BYFC 10-Q Quarterly Report June 30, 2011

BYFC 10-Q Quarter ended June 30, 2011

Exhibits

Exhibits

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

BROADWAY FINANCIAL CORP \DE\

10-Ks and 10-Qs

10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on June 30, 2025
DEF 14A	Filed on May 19, 2025
DEF 14A	Filed on July 17, 2024
DEF 14A	Filed on June 6, 2024
DEF 14A	Filed on June 21, 2023
DEF 14A	Filed on May 1, 2023
DEF 14A	Filed on Oct. 19, 2022
DEF 14A	Filed on Sept. 9, 2022
DEF 14A	Filed on Sept. 9, 2021
DEF 14A	Filed on May 20, 2020
DEF 14A	Filed on May 17, 2019
DEF 14A	Filed on June 13, 2018
DEF 14A	Filed on April 28, 2017
DEF 14A	Filed on April 29, 2016
DEF 14A	Filed on Sept. 28, 2015
DEF 14A	Filed on Aug. 15, 2014
DEF 14A	Filed on Oct. 31, 2013
DEF 14A	Filed on Nov. 19, 2012
DEF 14A	Filed on Aug. 16, 2011
DEF 14A	Filed on Aug. 16, 2010

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For 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.)


4800 Wilshire Boulevard, Los Angeles, California		90010
(Address of principal executive offices)		(Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

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 ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,744,565 shares of the Company’s Common Stock, par value $0.01 per share, were outstanding as of August 9, 2011.

TABLE OF CONTENTS


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements
		Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010		1
		Consolidated Statements of Operations and Comprehensive Earnings (unaudited) for the three and six months ended June 30, 2011 and 2010		2
		Consolidated Statements of Cash Flows (unaudited) for the three and six months ended June 30, 2011 and 2010		3
		Notes to Unaudited Consolidated Financial Statements		4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

	Item 4.	Controls and Procedures		26

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		27

	Item 1A.	Risk Factors		29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29

	Item 3.	Defaults Upon Senior Securities		29

	Item 4.	Reserved		29

	Item 5.	Other Information		29

	Item 6.	Exhibits		29

	Signatures			30

	Ex 31.1	Section 302 Certification of CEO

	Ex 31.2	Section 302 Certification of CFO

	Ex 32	Section 906 Certifications of CEO and CFO

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets


	June 30, 2011 (Unaudited)			December 31, 2010
Assets	*(Dollars in thousands, except per share amounts)*
Cash	$	12,621		$	8,203
Federal funds sold		5,240			13,775

Cash and cash equivalents		17,861			21,978
Securities available for sale, at fair value		9,172			10,524
Securities held to maturity (fair value of $12,226 at June 30, 2011 and $13,261 at December 31, 2010)		11,692			12,737
Loans receivable held-for-sale, net		16,005			29,411
Loans receivable, net of allowance of $22,245 and $20,458		360,144			382,616
Accrued interest receivable		1,957			2,216
Federal Home Loan Bank (FHLB) stock, at cost		4,089			4,089
Office properties and equipment, net		4,909			5,094
Real estate owned (REO), net		6,690			3,036
Bank owned life insurance		2,566			2,522
Deferred tax assets		6,108			5,369
Other assets		5,881			4,338

Total assets	$	447,074		$	483,930

Liabilities and stockholders’ equity
Deposits	$	312,371		$	348,445
Federal Home Loan Bank advances		87,000			87,000
Junior subordinated debentures		6,000			6,000
Other borrowings		5,000			5,000
Advance payments by borrowers for taxes and insurance		743			272
Other liabilities		5,232			4,353

Total liabilities		416,346			451,070

Stockholders’ Equity:
Senior preferred, cumulative and non-voting stock, $.01 par value, authorized, issued and outstanding 9,000 shares of Series D at June 30, 2011 and December 31, 2010; liquidation preference of $9,394 at June 30, 2011 and $9,169 at December 31, 2010		8,963			8,963
Senior preferred, cumulative and non-voting stock, $.01 par value, authorized, issued and outstanding 6,000 shares of Series E at June 30, 2011 and December 31, 2010; liquidation preference of $6,263 at June 30, 2011 and $6,113 at December 31, 2010		5,974			5,974
Preferred, non-cumulative and non-voting stock, $.01 par value, authorized 1,000,000 shares; issued and outstanding 55,199 shares of Series A, 100,000 shares of Series B and 76,950 shares of Series C at June 30, 2011 and December 31, 2010; liquidation preference of $552 for Series A, $1,000 for Series B and $1,000 for Series C at June 30, 2011 and December 31, 2010		2			2
Preferred stock discount		(1,188	)		(1,380	)
Common stock, $.01 par value, authorized 8,000,000 shares at June 30, 2011 and December 31, 2010; issued 2,013,942 shares at June 30, 2011 and December 31, 2010; outstanding 1,744,565 shares at June 30, 2011 and 1,743,965 shares at December 31, 2010		20			20
Additional paid-in capital		14,439			14,395
Retained earnings-substantially restricted		5,656			8,074
Accumulated other comprehensive income, net of taxes of $204 at June 30, 2011 and $176 at December 31, 2010		306			263
Treasury stock-at cost, 269,377 shares at June 30, 2011 and 269,977 shares at December 31, 2010		(3,444	)		(3,451	)

Total stockholders’ equity		30,728			32,860

Total liabilities and stockholders’ equity	$	447,074		$	483,930

See accompanying notes to unaudited consolidated financial statements.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Earnings (Loss)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	*(Dollars in thousands, except per share amounts)*
Interest and fees on loans receivable	$	6,284		$	7,478		$	12,668		$	14,955
Interest on mortgage backed and other securities		182			257			363			539
Other interest income		10			15			19			25

Total interest income		6,476			7,750			13,050			15,519


Interest on deposits		1,197			1,568			2,436			3,071
Interest on borrowings		851			851			1,840			1,646

Total interest expense		2,048			2,419			4,276			4,717


Net interest income before provision for loan losses		4,428			5,331			8,774			10,802
Provision for loan losses		3,434			309			4,674			883

Net interest income after provision for loan losses		994			5,022			4,100			9,919


Non-interest income:
Service charges		175			213			357			402
Net gains (losses) on mortgage banking activities		32			(109	)		7			(85	)
Net losses on sale of REO		(34	)		(61	)		(49	)		(35	)
Other		26			141			65			174

Total non-interest income		199			184			380			456


Non-interest expense:
Compensation and benefits		1,555			1,796			3,364			3,727
Occupancy expense, net		334			348			688			710
Information services		220			186			447			404
Professional services		292			386			460			596
Provision for losses on loans held-for-sale		6			472			26			547
Provision for losses on REO		702			30			782			111
FDIC insurance		354			215			637			462
Office services and supplies		140			133			282			277
Other		514			280			933			543

Total non-interest expense		4,117			3,846			7,619			7,377


Earnings (loss) before income taxes		(2,924	)		1,360			(3,139	)		2,998
Income tax expense (benefit)		(1,202	)		514			(1,288	)		1,164

Net earnings (loss)	$	(1,722	)	$	846		$	(1,851	)	$	1,834


Other comprehensive income, net of tax:
Unrealized gain on securities available for sale	$	86		$	168		$	71		$	257
Income tax effect		(34	)		(67	)		(28	)		(103	)

Other comprehensive income, net of tax		52			101			43			154


Comprehensive earnings (loss)	$	(1,670	)	$	947		$	(1,808	)	$	1,988

Net earnings (loss)	$	(1,722	)	$	846		$	(1,851	)	$	1,834
Dividends and discount accretion on preferred stock		(283	)		(281	)		(566	)		(581	)

Earnings (loss) available to common shareholders	$	(2,005	)	$	565		$	(2,417	)	$	1,253


Earnings (loss) per common share-basic	$	(1.15	)	$	0.32		$	(1.39	)	$	0.72

Earnings (loss) per common share-diluted	$	(1.15	)	$	0.32		$	(1.39	)	$	0.72

Dividends declared per share-common stock	$	—		$	—		$	—		$	0.01

See accompanying notes to unaudited consolidated financial statements.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2011			2010
	*(Dollars in thousands)*
Cash flows from operating activities :
Net earnings (loss)	$	(1,851	)	$	1,834
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Provision for loan losses		4,674			883
Provision for losses on loans receivable held-for-sale		26			547
Provision for losses on REO		782			111
Depreciation		206			214
Net amortization of deferred loan origination (fees) costs		20			(6	)
Net amortization of premiums on mortgage-backed securities		59			102
Stock-based compensation expense		45			80
Earnings on bank owned life insurance		(44	)		(48	)
Net losses on sales of REO		49			35
Net (gains) losses on sales of loans		(11	)		136
Net change in:
Accrued interest receivable		259			(98	)
Deferred tax assets		(767	)		(127	)
Other assets		(1,543	)		2,353
Other liabilities		790			(663	)

