BROADWAY FINANCIAL CORP \DE\ (Form: 10-Q, Received: 08/12/2016 14:24:00)

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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, 2016

[ ] 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		(I.R.S. Employer
incorporation or organization)		Identification No.)

5055 Wilshire Boulevard, Suite 500 Los Angeles, California		90036
(Address of principal executive offices)		(Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark 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):

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ X]

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: As of August 5, 2016, 21,405,188 shares of the Registrant’s voting common stock and 7,671,520 shares of the Registrant’s non-voting common stock were outstanding.

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TABLE OF C ONTENTS

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements (Unaudited)

		Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015	1

		Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2016 and 2015	2

		Consolidated Statements of Cash Flows for the three and six months ended June 30, 2016 and 2015	3

		Notes to Consolidated Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

	Item 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	31

	Item 1A.	Risk Factors	31

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

	Item 3.	Defaults Upon Senior Securities	31

	Item 4.	Mine Safety Disclosures	31

	Item 5.	Other Information	31

	Item 6.	Exhibits	31

	Signatures		32

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

(Unaudited)

	June 30, 2016		December 31, 2015

Assets

Cash and due from banks	$	7,285	$	5,104
Federal funds	28,405		62,735
Cash and cash equivalents	35,690		67,839
Securities available-for-sale, at fair value	15,453		14,140
Loans receivable held for investment, net of allowance of $4,545 and $4,828, respectively	341,264		304,171
Accrued interest receivable	1,140		1,077
Federal Home Loan Bank (FHLB) stock	2,573		2,573
Office properties and equipment, net	2,472		2,570
Real estate owned (REO)	-		360
Bank owned life insurance	2,911		2,882
Investment in affordable housing limited partnership	828		925
Deferred tax assets, net	4,527		4,594
Other assets	1,535		1,781
Total assets	$	408,393	$	402,912

Liabilities and stockholders’ equity

Liabilities:
Deposits	$	279,772	$	272,614
FHLB advances	70,000		72,000
Junior subordinated debentures	5,100		5,100
Advance payments by borrowers for taxes and insurance	663		663
Accrued expenses and other liabilities	5,634		6,372
Total liabilities	361,169		356,749

Stockholders’ Equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued or outstanding	-		-
Common stock, $.01 par value, voting, authorized 50,000,000 shares at June 30, 2016 and December 31, 2015; issued 21,509,179 shares at June 30, 2016 and December 31, 2015; outstanding 21,405,188 shares at June 30, 2016 and December 31, 2015	215		215
Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at June 30, 2016 and December 31, 2015; issued and outstanding 7,671,520 shares at June 30, 2016 and December 31, 2015	77		77
Additional paid-in capital	44,682		44,669
Retained earnings	3,485		2,533
Accumulated other comprehensive income (loss)	94		(2)
Treasury stock-at cost, 103,991 shares	(1,329)		(1,329)
Total stockholders’ equity	47,224		46,163
Total liabilities and stockholders’ equity	$	408,393	$	402,912

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In thousands, except per share)

Interest income:
Interest and fees on loans receivable	$	3,591	$	3,779	$	7,020	$	7,503
Interest on mortgage-backed and other securities	84		90		167		184
Other interest income	98		243		201		330
Total interest income	3,773		4,112		7,388		8,017

Interest expense:
Interest on deposits	511		435		1,028		850
Interest on borrowings	421		536		848		1,067
Total interest expense	932		971		1,876		1,917

Net interest income before loan loss provision recapture	2,841		3,141		5,512		6,100
Loan loss provision recapture	250		750		550		1,500
Net interest income after loan loss provision recapture	3,091		3,891		6,062		7,600

Non-interest income:
Service charges	120		102		246		208
Net gain on sale of loans	-		380		-		514
CDFI grant	-		-		265		355
Other	79		24		231		58
Total non-interest income	199		506		742		1,135

Non-interest expense:
Compensation and benefits	1,709		1,670		3,612		3,438
Occupancy expense	289		287		582		586
Information services	180		245		386		462
Professional services	320		208		447		478
Office services and supplies	72		79		142		160
FDIC assessments	58		95		83		175
Corporate insurance	71		102		142		196
Other	272		552		456		781
Total non-interest expense	2,971		3,238		5,850		6,276

Income before income taxes	319		1,159		954		2,459
Income tax expense	-		6		2		8
Net income	$	319	$	1,153	$	952	$	2,451

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available-for-sale arising during the period	$	43	$	(118)	$	163	$	(61)
Income tax	38		-		67		-
Other comprehensive income (loss), net of tax	5		(118)		96		(61)

Comprehensive income	$	324	$	1,035	$	1,048	$	2,390

Earnings per common share-basic	$	0.01	$	0.04	$	0.03	$	0.08
Earnings per common share-diluted	$	0.01	$	0.04	$	0.03	$	0.08

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2016		2015
	(In thousands)

Cash flows from operating activities :

Net income	$	952	$	2,451
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Loan loss provision recapture	(550)		(1,500)
Provision for losses on REOs	-		126
Depreciation	124		117
Net amortization of deferred loan origination costs	92		167
Net amortization of premiums on mortgage-backed securities	23		30
Amortization of investment in affordable housing limited partnership	97		96
Stock-based compensation expense	13		-
Earnings on bank owned life insurance	(29)		(30)
Originations of for-sale loans receivable	-		(31,479)
Proceeds from for-sale loans receivable	-		14,781
Net gain on sale of loans	-		(514)
Net gain on sale of REOs	(22)		-
Net change in accrued interest receivable	(63)		166
Net change in other assets	246		558
Net change in advance payments by borrowers for taxes and insurance	-		(44)
Net change in accrued expenses and other liabilities	(738)		225
Net cash provided by (used in) operating activities	145		(14,850)

Cash flows from investing activities:

Net change in loans receivable held for investment	(36,635)		(8,204)
Proceeds from sales of loans receivable transferred to held-for-sale	-		44,725
Principal repayments on loans receivable transferred to held-for-sale	-		166
Purchase of available-for-sale securities	(2,505)		-
Prepayments and amortizations on available-for-sale securities	1,332		1,337
Proceeds from sales of REO	382		621
Redemption of FHLB stock	-		1,527
Purchase of FHLB stock	-		(188)
Additions to office properties and equipment	(26)		(48)
Net cash (used in) provided by investing activities	(37,452)		39,936

Cash flows from financing activities:

Net change in deposits	7,158		14,285
Proceeds from FHLB advances	-		21,000
Repayments of FHLB advances	(2,000)		(29,500)
Net cash provided by financing activities	5,158		5,785

Net change in cash and cash equivalents	(32,149)		30,871
Cash and cash equivalents at beginning of the period	67,839		20,790
Cash and cash equivalents at end of the period	$	35,690	$	51,661

Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,872	$	1,941
Cash paid for income taxes	8		2

Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO	$	-	$	843
Transfers of loans receivable held for investment to loans receivable held for sale	$	-	$	90,183

See accompanying notes to unaudited consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

June 30, 2016

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, 2015 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

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

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-1 (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued are permitted as of the beginning of the fiscal year of adoption. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases, as defined) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The areas for simplification include income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public business entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

