BROADWAY FINANCIAL CORP \DE\ - Annual Report: 2017 (Form 10-K)

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY Index to Consolidated Financial Statements Years ended December 31, 2017 and 2016

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K


(Mark one)
[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2017
[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 000-27464

BROADWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)


Delaware		95-4547287
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5055 Wilshire Boulevard, Suite 500 Los Angeles, California		90036
(Address of principal executive offices)		(Zip Code)
(323) 634-1700 (Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, a smaller reporting company, or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]
(Do not check if a smaller reporting company)

Smaller reporting company [X]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter: $52,798,000

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of March 8, 2018, 18,713,729 shares of the Registrant's voting common stock and 8,756,396 shares of the Registrant's non-voting common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement for its 2018 annual meeting of stockholders, which will be filed no later than April 30, 2018, are incorporated by reference in Part III, Items 10 through 14 of this report.

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TABLE OF CONTENTS


PART I
Item 1.	Business	1
Item 2.	Properties	26
Item 3.	Legal Proceedings	27
Item 4.	Mine Safety Disclosure	27
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	40
Item 9A.	Controls and Procedures	40
Item 9B.	Other Information	42
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	42
Item 11.	Executive Compensation	42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
Item 14.	Principal Accountant Fees and Services	42
PART IV
Item 15.	Exhibits and Financial Statement Schedules	42
Signatures		45

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Forward-Looking Statements

Certain statements herein, including without limitation, certain matters discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Form 10-K, are forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, that reflect our current views with respect to future events and financial performance. Forward-looking statements typically include the words "anticipate," "believe," "estimate," "expect," "project," "plan," "forecast," "intend," and other similar expressions. These forward-looking statements are subject to risks and uncertainties, including those identified below, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

The following factors, among others, could cause future results to differ materially from historical results or from those anticipated by forward-looking statements included in this Form 10-K: (1) the level of demand for mortgage loans, which is affected by such external factors as general economic conditions, market interest rate levels, tax laws and the demographics of our lending markets; (2) the direction and magnitude of changes in interest rates and the relationship between market interest rates and the yield on our interest-earning assets and the cost of our interest-bearing liabilities; (3) the rate and amount of loan losses incurred and projected to be incurred by us, increases in the amounts of our nonperforming assets, the level of our loss reserves and management's judgments regarding the collectability of loans; (4) changes in the regulation of lending and deposit operations or other regulatory actions, whether industry wide or focused on our operations, including increases in capital requirements or directives to increase loan loss allowances or make other changes in our business operations; (5) legislative or regulatory changes, including those that may be implemented by the new Administration in Washington, D.C.; (6) actions undertaken by both current and potential new competitors; (7) the possibility of adverse trends in property values or economic trends in the residential and commercial real estate markets in which we compete; (8) the effect of changes in economic conditions; (9) the effect of geopolitical uncertainties; (10) an inability to obtain and retain sufficient operating cash at our holding company; and (11) other risks and uncertainties detailed in this Form 10-K, including those described in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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PART I

ITEM 1. BUSINESS

General

Broadway Financial Corporation (the "Company") was incorporated under Delaware law in 1995 for the purpose of acquiring and holding all of the outstanding capital stock of Broadway Federal Savings and Loan Association ("Broadway Federal" or the "Bank") as part of the Bank's conversion from a federally chartered mutual savings association to a federally chartered stock savings bank. In connection with the conversion, the Bank's name was changed to Broadway Federal Bank, f.s.b. The conversion was completed, and the Bank became a wholly-owned subsidiary of the Company, in January 1996.

The Company is currently regulated by the Board of Governors of the Federal Reserve System ("FRB"). The Bank is currently regulated by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are insured up to applicable limits by the FDIC. The Bank is also a member of the Federal Home Loan Bank ("FHLB") of San Francisco. 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.broadwayfederalbank.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports can be obtained free of charge by sending a written request to Broadway Financial Corporation, 5055 Wilshire Boulevard, Suite 500, Los Angeles, California 90036 Attention: Alice Wong. The above reports are available on our website as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission ("SEC").

Business Overview

We are headquartered in Los Angeles, California and our principal business is the operation of our wholly-owned subsidiary, Broadway Federal, which has two offices in Los Angeles and one in the nearby city of Inglewood, California. Broadway Federal's principal business consists of attracting deposits from the general public in the areas surrounding our branch offices and investing those deposits, together with funds generated from operations and borrowings, primarily in mortgage loans secured by (i) residential properties with five or more units ("multi-family"), (ii) commercial real estate and (iii) residential properties with one-to-four units ("single family"). 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. Our earnings are significantly affected by general economic and competitive conditions, particularly monetary trends and conditions, including changes in market interest rates and the differences in market interests rates for the interest bearing deposits and borrowings that are our principal funding sources and the interest yielding assets in which we invest, as well as government policies and actions of regulatory authorities.

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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 churches. The remainder of the loan portfolio consists of commercial business loans, construction loans and consumer loans. At December 31, 2017, our net loan portfolio, excluding loans held for sale, totaled $334.9 million, or 81% of total assets.

We emphasize the origination of adjustable-rate mortgage loans ("ARMs"), most of which are hybrid ARM loans (ARM loans having an initial fixed rate period, followed by an adjustable rate period, for our portfolio of loans held for investment. We originate these loans in order to maintain a high percentage of loans that are subject to periodic repricing, thereby reducing our exposure to interest rate risk. At December 31, 2017, more than 99% of our mortgage loans had adjustable rate features. However, most of our adjustable rate loans behave like fixed rate loans for periods of time because the loans may still be in their initial fixed-rate period or may be subject to interest rate floors. Loans in their initial fixed-rate period totaled $276.3 million or 82% of our gross loan portfolio at December 31, 2017.

The types of loans that we originate are subject to federal laws and regulations. The interest rates that we charge on loans are affected by the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. These factors are in turn affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and legislative tax policies.

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,

	2017				2016				2015				2014				2013
	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	$	111,085		32.93%	$	104,807		27.42%	$	130,891		42.50%	$	39,792		14.03%	$	46,459		18.09%
Multi-family		187,455		55.57%		229,566		60.05%		118,616		38.52%		171,792		60.58%		113,218		44.09%
Commercial real estate		6,089		1.80%		8,914		2.33%		11,442		3.72%		16,722		5.90%		26,697		10.39%
Church		30,848		9.14%		37,826		9.90%		46,390		15.06%		54,599		19.26%		67,934		26.45%
Construction		1,678		0.50%		837		0.22%		343		0.11%		387		0.14%		424		0.17%
Commercial		192		0.06%		308		0.08%		270		0.09%		262		0.09%		2,067		0.80%
Consumer		7		0.00%		6		0.00%		4		0.00%		9		0.00%		38		0.01%

Gross loans		337,354		100.00%		382,264		100.00%		307,956		100.00%		283,563		100.00%		256,837		100.00%



Plus:
Premiums on loans purchased		360				510				709				228				272
Deferred loan costs, net		1,220				1,297				349				1,333				901
Less:
Unamortized discounts		14				14				15				16				17
Allowance for loan losses		4,069				4,603				4,828				8,465				10,146

Total loans held for investment	$	334,851			$	379,454			$	304,171			$	276,643			$	247,847

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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. These multi-family loans amounted to $187.5 million and $229.6 million at December 31, 2017 and 2016, respectively. Multi-family loans represented 56% of our gross loan portfolio at December 31, 2017 compared to 60% of our gross loan portfolio at December 31, 2016. The vast majority of our multi-family loans amortize over 30 years. As of December 31, 2017, our single largest multi-family credit had an outstanding balance of $4.5 million, was current, and was secured by a 29-unit apartment complex in Whittier, California. At December 31, 2017, the average balance of a loan in our multi-family portfolio was $815 thousand.

Our commercial real estate loans amounted to $6.1 million and $8.9 million at December 31, 2017 and 2016, respectively. Commercial real estate loans represented 2% of our gross loan portfolio at December 31, 2017 and 2016. All of the commercial real estate loans outstanding at December 31, 2017 were ARMs. Most commercial real estate loans are originated with principal repayments on a 30 year amortization schedule, but are due in 15 years. As of December 31, 2017, our single largest commercial real estate credit had an outstanding principal balance of $1.6 million, was current and was secured by a commercial building located in Van Nuys, California. At December 31, 2017, the average balance of a loan in our commercial real estate portfolio was $320 thousand.

The interest rates on multi-family and commercial ARM loans are based on a variety of indices, including the 6-Month London InterBank Offered Rate Index ("6-Month LIBOR"), the 1-Year Constant Maturity Treasury Index ("1-Yr CMT"), the 12-Month Treasury Average Index ("12-MTA"), the 11th District Cost of Funds Index ("COFI"), and the Wall Street Journal Prime Rate ("Prime Rate"). We currently offer adjustable rate loans with interest rates that adjust semi-annually, or semi-annually upon expiration of their three or five year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans.

Loans secured by multi-family and commercial real properties are granted based on the income producing potential of the property and the financial strength of the borrower. The primary factors considered include, among other things, the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to required principal and interest payments, or debt service), and the ratio of the loan amount to the lower of the purchase price or the appraised value of the collateral.

We seek to mitigate the risks associated with multi-family and commercial real estate loans by applying appropriate underwriting requirements, which include limitations on loan-to-value ratios and debt service coverage ratios. Under our underwriting policies, loan-to-value ratios on our multi-family and commercial real estate loans usually do not exceed 75% of the lower of the purchase price or the appraised value of the underlying property. We also generally require minimum debt service coverage ratios of 115% for multi-family loans and 125% for commercial real estate loans. 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. Because payments on loans secured by multi-family and commercial real properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or general economy. Adverse economic conditions in our primary lending market area could result in reduced cash flows on multi-family and commercial real estate loans, vacancies and reduced rental rates on such properties. We seek to reduce these risks by originating such loans on a selective basis and generally restrict such loans to our general market area. In 2008, we ceased out-of-state lending for all types of loans. As of December 31, 2017, our out-of-state loans totaled $2.6 million and our single largest out-of-state credit had an outstanding principal balance of $654 thousand, was current, and was secured by a church building located in Chandler, Arizona.

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Our church loans totaled $30.8 million and $37.8 million at December 31, 2017 and 2016, respectively. Church loans represented 9% of our gross loan portfolio at December 31, 2017, compared to 10% of our gross loan portfolio at December 31, 2016. We ceased originating church loans in 2010. As of December 31, 2017, our single largest church loan had an outstanding balance of $2.0 million, was current, and was secured by a church building in Hawthorne, California. At December 31, 2017, the average balance of a loan in our church loan portfolio was $531 thousand.

Single Family Mortgage Lending

While we have been primarily a multi-family and commercial real estate lender, we also purchase ARM loans secured by single family residential properties, including investor-owned properties, with maturities of up to 30 years. Single family loans totaled $111.1 million and $104.8 million at December 31, 2017 and 2016, respectively. Of the single family residential mortgage loans that we had outstanding at December 31, 2017, more than 99% had adjustable rate features. During 2017, we purchased $24.6 million principal amount of single-family loans, which were secured by properties primarily located in Northern California. Of the $111.1 million of single family loans at December 31, 2017, $8.3 million are secured by investor-owned properties.

The interest rates for our single family ARMs are indexed to COFI, 6-Month LIBOR, 12-MTA and 1-Yr. CMT. We currently offer loans with interest rates that adjust semi-annually, or semi-annually upon expiration of their three or five year fixed rate period. Borrowers are required to make monthly payments under the terms of such loans. Some of our adjustable rate loans behave like fixed rate loans because the loans may still be in their initial fixed rate period or may be subject to interest rate floors.

We qualify our ARM borrowers based upon the fully indexed interest rate (LIBOR or other index plus an applicable margin, rounded to the nearest one-eighth of 1%) provided by the terms of the loan. However, we may discount the initial rate paid by the borrower to adjust for market and other competitive factors. The ARMs that we offer have a lifetime adjustment limit that is set at the time that the loan is approved. 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 ARMs.

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 in the event that the borrower transfers ownership of the property.

Construction Lending

Construction loans totaled $1.7 million and $837 thousand at December 31, 2017 and 2016, respectively, representing less than 1% of our gross loan portfolio. We provide loans for the construction of single family, multi-family and commercial real estate projects and for land development. We generally make construction and land loans at variable interest rates based upon the Prime Rate. Generally, we require a loan-to-value ratio not exceeding 75% to 80% and a loan-to-cost ratio of 70% to 80% on construction loans.

Construction loans involve risks that are different from those for completed project lending because we advance loan funds based upon the security and estimated value at completion of the project under construction. If the borrower defaults on the loan, we may have to advance additional funds to finance the project's completion before the project can be sold. Moreover, construction projects are affected by uncertainties inherent in estimating construction costs, potential delays in construction schedules, market demand and the accuracy of estimates of the value of the completed project considered in the loan approval process. In addition, construction projects can be risky as they transition to completion and lease-up. Tenants who may have been interested in leasing a unit or apartment may not be able to afford the space when the building is completed, or may fail to lease the space for other reasons such as more attractive terms offered by competing lessors, making it difficult for the building to generate enough cash flow for the owner to obtain permanent financing. Two construction participation loans

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totaling $3.5 million were originated during 2017. Of this amount, $483 thousand was disbursed as of December 31, 2017.

Commercial Lending

We have originated non-real estate commercial loans that are secured by business assets, the franchise value of the business, if applicable, and individual assets such as deposit accounts, securities and automobiles. Most of these loans are originated with maturities of up to 5 years. Commercial loans amounted to $192 thousand and $308 thousand at December 31, 2017 and 2016, respectively, representing less than 1% of our gross loan portfolio. We are not currently originating non-real estate commercial loans.

Loan Originations, Purchases and Sales

The following table summarizes loan originations, purchases, sales and principal repayments for the periods indicated:

	2017		2016		2015

	(In thousands)
Gross loans (1):
Beginning balance	$	382,264	$	307,956	$	302,856
Loans originated:
Single family		-		-		1,921
Multi-family		114,489		136,794		110,525
Construction		841		837		-
Commercial		69		45		75

Total loans originated		115,399		137,676		112,521

Loans purchased:
Single family		24,640		-		99,663

Total loans purchased		24,640		-		99,663

Less:
Principal repayments		65,169		63,368		41,690
Sales of loans		96,945		-		164,103
Loan charge-offs		-		-		89
Transfer of loans to real estate owned		503		-		1,202

Ending balance (2)	$	359,686	$	382,264	$	307,956

(1): Amount is before deferred origination costs, purchase premiums and discounts.
(2): Includes loans receivable held for sale totaling $22.3 million at December 31, 2017, exclusive of $38 thousand in deferred origination costs. We did not have any loans receivable held for sale at December 31, 2016 and 2015.

Loan originations are derived from various sources including our loan personnel, local mortgage brokers, advertising and referrals from customers. For all loans that we originate, upon receipt of a loan application from a prospective borrower, a credit report is ordered and certain other information is verified by an independent credit agency and, if necessary, additional financial information is requested. An appraisal of the real estate intended to secure the proposed loan is required, which appraisal is performed by an independent licensed or certified appraiser designated and approved by us. The Board of Directors (the "Board") annually reviews our appraisal policy. Management reviews annually the qualifications and performance of independent appraisers that we use.

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It is our policy to obtain title insurance on all real estate loans. Borrowers must also obtain hazard insurance naming Broadway Federal as a loss payee prior to loan closing. If the original loan amount exceeds 80% on a sale or refinance of a first trust deed loan, we may require private mortgage insurance and the borrower is required to make payments to a mortgage impound account from which we make disbursements to pay private mortgage insurance premiums, property taxes and hazard and flood insurance as required.

The Board has authorized the following loan approval limits: if the total of the borrower's existing loans and the loan under consideration is $1,000,000 or less, the new loan may be approved by a Senior Underwriter plus a Loan Committee member, including the Chief Executive Officer or Chief Credit Officer; if the total of the borrower's existing loans and the loan under consideration is from $1,000,001 to $2,000,000, the new loan must be approved by a Senior Underwriter plus two Loan Committee members, including the Chief Executive Officer or Chief Credit Officer; if the total of the borrower's existing loans and the loan under consideration is from $2,000,001 to $6,500,000, the new loan must be approved by a Senior Underwriter, the Chief Executive Officer and Chief Credit Officer, plus a majority of the Board-appointed non-management Loan Committee members. In addition, it is our practice that all loans approved be reported to the Loan Committee no later than the month following their approval, and be ratified by the Board.

From time to time, we purchase loans originated by other institutions based upon our investment needs and market opportunities. 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. During 2017, we purchased $24.6 million principal amount of single family loans, which are being serviced by the seller. We did not purchase any loans during the year ended December 31, 2016.

We originate loans for investment and for sale. Loan sales are generally made from the loans receivable held-for-sale portfolio and from loans originated during the period that are designated as held for sale. During 2017, we originated $110.4 million of multi-family loans for sale, transferred $9.3 million of multi-family loans from held for investment to held-for-sale and sold $96.9 million of multi-family loans in order to comply with regulatory loan concentration guidelines. We did not originate any loans for sale, nor did we sell any loans during 2016.

We receive monthly loan servicing fees on loans sold and serviced for others, primarily insured financial institutions. Generally, we collect these fees by retaining a portion of the loan collections in an amount equal to an agreed percentage of the monthly loan installments, plus late charges and certain other fees paid by the borrowers. Loan servicing activities include monthly loan payment collection, monitoring of insurance and tax payment status, responses to borrower information requests and dealing with loan delinquencies and defaults, including conducting loan foreclosures. At December 31, 2017 and 2016, we were servicing $3.6 million and $4.1 million, respectively, of loans for others. The servicing rights associated with sold loans are recorded as assets based upon their fair values. At December 31, 2017 and 2016, we had $24 thousand and $32 thousand, respectively, in mortgage servicing rights.

Loan Maturity and Repricing

The following table shows the contractual maturities of loans in our portfolio of loans held for investment at December 31, 2017, and does not reflect the effect of prepayments or scheduled principal amortization.

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	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial		Consumer		Gross loans receivable

	(In thousands)
Amounts Due:
After one year:
One year to five years	$	273	$	474	$	2,006	$	16,169	$	119	$	65	$	—	$	19,106
After five years		110,808		186,981		4,083		14,679		—		127		—		316,678

Total due after one year		111,081		187,455		6,089		30,848		119		192		—		335,784
One year or less		4		—		—		—		1,559		—		7		1,570

Total	$	111,085	$	187,455	$	6,089	$	30,848	$	1,678	$	192	$	7	$	337,354

Loans in their initial fixed rate period totaled $276.3 million or 82% of our loan portfolio at December 31, 2017. The average initial fixed rate period as of December 31, 2017 was 3.2 years.