Net cash provided by operating activities		2,694			5,353


Cash flows from investing activities:
Net change in loans receivable		10,136			3,037
Proceeds from sales and principal repayments of loans receivable held-for-sale		14,243			2,864
Available-for-sale securities:
Maturities, prepayments and calls		1,367			2,718
Held-to-maturity securities:
Maturities, prepayments and calls		1,042			1,998
Proceeds from sales of REO		2,305			1,396
Investment in affordable housing limited partnership		(286	)		(359	)
Redemption (Purchase) of FHLB stock		—			(62	)
Additions to office properties and equipment		(21	)		(102	)

Net cash provided by investing activities		28,786			11,490


Cash flows from financing activities:
Net change in deposits		(36,074	)		28,661
Proceeds from FHLB advances		7,000			—
Repayments on FHLB advances		(7,000	)		(3,600	)
Net increase in other borrowings		—			5,000
Cash dividends paid		—			(412	)
Reissuance of treasury stock		6			6
Net change in advance payments by borrowers for taxes and insurance		471			(178	)

Net cash provided by (used in) financing activities		(35,597	)		29,477

Net change in cash and cash equivalents		(4,117	)		46,320
Cash and cash equivalents at beginning of period		21,978			7,440

Cash and cash equivalents at end of period	$	17,861		$	53,760


Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,912		$	4,796

Cash paid for income taxes	$	865		$	—

Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable to REO	$	6,414		$	3,957

Transfers of loans receivable held-for-sale to REO	$	266		$	—

Transfers of loans receivable from loans receivable, net to loans receivable held-for-sale	$	—		$	1,422

See accompanying notes to unaudited consolidated financial statements.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

NOTE (1) – Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the “Bank”). Also included in the unaudited consolidated financial statements is Broadway Service Corporation, a wholly owned subsidiary of the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q. These unaudited consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2010 and, accordingly, should be read in conjunction with such audited consolidated financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Some items in the consolidated financial statements for the prior period were reclassified to conform to the current presentation.

NOTE (2) – Recently Issued Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, updated to amend previous guidance with respect to troubled debt restructurings. This updated guidance is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. In particular, additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulties. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. The amendments in the update are effective for the first interim period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 addresses convergence between GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. The amendments are not expected to have a significant impact on companies applying GAAP. Key provisions of the amendment include: a prohibition on grouping financial instruments for purposes of determining fair value, except when an entity manages market and credit risks on the basis of the entity’s net exposure to the group; an extension of the prohibition against the use of a blockage factor to all fair value measurements (that prohibition currently applies only to financial instruments with quoted prices in active markets); and a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed. The amendments in ASU 2011-04 are effective during interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance in ASU 2011-05 does not change the items which must be reported in other comprehensive income, how such items are measured, or when they must be reclassified to net income. The guidance in ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted. Since the provisions of ASU 2011-05 are presentation related only, the Company does not expect the adoption of ASU 2011-04 to have a material effect on its consolidated financial statements.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

NOTE (3) – Earnings Per Common Share

Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding for the period, increased for the dilutive effect of common stock equivalents.

The following table shows how we computed basic and diluted earnings per common share for the three and six months ended June 30, 2011 and 2010.


	For the three months ended June 30,						For the six months ended June 30,
	2011			2010			2011			2010
	(Dollars in thousands, except per share)
Basic
Net earnings (loss)	$	(1,722	)	$	846		$	(1,851	)	$	1,834
Less: Preferred stock dividends and accretion		(283	)		(281	)		(566	)		(581	)

Earnings (loss) available to common shareholders	$	(2,005	)	$	565		$	(2,417	)	$	1,253


Weighted average common shares outstanding		1,744,216			1,743,609			1,744,091			1,743,488


Basic earnings (loss) per common share	$	(1.15	)	$	0.32		$	(1.39	)	$	0.72


Diluted
Net earnings (loss)	$	(1,722	)	$	846		$	(1,851	)	$	1,834
Less: Preferred stock dividends and accretion		(283	)		(281	)		(566	)		(581	)

Earnings (loss) available to common shareholders	$	(2,005	)	$	565		$	(2,417	)	$	1,253


Weighted average common shares outstanding		1,744,216			1,743,609			1,744,091			1,743,488
Add: dilutive effects of assumed exercises of stock options		N/A			900			N/A			3,485

Average shares and dilutive potential common shares		1,744,216			1,744,509			1,744,091			1,746,973


Diluted earnings (loss) per common share	$	(1.15	)	$	0.32		$	(1.39	)	$	0.72

Stock options for 227,075 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2011 and stock options for 237,547 and 212,700 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2010 because they were anti-dilutive.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

NOTE (4) – Securities

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolios at June 30, 2011 and December 31, 2010 and the corresponding amounts of unrealized gains which are recognized in accumulated other comprehensive income (loss), for available-for-sale investment securities, were as follows:


	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Available-for-sale
Residential mortgage-backed	$	8,662	$	510	$	—	$	9,172

Total available-for-sale	$	8,662	$	510	$	—	$	9,172

Held-to-maturity
Residential mortgage-backed	$	10,692	$	445	$	—	$	11,137
U.S. Government and federal agency		1,000		89		—		1,089

Total held-to-maturity	$	11,692	$	534	$	—	$	12,226


	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Available-for-sale
Residential mortgage-backed	$	10,085	$	439	$	—	$	10,524

Total available-for-sale	$	10,085	$	439	$	—	$	10,524

Held-to-maturity
Residential mortgage-backed	$	11,737	$	425	$	—	$	12,162
U.S. Government and federal agency		1,000		99		—		1,099

Total held-to-maturity	$	12,737	$	524	$	—	$	13,261

The amortized cost and fair value of the investment securities portfolios are shown by contractual maturity at June 30, 2011. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily residential mortgage-backed securities, are shown separately.


	Available-for-Sale				Held-to-Maturity
Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Within one year	$	—	$	—	$	—	$	—
One to five years		—		—		1,000		1,089
Five to ten years		—		—		—		—
Beyond ten years		—		—		—		—
Residential mortgage-backed		8,662		9,172		10,692		11,137

Total	$	8,662	$	9,172	$	11,692	$	12,226

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

Securities pledged at June 30, 2011 and December 31, 2010 had a carrying amount of $11.7 million and $12.7 million and were pledged to secure public deposits and FHLB advances. At June 30, 2011 and December 31, 2010, there were no holdings of securities of 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 six months ended June 30, 2011 and 2010.

There were no securities with unrealized losses at June 30, 2011 and December 31, 2010. We evaluate securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such 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 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. In analyzing an issuer’s financial condition, we consider 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.

NOTE (5) – Loans Receivable Held-for-Sale, net

Loans receivable held-for-sale at June 30, 2011 and December 31, 2011 were as follows:


	June 30, 2011			December 31, 2010
	(In thousands)
Loans receivable, held for sale:
Multi-family residential	$	6,488		$	16,217
Commercial real estate		2,068			5,067
Church		8,756			9,408
Valuation allowance for unrealized losses		(1,307	)		(1,281	)

Loans receivable, held for sale, net	$	16,005		$	29,411

Loans receivable held-for-sale, net, consisted of multi-family and commercial real estate loans originated for sale and multi-family loans transferred from our loan portfolio. Non-performing loans receivable held-for-sale included in loans receivable held-for-sale, net, totaled $6.0 million, net of charge-offs of $122 thousand and a $776 thousand valuation allowance, as of June 30, 2011 and totaled $5.1 million, net of charge-offs of $414 thousand and a $769 thousand valuation allowance, at December 31, 2010. Restructured loans receivable held-for-sale that have complied with the terms of their restructured agreements for a satisfactory period of time and certain performing loans receivable held-for-sale with delinquency or other weaknesses totaled $4.1 million, net of a $531 thousand valuation allowance, as of June 30, 2011 and totaled $8.0 million, net of a $512 thousand valuation allowance, as of December 31, 2010. A loan receivable held-for-sale secured by a church building, which had a carrying amount of $266 thousand, net of charge-off of $292 thousand, was transferred to REO during the six months ended June 30, 2011.