NOTE (2) – Earnings Per Share of Common Stock

Basic earnings per share of common stock is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share of common stock is computed by dividing income available to common stockholders 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 the Company computed basic and diluted earnings per share of common stock for the periods indicated:

	For the three months ended June 30,				For the six months ended June 30,
	2016		2015		2016		2015
	(Dollars in thousands, except per share)
Basic
Net income	$	319	$	1,153	$	952	$	2,451

Weighted average common shares outstanding	29,076,708		29,076,708		29,076,708		29,076,708

Earnings per common share - basic	$	0.01	$	0.04	$	0.03	$	0.08

Diluted
Net income	$	319	$	1,153	$	952	$	2,451

Weighted average common shares outstanding	29,076,708		29,076,708		29,076,708		29,076,708
Add: dilutive effects of assumed exercises of stock options	-		-		-		-
Weighted average common shares - fully dilutive	29,076,708		29,076,708		29,076,708		29,076,708

Earnings per common share - diluted	$	0.01	$	0.04	$	0.03	$	0.08

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Stock options for 540,625 shares of common stock for the three and six months ended June 30, 2016 and for 90,625 shares of common stock for the three and six months ended June 30, 2015 were not considered in computing diluted earnings per common share, because they were anti-dilutive.

NOTE (3) – Securities

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios as of the periods indicated and the corresponding amounts of unrealized gains and losses which are recognized in accumulated other comprehensive income (loss):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
June 30, 2016:
Residential mortgage-backed	$	12,939	$	490	$	-	$	13,429
U.S. Government and federal agency		1,953		71		-		2,024
Total available-for-sale securities	$	14,892	$	561	$	-	$	15,453
December 31, 2015:
Residential mortgage-backed	$	11,796	$	371	$	-	$	12,167
U.S. Government and federal agency	1,946		27		-		1,973
Total available-for-sale securities	$	13,742	$	398	$	-	$	14,140

At June 30, 2016, the Bank’s investment portfolio had an estimated remaining life of 3.8 years. The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity at June 30, 2016. 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
Maturity	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	-	$	-
One to five years	1,953		2,024
Five to ten years	-		-
Beyond ten years	-		-
Residential mortgage-backed	12,939		13,429
Total	$	14,892	$	15,453

At June 30, 2016 and December 31, 2015, securities pledged to secure public deposits had a carrying amount of $641 thousand and $719 thousand, respectively. At June 30, 2016 and December 31, 2015, there were no holdings of securities by any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

There were no sales of securities during the three and six months ended June 30, 2016 and 2015.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (4) – Loans Receivable Held for Investment

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

	June 30, 2016		December 31, 2015
	(In thousands)
Real estate:
Single family (1)	$	115,388	$	130,891
Multi-family	173,438		118,616
Commercial real estate	10,733		11,442
Church	44,175		46,390
Construction	320		343
Commercial – other	304		270
Consumer	15		4
Gross loans receivable before deferred loan costs and premiums	344,373		307,956
Unamortized net deferred loan costs and premiums	1,436		1,043
Gross loans receivable	345,809		308,999
Allowance for loan losses	(4,545)		(4,828)
Loans receivable, net	$	341,264	$	304,171

______

(1) Includes $89.0 million and $99.5 million of non-impaired purchased loans at June 30, 2016 and December 31, 2015, respectively, which are accounted for under ASC 310-20.

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


	Three Months Ended June 30, 2016
	Real Estate
	Single family				Multi- family		Commercial real estate			Church			Construction		Commercial - other			Consumer		Total
	(In thousands)
Beginning balance	$	528			$	1,866	$	444		$	1,676		$	3	$	17		$	-	$	4,534
Provision for (recapture of) loan losses	(87			)	381		(452		)	(86		)	-		(7		)	1		(250		)
Recoveries	-				-		248			6			-		7			-		261
Loans charged off	-				-		-			-			-		-			-		-
Ending balance	$		441		$	2,247	$	240		$	1,596		$	3	$	17		$	1	$	4,545


	Six Months Ended June 30, 2016
	Real Estate
	Single family				Multi- family		Commercial real estate			Church			Construction		Commercial - other			Consumer		Total
	(In thousands)
Beginning balance	$	597			$	1,658	$	469		$	2,083		$	3	$	18		$	-	$	4,828
Provision for (recapture of) loan losses	(156			)	589		(477		)	(499		)	-		(8		)	1		(550		)
Recoveries	-				-		248			12			-		7			-		267
Loans charged off	-				-		-			-			-		-			-		-
Ending balance	$		441		$	2,247	$	240		$	1,596		$	3	$	17		$	1	$	4,545

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)


	Three Months Ended June 30, 2015
	Real Estate
	Single family				Multi- family			Commercial real estate			Church		Construction		Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,164			$	2,741		$	436		$	3,314	$	4	$	11	$	1		$	7,671
Provision for (recapture of) loan losses	(11			)	(896		)	(32		)	189		-		1		(1		)	(750		)
Recoveries	-				-			-			5		-		-		-			5
Loans charged off	(3			)	-			-			-		-		-		-			(3		)
Ending balance	$		1,150		$	1,845		$	404		$	3,508	$	4	$	12	$	-		$	6,923


	Six Months Ended June 30, 2015
	Real Estate
	Single family				Multi- family			Commercial real estate			Church			Construction			Commercial - other		Consumer			Total
	(In thousands)
Beginning balance	$	1,174			$	2,726		$	496		$	4,047		$	7		$	12	$	3		$	8,465
Provision for (recapture of) loan losses	(21			)	(881		)	(92		)	(500		)	(3		)	-		(3		)	(1,500		)
Recoveries	-				-			-			11			-			-		-			11
Loans charged off	(3			)	-			-			(50		)	-			-		-			(53		)
Ending balance	$		1,150		$	1,845		$	404		$	3,508		$	4		$	12	$	-		$	6,923

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


	June 30, 2016
	Real Estate
	Single family			Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	129		$	-	$	-	$	555	$	-	$	15	$	-	$	699
Collectively evaluated for impairment	312			2,247		240		1,041		3		2		1		3,846
Total ending allowance balance	$		441	$	2,247	$	240	$	1,596	$	3	$	17	$	1	$	4,545
Loans:
Loans individually evaluated for impairment	$		915	$	961	$	1,697	$	10,838	$	-	$	66	$	-	$	14,477
Loans collectively evaluated for impairment	115,075			173,926		9,043		32,715		320		238		15		331,332
Total ending loans balance	$		115,990	$	174,887	$	10,740	$	43,553	$	320	$	304	$	15	$	345,809

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)


	December 31, 2015
	Real Estate
	Single family		Multi- family		Commercial real estate		Church		Construction		Commercial - other		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	134	$	1	$	88	$	756	$	-	$	16	$	-	$	995
Collectively evaluated for impairment	463		1,657		381		1,327		3		2		-		3,833
Total ending allowance balance	$	597	$	1,658	$	469	$	2,083	$	3	$	18	$	-	$	4,828
Loans:
Loans individually evaluated for impairment	$	963	$	1,440	$	1,924	$	11,390	$	-	$	67	$	-	$	15,784
Loans collectively evaluated for impairment	130,632		118,186		9,488		34,359		343		203		4		293,215
Total ending loans balance	$	131,595	$	119,626	$	11,412	$	45,749	$	343	$	270	$	4	$	308,999