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. A borrower's ability to pay typically is dependent, in the case of single family residential loans and consumer loans, primarily on employment and other sources of income, and in the case of multi-family and commercial real estate loans, on the cash flow generated by the property, which in turn is impacted by general economic conditions. Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower's ability to make loan payments. Collateral values, particularly real estate values, are also impacted by a variety of factors, including general economic conditions, demographics, property maintenance and collection or foreclosure delays.

Delinquencies

We perform a weekly review of all delinquent loans and loan delinquency reports are made monthly to the Internal Asset Review Committee of the Board of Directors. When a borrower fails to make a required payment on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. The procedures we follow with respect to delinquencies vary depending on the type of loan, the type of property securing the loan, and the period of delinquency. In the case of residential mortgage loans, we generally send the borrower a written notice of non-payment promptly after the loan becomes past due. In the event payment is not received promptly thereafter, additional letters are sent and telephone calls are made. If the loan is still not brought current and it becomes necessary for us to take legal action, we generally commence foreclosure proceedings on all real property securing the loan. In the case of commercial real estate loans, we generally contact the borrower by telephone and send a written notice of intent to foreclose upon expiration of the applicable grace period. Decisions not to commence foreclosure upon expiration of the notice of intent to foreclose for commercial real estate loans are made on a case-by-case basis. We may consider loan workout arrangements with these types of borrowers in certain circumstances.

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The following table shows our loan delinquencies by type and amount at the dates indicated:

	December 31, 2017								December 31, 2016								December 31, 2015




	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)
Single family		1	$	50		-	$	-		1	$	64		-	$	-		-	$	-		-	$	-
Church		-		-		-		-		-		-		-		-		-		-		1		456

Total		1	$	50		-	$	-		1	$	64		-	$	-		-	$	-		1	$	456



% of Gross Loans (1)				0.01%				0.00%				0.01%				0.00%				0.00%				0.15%

(1): Includes loans receivable held for sale at December 31, 2017.

Non-Performing Assets

Non-performing assets ("NPAs") include non-accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure ("REO"). NPAs at December 31, 2017 decreased to $2.6 million, or 0.64% of total assets, from $2.9 million, or 0.69% of total assets, at December 31, 2016.

Non-accrual loans decreased by $1.1 million to $1.8 million at December 31, 2017, from $2.9 million at December 31, 2016. These 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. As of December 31, 2017, $1.4 million, or 81% of our non-accrual loans, were current in their payments, but were treated as non-accrual primarily because of deficiencies in non-payment matters related to the borrowers, such as lack of current financial information. The $1.1 million decrease in non-accrual loans was primarily due to transfer to REO of $503 thousand, payoffs of $340 thousand and repayments of $335 thousand.

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The following table provides information regarding our non-performing assets at the dates indicated:

	December 31,

	2017		2016		2015		2014		2013
	(Dollars in thousands)
Non-accrual loans:
Single family	$	-	$	-	$	302	$	736	$	1,441
Multi-family		-		-		779		1,618		2,985
Commercial real estate		-		-		259		1,174		1,391
Church		1,766		2,944		2,887		5,232		11,735
Commercial		-		-		-		102		150

Total non-accrual loans		1,766		2,944		4,227		8,862		17,702
Loans delinquent 90 days or more and still accruing		-		-		-		-		-
Real estate owned acquired through foreclosure		878		-		360		2,082		2,084

Total non-performing assets	$	2,644	$	2,944	$	4,587	$	10,944	$	19,786



Non-accrual loans as a percentage of gross loans, including loans receivable held for sale		0.49%		0.77%		1.37%		2.93%		6.89%
Non-performing assets as a percentage of total assets		0.64%		0.69%		1.14%		3.12%		5.95%

There were no accrual loans that were contractually past due by 90 days or more at December 31, 2017 or 2016. We had no commitments to lend additional funds to borrowers whose loans were on non-accrual status at December 31, 2017.

We discontinue accruing interest on loans when the loans become 90 days delinquent as to their payment due date (missed three payments). In addition, we reverse all previously accrued and uncollected interest for those loans through a charge to interest income. While loans are in non-accrual status, interest received on such loans is credited to principal, until the loans qualify for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

We may agree to modify the contractual terms of a borrower's loan. In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a TDR. Non-accrual loans modified in a TDR remain on non-accrual status until we determine that future collection of principal and interest is reasonably assured, which requires that the borrower demonstrate performance according to the restructured terms, generally for a period of at least six months. Loans modified in a TDR that are included in non-accrual loans totaled $1.4 million at December 31, 2017 and $2.5 million at December 31, 2016. Excluded from non-accrual loans are restructured loans that were not delinquent at the time of modification or loans that have complied with the terms of their restructured agreement for six months or such longer period as management deems appropriate for particular loans, and therefore have been returned to accruing status. Restructured accruing loans totaled $7.5 million at December 31, 2017 and $9.0 million at December 31, 2016.

During 2017, gross interest income that would have been recorded on non-accrual loans had they performed in accordance with their original terms, totaled $376 thousand. Actual interest recognized on non-accrual loans and included in net income for the year 2017 was $316 thousand, primarily reflecting interest recoveries on non-accrual loans that were paid off.

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We update our estimates of collateral value on loans when they become 90 days past due and to the extent the loans remain delinquent, every nine months thereafter. We obtain updated estimates of collateral value earlier than at 90 days past due for loans to borrowers who have filed for bankruptcy or for certain other loans when our Internal Asset Review Committee believes repayment of such loans may be dependent on the value of the underlying collateral. For single family loans, updated estimates of collateral value are obtained through appraisals and automated valuation models. For multi-family and commercial real estate properties, we estimate collateral value through appraisals or internal cash flow analyses when current financial information is available, coupled with, in most cases, an inspection of the property. Our policy is to make a charge against our allowance for loan losses, and correspondingly reduce the book value of a loan, to the extent that the collateral value of the property securing a loan is less than our recorded investment in the loan. See "Allowance for Loan Losses" for full discussion of the allowance for loan losses.

REO is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at fair value less estimated selling costs. Any excess of carrying value over fair value at the time of acquisition is charged to the allowance for loan losses. Thereafter, we charge non-interest expense for the property maintenance and protection expenses incurred as a result of owning the property. Any decreases in the property's estimated fair value after foreclosure are recorded in a separate allowance for losses on REO. During 2017, the Bank received a deed in lieu of foreclosure, which was recorded at fair value, net of estimated selling costs, of $878 thousand at December 31, 2017. We had no REO at December 31, 2016.

Classification of Assets

Federal regulations and our internal policies require that we utilize an asset classification system as a means of monitoring and reporting problem and potential problem assets. We have incorporated asset classifications as a part of our credit monitoring system and thus classify potential problem assets as "Watch" and "Special Mention," and problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is considered "Watch" if the loan is current but temporarily presents higher than average risk and warrants greater than routine attention and monitoring. An asset is considered "Special Mention" if the loan is current but there are some potential weaknesses that deserve management's close attention. An asset is considered "Substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "Doubtful" have all of the weaknesses inherent in those classified "Substandard" with the added characteristic that the weaknesses make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "Loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but that are considered to possess some weaknesses, are designated "Special Mention." Our Internal Asset Review Department reviews and classifies our assets and independently reports the results of its reviews to the Internal Asset Review Committee of our Board of Directors monthly.

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The following table provides information regarding our criticized loans (Watch and Special Mention) and classified assets (Substandard) at the dates indicated:





	Number		Amount	Number		Amount

	(Dollars in thousands)
Watch loans	3	$	813	3	$	2,417
Special mention loans	-		-	3		1,165

Total criticized loans	3		813	6		3,582

Substandard loans	17		6,395	23		11,021
REO	1		878	-		-

Total classified assets	18		7,273	23		11,021

Total	21	$	8,086	29	$	14,603

Classified assets decreased by $3.7 million to $7.3 million at December 31, 2017, from $11.0 million at December 31, 2016, primarily due to $2.3 million of payoffs and $1.4 million of classification upgrades. Criticized assets decreased by $2.8 million to $813 thousand at December 31, 2017, from $3.6 million at December 31, 2016, due to $551 thousand of payoffs and $2.6 million of classification upgrades, which were partially offset by $373 thousand of classification downgrades.

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. We are required to maintain an adequate allowance for loan losses ("ALLL") in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The ALLL represents our management's best estimate of probable incurred credit losses in our loan portfolio as of the date of the consolidated financial statements. Our ALLL is intended to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable, but not specifically identifiable. There can be no assurance, however, that actual losses incurred will not exceed the amount of management's estimates.

Our Internal Asset Review Department issues reports to the Board of Directors and continually reviews loan quality. This analysis includes a detailed review of the classification and categorization of problem loans, potential problem loans and loans to be charged off, an assessment of the overall quality and collectability of the portfolio, and concentration of credit risk. Management then evaluates the allowance, determines its appropriate level and the need for additional provisions, and presents its analysis to the Board of Directors which ultimately reviews management's recommendation and, if deemed appropriate, then approves such recommendation.

The ALLL is increased by provisions for loan losses which are charged to earnings and is decreased by recaptures of loan loss provision and charge-offs, net of recoveries. Provisions are recorded to increase the ALLL to the level deemed appropriate by management. The Bank utilizes an allowance methodology that considers a number of quantitative and qualitative factors, including the amount of non-performing loans, our loan loss experience, conditions in the real estate and housing markets, current economic conditions and trends, particularly levels of unemployment, and changes in the size of the loan portfolio.

The ALLL consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

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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. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated to the loan so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. TDRs are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less estimated selling costs. For TDRs that subsequently default, we determine the amount of any necessary additional charge-off based on internal analyses and appraisals of the underlying collateral securing these loans. At December 31, 2017, impaired loans totaled $9.3 million and had an aggregate specific allowance allocation of $585 thousand.

The general component of the ALLL covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Each month, we prepare an analysis which categorizes the entire loan portfolio by certain risk characteristics such as loan type (single family, multi-family, commercial real estate, construction, commercial and consumer) and loan classification (pass, watch, special mention, substandard and doubtful). With the use of a migration to loss analysis, we calculate our historical loss rate and assign estimated loss factors to the loan classification categories on the basis of our assessment of the potential risk inherent in each loan type. These factors are periodically reviewed for appropriateness giving consideration to our historical loss experience, levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

In addition to loss experience and environmental factors, we use qualitative analyses to determine the adequacy of our ALLL. This analysis includes ratio analysis to evaluate the overall measurement of the ALLL and comparison of peer group reserve percentages. The qualitative review is used to reassess the overall determination of the ALLL and to ensure that directional changes in the ALLL and the provision for loan losses are supported by relevant internal and external data.

Based on our evaluation of the housing and real estate markets and overall economy, including the unemployment rate, the levels and composition of our loan delinquencies and non-performing loans, our loss history and the size and composition of our loan portfolio, we determined that an ALLL of $4.1 million, or 1.20% of loans held for investment was appropriate at December 31, 2017, compared to $4.6 million, or 1.20% of loans held for investment at December 31, 2016.

A federally chartered savings association's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OCC. The OCC, in conjunction with the other federal banking agencies, provides guidance for financial institutions on the responsibilities of management for the assessment and establishment of adequate valuation allowances, as well as guidance for banking agency examiners to use in determining the adequacy of valuation allowances. It is required that all institutions have effective systems and controls to identify, monitor and address asset quality problems, analyze all significant factors that affect the

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collectability of the portfolio in a reasonable manner and establish acceptable allowance evaluation processes that meet the objectives of the guidelines issued by federal regulatory agencies. 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, 2017. In 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.

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,
	2017			2016			2015			2014			2013
		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	$	594	32.93%	$	367	27.42%	$	597	42.50%	$	1,174	14.03%	$	1,930	18.09%
Multi-family		2,300	55.57%		2,659	60.05%		1,658	38.52%		2,726	60.58%		1,726	44.09%
Commercial real estate		71	1.80%		215	2.33%		469	3.72%		496	5.90%		1,473	10.39%
Church		1,081	9.14%		1,337	9.90%		2,083	15.06%		4,047	19.26%		4,949	26.45%
Construction		17	0.50%		8	0.22%		3	0.11%		7	0.14%		7	0.17%
Commercial		6	0.06%		17	0.08%		18	0.09%		12	0.09%		55	0.80%
Consumer		-	0.00%		-	0.00%		-	0.00%		3	0.00%		6	0.01%

Total allowance for loan losses	$	4,069	100.00%	$	4,603	100.00%	$	4,828	100.00%	$	8,465	100.00%	$	10,146	100.00%

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The following table shows the activity in our ALLL related to our loans held for investment for the years indicated:

	2017			2016			2015			2014			2013

	(Dollars in thousands)
Allowance balance at beginning of year	$	4,603		$	4,828		$	8,465		$	10,146		$	11,869
Charge-offs:
Single family		-			-			(4	)		(133	)		(220	)
Multi-family		-			-			-			-			(661	)
Commercial real estate		-			-			-			(8	)		(1,180	)
Church		-			-			(85	)		(533	)		(770	)
Commercial		-			-			-			(19	)		-

Total charge-offs		-			-			(89	)		(693	)		(2,831	)

Recoveries:
Single family		30			47			129			2			300
Commercial real estate		-			248			-			-			116
Church		536			22			23			859			25
Commercial		-			8			-			1,083			253

Total recoveries		566			325			152			1,944			694

Provision (recapture) charged to earnings		(1,100	)		(550	)		(3,700	)		(2,932	)		414

Allowance balance at end of year	$	4,069		$	4,603		$	4,828		$	8,465		$	10,146



Net charge-offs (recoveries) to average loans, excluding loans receivable held for sale		(0.16%	)		(0.10%	)		(0.02%	)		(0.46%	)		0.84%
ALLL as a percentage of gross loans, excluding loans receivable held for sale		1.20%			1.20%			1.56%			2.99%			3.95%
ALLL as a percentage of total non-accrual loans		230.41%			156.35%			114.22%			95.52%			57.32%
ALLL as a percentage of total non-performing assets		153.90%			156.35%			105.25%			77.35%			51.28%

Investment Activities

The main objectives of our investment strategy are to provide a source of liquidity for deposit outflows, repayment of our borrowings and funding loan commitments, and to generate a favorable return on investments without incurring undue interest rate or credit risk. Subject to various restrictions, our investment policy generally permits investments in money market instruments such as Federal Funds Sold, certificates of deposit of insured banks and savings institutions, direct obligations of the U. S. Treasury, Federal Agency securities, government Agency-issued securities and mortgage-backed securities, mutual funds, municipal obligations, corporate bonds and marketable equity securities. Mortgage-backed securities consist principally of FNMA, FHLMC and GNMA securities backed by 30-year amortizing hybrid ARM loans, structured with fixed interest rates for periods of three to seven years, after which time the loans convert to one-year or six-month adjustable rate mortgage loans. At December 31, 2017, our securities portfolio, consisting primarily of federal agency debt and mortgage-backed securities, totaled $17.5 million, or 4% of total assets.

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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. Securities purchased to meet investment-related objectives such as liquidity management or mitigating interest rate risk and which may be sold as necessary to implement management strategies, are designated as available-for-sale at the time of purchase. Securities in the held-to-maturity category consist of securities purchased for long-term investment in order to enhance our ongoing stream of net interest income. 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.

The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of December 31, 2017. The table reflects stated final maturities and does not reflect scheduled principal payments or expected payoffs.

	At December 31, 2017

	One Year or less				More than one year to five years				More than five years to ten years				More than ten years				Total
	Carrying amount		Weighted average yield		Carrying amount		Weighted average yield		Carrying amount		Weighted average yield		Carrying amount		Weighted average yield		Carrying amount		Weighted average yield
	(Dollars in thousands)
Available-for-sale:
Federal agency mortgage-backed securities	$	4		2.90%	$	175		4.23%	$	3,402		2.48%	$	8,427		2.88%	$	12,008		2.78%
Federal agency debt		-		- %		1,976		2.00%		-		- %		3,510		2.68%		5,486		2.43%

Total	$	4		2.90%	$	2,151		2.18%	$	3,402		2.48%	$	11,937		2.82%	$	17,494		2.67%

At December 31, 2017, the mortgage- backed securities in our portfolio have an estimated remaining life of 4.6 years.

Sources of Funds

General

Deposits are our primary source of funds for supporting our lending and other investment activities and general business purposes. 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 of San Francisco, and cash flows generated by operations.

Deposits

We offer a variety of deposit accounts featuring a range of interest rates and terms. Our deposits principally consist of savings accounts, checking accounts, NOW accounts, money market accounts, and fixed-term certificates of deposit. The maturities of term certificates generally range from one month to five years. We accept deposits from customers within our market area based primarily on posted rates, but from time to time we will negotiate the rate based on the amount of the deposit. We primarily rely on customer service and long-standing customer relationships to attract and retain deposits. We seek to maintain and increase our retail "core" deposit relationships, consisting of savings accounts, checking accounts and money market accounts because we believe these deposit

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accounts tend to be a stable funding source and are available at a lower cost than term deposits. However, market interest rates, including rates offered by competing financial institutions, the availability of other investment alternatives, and general economic conditions significantly affect our ability to attract and retain deposits.

We also open deposit accounts for customers throughout the United States through the Internet and deposit listing services. Deposits from the Internet and deposit listing services totaled $4.7 million and $9.2 million, respectively, at December 31, 2017 compared to $6.9 million and $56.0 million, respectively, at December 31, 2016.

During 2016, we rejoined a deposit program called Certificate of Deposit Account Registry Service ("CDARS"). CDARS is a deposit placement service that allows us to place our customers' funds in FDIC-insured certificates of deposit at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network ("CDARS Reciprocal"). We may also accept deposits from other institutions when we have no reciprocal deposit ("CDARS One-Way Buy"). We had approximately $9.5 million in CDARS Reciprocal and $43.3 million in CDARS One-Way Buy at December 31, 2017, compared to $6.9 million in CDARS Reciprocal and $21.7 million in CDARS One-Way Buy at December 31, 2016.

The following table details the maturity periods of our certificates of deposit in amounts of $250 thousand or more at December 31, 2017.