We recorded a lower of cost or market recovery on non-performing loans receivable held-for-sale of $35 thousand for the six months ended June 30, 2011. Net lower of cost or market write-downs on non-performing loans receivable held-for-sale totaled $131 thousand for the six months ended June 30, 2010. During the six months ended June 30, 2011 and 2010, we increased our valuation allowance by $61 thousand and $416 thousand, respectively, on some of our loans held for sale that are still considered performing loans.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

NOTE (6) – Loans Receivable and Allowance for Loan Losses

Loans at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011			December 31, 2010
	(In thousands)

Loans receivable, net:
One to four units	$	81,022		$	82,764
Five or more units		122,074			128,534
Commercial real estate		66,155			72,770
Church		95,050			97,634
Construction		4,271			5,421
Commercial:
Sports		5,698			5,768
Other		6,370			6,410
Consumer:
Loan on savings		1,006			3,259
Other		13			29

Total gross loans receivable		381,659			402,589
Less:
Loans in process		119			371
Net deferred loan fees (costs)		(881	)		(889	)
Unamortized discounts		32			33
Allowance for loan losses		22,245			20,458

Loans receivable, net	$	360,144		$	382,616

The activity in the allowance for loan losses by segment of loans for the three and six months ended June 30, 2011 was as follows:


	For the three months ended June 30, 2011
	One to four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	3,977		$	2,622		$	3,530		$	7,387		$	54		$	1,598		$	1,823		$	20,991
Provision for loan losses		319			419			2,723			(46	)		14			(60	)		65			3,434
Recoveries		—			—			—			—			—			—			6			6
Loans charged off		(67	)		(149	)		—			(144	)		—			—			(1,826	)		(2,186	)

Ending balance	$	4,229		$	2,892		$	6,253		$	7,197		$	68		$	1,538		$	68		$	22,245


	For the six months ended June 30, 2011
	One to four units			Five or more units			Commercial real estate			Church			Construction			Commercial			Consumer			Total
	(In thousands)
Beginning balance	$	4,579		$	2,469		$	3,493		$	6,909		$	74		$	1,300		$	1,634		$	20,458
Provision for loan losses		(245	)		572			3,369			477			(6	)		238			269			4,674
Recoveries		—			—			—			—			—			—			8			8
Loans charged off		(105	)		(149	)		(609	)		(189	)		—			—			(1,843	)		(2,895	)

Ending balance	$	4,229		$	2,892		$	6,253		$	7,197		$	68		$	1,538		$	68		$	22,245

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

The activity in the allowance for loan losses for the three and six months ended June 30, 2010 was as follows:


	For the three months ended June 30, 2010			For the six months ended June 30, 2010
	(In thousands)
Beginning balance	$	20,110		$	20,460
Provision for loan losses		309			883
Recoveries		—			—
Loans charged off		(1,957	)		(2,881	)

Ending balance	$	18,462		$	18,462

The allowance for loan losses is comprised of specific loss allowances for impaired loans and general loan loss allowances based on quantitative and qualitative analyses.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by segment of loans and based on impairment method as of June 30, 2011 and December 31, 2010:


	June 30, 2011
	One to four units		Five or more units		Commercial real estate		Church		Construction		Commercial		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	871	$	183	$	3,400	$	3,127	$	—	$	1,210	$	—	$	8,791
Collectively evaluated for impairment		3,358		2,709		2,853		4,070		68		328		68		13,454

Total ending allowance balance	$	4,229	$	2,892	$	6,253	$	7,197	$	68	$	1,538	$	68	$	22,245

Loans:
Loans individually evaluated for impairment	$	10,492	$	3,067	$	11,925	$	30,850	$	317	$	3,983	$	—	$	60,634
Loans collectively evaluated for impairment		70,530		119,007		54,230		64,200		3,954		8,085		1,019		321,025

Total ending loans balance	$	81,022	$	122,074	$	66,155	$	95,050	$	4,271	$	12,068	$	1,019	$	381,659


	December 31, 2010
	One to four units		Five or more units		Commercial real estate		Church		Construction		Commercial		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	423	$	69	$	935	$	2,118	$	—	$	942	$	1,541	$	6,028
Collectively evaluated for impairment		4,156		2,400		2,558		4,791		74		358		93		14,430

Total ending allowance balance	$	4,579	$	2,469	$	3,493	$	6,909	$	74	$	1,300	$	1,634	$	20,458

Loans:
Loans individually evaluated for impairment	$	9,962	$	2,260	$	13,206	$	26,251	$	320	$	3,768	$	2,265	$	58,032
Loans collectively evaluated for impairment		72,802		126,274		59,564		71,383		5,101		8,410		1,023		344,557

Total ending loans balance	$	82,764	$	128,534	$	72,770	$	97,634	$	5,421	$	12,178	$	3,288	$	402,589

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

Impaired loans were as follows:


	June 30, 2011		December 31, 2010
	(In thousands)
Impaired loans with no allocated allowance:
Without charge-off	$	20,873	$	20,767
With charge-off		7,087		5,424
Impaired loans with allocated allowance:
Without charge-off		32,095		29,532
With charge-off		579		2,309

Total	$	60,634	$	58,032


Amount of the allowance for loan losses allocated	$	8,791	$	6,028

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010:


	June 30, 2011						December 31, 2010
	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:
One to four units	$	6,664	$	5,330	$	—	$	7,953	$	5,991	$	—
Five or more units		2,142		1,974		—		600		586		—
Commercial real estate		5,795		5,156		—		8,409		8,133		—
Church		15,652		15,183		—		11,782		11,161		—
Construction		317		317		—		320		320		—
With an allowance recorded:
One to four units		5,338		5,162		871		4,129		3,971		423
Five or more units		1,088		1,093		183		1,674		1,674		69
Commercial real estate		6,769		6,769		3,400		5,072		5,073		935
Church		15,766		15,667		3,127		15,183		15,090		2,118
Commercial:
Sports		4,000		3,698		925		4,000		3,768		942
Other		285		285		285		—		—		—
Consumer:
Loan on savings		—		—		—		2,249		2,249		1,525
Other		—		—		—		16		16		16

Total	$	63,816	$	60,634	$	8,791	$	61,387	$	58,032	$	6,028

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

The following table presents the average recorded investment, interest income recognized and cash basis interest income related to our impaired loans by segment and class for the six months ended June 30, 2011.


	For the six months ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Income
	(In thousands)
With no related allowance recorded:
One to four units	$	5,767	$	25	$	25
Five or more units		1,739		13		13
Commercial real estate		8,369		37		36
Church		14,481		98		92
Construction		319		—		—
With an allowance recorded:
One to four units		3,860		113		116
Five or more units		808		—		—
Commercial real estate		4,268		57		57
Church		14,712		312		320
Commercial:
Sports		3,728		—		—
Other		247		—		—
Consumer:
Loan on savings		1,479		—		—

Total	$	59,777	$	655	$	659


	For the six months ended June 30, 2010
	(In thousands)
Average recorded investment in impaired loans	$	48,678
Interest income recognized		740
Cash basis interest income		555

Interest income recognized during impairment represents interest income earned on accruing impaired loans. Cash-basis interest income recognized represents cash received for interest payments on performing TDRs.

The following table presents the recorded investment in nonaccrual loans by class of loans:


	June 30, 2011		December 31, 2010
	(In thousands)
Loans receivable, held for sale:
Five or more units	$	1,574	$	385
Church		5,190		5,533
Loans receivable, net:
One to four-units		5,824		6,227
Five or more units		2,675		1,865
Commercial real estate		9,061		10,321
Church		20,132		12,748
Construction		317		320
Commercial:
Sports		3,698		3,768
Other		285		—
Consumer:
Loan on Savings		—		2,249
Other		—		16

Total nonaccrual loans	$	48,756	$	43,432

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

As of June 30, 2011, a commercial loan for $569 thousand was more than 90 days past due and was accruing interest. The loan has matured and is currently being modified but since the loan has always been current with monthly payments, the loan remained on accruing status. There were no loans 90 days or more delinquent that were accruing interest as of December 31, 2010.