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

	June 30, 2016						December 31, 2015
	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:
Single family	$	870	$	262	$	-	$	877	$	302	$	-
Multi-family	1,036		961		-		912		779		-
Commercial real estate	1,697		1,697		-		636		259		-
Church	6,011		3,797		-		5,615		3,542		-
With an allowance recorded:
Single family	653		653		129		662		661		134
Multi-family	-		-		-		661		661		1
Commercial real estate	-		-		-		1,702		1,665		88
Church	7,424		7,041		555		8,245		7,848		756
Commercial -other	66		66		15		67		67		16
Total	$	17,757	$	14,477	$	699	$	19,377	$	15,784	$	995

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

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

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

	Three Months Ended June 30, 2016				Six Months Ended June 30, 2016
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	927	$	7	$	939	$	14
Multi-family	966		11		1,102		52
Commercial real estate	1,746		211		1,825		267
Church	10,915		121		11,061		247
Commercial -other	66		2		67		2
Total	$	14,620	$	352	$	14,994	$	582

	Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
	(In thousands)
Single family	$	1,346	$	8	$	1,364	$	15
Multi-family	1,974		99		2,305		115
Commercial real estate	2,897		55		3,639		161
Church	13,695		144		14,191		286
Commercial -other	82		1		89		3
Total	$	19,994	$	307	$	21,588	$	580

Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. Interest payments collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on the loans until the remaining principal on the non-accrual loans is considered to be fully collectible.

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

	June 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
					(In thousands)
Loans receivable held for investment:
Single family	$	69	$	-	$	-	$	69	$	115,921
Multi-family	310		-		-		310		174,577
Commercial real estate	1,697		-		-		1,697		9,043
Church	-		-		-		-		43,553
Construction	-		-		-		-		320
Commercial - other	-		-		-		-		304
Consumer	-		-		-		-		15
Total	$	2,076	$	-	$	-	$	2,076	$	343,733

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current
					(In thousands)
Loans receivable held for investment:
Single family	$	103	$	-	$	-	$	103	$	131,492
Multi-family	291		-		-		291		119,335
Commercial real estate	-		-		-		-		11,412
Church	595		-		456		1,051		44,698
Construction	-		-		-		-		343
Commercial - other	-		-		-		-		270
Consumer	-		-		-		-		4
Total	$	989	$	-	$	456	$	1,445	$	307,554

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

	June 30, 2016		December 31, 2015
	(In thousands)
Loans receivable held for investment:
Single family	$	261	$	302
Multi-family	310		779
Commercial real estate	-		259
Church	3,147		2,887
Total non-accrual loans	$	3,718	$	4,227

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2016 or December 31, 2015.

Troubled Debt Restructurings

At June 30, 2016, loans classified as troubled debt restructurings (“TDRs”) totaled $14.0 million, of which $3.3 million were included in non-accrual loans and $10.7 million were on accrual status. At December 31, 2015, loans classified as TDRs totaled $15.3 million, of which $3.8 million were included in non-accrual loans and $11.5 million were on accrual status. The Company has allocated $699 thousand and $995 thousand of specific reserves for accruing TDRs as of June 30, 2016 and December 31, 2015, respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time and for which the Bank anticipates full repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments, as modified. A well-documented credit analysis that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms is also required. As of June 30, 2016 and December 31, 2015, the Company had no commitment to lend additional amounts to customers with outstanding loans that are classified as TDRs. No loans were modified during the three and six months ended June 30, 2016 and 2015.

Credit Quality Indicators

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

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

§ Watch. Loans classified as watch exhibit weaknesses that could threaten the current net worth and paying capacity of the obligors. Watch graded loans are generally performing and are not more than 59 days past due. A watch rating is used when a material deficiency exists but correction is anticipated within an acceptable time frame.

§ 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. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor and/or by the value of the underlying collateral. Pass rated loans are not more than 59 days past due and are generally performing in accordance with the loan terms. Based on the most recent analysis performed, the risk categories of loans by loan type as of the periods indicated were as follows:

	June 30, 2016
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	115,596	$	-	$	133	$	261	$	-	$	-
Multi-family	170,936		490		347		3,114		-		-
Commercial real estate	7,077		-		-		3,663		-		-
Church	34,051		721		832		7,949		-		-
Construction	320		-		-		-		-		-
Commercial - other	238		-		-		66		-		-
Consumer	15		-		-		-		-		-
Total	$	328,233	$	1,211	$	1,312	$	15,053	$	-	$	-

	December 31, 2015
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss
	(In thousands)
Single family	$	128,736	$	-	$	2,557	$	302	$	-	$	-
Multi-family	117,602		-		352		1,672		-		-
Commercial real estate	7,509		-		-		3,903		-		-
Church	35,013		776		1,431		8,529		-		-
Construction	343		-		-		-		-		-
Commercial - other	203		-		-		67		-		-
Consumer	4		-		-		-		-		-
Total	$	289,410	$	776	$	4,340	$	14,473	$	-	$	-

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (5) – Junior Subordinated Debentures

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-Month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 3.20% at June 30, 2016. On October 16, 2014, the Company made payments of $900 thousand of principal on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining $5.1 million principal amount thereof. The modified terms of the Debentures require quarterly payments of interest only through March 2019 at the original rate of 3-Month LIBOR plus 2.54%. Starting in June 2019, the Company will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024. The Debentures may be called for redemption at any time by the Company.

NOTE (6) – 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 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 fair value:

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

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

Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated every nine months. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

Assets Measured on a Recurring Basis

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

	Fair Value Measurements at June 30, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	13,429	$	-	$	13,429
Securities available-for-sale - U.S. Government and federal agency	2,024		-		-		2,024

	Fair Value Measurements at December 31, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Assets:
Securities available-for-sale - residential mortgage-backed	$	-	$	12,167	$	-	$	12,167
Securities available-for-sale - U.S. Government and federal agency	1,973		-		-		1,973

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2016 and 2015.

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

Assets Measured on a Non-Recurring Basis

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

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

	June 30, 2016		December 31, 2015
	(In thousands)
Impaired loans carried at fair value of collateral	$	2,129	$	2,557
Real estate owned	-		360

There were no losses recognized on assets measured at fair value on a non-recurring basis for the three and six months ended June 30, 2016, compared to $3 thousand for the three and six months ended June 30, 2015.

