the designated reserve ratio for each of the years 2021 and 2022 at 2%.
These failures dramatically increased the resolution costs incurred by the FDIC and substantially reduced the available amount of the DIF. 17 Table of Contents Consistent with the requirements of the Dodd‑Frank Act, the FDIC adopted its most recent DIF restoration plan in September 2020; that plan is designed to enable the FDIC to achieve the statutorily required reserve ratio of 1.35% by September 30, 2028.
The following table summarizes information concerning our FHLB advances at or for the periods indicated: At or For the Years Ended December 31, 2022 2021 2020 (Dollars in thousands) FHLB Advances: Average balance outstanding during the year $ 61,593 $ 100,471 $ 114,020 Maximum amount outstanding at any month‑end during the year $ 128,823 $ 113,580 $ 121,500 Balance outstanding at end of year $ 128,344 $ 85,952 $ 110,500 Weighted average interest rate at end of year 3.74 % 1.85 % 1.94 % Average cost of advances during the year 1.74 % 1.96 % 1.91 % Weighted average maturity (in months) 13 22 27 The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.
The following table summarizes information concerning our FHLB advances at or for the periods indicated: At or For the Years Ended December 31, 2023 2022 2021 (Dollars in thousands) FHLB Advances: Average balance outstanding during the year $ 177,261 $ 61,593 $ 100,471 Maximum amount outstanding at any month‑end during the year $ 210,242 $ 128,823 $ 113,580 Balance outstanding at end of year $ 209,319 $ 128,344 $ 85,952 Weighted average interest rate at end of year 4.91 % 3.74 % 1.85 % Average cost of advances during the year 4.70 % 1.74 % 1.96 % Weighted average maturity (in months) 2 7 22 On December 27, 2023, the Bank borrowed $100 million from the Federal Reserve under the Bank Term Funding Program (“BTFP”), all of which was outstanding as of December 31, 2023.
We currently have no securities classified as held‑to‑maturity securities. 11 Table of Contents The following table sets forth the amortized cost and fair value of available-for-sale securities by type as of the dates indicated.
As such, no ACL was recorded for available-for-sale securities as of December 31, 2023. The following table sets forth the amortized cost and fair value of available-for-sale securities by type as of the dates indicated.
See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for a further description of dividend and other capital distribution limitations to which the Company and the Bank are subject. 20 Table of Contents Tax Matters Federal Income Taxes We report our income on a calendar year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations.
See Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for a further description of dividend and other capital distribution limitations to which the Company and the Bank are subject.
December 31, 2022 Amount Weighted average rate (Dollars in thousands) Certificates maturing: Less than three months $ 22,624 1.01 % Three to six months 25,429 1.01 % Six to twelve months 55,053 1.72 % Over twelve months 13,318 0.49 % Total $ 116,424 1.29 % The following table presents the distribution of our average deposits for the years indicated and the weighted average interest rates during the year for each category of deposits presented.
December 31, 2023 Amount Weighted Average Rate (Dollars in thousands) Certificates maturing: Less than three months $ 36,101 2.81 % Three to six months 25,278 2.97 % Six to twelve months 61,475 3.59 % Over twelve months 21,254 2.33 % Total $ 144,108 3.10 % The following table presents the distribution of our average deposits for the years indicated and the weighted average interest rates during the year for each category of deposits presented.
The Bank’s DIF assessment is calculated by multiplying its assessment rate by the assessment base, which is defined as the average consolidated total assets less the average tangible equity of the Bank.
The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to the FDIC’s Deposit Insurance Fund (“DIF”). The Bank’s DIF assessment is calculated by multiplying its assessment rate by the assessment base, which is defined as the average consolidated total assets less the average tangible equity of the Bank.
In June 2022, the Company down streamed $75.0 million of the proceeds from the Private Placement to the Bank to enhance capital of the Company. As a result of the downstream, the Bank’s tier 1 leverage ratio increased to 15.75% as of December 31, 2022 from 9.32% as of December 31, 2021.
In June 2022, the Company down streamed $75.0 million of the proceeds from the Private Placement to the Bank to enhance capital of the Bank.
While the Board of Directors oversees the strategic management of our human capital management, our internal Human Resources team drives the day-to-day management of our human capital operations and strategy. As of December 31, 2022, we employed 83 full-time and one part-time employee.
While the Board of Directors oversees the strategic management of our human capital management, our internal Human Resources team drives the day-to-day management of our human capital operations and strategy. As of December 31, 2023, we employed 98 full-time employees. Our employees are primarily located in Los Angeles, California and Washington, D.C. in our corporate offices, branches, and operating facilities.
Community Reinvestment Act and Fair Lending The Community Reinvestment Act, as implemented by OCC regulations (“CRA”), requires each national bank to make efforts to meet the credit needs of the communities it serves, including low‑ and moderate‑income neighborhoods.
At December 31, 2023, our largest loan to a single borrower was $15.0 million; that loan was performing in accordance with its terms and was otherwise in compliance with regulatory requirements. 18 Table of Contents Community Reinvestment Act and Fair Lending The Community Reinvestment Act, as implemented by OCC regulations (“CRA”), requires each national bank to make efforts to meet the credit needs of the communities it serves, including low‑ and moderate‑income neighborhoods.
Borrowers are required to make monthly payments under the terms of such loans. Most of our single family adjustable rate loans behave like fixed rate loans because the loans are still in their initial fixed rate period or are subject to interest rate floors.
Most of our single-family adjustable rate loans behave like fixed rate loans because the loans are still in their initial fixed rate period or are subject to interest rate floors. We qualify our ARM Loan borrowers based upon the fully indexed interest rate (SOFR or other index plus an applicable margin) provided by the terms of the loan.
Our retail banking network includes full service banking offices, automated teller machines and internet banking capabilities that are available using our website at www.ciytfirstbank.com.
Our retail banking network includes full-service banking offices, automated teller machines and internet banking capabilities that are available using our website at www.ciytfirstbank.com. We have three banking offices as of December 31, 2023: two in California (in Los Angeles and in the nearby City of Inglewood) and one in Washington, D.C.
In September of 2021, we redeemed the remaining amounts outstanding under the Debentures for $3.3 million. Market Area and Competition The Bank is a Community Development Financial Institution (“CDFI”) and a certified B Corp, offering a variety of financial services to meet the needs of the communities it serves.
The financial statements of CFC 45 are consolidated with those of the Bank and the Company. 14 Table of Contents Market Area and Competition The Bank is a Community Development Financial Institution (“CDFI”) and a certified B Corp, offering a variety of financial services to meet the needs of the communities it serves.
The specific component relates to loans that are individually classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
Prior to the adoption of ASC 326 on January 1, 2023, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote.
We have three banking offices as of December 31, 2022: two in California (in Los Angeles and in the nearby City of Inglewood) and one in Washington, D.C. 14 Table of Contents Both the Washington , D.C. and the Los Angeles metropolitan areas are highly competitive banking markets for making loans and attracting deposits.
Both the Washington, D.C. and the Los Angeles metropolitan areas are highly competitive banking markets for making loans and attracting deposits.
State attorneys general and state banking agencies and other state financial regulators also may have authority to enforce applicable consumer laws with respect to institutions over which they have jurisdiction.
State attorneys general and state banking agencies and other state financial regulators also may have authority to enforce applicable consumer laws with respect to institutions over which they have jurisdiction. Capital Requirements The Bank’s capital requirements are administered by the OCC and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under applicable regulatory accounting practices.
The mortgage loans that we originate generally include due‑on‑sale clauses, which provide us with the contractual right to declare the loan immediately due and payable if the borrower transfers ownership of the property. 4 Table of Contents Construction Lending The Merger added a construction lending program and portfolio to our existing lending operations and platform.
In addition, because of interest rate caps and floors, market rates may exceed or go below the respective maximum or minimum rates payable on our ARM Loans. The mortgage loans that we originate generally include due‑on‑sale clauses, which provide us with the contractual right to declare the loan immediately due and payable if the borrower transfers ownership of the property.
The interest rates for our single family ARM Loans are indexed to COFI, SOFR, 12‑MTA and 1‑Yr. CMT. All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2022. We currently offer loans with interest rates that adjust either semi‑annually or semi‑annually upon expiration of an initial three‑ or five‑year fixed rate period.
Of the $24.7 million of single-family loans at December 31, 2023, $17.7 million are secured by investor‑owned properties. The interest rates for our single-family ARM Loans are indexed to COFI, SOFR, 12‑MTA and 1‑Yr. CMT. All loans previously indexed to LIBOR were converted to SOFR as of December 31, 2022.
Most commercial real estate loans are originated with principal repayments on a 25- to 30-year amortization schedule but are due in 5 years or 10 years.
Most commercial real estate loans are originated with principal repayments on a 25- to 30-year amortization schedule but are due in 5 years or 10 years. As of December 31, 2023, our single largest commercial real estate credit had an outstanding principal balance of $10.6 million, was current, and was collateralized by a charter school located in Washington, D.C.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur common stock is not insured and stockholders could lose the value of their entire investment. An investment in shares of our common stock is not a deposit and is not insured against loss or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency or authority. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Biggest changeAn investment in shares of our common stock is not a deposit and is not insured against loss or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency or authority. 23 Table of Contents If we were to lose our status as a CDFI, our ability to obtain grants and awards as a CDFI similar to those received in the past may be lost.
Public benefit corporations may also not be attractive targets for activists or hedge fund investors because directors are required to balance our stockholders’ pecuniary interests, the best interests of those materially affected by our conduct, and the public benefit or benefits identified by the Company’s certificate of incorporation, and stockholders committed to the public benefit can bring a suit to enforce this balancing requirement.