	December 31, 2017

	Amount		Weighted average rate
	(Dollars in thousands)
Certificates maturing:
Less than three months	$	3,069		1.02%
Three to six months		4,627		1.16%
Six to twelve months		7,435		1.22%
Over twelve months		1,578		1.24%

Total	$	16,709		1.17%

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.

	For the Year Ended December 31,

	2017						2016						2015
	Average balance		Percent of total		Weighted average rate		Average balance		Percent of total		Weighted average rate		Average balance		Percent of total		Weighted average rate
	(Dollars in thousands)
Money market deposits	$	38,318		13.14%		0.70%	$	27,399		10.06%		0.58%	$	21,917		9.12%		0.50%
Passbook deposits		39,064		13.39%		0.32%		36,611		13.45%		0.32%		36,252		15.09%		0.32%
NOW and other demand deposits		32,275		11.07%		0.07%		29,959		11.00%		0.07%		28,813		11.99%		0.07%
Certificates of deposit		181,993		62.40%		1.09%		178,292		65.49%		1.06%		153,291		63.80%		1.09%

Total	$	291,650		100.00%		0.82%	$	272,261		100.00%		0.80%	$	240,273		100.00%		0.79%

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Borrowings

We utilize short-term and long-term advances from the FHLB of San Francisco as an alternative to retail deposits as a funding source for asset growth. FHLB advances are generally secured by mortgage loans and mortgage-backed securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates from time to time in accordance with the policies of the FHLB. At December 31, 2017, we had $65.0 million in FHLB advances and had the ability to borrow up to an additional $42.9 million based on available and pledged collateral.

The following table summarizes information concerning our FHLB advances at or for the periods indicated:

	At or For the Year Ended

	2017			2016			2015
	(Dollars in thousands)
FHLB Advances:
Average balance outstanding during the year	$	89,279		$	71,940		$	80,875
Maximum amount outstanding at any month-end during the year	$	104,000		$	85,000		$	84,500
Balance outstanding at end of year	$	65,000		$	85,000		$	72,000
Weighted average interest rate at end of year		1.86	%		1.94	%		2.15	%
Average cost of advances during the year		1.97	%		2.13	%		2.24	%
Weighted average maturity (in months)		18			13			24

On March 17, 2004, we issued $6.0 million of Floating Rate Junior Subordinated Debentures (the "Debentures") in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 4.15% at December 31, 2017. On October 16, 2014, we made payments of $900 thousand of principal on the Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof. The modified terms of the Debentures require quarterly payments of interest only through March 2019 at the original rate of 3-Month LIBOR plus 2.54%. Starting in June 2019, we will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024. The Debentures may be called for redemption at any time by the Company.

Market Area and Competition

Broadway Federal is a community-oriented savings institution offering a variety of financial services to meet the needs of the communities it serves. Our retail banking network includes full service banking offices, automated teller machines and Internet banking capabilities that are available using our website at www.broadwayfederalbank.com. We have two banking offices in Los Angeles and one banking office located in the nearby City of Inglewood.

The Los Angeles metropolitan area is a highly competitive banking market for making loans and attracting deposits. Although our offices are primarily located in low-to-moderate income communities that have historically been under-served by other financial institutions, we face significant competition for deposits and loans in our immediate market areas, including direct competition from mortgage banking companies, commercial banks and savings and loan associations. Most of these financial institutions are significantly larger than we are and have greater financial resources, and many have a regional, statewide or national presence.

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Personnel

At December 31, 2017, we had 68 employees, which included 63 full-time and 5 part-time employees. We believe that we have good relations with our employees and none are represented by a collective bargaining group.

Regulation

General

Broadway Federal Bank, f.s.b, is regulated by the OCC, as its primary federal regulator, and by the FDIC, as its deposit insurer. The Bank is also a member of the FHLB System and is subject to the regulations of the FRB concerning reserves required to be maintained against deposits, transactions with affiliates, Truth in Lending and other consumer protection requirements and certain other matters. Broadway Financial Corporation is regulated, examined and supervised by the FRB and is also required to file certain reports and otherwise comply with the rules and regulations of the SEC under the federal securities laws.

The OCC regulates and examines most of our Bank's business activities, including, among other things, capital standards, general investment authority, deposit taking and borrowing authority, mergers and other business combination transactions, establishment of branch offices, and permitted subsidiary investments and activities. The OCC has primary enforcement responsibility over federal savings bank and has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, including with respect to capital requirements. In addition, the FDIC has the authority to recommend to the OCC that enforcement action be taken with respect to a particular federal savings bank and, if action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances. In certain cases, the OCC has the authority to refer matters relating to federal fair lending laws to the U.S. Department of Justice ("DOJ") or the U.S. Department of Housing and Urban Development ("HUD") if the OCC determines violations of the fair lending laws may have occurred.

Changes in the applicable laws or regulations of the OCC, the FDIC, the FRB or other regulatory authorities, or changes in interpretations of such regulations or in agency policies or priorities, could have a material adverse impact on the Bank and the Company, their operations, and the value of the Company's debt and equity securities. The Company and its stock are also subject to rules and regulations issued by The NASDAQ Stock Market, LLC ("NASDAQ"), the principal exchange on which the Company's common stock is traded. Failure of the Company to conform to NASDAQ's rules and regulations could have an adverse impact on the Company and the value of the Company's equity securities.

The following paragraphs summarize certain of the laws and regulations that apply to the Company and the Bank. These descriptions of statutes and regulations and their possible effects do not purport to be complete descriptions of all of the provisions of those statutes and regulations and their possible effects on us, nor do they purport to identify every statute and regulation that applies to us.

Dodd-Frank Wall Street Reform and Consumer Protection Act

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act is intended to address perceived weaknesses in the U.S. financial regulatory system and prevent future economic and financial crises.

As a result of the Dodd-Frank Act, on July 21, 2011, the OTS, our former primary federal regulator, was merged into the OCC, which has taken over the regulation and supervision of all federal savings associations. The FRB acquired the OTS' authority over all savings and loan holding companies.

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The Dodd-Frank Act established increased compliance obligations across a number of areas in the banking business and, among other changes, required the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository institution holding companies and certain non-bank financial companies that are no less than those to which insured depository institutions have been previously subject. Under an existing FRB policy statement, bank holding companies with less than $500 million in total consolidated assets were not subject to consolidated capital requirements. In guidance effective as of May 15, 2015, the FRB formally applied the policy statement to savings and loan holding companies, such as the Company, and raised the applicable asset threshold to $1 billion. The Dodd-Frank Act requires savings and loan holding companies to serve as a source of financial strength for any subsidiary of the entity that is a depository institution by providing financial assistance in the event of the financial distress of the depository institution.

The Dodd-Frank Act also includes provisions changing the assessment base for federal deposit insurance from the amount of insured deposits to the amount of consolidated assets less tangible capital, and making permanent the $250,000 limit for federal deposit insurance that had initially been established on a temporary basis in reaction to the economic downturn in 2008.

The Dodd-Frank Act also established the Consumer Financial Protection Bureau ("CFPB"). The CFPB has authority to supervise compliance with and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to banks and savings institutions of all sizes, including the authority to prohibit "unfair, deceptive or abusive" acts and practices. Over the past several years, the CFPB has been active in bringing enforcement actions against banks and nonbank financial institutions to enforce federal consumer financial laws, and has developed a number of new enforcement theories and applications of these laws. The CFPB's supervisory authority does not generally extend to insured depository institutions having less than $10 billion in assets. The other federal financial regulatory agencies, however, as well as state attorneys general and state banking agencies and other state financial regulators, have been increasingly active in this area with respect to institutions over which they have jurisdiction.

The Dodd-Frank Act also includes other provisions that require or permit further rulemaking by the federal bank regulatory agencies, which may affect our future operations. We will not be able to determine the impact of these provisions until final rules are promulgated to implement these provisions and other regulatory guidance is provided interpreting these provisions.

Capital Requirements

In July 2013, the federal banking regulators approved final rules (the "Basel III Capital Rules") implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revised the risk-based capital requirements applicable to, among other entities, depository institutions including Broadway Federal. As stated above, the Company is exempt from consolidated capital requirements as a small savings and loan holding company. The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions).

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called "Common Equity Tier 1" ("CET1"), (ii) specify that Tier 1 capital consists of CET1 and "Additional Tier 1 capital" instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.

Under the Basel III Capital Rules, the minimum capital ratios effective as of January 1, 2015 are:

•: 4.5% CET1 to risk-weighted assets;
•: 6.0% Tier 1 capital (calculated as CET1 plus Additional Tier 1 capital) to risk-weighted assets;

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•: 8.0% Total capital (calculated as Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
•: 4.0% Tier 1 capital to average consolidated assets (known as the "leverage ratio").

The Basel III Capital Rules also introduced a new "capital conservation buffer", composed entirely of CET1, in addition to these minimum risk-weighted asset ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% on January 1 of each subsequent year, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

When fully phased in on January 1, 2019, the Basel III Capital Rules will require the Bank to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 10.5%; and (iv) a minimum leverage ratio of 4.0%.

The Basel III Capital Rules also provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1. Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased-in over the following three years (beginning at 40% on January 1, 2015 and at an additional 20% each year thereafter).

In addition, under the Basel III Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded automatically; however, non-advanced approaches banking organizations, including Broadway Federal, are able to make a one-time permanent election to continue to exclude these items. The Bank has made this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of their available-for-sale securities portfolio.

The Basel III Capital Rules prescribe a standardized approach for risk weightings that expands both the number of risk-weighting categories and the risk sensitivity of many categories. The risk weights assigned to a particular category of assets will depend on the nature of the assets, and range from 0% for U.S. government and agency securities to 600% for certain equity exposures. On balance, the new standards result in higher risk weights for a number of asset categories.

The Basel III Capital Rules also revise the "prompt corrective action" regulations pursuant to Section 38 of the Federal Deposit Insurance Act, as discussed below under "Prompt Corrective Action." Management believes that, as of December 31, 2017, the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements had been in effect.

Prompt Corrective Action

The Federal Deposit Insurance Act, as amended ("FDIA"), requires the federal banking agencies to take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. The OCC performs this function with respect to the Bank. The FDIA includes the following five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized."

Generally, a capital restoration plan must be filed with the OCC within 45 days after the date a depository institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically

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undercapitalized," and the plan must be guaranteed by any parent holding company. In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion.

The Basel III Capital Rules contain revisions to the prompt corrective action framework. Under the prompt corrective action requirements, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as "well capitalized:" (i) a new CET1 capital to risk weighted assets of 6.5%; (ii) a Tier 1 capital to risk weighted assets of 8% (increased from 6%); (iii) a total capital to risk weighted assets of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

At December 31, 2017, the Bank's level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios at December 31, 2017 and 2016 are presented below.


	Actual			Minimum Capital Requirements			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount	Ratio		Amount	Ratio		Amount	Ratio

		(Dollars in thousands)
December 31, 2017:
Tier 1 (Leverage)	$	47,838	11.39%	$	16,798	4.0%	$	20,997	5.0%
Common Equity Tier 1	$	47,838	18.63%	$	11,557	4.5%	$	16,693	6.5%
Tier 1	$	47,838	18.63%	$	15,409	6.0%	$	20,545	8.0%
Total Capital	$	51,059	19.88%	$	20,545	8.0%	$	25,681	10.0%
December 31, 2016:
Tier 1 (Leverage)	$	43,954	10.60%	$	16,594	4.0%	$	20,742	5.0%
Common Equity Tier 1	$	43,954	15.36%	$	12,875	4.5%	$	18,597	6.5%
Tier 1	$	43,954	15.36%	$	17,166	6.0%	$	22,888	8.0%
Total Capital	$	47,544	16.62%	$	22,888	8.0%	$	28,610	10.0%

Deposit Insurance

The FDIC is an independent federal agency that insures deposits of federally insured banks, including federal savings 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.

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. The initial base assessment rate is based on an institution's capital level, and capital adequacy, asset quality, management, earnings, liquidity and sensitivity ("CAMELS") ratings, certain financial measures to assess an institution's ability to withstand asset related stress and funding related stress, and in some cases, additional discretionary adjustments by the FDIC to reflect additional risk factors.

The FDIC's overall premium rate structure is subject to change from time to time to reflect its actual and anticipated loss experience. The financial crisis that began in 2008 resulted in substantially higher levels of bank failures than had occurred in the immediately preceding years. These failures dramatically increased the resolution costs of the FDIC and substantially reduced the available amount of the DIF.

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As required by the Dodd-Frank Act, the FDIC adopted a new DIF restoration plan which became effective on January 1, 2011. Among other things, the plan increased the minimum designated DIF reserve ratio from 1.15% to 1.35% of insured deposits, which must be reached by September 30, 2020, and provides that in setting the assessments necessary to meet the new requirement, the FDIC is required to offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by institutions with more than $10 billion in assets. With the increase of the DIF reserve ratio to 1.17% on June 30, 2016, the range of initial assessment rates has declined for all banks from five to 35 basis points on an annualized basis to three to 30 basis points on an annualized basis. In order to reach a DIF reserve ratio of 1.35%, insured depository institutions with $10 billion or more in total assets are required to pay a quarterly surcharge equal to an annual rate of 4.5 basis points, in addition to regular assessments. In the event that the reserve ratio does not reach 1.35% by December 31, 2018, the FDIC will impose a shortfall on large banks in the first quarter of 2019. The FDIC will provide assessment credits to insured depository institutions, like Broadway Federal, with total consolidated assets of less than $10 billion for the portion of their regular assessments that contribute to growth in the reserve ratio between 1.15% and 1.35%. The FDIC will apply the credits each quarter that the reserve ratio is at least 1.38% to offset the regular deposit insurance assessments of institutions with credits.

The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank's depositors.

Guidance on Commercial Real Estate Lending

In December 2015, the federal banking agencies released a statement titled "Statement on Prudent Risk Management for Commercial Real Estate Lending" (the "CRE Statement"). The CRE Statement expresses the banking agencies' concerns with banking institutions that ease their commercial real estate underwriting standards, directs financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicates that the agencies will continue to pay special attention to commercial real estate lending activities and concentrations going forward. The banking agencies previously issued guidance titled "Prudent Commercial Real Estate Loan Workouts" which provides guidance for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties and details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition. The banking agencies had also issued previous guidance titled "Interagency Guidance on Concentrations in Commercial Real Estate" stating that a banking institution will be considered to be potentially exposed to significant CRE concentration risk, and should employ enhanced risk management practices, if total CRE loans represent 300% or more of its total capital and the outstanding balance of the institution's CRE loan portfolio has increased by 50% or more during the preceding 36 months.

In October 2009, the federal banking agencies adopted a policy statement supporting workouts of commercial real estate ("CRE") loans, which is referred to as the CRE Policy Statement. The CRE Policy Statement provides guidance for examiners, and for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The CRE Policy Statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition. The CRE Policy Statement states that financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of the financial condition of borrowers will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications. In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined. The CRE Policy Statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing an institution's risk-management practices for loan workout activities.

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Loans to One Borrower

Federal savings banks generally are subject to the lending limits that are applicable to national banks. With certain limited exceptions, the maximum amount that a federal savings banks may lend to any borrower (including certain related persons or entities of such borrower) is an amount equal to 15% of the savings institution's unimpaired capital and unimpaired surplus, or $7.7 million for Broadway Federal at December 31, 2017, plus an additional 10% for loans fully secured by readily marketable collateral. Real estate is not included within the definition of "readily marketable collateral" for this purpose. We are in compliance with the limits that are applicable to loans to any one borrower. At December 31, 2017, our largest aggregate amount of loans to one borrower totaled $6.0 million. Both of the loans for the largest borrower were performing in accordance with their terms and the borrower had no affiliation with Broadway Federal.

Community Reinvestment Act and Fair Lending

The Community Reinvestment Act, as implemented by OCC regulations ("CRA"), requires each federal savings bank, as well as other lenders, to make efforts to meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods. The CRA requires the OCC to assess an institution's performance in meeting the credit needs of its communities as part of its examination of the institution, and to take such assessments into consideration in reviewing applications for mergers, acquisitions and other transactions. An unsatisfactory CRA rating may be the basis for denying an application. Community groups have successfully protested applications on CRA grounds. In connection with the assessment of a savings institution's CRA performance, the OCC assigns ratings of "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance." The Bank's "outstanding" rating was reaffirmed in its most recent CRA examination in 2016.

The Bank is also subject to federal fair lending laws, including the Equal Credit Opportunity Act ("ECOA") and the Federal Housing Act ("FHA"), which prohibit discrimination in credit and residential real estate transactions on prohibited bases, including race, color, national origin, gender, and religion, among others. A lender may be liable under one or both of these acts in the event of overt discrimination, disparate treatment, or a disparate impact on a prohibited basis. The compliance of federal savings banks of the Bank's size with these acts is primarily supervised and enforced by the OCC. If the OCC determines that a lender has engaged in a pattern or practice of discrimination in violation of ECOA, the OCC refers the matter to the DOJ. Similarly, HUD is notified of violations of the FHA.

Qualified Thrift Lender Test

The Home Owners Loan Act ("HOLA") requires all federal savings banks to meet a Qualified Thrift Lender ("QTL") test. Under the QTL test, a federal savings bank is required to maintain at least 65% of its portfolio assets (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the value of property used to conduct business) in certain "qualified thrift investments" on a monthly basis during at least 9 out of every 12 months. Qualified thrift investments include, in general, loans, securities and other investments that are related to housing, shares of stock issued by any Federal Home Loan Bank, loans for educational purposes, loans to small businesses, loans made through credit cards or credit card accounts and certain other permitted thrift investments. The failure of a federal savings bank to remain a QTL may result in required conversion of the institution to a bank charter, which would change the federal savings bank's permitted business activities in various respects, including operation under certain restrictions, such as limitations on new investments and activities, the imposition of restrictions on branching and the payment of dividends that apply to national banks. At December 31, 2017, the Bank was in compliance with the QTL test requirements.