The following table presents the aging of the recorded investment in past due loans, including loans held for sale, as of June 30, 2011 and December 31, 2010 by class of loans:


	June 30, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Loans Not Past Due
	(In thousands)
One to four units	$	5,795	$	—	$	5,824	$	11,619	$	69,403
Five or more units		251		769		4,249		5,269		123,293
Commercial real estate		733		1,424		9,061		11,218		57,005
Church		4,895		1,851		25,322		32,068		71,738
Construction		—		120		317		437		3,834
Commercial:
Sports		—		—		3,698		3,698		2,000
Other		99		—		854		953		5,417
Consumer:
Loan on savings		—		—		—		—		1,006
Other		—		—		—		—		13

Total	$	11,773	$	4,164	$	49,325	$	65,262	$	333,709


	December 31,2010
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Loans Not Past Due
	(In thousands)
One to four units	$	2,716	$	71	$	6,227	$	9,014	$	73,750
Five or more units		2,014		1,068		2,250		5,332		139,419
Commercial real estate		769		1,287		10,321		12,377		65,460
Church		12,914		5,230		18,281		36,425		70,617
Construction		898		—		320		1,218		4,203
Commercial:
Sports		—		—		3,768		3,768		2,000
Other		325		—		—		325		6,085
Consumer:
Loan on savings		—		—		2,249		2,249		1,010
Other		—		—		16		16		13

Total	$	19,636	$	7,656	$	43,432	$	70,724	$	362,557

At June 30, 2011, loans classified as a troubled debt restructurings (“TDR”) totaled $36.5 million, of which $15.9 million were included in nonaccrual loans and $20.6 million were on accrual status as the loans have complied with the terms of their restructured agreements for a satisfactory period of time. At December 31, 2010, loans classified as a TDR totaled $37.1 million, of which $14.6 million were included in nonaccrual loans and $22.5 million were on accrual status as the loans have complied with the terms of their restructured agreements for a satisfactory period of time. The Company has specific allowances of $1.7 million and $1.6 million allocated to performing TDRs as of June 30, 2011 and December 31, 2010. As of June 30, 2011 and December 31, 2010, we did not have any outstanding commitments to extend additional funds to these borrowers.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

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. The Company analyzes 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:

•

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

•

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

•

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

•

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans as of June 30, 2011 and December 31, 2010 is as follows:


	As of June 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One to four units	$	69,883	$	3,220	$	7,919	$	—	$	—
Five or more units		114,116		3,541		4,368		—		49
Commercial real estate		43,321		4,923		17,826		85		—
Church		39,488		12,457		42,136		370		599
Construction		1,046		2,908		317		—		—
Commercial:
Sports		—		2,000		3,698		—		—
Other		856		5,049		465		—		—
Consumer:
Loan on savings		1,006		—		—		—		—
Other		13		—		—		—		—

Total	$	269,729	$	34,098	$	76,729	$	455	$	648

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011


	As of December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
One to four units	$	71,846	$	2,440	$	8,478	$	—	$	—
Five or more units		118,490		6,412		3,632		—		—
Commercial real estate		46,692		5,281		20,797		—		—
Church		42,931		14,229		40,204		270		—
Construction		4,203		320		898		—		—
Commercial:
Sports		—		2,000		3,768		—		—
Other		925		4,870		615		—		—
Consumer:
Loan on savings		1,010		—		2,249		—		—
Other		13		—		—		—		16

Total	$	286,110	$	35,552	$	80,641	$	270	$	16

NOTE (7) – Junior Subordinated Debentures, Other Borrowings and Management’s Capital Plan

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures in a private placement. The debentures mature in 10 years and interest 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 2.79% at June 30, 2011. The Company stopped paying interest on the debentures and the senior line of credit discussed below in September 2010. As disclosed previously, the Company is not permitted to make payments on any debts without prior notice to and receipt of written notice of non-objection from the Office of Thrift Supervision (“OTS”) Regional Director. In addition, under the terms of the subordinated debentures, the Company is not allowed to make payments on the subordinated debentures if the Company is in default on any of its senior indebtedness, which term includes the senior line of credit described below.

On February 28, 2010, the Company borrowed an aggregate of $5.0 million under its $5.0 million line of credit with another financial institution, and invested all of the proceeds in the equity capital of the Bank. The interest rate on the line of credit adjusts annually, subject to a minimum of 6.00% and increases by an additional 5% in the event of default. Borrowings under this line of credit are secured by the Company’s assets. The full amount of this borrowing became due and payable on July 31, 2010. This senior line of credit has not been repaid and the Company is now in default under the line of credit agreement. On April 7, 2011, the lender agreed to forbear from exercising its rights (other than increasing the interest rate by the default rate margin) pursuant to the line of credit agreement until January 1, 2012 subject to the following conditions:

•

The Company shall make a forbearance payment in the amount of $25,000 to the lender no later than July 31, 2011 provided that the Company is able to obtain the necessary approval to make such payment from the OTS or its successors, and in the event the Company is unable to obtain such approval by said date, the Company shall make such payment as soon as permitted thereafter. The Company has not received the required regulatory approval for such payment to date.

•

The Company shall use its best efforts to continue to attempt to raise a minimum of $5.0 million in private placements under the Company’s Recapitalization Plan as discussed below.

•

The Bank shall not experience anything that would constitute an Event of Default, or be placed into receivership by the FDIC.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

The Company is pursuing a comprehensive Recapitalization Plan to improve the Company’s capital structure. To date, the Company has obtained the written consent of the U.S. Treasury to exchange the Company’s Series D and E Fixed Rate Cumulative Perpetual Preferred Stock for common stock at a discount of 50% of the liquidation amount, plus an undiscounted exchange of the accumulated but unpaid dividends on such preferred stock for common stock. In addition, the Company is in negotiations with the holders of Series A and Series B Perpetual Preferred Stock and Series C Noncumulative Perpetual Convertible Preferred Stock to exchange their holdings for common stock at a discount of 50% of the liquidation amount. The Company is also in negotiations with the lender to exchange a portion of the Company’s senior line of credit, which is currently in default, for common stock at 100% of the face amount to be exchanged and to forgive the accrued interest on the entire amount of the line of credit to the date of the exchange.

The Company plans to concurrently complete private placements or other sales of the Company’s common stock aggregating $5 million or more in gross proceeds. The Company anticipates that these transactions would, if completed, result in the issuance of approximately 7.5 million new shares of the Company’s common stock, which would constitute approximately 80% of the pro forma outstanding shares of the Company’s common stock. There can be no assurance that management’s capital plan will be achieved.

NOTE (8) – Fair Value

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 other 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.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

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 widely used in the industry 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 non-performing loans receivable held-for-sale 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 appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Impaired loans, other than performing TDRs, are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair values are estimated through current appraisals, broker opinions or automated valuation models and adjusted as necessary, by management, to reflect current market conditions and, as such, are classified as Level 3.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

Nonrecurring adjustments to certain commercial and residential real estate properties classified as real estate owned (“REO”) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets Measured on a Recurring Basis

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


			Fair Value Measurements at June 30, 2011 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	9,172	$	—	$	9,172	$	—

			Fair Value Measurements at December 31, 2010 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	10,524	$	—	$	10,524	$	—

Assets Measured on a Non-Recurring Basis

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


	Carrying Value at
	June 30, 2011		December 31, 2010
	(In thousands)
Assets:
Non-performing loans receivable held-for-sale, net:
Five or more units	$	1,548	$	366
Church		4,441		4,783
Impaired loans carried at fair value of collateral:
One to four units		2,957		3,775
Five or more units		1,940		1,606
Commercial real estate		2,193		2,542
Church		8,906		5,591
Commercial		2,773		2,826
Consumer		—		749
Real estate owned:
One to four units		1,269		1,086
Five or more units		279		260
Commercial real estate		3,943		568
Church		1,199		1,122

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

The following table provides information regarding our assets measured at fair value on a non-recurring basis at June 30, 2011, and the losses recognized on these assets for the six months ended June 30, 2011.


	Principal Amount at June 30, 2011		Valuation Allowance at June 30, 2011		Losses for the six months ended June 30, 2011
	(In thousands)
Non-performing loans receivable held-for-sale, net (1)	$	6,764	$	776	$	—
Impaired loans carried at fair value of collateral (2)		26,320		7,551		5,060
Real estate owned (3)		6,920		230		782

Total	$	40,004	$	8,557	$	5,842


(1) Losses are charged to provision for losses on loans receivable held-for-sale. (2) Losses are charged against the allowance for loan losses. Includes $7.1 million of loans that were carried at cost as the fair value of the collateral on these loans exceeded the book value as a result of charge-offs. (3) Losses are charged against the allowance for loan losses in the case of a write-down upon the transfer of a loan to REO. Losses subsequent to the transfer of a loan to REO are charged to provision for losses on REO.

The following table provides information regarding our assets measured at fair value on a non-recurring basis at December 31, 2010, and the losses recognized on these assets for the year ended December 31, 2010.


	Principal Amount at December 31, 2010		Valuation Allowance at December 31, 2010		Losses for the year ended December 31, 2010
	(In thousands)
Non-performing loans receivable held-for-sale, net (1)	$	5,918	$	769	$	902
Impaired loans carried at fair value of collateral (2)		21,509		4,420		4,829
Real estate owned (3)		3,090		54		1,102

Total	$	30,517	$	5,243	$	6,833


(1) Losses are charged to provision for losses on loans receivable held-for-sale. (2) Losses are charged against the allowance for loan losses. Includes $5.4 million of loans that were carried at cost as the fair value of the collateral on these loans exceeded the book value as a result of charge-offs. (3) Losses are charged against the allowance for loan losses in the case of a write-down upon the transfer of a loan to REO. Losses subsequent to the transfer of a loan to REO are charged to provision for losses on REO.