Public benefit corporations may also not be attractive targets for activists or hedge fund investors because directors are required to balance our stockholders’ pecuniary interests, the best interests of those materially affected by our Company’s conduct, and the public benefit or benefits identified by the Company’s certificate of incorporation, and stockholders committed to the public benefit can bring a suit to enforce this balancing requirement.
The trading price of our common stock has historically and will likely in the future fluctuate significantly as a result of a number of factors, including the following: ● actual or anticipated changes in our operating results and financial condition; ● actions by our stockholders, including sales of common stock by substantial stockholders and/or directors and executive officers, or perceptions that such actions may occur; ● the limited number of shares of our common stock that are held by the general public, commonly called the “public float,” and our small market capitalization; ● failure to meet stockholder or market expectations regarding loan and deposit volume, revenue, asset quality or earnings; ● failure to meet Nasdaq listing requirements , including failure to satisfy the $1.00 minimum closing bid price requirement ; ● speculation in the press or the investment community relating to the Company or the financial services industry generally; ● fluctuations in the stock price and operating results of our competitors; ● proposed or adopted regulatory changes or developments; ● investigations, proceedings, or litigation that involve or affect us; ● the performance of the national, California and Washington, D.C. economies and the real estate markets in Southern California and Washington, D.C.; 25 Table of Contents ● general market conditions and, in particular, developments related to market conditions for the financial services industry; ● additions or departures of key personnel; ● changes in financial estimates or publication of research reports and recommendations by financial analysts with respect to our common stock or those of other financial institutions; and ● actions taken by bank regulatory authorities, including required additions to our loan loss reserves or the issuance of cease and desist orders, based on adverse evaluations of our loans and other assets, operating results, or management practices and procedures or other aspects of our business.
The trading price of our common stock has historically and will likely in the future fluctuate significantly as a result of a number of factors, including the following: ● actual or anticipated changes in our operating results and financial condition; ● actions by our stockholders, including sales of common stock by substantial stockholders and/or directors and executive officers, or perceptions that such actions may occur; ● the limited number of shares of our common stock that are held by the general public, commonly called the “public float,” and our small market capitalization; 22 Table of Contents ● failure to meet stockholder or market expectations regarding loan and deposit volume, revenue, asset quality or earnings; ● failure to meet Nasdaq listing requirements, including failure to satisfy the $1.00 minimum closing bid price requirement; ● speculation in the press or the investment community relating to the Company or the financial services industry generally; ● fluctuations in the stock price and operating results of our competitors; ● proposed or adopted regulatory changes or developments; ● investigations, proceedings, or litigation that involve or affect us; ● the performance of the national, California and Washington, D.C. economies and the real estate markets in Southern California and Washington, D.C.; ● general market conditions and, in particular, developments related to market conditions for the financial services industry; ● additions or departures of key personnel; ● changes in financial estimates or publication of research reports and recommendations by financial analysts with respect to our common stock or those of other financial institutions; and ● actions taken by bank regulatory authorities, including required additions to our loan loss reserves or the issuance of cease and desist orders, based on adverse evaluations of our loans and other assets, operating results, or management practices and procedures or other aspects of our business.
Our success will depend in part on its ability to retain the talents and dedication of key employees. If key employees terminate their employment, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating operating our business to hiring suitable replacements, which may cause our business to suffer.
Our success will depend in part on its ability to retain the talents and dedication of key employees. If key employees unexpectedly terminate their employment, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating operating our business to hiring suitable replacements, which may cause our business to suffer.
In addition, a decline in real estate values in the regions served could result in the Bank experiencing increases in loan delinquencies and defaults, which result in increases in the amounts of nonperforming assets and which would likely cause the Bank to suffer losses. Our allowance for loan losses may not be adequate to cover actual loan losses.
In addition, a decline in real estate values in the regions served could result in the Bank experiencing increases in loan delinquencies and defaults, which result in increases in the amounts of nonperforming assets and which would likely cause the Bank to suffer losses. Our allowance for credit losses may not be adequate to cover actual loan losses.
Our information technology systems and of our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses.
Our information technology systems and of our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such cybersecurity incident, or to alleviate problems caused by such cybersecurity incident.
This potential claim does not exist for traditional corporations. Therefore, we may be subject to the possibility of increased derivative litigation, which would require the attention of our management, and, as a result, may adversely impact management’s ability to effectively execute our strategy.
This potential claim does not exist for traditional corporations. Therefore, we are subject to the possibility of increased derivative litigation, which would require the attention of our management, and, as a result, may adversely impact management’s ability to effectively execute our strategy.
In addition, the rates of delinquencies, foreclosures, bankruptcies, and loan losses may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. Risks Relating to the Company Being a Public Benefit Corporation We cannot provide any assurance that we will achieve our public benefit purposes.
In addition, the rates of delinquencies, foreclosures, bankruptcies, and loan losses may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. 24 Table of Contents Risks Relating to the Company Being a Public Benefit Corporation We cannot provide any assurance that we will achieve our public benefit purposes.
If the economies in our primary markets experience an overall decline as a result of a natural disaster, adverse weather, or other catastrophic event, demand for loans and our other products and services could be reduced.
If the economies in our primary markets experience an overall decline as a result of a natural disaster, severe weather, or other catastrophic event, demand for loans and our other products and services could be reduced.
In addition, interest rate fluctuations can affect how much money the Bank may be able to lend and its ability to attract and retain customer deposits, which are an important source of funds for making and holding loans. Changes in governmental regulation may impair operations or restrict growth.
In addition, interest rate fluctuations can affect how much money the Bank may be able to lend and its ability to attract and retain customer deposits, which are an important source of funds for making and holding loans. 21 Table of Contents Changes in governmental regulation may impair operations or restrict growth.
Although the risks are organized by headings and each risk is discussed separately, many are interrelated. Risks Relating to Our Business The macroeconomic environment could pose significant challenges for the Company and could adversely affect our financial condition and results of operations.
Although the risks are organized by headings and each risk is discussed separately, many are interrelated. 20 Table of Contents Risks Relating to Our Business The macroeconomic environment could pose significant challenges for the Company and could adversely affect our financial condition and results of operations.
In the event of a conflict between the interests of our stockholders and the specific public benefit purposes we have committed to promote and the interests of other stakeholder constituencies, our directors are obligated to balance those interests, and are deemed to have satisfied their fiduciary duties as long as their decisions are informed and disinterested and are not decisions that no person of ordinary, sound judgment would approve.
In the event of a conflict between the interests of our stockholders and the specific public benefit purposes, we have a commitment to consider the interests of other stakeholder constituencies, and therefore, our directors are obligated to balance those interests, and are deemed to have satisfied their fiduciary duties as long as their decisions are informed and disinterested and are not decisions that no person of ordinary, sound judgment would approve.
In addition, we may not be able to locate or retain suitable replacements in a timely manner if at all for any key employees who leave the Company.
In addition, we may not be able to identify or recruit suitable replacements in a timely manner if at all for any key employees who leave the Company.
The markets in which we operate are susceptible to natural disasters, including earthquakes, fires, drought, flooding, and other catastrophic events, any of which could result in a disruption of our operations and increases in loan losses.
The markets in which we operate are susceptible to natural disasters, including earthquakes, fires, drought, flooding, extreme heat, and other severe weather or catastrophic events, any of which could result in a disruption of our operations and increases in loan losses.
A significant portion of our business is generated from markets that have been, and will continue to be, susceptible to damage by earthquakes, fires, drought, major seasonal flooding, and other natural disasters and catastrophic events.
A significant portion of our business is generated from markets that have been, and will continue to be, susceptible to damage by earthquakes, fires, drought, major seasonal flooding, and other severe weather or catastrophic events.
All of these inflationary risks for our commercial customer base can be financially detrimental, leading to increased likelihood that the customer may default on a loan. In addition, sustained inflationary pressure has led the Federal Reserve to raise interest rates several times during 2022, which increases our interest rate risk.
All of these inflationary risks for our commercial customer base can be financially detrimental, leading to increased likelihood that the customer may default on a loan. In addition, sustained inflationary pressure led the Federal Reserve to raise interest rates seven times in 2022, and four times in 2023, which increased our interest rate risk.
Our pursuit of longer-term or non-pecuniary benefits may not materialize within the timeframe we expect or at all. Accordingly, being a public benefit corporation and complying with the related obligations can have an adverse effect on our financial condition, results of operations, assets or business.
In addition, our pursuit of longer-term or non-pecuniary benefits may not materialize within the timeframe we expect or at all. Accordingly, our corporate form as a public benefit corporation and compliance with the related obligations can have an adverse effect on our financial condition, results of operations, assets or business.
If economic factors cause real estate values in the markets we serve to decline, higher vacancies to occur, or the deterioration of other factors, including , for example, as a result of the COVID-19 pandemic, then the financial condition of the Bank’s borrowers could be harmed, and the collateral for loans will provide less security.
If economic factors cause real estate values in the markets we serve to decline, higher vacancies to occur, or the deterioration of other factors, then the financial condition of the Bank’s borrowers could be harmed, and the collateral for loans will provide less security.
While we intend our status a public benefit corporation to provide an overall net benefit to the Company, our customers, employees, community, and stockholders, it could instead cause us to make decisions and take actions that may not maximize the income generated from our business.
While we intend our status as a public benefit corporation to provide an overall net benefit to the Company, our customers, employees, community, and stockholders, this could result in actions or decisions that may not maximize the income generated from our business.
This causes increases or decreases in the spread and can greatly affect income. Also, the carrying value of our available-for-sale investment portfolio will continue to decrease due to increases in interest rates.
Also, the carrying value of our available-for-sale investment portfolio will continue to decrease due to increases in interest rates.