The USA Patriot Act, Bank Secrecy Act ("BSA"), and Anti-Money Laundering ("AML") Requirements

The USA PATRIOT Act was enacted after September 11, 2001 to provide the federal government with powers to prevent, detect, and prosecute terrorism and international money laundering, and has resulted in the promulgation

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of several regulations that have a direct impact on savings associations. Financial institutions must have a number of programs in place to comply with this law, including: (i) a program to manage BSA/AML risk; (ii) a customer identification program designed to determine the true identity of customers, document and verify the information, and determine whether the customer appears on any federal government list of known or suspected terrorists or terrorist organizations; and (iii) a program for monitoring for the timely detection and reporting of suspicious activity and reportable transactions. Failure to comply with these requirements may result in regulatory action, including the issuance of cease and desist orders, impositions of civil money penalties and adverse changes in an institution's regulatory ratings, which could adversely affect its ability to obtain regulatory approvals for business combinations or other desired business objectives.

Privacy Protection

Broadway Federal is subject to OCC regulations implementing the privacy protection provisions of federal law. These regulations require Broadway Federal to disclose its privacy policy, including identifying with whom it shares "nonpublic personal information," to customers at the time of establishing the customer relationship and annually thereafter. The regulations also require Broadway Federal to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, to the extent its sharing of such information is not covered by an exception, Broadway Federal is required to provide its customers with the ability to "opt-out" of having Broadway Federal share their nonpublic personal information with unaffiliated third parties.

Broadway Federal is also subject to regulatory guidelines establishing standards for safeguarding customer information. The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. 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.

Cybersecurity

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.

The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a banking organization's the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management, processes related to information technology and operational resiliency, and the use of third parties in the provision of financial services.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

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Savings and Loan Holding Company Regulation

As a savings and loan holding company, we are subject to the supervision, regulation, and examination of the FRB. In addition, FRB has enforcement authority over the Company and our subsidiary Broadway Federal. Applicable statutes and regulations administered by FRB place certain restrictions on our activities and investments. Among other things, we are generally prohibited, either directly or indirectly, from acquiring more than 5% of the voting shares of any savings association or savings and loan holding company that is not a subsidiary of the Company.

The Change in Bank Control Act prohibits a person, acting directly or indirectly or in concert with one or more persons, from acquiring control of a savings and loan holding company unless the FRB has been given 60 days prior written notice of such proposed acquisition and within that time period the FRB has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which a disapproval may be issued. The term "control" is defined for this purpose to include ownership or control of, or holding with power to vote, 25% or more of any class of a savings and loan holding company's voting securities. Under a rebuttable presumption contained in the regulations of the FRB, ownership or control of, or holding with power to vote, 10% or more of any class of voting securities of a savings and loan holding company will be deemed control for purposes of the Change in Bank Control Act if the institution (i) has registered securities under Section 12 of the Exchange Act, or (ii) no person will own, control, or have the power to vote a greater percentage of that class of voting securities immediately after the transaction. In addition, any company acting directly or indirectly or in concert with one or more persons or through one or more subsidiaries would be required to obtain the approval of the FRB under the Home Owners' Loan Act before acquiring control of a savings and loan holding company. For this purpose, a company is deemed to have control of a savings and loan holding company if the company (i) owns, controls, holds with power to vote, or holds proxies representing, 25% or more of any class of voting shares of the savings and loan holding company, (ii) contributes more than 25% of the capital, (iii) controls in any manner the election of a majority of the holding company's directors, or (iv) directly or indirectly exercises a controlling influence over the management or policies of the savings bank or other company. The FRB may also determine, based on the relevant facts and circumstances, that a company has otherwise acquired control of a savings and loan holding company.

Restrictions on Dividends and Other Capital Distributions

In general, the prompt corrective action regulations prohibit a federal savings 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. In addition to the prompt corrective action restriction on paying dividends, OCC regulations limit certain "capital distributions" by savings associations. Capital distributions are defined to include, among other things, dividends and payments for stock repurchases and payments of cash to stockholders in mergers.

Under the OCC capital distribution regulations, a federal savings bank that is a subsidiary of a savings and loan holding company must notify the OCC at least 30 days prior to the declaration of any capital distribution by its federal savings bank subsidiary. The 30-day period provides the OCC an opportunity to object to the proposed dividend if it believes that the dividend would not be advisable.

An application to the OCC for approval to pay a dividend is required if: (i) the total of all capital distributions made during that calendar year (including the proposed distribution) exceeds the sum of the institution's year-to-date net income and its retained income for the preceding two years; (ii) the institution is not entitled under OCC regulations to "expedited treatment" (which is generally available to institutions the OCC regards as well run and adequately capitalized); (iii) the institution would not be at least "adequately capitalized" following the proposed capital distribution; or (iv) the distribution would violate an applicable statute, regulation, agreement, or condition imposed on the institution by the OCC.

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The Bank's ability to pay dividends to the Company is also subject to the restriction that the Bank is not permitted to pay dividends to the Company if its regulatory capital would be reduced below the amount required for the liquidation account established in connection with the conversion of the Bank from the mutual to the stock form of organization.

See Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" and Note 13 of the Notes to Consolidated Financial Statements for a further description of dividend and other capital distribution limitations to which the Company and the Bank are subject.

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 with certain exceptions, including particularly the Bank's tax reserve for bad debts. The Bank has qualified under provisions of the Internal Revenue Code (the "Code") that in the past allowed qualifying savings institutions to establish reserves for bad debts, and to make additions to such reserves, using certain preferential methodologies. In December 2017, Congress passed the Tax Cuts and Jobs Act of 2017, which lowered our federal income tax rate to 21% from 34% starting in year 2018. See Note 11 of the Notes to Consolidated Financial Statements for a further description of tax matters applicable to our business.

California Taxes

As a savings and loan holding company filing California franchise tax returns on a combined basis with its subsidiaries, the Company is subject to California franchise tax at the rate applicable to "financial corporations." The applicable statutory tax rate is 10.84%.

ITEM 2. PROPERTIES

We conduct our business through three branch offices and a corporate office. Our loan service operation is also conducted from one of our branch offices. Our administrative and corporate operations are conducted from our corporate facility located at 5055 Wilshire Boulevard, Suite 500, Los Angeles. There are no mortgages, material liens or encumbrances against any of our owned properties. We believe that all of the properties are adequately covered by insurance, and that our facilities are adequate to meet our present needs.

As of December 31, 2017, the net book value of our investment in premises, equipment and fixtures, excluding computer equipment, was $2.3 million. Total occupancy expense, inclusive of rental payments and furniture and

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equipment expense, for the year ended December 31, 2017 was $1.3 million. Total annual rental expense (exclusive of operating charges and real property taxes) was approximately $587 thousand during 2017.

Location	Leased or Owned	Original Date Leased or Acquired	Date of Lease Expiration


Administrative/Loan Origination Center: 5055 Wilshire Blvd, Suite 500 Los Angeles, CA	Leased	2013	April 2021
Branch Offices: 5055 Wilshire Blvd, Suite 100 Los Angeles, CA	Leased	2013	April 2021
170 N. Market Street Inglewood, CA (Branch Office/Loan Service Center)	Owned	1996	-
4001 South Figueroa Street Los Angeles, CA	Owned	1996	-

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we are defendants in various litigation matters from time to time. In our opinion, the disposition of any litigation and other legal and regulatory matters currently pending or threatened against us would not have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

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PART II

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 table below shows the high and low sale prices for our common stock during the periods indicated.

2017	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter

High	$ 1.89	$ 2.14	$ 2.67	$ 2.60
Low	$ 1.47	$ 1.63	$ 1.91	$ 2.00

2016	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter

High	$ 1.99	$ 2.00	$ 2.50	$ 1.98
Low	$ 1.35	$ 1.79	$ 1.42	$ 1.42

The closing sale price for our common stock on the Nasdaq Capital Market on March 8, 2018 was $2.15 per share. As of March 8, 2018, we had 282 stockholders of record and 18,713,729 shares of voting common stock outstanding. At that date, we also had 8,756,396 shares of non-voting common stock outstanding. Our non-voting common stock is not listed for trading on the Nasdaq Capital Market, but is convertible into our voting common stock in connection with certain sale or other transfer transactions.

In general, we may pay dividends out of funds legally available for that purpose at such times as our Board of Directors determines that dividend payments are appropriate, after considering our net income, capital requirements, financial condition, alternate investment options, prevailing economic conditions, industry practices and other factors deemed to be relevant at the time. 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. In addition, pursuant to the Order issued to the Company in September 2010 (which was terminated by the FRB in February 2016), the Company could not declare or pay dividends or make other capital distributions, which term included repurchases of stock, without receipt of prior written notice of non-objection to such capital distribution from the FRB.

Our financial ability to pay permitted dividends is primarily dependent upon receipt of dividends from Broadway Federal. Broadway Federal is subject to certain requirements which may limit its ability to pay dividends or make other capital distributions. See Item 1 "Business – Regulation" and Note 13 of the Notes to Consolidated Financial Statements in Item 8 "Financial Statements and Supplementary Data" for an explanation of the impact of regulatory capital requirements on Broadway Federal's ability to pay dividends.

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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, 2017.

Plan category		Weighted average exercise price of outstanding options (b)

Equity compensation plans approved by security holders:
2008 Long Term Incentive Plan	537,500	$	2.19	1,312,015
Equity compensation plans not approved by security holders:
None	-		-	-

Total	537,500	$	2.19	1,312,015

As of December 31, 2017, 120,483 shares of restricted stock and 30,002 shares of voting common stock had been issued under the 2008 Long Term Incentive Plan. Our Board of Directors intends to consider issuing equity incentives to certain key employees as a form of long-term compensation that will help align the interests of senior management with those of our stockholders. However, our ability to issue options and other forms of equity incentives to our Chief Executive Officer was restricted pursuant to the terms of the agreements entered into in 2008 and 2009 pursuant to which the U.S. Treasury invested in the Company.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and other factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

Overview

Total assets decreased by $15.4 million to $413.7 million at December 31, 2017 from $429.1 million at December 31, 2016. The decrease in total assets during 2017 primarily consisted of a decrease of $44.6 million in net loans receivable held for investment and a decrease of $1.8 million in deferred tax assets, which were partially offset by an increase of $22.4 million in loans receivable held for sale, an increase of $4.3 million in securities available-for-sale, an increase of $3.8 million in cash and cash equivalents and an increase of $878 thousand in REO.

During 2017, total deposits increased by $3.9 million, primarily reflecting an increase of $9.2 million in liquid deposits and a decrease of $5.3 million in CDs. FHLB advances decreased by $20.0 million during 2017 as we repaid $49.5 million in maturing advances and borrowed $29.5 million in new advances from the FHLB.

We recorded net income of $1.9 million for the year ended December 31, 2017, compared to $3.5 million for the year ended December 31, 2016. Our net income for the year 2017 included an additional income tax expense of $519 thousand resulting from the enactment of the Tax Cuts and Jobs Act of 2017, whereas in 2016, our net income was positively impacted by the reversal of the remaining valuation allowance on our deferred tax assets which resulted in an income tax benefit of $2.2 million. We also recorded higher non-interest income, interest income and loan loss provision recaptures during 2017 compared to 2016.

Comparison of Operating Results for the Years Ended December 31, 2017 and 2016

General

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

Net Income

We recorded net income of $1.9 million, or $0.07 per diluted share, for the year ended December 31, 2017, compared to net income of $3.5 million, or $0.12 per diluted share for the year ended December 31, 2016. The lower earnings during 2017 compared to 2016 resulted primarily from certain income tax adjustments in both years. Our income tax expense for the year ended December 31, 2017 totaled $1.9 million and included an additional tax expense of $519 thousand due to the enactment of the Tax Cuts and Jobs Act of 2017, which required adjustment of our deferred tax assets to recognize the decrease in the federal income tax rate to 21% from 34%. In comparison, for the year ended December 31, 2016, we recorded an income tax benefit of $2.2 million, which resulted from the reversal of the valuation allowance on our deferred tax assets. Pre-tax earnings increased by $2.5 million during

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2017, compared to 2016, primarily due to increases in non-interest income, net interest income, and loan loss provision recaptures.

Net Interest Income

For the year ended December 31, 2017, net interest income increased by $526 thousand to $11.9 million, from $11.4 million for the same period in 2016. Interest income on loans increased by $912 thousand to $15.4 million for the year ended December 31, 2017, from $14.5 million for the same period in 2016, primarily due to an increase of $40.0 million in the average balance of loans receivable, which increased to $381.3 million for 2017 from $341.3 million for 2016 and resulted in additional interest income of $1.6 million. Partially offsetting this increase was the impact of a decrease of 20 basis points in the average yield on loans to 4.04% for 2017, from 4.24% for 2016, which reduced loan interest income by $726 thousand.

Other interest income increased by $90 thousand to $572 thousand for the year ended December 31, 2017, from $482 thousand for the same period in 2016. The increase in other interest income was primarily due to an increase of $205 thousand in interest income on interest-bearing deposits, which was partially offset by a decrease of $115 thousand in dividend income earned on the Bank's investment in FHLB stock. The increase in interest income on interest-bearing deposits primarily resulted from higher interest rates earned on interest-bearing deposits during 2017. The decrease in dividend income earned on the Bank's investment in FHLB stock primarily resulted from the Bank not receiving special dividends in 2017, compared to $88 thousand of special dividends received during 2016.

Interest expense on deposits increased by $218 thousand to $2.4 million for the year ended December 31, 2017, from $2.2 million for the same period in 2016. The increase in interest expense on deposits was primarily due to an increase of $19.4 million in the average balance of deposits to $291.7 million for 2017 from $272.3 million for 2016, which increased interest expense by $121 thousand. Additionally, the average cost of deposits increased by 2 basis points to 0.82% for 2017, from 0.80% for 2016, which increased interest expense by $97 thousand.

Interest expense on borrowings increased by $253 thousand to $2.0 million for the year ended December 31, 2017, from $1.7 million for the same period in 2016. The increase in interest expense on borrowings was primarily due to an increase of $17.3 million in the average balance of FHLB borrowings, which increased interest expense by $348 thousand. Additionally, due to increases in LIBOR rates, the average cost of Debentures increased by 53 basis points to 3.80% for 2017, from 3.27% for 2016, which increased interest expense by $27 thousand. Partially offsetting these increases was the impact of a decrease of 16 basis points in the average cost of FHLB borrowings, primarily reflecting maturities of higher rate advances, which reduced interest expense by $122 thousand.

Analysis of Net Interest Income

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

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	For the year ended December 31,

	2017							2016
(Dollars in Thousands)	Average Balance		Interest			Average Yield/ Cost		Average Balance		Interest			Average Yield/ Cost
Assets
Interest-earning assets:
Interest-earning deposits and other short-term investments	$	30,486	$	373			1.22%	$	35,053	$	168			0.48%
Securities		13,408		318			2.37%		14,578		323			2.22%
Loans receivable (1)		381,293		15,397	(2)		4.04%		341,324		14,485	(3)		4.24%
FHLB stock		2,836		199			7.02%		2,573		314			12.20%

Total interest-earning assets		428,023	$	16,287			3.81%		393,528	$	15,290			3.89%

Non-interest-earning assets		10,747							9,113

Total assets	$	438,770						$	402,641



Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Money market deposits	$	38,318	$	268			0.70%	$	27,399	$	158			0.58%
Passbook deposits		39,064		125			0.32%		36,611		117			0.32%
NOW and other demand deposits		32,275		20			0.06%		29,959		20			0.07%
Certificate accounts		181,993		1,985			1.09%		178,292		1,885			1.06%

Total deposits		291,650		2,398			0.82%		272,261		2,180			0.80%
FHLB advances		89,279		1,756			1.97%		71,940		1,530			2.13%
Junior subordinated debentures		5,100		194			3.80%		5,100		167			3.27%

Total interest-bearing liabilities		386,029	$	4,348			1.13%		349,301	$	3,877			1.11%

Non-interest-bearing liabilities		5,587							6,405
Stockholders' Equity		47,154							46,935

Total liabilities and stockholders' equity	$	438,770						$	402,641





Net interest rate spread (4)			$	11,939			2.68%			$	11,413			2.78%



Net interest rate margin (5)							2.79%							2.90%
Ratio of interest-earning assets to interest-bearing liabilities							110.88%							112.66%

(1): Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs, loan premiums and loans receivable held for sale.
(2): Includes non-accrual interest of $316 thousand, reflecting interest recoveries on non-accrual loans that were paid off, and deferred cost amortization of $301 thousand for the year ended December 31, 2017.
(3): Includes non-accrual interest of $493 thousand, reflecting interest recoveries on non-accrual loans that were paid off, and deferred cost amortization of $290 thousand for the year ended December 31, 2016.
(4): Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(5): 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. 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

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(changes in rate multiplied by prior volume), and (iii) the total change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Year ended December 31, 2017 Compared to Year ended December 31, 2016									Year ended December 31, 2016 Compared to Year ended December 31, 2015

	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	$	(25	)	$	230		$	205		$	(56	)	$	93		$	37
Securities		(27	)		22			(5	)		(22	)		(6	)		(28	)
Loans receivable, net		1,638			(726	)		912			2,240			(1,985	)		255
FHLB stock		29			(144	)		(115	)		(88	)		(41	)		(129	)

Total interest-earning assets		1,615			(618	)		997			2,074			(1,939	)		135

Interest-bearing liabilities:
Money market deposits		72			38			110			30			18			48
Passbook deposits		8			-			8			1			1			2
NOW and other demand deposits		1			(1	)		-			1			(2	)		(1	)
Certificate accounts		40			60			100			265			(44	)		221

Total deposits		121			97			218			297			(27	)		270
FHLB advances		348			(122	)		226			(193	)		(85	)		(278	)
Junior subordinated debentures		-			27			27			-			21			21

Total interest-bearing liabilities		469			2			471			104			(91	)		13

Change in net interest income	$	1,146		$	(620	)	$	526		$	1,970		$	(1,848	)	$	122

Loan Loss Provision Recapture

For the year ended December 31, 2017, we recorded a loan loss provision recapture of $1.1 million compared to $550 thousand for the year ended December 31, 2016. The loan loss provision recapture during 2017 resulted from recoveries of $566 thousand, as partially charged off loans paid off in full, and from a decrease in ALLL requirements on the existing portfolio as loans paid off and as the overall credit quality of our loan portfolio continued to improve. See "Allowance for Loan Losses" for additional information.

Non-Interest Income

For the year ended December 31, 2017, non-interest income totaled $2.5 million, compared to $1.0 million for the same period in 2016. The increase of $1.5 million in non-interest income was primarily due to an insurance litigation settlement of $1.2 million. Additionally, we recorded a gain of $560 thousand from sale of loans during 2017, whereas we did not sell any loans during 2016. These increases were partially offset by an unusually large early withdrawal fee that generated income of $80 thousand, a loan extension fee of $50 thousand, and a foreclosure forbearance fee of $38 thousand that were included in our results for the year ended December 31, 2016.