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of June 30, 2016:

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

Impaired loans	Third Party Appraisals	Adjustment for differences between the comparable sales	-18% to 13%	0%

Fair Values of Financial Instruments

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

			Fair Value Measurements at June 30, 2016
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	35,690	$	35,690	$	-	$	-	$	35,690
Securities available-for-sale	15,453		2,024		13,429		-		15,453
Loans receivable held for investment	341,264		-		-		351,119		351,119
Accrued interest receivable	1,140		63		34		1,043		1,140
Federal Home Loan Bank stock	2,573		2,573		-		-		2,573
Financial Liabilities:
Deposits	$	279,772	$	-	$	276,650	$	-	$	276,650
Federal Home Loan Bank advances	70,000		-		71,629		-		71,629
Junior subordinated debentures	5,100		-		-		4,370		4,370
Accrued interest payable	56		-		50		6		56

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

			Fair Value Measurements at December 31, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	67,839	$	67,839	$	-	$	-	$	67,839
Securities available-for-sale	14,140		1,973		12,167		-		14,140
Loans receivable held for investment	304,171		-		-		306,643		306,643
Accrued interest receivable	1,077		63		31		983		1,077
Federal Home Loan Bank stock	2,573		2,573		-		-		2,573
Financial Liabilities:
Deposits	$	272,614	$	-	$	265,495	$	-	$	265,495
Federal Home Loan Bank advances	72,000		-		73,441		-		73,441
Junior subordinated debentures	5,100		-		-		3,117		3,117
Accrued interest payable	52		-		46		6		52

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

(a) Cash and Cash Equivalents

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

(b) Loans Receivable Held For investment

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

(c) FHLB Stock

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

(d) Accrued Interest Receivable/Payable

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

(e) Deposits

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

(f) Federal Home Loan Bank Advances

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

(g) Junior Subordinated Debentures

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

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

NOTE (7) – Stock-based Compensation

In 2008, the Company adopted the 2008 Long-Term Incentive Plan (“2008 LTIP”), which was approved by its stockholders. 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 2,000,000 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; the option awards have vesting periods ranging from immediate vesting to five years and have 10-year contractual terms.

In February 2016, the Company granted 450,000 stock options, with an exercise price of $1.62 per share, to senior executive officers under the 2008 LTIP. These options vest over five years and expire in ten years. The Company estimated the compensation costs and fair value per share of these stock options to be $194 thousand and $0.43 per share, respectively, using the Black-Scholes option pricing model and the following assumptions: (i) expected volatility of 27.36%; (ii) risk free interest rate of 1.21%; (iii) expected option term of five years; and (iv) 0% dividend yield.

The Company recorded $10 thousand and $13 thousand of stock-based compensation expense related to stock options during the three and six months ended June 30, 2016. No stock-based compensation expense was recorded for the three and six months ended June 30, 2015.

In March 2016, the Company awarded 120,483 shares of restricted stock to its Chief Executive Officer under the 2008 LTIP. Subject to certain performance restrictions, the shares of restricted stock shall vest over a three-year period. For the three months ended June 30, 2016, the Company recorded $26 thousand of compensation expense related to this award.

NOTE (8) – Regulatory Matters

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

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

· 4.5% CET1 to risk-weighted assets;

· 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

· 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

· 4.0% Tier 1 capital to average consolidated assets (known as the “leverage ratio”).

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

The Basel III Capital rules also contain revisions to the prompt corrective action framework, which is designed to

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BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements (continued)

place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as “well capitalized”: (i) a CET1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). At June 30, 2016 and December 31, 2015, the Bank’s level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios as of the periods indicated are presented below.

	Actual			Minimum Capital Requirements			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2016:
Tier 1 (Leverage)	$	47,284	12.23%	$	15,460	4.0%	$	19,325	5.0%
Common Equity Tier 1	$	47,284	17.97%	$	11,840	4.5%	$	17,103	6.5%
Tier 1	$	47,284	17.97%	$	15,787	6.0%	$	21,049	8.0%
Total Capital	$	50,589	19.23%	$	21,049	8.0%	$	26,312	10.0%
December 31, 2015:
Tier 1 (Leverage)	$	46,028	11.56%	$	15,923	4.0%	$	19,903	5.0%
Common Equity Tier 1	$	46,028	19.45%	$	10,650	4.5%	$	15,383	6.5%
Tier 1	$	46,028	19.45%	$	14,200	6.0%	$	18,933	8.0%
Total Capital	$	49,010	20.71%	$	18,933	8.0%	$	23,667	10.0%

NOTE (9) – Income Taxes

The Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies. Based on this analysis, the Company determined that a valuation allowance of $2.2 million was required as of June 30, 2016, resulting in $4.5 million of net deferred tax assets. The Company recorded a valuation allowance of $2.5 million and reported $4.6 million in net deferred tax assets as of December 31, 2015.

NOTE (10) – Concentration of Credit Risk

The Bank has a significant concentration of deposits with a long-time customer that accounted for approximately 12% of its deposits as of June 30, 2016. The Bank expects to maintain this relationship with the customer.

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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, 2015. Certain statements herein are forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the U.S. Securities Act of 1933, as amended, that reflect our current views with respect to future events and financial performance. Forward-looking statements typically include the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” and other similar expressions. These forward-looking statements are subject to risks and uncertainties, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

Critical Accounting Policies

Our significant accounting policies, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations, are described in the “Notes to Consolidated Financial Statements” and in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2015.

Overview

We recorded net income of $319 thousand and $952 thousand for the three and six months ended June 30, 2016, compared to $1.2 million and $2.5 million for the three and six months ended June 30, 2015, respectively. The decreases in net income during the three and six months ended June 30, 2016 were primarily due to lower recaptures of loan loss provisions and, to a lesser extent, lower interest income compared to the same periods in 2015. Also, non-interest income was lower because we did not sell any loans during the first half of 2016 as we were building our loan portfolio, up to our allowed loan concentration limits, to generate future net interest income. The effects of these decreases were partially offset by lower interest expense and lower non-interest expense during the three and six months ended June 30, 2016, compared to the same periods in 2015.

Total assets increased by $5.5 million during the first half of 2016, primarily reflecting an increase of $37.1 million in net loans receivable, an increase of $1.3 million in securities and a decrease of $32.1 million in cash and cash equivalents, as we invested excess Federal Funds in multi-family residential loans and securities to improve the yield on our interest-earning assets.

Consistent with the increase in assets during the first half of 2016, we increased our total deposits by $7.2 million and repaid $2.0 million in FHLB advances.

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Results of Operations

Net Income

We recorded net income of $319 thousand, or $0.01 per diluted common share, and $952 thousand, or $0.03 per diluted common share, for the three and six months ended June 30, 2016, respectively. For the same periods in 2015, we recorded net income of $1.2 million, or $0.04 per diluted common share, and $2.5 million, or $0.08 per diluted common share, respectively. The decreases in net income during the three and six months ended June 30, 2016 were primarily due to lower recapture of loan loss provision, lower net interest income and lower non-interest income. These decreases were partially offset by lower non-interest expense.

Net Interest Income

Net interest income for the second quarter of 2016 totaled $2.8 million, representing a decrease of $300 thousand, or 10%, from the $3.1 million of net interest income reported for the second quarter of 2015. The decrease in net interest income in the second quarter of 2016 was due to lower interest income on loans, lower dividends on FHLB stock and higher interest expense on deposits, which were partially offset by lower interest expense on borrowings.