As a result, we take actions that we believe to be in the best interests of those stakeholders materially affected by our specific benefit purposes, even if those actions do not further our stockholder’s pecuniary interests.
As a result, actions we take that we believe to be in the best interests of those stakeholders and to help achieve our specific benefit purposes do not always fully align with our stockholder’s pecuniary interests.
Further, because the board of directors of a public benefit corporation considers additional constituencies rather than just maximizing stockholder value, Delaware public benefit corporation law could make it easier for a board to reject a hostile bid, even if the takeover would provide the greatest short-term financial gain to stockholders. 24 Table of Contents As a Delaware public benefit corporation, the Company’s directors have a fiduciary duty to consider not only our stockholders’ interests, but also the specific public benefit purposes we have committed to promote and the interests of other stakeholder constituencies.
Further, because the board of directors of a public benefit corporation considers additional constituencies rather than just maximizing stockholder value, Delaware public benefit corporation law could make it easier for a board to reject a hostile bid, even if the takeover would provide the greatest short-term financial gain to stockholders.
Security breaches and viruses potentially exposing sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees, could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities and reputational harm. 23 Table of Contents The financial services industry is undergoing rapid technological change, and we may not have the resources to effectively implement new technology or may experience operational challenges when implementing new technology.
Security breaches and viruses potentially exposing sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees, could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities and reputational harm.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including hostilities between Russia and Ukraine, terrorism, or other geopolitical events. 21 Table of Contents Our future success will depend on our ability to compete effectively in the highly competitive financial services industry in the greater Washington , D.C. and Los Angeles metropolitan areas.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including hostilities between Russia and Ukraine and the conflict in the Middle East, terrorism, or other geopolitical events.
We face strong competition in the Washington, D.C. metropolitan area and the Southern California Market.
Our future success will depend on our ability to compete effectively in the highly competitive financial services industry in the greater Washington, D.C. and Los Angeles metropolitan areas. We face strong competition in the Washington, D.C. metropolitan area and the Southern California Market.
Additionally, such derivative litigation may be costly, which may have an adverse impact on our financial condition, results of operations, assets, or business. General Risk Factors The market price of our common stock is volatile. Stockholders may not be able to resell shares of our common stock at times or at prices they find attractive.
Additionally, such derivative litigation may be costly, which may have an adverse impact on our financial condition, results of operations, assets, or business. 25 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
Removed
The Bank seeks to limit the risk that borrowers will fail to repay loans by carefully underwriting the loans made. Losses nevertheless occur from time to time . The Bank has established allowances for estimated loan losses in its accounting records through loss provisions which are recorded as expenses that reduce income.
Added
Our provision for credit losses is based on estimates of expected lifetime credit losses for loans at the time of origination which may not cover actual future credit losses.
Removed
The Bank has based decisions on the amount of these loss provisions and allowances that are prudent from time to time on estimates of the following factors, among others: ● historical experience with its loans; ● evaluation of current economic conditions; ● reviews of the quality, mix and size of the overall loan portfolio; ● reviews of loan delinquencies, including trends in such delinquencies; and ● the quality of the collateral underlying loans, based in part on independent appraisals by third parties. 22 Table of Contents If the Bank’s actual loan losses exceed the amount that has been allocated for estimated probable losses, our net income and financial condition could be materially and adversely affected.
Added
Management utilizes a variety of inputs in the calculation of its estimate, including historical losses based on peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, and internal loan processes.
Removed
Evaluation of many of the factors that are relevant to the determination of the appropriate levels of loss provisions and allowances is an inherently subjective process, and our conclusions are subject to review by our regulators in the course of regular periodic and special examinations of the Bank.
Added
We use historical loss data provided by our third-party service provider in the calculation of our ACL which may not approximate our own historical loss data. Our ability to accurately forecast and react to future losses may be impaired by significant uncertainties which could result in loan losses and other exposures that could exceed our allowance.
Removed
The regulatory examiners may make different judgments on such matters based on the information available to them at the times of their examinations and may require that we increase the amounts of loss provisions and allowances.
Added
Furthermore, if the models, estimates and assumptions we use to establish our ACL or the judgments we make in extending credit to our borrowers prove inaccurate in predicting future events, the result may also be losses in excess of our ACL.
Removed
In addition, in June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that will replace the current historical approach under GAAP for establishing the allowance for loan losses, which generally considers only past events and current conditions.
Added
As economic conditions change, we may have to increase our ACL, which could adversely affect our results of operations, earnings, and financial condition. Changes in interest rates affect profitability. Changes in prevailing interest rates adversely affect our business.
Removed
This new standard, referred to as Current Expected Credit Loss (“CECL”), requires financial institutions to project a loan’s lifetime losses at origination, as opposed to the current framework which allows adjustments to the provision for loan and lease losses when losses are assessed as probable in an existing loan.
Added
This causes increases or decreases in the spread and can greatly affect income. When the interest rates paid on deposits and borrowings increase faster than the interest rates earned on loans and securities, the Bank’s spread decreases which has a negative impact on profitability.
Removed
Under ASU 2016-13, available-for-sale debt securities are evaluated for impairment if fair value is less than amortized cost, with any estimated credit losses recorded through a credit loss expense and an allowance, rather than a write-down of the investment. Changes in fair value that are not credit-related will continue to be recorded in other comprehensive income.
Added
General Risk Factors We identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or timely, could affect our ability to record, process, and report financial information accurately, impair our ability to prepare financial statements, negatively affect investor confidence, and cause reputational harm.
Removed
On November 15, 2019, FASB issued a new accounting standard, which delayed the effective date of CECL for small banking institutions to interim periods and fiscal years beginning after December 15, 2022.
Added
Effective internal controls are necessary for the Company to provide reliable and accurate financial reporting and financial statements for external purposes in accordance with generally accepted accounting principles. A failure to maintain effective internal control over financial reporting could lead to violations, unintentional or otherwise, of laws and regulations.
Removed
The new standard is expected to result generally in increases to loan loss allowance levels and requires the application of the revised methodology to existing financial assets through a one-time adjustment to retained earnings on January 1, 2023.
Added
As disclosed in Part I, Item 4 “Controls and Procedures,” of our Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2023, we determined that there is a material weakness in our internal control over financial reporting and as a result, our disclosure controls and procedures and internal control over financial reporting were not effective as of September 30, 2023.
Removed
The Company is currently finalizing its CECL implementation by validating the data in the model, preparing supporting documentation, and developing policies and procedures during the first quarter of 2023. Changes in interest rates affect profitability. Changes in prevailing interest rates adversely affect our business.
Added
While the Company is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness, there can be no assurance that the efforts will fully remediate the material weakness in a timely manner.
Removed
We may not be successful in seeking future awards under the United States Department of the Treasury CDFI Fund’s New Markets Tax Credit (“NMTC”) program or such program may not receive Congressional support in the future.
Added
If the Company is unable to remediate the material weakness, or is otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, the Company’s ability to record, process, and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected.
Removed
We may not be able to obtain new NMTC awards due to unsuccessful applications, inability to meet program requirements, or failure of Congress to further extend the program. Federal government agencies periodically determine NMTC award recipients through a nationwide application process that is highly competitive.
Added
Litigation, government investigations, or regulatory enforcement actions arising out of any such failure or alleged failure could subject us to civil and criminal penalties that could materially and adversely affect our reputation, financial condition, and operating results.
Removed
Although we have received prior NMTC awards, we may not be successful in future NMTC applications, or may not meet the qualifications to apply for NMTC awards, and may not be able to successfully expand our current NMTC lending program into the Southern California market.
Added
The material weakness, remediation efforts, and any related litigation, government investigations, or regulatory enforcement actions will require management attention and resources and cause us to incur unanticipated costs, and could negatively affect investor confidence in our financial statements, cause us reputational harm, and raise other risks to our operations. The market price of our common stock is volatile.
Removed
The NMTC program relies on Congressional extension of the program; in 2020, the program was extended through 2025. If the NMTC program requirements change so we are unable to qualify, or the program does not receive Congressional support after 2025, we will no longer be able to continue our participation in the NMTC program.
Added
Stockholders may not be able to resell shares of our common stock at times or at prices they find attractive.
Removed
Failure to obtain new NMTC awards may have an adverse effect on our financial condition, results of operations, assets or business. If we were to lose our status as a CDFI, our ability to obtain grants and awards as a CDFI similar to those received in the past may be lost.
Added
Our common stock is not insured and stockholders could lose the value of their entire investment.
Added
Further, there can be no assurance that our insurance coverage will be sufficient to cover any losses that may result from a cybersecurity incident or breach of our systems. The financial services industry is undergoing rapid technological change, and we may not have the resources to effectively implement new technology or may experience operational challenges when implementing new technology.
Added
As a Delaware public benefit corporation, the Company’s directors have a fiduciary duty to consider not only our stockholders’ interests, but also the specific public benefit purposes we have committed to promote and the interests of other stakeholder constituencies.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeWe believe that all the properties are adequately covered by insurance, and that our facilities are adequate to meet our present needs. 26 Table of Contents Location Leased or Owned Original Date Leased or Acquired Date of Lease Expiration East Coast Administrative Offices & Branch 1432 U Street NW Washington, D.C. 20009 Owned 2003 – Employee Parking Lot 14 T Street NW Washington, D.C. 20009 Owned 2018 – West Coast Administrative Offices/Loan Origination Center 4601 Wilshire Blvd, Suite 150 Los Angeles, CA 90010 Leased 2021 Oct. 2026 Branch Office/Loan Service Center 170 N.