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Non-Interest Expense

For the year ended December 31, 2017, non-interest expense totaled $11.8 million, relatively unchanged compared to the same period in 2016. Overall non-interest expense increased by $85 thousand, primarily due to increases in other expense of $378 thousand, occupancy expense of $81 thousand and compensation and benefits expense of $67 thousand, as partially offset by a decrease of $438 thousand in professional services expense. Other expense increased by $378 thousand primarily due to payments of $214 thousand for expenses related to three sales by the U.S. Treasury of a portion of its holdings of the Company's shares and an increase of $152 thousand in REO provision for losses and expenses. Professional services expense decreased by $438 thousand during 2017, primarily because in December 2016, we incurred $377 thousand of legal and consulting fees in connection with the repurchase of shares from the U.S. Treasury.

Income Taxes

We recorded an income tax expense of $1.9 million for the year ended December 31, 2017, compared to an income tax benefit of $2.2 million for the year ended December 31, 2016. The tax expense for 2017 includes an adjustment of $519 thousand to record our deferred tax assets at the lower federal tax rate of 21%. In contrast, we recorded an income tax benefit of $2.2 million for the comparable period in 2016, which resulted from the reversal of the remaining valuation allowance on our deferred tax assets, based on an analysis of the potential for full utilization of those assets. The deferred tax assets totaled $5.1 million at December 31, 2017, and $6.9 million at December 31, 2016. See Note 1 "Summary of Significant Accounting Policies" and Note 11 "Income Taxes" of the Notes to Consolidated Financial Statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense (benefit).

Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize net operating loss carryforwards, tax credit carryovers and other income tax attributes when there is an ownership change. Generally, the rules provide that an ownership change is deemed to have occurred when the cumulative increase of each 5% or more stockholder and certain groups of stockholders treated as 5% or more stockholders, as determined under Section 382, exceeds 50% over a specified "testing" period, generally equal to three years. Section 382 applies rules regarding the treatment of new groups of stockholders treated as 5% stockholders due to issuances of stock and other equity transactions, which may cause a change of control to occur. The Company has performed an analysis of the potential impact of Section 382 and has determined that the Company did not undergo an ownership change during 2017 or 2016 and any potential limitations imposed under Section 382 do not currently apply.

Comparison of Financial Condition at December 31, 2017 and 2016

Total Assets

Total assets decreased by $15.4 million to $413.7 million at December 31, 2017 from $429.1 million at December 31, 2016. The decrease in total assets consisted of a decrease of $44.6 million in net loans receivable held for investment and a decrease of $1.8 million in deferred tax assets, which were partially offset by an increase of $22.4 million in loans receivable held for sale, an increase of $4.3 million in securities available-for-sale, an increase of $3.8 million in cash and cash equivalents and an increase of $878 thousand in REO.

Loans Receivable Held for Sale

Loans receivable held for sale at December 31, 2017 totaled $22.4 million and consisted of multi-family loans. We had no loans receivable held for sale at December 31, 2016. During 2017, we allocated $110.4 million, or 96%, of our loan originations to loans held for sale and transferred $9.3 million of multi-family loans from the portfolio of loans held for investment to the portfolio of loans held for sale as part of our loan concentration risk management program. Also, during 2017, we completed $96.9 million of multi-family loan sales that generated the gain on loan

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sales of $560 thousand mentioned above. We received $411 thousand in principal repayments on loans held for sale during 2017.

Loans Receivable

Our gross loan portfolio decreased by $44.9 million to $337.4 million at December 31, 2017, from $382.3 million at December 31, 2016. The decrease in our gross loan portfolio during 2017 primarily consisted of a decrease of $42.1 million in our multi-family residential real estate loan portfolio, an increase of $6.3 million in our single family residential real estate loan portfolio, a decrease of $7.0 million in our church loan portfolio, a decrease of $2.8 million in our commercial real estate loan portfolio and an increase of $841 thousand in our construction loan portfolio. At December 31, 2017, 55.6% of our loan portfolio consisted of multi-family loans, 32.9% consisted of single family residential loans, 9.1% consisted of church loans, and 2.4% consisted of commercial and other loans. In comparison, at December 31, 2016, 60.1% of our loan portfolio consisted of multi-family loans, 27.4% consisted of single family residential loans, 9.9% consisted of church loans, and 2.6% consisted of commercial and other loans.

For the year ended December 31, 2017, loans originated for investment totaled $5.0 million, compared to loans originated for investment of $137.7 million for the year ended December 31, 2016. During 2017, we purchased $24.6 million in single family loans. We did not purchase any loans during 2016. Loan repayments totaled $64.8 million for the year ended December 31, 2017, compared to $63.4 million for the year ended December 31, 2016.

There were no loan charge-offs during 2017 and 2016. During 2017, we received a deed in lieu of foreclosure and recorded an REO at fair value, net of estimated selling costs, of $878 thousand at December 31, 2017. No loans were transferred to REO during 2016.

Allowance for Loan Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the ALLL at a level sufficient, in management's judgment, to absorb probable incurred losses in the loan portfolio. At least quarterly we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

Our ALLL decreased to $4.1 million, or 1.20% of our gross loans receivable held for investment, at December 31, 2017, from $4.6 million, or 1.20% of our gross loans receivable held for investment, at December 31, 2016, primarily reflecting loan loss provision recaptures of $1.1 million, which were partially offset by recoveries of $566 thousand. The reduction in ALLL at December 31, 2017 compared to December 31, 2016, and the loan loss provision recaptures during 2017, reflect the results of our quarterly reviews of the adequacy of the ALLL. We continue to maintain our ALLL at a level that we believe is appropriate, given the significant reduction in delinquencies and non-performing loans, the continued improvement in our asset credit quality metrics and the high quality of our loan originations.

Our loan delinquencies and non-performing loans ("NPLs") are at their lowest levels since December 2009. We had total delinquencies of $391 thousand at December 31, 2017 and $1.4 million at December 31, 2016. NPLs consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status. At December 31, 2017, NPLs totaled $1.8 million, compared to $2.9 million at

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December 31, 2016. The decrease of $1.1 million in NPLs was primarily due to payoffs of $340 million, repayments of $335 thousand and a transfer to REO of $503 thousand.

In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as lack of current financial information and an insufficient period of satisfactory performance. As of December 31, 2017, $1.4 million, or 81%, of our NPLs were current in their payments. Also, in determining the ALLL, we consider the ratio of the ALLL to NPLs, which increased to 230.41% at December 31, 2017 from 156.35% at December 31, 2016.

When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends in loan charge-offs. There were no loan charge-offs during 2017 and 2016. In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months. If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs. Therefore, certain losses inherent in our total NPLs are recognized periodically through charge-offs. The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans. Due to prior charge-offs and increases in collateral values, the average recorded investment in NPLs was only 37% of estimated fair value less estimated selling costs as of December 31, 2017.

Recoveries during 2017 and 2016 totaled $566 thousand and $325 thousand, respectively. Recoveries during 2017 and 2016 primarily resulted from the payoffs of non-accrual loans which had been previously partially charged off.

Impaired loans at December 31, 2017 were $9.3 million, compared to $11.9 million at December 31, 2016. The decrease of $2.6 million in impaired loans was primarily due to repayments of $2.1 million and one transfer to REO totaling $503 thousand. Specific reserves for impaired loans were $585 thousand, or 6.29% of the aggregate impaired loan amount at December 31, 2017, compared to $656 thousand, or 5.51%, at December 31, 2016. Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) was 1.06% at December 31, 2017 and 2016.

We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of December 31, 2017, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC periodically review the ALLL as an integral part of their examination process. These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

Deposits

Deposits increased by $3.9 million to $291.3 million at December 31, 2017 from $287.4 million at December 31, 2016, which consisted of an increase of $39.4 million in liquid deposits and a decrease of $35.5 million in CDs. During 2017, a CD account of $30.3 million from one deposit relationship was moved to a money market account. Excluding this transfer, liquid deposits increased by $9.2 million and CDs decreased by $5.3 million. The increase of $9.2 million in liquid deposits consisted of an increase of $5.9 million in money market accounts, an increase of $3.1 million in NOW accounts and an increase of $195 thousand in passbook accounts. The decrease of $5.3 million in CDs during 2017 was primarily due to a decrease of $46.8 million in QwickRate CDs, which was partially offset by an increase of $23.4 million in CDARS accounts and an increase of $18.1 million in retail CDs.

One customer relationship accounted for approximately 11% of our deposits at December 31, 2017. We expect to maintain this relationship with the customer for the foreseeable future.

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Borrowings

Total borrowings at December 31, 2017 consisted of advances to the Bank from the FHLB of $65.0 million, and subordinated debentures issued by the Company of $5.1 million, compared to advances from the FHLB of $85.0 million and subordinated debentures of $5.1 million at December 31, 2016. During 2017, the Bank paid off $49.5 million in maturing advances and borrowed $29.5 million in new advances from the FHLB.

The weighted average cost of FHLB advances decreased 8 basis points to 1.86% at December 31, 2017 from 1.94% at December 31, 2016 primarily due to maturities of $49.5 million of FHLB advances with an average interest rate of 1.95% and new advances totaling $29.5 million with an average interest rate of 1.78%.

Stockholders' Equity

Stockholders' equity was $47.7 million, or 11.54% of the Company's total assets, at December 31, 2017, compared to $45.5 million, or 10.61% of the Company's total assets, at December 31, 2016. The Company's book value was $1.74 per share as of December 31, 2017, compared to $1.66 per share as of December 31, 2016.

Capital Resources

Our principal subsidiary, Broadway Federal, must comply with capital standards established by the OCC in the conduct of its business. Failure to comply with such capital requirements may result in significant limitations on its business or other sanctions. As a "small bank holding company", we are not subject to consolidated capital requirements under the new Basel III capital rules. The current regulatory capital requirements and possible consequences of failure to maintain compliance are described in Part I, Item 1 "Business-Regulation" and in Note 13 of the Notes to Consolidated Financial Statements.

Liquidity

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis. The Bank's sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans, REO, and investment securities, and payments of principal and interest on loans and investment securities. The Bank is currently approved by the FHLB to borrow up to 30% 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 $42.9 million at December 31, 2017.

The Bank's primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating expenses. Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank sells federal funds to the Federal Reserve Bank or other financial institutions. The Bank's liquid assets at December 31, 2017 consisted of $22.2 million in cash and cash equivalents and $17.0 million in securities available-for-sale that were not pledged, compared to $18.4 million in cash and cash equivalents and $12.6 million in securities available-for-sale that were not pledged at December 31, 2016. Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

The Company's liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed in August 2013, October 2014 and December 2016 and dividend received from the Bank in 2017 and 2016. The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

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The Company recorded consolidated net cash outflows from operating activities of $10.2 million and net cash inflows from operating activities of $930 thousand during the years ended December 31, 2017 and 2016, respectively. Net cash outflows from operating activities during 2017 were primarily attributable to originations of multi-family loans for the Bank's loans held for sale portfolio, which was partially offset by net proceeds from the sale of loans.

The Company recorded consolidated net cash inflows from investing activities of $30.2 million and net cash outflows from investing activities of $74.1 million during the years ended December 31, 2017 and 2016, respectively. Net cash inflows from investing activities during 2017 were primarily attributable to repayments on loans held for investment and securities available-for-sale, which were partially offset by purchases of single-family loans and securities.

The Company recorded consolidated net cash outflows from financing activities of $16.1 million and net cash inflows from financing activities of $23.8 million during the years ended December 31, 2017 and 2016, respectively. Net cash outflows from financing activities during 2017 were primarily attributable to repayment of advances from the FHLB.

Off-Balance-Sheet Arrangements and Contractual Obligations

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

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

In addition to our lending commitments, we have contractual obligations related to operating lease commitments. Operating lease commitments are obligations under various 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, 2017.

	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	$	131,716	$	16,834	$	2,207	$	32	$	150,789
FHLB advances		27,500		37,500		-		-		65,000
Subordinated debentures		-		1,785		2,040		1,275		5,100
Commitments to originate loans		1,493		-		-		-		1,493
Commitments to fund unused lines of credit		2,209		-		-		373		2,582
Operating lease obligations		517		1,045		182		-		1,744

Total contractual obligations	$	163,661	$	57,164	$	4,203	$	1,680	$	226,708

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Impact of Inflation and Changing Prices

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

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. This discussion highlights those accounting policies that management considers critical. All accounting policies are important, however, and therefore you are encouraged to review each of the policies included in Note 1 "Summary of Significant Accounting Principles" of the Notes to Consolidated Financial Statements beginning at page F-8 to gain a better understanding of how our financial performance is measured and reported. Management has identified the Company's critical accounting policies as follows:

Allowance for Loan Losses

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

Real Estate Owned ("REO")

REO consists of property acquired through foreclosure or deed in lieu of foreclosure and is recorded at the fair value, less estimated costs to sell, at the time of acquisition. The excess, if any, of the loan balance over the fair value of the property at the time of transfer from loans to REO is charged to the allowance for loan losses. Subsequent to the transfer to REO, if the fair value of the property less estimated selling costs declines to an amount less than the carrying value of the property, the deficiency is charged to income as a provision expense and a valuation allowance is established. Operating costs after acquisition are expensed as incurred. Due to changing market conditions, there are inherent uncertainties in the assumptions made with respect to the estimated fair value of REO. Therefore, the amount ultimately realized may differ from the amounts reflected in the accompanying consolidated financial statements.

Income Taxes

Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive

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and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, forecasts of future income and available tax planning strategies. This analysis is updated quarterly. Based on this analysis, we determined that no valuation allowance was required on our deferred tax assets, which totaled $5.1 million and $6.9 million at December 31, 2017 and 2016, respectively. See Note 11 "Income Taxes" of the Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data."

Fair Value Measurements

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

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

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

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

Fair values are estimated using relevant market information and other assumptions, as more fully disclosed in Note 5 of the Notes to Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements of Broadway Financial Corporation and Subsidiaries.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

As of December 31, 2017, an evaluation was performed under the supervision of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2017.

Management's annual report on internal control over financial reporting

The management of Broadway Financial Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Exchange Act.

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This system, which management has chosen to base on the framework set forth in Internal Control-Integrated Framework, published by the 1992 Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and which is effected by the Company's Board of Directors, management and other personnel, is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the Directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

With the participation of the Company's Chief Executive Officer and Chief Financial Officer, management has conducted an evaluation of the effectiveness of the Company's system of internal control over financial reporting. Based on this evaluation, management determined that the Company's system of internal control over financial reporting was effective as of December 31, 2017.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in internal control over financial reporting

There were no significant changes in the Company's internal control over financial reporting identified in connection with the evaluation of internal control over financial reporting that occurred during the fourth quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


/s/ Wayne-Kent A. Bradshaw Wayne-Kent A. Bradshaw Chief Executive Officer (Principal Executive Officer)		/s/ Brenda J. Battey Brenda J. Battey Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Los Angeles, CA March 26, 2018		Los Angeles, CA March 26, 2018

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ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement, under the captions "Election of Directors", "Executive Officers", "Code of Ethics" and "Section 16(a) Beneficial Ownership Reporting Compliance", to be filed with the Securities and Exchange Commission in connection with the Company's 2018 Annual Meeting of Stockholders (the "Company's Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Executive Compensation" and "Director Compensation".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Security Ownership of Certain Beneficial Owners and Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Certain Relationships and Related Transactions" and "Election of Directors".

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Ratification of the Appointment of the Independent Registered Public Accounting Firm".

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a): 1. See Index to Consolidated Financial Statements.

2. Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes included under Item 8, "Financial Statements and Supplementary Data."

(b): List of Exhibits

Exhibit Number*

3.1		Certificate of Incorporation of Registrant and all amendments thereto (Exhibit 3.1 to Form 10-Q filed by Registrant on November 13, 2014)
3.2		Bylaws of Registrant (Exhibit 3.2 to Form 10-K filed by Registrant on March 28, 2016)

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Exhibit Number*

10.1		Broadway Federal Bank Employee Stock Ownership Plan (Exhibit 10.1 to Form 10-K filed by Registrant on March 28, 2016)
10.2		Amended and Restated Broadway Financial Corporation 2008 Long Term Incentive Plan (Exhibit 10.3 to Form 10-Q filed by Registrant on August 12, 2016)
10.3		Amended Form of Stock Option Agreement for stock options granted pursuant to Amended and Restated Broadway Financial Corporation 2008 Long-Term Incentive Plan (Exhibit 10.1 to Form 10-Q filed by Registrant on August 12, 2016)
10.4		Award Agreement, dated March 30, 2016, for restricted stock granted to Wayne-Kent A. Bradshaw pursuant to Broadway Financial Corporation 2008 Long-Term Incentive Plan (Exhibit 10.2 to Form 10-Q filed by Registrant on August 12, 2016)
10.5		Deferred Compensation Plan (Exhibit 10.14 to Registration Statement on Form S-1 filed by Registrant on November 20, 2013)
10.6		Securities Purchase Agreement, dated as of December 21, 2016, entered into among United States Treasury Department, Registrant, First Republic Bank and Broadway Federal Bank, f.s.b., Employee Stock Ownership Plan (Exhibit 10.7 to Form 10-K filed by Registrant on March 27, 2017)
10.7		Stock Purchase Agreement, dated as of December 21, 2016, entered into between First Republic Bank and Registrant (Exhibit 10.8 to Form 10-K filed by Registrant on March 27, 2017)
10.8		Exchange Agreement, dated as December 21, 2016, entered into between CJA Private Financial Restructuring Master Fund I L.P. and Registrant (Exhibit 10.9 to Form 10-K filed by Registrant on March 27, 2017)
10.9		Stock Purchase Agreement, dated as of December 21, 2016, entered into between Bank of Hope and Registrant (Exhibit 10.10 to Form 10-K filed by Registrant on March 27, 2017)
10.10		Stock Purchase and Exchange Agreement, dated as of December 21, 2016, entered into between National Community Investment Fund and Registrant (Exhibit 10.11 to Form 10-K filed by Registrant on March 27, 2017)
10.11		ESOP Loan Agreement and ESOP Pledge Agreement, each dated as of December 19, 2016, entered into between Registrant and Nicholas L. Saakvitne, as trustee for the Broadway Federal Bank, f.s.b., Employee Stock Ownership Plan Trust, and related Promissory Note, dated as of December 19, 2016 (Exhibit 10.12 to Form 10-K filed by Registrant on March 27, 2017)
21.1		List of Subsidiaries (Exhibit 21.1 to Registration Statement on Form S-1 filed by Registrant on November 20, 2013)
23.1		Consent of Moss Adams LLP
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4		Certification of Chief Executive Officer pursuant to Interim Final Rule – TARP Standards for Compensation and Corporate Governance at 31 CFR Part 30
99.5		Certification of Chief Financial Officer pursuant to Interim Final Rule – TARP Standards for Compensation and Corporate Governance at 31 CFR Part 30)

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Exhibit Number*

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		BROADWAY FINANCIAL CORPORATION
		By:		/s/ Wayne-Kent A. Bradshaw Wayne-Kent A. Bradshaw Chief Executive Officer
		Date:		March 26, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


	/s/ Wayne-Kent A. Bradshaw Wayne-Kent A. Bradshaw Chief Executive Officer and President (Principal Executive Officer)		Date: March 26, 2018
	/s/ Brenda J. Battey Brenda J. Battey Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)		Date: March 26, 2018
	/s/ Virgil P. Roberts Virgil P. Roberts Chairman of the Board		Date: March 20, 2018
	/s/ Robert C. Davidson, Jr. Robert C. Davidson, Jr. Director		Date: March 20, 2018
	/s/ Albert Odell Maddox Albert Odell Maddox Director		Date: March 20, 2018
	/s/ Daniel A. Medina Daniel A. Medina Director		Date: March 22, 2018
	/s/ Dutch C. Ross III Dutch C. Ross III Director		Date: March 22, 2018
	/s/ Erin Selleck Erin Selleck Director		Date: March 21, 2018

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Index to Consolidated Financial Statements

Years ended December 31, 2017 and 2016


Report of Independent Registered Public Accounting Firm		F-1
Consolidated Statements of Financial Condition		F-2
Consolidated Statements of Income and Comprehensive Income		F-3
Consolidated Statements of Changes in Stockholders' Equity		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-6

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Report of Independent Registered Pubic Accounting Firm

To the Shareholders and Board of Directors of
Broadway Financial Corporation

Opinion on the Financial Statement

We have audited the accompanying consolidated statements of financial condition of Broadway Financial Corporation and Subsidiary (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income, changes in stockholders' equity and cash flows for the years then ended, and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Moss Adams LLP

San Francisco, California
March 26, 2018

We have served as the Company's auditor since 2014.