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2011

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011						December 31, 2010
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	17,861		$	17,861		$	21,978		$	21,978
Securities available-for-sale		9,172			9,172			10,524			10,524
Securities held-to-maturity		11,692			12,226			12,737			13,261
Loans receivable held for sale, net		16,005			16,005			29,411			29,411
Loans receivable, net		360,144			360,871			382,616			384,274
Federal Home Loan Bank stock		4,089			N/A			4,089			N/A
Accrued interest receivable		1,957			1,957			2,216			2,216

Financial Liabilities:
Deposits	$	(312,371	)	$	(311,113	)	$	(348,445	)	$	(347,373	)
Federal Home Loan Bank advances		(87,000	)		(91,906	)		(87,000	)		(91,615	)
Junior subordinated debentures		(6,000	)		(4,974	)		(6,000	)		(4,609	)
Other borrowings		(5,000	)		(4,979	)		(5,000	)		(4,979	)
Advance payments by borrowers for taxes and insurance		(743	)		(743	)		(272	)		(272	)
Accrued interest payable		(915	)		(915	)		(550	)		(550	)

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

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short term debt, advance payments by borrowers for taxes and insurance, and variable rate loans, deposits and borrowings that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For fixed rate loans and deposits and for variable rate loans and deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk without consideration of widening credit spreads due to market illiquidity. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair values of off-balance-sheet items are not considered material (or are based on the current fees or cost that would be charged to enter into or terminate such arrangements) and, as such, they are not presented herein.

NOTE (9) – Stock-based Compensation

In 2008, we adopted the 2008 Long-Term Incentive Plan (“2008 LTIP”), which is shareholder approved. The 2008 LTIP replaced the Company’s 1996 Long-Term Incentive Plan (“1996 LTIP”) and 1996 Stock Option Plan (“Stock Option Plan”), which have expired and are no longer effective except as to outstanding awards. The 2008 LTIP permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards to the Company’s non-employee directors and certain officers and employees for up to 351,718 shares of common stock. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from immediate vesting to 5 years and have 10-year contractual terms. The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises.

There were no options granted during the first six months of 2011. The Company recorded $27 thousand of stock-based compensation expense, net of tax, during the first six months of 2011 compared to $48 thousand for the first six months of 2010.

NOTE (10) – Regulatory Matters

The Bank is subject to regulatory capital requirements now administered by the Office of the Comptroller of the Currency, or OCC, which is the statutory successor under the Dodd-Frank Act to the former Office of Thrift Supervision, or OTS. The capital requirements, which remain the same as when administered by the OTS, 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.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

The Company and the Bank have consented to the issuance to them of cease and desist orders by the OTS effective September 9, 2010 requiring, among other things, that the Company and the Bank take remedial actions to improve the Bank’s loan underwriting and internal asset review procedures, to reduce the amount of its non-performing assets and to improve other aspects of the Bank’s business, as well as the Company’s management of its business and the oversight of the Company’s business by the Board. The cease and desist orders require the Bank to attain, and thereafter maintain, a Tier 1 (Core) Capital to Adjusted Total Assets ratio of at least 8% and a Total Risk-Based Capital to Risk-Weighted Assets ratio of at least 12%, both of which ratios are greater than the respective 6% and 10% levels for such ratios that are generally required under OTS (now OCC) regulations. The cease and desist orders also prohibit the Bank from paying dividends to the Company, and prohibit the Company from paying dividends to its stockholders, without the prior written approval of the OCC. In addition, the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt of written notice of non-objection from the OCC.

We have met the minimums required to be well capitalized at June 30, 2011 and December 31, 2010 based on the prompt corrective action regulations, however we cannot be considered well capitalized while under the cease and desist order.

Actual and normally required capital amounts and ratios at June 30, 2011 and December 31, 2010, together with the higher capital requirements that the Bank is required to meet under the cease and desist order applicable to it, are presented below.


	Actual					Required for Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations					Capital Requirements under Cease and Desist Order
	Amount		Ratio			Amount		Ratio			Amount		Ratios			Amount		Ratios
	(Dollars in thousands)
June 30, 2011:
Tangible Capital to adjusted total assets	$	39,381		8.87	%	$	6,662		1.50	%		N/A		N/A			N/A		N/A
Tier 1(Core) Capital to adjusted total assets	$	39,381		8.87	%	$	17,765		4.00	%	$	22,206		5.00	%	$	35,529		8.00	%
Tier 1(Core) Capital to risk weighted assets	$	39,381		11.94	%		N/A		N/A		$	19,785		6.00	%		N/A		N/A
Total Capital to risk weighted assets	$	43,627		13.23	%	$	26,379		8.00	%	$	32,974		10.00	%	$	39,569		12.00	%

December 31, 2010:
Tangible Capital to adjusted total assets	$	42,630		8.82	%	$	7,252		1.50	%		N/A		N/A			N/A		N/A
Tier 1(Core) Capital to adjusted total assets	$	42,630		8.82	%	$	19,338		4.00	%	$	24,172		5.00	%	$	38,676		8.00	%
Tier 1(Core) Capital to risk weighted assets	$	42,630		11.76	%		N/A		N/A		$	21,754		6.00	%		N/A		N/A
Total Capital to risk weighted assets	$	47,299		13.05	%	$	29,006		8.00	%	$	36,257		10.00	%	$	43,508		12.00	%

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I “Item 1, Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

Total assets decreased during the first six months of 2011 primarily due to a decrease in our loan portfolio. The decline in assets reflected the strategy that we have been implementing since the second quarter of 2010 to reduce and resolve non-performing assets and to slow down asset growth, in our efforts to maintain our capital ratios above the required thresholds. Total deposits decreased during the first six months of 2011, as we continued to allow maturing certificates of deposit and brokered deposits, including deposits obtained through the CDARS reciprocal referral system, to run off as total assets declined.

Our net loss for the three and six months ended June 30, 2011 were ($1.7) million and ($1.9) million, respectively, compared to net earnings of $846 thousand and $1.8 million, respectively, for the same period a year ago, representing a decrease in net earnings of $2.6 million and $3.7 million, respectively. The decrease in net earnings was primarily due to higher provision for loan losses and lower net interest income for the three and six months ended June 30, 2011.

The annualized returns on average equity for the three and six months ended June 30, 2011 were (21.41%) and (11.32%), compared to 10.28% and 11.29% for the three and six months ended June 30, 2010. The annualized returns on average assets for the three and six months ended June 30, 2011 were (1.48%) and (0.78%), compared to 0.62% and 0.69% for the three and six months June 30, 2010. The efficiency ratios for the three and six months ended June 30, 2011 were 73.68% and 74.40%, compared to 60.63% and 59.68% for the comparable periods in 2010.

Results of Operations

Net Earnings

Net loss for the second quarter of 2011 was ($1.7) million, or ($1.15) per diluted common share, compared to net earnings of $846 thousand, or $0.32 per diluted common share, for the second quarter of 2010. The net loss for the second quarter of 2011 was primarily due to higher provision for loan losses and lower net interest income.

For the six months ended June 30, 2011, net loss totaled ($1.9) million, or ($1.39) per diluted common share, compared to net earnings of $1.8 million, or $0.72 per diluted common share, for the same period in 2010.

Net Interest Income

For the quarter ended June 30, 2011, our net interest income before provision for loan losses was $4.4 million, which represented a decrease of $903 thousand, or 17%, from the second quarter of 2011. The decrease in net interest income was primarily attributable to a decrease in average interest-earning assets, combined with a decrease in net interest margin. The decline in our net interest margin primarily reflected elevated levels of non-performing assets.

Average interest-earning assets for the second quarter of 2011 decreased to $459.7 million, down $78.5 million from the second quarter of 2010. The decrease in average interest-earning assets resulted in a $1.0 million reduction in interest income. Additionally, the annualized yield on our average interest-earning assets decreased 11 basis points to 5.64% for the second quarter of 2011, compared to the annualized yield of 5.75% for the same period a year ago. The 11 basis point decline in the annualized yield on our average interest-earning assets resulted in a decrease of $244 thousand in interest income. Higher levels of non-performing assets, primarily non-performing loans and REOs, contributed to the decline in the annualized yield on our interest-earning assets.

Average interest-bearing liabilities for the second quarter of 2011 decreased to $429.3 million, down $75.7 million from the second quarter of 2010. The decrease in average interest-bearing liabilities resulted in a $353 thousand reduction in interest expense. The annualized cost of our average interest-bearing liabilities decreased 1 basis point to 1.91% for the second quarter of 2011 from the annualized cost of 1.92% for the same period a year ago, and resulted in a decrease of $18 thousand in interest expense.

For the six months ended June 30, 2011, net interest income before provision for loan losses totaled $8.8 million, down $2.0 million, or 19%, from $10.8 million of net interest income before provision for loan losses for the same period a year ago. The $2.0 million decrease in net interest income primarily resulted from a $59.2 million decrease in average interest-earning assets and a 35 basis point decrease in net interest margin.