Biggest changeLocation Leased or Owned Original Date Leased or Acquired Date of Lease Expiration East Coast Administrative Offices & Branch 1432 U Street NW Washington, D.C. 20009 Owned 2003 – Employee Parking Lot 14 T Street NW Washington, D.C. 20009 Owned 2018 – West Coast Administrative Offices/Loan Origination Center 4601 Wilshire Blvd, Suite 150 Los Angeles, CA 90010 Leased 2021 Oct. 2026 Branch Office/Loan Service Center 170 N.
There are no mortgages, material liens or encumbrances against any of our owned properties.
There are no mortgages, material liens or encumbrances against any of our owned properties. We believe that all the properties are adequately covered by insurance, and that our facilities are adequate to meet our present needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+9 added−1 removed2 unchanged
Biggest changePlan category Number of securities to be issued upon exercise of outstanding options , warrants and rights (a) Weighted average exercise price of outstanding options , warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders: 2008 Long Term Incentive Plan 250,000 $ 1.62 – 2018 Long Term Incentive Plan – – – Equity compensation plans not approved by security holders: None – – – Total 250,000 $ 1.62 395,309 In February 2022 and 2021, the Company awarded 47,187 and 20,736 shares of common stock, respectively, to its directors under the 2018 LTIP, which are fully vested.
Biggest changePlan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders: 2008 Long Term Incentive Plan – $ – – 2018 Long Term Incentive Plan 31,250 12.96 449,871 Equity compensation plans not approved by security holders: None – – – Total 31,250 $ 12.96 449,871 On June 21, 2023, the Company issued 92,720 shares of restricted stock to its officers and employees under the Amended and Restated 2018 Long-Term Incentive Plan (“LTIP”), of which 11,237 shares have been forfeited as of December 31, 2023.
We suspended our prior policy of paying regular cash dividends in May 2010 in order to retain capital for reinvestment in the Company’s business. Unregistered Sales of Equity Securities None.
We suspended our prior policy of paying regular cash dividends in May 2010 in order to retain capital for reinvestment in the Company’s business.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Capital Market under the symbol “BYFC.” The closing sale price for our common stock on the Nasdaq Capital Market on March 30, 2023 was $1. 13 per share.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Capital Market under the symbol “BYFC.” The closing sale price for our common stock on the Nasdaq Capital Market on April 30, 2024 was $4.96 per share.
Repurchases of Equity Securities None. 27 Table of Contents Equity Compensation Plan Information The following table provides information about the Company’s common stock that may be issued under equity compensation plans as of December 31, 2022.
Equity Compensation Plan Information The following table provides information about the Company’s common stock that may be issued under equity compensation plans as of December 31, 2023.
These awarded shares of restricted stock fully vest over periods ranging from 36 months to 60 months from their respective dates of grant. Stock-based compensation is recognized on a straight-line basis over the vesting period. There were no shares issued to officers and directors during 2021.
Each restricted stock award was valued based on the fair value of the stock on the date of the award. These awarded shares of restricted stock fully vest over periods ranging from 36 months to 60 months from their respective dates of grant. Stock-based compensation is recognized on a straight-line basis over the vesting period.
The Company recorded $84 thousand and $45 thousand of compensation expense in the years ended December 31, 2022 and December 31, 2021, respectively, based on the fair value of the stock, which was determined using the average of the high and the low price of the stock on the date of the award.
The Company recorded $95 thousand and $84 thousand of compensation expense in the years ended December 31, 2023 and December 31, 2022, respectively, based on the fair value of the stock on the date of the award.
In March of 2022, the Company issued 495,262 shares to its officers and employees under the 2018 LTIP. Each restricted stock award was valued based on the fair value of the stock on the date of the award.
In March 2022, the Company issued 61,908 shares of restricted stock to its officers and employees under the LTIP, of which 17,012 shares have been forfeited as of December 31, 2023. Each restricted stock award was valued based on the fair value of the stock on the date of the award.
During 2022 and 2021, the Company recorded $363 thousand and $153 thousand of stock-based compensation expense related to shares awarded to employees. In July of 2021, the Company awarded 64,516 shares of common stock to its Chief Executive Officer, which are fully vested.
During the year ended December 31, 2023, the Company recorded $104 thousand of stock-based compensation expense related to these restricted stock awards. In February 2023 and 2022, the Company awarded 9,230 and 5,898 shares of common stock, respectively, to its directors under the LTIP, which are fully vested.
As of March 30, 2023 , we had 9,285 stockholders of record and 48,721,223 shares of Class A voting common stock outstanding. At that date, we also had 11,404,618 shares of Class B non‑voting common stock outstanding and 13,380,516 shares of Class C non-voting stock outstanding.
As of April 25, 2024, we had 5,805 stockholders of record. As of April 30, 2024, we had 6,033,212 shares of Class A voting common stock outstanding, 1,425,574 shares of Class B non‑voting common stock outstanding and 1,672,562 shares of Class C non-voting stock outstanding.
Removed
The Company recorded $200 thousand of compensation expense for the year ended December 31, 2021 based on the fair value of the stock, which was determined using the average of the high and the low price of the stock on the date of the award.
Added
On October 31, 2023, the Company effected a reverse stock split of the Company’s outstanding shares of Class A common stock, Class B common stock, and Class C common stock, par value $0.01 per share, at a ratio of 1-for-8 (the “Reverse Stock Split”).
Added
The shares of Class A Common Stock listed on The Nasdaq Capital Market commenced trading on The Nasdaq Capital Market on a post- Reverse Stock Split adjusted basis at the open of business on November 1, 2023.
Added
As a result of the Reverse Stock Split, the number of issued and outstanding shares of common stock immediately prior to the Reverse Stock Split was reduced such that every 8 shares of common stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of common stock.
Added
All common stock share amounts and per share numbers discussed herein have been retroactively adjusted, as applicable, for the Reverse Stock Split. 27 Table of Contents Unregistered Sales of Equity Securities None.
Added
Repurchases of Equity Securities Period (a) Total number of share purchased (1) (b) Average price paid per share (1) (c) Total number of share purchased as part of publicly announced plans or programs (d) Maximum number (or approximate dollar value) or shares that may yet be purchased under the plans or programs October 2023 244,771 (2) $7.2760 (2) — — November 2023 — — — — December 2023 — — — — Total 244,771 $7.2760 — — (1) Share and per share amounts have been retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023.
Added
(2) On October 31, 2023 the Company purchased 244,771 shares of its Class A (voting) Common Stock (adjusted for the 1-for-8 reverse stock split effective November 1, 2023) from the Federal Deposit Insurance Corporation (“FDIC”), which obtained the shares when it was appointed receiver for First Republic Bank upon its closure earlier in 2023.
Added
The purchased shares represented just under 4.0% of the Company’s total voting shares prior to the purchase, and over 2.6% of the Company’s total common equity.
Added
The Company purchased the shares at a price of $7.2760 per share (adjusted for the 1-for-8 reverse stock split effective November 1, 2023), which represented the 20-day volume weighted average price for the Class A shares over the period ended October 24, 2023. The purchase was financed from cash on hand and the shares were retired.
Added
These awarded shares of restricted stock fully vest over periods ranging from 36 months to 60 months from their respective dates of grant. Stock-based compensation is recognized on a straight-line basis over the vesting period. During 2023 and 2022, the Company recorded $139 thousand and $133 thousand of stock-based compensation expense related to shares awarded to employees.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

71 edited+38 added−51 removed24 unchanged
Biggest changeWe 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. 30 Table of Contents For the Years Ended December 31, 2022 2021 2020 (Dollars in thousands) Average Balance Interest Average Yield/ Cost Average Balance Interest Average Yield/ Cost Average Balance Interest Average Yield/ Cost Assets Interest-earning assets: Interest-earning deposits $ 147,482 $ 1677 1.14 % $ 203,493 $ 302 0.15 % $ 49,377 $ 203 0.41 % Securities 252,285 5596 2.22 % 121,623 1,396 1.15 % 10,605 253 2.39 % Loans receivable (1) 674,837 28,732 (2) 4.26 % 537,872 22,831 (3) 4.24 % 418,952 17,016 (4) 4.06 % FRB and FHLB stock 3,732 264 7.07 % 3,862 223 5.77 % 3,438 172 5.00 % Total interest-earning assets 1,078,336 $ 36,269 3.36 % 866,850 $ 24,752 2.86 % 482,372 $ 17,644 3.66 % Non-interest-earning assets 65,213 51,386 10,530 Total assets $ 1,143,549 $ 918,236 $ 492,902 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Money market deposits $ 192,835 $ 1,288 0.67 % $ 159,157 $ 660 0.41 % $ 47,611 $ 340 0.71 % Savings deposits 66,033 58 0.09 % 67,660 204 0.30 % 55,985 281 0.50 % Interest checking and other demand deposits 291,114 220 0.08 % 223,003 105 0.05 % 55,003 19 0.03 % Certificate accounts 182,050 538 0.30 % 192,795 707 0.37 % 161,409 2523 1.56 % Total deposits 732,032 2,104 0.29 % 642,615 1,676 0.26 % 320,008 3,163 0.99 % FHLB advances 61,593 1,071 1.74 % 100,471 1,968 1.96 % 114,020 2,179 1.91 % Junior subordinated debentures – – – % 2,335 60 2.57 % 3,908 133 3.40 % Other borrowings 61,106 234 0.38 % 46,836 45 0.10 % – – – % Total borrowings 122,699 1,305 1.06 % 149,642 2,073 1.39 % 117,928 2,312 1.96 % Total interest-bearing liabilities 854,731 $ 3,409 0.40 % 792,257 $ 3,749 0.47 % 437,936 $ 5,475 1.25 % Non-interest-bearing liabilities 64,931 20,050 5,655 Stockholders’ equity 223,887 105,929 49,311 Total liabilities and stockholders’ equity $ 1,143,549 $ 918,236 $ 492,902 Net interest rate spread (5) $ 32,860 2.96 % $ 21,003 2.38 % $ 12,169 2.41 % Net interest rate margin (6) 3.05 % 2.42 % 2.52 % Ratio of interest-earning assets to interest-bearing liabilities 126.16 % 109.42 % 110.15 % (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.