F-1

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

	December 31, 2017			December 31, 2016

	(In thousands, except share and per share)
Assets:
Cash and due from banks	$	3,420		$	1,516
Interest-bearing deposits in other banks		18,799			16,914

Cash and cash equivalents		22,219			18,430
Securities available-for-sale, at fair value		17,494			13,202
Loans receivable held for sale, at lower of cost or fair value		22,370			-
Loans receivable held for investment, net of allowance of $4,069 and $4,603		334,851			379,454
Accrued interest receivable		1,073			1,178
Federal Home Loan Bank (FHLB) stock		2,916			2,573
Office properties and equipment, net		2,406			2,479
Bank owned life insurance		2,994			2,940
Deferred tax assets, net		5,110			6,907
Investment in affordable housing limited partnership		537			732
Real estate owned (REO)		878			-
Other assets		856			1,188

Total assets	$	413,704		$	429,083



Liabilities and stockholders' equity
Liabilities:
Deposits	$	291,290		$	287,427
FHLB advances		65,000			85,000
Junior subordinated debentures		5,100			5,100
Advance payments by borrowers for taxes and insurance		1,071			828
Accrued expenses and other liabilities		3,512			5,202

Total liabilities		365,973			383,557

Commitments and Contingencies (Notes 6 and 14)
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued or outstanding		-			-
Common stock, $.01 par value, voting, authorized 50,000,000 shares at December 31, 2017 and December 31, 2016; issued 21,312,649 shares at December 31, 2017 and 21,282,647 shares at December 31, 2016; outstanding 18,694,823 shares at December 31, 2017 and 18,664,821 shares at December 31, 2016		213			212
Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at December 31, 2017 and December 31, 2016; issued and outstanding 8,756,396 shares at December 31, 2017 and December 31, 2016		87			87
Additional paid-in capital		46,117			45,819
Retained earnings		7,816			6,013
Unearned Employee Stock Ownership Plan (ESOP) shares		(1,095	)		(1,176	)
Accumulated other comprehensive loss		(81	)		(103	)
Treasury stock-at cost, 2,617,826 shares at December 31, 2017 and at December 31, 2016		(5,326	)		(5,326	)

Total stockholders' equity		47,731			45,526

Total liabilities and stockholders' equity	$	413,704		$	429,083

See accompanying notes to consolidated financial statements.

F-2

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income and Comprehensive Income

	Year Ended December 31,

	2017			2016
	(In thousands, except per share)
Interest Income:
Interest and fees on loans receivable	$	15,397		$	14,485
Interest on mortgage-backed securities and other securities		318			323
Other interest income		572			482

Total interest income		16,287			15,290

Interest Expense:
Interest on deposits		2,398			2,180
Interest on borrowings		1,950			1,697

Total interest expense		4,348			3,877

Net interest income before loan loss provision recapture		11,939			11,413
Loan loss provision recapture		1,100			550

Net interest income after loan loss provision recapture		13,039			11,963

Non-Interest Income:
Service charges		446			489
Net gain on sales of loans		560			-
CDFI grant		227			265
Income from litigation settlement		1,183			-
Other		114			290

Total non-interest income		2,530			1,044

Non-Interest Expense:
Compensation and benefits		7,092			7,025
Occupancy expense		1,278			1,196
Information services		818			758
Professional services		716			1,154
Office services and supplies		302			289
Loan related expenses		205			245
Corporate insurance		196			234
Amortization of investment in affordable housing limited partnership		195			193
Other		1,035			658

Total non-interest expense		11,837			11,752

Income before income taxes		3,732			1,255
Income tax expense (benefit)		1,863			(2,225	)

Net income	$	1,869		$	3,480



Other comprehensive loss, net of tax:
Unrealized losses on securities available-for-sale arising during the period	$	(98	)	$	(178	)
Income tax benefit		54			77

Other comprehensive loss, net of tax		(44	)		(101	)

Comprehensive income	$	1,825		$	3,379



Earnings per common share-basic	$	0.07		$	0.12



Earnings per common share-diluted	$	0.07		$	0.12

See accompanying notes to consolidated financial statements.

F-3

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders' Equity
(In thousands, except share and per share)

		Common Stock		Additional Paid-in Capital		Retained Earnings			Unearned ESOP shares			Accumulated Other Comprehensive Loss, Net			Treasury Stock			Total Stockholders' Equity


Balance at December 31, 2015	29,180,699	$	292	$	44,669	$	2,533		$	-		$	(2	)	$	(1,329	)	$	46,163
Net income	-		-		-		3,480			-			-			-			3,480
Common stock issued	737,861		7		1,118		-			-			-			-			1,125
Restricted stock award	120,483		-		-		-			-			-			-			-
Treasury stock acquired	-		-		-		-			-			-			(3,997	)		(3,997	)
Unearned ESOP shares	-		-		-		-			(1,176	)		-			-			(1,176	)
Change in unrealized loss on securities available-for-sale, net of tax	-		-		-		-			-			(101	)		-			(101	)
Stock-based compensation expense	-		-		32		-			-			-			-			32

Balance at December 31, 2016	30,039,043		299		45,819		6,013			(1,176	)		(103	)		(5,326	)		45,526
Net income	-		-		-		1,869			-			-			-			1,869
Common stock issued for services	30,002		1		52		-			-			-			-			53
Release of unearned ESOP shares	-		-		23		-			81			-			-			104
Change in unrealized loss on securities available-for-sale, net of tax	-		-		-		-			-			(44	)		-			(44	)
Reclassification from accumulated other comprehensive loss to retained earnings	-		-		-		(66	)		-			66			-			-
Restricted stock compensation expense	-		-		184		-			-			-			-			184
Stock-based compensation expense	-		-		39		-			-			-			-			39

Balance at December 31, 2017	30,069,045	$	300	$	46,117	$	7,816		$	(1,095	)	$	(81	)	$	(5,326	)	$	47,731

See accompanying notes to consolidated financial statements.

F-4

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

	Year Ended December 31

	2017			2016
	(In thousands)
Cash flows from operating activities:
Net income	$	1,869		$	3,480
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Loan loss provision recaptures		(1,100	)		(550	)
Provision for losses on REO		80			-
Depreciation		256			251
Net amortization of deferred loan origination costs		306			301
Net amortization of premiums on mortgage-backed securities		34			52
Amortization of investment in affordable housing limited partnership		195			193
Stock-based compensation expense		223			32
Stocks granted to directors		53			-
ESOP compensation expense		104			-
Earnings on bank owned life insurance		(54	)		(58	)
Originations of loans receivable held for sale		(110,829	)		-
Proceeds from sales and repayments of loans receivable held for sale		98,356			-
Gain on sale of loans receivable held for sale		(560	)		-
Net gain on sale of REOs		-			(22	)
Changes in operating assets and liabilities
Net change in deferred taxes		1,851			(2,236	)
Net change in accrued interest receivable		105			(101	)
Net change in other assets		332			593
Net change in advance payments by borrowers for taxes and insurance		243			165
Net change in accrued expenses and other liabilities		(1,690	)		(1,170	)

Net cash (used in) provided by operating activities		(10,226	)		930

Cash flows from investing activities:
Net change in loans receivable held for investment		59,742			(75,034	)
Purchase of loans receivable held for investment		(24,640	)		-
Purchase of available-for-sale securities		(6,677	)		(2,505	)
Principal payments on available-for-sale securities		2,253			3,213
Proceeds from sales of REO		-			382
Purchase of FHLB stock		(343	)		-
Additions to office properties and equipment		(183	)		(160	)

Net cash provided by (used in) investing activities		30,152			(74,104	)

Cash flows from financing activities:
Net change in deposits		3,863			14,813
Proceeds from FHLB advances		29,500			20,000
Repayments on FHLB advances		(49,500	)		(7,000	)
Proceeds from issuance of common stock, net of issuance costs		-			1,125
Repurchase of common stock		-			(3,997	)
Loan to ESOP		-			(1,176	)

Net cash (used in) provided by financing activities		(16,137	)		23,765

Net change in cash and cash equivalents		3,789			(49,409	)
Cash and cash equivalents at beginning of the year		18,430			67,839

Cash and cash equivalents at end of the year	$	22,219		$	18,430



Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,199		$	3,774
Cash paid for income taxes		20			11
Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO	$	958		$	-
Transfers of loans receivable held for investment to loans receivable held for sale		9,337			-
Issuance of common stock for services		53			-

See accompanying notes to consolidated financial statements.

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Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

Note 1 – Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

Broadway Financial Corporation (the "Company") is a Delaware corporation primarily engaged in the savings and loan business through its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the "Bank"). The Bank's business is that of a financial intermediary and consists primarily of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to make mortgage loans secured by residential and commercial real estate located in Southern California. At December 31, 2017, the Bank operated two retail-banking offices in Los Angeles, California and one in the nearby city of Inglewood, California. The Bank is subject to significant competition from other financial institutions, and is also subject to regulation by certain federal agencies and undergoes periodic examinations by those regulatory authorities.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Broadway Federal Bank, f.s.b.. All significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ from these estimates. The allowance and provision for loan losses, specific reserves for impaired loans, fair value of real estate owned, deferred tax asset valuation allowance, and fair values of investment securities and other financial instruments are particularly subject to change.

Cash Flows

Cash and cash equivalents include cash on hand, cash items in the process of collection, amounts due from correspondent banks and the Federal Reserve Bank, and interest-bearing deposits in other banks with initial terms of ninety days or less. The Company may be required to maintain reserve and clearing balances with the Federal Reserve Bank under the Federal Reserve Act. The reserve and clearing requirement balance was $0 at December 31, 2017. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other banks, deferred income taxes and other assets and liabilities.

Securities

Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Management evaluates securities for other-than-temporary impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost, and the intent and ability of management to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition.

Loans Receivable Held for Sale

The Bank originates loans for sale but may, from time-to-time, decide to sell certain loans that are held for investment in order to manage loan concentrations. When a decision is made to sell a loan(s), such loan(s) is transferred from held-for-investment portfolio to held-for-sale portfolio at the lower of cost or fair value, as determined by outstanding commitments from investors. If a reduction in value is required at time of the transfer, a charge-off is recorded against the allowance for loan losses ("ALLL"). Any subsequent decline in value of the loan(s) is recorded as a valuation allowance with a corresponding charge to non-interest expense.

Loans receivable held for sale are generally sold with servicing rights released. Gains and losses on sales of loans are based on the difference between the selling price and the carrying value of the related loan sold. When loans receivable held for sale are sold, existing deferred loan fees or costs are an adjustment of the gain or loss on sale.

Loans Receivable Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of allowance for loan losses, deferred loan fees and costs and unamortized premiums and discounts. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct loan origination costs, premiums and discounts are deferred, and recognized in income using the level-yield method without anticipating prepayments.

Interest income on all loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company's lending activities are predominantly in real estate loans that are secured by properties located in Southern California and many of the borrowers reside in Southern California. Therefore, the Company's exposure to credit risk is significantly affected by changes in the economy and real estate market in the Southern California area.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

The Company has a significant concentration of deposits with a long-time customer that accounted for approximately 11% of its deposits as of December 31, 2017. The Company expects to maintain this relationship with the customer for the near term.

Loans Purchased

The Bank purchases or participates in loans originated by other institutions from time to time. Subject to regulatory restrictions applicable to savings institutions, the Bank's current loan policies allow all loan types to be purchased. The determination to purchase specific loans or pools of loans is based upon the Bank's investment needs and market opportunities and is subject to the Bank's underwriting policies, which require consideration of the financial condition of the borrower and the appraised value of the property, among other factors. Premiums or discounts incurred upon the purchase of loans are recognized in income using the interest method over the estimated life of the loans, adjusted for prepayments. In December 2017, the Company purchased $24.6 million of single family loans at par. No loans were purchased during 2016.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent cash recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, could be charged off. In addition, the OCC and FDIC periodically review the allowance for loan losses as an integral part of their examination process. These agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings ("TDR") and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, either a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or alternatively a charge-off is taken to record the loan at the fair value of the collateral, less estimated selling costs, if repayment is expected solely from the collateral.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of any necessary additional charge-off based on internal analyses and appraisals of the underlying collateral securing these loans.

The general component covers loans that are collectively evaluated for impairment and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment with the use of a loss migration analysis and is based on the actual loss history experienced by the Company over the most recent five years. This actual loss experience is supplemented with information about other current economic factors based on the risks present for each portfolio segment. These current economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The following portfolio segments have been identified: one-to-four units ("single family"), five or more units ("multi-family"), commercial real estate, church, construction, commercial loans, and consumer loans. The risks in our various portfolio segments are as follows:

Single Family – Subject to adverse employment conditions in the local economy leading to increased default rate; decreased market values from oversupply in a geographic area; impact on borrowers' ability to maintain payments in the event of incremental rate increases on adjustable rate mortgages.

Multi-Family – Subject to adverse various market conditions that cause a decrease in market value or lease rates; change in personal funding sources for tenants; oversupply of units in a specific region; a shift in population; reputational risks.

Commercial Real Estate – Subject to adverse conditions in the local economy which may lead to reduced cash flows due to vacancies and reduced rental rates; decreases in the value of underlying collateral.

Church – Subject to adverse economic and employment conditions leading to reduced cash flows from members' donations and offerings; the stability, quality and popularity of church leadership.

Construction – Subject to adverse conditions in the local economy which may lead to reduced demand for new commercial, multi-family or single family buildings or reduced lease or sale opportunities once the building is complete.

Commercial – Subject to industry and economic conditions including decreases in product demand.

Consumer – Subject to adverse employment conditions in the local economy, which may lead to higher default rates.

Real Estate Owned

Assets acquired through, or instead of, loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

through a provision that is charged to non-interest expense. Operating costs after acquisition are expensed as incurred.

Office Properties and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 10 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 10 years. Leasehold improvements are amortized over the lease term or the estimated useful life of the asset, whichever is shorter.

Federal Home Loan Bank (FHLB) stock

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income when declared.

Bank-Owned Life Insurance

The Bank has purchased life insurance policies on a former key executive. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Investment in Affordable Housing Limited Partnership

The Bank owns a less than 5% interest in an affordable housing limited partnership. The investment is recorded using the cost method and is being amortized over the life of the related tax credits. The tax credits are being recognized in income tax expense in the consolidated financial statements to the extent they are utilized on the Company's income tax returns. The investment is reviewed for impairment on an annual basis or on an interim basis if an event occurs that would trigger potential impairment.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Restricted Stock Units

The Company may grant cash-settled restricted stock units ("RSUs") to its employees. Compensation cost is recognized over the vesting period based on the fair value of the award, which is re-measured at each reporting period. The fair value of the award is classified as a liability in the statements of financial condition.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company's accounting policy is to recognize forfeitures as they occur.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest related to income tax matters in interest expense and penalties related to tax matters in income tax expense.

Retirement Plans

Employee 401(k) expense is the amount of matching contributions made by the Company.

Employee Stock Ownership Plan

The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest.

Earnings Per Common Share

Basic earnings per share of common stock is computed pursuant to the two-class method by dividing net income available to common stockholders less dividends paid on participating securities (unvested shares of restricted common stock) and any undistributed earnings attributable to participating securities by the weighted average common shares outstanding during the period. The weighted average common shares outstanding includes the weighted average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted common stock. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per share of common stock includes the dilutive effect of unvested stock awards and additional potential common shares issuable under stock options.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on securities available-for-sale, net of tax, which are also recognized as separate components of equity.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that any such matters existed as of the balance sheet date that will have a material effect on the consolidated financial statements.

Fair Value Measurements

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

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

Fair values are estimated using relevant market information and other assumptions, as more fully disclosed in Note 5. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments

The Company operates as a single segment. The operating information used by management to assess performance and make operating decisions about the Company is the consolidated financial data presented in these financial statements. For the years ended 2017 and 2016, the Company had one active operating subsidiary, Broadway Federal Bank, f.s.b. The Company has determined that banking is its one reportable business segment.