Interest income and fees on loans for the second quarter of 2016 totaled $3.6 million, representing a decrease of $188 thousand, or 5%, from the $3.8 million of interest income and fees on loans for the second quarter of 2015. The decrease in loan interest income was driven by a decrease of 60 basis points in the average yield on loans to 4.32% for the second quarter of 2016 from 4.92% for the second quarter of 2015, which reduced loan interest income by $478 thousand. The decline in the average yield primarily resulted from the changes in our loan portfolio mix that were made in 2015 to conform to loan concentration limits set by the Bank’s primary regulator. The average yields earned on loans that were sold or paid off during 2015 were higher than the average yield on the single family loan pool that the Bank purchased near the end of 2015. Also, the average yield on the multi-family loans originated for the portfolio during the first half of 2016 were lower because of the low interest rate environment and competitive market conditions. Partially offsetting this decrease was the impact of an increase of $24.8 million, or 8%, in the average balance of loans receivable, which increased to $332.2 million for the second quarter of 2016 from $307.4 million for the second quarter of 2015 and resulted in additional interest income of $290 thousand. The increase in the average balance of loans receivable primarily resulted from loan originations of $59.9 million during the first half of 2016.

Other interest income for the second quarter of 2016 totaled $98 thousand, representing a decrease of $145 thousand, or 60%, from the $243 thousand of other interest income for the second quarter of 2015. The decrease in other interest income was primarily due to a special cash dividend of $160 thousand received during the second quarter of 2015 from the Bank’s investment in FHLB stock.

Interest expense on deposits for the second quarter of 2016 totaled $511 thousand, representing an increase of $76 thousand, or 17%, from the $435 thousand of interest expense on deposits for the second quarter of 2015. The increase in interest expense on deposits was primarily due to an increase of $36.1 million in the average balance of deposits to $260.2 million in the second quarter of 2016 from $224.1 million in the second quarter of 2015. The increase in the average balance of deposits primarily reflected growth in money market and certificates of deposit (“CD”) accounts.

Interest expense on borrowings for the second quarter of 2016 totaled $421 thousand, representing a decrease of $115 thousand, or 21%, from the $536 thousand of interest expense on borrowings for the second quarter of 2015. The decrease in interest expense on borrowings was primarily due to a decrease of $14.9 million in the average balance of FHLB advances, which decreased interest expense by $82 thousand. Additionally, the average cost of FHLB advances decreased by 18 basis points and reduced interest expense by $37 thousand during the second quarter of 2016.

Net interest income for the six months ended June 30, 2016 totaled $5.5 million, representing a decrease of $588 thousand, or 10%, from $6.1 million of net interest income for the same period in 2015, as the impact of lower net interest margin, caused primarily by the change in the mix of the Bank’s loan portfolio in 2015, more than offset the impact of a higher average balance of interest-earning assets. The net interest margin decreased by 62 basis points to 2.89% for the six months ended June 30, 2016 from 3.51% for the same period in 2015. Average interest-earning assets increased by $33.7 million to $381.7 million for the six months ended June 30, 2016 from $348.0 million for the same period in 2015.

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Interest income and fees on loans for the six months ended June 30, 2016 totaled $7.0 million, representing a decrease of $483 thousand, or 6%, from the $7.5 million of interest income and fees on loans for the same period in 2015. The decrease in loan interest income was driven by a decrease of 59 basis points in the average yield on loans to 4.33% for the six months ended June 30, 2016 from 4.92% for the same period in 2015, which reduced loan interest income by $948 thousand. The decline in the average yield primarily resulted from the changes in our loan portfolio mix that were made in 2015 to conform to loan concentration limits set by the Bank’s primary regulator. Also, the average yield on the multi-family loans originated for the portfolio during the first half of 2016 were lower because of the low interest rate environment and competitive market conditions. Partially offsetting this decrease was the impact of an increase of $19.7 million in the average balance of loans receivable, which increased to $324.6 million for the six months ended June 30, 2016 from $304.9 million for the same period in 2015 and resulted in additional interest income of $465 thousand. The increase in the average balance of loans receivable primarily resulted from loan originations of $59.9 million during the first half of 2016.

Other interest income for the six months ended June 30, 2016 totaled $201 thousand, representing a decrease of $129 thousand, or 39%, from $330 thousand of other interest income for the same period in 2015. The decrease in other interest income was primarily due to a decrease of $193 thousand in dividends on FHLB stock, primarily resulting from a special cash dividend of $160 thousand received during the second quarter of 2015 from the Bank’s investment in FHLB stock. This decrease was partially offset by an increase of $58 thousand in interest on federal funds sold, primarily reflecting a higher average balance and a higher interest rate during the first half of 2016.

Interest expense on deposits for the six months ended June 30, 2016 totaled $1.0 million, representing an increase of $178 thousand, or 21%, from $850 thousand of interest expense on deposits for the same period in 2015. The increase in interest expense on deposits was primarily due to an increase of $38.8 million in the average balance of deposits to $260.6 million in the first half of 2016 from $221.8 million in the first half of 2015. The increase in the average balance of deposits primarily reflected growth in money market and CD accounts.

Interest expense on borrowings for the six months ended June 30, 2016 totaled $848 thousand, representing a decrease of $219 thousand, or 21%, from the $1.1 million of interest expense on borrowings for the same period in 2015. The decrease in interest expense on borrowings was primarily due to a decrease of $13.9 million in the average balance of FHLB advances, which decreased interest expense by $154 thousand. Additionally, the average cost of FHLB advances decreased by 18 basis points and reduced interest expense by $74 thousand during the first half of 2016.

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The following tables set forth average balances, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans on non-accrual status; however, the balance of these loans is included in the total average balance of loans receivable, which has the effect of reducing average loan yields.

	For the three months ended
	June 30, 2016					June 30, 2015
(Dollars in Thousands)	Average Balance		Interest		Average Yield/ Cost	Average Balance		Interest		Average Yield/ Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	6,480	$	6	0.37%	$	2,379	$	2	0.34%
Federal funds sold	24,325		29		0.48%	21,374		13		0.24%
Securities	15,057		84		2.23%	16,184		90		2.22%
Loans receivable (1)	332,184		3,591		4.32%	307,358		3,779		4.92%
FHLB stock	2,573		63		9.79%	3,461		228		26.35%
Total interest-earning assets	380,619		$	3,773	3.97%	350,756		$	4,112	4.69%
Non-interest-earning assets	9,032					7,220
Total assets	$	389,651				$	357,976

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	25,860	$	36	0.56%	$	17,349	$	19	0.44%
Passbook deposits	36,444		29		0.32%	36,701		29		0.32%
NOW and other demand deposits	29,804		5		0.07%	28,782		5		0.07%
Certificate accounts	168,140		441		1.05%	141,283		382		1.08%
Total deposits	260,248		511		0.79%	224,115		435		0.78%
FHLB advances	71,044		381		2.15%	85,907		500		2.33%
Junior subordinated debentures	5,100		40		3.14%	5,100		36		2.82%
Total interest-bearing liabilities	336,392		$	932	1.11%	315,122		$	971	1.23%
Non-interest-bearing liabilities	6,200					4,020
Stockholders’ Equity	47,059					38,834
Total liabilities and stockholders’ equity	$	389,651				$	357,976

Net interest rate spread (2)			$	2,841	2.86%			$	3,141	3.46%
Net interest rate margin (3)					2.99%					3.58%
Ratio of interest-earning assets to interest-bearing liabilities					113.15%					111.31%

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(1) Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs, loan premiums and loans receivable held for sale. The Company did not have any loans receivable held for sale during the three months ended June 30, 2016.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