Biggest changeFor the Years Ended December 31, 2023 2022 2021 (Dollars in thousands) Average Balance Interest Average Yield/ Cost Average Balance Interest Average Yield/ Cost Average Balance Interest Average Yield/ Cost Assets Interest-earning assets: Interest-earning deposits $ 14,013 $ 573 4.09 % $ 147,482 $ 1,677 1.14 % $ 203,493 $ 302 0.15 % Securities 322,764 8,697 2.69 % 252,285 5,596 2.22 % 121,623 1,396 1.15 % Loans receivable (1) 808,850 37,143 4.59 % 674,837 28,732 (2) 4.26 % 537,872 22,831 (3) 4.24 % FRB and FHLB stock 11,860 815 6.87 % 3,732 264 7.07 % 3,862 223 5.77 % Total interest-earning assets 1,157,486 $ 47,228 4.08 % 1,078,336 $ 36,269 3.36 % 866,850 $ 24,752 2.86 % Non-interest-earning assets 74,138 65,213 51,386 Total assets $ 1,231,624 $ 1,143,549 $ 918,236 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Money market deposits $ 126,831 $ 4,269 3.37 % $ 192,835 $ 1,288 0.67 % $ 159,157 $ 660 0.41 % Savings deposits 59,928 147 0.25 % 66,033 58 0.09 % 67,660 204 0.30 % Interest checking and other demand deposits 236,244 360 0.15 % 240,380 220 0.08 % 213,286 105 0.05 % Certificate accounts 154,275 2736 1.77 % 182,050 538 0.30 % 192,795 707 0.37 % Total deposits 577,278 7,512 1.30 % 681,298 2,104 0.31 % 632,898 1,676 0.26 % FHLB advances 177,261 8,331 4.70 % 61,593 1,071 1.74 % 100,471 1,968 1.96 % Junior subordinated debentures – – – % – – – % 2,335 60 2.57 % BTFP borrowing 822 40 4.87 % – – – % – – – % Other borrowings 72,465 1,883 2.60 % 61,106 234 0.38 % 46,836 45 0.10 % Total borrowings 250,548 10,254 4.09 % 122,699 1,305 1.06 % 149,642 2,073 1.39 % Total interest-bearing liabilities 827,826 $ 17,766 2.15 % 803,997 $ 3,409 0.42 % 782,540 $ 3,749 0.48 % Non-interest-bearing liabilities 125,401 115,665 29,767 Stockholders’ equity 278,397 223,887 105,929 Total liabilities and stockholders’ equity $ 1,231,624 $ 1,143,549 $ 918,236 Net interest rate spread (4) $ 29,462 1.93 % $ 32,860 2.94 % $ 21,003 2.38 % Net interest rate margin (5) 2.55 % 3.05 % 2.42 % Ratio of interest-earning assets to interest-bearing liabilities 139.82 % 134.12 % 110.77 % (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.
Typically, our results of operations are also affected by our provision for loan losses, non-interest income generated from service charges and fees on loan and deposit accounts, gains or losses on the sale of loans and REO, non-interest expenses, and income taxes.
Typically, our results of operations are also affected by our provision for credit losses, non-interest income generated from service charges and fees on loan and deposit accounts, gains or losses on the sale of loans and REO, non-interest expenses, and income taxes.
Management’s assessment of goodwill is performed in accordance with ASC 350-20 – Intangibles-Goodwill and Other, which allows the Company to perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. The Company performed its qualitative assessment as of December 31, 2022.
Management’s assessment of goodwill is performed in accordance with ASC 350-20 – Intangibles-Goodwill and Other , which allows the Company to perform a qualitative assessment of goodwill to determine if it is more likely than not the fair value of the Company’s equity is below its carrying value. The Company performed its qualitative assessment as of December 31, 2023.
In addition to our lending commitments, we have contractual obligations related to operating lease commitments. Operating lease commitments are obligations under various non‑cancellable operating leases on buildings and land used for office space and banking purposes. The following table details our contractual obligations at December 31, 2022.
In addition to our lending commitments, we have contractual obligations related to operating lease commitments. Operating lease commitments are obligations under various non‑cancellable operating leases on buildings and land used for office space and banking purposes. The following table details our contractual obligations at December 31, 2023.
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.
In addition, the OCC and the FDIC periodically review the ACL as an integral part of their examination process. These agencies may require an increase in the ACL based on their judgments of the information available to them at the time of their examinations.
The current regulatory capital requirements and possible consequences of failure to maintain compliance are described in Part I, Item 1 “Business‑Regulation” and in Note 18 “Regulatory Matters” of the Notes to Consolidated Financial Statements.
The current regulatory capital requirements and possible consequences of failure to maintain compliance are described in Part I, Item 1 “Business‑Regulation” and in Note 16 “Regulatory Matters” of the Notes to Consolidated Financial Statements.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. As a result, the Bank’s performance is influenced by general macroeconomic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies.
Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. 36 Table of Contents As a result, the Bank’s performance is influenced by general macroeconomic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies.
At December 31, 2022, NPLs totaled $144 thousand (or 0.02% of gross loans) compared to $684 thousand (or 0.10% of gross loans) at December 31, 2021. The decrease in NPLs was the result of payments received from borrowers that were applied to the outstanding principal balance. The Bank did not have any REO at December 31, 2022 or 2021.
At December 31, 2023, NPLs totaled $0 compared to $144 thousand (or 0.02% of gross loans) at December 31, 2022. The decrease in NPLs was the result of payments received from borrowers that were applied to the outstanding principal balance. The Bank did not have any REO at December 31, 2023 or 2022.
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 $70.6 million at December 31, 2022 based on pledged collateral.
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 $117.0 million at December 31, 2023 based on pledged collateral.
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 Years Ended December 31, 2022 2021 2020 Return on average assets 0.52 % (0.54 )% (0.13 )% Return on average equity 2.19 % (4.46 )% (1.30 )% Average equity to average assets 23.60 % 11.54 % 10.00 % Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 General Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense.
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 Years Ended December 31, 2023 2022 2021 Return on average assets 0.37 % 0.52 % (0.54 )% Return on average equity 1.62 % 2.19 % (4.46 )% Average equity to average assets 22.60 % 23.60 % 11.54 % Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 General Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense.
Treasury in 2022 and the private placements completed in December 2016, and April 2021 and dividends received from the Bank in 2021 and 2022. The Company recorded consolidated net cash inflows from operating activities of $6.3 million and $624 thousand during the years ended December 31, 2022 and 2021, respectively.
Treasury in 2022 and the private placements completed in December 2016, and April 2021 and dividends received from the Bank in 2022 and 2023. 35 Table of Contents The Company recorded consolidated net cash inflows from operating activities of $7.6 million and $6.3 million during the years ended December 31, 2023 and 2022, respectively.
During the year ended December 31, 2022, the Company recorded $138 thousand of change in deferred tax estimate expense related to the goodwill asset. No impairment charges were recorded during 2022 for goodwill impairment.
During the year ended December 31, 2023, the Company recorded no change in the deferred tax estimate expense related to the goodwill asset. No impairment charges were recorded during 2023 for goodwill impairment.
During the year ended December 31, 2022, the Company recorded $435 thousand of amortization expense related to the core deposit intangible asset.
During the year ended December 31, 2023, the Company recorded $390 thousand of amortization expense related to the core deposit intangible asset.
Interest income and fees on loans receivable increased by $5.9 million during the year ended December 31, 2022, compared to the year ended December 31, 2021. This increase was primarily due to an increase of $137.0 million in the average balance of loans receivable which increased interest income by $5.8 million.
Interest income and fees on loans receivable increased by $8.4 million during the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was primarily due to an increase of $134.0 million in the average balance of loans receivable which increased interest income by $6.0 million.
Net cash inflows from operating activities during 2022 were primarily attributable to net income of $5.7 million and a $1.5 million net change in deferred taxes . Net cash inflows from operating activities during 2021 were primarily attributable to an increase in accrued expenses and other liabilities.
Net cash inflows from operating activities during 2023 were primarily attributable to net income of $4.5 million and a $2.3 million net increase in accrued expenses and other liabilities . Net cash inflows from operating activities during 2022 were primarily attributable to net income of $5.7 million and a $1.5 million increase in deferred taxes.
Loans Receivable Held for Investment Loans receivable held for investment, net of the allowance for loan losses, totaled $768.0 million at December 31, 2022, compared to $648.5 million at December 31, 2021.
Loans Receivable Held for Investment Loans receivable held for investment, net of the allowance for credit losses, totaled $880.5 million at December 31, 2023, compared to $768.0 million at December 31, 2022.
We believe the ALLL is adequate to cover probable incurred losses in the loan portfolio as of December 31, 2022, but because of uncertainty regarding the future value of commercial real estate , there can be no assurance that actual losses will not exceed the estimated amounts.
We believe the ACL is adequate to cover expected losses in the loan portfolio as of December 31, 2023, but because of uncertainty regarding the future value of the loan portfolio, there can be no assurance that actual losses will not exceed the estimated amounts.
In addition, there was an increase in the average loan yield from 4.24% for the year ended December 31, 2021, to 4.26% for the year ended December 31, 2022, which increased interest income by $70 thousand.
In addition, there was an increase in the average loan yield from 4.26% for the year ended December 31, 2022, to 4.59% for the year ended December 31, 2023, which increased interest income by $2.4 million.