Reclassifications

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year consolidated net income or stockholders' equity.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Recently Adopted Accounting Pronouncements

In February 2018, the FASB issued Accounting Standards Update ("ASU") 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220)", which allows an entity to elect a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amount of that reclassification should include the effect of changes of tax rate on the deferred tax amount, any related valuation allowance and other income tax effects on the items in AOCI. The standard requires an entity to state if an election to reclassify the tax effect to retained earnings is made along with the description of other income tax effects that are reclassified from AOCI. The guidance is effective for public business entities for annual periods beginning on or after December 15, 2018 and interim periods within those annual periods with early adoption permitted. The Company has elected to reclassify $66 thousand from AOCI to retained earnings in the current period.

In March 2016, the FASB issued ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The areas for simplification include income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the new guidance, all excess tax benefits and deficiencies that occur when an award vests, is exercised, or expires are recognized in income tax expense as discrete period items. Previously, these transactions were typically recorded directly within equity. Consistent with this change, excess tax benefits and deficiencies are no longer included within estimated proceeds when performing the calculation for diluted earnings per share. The presentation of excess tax benefits in the statement of cash flows shifted to an operating activity from the prior classification as a financing activity. ASU 2016-09 also provides an accounting policy election to recognize forfeitures of awards as they occur when estimating stock-based compensation expense rather than the previous requirement to estimate forfeitures from inception. ASU 2016-09 became effective for the Company for reporting periods after January 1, 2017. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. The effects on earnings per share calculations and election to account for forfeitures as incurred have not been significant.

Recently Issued Accounting Pronouncements (Not Yet Effective)

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU 2014-09 supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. Our revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. The Company has finalized its assessment and has identified Service Charges on deposit

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

accounts within the scope of this new guidance. The Company adopted this guidance on January 1, 2018. The adoption did not have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-01 (i) amends existing guidance that requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). It eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements or the fair value disclosures included in Note 5.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which is intended to increase transparency and comparability in the accounting for lease transactions. Under ASU 2016-02, lessees will be required to recognize all leases longer than twelve months on the Consolidated Statements of Condition as lease assets and lease liabilities and quantitative and qualitative disclosures regarding key information about leasing arrangements. Under the new guidance, lessor accounting is largely unchanged. These amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 will be effective for us on January 1, 2019 and will require transition using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. Based on leases outstanding at December 31, 2017, the Company does not expect the standard to have a material impact on the Company's Consolidated Statements of Income or Cash Flows, but does anticipate recording a liability for the remaining obligation under the lease agreements and a corresponding right-of-use asset in the Consolidated Statements of Condition, which may have a minor impact on the Bank's regulatory capital ratios.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For public business entities that meet the definition of an SEC filer, the standard will be effective for fiscal years beginning after Dec. 15, 2019, including interim periods in those fiscal years. All entities may early adopt for fiscal years beginning after Dec. 15, 2018, including interim periods in those fiscal years.

For debt securities with other-than-temporary impairment, the guidance will be applied prospectively. Existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company has begun its implementation efforts by identifying key interpretive issues, assessing its processes and identifying the system requirements against the new guidance to determine what modifications may be required. While the Company is still evaluating the overall impact on the new standard on its consolidated financial statements, the Company expects the adoption will result in an increase to the allowance for loan losses balance.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". ASU 2016-15 provides guidance on the classification of certain cash receipts and payments on the consolidated statement of cash flows in order to reduce diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash". ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, where the guidance should be applied using a retrospective transition method to each period presented. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

Note 2 – Securities

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios at December 31, 2017 and December 31, 2016 and the corresponding amounts of unrealized gains (losses) which are recognized in accumulated other comprehensive income:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

	(In thousands)
December 31, 2017:
Federal agency mortgage-backed securities	$	11,877	$	168	$	(37	)	$	12,008
Federal agency debt		5,495		2		(11	)		5,486

Total available-for-sale securities	$	17,372	$	170	$	(48	)	$	17,494



December 31, 2016:
Federal agency mortgage-backed securities	$	11,022	$	227	$	(35	)	$	11,214
Federal agency debt		1,960		28		-			1,988

Total available-for-sale securities	$	12,982	$	255	$	(35	)	$	13,202

At December 31, 2017, the Bank had three federal agency debt securities with total amortized cost and estimated total fair value of $5.5 million and an estimated average remaining life of 4.4 years. The Bank also had 26 federal

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

agency mortgage-backed securities with total amortized cost of $11.9 million, estimated total fair value of $12.0 million and an estimated average remaining life of 4.6 years. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 2017 and 2016, securities pledged to secure public deposits had a carrying amount of $526 thousand and $629 thousand, respectively. At December 31, 2017 and 2016, there were no holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.

There were no sales of securities during the years ended December 31, 2017 and 2016.

The Bank held six securities with unrealized losses at December 31, 2017, compared to three securities with unrealized losses at December 31, 2016. Securities in unrealized loss positions are analyzed as part of our ongoing assessment of other-than-temporary impairment. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost, and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. All of the Bank's securities were issued by the federal government or its agencies. The unrealized losses on our available-for-sale securities at December 31, 2017 were primarily caused by movements in market interest rates subsequent to the purchase of such securities. We do not consider these unrealized losses to be other than temporary impairment.

Note 3 – Loans Receivable Held for Sale

Loans receivable held for sale at December 31, 2017 totaled $22.4 million and consisted of multi-family loans. As part of the Bank's loan concentration risk management program, $9.3 million of multi-family loans were transferred from the held-for-investment portfolio to the held-for-sale portfolio during the year ended December 31, 2017. The Bank also allocated $110.4 million, or 96%, of its total loan originations as held-for-sale and completed sales of $96.9 million of multi-family loans during the year ended December 31, 2017 for a total gain of $560 thousand. Loan repayments totaled $411 thousand during the year 2017. There were no loans held for sale at December 31, 2016.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 4 – Loans Receivable Held for Investment

Loans receivable held for investment were as follows as of the periods indicated:

	December 31, 2017			December 31, 2016

	(In thousands)
Real estate:
Single family	$	111,085		$	104,807
Multi-family		187,455			229,566
Commercial real estate		6,089			8,914
Church		30,848			37,826
Construction		1,678			837
Commercial – other		192			308
Consumer		7			6

Gross loans receivable before deferred loan costs and premiums		337,354			382,264
Unamortized net deferred loan costs and premiums		1,566			1,793

Gross loans receivable		338,920			384,057
Allowance for loan losses		(4,069	)		(4,603	)

Loans receivable, net	$	334,851		$	379,454

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

	For the year ended December 31, 2017

	Real Estate
	Single family		Multi- family			Commercial real estate			Church			Construction		Commercial – other			Consumer		Total
	(In thousands)
Beginning balance	$	367	$	2,659		$	215		$	1,337		$	8	$	17		$	-	$	4,603
Provision for (recapture of) loan losses		197		(359	)		(144	)		(792	)		9		(11	)		-		(1,100	)
Recoveries		30		-			-			536			-		-			-		566
Loans charged off		-		-			-			-			-		-			-		-

Ending balance	$	594	$	2,300		$	71		$	1,081		$	17	$	6		$	-	$	4,069

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

	For the year ended December 31, 2016

	Real Estate
	Single family			Multi- family		Commercial real estate			Church			Construction		Commercial – other			Consumer		Total
	(In thousands)
Beginning balance	$	597		$	1,658	$	469		$	2,083		$	3	$	18		$	-	$	4,828
Provision for (recapture of) loan losses		(277	)		1,001		(502	)		(768	)		5		(9	)		-		(550	)
Recoveries		47			-		248			22			-		8			-		325
Loans charged off		-			-		-			-			-		-			-		-

Ending balance	$	367		$	2,659	$	215		$	1,337		$	8	$	17		$	-	$	4,603

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

	December 31, 2017

	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial – other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	100	$	1	$	-	$	479	$	-	$	5	$	-	$	585
Collectively evaluated for impairment		494		2,299		71		602		17		1		-		3,484

Total ending allowance balance	$	594	$	2,300	$	71	$	1,081	$	17	$	6	$	-	$	4,069



Loans:
Loans individually evaluated for impairment	$	627	$	333	$	-	$	8,280	$	-	$	65	$	-	$	9,305
Loans collectively evaluated for impairment		110,897		188,585		6,096		22,232		1,671		127		7		329,615

Total ending loans balance	$	111,524	$	188,918	$	6,096	$	30,512	$	1,671	$	192	$	7	$	338,920

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

	December 31, 2016

	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial – other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	125	$	-	$	-	$	516	$	-	$	15	$	-	$	656
Collectively evaluated for impairment		242		2,659		215		821		8		2		-		3,947

Total ending allowance balance	$	367	$	2,659	$	215	$	1,337	$	8	$	17	$	-	$	4,603



Loans:
Loans individually evaluated for impairment	$	644	$	642	$	-	$	10,545	$	-	$	66	$	-	$	11,897
Loans collectively evaluated for impairment		104,688		230,798		8,921		26,678		827		242		6		372,160

Total ending loans balance	$	105,332	$	231,440	$	8,921	$	37,223	$	827	$	308	$	6	$	384,057

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

	December 31, 2017						December 31, 2016

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(In thousands)
With no related allowance recorded:
Multi-family	$	-	$	-	$	-	$	642	$	642	$	-
Church		5,140		3,291		-		5,946		3,589		-
With an allowance recorded:
Single family		627		627		100		644		644		125
Multi-family		333		333		1		-		-		-
Church		5,028		4,989		479		7,330		6,956		516
Commercial – other		65		65		5		66		66		15

Total	$	11,193	$	9,305	$	585	$	14,628	$	11,897	$	656

The recorded investment in loans excludes accrued interest receivable due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

The following tables present the monthly average of loans individually evaluated for impairment by loan type and the related interest income for the periods indicated:

	For the year ended December 31, 2017				For the year ended December 31, 2016

	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	636	$	28	$	824	$	253
Multi-family		589		44		916		155
Commercial real estate		305		104		983		271
Church		9,363		693		10,880		489
Commercial – other		65		6		66		5

Total	$	10,958	$	875	$	13,669	$	1,173

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans and interest recoveries on non-accrual loans that were paid off. Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible or paid off. When a loan is returned to accrual status, the interest payments that were previously applied to principal are deferred and amortized over the remaining life of the loan. Foregone interest income that would have been recognized had loans performed in accordance with their original terms amounted to $126 thousand and $69 thousand for the years ended December 31, 2017 and 2016, respectively, and were not included in the consolidated results of operations.

The following tables present the aging of the recorded investment in past due loans by loan type as of the periods indicated:

	December 31, 2017

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
	(In thousands)
Loans receivable held for investment:
Single family	$	-	$	50	$	-	$	50	$	111,474
Multi-family		-		-		-		-		188,918
Commercial real estate		-		-		-		-		6,096
Church		341		-		-		341		30,171
Construction		-		-		-		-		1,671
Commercial – other		-		-		-		-		192
Consumer		-		-		-		-		7

Total	$	341	$	50	$	-	$	391	$	338,529

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

	December 31, 2016

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
	(In thousands)
Loans receivable held for investment:
Single family	$	-	$	64	$	-	$	64	$	105,268
Multi-family		-		-		-		-		231,440
Commercial real estate		1,324		-		-		1,324		7,597
Church		-		-		-		-		37,223
Construction		-		-		-		-		827
Commercial – other		-		-		-		-		308
Consumer		-		-		-		-		6

Total	$	1,324	$	64	$	-	$	1,388	$	382,669

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

	December 31, 2017		December 31, 2016

	(In thousands)
Loans receivable held for investment:
Church	$	1,766	$	2,944

Total non-accrual loans	$	1,766	$	2,944

There were no loans 90 days or more delinquent that were accruing interest as of December 31, 2017 or December 31, 2016.

Troubled Debt Restructurings

At December 31, 2017, loans classified as troubled debt restructurings ("TDRs") totaled $8.9 million, of which $1.4 million were included in non-accrual loans and $7.5 million were on accrual status. At December 31, 2016, loans classified as TDRs totaled $11.5 million, of which $2.5 million were included in non-accrual loans and $9.0 million were on accrual status. The Company has allocated $585 thousand and $656 thousand of specific reserves for accruing TDRs as of December 31, 2017 and 2016, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower's financial condition and prospects for repayment under the revised terms is also required. As of December 31, 2017 and 2016, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. No loans were modified during the years ended December 31, 2017 and 2016.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For single family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:

n: Watch. Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors. Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists but correction is anticipated within an acceptable time frame.
n: Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
n: Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
n: Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
n: Loss. Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral. Pass rated loans are not more than 59 days

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

past due and are generally performing in accordance with the loan terms. Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:

	December 31, 2017

	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	111,513	$	-	$	-	$	11	$	-	$	-
Multi-family		187,946		-		-		972		-		-
Commercial real estate		5,974		122		-		-		-		-
Church		24,474		691		-		5,347		-		-
Construction		1,671		-		-		-		-		-
Commercial – other		127		-		-		65		-		-
Consumer		7		-		-		-		-		-

Total	$	331,712	$	813	$	-	$	6,395	$	-	$	-

	December 31, 2016

	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	105,332	$	-	$	-	$	-	$	-	$	-
Multi-family		228,522		1,274		342		1,302		-		-
Commercial real estate		6,965		-		-		1,956		-		-
Church		27,560		1,143		823		7,697		-		-
Construction		827		-		-		-		-		-
Commercial – other		242		-		-		66		-		-
Consumer		6		-		-		-		-		-

Total	$	369,454	$	2,417	$	1,165	$	11,021	$	-	$	-

Note 5 – Fair Value

The Company used the following methods and significant assumptions to estimate fair value:

The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral, which is obtained from recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated every nine months. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, an independent third-party licensed appraiser reviews the appraisals for accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

	Fair Value Measurement

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
At December 31, 2017:
Securities available-for-sale – federal agency mortgage-backed	$	-	$	12,008	$	-	$	12,008
Securities available-for-sale – federal agency debt		1,976		3,510		-		5,486
At December 31, 2016:
Securities available-for-sale – federal agency mortgage-backed	$	-	$	11,214	$	-	$	11,214
Securities available-for-sale – federal agency debt		1,988		-		-		1,988

There were no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2017 and 2016.

Assets Measured on a Non-Recurring Basis

Assets are considered to be reflected at fair value on a non-recurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the statement of condition. Generally, a non-recurring valuation is the result of the application of other accounting pronouncements that require assets to be assessed for impairment or recorded at the lower of cost or fair value.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

The following table provides information regarding the carrying values of our assets measured at fair value on a non-recurring basis as of the periods indicated. The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy.

	December 31, 2017		December 31, 2016

	(In thousands)
Impaired loans carried at fair value of collateral	$	742	$	1,744
Real estate owned		878		-

The following table provides information regarding losses recognized on assets measured at fair value on a non-recurring basis for the years ended December 31, 2017 and 2016.

	For the year ended December 31,

	2017		2016
	(In thousands)
Impaired loans carried at fair value of collateral	$	-	$	-
Real estate owned		80		-

Total	$	80	$	-

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2017 and 2016:

	Valuation Technique(s)	Unobservable Input(s)	Range	Weighted Average

December 31, 2017:
Impaired loans	Third Party Appraisals	Adjustment for differences between the comparable sales	–16% to 7%	–4%
Real estate owned – church	Third Party Appraisals	Adjustment for differences between the comparable sales	–6%	–6%
December 31, 2016:
Impaired loans	Third Party Appraisals	Adjustment for differences between the comparable sales	–2% to 0%	–1%

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments as of the periods indicated were as follows:

			Fair Value Measurements at December 31, 2017

	Carrying Value		Fair Value Measurements at December 31, 2017
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	22,219	$	22,219	$	-	$	-	$	22,219
Securities available-for-sale		17,494		1,976		15,518		-		17,494
Loans receivable held for sale		22,370		-		22,626		-		22,626
Loans receivable held for investment		334,851		-		-		333,231		333,231
Accrued interest receivable		1,073		58		91		924		1,073
Federal Home Loan Bank stock		2,916		2,916		-		-		2,916
Financial Liabilities:
Deposits	$	291,290	$	-	$	280,761	$	-	$	280,761
Federal Home Loan Bank advances		65,000		-		64,887		-		64,887
Junior subordinated debentures		5,100		-		-		4,503		4,503
Accrued interest payable		304		-		296		8		304

			Fair Value Measurements at December 31, 2016

	Carrying Value		Fair Value Measurements at December 31, 2016
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	18,430	$	18,430	$	-	$	-	$	18,430
Securities available-for-sale		13,202		1,988		11,214		-		13,202
Loans receivable held for investment		379,454		-		-		382,717		382,717
Accrued interest receivable		1,178		64		29		1,085		1,178
Federal Home Loan Bank stock		2,573		2,573		-		-		2,573
Financial Liabilities:
Deposits	$	287,427	$	-	$	278,254	$	-	$	278,254
Federal Home Loan Bank advances		85,000		-		85,748		-		85,748
Junior subordinated debentures		5,100		-		-		4,414		4,414
Accrued interest payable		154		-		147		7		154

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

(b) Loans Receivable Held For Sale

The Company's loans receivable held for sale are carried at the lower of cost or fair value. The fair value of loans receivable held for sale is determined by pricing for comparable assets or by outstanding commitments from third party investors, resulting in a Level 2 classification.

(c) Loans Receivable Held For investment

Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) FHLB Stock

The carrying value of FHLB stock approximates its fair value as the shares can only be redeemed by the FHLB at par.

(e) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest receivable/payable approximate their fair value and are classified the same as the related asset.

(f) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using discounted cash flow calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(g) Federal Home Loan Bank Advances

The fair values of the Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(h) Junior Subordinated Debentures

The fair values of the Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 6 – Office Properties and Equipment, net

Year-end office properties and equipment were as follows:

	2017			2016

	(In thousands)
Land	$	572		$	572
Office buildings and improvements		3,203			3,114
Furniture, fixtures and equipment		1,786			1,805

		5,561			5,491
Less accumulated depreciation		(3,155	)		(3,012	)

Office properties and equipment, net	$	2,406		$	2,479

Depreciation expense was $256 thousand and $251 thousand for the years 2017 and 2016, respectively.