Provision and Allowance for Loan Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for loan losses at a level sufficient, in management’s judgment, to absorb losses inherent 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.

The provision for loan losses for the second quarter of 2011 totaled $3.4 million compared to $309 thousand for the same period a year ago. The $3.1 million increase in the provision for loan losses from the second quarter of 2010 to the second quarter of 2011 primarily reflected the increase in specific valuation allowance on impaired loans, which was partially offset by the decrease in the general valuation allowance due to the reduction in our gross loan portfolio. During the second quarter of 2011, we recorded a $3.0 million specific loss allocation on a commercial real estate loan. The Bank decided on the specific loss allocation due to insufficient cash flow from the property to service the debt, a decline in real estate values resulting in the loan being substantially under collateralized and deteriorating borrower financial capacity to repay the loan from personal reserves.

For the six months ended June 30, 2011, the provision for loan losses totaled $4.7 million compared to $883 thousand of provisions for the same period a year-ago. The increase in loan loss provision was primarily due to the $3.0 million specific loss allocation on a commercial real estate loan (as discussed above), higher levels of non-performing loans and classified loans, which were partially offset by the $59.4 million decline in our loan portfolio as compared to the same period in 2010. During the six months ended June 30, 2011, the dollar amount and number of our classified loans and delinquent loans declined from the levels at December 31, 2010.

Net loan charge-offs during the first six months of 2011 were $2.9 million, or 1.38% of average loans on an annualized basis, compared to $2.9 million, or 1.22% during the first six months of 2010. Consumer loans represented 63% of the charge-offs during the first six months of 2011, primarily because of one write-off related to the settlement of litigation concerning a consumer loan secured by a deposit account. We believe that settling this litigation, which was initiated in 2008, was the best course of action for our shareholders because the settlement eliminates any uncertainty regarding the matter and avoids any further drain on our management’s time and resources. As of June 30, 2011, the consumer loan and the deposit account securing the loan have been closed and no additional losses are expected to be incurred on this matter. Commercial real estate loans represented 21% of charge-offs while church, multi-family and one-to-four family residential real estate loans, combined, represented 16% of charge-offs during the first six months of 2011. Of the $2.9 million of loan charge-offs during 2011, $2.2 million were specifically reserved for at year-end 2010 and $716 thousand were specifically reserved for during 2011.

At June 30, 2011 our allowance for loan losses was $22.2 million, or 5.83% of our gross loans, compared to $20.5 million, or 5.08% of our gross loans, at year-end 2010. The ratio of the allowance for loan losses to NPLs, excluding loans held for sale, decreased to 52.27% at June 30, 2011, compared to 54.53% at year-end 2010. Our coverage ratio (general allowance as a percentage of total non-impaired loans) was 4.19% as of June 30, 2011 and December 31, 2010. Our allowances for losses after considering reserves for loans held for sale and REO totaled $23.8 million at June 30, 2011, compared to $21.8 million at year-end 2010.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of June 30, 2011, but there can be no assurance that actual losses will not exceed the estimated amounts. In

addition, the OTS and the 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.

Non-interest Income

Non-interest income for the quarter ended June 30, 2011 totaled $199 thousand compared to $184 thousand for the second quarter of 2010. The increase from the second quarter of 2010 was primarily due to higher net gains on mortgage banking activities and lower net losses on sales of REO in the second quarter of 2011.

For the six months ended June 30, 2011, non-interest income totaled $380 thousand compared to $456 thousand for the same period a year ago. The decrease primarily reflects lower service charges and other income for the first six months of 2011.

Non-interest Expense

Non-interest expense for the quarter ended June 30, 2011 totaled $4.1 million, compared to $3.8 million for the second quarter of 2010. Higher non-interest expense in the second quarter of 2011 was primarily due to a $672 thousand increase in provision for losses on REO, a $139 thousand increase in FDIC insurance expense, and a $234 thousand increase in other expense, primarily higher REO expenses and appraisal expenses related to delinquent loans. These increases were partially offset by a $466 thousand decrease in provision for losses on loans held for sale, and a $241 thousand decrease in compensation and benefits expense.

For the six months ended June 30, 2011, non-interest expense totaled $7.6 million compared to $7.4 million for the same period a year ago. The increase in non-interest expense during the first half of 2011 primarily reflected higher provision for losses on REO, FDIC insurance expense, REO expenses, and appraisal expenses related to delinquent loans, which were partially offset by lower provision for losses on loans held for sale, compensation and benefits expense, and professional services expense.

Income Taxes

The Company’s effective income tax rate was 41.11% and 41.03% for the three and six months ended June 30, 2011 compared to 37.79% and 38.83% for the three and six months ended June 30, 2010. Income taxes for interim periods are computed by applying the projected annual effective income tax rate for the year to the year-to-date earnings plus discrete items (items incurred in the quarter). The projected effective tax rate incorporates certain non-taxable federal and state income items and expected increases to the valuation allowance for projected deferred tax assets. The Company’s change in its effective income tax rate for the three and six months ended June 30, 2011, versus the three and six months ended June 30, 2010, includes the impact of low-housing income credit and increase in valuation allowance related to the future utilization of the state deferred tax assets. Based on the future projected book income and utilization of the federal deferred tax assets, the management has determined that a valuation allowance against the federal deferred tax assets is not required.

Financial Condition

Total Assets

Total assets were $447.1 million at June 30, 2011, which represented a decrease of $36.9 million, or 8%, from December 31, 2010. During the first six months of 2011, net loans decreased by $22.5 million, loans held for sale decreased by $13.4 million, cash and cash equivalents decreased by $4.1 million and securities decreased by $2.4 million while REO increased by $3.7 million.

Loan Portfolio

Our gross loan portfolio decreased by $20.9 million to $381.7 million at June 30, 2011 from $402.6 million at December 31, 2010, primarily as loan repayments exceeded loan originations during the six months ended June 30, 2011. The $20.9 million decrease in our loan portfolio primarily consisted of a $6.6 million decrease in our commercial real estate loan portfolio, a $6.5 million decrease in our multi-family residential real estate loan portfolio, a $2.6 million decrease in our church loan portfolio, a $2.3 million decrease in our consumer loan portfolio, a $1.7 million decrease in our one-to-four family residential real estate loan portfolio, and a $1.1 million decrease in our construction loan portfolio.

Loan originations for the first six months of 2011 totaled $2.3 million compared to $15.3 million for the first six months of 2010. Loan repayments for the six months ended June 30, 2011 totaled $12.8 million compared to $19.3 million for the comparable period in 2010. Loans transferred to REO during the first six months of 2011 totaled $6.4 million, compared to $4.0 million during the first six months of 2010. Loans transferred to loans held for sale during the first six months of 2011 totaled $1.1 million, compared to $1.4 million during the first six months of 2010.

Loans held for sale decreased from $29.4 million at December 31, 2010 to $16.0 million at June 30, 2011. The $13.4 million decrease during the first six months of 2011 was primarily due to loan sales of $10.8 million, which were sold at par, and loan repayments of $3.4 million.

Deposits

Deposits totaled $312.4 million at June 30, 2011, down $36.1 million, or 10%, from year-end 2010. During the first six months of 2011, core deposits (NOW, demand, money market and passbook accounts) decreased by $9.8 million and represented 32% of total deposits at June 30, 2011 and December 31, 2010. Our certificates of deposit (“CDs”) decreased by $26.3 million during the first six months of 2011 and represented 68% of total deposits at June 30, 2011 and December 31, 2010. The $26.3 million decrease in CDs was primarily due to maturities of $20.0 million of State of California CDs and a reduction of $8.3 million in brokered deposits. Over the past year, our funding strategy has included a plan to substantially eliminate brokered deposits, including deposits under the Certificate of Deposit Account Registry Service. To date, we have successfully reduced our brokered deposits to a level representing only 3% of total deposits at June 30, 2011, compared to 5% at December 31, 2010 and 17% at June 30, 2010.

Borrowings

Since the end of 2010, FHLB borrowings remained unchanged at $87.0 million, as we borrowed $7.0 million from the FHLB to repay $7.0 million of maturing advance. Subordinated debentures remained unchanged at $6.0 million and other borrowings remained unchanged at $5.0 million. See Liquidity and Capital Resources for further information on other borrowings.

Non-Performing Assets

Non-performing assets, comprised of NPLs and REO, were $56.0 million, or 12.53% of total assets, at June 30, 2011, compared to $46.5 million, or 9.60% of total assets, at December 31, 2010. During the first six months of 2011, NPLs, including non-performing loans held for sale, increased by $5.9 million to $49.3 million from $43.4 million at the end of 2010. These loans consist of delinquent loans that are 90 days or more past due and certain loans and TDRs that do not qualify for accrual status. Despite the increase in NPAs during the first six months of 2011, our total delinquencies and our total classified loans, which include NPLs, decreased in number and dollar amount during the first six months of 2011. In addition, at June 30, 2011, approximately $20.8 million, or 42.2%, of our NPLs were paying currently.