The Company recorded an income tax expense of $2.4 million for the year ended December 31, 2022, representing an effective tax rate of 29.7%, compared to an income tax benefit of $937 thousand for the year ended December 31, 2021, representing an effective tax benefit rate of 19.2%.
The Company recorded an income tax expense of $2.0 million for the year ended December 31, 2023, representing an effective tax rate of 30.4%, compared to an income tax expense of $2.4 million for the year ended December 31, 2022, representing an effective tax rate of 29.7%.
Our ALLL was $4.4 million or 0.57% of our gross loans receivable held for investment at December 31, 2022 compared to $3.4 million, or 0.52% of our gross loans receivable held for investment at December 31, 2021.
Our ACL was $7.3 million or 0.83% of our gross loans receivable held for investment at December 31, 2023 compared to $4.4 million, or 0.57% of our gross loans receivable held for investment at December 31, 2022.
The Bank’s liquid assets at December 31, 2022 consisted of $16.1 million in cash and cash equivalents and $250.3 million in securities available‑for‑sale that were not pledged, compared to $231.5 million in cash and cash equivalents and $52.4 million in securities available‑for‑sale that were not pledged at December 31, 2021.
The Bank’s liquid assets at December 31, 2023 consisted of $105.2 million in cash and cash equivalents and $186.0 million in securities available‑for‑sale that were not pledged, compared to $16.1 million in cash and cash equivalents and $250.3 million in securities available‑for‑sale that were not pledged at December 31, 2022.
Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the Merger.
The Company’s book value per common share was $14.65 at December 31, 2023, and its tangible book value per common share was $11.55 at December 31, 2023. Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the Merger.
Two customer relationships accounted for 97% of our balance of securities sold under agreements to repurchase. We expect to maintain these relationships for the foreseeable future. In connection with the New Market Tax Credit activities of City First Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.
We expect to maintain this relationship for the foreseeable future. In connection with the New Market Tax Credit activities of City First Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.
A reconciliation between book value (calculated in accordance with GAAP) and tangible book value per common share December 31, 2022 is shown as follows: Common Equity Capital Shares Outstanding Per Share Amount (Dollars in thousands) Common book value $ 129,482 73,432,517 $ 1.76 Less: Goodwill 25,858 Net unamortized core deposit intangible 2,501 Tangible book value $ 101,123 73,432,517 $ 1.38 Capital Resources Our principal subsidiary, City First, must comply with capital standards established by the OCC in the conduct of its business.
A reconciliation between common book value (calculated in accordance with GAAP) and tangible book value per common share December 31, 2023 is shown as follows: Common Equity Capital Shares Outstanding Per Share Amount (Dollars in thousands) Common book value $ 131,903 9,001,613 $ 14.65 Less: Goodwill 25,858 Net unamortized core deposit intangible 2,111 Tangible book value $ 103,934 9,001,613 $ 11.55 Capital Resources Our principal subsidiary, City First, must comply with capital standards established by the OCC in the conduct of its business.
During the first quarter of 2022, the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3.0 million, plus accrued dividends, for 1,193,317 shares of Class A Common Stock at an exchange price of $2.51 per share of Class A Common Stock. 35 Table of Contents During December of 2022, the Company issued a $5 million line of credit to the ESOP Plan for the purchase of additional shares.
During the first quarter of 2022, the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3.0 million, plus accrued dividends, for 149,164 shares of Class A Common Stock at an exchange price of $2.51 per share of Class A Common Stock.
The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. Merger with CFBanc Corporation On April 1, 2021, the Company completed its Merger with CFBanc, with Broadway Financial Corporation continuing as the surviving entity.
The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
The Company also recorded $41 thousand in higher interest income on regulatory stock during 2022, primarily due to dividends earned on FRB and FHLB stock. Interest expense on deposits increased by $428 thousand during calendar 2022, compared to calendar 2021, due to an increase of 3 basis points in the average cost of deposits.
The Company also recorded $551 thousand in higher interest income on regulatory stock during 2023, primarily due to an $8.1 million increase in average balances of FRB & FHLB stock. Interest expense on deposits increased by $5.4 million during calendar 2023, compared to calendar 2022, due to an increase of 99 basis points in the average cost of deposits.
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 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.
(6) Net interest rate margin represents net interest income as a percentage of average interest‑earning 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.
(5) Net interest rate margin represents net interest income as a percentage of average interest‑earning assets. 30 Table of Contents Changes in our net interest income are a function of changes in both rates and volumes of interest earning assets and interest-bearing liabilities.
Net cash inflows from investing activities during 2021 were primarily attributable to $84.7 million of cash acquired in the Merger offset by net loan originations of $62.4 million and purchases of available-for-sale securities of $16.5 million. 36 Table of Contents The Company recorded consolidated net cash inflows from financing activities of $102.2 million and $109.8 million during the years ended December 31, 2022 and 2021, respectively.
Net cash outflows from investing activities during 2022 were primarily attributable to $215.5 million of purchases of available-for-sale securities and $120.0 of net loan originations . The Company recorded consolidated net cash inflows from financing activities of $181.5 million and $102.2 million during the years ended December 31, 2023 and 2022, respectively.
Borrowings Total borrowings at December 31, 2022 consisted of advances to the Bank from the FHLB of $128.3 million, repurchase agreements of $63.5 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million, compared to advances from the FHLB of $86.0 million, repurchase agreements of $52.0 million, and borrowings associated with our Qualified Active Low-Income Business lending activities of $14.0 million at December 31, 2021.
Borrowings Total borrowings at December 31, 2023 consisted of advances to the Bank from the FHLB of $209.3 million, repurchase agreements of $73.5 million, and borrowings associated with the BTFP borrowing activities of $100.0 million, compared to advances from the FHLB of $128.3 million and repurchase agreements of $63.5 million at December 31, 2022.
See Note 1 “Summary of Significant Accounting Policies” and Note 16 “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 the actual income tax benefit. 32 Table of Contents Comparison of Financial Condition at December 31, 2022 and 2021 Total Assets Total assets increased by $90.8 million to $1.2 billion at December 31, 2022, from $1.1 billion at December 31, 2021.
See Note 1 “Summary of Significant Accounting Policies” and Note 14 “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 the actual income tax benefit.
The increase of $119.5 million in loans receivable held for investment during 2022 was primarily due originations of $273.4 million in new loans, $141.6 million of which multi-family loans, $75.3 million of which were commercial real estate loans, $29.6 million of which were construction loans and $26.9 million of which were other loans.
The increase of $112.4 million in loans receivable held for investment during 2023 was primarily due to originations of $162.1 million in new loans, $78.9 million of which were multi-family loans, $40 million of which were construction loans, $26.8 million of which were commercial loans, and $16.4 million of which were commercial real estate loans.
As of December 31, 2022, securities sold under agreements to repurchase totaled $63.5 million at an average rate of 0.38%. These agreements mature on a daily basis. The market value of securities pledged totaled $64.4 million as of December 31, 2022 and included $33.3 million of federal agency debt, $19.2 million of U.S.
The fair value of securities pledged totaled $89.0 million as of December 31, 2023 and included $47.8 million of U.S. Treasuries, $30.2 million of federal agency debt, and $11.0 million of federal agency mortgage-backed securities. As of December 31, 2022, securities sold under agreements to repurchase totaled $63.5 million at an average rate of 0.38%.
Balances of outstanding FHLB advances increased to $128.3 million at December 31, 2022, from $86.0 million at December 31, 2021, primarily due to $95.5 million in advances from the FHLB of Atlanta, offset by repayments of $53.0 million of advances from the FHLB of San Francisco and $140 thousand of advances from the FHLB of Atlanta.
Balances of outstanding FHLB advances increased to $209.3 million at December 31, 2023, from $128.3 million at December 31, 2022, primarily due to $456.1 million in advances from the FHLB of Atlanta, offset by repayments of $375.1 million of advances from the FHLB of Atlanta.
Net cash inflows from financing activities during 2022 were primarily attributable to $150.0 million from the issuance of preferred stock, $95.5 million of proceeds from FHLB advances, offset by $101.1 million of net outflow of deposits and $53.1 million of FHLB repayments.
Net cash inflows from financing activities during 2022 were primarily attributable to $150.0 million from the issuance of preferred stock and $95.5 million of proceeds from FHLB advances, offset by $101.1 million of net outflow of deposits and $53.1 million of FHLB repayments We believe that the Company’s existing cash, cash equivalents and marketable securities will be sufficient to meet our liquidity requirements and capital expenditure needs over at least the next 12 months.
The following table outlines the estimated amortization expense related to the core deposit intangible asset during the next five fiscal years and thereafter: (In thousands) 2023 $ 390 2024 336 2025 315 2026 304 2027 291 Thereafter 865 $ 2,501 Total Liabilities Total liabilities decreased by $47.8 million to $904.6 million at December 31, 2022 from $952.4 million at December 31, 2021.
The following table outlines the estimated amortization expense related to the core deposit intangible asset during the next five fiscal years and thereafter: (In thousands) 2024 $ 336 2025 315 2026 304 2027 291 2028 279 Thereafter 586 $ 2,111 33 Table of Contents Deposits Deposits at December 31, 2023 were $682.6 million compared to $686.9 million at December 31, 2022.
In addition, we had an increase of 107 basis points in the average interest yield earned on investment securities during 2022, which reflected the rising interest rate environment and increased interest income by $2.0 million. 29 Table of Contents Other interest income increased by $1.4 million in 2022, compared to the same period in 2021, primarily due to an increase of 99 basis points in average yield which increased interest income by $1.5 million.
In addition, we had an increase of 47 basis points in the average interest yield earned on investment securities during 2023, which reflected the rising interest rate environment and increased interest income by $1.3 million.