At December 31, 2017, the Company was obligated through 2021 under various non-cancelable operating leases on buildings and land used for office space and banking purposes. These operating leases contain escalation clauses which provide for increased rental expense, based primarily on increases in real estate taxes and cost-of-living-indices. The Company also leases certain office equipment. Rent expense under the operating leases was $587 thousand for 2017 and $566 thousand for 2016.

Minimum noncancelable lease commitments, before considering renewal options that generally are present, are as follows:

	Premises		Equipment		Total

	(In thousands)
Year ending December 31:
2018	$	482	$	35	$	517
2019		481		35		516
2020		494		35		529
2021		167		15		182

Total	$	1,624	$	120	$	1,744

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 7 – Deposits

Deposits are summarized as follows:

	December 31,

	2017		2016
	(In thousands)
NOW account and other demand deposits	$	11,982	$	10,743
Non-interest bearing demand deposits		22,469		20,040
Money market deposits		68,019		32,462
Passbook		38,031		37,836
Certificates of deposit		150,789		186,346

Total	$	291,290	$	287,427

Brokered deposits totaled $52.8 million and $28.6 million at December 31, 2017 and 2016, respectively, and were primarily from a deposit placement service called Certificate of Deposit Account Registry Service ("CDARS") that allows banks to place its customers' funds in FDIC-insured certificates of deposit at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network. Certificates of deposit of $250 thousand or more were $16.7 million and $53.5 million at year end 2017 and 2016.

Scheduled maturities of certificates of deposit for the next five years are as follows:

Maturity	Amount

	(In thousands)
2018	$	131,716
2019		14,059
2020		2,775
2021		1,502
2022		705
Thereafter		32

	$	150,789

Deposits from principal officers, directors, and their affiliates totaled $1.6 million and $1.7 million at December 31, 2017 and 2016, respectively.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 8 – Federal Home Loan Bank Advances

The following table summarizes information relating to FHLB advances at or for the periods indicated:

	At or For the Year Ended

	2017			2016
	(Dollars in thousands)
FHLB Advances:
Average balance outstanding during the year	$	89,279		$	71,940
Maximum amount outstanding at any month-end during the year	$	104,000		$	85,000
Balance outstanding at end of year	$	65,000		$	85,000
Weighted average interest rate at end of year		1.86	%		1.94	%
Average cost of advances during the year		1.97	%		2.13	%
Weighted average contractual maturity (in months)		18			13

Each advance is payable at its maturity date, with a prepayment penalty. The advances were collateralized by $128.4 million and $161.1 million of first mortgage loans at year-end 2017 and 2016, respectively, under a blanket lien arrangement. Based on this collateral, the Company's holdings of FHLB stock and a general borrowing limit of 30% of total assets, the Company is eligible to borrow up to an additional $42.9 million at year-end 2017.

Required payments over the next five years are as follows:

	Amount

	(In thousands)
2018	$	27,500
2019		8,000
2020		29,500
2021		-
2022		-

	$	65,000

Note 9 – Junior Subordinated Debentures

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the "Debentures") in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 4.15% at December 31, 2017. On October 16, 2014, the Company made payments of $900 thousand of principal on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof. The modified terms of the Debentures require quarterly payments of interest only through March 2019 at the original rate of 3-Month LIBOR plus 2.54%. Starting in June 2019, the Company will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024. The Debentures may be called for redemption at any time by the Company.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 10 – Employee Benefit Plans

Broadway Federal 401(k) Plan

A 401(k) benefit plan allows employee contributions for substantially all employees up to 15% of their compensation, which are matched at a rate equal to 50% of the first 6% of the compensation contributed. Expense totaled $132 thousand and $93 thousand for 2017 and 2016.

ESOP Plan

Employees participate in an Employee Stock Option Plan ("ESOP") after attaining certain age and service requirements. In December 2016, the ESOP purchased 1,493,679 shares of the Company's common stock at $1.59 per share, for a total cost of $2.4 million, of which $1.2 million was funded with a loan from the Company. The loan will be repaid from the Bank's annual discretionary contributions to the ESOP, net of dividends paid, over a period of 20 years. Shares of the Company's common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. When loan payments are made, shares are allocated to each eligible participant based on the ratio of each such participant's compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. Dividends on allocated shares increase participant accounts. Dividends on unallocated shares will be used to repay the loan. At the end of employment, participants will receive shares for their vested balance. Compensation expense related to the ESOP was $104 thousand for 2017 and $12 thousand for 2016.

Shares held by the ESOP were as follows:

	December 31, 2017		December 31, 2016

	(Dollars in thousands)
Allocated to participants		1,108,382		1,114,683
Committed to be released		10,752		-
Suspense shares		688,870		739,748

Total ESOP shares		1,808,004		1,854,431



Fair value of unearned shares	$	1,626	$	1,213

In September 2017, the Company received its first loan payment from ESOP and 40,126 shares were released for allocation to participants. The outstanding balance of unearned shares at December 31, 2017 and 2016, was $1.1 million and $1.2 million, respectively, which is shown as Unearned ESOP shares in the equity section of the consolidated statements of financial condition.

Note 11 – Income Taxes

The Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Income tax expense was as follows:

	2017		2016

	(In thousands)
Current
Federal	$	-	$	-
State		12		11
Deferred
Federal		1,455		163
State		396		128
Change in valuation allowance		-		(2,527	)

Total	$	1,863	$	(2,225	)

Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following:

	2017			2016

	(In thousands)
Federal statutory rate times financial statement net income	$	1,269		$	427
Effect of:
State taxes, net of federal benefit		268			91
Change in federal rate		519			-
Earnings from bank owned life insurance		(22	)		(24	)
Low income housing credits		(212	)		(212	)
Change in valuation allowance		-			(2,527	)
Other, net		41			20

Total	$	1,863		$	(2,225	)

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Among other items, the Tax Cuts and Jobs Act reduces the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective January 1, 2018. As a result, the Company has recorded a decrease related to its deferred tax assets of $519 thousand, with a corresponding increase to deferred income tax expense of $519 thousand for the year ended December 31, 2017.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Year-end deferred tax assets and liabilities were due to the following:

	2017			2016

	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	-		$	84
Real estate owned		5			-
Accrued liabilities		173			218
State income taxes		33			46
Deferred compensation		-			494
Stock compensation		182			156
Net operating loss carryforward		4,367			5,886
Non-accrual loan interest		4			9
Partnership investment		101			175
General business credit		1,458			1,282
Alternative minimum tax credit		256			209
Other		14			37

Total deferred tax assets		6,593			8,596

Deferred tax liabilities:
Allowance for loan losses		(276	)		-
Deferred loan fees/costs		(817	)		(1,125	)
Basis difference on fixed assets		(49	)		(57	)
Net unrealized appreciation on available-for-sale securities		(36	)		(90	)
FHLB stock dividends		(266	)		(371	)
Mortgage servicing rights		(7	)		(13	)
Prepaid expenses		(32	)		(33	)

Total deferred tax liabilities		(1,483	)		(1,689	)

Net deferred tax assets	$	5,110		$	6,907

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies. Based on this analysis, the Company determined that as of December 31, 2017, no valuation allowance was required on its deferred tax assets, which totaled $5.1 million. As of December 31, 2016, the Company recorded no valuation allowance on its deferred tax assets of $6.9 million.

As of December 31, 2017, the Company has federal net operating loss carryforwards of $9.8 million and California net operating loss carryforwards of $27.0 million, which begin expiring in 2031 through 2036 and 2029 through 2036, respectively. The Company also has federal general business credits of $1.5 million, expiring beginning in 2030 through 2037, and alternative minimum tax credit carryforwards of $228 thousand, which can be carried forward indefinitely.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Federal income tax laws previously allowed the Company additional bad debt deductions based on the reserve method of computing the federal bad debt deduction. This method of computing the Company's federal bad debt deduction was permitted to be used by the Company until the end of 1987. As of December 31, 1987, the tax bad debt reserve balance totaled $3.0 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total approximately $632 thousand and $1.0 million at year end 2017 and 2016, respectively. If the Bank were liquidated, or otherwise ceases to be a bank, the $3.0 million tax bad debt reserve may need to be recaptured into taxable income and income tax expense would need to be provided.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2017		2016

	(In thousands)
Balance at beginning of year	$	475	$	475
Additions based on tax positions related to the current year		-		-
Additions for tax positions of prior year		-		-
Reductions for tax positions of prior years		-		-
Settlements		-		-

Balance at end of year	$	475	$	475

At December 31, 2017 and 2016, the Company had $475 thousand in unrecognized tax benefits. This amount, if recognized, would favorably affect the income tax provision in future periods. The Company expects that the total amount of unrecognized tax benefits may decrease significantly within the next twelve months due to expected settlement with the state taxing authorities. During 2017 and 2016, $5 thousand and $4 thousand were accrued during each period for potential interest related to these unrecognized tax benefits.

Federal tax years 2014 through 2017 remain open for the assessment of Federal income tax. With the exception of the issues under protest for the years listed below, California tax years 2013 through 2017 remain open for the assessment of California income tax. The Company is currently under examination by the California Franchise Tax Board ("FTB") for the 2009, 2010, and 2011 tax years. The FTB has proposed adjustments to the Company's California net operating loss carryforwards for items which the Company has established an unrecognized tax benefit. The Company has protested the FTB's adjustments and does not expect that significant additional tax expense will result.

Note 12 – Stock-Based Compensation

The Company issues stock-based compensation awards to its directors and employees under the 2008 Long-Term Incentive Plan ("2008 LTIP"). The 2008 LTIP permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards for up to 2,000,000 shares of common stock. As of December 31, 2017, there were 1,312,015 shares available for future awards under the 2008 LTIP.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

No stock options were granted during the year ended December 31, 2017, compared to 450,000 stock options granted to senior executive officers under the 2008 LTIP during the year ended December 31, 2016. These options have an exercise price of $1.62 per share, vest over five years and expire ten years from the grant date. The Company estimated the compensation costs and fair value per share of these stock options to be $194 thousand and $0.43 per share, respectively, using the Black-Scholes option pricing model and the following assumptions: (i) expected volatility of 27.36%; (ii) risk free interest rate of 1.21%; (iii) expected option term of five years; and (iv) 0% dividend yield.

The following table summarizes stock option activity during the years ended December 31, 2017 and 2016:

	2017					2016

	Number Outstanding			Weighted Average Exercise Price		Number Outstanding		Weighted Average Exercise Price
Outstanding at beginning of year		540,625		$	2.18		90,625	$	4.95
Granted during the year		-			-		450,000		1.62
Exercised during the year		-			-		-		-
Forfeited or expired during the year		(3,125	)		4.80		-		-

Outstanding at end of year		537,500		$	2.19		540,625	$	2.18



Exercisable at end of year		177,500		$	3.26		90,625	$	4.95

The Company recorded $39 thousand and $32 thousand of stock-based compensation expense related to stock options during 2017 and 2016, respectively. As of December 31, 2017, unrecognized compensation cost related to nonvested stock options granted under the plan was $123 thousand. The cost is expected to be recognized over a period of 3.15 years.

Options outstanding and exercisable at year-end 2017 were as follows:

	Outstanding								Exercisable

Grant Date	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
January 21, 2009		7,500		1.05 years	$	4.00				7,500	$	4.00
March 18, 2009		75,000		1.21 years	$	4.98				75,000	$	4.98
January 21, 2010		5,000		2.05 years	$	6.00				5,000	$	6.00
February 24, 2016		450,000		8.15 years	$	1.62				90,000	$	1.62

		537,500		6.98 years	$	2.19	$	333,000		177,500	$	3.26	$	67,000

In March 2016, the Company awarded 120,483 shares of restricted stock to its Chief Executive Officer ("CEO") under the 2008 LTIP. A restricted stock award is valued at the closing price of the Company's stock on the date of

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

such award. Subject to certain performance restrictions, 100,000 shares of restricted stock shall vest over a two-year period and the remaining 20,483 shares shall vest over a three-year period. Stock-based compensation expense is recognized on a straight-line basis over the vesting period. The Company recorded $105 thousand and $79 thousand of stock-based compensation expense related to this award during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, unrecognized compensation cost related to non-vested restricted stock award was $39 thousand, of which $23 thousand is expected to be recognized over a period of three months and $16 thousand is expected to be recognized over a period of 15 months.

In April 2017, the Company awarded 30,002 shares of common stock to its directors under the 2008 LTIP, all of which are fully vested. The Company recorded $53 thousand of compensation expense 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.

In April 2017, the Company also awarded 129,270 of cash-settled restricted stock units ("RSUs") to its CEO under the 2008 LTIP. All RSUs vest at the end of two years from the date of the grant and are subject to forfeiture until vested. Each RSU entitles the CEO to receive cash equal to the fair market value of one share of common stock on the applicable payout date. Compensation expense is determined based on the fair value of the award and is re-measured at each reporting period and is classified as a liability in the statements of financial condition. The Company recorded $102 thousand of compensation expense related to this award during the year ended December 31, 2017.

Note 13 – Capital and Regulatory Matters

The Bank's capital requirements are administered by the Office of the Comptroller of the Currency ("OCC") and involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC. Failure to meet capital requirements can result in regulatory action.

The federal banking regulators approved final capital rules ("Basel III Capital Rules") in July 2013 implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules prescribe a standardized approach for calculating risk-weighted assets and revised the definition and calculation of Tier 1 capital and Total capital, and include a new Common Equity Tier 1 capital ("CET1") measure. Under the Basel III Capital Rules, the currently effective minimum capital ratios are:

•: 4.5% CET1 to risk-weighted assets;
•: 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
•: 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
•: 4.0% Tier 1 capital to average consolidated assets (known as the "leverage ratio").

A new capital conservation buffer was also established above the regulatory minimum capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until it reaches its final level of 2.5% on January 1, 2019.

The Basel III Capital rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

to qualify as "well capitalized": (i) a CET1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). At December 31, 2017 and 2016, the Bank's level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios as of the periods indicated are presented below.


	Actual			Minimum Capital Requirements			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount	Ratio		Amount	Ratio		Amount	Ratio

		(Dollars in thousands)
December 31, 2017:
Tier 1 (Leverage)	$	47,838	11.39%	$	16,798	4.0%	$	20,997	5.0%
Common Equity Tier 1	$	47,838	18.63%	$	11,557	4.5%	$	16,693	6.5%
Tier 1	$	47,838	18.63%	$	15,409	6.0%	$	20,545	8.0%
Total Capital	$	51,059	19.88%	$	20,545	8.0%	$	25,681	10.0%
December 31, 2016:
Tier 1 (Leverage)	$	43,954	10.60%	$	16,594	4.0%	$	20,742	5.0%
Common Equity Tier 1	$	43,954	15.36%	$	12,875	4.5%	$	18,597	6.5%
Tier 1	$	43,954	15.36%	$	17,166	6.0%	$	22,888	8.0%
Total Capital	$	47,544	16.62%	$	22,888	8.0%	$	28,610	10.0%

Note 14 – Loan Commitments and Other Related Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk for credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:

	2017		2016

	(In thousands)
Commitments to make loans	$	1,493	$	3,808
Unused lines of credit – variable rates		2,582		774

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Commitments to make loans are generally made for periods of 60 days or less. At year-end 2017, loan commitments consisted of two multi-family residential loans with initial five year interest rates ranging from 4.12% to 4.18%.

Note 15 – Parent Company Only Condensed Financial Information

Condensed financial information of Broadway Financial Corporation follows:

Condensed Balance Sheet
December 31,

	2017		2016

	(In thousands)
Assets
Cash and cash equivalents	$	400	$	895
Investment in bank subsidiary		50,594		47,747
Other assets		2,015		2,345

Total assets	$	53,009	$	50,987



Liabilities and stockholders' equity
Junior subordinated debentures	$	5,100	$	5,100
Accrued expenses and other liabilities		178		361
Stockholders' equity		47,731		45,526

Total liabilities and stockholders' equity	$	53,009	$	50,987

Condensed Statements of Income
Years ended December 31,

	2017			2016

	(In thousands)
Interest income	$	28		$	-
Interest expense		(194	)		(167	)
Other expense		(730	)		(1,033	)

Loss before income tax and undistributed subsidiary income		(896	)		(1,200	)
Income tax benefit (expense)		(326	)		2,344
Equity in undistributed subsidiary income		3,091			2,336

Net income	$	1,869		$	3,480

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Condensed Statements of Cash Flows
Years ended December 31,

	2017			2016

	(In thousands)
Cash flows from operating activities
Net income	$	1,869		$	3,480
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed subsidiary income		(3,091	)		(2,336	)
Change in other assets		330			(2,345	)
Change in accrued expenses and other liabilities		(183	)		128

Net cash used in operating activities		(1,075	)		(1,073	)

Cash flows from investing activities
Dividends from bank subsidiary		500			4,000

Net cash provided by investing activities		500			4,000

Cash flows from financing activities
Net proceeds from issuance of common stock		-			1,125
Repurchase of common stock		-			(3,997	)
Loan to ESOP		-			(1,176	)
Proceeds from repayment of ESOP loan		80			-

Net cash provided by (used in) financing activities		80			(4,048	)

Net change in cash and cash equivalents		(495	)		(1,121	)
Beginning cash and cash equivalents		895			2,016

Ending cash and cash equivalents	$	400		$	895

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (continued)

December 31, 2017 and 2016

Note 16 – Earnings Per Common Share

The factors used in the earnings per common share computation follow:

	2017			2016

	(Dollars in thousands, except share and per share)
Net income	$	1,869		$	3,480
Less net income attributable to participating securities		(5	)		(3	)

Income available to common stockholders	$	1,864		$	3,477



Weighted average common shares outstanding for basic earnings per common share		26,678,917			28,999,327
Add: dilutive effects of assumed exercises of stock options		27,117			-
Add: dilutive effects of unvested restricted stock awards		49,448			99,173

Weighted average common shares outstanding for diluted earnings per common share		26,755,482			29,098,500



Earnings per common share – basic	$	0.07		$	0.12



Earnings per common share – diluted	$	0.07		$	0.12

Stock options for 87,500 shares and 540,625 shares of common stock for the years ended December 31, 2017 and 2016, respectively, were not considered in computing diluted earnings per common share because they were anti-dilutive.

Note 17 – Subsequent Events

On February 21, 2018, the Board of Directors passed a resolution reclassifying $16.9 million of multi-family loans classified as loans held for sale as of December 31, 2017 to loans held for investment. The Company has evaluated other events and transactions through the date of the consolidated financial statements and determined that there were no other events or transactions that required potential recognition or disclosure.

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