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	For the six months ended
	June 30, 2016					June 30, 2015
(Dollars in Thousands)	Average Balance		Interest		Average Yield/ Cost	Average Balance		Interest		Average Yield/ Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	6,168	$	10	0.32%	$	2,351	$	4	0.34%
Federal funds sold	33,679		82		0.49%	20,638		24		0.23%
Securities	14,676		167		2.28%	16,237		184		2.27%
Loans receivable (1)	324,621		7,020		4.33%	304,903		7,503		4.92%
FHLB stock	2,573		109		8.47%	3,898		302		15.50%
Total interest-earning assets	381,717		$	7,388	3.87%	348,027		$	8,017	4.61%
Non-interest-earning assets	9,233					7,010
Total assets	$	390,950				$	355,037

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	25,169	$	68	0.54%	$	16,965	$	35	0.41%
Passbook deposits	36,277		58		0.32%	36,751		58		0.32%
NOW and other demand deposits	29,801		10		0.07%	29,275		11		0.08%
Certificate accounts	169,356		892		1.05%	138,797		746		1.07%
Total deposits	260,603		1,028		0.79%	221,788		850		0.77%
FHLB advances	71,522		768		2.15%	85,511		996		2.33%
Junior subordinated debentures	5,100		80		3.14%	5,100		71		2.78%
Total interest-bearing liabilities	337,225		$	1,876	1.11%	312,399		$	1,917	1.23%
Non-interest-bearing liabilities	6,962					4,307
Stockholders’ Equity	46,763					38,331
Total liabilities and stockholders’ equity	$	390,950				$	355,037

Net interest rate spread (2)			$	5,512	2.76%			$	6,100	3.38%
Net interest rate margin (3)					2.89%					3.51%
Ratio of interest-earning assets to interest-bearing liabilities					113.19%					111.40%

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(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

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Loan loss provision recapture

We recorded a loan loss provision recapture of $250 thousand for the second quarter of 2016 primarily due to a recovery of $248 thousand from the payoff of a non-accrual loan which had been previously partially charged off. In addition, the loan loss provision recapture reflected the continued improvement in the Bank’s loan loss experience, as well as improvement in the overall credit quality of its loan portfolio. In comparison, we recorded a loan loss provision recapture of $750 thousand for the second quarter of 2015.

For the six months ended June 30, 2016, we recorded a loan loss provision recapture of $550 thousand, compared to $1.5 million for the same period in 2015. The loan loss provision recaptures during the first half of 2016 and 2015 primarily reflected continued improvements in asset credit quality and declines in net charge-offs and overall historical loss factors. The loan loss provision recapture during the first half of 2015 also resulted from a reduction in the loans held for investment portfolio. See “Allowance for Loan Losses” below for additional information.

Non-interest Income

Non-interest income for the second quarter of 2016 totaled $199 thousand, representing a decrease of $307 thousand, or 61%, from $506 thousand of non-interest income for the second quarter of 2015. The decrease in non-interest income was primarily because we did not record any gain on sale of loans during the second quarter of 2016 as we did not sell any loans, whereas we recorded a $380 thousand gain on sale of $46.8 million of loans during the second quarter of 2015. This decrease in non-interest income was partially offset by an increase of $18 thousand in service charges on deposit accounts and an increase of $55 thousand in other income, primarily in foreclosure forbearance fees.

For the six months ended June 30, 2016, non-interest income totaled $742 thousand, compared to $1.1 million for the same period in 2015. The decrease of $393 thousand in non-interest income was primarily because there were no loan sales during the first half of 2016, whereas during the same period in 2015, we recorded a gain on sale of loans of $514 thousand from the sale of $59.0 million in loans during the first half of 2015. Additionally, the amount of a grant received from the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund in 2016 was lower by $90 thousand than the amount received in 2015. These decreases were partially offset by an increase of $38 thousand in service charges on deposit accounts and an increase of $173 thousand in other income. The increase in other income was primarily due to an early withdrawal fee of $80 thousand, a loan extension fee of $50 thousand and a foreclosure forbearance fee of $38 thousand.

Non-interest Expense

Non-interest expense for the second quarter of 2016 totaled $3.0 million, representing a decrease of $267 thousand, or 8%, from $3.2 million of non-interest expense for the second quarter of 2015. The decrease in non-interest expense was primarily due to a decrease of $280 thousand in other expenses, which resulted from a decrease of $177 thousand in REO expenses, a decrease of $40 thousand in appraisal expenses, a decrease of $44 thousand in provision for unfunded commitments and a decrease of $17 thousand in OCC assessment fees. There was also a decrease of $65 thousand in information services expense, a decrease of $37 thousand in FDIC assessments, and a decrease of $31 thousand in corporate insurance expense. We believe that many of these cost reductions reflect the continued improvement in the quality of our loan portfolio and asset base, as discussed below. These decreases in non-interest expense during the second quarter of 2016 were partially offset by an increase of $39 thousand in compensation and benefits expense and an increase of $112 thousand in professional services expense compared to the second quarter of 2015.

For the six months ended June 30, 2016, non-interest expense totaled $5.9 million, compared to $6.3 million for the same period in 2015. The decrease of $426 thousand in non-interest expense was primarily due to a decrease of $325 thousand in other expenses, which resulted from a decrease of $224 thousand in REO expenses, a decrease of $61 thousand in provision for unfunded commitments, a decrease of $25 thousand in appraisal expenses and a decrease of $22 thousand in OCC assessment fees. There was also a decrease of $76 thousand in information services expense, a decrease of $92 thousand in FDIC assessments, a decrease of $54 thousand in corporate insurance expense, and a decrease of $31 thousand in professional services expense. These decreases in non-interest expense during the first six months of 2016 were partially offset by an increase of $174 thousand in compensation and benefits expense, primarily reflecting higher bonus payments compared to the prior year.

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Income Taxes

We recorded no income tax expense for the second quarter of 2016, compared to $6 thousand for the second quarter of 2015. For the six months ended June 30, 2016, income tax expense was $2 thousand, compared to $8 thousand for the six months ended June 30, 2015. The tax expense for both periods primarily reflected the statutory minimum taxes payable to the State of California, and the use of net operating loss carryforwards to offset current taxable income in the periods presented. As of June 30, 2016, the Company had $4.5 million of deferred tax assets, net of a valuation allowance of $2.2 million.

Financial Condition

Total Assets

Total assets were $408.4 million at June 30, 2016, which represented an increase of $5.5 million, or 1%, from total assets of $402.9 million at December 31, 2015. The increase in assets during the first half of 2016 was primarily due to an increase of $37.1 million in net loans receivable and an increase of $1.3 million in securities, which were partially offset by a decrease of $32.1 million in cash and cash equivalents, as we invested excess Federal Funds in multi-family residential loans and securities to improve the yield on our interest-earning assets.

Loans Receivable Held for Investment

Our gross loan portfolio increased by $36.8 million to $345.8 million at June 30, 2016, from $309.0 million at December 31, 2015. The increase in our loan portfolio during the first half of 2016 primarily consisted of an increase of $55.3 million in our multi-family residential real estate loan portfolio, a decrease of $15.6 million in our single family residential real estate loan portfolio, a decrease of $2.2 million in our church loan portfolio and a decrease of $672 thousand in our commercial real estate loan portfolio.