The NPLs included 31 church loans totaling $25.3 million, 13 commercial real estate loans totaling $9.1 million, 19 one-to-four family residential real estate loans totaling $5.8 million, 10 multi-family residential real estate loans totaling $4.2 million, four commercial loans totaling $4.6 million, and one land loan of $0.3 million. In addition to the NPLs discussed above, there were $20.6 million and $22.5 million of accruing TDRs at June 30, 2011 and December 31, 2010. These TDRs are on accrual status as the loans have complied with the terms of their restructured agreements for a period of six months or longer.

During the six months ended June 30, 2011, REO increased by $3.7 million to $6.7 million from $3.0 million at the end of 2010. At June 30, 2011 the Bank’s REO consisted of three one-to-four family residential properties, two multi-family residential properties and seven commercial real estate properties, four of which are church buildings. As we continue our efforts to reduce non-performing assets, we sold nine REO properties totaling $2.4 million and recorded net loss of $49 thousand during the first six months of 2011. Net lower of cost or market write-downs on REO totaled $782 thousand for the six months ended June 30, 2011 compared to $111 thousand for the same period in 2010.

Performance Ratios

The annualized returns on average equity for the three and six months ended June 30, 2011 were (21.41%) and (11.32%), compared to 10.28% and 11.29% for the three and six months ended June 30, 2010. The annualized returns on average assets for the three and six months ended June 30, 2011 were (1.48%) and (0.78%), compared to 0.62% and 0.69% for the three and six months June 30, 2010. The decrease in our annualized returns on average equity and average assets was primarily due to lower profitability for the three and six months ended June 30, 2011 as a result of higher provision for loan losses and lower net interest income.

The efficiency ratios for the three and six months ended June 30, 2011 were 73.68% and 74.40%, compared to 60.63% and 59.68% for the comparable periods in 2010. The deterioration in our efficiency ratio in 2011 was primarily due to lower net interest income, which was caused by higher levels of nonperforming assets and lower average interest-earning assets, and higher non-interest expenses, related to higher levels of costs related to REO, increase premiums charged by the FDIC and higher appraisal costs.

Liquidity

The Bank’s primary source of funds is cash provided by principal and interest payments on loans and securities. In addition to cash provided by principal and interest payments on loans and securities, other sources of funds include cash provided by operating activities, deposits and borrowings.

Sources of funds for the Company on a stand-alone basis include distributions from the Bank and the issuance of equity and debt securities and other borrowings. The Company’s primary uses of funds include payment of dividends, payment of interest on its debt obligations and repurchases of common stock. Dividends and other capital distributions from the Bank, however, are subject to general regulatory restrictions and to the special restrictions arising under the cease and desist orders issued to the Bank and to the Company by the OTS that are summarized in Note (10) to our Financial Statements included in Part I of this Report and are further described in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Under the cease and desist orders, neither the Bank nor the Company may declare or pay dividends, and the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock, without prior notice to and receipt of written notice of non-objection from the OCC.

Net cash inflows from operating activities totaled $2.7 million and $5.4 million during the first six months of 2011 and 2010, respectively. Net cash inflows from operating activities for the six months ended June 30, 2011 were primarily attributable to payments of interest on loans.

Net cash inflows from investing activities totaled $28.8 million and $11.5 million during the first six months of 2011 and 2010, respectively. Net cash inflows from investing activities for the six months ended June 30, 2011 were attributable primarily to proceeds from sales of loans receivable held for sale, principal repayments on loans and residential mortgage-backed securities and proceeds from sales of REOs.

Net cash inflows (outflows) from financing activities totaled ($35.6) million and $29.5 million during the first six months of 2011 and 2010, respectively. Net cash outflows from financing activities for the six months ended June 30, 2011 were attributable primarily to the net decrease in deposits.

On February 28, 2010, we borrowed an aggregate of $5.0 million under our $5.0 million line of credit with another financial institution and invested all of the proceeds in the equity capital of the Bank. Borrowings under the line of credit are secured by the Company’s assets. The full amount of this borrowing became due and payable on July 31, 2010. This senior line of credit has not been repaid and we are now in default under the line of credit agreement. We do not have sufficient cash available to repay the borrowing at this time and would require approval of the OTS to make any payment on this senior line of credit or to obtain a dividend from the Bank for such purpose. On April 7, 2011, the Lender agreed to forbear from exercising its rights (other than increasing the interest rate by the default rate margin) until January 1, 2012 subject to certain conditions described in Note 10 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010. There is no assurance that the tender will extend this forbearance beyond January 1, 2012.

Capital Resources

On November 14, 2008, the Company issued 9,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series D, having a liquidation preference of $1,000 per share, together with a ten-year warrant to purchase 183,175 shares of Company common stock at $7.37 per share, to the U.S. Treasury for gross proceeds of $9.0 million. The sale of the Senior Preferred Stock was made pursuant to the U.S. Treasury’s TARP Capital Purchase Program.

On December 8, 2009, the Company issued 6,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series E, having a liquidation preference of $1,000 per share, to the U.S. Treasury for gross proceeds of $6.0 million. The sale of the Senior Preferred Stock was made pursuant to the U.S. Treasury’s TARP Capital Purchase Program.

We are pursuing our comprehensive Recapitalization Plan. To date, we have obtained, subject to documentation and certain terms and conditions:

•

The consent of the U.S. Treasury to exchange our Series D and E Fixed Rate Cumulative Perpetual Preferred Stock for common stock at a discount of 50% of the liquidation amount, plus an undiscounted exchange of the accumulated but unpaid dividends on such preferred stock for common stock;

•

An agreement in principle with the holders of both the Series A and Series B Perpetual Preferred Stock to exchange their holdings for common stock at a discount of 50% of the liquidation amount;

•

An agreement in principle with our senior bank lender to exchange a portion of our senior line of credit, which is currently in default, for common stock at 100% of the face amount to be exchanged and to forgive the accrued interest on the entire amount of the line of credit to the date of the exchange.

The conditions to each of the above exchanges include requirements that the holder of our outstanding Series C Noncumulative Perpetual Convertible Preferred Stock concurrently exchange such preferred stock for our common stock on similar terms and that we concurrently complete private placements or other sales of our common stock aggregating $5 million or more in gross proceeds. Based on the agreements in principle that we have reached, we anticipate that these transactions would, if completed, result in the issuance of approximately 7.5 million new shares of our common stock, which would constitute approximately 80% of the pro forma outstanding shares of our common stock.

Regulatory Capital

The capital regulations applicable to the Bank, which are now administered by the OCC, include three separate minimum capital requirements. First, the tangible capital requirement mandates that the Bank’s stockholder’s equity, less intangible assets, be at least 1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital requirement currently mandates that core capital (tangible capital plus certain qualifying intangible assets) be at least 4.00% of adjusted total assets as defined in the capital regulations. Third, the risk-based capital requirement presently mandates that core capital plus supplemental capital (as defined by the OCC) be at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings to all assets and off-balance- sheet items for this purpose.

The Bank was in compliance with all capital requirements in effect at June 30, 2011, and met the generally applicable capital ratio standards necessary to be considered “well-capitalized” under the prompt corrective action regulations adopted pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. However, in March 2010, the Company and the Bank were determined to be “in troubled condition” by the OTS and they consented to the issuance to them of cease and desist orders by the OTS effective September 9, 2010, which orders remain in effect and are now administered by the OCC. The cease and desist orders require the Bank to achieve and maintain higher levels of regulatory capital than normally required. Under the applicable regulations, the Bank is therefore precluded from being considered to be more than “adequately capitalized” until such special capital requirements are terminated and the Company and the Bank are no longer considered to be “in troubled condition.”

Actual and normally required capital amounts and ratios at June 30, 2011 and December 31, 2010, together with the higher capital requirements that the Bank is required to meet, under the cease and desist order applicable to it, are presented below.