Overview Total assets increased by $90.8 million at December 31, 2022, compared to December 31, 2021, primarily due to growth in investment securities available-for-sale of $172.4 million and growth in net loans of $119.5 million, partially offset by a decrease of $215.4 million in cash and cash equivalents.
Overview Total assets increased by $191.1 million to $1.4 billion at December 31, 2023, compared to $1.2 billion at December 31, 2022, primarily due to growth in net loans of $112.4 million and growth in interest-bearing deposits in other banks of $91.1 million, partially offset by a decrease of $12.0 million in investment securities available-for-sale.
Also, some other depositors left the Bank for higher interest rates available elsewhere, even after management made reasonable attempts to be responsive to the higher interest rate environment. Five customer relationships accounted for approximately 27% of our deposit balances at December 31, 2022. We expect to maintain these relationships with these customers for the foreseeable future.
The decrease in deposits of $4.3 million was primarily caused by some depositors leaving the Bank for higher interest rates available elsewhere, even after management made reasonable attempts to be responsive to the higher interest rate environment. Five customer relationships accounted for approximately 28% of our deposit balances at December 31, 2023.
The Company recorded consolidated net cash outflows from investing activities of $324.0 million during the year ended December 31, 2022 and net cash inflows from investing activities of $25.0 million during the year ended December 31, 2021.
The Company recorded consolidated net cash outflows from investing activities of $100.0 million and $324.0 million during the years ended December 31, 2023 and 2022, respectively. Net cash outflows from investing activities during 2023 were primarily attributable to $115.3 million of net loan originations.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Increase (Decrease) in Net Interest Income Increase (Decrease) in Net Interest Income Due to Volume Due to Rate Total Due to Volume Due to Rate Total (In thousands) Interest‑earning assets: Interest‑earning deposits and other short‑term investments $ (105 ) $ 1,480 $ 1,375 $ 298 $ (199 ) $ 99 Securities 2,248 1,952 4,200 1,339 (196 ) 1,143 Loans receivable, net 5,831 70 5,901 5,018 797 5,815 FRB and FHLB stock (8 ) 49 41 23 28 51 Total interest‑earning assets 7,966 3,551 11,517 6,678 430 7,108 Interest‑bearing liabilities: Money market deposits 162 466 628 513 (193 ) 320 Savings deposits (5 ) (141 ) (146 ) 51 (128 ) (77 ) Interest checking and other demand deposits 39 76 115 77 9 86 Certificate accounts (38 ) (131 ) (169 ) 415 (2,231 ) (1,816 ) Total deposits 158 270 428 1,056 (2,543 ) (1,487 ) FHLB advances (695 ) (202 ) (897 ) (264 ) 53 (211 ) Junior subordinated debentures (60 ) – (60 ) (45 ) (28 ) (73 ) Other borrowings 18 171 189 45 – 45 Total borrowings (737 ) (31 ) (768 ) (264 ) 25 (239 ) Total interest‑bearing liabilities (579 ) 239 (340 ) 792 (2,518 ) (1,726 ) Change in net interest income $ 8,545 $ 3,312 $ 11,857 $ 5,886 $ 2,948 $ 8,834 31 Table of Contents Loan Loss Provision During the year ended December 31, 2022, we recorded a provision for loan losses of $997 thousand, compared to a loan loss provision of $176 thousand during the same period in 2021.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Increase (Decrease) in Net Interest Income Increase (Decrease) in Net Interest Income Due to Volume Due to Rate Total Due to Volume Due to Rate Total (In thousands) Interest‑earning assets: Interest‑earning deposits and other short‑term investments $ (2,536 ) $ 1,432 $ (1,104 ) $ (105 ) $ 1,480 $ 1,375 Securities 1,753 1,348 3,101 2,248 1,952 4,200 Loans receivable, net 6,027 2,384 8,411 5,831 70 5,901 FRB and FHLB stock 559 (8 ) 551 (8 ) 49 41 Total interest‑earning assets 5,802 5,157 10,959 7,966 3,551 11,517 Interest‑bearing liabilities: Money market deposits (580 ) 3,561 2,981 162 466 628 Savings deposits (6 ) 95 89 (5 ) (141 ) (146 ) Interest checking and other demand deposits (4 ) 144 140 39 76 115 Certificate accounts (94 ) 2,292 2,198 (38 ) (131 ) (169 ) Total deposits (684 ) 6,092 5,408 158 270 428 FHLB advances 3,807 3,453 7,260 (695 ) (202 ) (897 ) BTFP borrowing 40 - 40 - - - Junior subordinated debentures – – – (60 ) – (60 ) Other borrowings 51 1,598 1,649 18 171 189 Total borrowings 3,898 5,051 8,949 (737 ) (31 ) (768 ) Total interest‑bearing liabilities 3,214 11,143 14,357 (579 ) 239 (340 ) Change in net interest income $ 2,588 $ (5,986 ) $ (3,398 ) $ 8,545 $ 3,312 $ 11,857 Provision for Credit Losses During the year ended December 31, 2023, we recorded a provision for credit losses under the Current Expected Credit Loss (“CECL”) methodology of $933 thousand, compared to a loan loss provision under the previously used incurred loss model of $997 thousand during the same period in 2022.
Less than one year More than one year to three years More than three years to five years More than five years Total (Dollars in thousands) Certificates of deposit $ 118,070 $ 11,496 $ 5,479 $ 8 $ 135,053 FHLB advances 95,500 32,844 – – 128,344 Commitments to originate loans 15,160 – – – 15,160 Commitments to fund construction loans 27,811 – – – 27,811 Commitments to fund unused lines of credit 13,341 – – – 13,341 Operating lease obligations 236 496 194 – 926 Total contractual obligations $ 270,118 $ 44,836 $ 5,673 $ 8 $ 320,635 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.
Less Than One Year More Than One Year to Three Years More Than Three Years to Five Years More Than Five Years Total (Dollars in thousands) Certificates of deposit $ 141,705 $ 26,002 $ 188 $ 140 $ 168,035 FHLB advances 176,638 32,681 – – 209,319 Commitments to originate loans 7,560 – – – 7,560 Commitments to fund construction loans 42,678 – – – 42,678 Commitments to fund unused lines of credit 3,302 – – – 3,302 Operating lease obligations 242 423 – – 665 Total contractual obligations $ 372,125 $ 59,106 $ 188 $ 140 $ 431,559 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.
These decreases were partially offset by the effects of a net increase of $14.3 million in borrowings under securities sold under agreements to repurchase which increased interest expenses by $18 thousand and an increase in the average rate paid on securities sold under agreements to repurchase of 28 basis points compared to the prior year which increased interest expense by $171 thousand.
Further, an increase in the average rate paid on securities sold under agreements to repurchase of 229 basis points compared to the prior year increased interest expense by $1.7 million.
Interest income on securities increased by $4.2 million to $5.6 million for the year ended December 31, 2022, compared to $1.4 million for the year ended December 31, 2021.
Interest income on securities increased by $3.1 million to $8.7 million for the year ended December 31, 2023, compared to $5.6 million for the year ended December 31, 2022. The increase in interest income on securities primarily resulted from an increase of $70.5 million in the average balance of securities, which increased interest income by $1.8 million.
As of December 31, 2022 and 2021, approximately $212.9 million and $265.8 million of our total deposits were not insured by FDIC insurance.
We expect to maintain these relationships with these customers for the foreseeable future. As of December 31, 2023 and 2022, approximately $286.4 million and $212.9 million of our total deposits were not insured by FDIC insurance.
The decrease in total liabilities during 2022 resulted primarily from decreases in deposits of $101.1 million, partially offset by increases of $42.4 million in FHLB advances and $11.5 million in securities sold under agreements to repurchase .
The increase in total liabilities during 2023 resulted primarily from increases in borrowings of $100.0 million from the Bank Fund Term Program, as well as increases of $81.0 million in FHLB advances and $10.0 million in securities sold under agreements to repurchase, offset by a net $4.3 million decrease in total deposits.
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 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.
We recorded net income of $5.6 million for the year ended December 31, 2022 or $0.08 per share compared to a net loss of $4.1 million or $0.07 per share for the year ended December 31, 2021, which was significantly impacted by Merger-related costs of $5.6 million ($4.2 million net of tax) and $2.4 million of data conversion costs in 2021.
We recorded net income of $4.5 million for the year ended December 31, 2023 or $0.51 per share compared to net income of $5.6 million or $0.62 per share for the year ended December 31, 2022.
Goodwill and Core Deposit Intangible As a result of the Merger , the Company recorded $26.0 million of goodwill.
Depreciation expense was $385 thousand and $376 thousand for the years 2023 and 2022, respectively. Goodwill and Core Deposit Intangible As a result of the Merger, the Company recorded $25.9 million of goodwill.
This was partially offset by a $56.0 million decrease in average cash balances which resulted in a $105 thousand decrease in interest income during the year ended December 31, 2022, compared to the year ended December 31, 2021.
Other interest income decreased by $0.6 million in 2023, compared to the same period in 2022, primarily due to a decrease of $133.5 million in the average balances of interest-earning deposits which was partially offset by a 2.95% increase in the average yield on interest-earning deposits during the year ended December 31, 2023, compared to the year ended December 31, 2022.
Securities Available-For-Sale As of December 31, 2022, we had $328.7 million of investment securities classified as available-for-sale, compared to $156.4 million at December 31, 2021. The increase during 2022 was primarily due to the deployment of $15.0 million of the $150.0 million ECIP funds into investment securities in June.
Comparison of Financial Condition at December 31, 2023 and 2022 Securities Available-For-Sale As of December 31, 2023, we had $317.0 million of investment securities classified as available-for-sale, compared to $328.7 million at December 31, 2022.