We originated $59.9 million of loans during the first half of 2016, all of which were originated as loans held for investment. Due to a regulatory multi-family loan concentration limit, the Bank can originate multi-family loans for its held for investment portfolio only up to a certain percentage of capital. We expect to reach that limitation during the early part of the third quarter, at which point we will resume originating loans for sale. During the first half of 2015, we originated $63.8 million of loans, of which $32.5 million were originated for investment and $31.3 million were originated for sale. There were no loan sales during the first half of 2016, compared to $59.0 million during the first half of 2015. Loan repayments totaled $23.5 million for the first half of 2016, compared to $24.6 million for the first quarter of 2015.

There were no loan charge-offs or loans transferred to REO during the first half of 2016. In contrast, loan charge-offs totaled $53 thousand and loans transferred to REO totaled $843 thousand during the first half of 2015.

Allowance for Loan Losses

The allowance for loan losses (“ALLL”) is adjusted through provisions for loan losses charged or credited to earnings to increase or decrease the ALLL to a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio. At least quarterly, we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

Our ALLL decreased to $4.5 million, or 1.31% of our gross loans receivable, at June 30, 2016, from $4.8 million, or 1.56% of our gross loans receivable, at December 31, 2015, primarily reflecting loan loss provision recaptures of $550 thousand which were partially offset by recoveries of $267 thousand. Our loan portfolio as of June 30, 2016 included $89.4 million of loans that were purchased in November 2015, for which there was no assigned allowance for loan losses. We purchased these loans at fair value and we have not identified any deterioration of credit quality in these loans since purchase. The reduction in ALLL at June 30, 2016 compared to December 31, 2015, and the loan loss provision recaptures during the first half of 2016, reflect the results of our quarterly review of the adequacy of the ALLL. We continue to maintain our ALLL at a level that we believe is appropriate given the significant reduction in delinquencies and non-performing loans, the continued improvement in our asset credit quality metrics and the high quality of our loan originations.

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As of June 30, 2016, we had total delinquencies of $2.1 million, compared to total delinquencies of $1.4 million at December 31, 2015. The increase of $631 thousand in loan delinquencies during the first half of 2016 was primarily due to $2.0 million in new delinquent loans, of which $1.7 million was paid off in July 2016. The increase in loan delinquencies was partially offset by a loan payoff of $457 thousand and repayments of $7 thousand. In addition, three delinquent loans totaling $913 thousand were brought current.

Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual status. At June 30, 2016, NPLs totaled $3.7 million, compared to $4.2 million at December 31, 2015. The decrease of $509 thousand in NPLs was primarily due to loan payoffs of $716 thousand and repayments of $256 thousand, which were partially offset by the placement of a church loan for $463 thousand into non-accrual status.

In connection with our review of the adequacy of our ALLL, we track the amount and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments, such as lack of current financial information and an insufficient period of satisfactory performance. As of June 30, 2016, $3.4 million, or 92%, of our total NPLs of $3.7 million were current in their payments. Also, in determining the ALLL, we consider the ratio of the ALLL to NPLs, which amounted to 122.24% at June 30, 2016, compared to 114.22% at December 31, 2015.

When reviewing the adequacy of the ALLL, we also consider the impact of charge-offs, including the changes and trends in loan charge-offs. There were no loan charge-offs during the first half of 2016 compared to $53 thousand during the first half of 2015. In determining charge-offs, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months. If the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs. Therefore, certain losses inherent in our total NPLs are recognized periodically through charge-offs. The impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans. Due to prior charge-offs and increases in collateral values, the average recorded investment in NPLs was only 47% of estimated fair value less estimated selling costs as of June 30, 2016.

Recoveries during the first half of 2016 and 2015 totaled $267 thousand and $11 thousand, respectively. During the second quarter of 2016, a non-accrual loan which had been previously partially charged off was paid off, which resulted in a recovery of $248 thousand.

Impaired loans at June 30, 2016 were $14.5 million, compared to $15.8 million at December 31, 2015. Specific reserves for impaired loans were $699 thousand, or 4.83% of the aggregate impaired loan amount at June 30, 2016, compared to $995 thousand, or 6.30%, at December 31, 2015. Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) decreased to 1.16% at June 30, 2016, from 1.31% at December 31, 2015. The decrease in our coverage ratio reflected a decline in our historical charge-offs and the continued improvements in our asset credit quality.

We believe that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of June 30, 2016, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC periodically review the ALLL as an integral part of their examination process. These agencies may require an increase in the ALLL based on their judgments of the information available to them at the time of their examinations.

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Deposits

Deposits increased by $7.2 million to $279.8 million at June 30, 2016 from $272.6 million at December 31, 2015. During the first half of 2016, CDs increased by $5.9 million and represented 67% of total deposits at June 30, 2016 and December 31, 2015. Core deposits (NOW, demand, money market and passbook accounts) increased by $1.3 million during the first half of 2016 and represented 33% of total deposits at June 30, 2016 and December 31, 2015.

During the second quarter of 2016, the Bank rejoined a deposit program called Certificate of Deposit Account Registry Service (“CDARS”). CDARS is a deposit placement service that allows us to place our customers’ funds in FDIC-insured certificates of deposits at other banks and, at the same time, receive an equal sum of funds from the customers of other banks in the CDARS Network. At June 30, 2016, we had approximately $24.9 million in CDARS, of which $5.0 million were reciprocal. This increase was partially offset by a decrease of $19.1 million in CDs, of which $10.0 million was from one, on-going, deposit relationship and $2.0 million was from QwickRate CD maturities.

One customer relationship accounted for approximately 12% of our deposits at June 30, 2016. We expect to maintain this relationship with the customer for the foreseeable future.

Borrowings

At June 30, 2016, total borrowings consisted of advances to the Bank from the FHLB of $70.0 million and Debentures issued by the Company of $5.1 million. At December 31, 2015, borrowings consisted of advances from the FHLB of $72.0 million and Debentures of $5.1 million. During the first half of 2016, we repaid $2.0 million of FHLB advances.

Stockholders’ Equity

Stockholders’ equity was $47.2 million, or 11.56% of the Company’s total assets, at June 30, 2016, compared to $46.2 million, or 11.46% of the Company’s total assets, at December 31, 2015. The Company’s book value was $1.62 per share as of June 30, 2016, compared to $1.59 per share as of December 31, 2015.

Liquidity

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis. The Bank’s sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans, REO, and investment securities, and payments of principal and interest on loans and investment securities. The Bank is currently approved by the FHLB to borrow up to 30% of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. This approved limit and collateral requirement would have permitted the Bank to borrow an additional $46.2 million at June 30, 2016.

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The Bank’s primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating expenses. Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank sells federal funds to the Federal Reserve Bank or other financial institutions. The Bank’s liquid assets at June 30, 2016 consisted of $35.7 million in cash and cash equivalents and $14.8 million in securities available-for-sale that were not pledged, compared to $67.8 million in cash and cash equivalents and $13.4 million in securities available-for-sale that were not pledged at December 31, 2015. Total cash and cash equivalents decreased $32.1 million, as the Bank invested excess Federal Funds in multi-family residential loans and securities to improve the yield on interest-earning assets. Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placements completed in August 2013 and October 2014. The Company had not been able to obtain funds from the Bank since 2010 because of prohibitions included in regulatory orders that were in effect until November 2015. The Bank is currently under no prohibition to pay dividends, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

The Company recorded consolidated net cash inflows from operating activities of $145 thousand during the six months ended June 30, 2016, compared to consolidated net cash outflows from operating activities of $14.9 million during the six months ended June 30, 2015. Net cash inflows from operating activities during the first half of 2016 were primarily attributable to interest payments received on loans and securities and no loans originated for sale.