	Actual					Required for Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations					Capital Requirements under Cease and Desist Order
	Amount		Ratio			Amount		Ratio			Amount		Ratios			Amount		Ratios
	(Dollars in thousands)
June 30, 2011:
Tangible Capital to adjusted total assets	$	39,381		8.87	%	$	6,662		1.50	%		N/A		N/A			N/A		N/A
Tier 1(Core) Capital to adjusted total assets	$	39,381		8.87	%	$	17,765		4.00	%	$	22,206		5.00	%	$	35,529		8.00	%
Tier 1(Core) Capital to risk weighted assets	$	39,381		11.94	%		N/A		N/A		$	19,785		6.00	%		N/A		N/A
Total Capital to risk weighted assets	$	43,627		13.23	%	$	26,379		8.00	%	$	32,974		10.00	%	$	39,569		12.00	%

December 31, 2010:
Tangible Capital to adjusted total assets	$	42,630		8.82	%	$	7,252		1.50	%		N/A		N/A			N/A		N/A
Tier 1(Core) Capital to adjusted total assets	$	42,630		8.82	%	$	19,338		4.00	%	$	24,172		5.00	%	$	38,676		8.00	%
Tier 1(Core) Capital to risk weighted assets	$	42,630		11.76	%		N/A		N/A		$	21,754		6.00	%		N/A		N/A
Total Capital to risk weighted assets	$	47,299		13.05	%	$	29,006		8.00	%	$	36,257		10.00	%	$	43,508		12.00	%

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2011, 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 June 30, 2011. There were no significant changes in the Company’s internal controls over financial reporting during the Company’s last fiscal quarter that could significantly affect those controls subsequent to June 30, 2011.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Litigation

The Bank is the defendant in Daniel D. Holliday III, Attorney at Law, LLC (“Holliday”) v. Broadway Federal Bank (Case No. BC 398403), a lawsuit filed in the Superior Court of the State of California for Los Angeles County on September 18, 2008 and amended on March 4, 2009, November 20, 2009 and May 24, 2010. This legal action arises from a dispute over the priority of the Bank’s lien against a $2.6 million deposit account balance in the Bank securing a land development loan. The lawsuit seeks damages of $2.6 million, plus interest, costs and attorneys fees according to proof. The plaintiff also seeks injunctive relief to prevent the Bank from asserting a senior security interest in the deposit account and to prevent the Bank from applying the funds in the deposit account to satisfy the amount owing on the loan.

On April 17, 2009, the Bank filed a cross-complaint against Holliday (as an individual), Bachmann Springs Holdings, LLC (the developer), Thomas T. Bachmann (the principal of the developer), Robert Estareja (an agent of Bachmann Springs Holdings), Alan Roberson (the loan broker), Canyon Acquisitions, LLC (“Canyon”) (the broker who located the investors for the real estate project at issue and the entity funding Holliday’s fees and costs), and Brent Borland (Canyon’s principal), alleging causes of action for: declaratory relief, money due on default on promissory note, judicial foreclosure on personal property, money lent, fraud, negligent misrepresentation, conspiracy, implied equitable indemnity, rescission based on fraud, and equitable subordination. The allegations of the cross-complaint include that, among other things, the cross-defendants conspired with each other to fraudulently induce the Bank to make the loan at issue.

On or about October 27, 2009, Holliday filed and served a motion for leave to file a third amended complaint, which motion was granted on November 20, 2009. In addition to the causes of action pleaded against the Bank in the second amended complaint, the proposed third amended complaint includes a cause of action against the Bank for equitable subordination as well as causes of action against Wayne Standback, a vice-president of the Bank (Mr. Standback passed away on October 13, 2009) and Paul Hudson, the Chairman and CEO of the Bank, for negligence and conspiracy. Broadway filed a demurrer to and motion to strike the third amended complaint, the hearing on which took place on May 14, 2010. The demurrer was sustained. The fourth amended complaint, which was served on May 24, 2010, contains the same causes of action as the third amended complaint. Mr. Standback, however, is no longer a defendant. Hudson demurred to the fourth amended complaint and the Bank filed an answer.

On February 1, 2010, Canyon filed a complaint in Los Angeles County Superior Court against the Bank and several of its officers and directors including Paul Hudson, Kellogg Chan, Javier Leon, Odell Maddox, Rick McGill, Daniel Medina, and Virgil Roberts, and certain non-Bank related defendants, for declaratory relief, breach of contract, interference with economic relations, negligence, intentional concealment, conspiracy, breach of fiduciary duty, and equitable subordination (Canyon Acquisitions, LLC v. Broadway Federal Bank, Case No. BC 431035). The complaint arises out of the same transaction that is the subject of the Holliday lawsuit discussed above. The Bank notified the court of this fact, which deemed the cases related. In the complaint, Canyon seeks general damages of not less than $10,000,000 and punitive damages in an unspecified amount. Service of the Canyon Complaint was effective as of March 16, 2010. The Bank has filed a demurrer to and motion to strike the complaint, the hearings on which were set for June 18, 2010. However, on June 18, 2010, Canyon filed a first amended complaint alleging similar causes of action and the scheduled hearing was not held. Then, on June 23, 2010, Canyon filed a motion to (1) consolidate the Canyon and Holliday lawsuits and (2) treat the Canyon lawsuit as a cross-complaint in the Holliday lawsuit. The hearing on Canyon’s motion was set for July 16, 2010.

However, on July 16, 2010, pursuant to the Stipulation between the parties, which was approved by the Court, the two cases (Holliday and Canyon) were consolidated, the Canyon Complaint is treated as a cross-complaint in the Holliday lawsuit, the trial was postponed from October 5, 2010 to May 10, 2011, and the following individuals were dismissed from the litigation with prejudice: all of the Broadway officers and directors who had been named as individual defendants in the Holliday and Canyon matters, Brent Borland, Daniel Holliday, III (as an individual only), and the Estate of Wayne Standback.

On August 31, 2010, the Bank filed a demurrer to Canyon’s cross-complaint, the hearing on which took place on December 8, 2010. At the hearing, the Court overruled the Bank’s demurrer to Canyon’s Second Cause of Action for Breach of Contract and sustained the Bank’s demurrer to Canyon’s Seventh Cause of Action for Breach of Fiduciary Duty without leave to amend. The Bank subsequently filed an answer to Canyon’s cross-complaint and asserted various affirmative defenses.

In or about May 2011, the Bank and Holliday/Canyon entered into a written settlement agreement to resolve the matter on the following terms: (1) Broadway paid the sum of $2,350,000 to Holliday/Canyon; (2) Holliday and Canyon dismissed their complaint and cross-complaint with prejudice as to Broadway; (3) Broadway dismissed its cross-complaint with prejudice as to Holliday and Canyon; and (4) the parties executed mutual, general releases. The Holliday and Canyon complaint and the Broadway cross-complaint were dismissed with prejudice on June 9, 2011.

BancInsure, the Bank’s liability insurer, contributed $150,000 to the settlement in exchange for a release of all claims related to Holliday, Canyon and the transactions described above. BancInsure, moreover, has paid the Bank in excess of $375,000 for the fees and costs incurred by the Bank in defending against the Holliday and Canyon actions.

With respect to the foregoing matters, management has closed the deposit account securing the loan and has written off the loan, which was fully reserved for as of March 31, 2011.

OTS Investigation

In 2010, the OTS notified us that it had initiated a formal investigation of the activities of a former loan officer of the Bank whose employment was terminated in March 2010. In connection with the investigation, the OTS issued subpoenas to the chief lending officer and chief executive officer requesting documents relating to our former loan officer and loans he originated while employed by the Bank. The subpoenas also contemplate taking oral testimony from the officers. While the OTS did not inform us of the scope of its investigation, we believe the investigation includes, but may not be limited to, inquiry into whether documentation submitted in connection with loan applications for loans originated by the loan officer contained inaccurate or deliberately falsified information and whether the loan officer received unauthorized direct or indirect benefits from payments made by the borrowers on such loans to loan brokers or other persons associated with the lending process. All of the loans originated by the former loan officer have been reviewed by us and by the independent loan review firm we engaged to perform a general review of our loan portfolio pursuant to the C&D issued to us by the OTS. See “Item 1. Business – Regulation — Cease and Desist Orders of our Annual Report on Form 10-K for the year ended December 31, 2010.” We have taken the results of these loan reviews into account, along with all other relevant information known to us, in determining the amounts of our loan loss provisions and the level of our loan loss reserves that we believe to be appropriate as of June 30, 2011.

Item 1A.

RISK FACTORS

None

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None

Item 4.

RESERVED

Item 5.

OTHER INFORMATION

None

Item 6.

EXHIBITS


Exhibit 31.1	-	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32	-	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


101.INS		XBRL Instance Document (1)

101.SCH		XBRL Taxonomy Extension Schema Document (1)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (1)

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (1)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (1)

101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document (1)

(1)	101 XBRL Interactive Data File will be filed by amendment to this Form 10-Q within 30 days of the filing date of this Form 10-Q, as permitted by Rule 405(a)(2) of Regulation S-T.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: August 15, 2011	By:	/s/ Paul C. Hudson
	Paul C. Hudson
	Chief Executive Officer

Date: August 15, 2011	By:	/s/ Samuel Sarpong
	Samuel Sarpong
	Chief Financial Officer

TABLE OF CONTENTS

Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Reserved Item 5. Other Information Item 6. Exhibits

Ex31.1 Section 302 Certification of CEO Ex31.2 Section 302 Certification of CFO Ex32 Section 906 Certifications of CEO and CFO

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company