(4) 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, 2020. (5) Net interest rate spread represents the difference between the yield on average interest‑earning assets and the cost of average interest‑bearing liabilities.
(4) Net interest rate spread represents the difference between the yield on average interest‑earning assets and the cost of average interest‑bearing liabilities.
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 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 Bank’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts.
The remainder of the increase was due to investing liquidity dollars into higher-yielding short-term securities. This increase was partially offset by $16.2 million decline in the fair value of investment securities available-for-sale, net of taxes, during the year ended December 31, 2022.
The decrease during 2023 was primarily due to $18.4 million of principal payments and maturities, partially offset by a $5.6 million increase in the fair value of investment securities available-for-sale during the year ended December 31, 2023.
Office Properties and Equipment, Net Net office properties and equipment decreased by $53 thousand to $10.3 million at December 31, 2022 from $10.3 million as of December 31, 2021. Depreciation expense was $376 thousand and $287 thousand for the years 2022 and 2021, respectively.
See Note 1 “Summary of Significant Accounting Policies” to the Company’s Consolidated Financial Statements for further discussion. Office Properties and Equipment, Net Net office properties and equipment decreased by $451 thousand to $9.8 million at December 31, 2023 from $10.3 million as of December 31, 2022.
The average cost of deposits increased to 0.29% for 2022, compared to 0.26% for 2021, which increased interest expense by $270 thousand. In addition, we had an increase of $89.4 million in the average balance of deposits, which increased interest expense by $158 thousand.
The average cost of deposits increased to 1.30% for 2023, compared to 0.31% for 2022, which increased interest expense by $6.1 million.
Net cash inflows from financing activities during 2021 were primarily attributable to a net inflow of deposits of $118.7 million and net proceeds of $30.8 million from the issuance of common stock, offset by net repayments of FHLB advances of $27.7 million, repayments of securities sold under agreements to repurchase of $8.0 million, and repayments of junior subordinated debentures of $3.3 million.
Net cash inflows from financing activities during 2023 were primarily attributable to $456.1 million of proceeds from FHLB advances and $100.0 million of proceeds from the BTFP, partially offset by $375.1 million of FHLB repayments.
Income Taxes 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.
State taxes are recorded at the State of California tax rate and Washington, D.C. tax rate, according to the state apportionment calculation as Bank’s operations are conducted in both California and the Washington, D.C. area.
Interest expense on borrowings decreased by $768 thousand to $1.3 million during the year ended December 31, 2022, compared to $2.1 million during the year ended December 31, 2021.
This increase was offset by a decrease of $104.1 million in the average balance of deposits, which decreased interest expense by $684 thousand. 29 Table of Contents Interest expense on borrowings increased by $8.9 million to $10.3 million during the year ended December 31, 2023, compared to $1.3 million during the year ended December 31, 2022.
Non‑Interest Income For the year ended December 31, 2022, non-interest income totaled $1.2 million, compared to $3.2 million for the prior year. The decrease of $2.0 million in non-interest income was primarily the result of non-recurring income of $1.8 million from a special grant from the U.S. Treasury’s Community Development Financial Institutions Fund recognized during 2021.
The increase of $4.2 million in non-interest income was primarily the result of non-recurring income of $3.7 million from a special grant from the U.S.
The net interest margin increased to 3.05% for the year ended 2022 from 2.42% for year ended 2021, primarily due to an improvement of 50 basis points in the average yield earned on average interest-earning assets.
The net interest margin decreased to 2.55% for the year ended 2023 from 3.05% for the year ended 2022, primarily due to the average cost of funds increasing to 2.15% for the year ended 2023 from 0.42% for the year ended 2022 due to rate increases by the Federal Reserve.
The market value of securities pledged totaled $ 53.2 million as of December 31, 2021 and included $ 25.9 million of federal agency mortgage-backed securities, $ 13.3 million of federal agency debt, $ 9.8 million of SBA pool, and $ 4.2 million of federal agency CMO.
The fair value of securities pledged totaled $ 64.4 million as of December 31, 2022 and included $33.3 million of federal agency debt, $19.2 million of U.S. Treasuries and $11.9 million of federal agency mortgage-backed securities. One customer relationship accounted for 85% of our balance of securities sold under agreements to repurchase.
Net Interest Income For the year ended December 31, 2022, net interest income before provision for loan losses increased by $11.9 million, or 56.5%, to $32.9 million, compared to $21.0 million for the year ended December 31, 2021. The increase was attributable to additional interest income earned on growth of $211.5 million in average interest earning assets.
Net Interest Income For the year ended December 31, 2023, net interest income before provision for credit losses decreased by $3.4 million, or 10.3%, to $29.5 million, compared to $32.9 million for the year ended December 31, 2022. The decrease resulted from higher interest expense, primarily due to an increase in the cost of borrowings and deposits.
In addition, the Bank had additional lines of credit of $10.0 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.
As of December 31, 2023, approximately $286.4 million of our total deposits (including deposits from affiliates) were not insured by FDIC insurance, which represented 37% of total deposits. 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.
Stockholders’ Equity Stockholders’ equity was $279.5 million, or 23.6% of the Company’s total assets, at December 31, 2022, compared to $141.0 million, or 12.9% of the Company’s total assets, at December 31, 2021. 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.
This note was paid off during January 2024. The financial statements of CFC 45 are consolidated with those of the Bank and the Company. Stockholders’ Equity Stockholders’ equity was $281.9 million, or 20.5% of the Company’s total assets, at December 31, 2023, compared to $279.5 million, or 23.6% of the Company’s total assets, at December 31, 2022.
The net increase in the required loan loss provision in calendar 2022 was due to growth in the loan portfolio during the year. No loan charge-offs or recoveries were recorded during the year ended December 31, 2022 or 2021. See “Allowance for Loan Losses” for additional information.
No loan charge-offs were recorded during the year ended December 31, 2023 or 2022. The Bank recorded a recovery of $216 thousand during the fourth quarter of 2023. See “Allowance for Credit Losses” for additional information. Non‑Interest Income For the year ended December 31, 2023, non-interest income totaled $5.4 million, compared to $1.2 million for the year-ended December 31, 2022.
The balance of the increase in the net interest margin was attributable to the investment of the proceeds from the sale of the Series C Preferred Stock, which increased interest earning assets without any associated interest cost. Analysis of Net Interest Income Net interest income is the difference between income on interest earning assets and the expense on interest-bearing liabilities.
This increase was partially offset by an improvement of 72 basis points in the average yield earned on average interest-earning assets. Analysis of Net Interest Income Net interest income is the difference between income on interest earning assets and the expense on interest-bearing liabilities.
As of December 31, 2022, we had no delinquent loans compared to $2.4 million of loan delinquencies at December 31, 2021. Our NPLs consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status.
CECL methodology includes estimates of expected loss rates in the future, whereas the former ALLL methodology did not. Our non-performing loans consist of delinquent loans that are 90 days or more past due and other loans, including loans modified in response to a borrower’s financial difficulty, that do not qualify for accrual status.
The increase in interest income on securities primarily resulted from an increase of $130.7 million in the average balance of securities due to the deployment of the $150.0 million ECIP funds into securities during June 2022, which increased interest income by $2.2 million.
The increase was primarily due to an increase in the average balance of outstanding FHLB advances of $115.7 million, which increased interest expense by $3.8 million, and a 296 basis point increase in the average rate paid on FHLB advances which increased interest expense by $3.5 million.
Impaired loans at December 31, 2022 were $1.7 million, compared to $2.3 million at December 31, 2021. The decrease of $589 thousand in impaired loans was primarily due to payoffs and repayments.
The $1.6 million decrease in pretax net income during the year ended December 31, 2023 compared to the prior year was primarily due to a decline in net interest income of $3.4 million and an increase in non-interest expense of $2.4 million, which were primarily offset by an increase in grant income of $4.2 million.
Removed
Prior to the acquisition, CFBanc was headquartered in Washington, D.C. and conducted its business through its wholly-owned national bank subsidiary, City First Bank of D.C., National Association.
Added
Total liabilities increased by $188.7 million to $1.1 billion at December 31, 2023 from $904.6 million at December 31, 2022.
Removed
Immediately following this merger, Broadway Federal, a subsidiary of Broadway Financial Corporation, merged with and into City First Bank of D.C., National Association, with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association).
Added
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.
Removed
In connection with the Merger, in exchange for the then outstanding common and preferred shares of CFBanc, the Company issued to holders of CFBanc shares 13,999,879 shares of the Company’s Class A Common Stock and 11,404,621 of Class B Common Stock which were valued at $2.49 per share (the closing price of the Company’s shares the day prior to the acquisition), along with 3,000 shares of Series A Preferred Stock with a par value of $1,000 per share.
Added
Treasury’s Community Development Financial Institutions Fund recognized during 2023 and a $437 thousand recurring Bank Enterprise Award grant. 31 Table of Contents Non‑Interest Expense Non-interest expenses totaled $27.4 million for the year ended December 31, 2023, compared to $24.9 million for the year ended December 31, 2022, primarily due to increases in compensation and benefits expenses of $1.4 million, professional fees of $368 thousand, occupancy expense of $255 thousand and supervisory costs of $200 thousand, partially offset by a decrease in information services expense of $156 thousand.
Removed
The total consideration paid on the acquisition date was valued at $66.3 million. 28 Table of Contents As of the Merger date, CFBanc had $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million of total deposits. As a result of the Merger, the Company recorded goodwill of $26.0 million.
Added
The increase of $1.4 million in compensation and benefits expense during 2023 compared to 2022 was primarily attributable to additional full-time employees that the Bank hired over the past twelve months in various production and administrative support positions.
Removed
Goodwill represents the future economic benefits rising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

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