The Company recorded consolidated net cash outflows from investing activities of $37.5 million during the six months ended June 30, 2016, compared to consolidated net cash inflows from investing activities of $39.9 million during the six months ended June 30, 2015. Net cash outflows from investing activities during the first half of 2016 were primarily attributable to loan originations and purchases of securities.

The Company recorded consolidated net cash inflows from financing activities of $5.2 million and $5.8 million during the six months ended June 30, 2016 and June 30, 2015, respectively. Net cash inflows from financing activities during the first half of 2016 were primarily attributable to a net increase in deposits.

Capital Resources

Our principal subsidiary, Broadway Federal Bank, must comply with capital standards established by the OCC in the conduct of its business. Failure to comply with such capital requirements may result in significant limitations on its business or other sanctions. The Dodd-Frank Act requires the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository institution holding companies and certain non-bank financial companies that are no less than those to which insured depository institutions have been previously subject. The current regulatory capital requirements are described in Note 8 of the Notes to Consolidated Financial Statements and in “Regulatory Capital” below.

Regulatory Capital

The Federal Reserve and the Federal Deposit Insurance Corporation approved final capital rules in July 2013 that substantially amended the existing capital rules for banks. These new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”), as well as requirements contemplated by the Dodd-Frank Act.

Beginning in the first quarter of 2015, we became subject to the Basel III capital requirements, including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule. The final rules also revise the definition and calculation of Tier 1 capital, Total capital, and include a new Common Equity Tier 1 capital.

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Common Equity Tier 1 capital primarily includes common shareholders’ equity less certain deductions for goodwill and other intangibles, net of related taxes, and deferred tax assets that arise from tax loss and credit carryforwards. Tier 1 capital is primarily comprised of Common Equity Tier 1 capital, perpetual preferred stock and certain qualifying capital instruments that are subject to phase-out from Tier 1 capital. Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALLL.

The new capital rules include a new Common Equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 Leverage ratio of 4.0%. A new capital conservation buffer was also established above the regulatory minimum capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until it reaches its final level of 2.5% on January 1, 2019. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities, including payment of dividends, stock repurchases, and discretionary bonuses to executive officers.

At June 30, 2016 and December 31, 2015, the Bank’s level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios as of the periods indicated are presented below.

	Actual		Minimum Capital Requirements		Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount	Ratio	Amount	Ratio	Amount	Ratio
	(Dollars in thousands)
June 30, 2016:
Tier 1 (Leverage)	$ 47,284	12.23%	$ 15,460	4.0%	$ 19,325	5.0%
Common Equity Tier 1	$ 47,284	17.97%	$ 11,840	4.5%	$ 17,103	6.5%
Tier 1	$ 47,284	17.97%	$ 15,787	6.0%	$ 21,049	8.0%
Total Capital	$ 50,589	19.23%	$ 21,049	8.0%	$ 26,312	10.0%
December 31, 2015:
Tier 1 (Leverage)	$ 46,028	11.56%	$ 15,923	4.0%	$ 19,903	5.0%
Common Equity Tier 1	$ 46,028	19.45%	$ 10,650	4.5%	$ 15,383	6.5%
Tier 1	$ 46,028	19.45%	$ 14,200	6.0%	$ 18,933	8.0%
Total Capital	$ 49,010	20.71%	$ 18,933	8.0%	$ 23,667	10.0%

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as of June 30, 2016. 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, 2016. There were no significant changes during the quarter ended June 30, 2016 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 1A. RISK FACTORS

Not Applicable

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

Not Applicable

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

Exhibit Number*
3.1		Certificate of Incorporation of Registrant and amendments thereto (Exhibit 3.1 to Form 10-Q filed by the Registrant on November 13, 2014)
3.2		Bylaws of Registrant (Exhibit 3.2 to Form 10-K filed by the Registrant on March 28, 2016)
10.1**		Amended Form of Stock Option Agreement for options granted under Broadway Financial Corporation 2008 Long Term Incentive Plan
10.2		Award Agreement for restricted stock granted to Wayne-Kent A. Bradshaw on March 30, 2016 under Broadway Financial Corporation 2008 Long Term Incentive Plan
10.3		Amended and Restated Broadway Financial Corporation 2008 Long Term Incentive Plan
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

______________

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

**Including stock options granted to Brenda Battey, Norman Bellefeuille and Ruth McCloud on February 24, 2016

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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 12, 2016	By:	/s/ Wayne-Kent A. Bradshaw
			Wayne-Kent A. Bradshaw
			Chief Executive Officer



Date:	August 12, 2016	By:	/s/ Brenda J. Battey
			Brenda J. Battey
			Chief Financial Officer

Exhibit 10.1

BROADWAY FINANCIAL CORPORATION

AWARD AGREEMENT

Optionee :

Number of Shares :

Exercise Price :

Date of Grant :

Pursuant to this Award Agreement (“ Agreement ”), Broadway Financial Corporation, a Delaware corporation (the “ Company ”), has granted an option (the “ Option ”) to _______________ (the “ Optionee ”), to purchase a total of _________ shares of the Company’s Common Stock (the “ Optioned Stock ”) at the Exercise Price provided herein, and in all respects subject to the provisions of the Company’s 2008 Long-Term Incentive Plan (the “ Plan ”), all of which are incorporated herein by reference except as otherwise provided herein. All terms defined in the Plan shall have the same meanings as used herein.

1. Tax Effects of the Option . The Option is not intended to be an incentive stock option, as described in Section 422(b) of the Internal Revenue Code of 1986, as amended (the “ Code ”).

2. Exercise Price . The price required to be paid for each share of the Optioned Stock upon exercise of the Option (the “ Exercise Price ”) is One Dollar and Sixty Two Cents ($1.62).

3. Exercise of Option . The Option shall be exercisable during its term only in accordance with the following:

(i) Right to Exercise .

(a) The Option shall become exercisable (“ vest ”) in cumulative installments with respect to 20% of the Optioned Stock on the first anniversary of the Date of Grant of the Option, and as to an additional 20% of the Optioned Stock on each subsequent anniversary of the date of grant, so that 100% of the Optioned Stock shall be exercisable at and after the fifth anniversary of the Date of Grant; provided , however , that in no event shall the Option be exercisable, in whole or part, later than ten years after the date of grant (the “ Option Expiration Date ”).

(b) Vesting of the Option shall cease immediately upon termination of Optionee’s service as an employee of the Company (including subsidiaries of the Company) for any reason other than termination of such service by the Company in connection with, or in contemplation of, a Change of Control, as defined in Section 6 of the Plan.

(c) In the event of Optionee’s death or permanent disability, this Option may be exercised no later than the earlier to occur of: (i) 12 months after the date of Optionee’s death or termination of service as an

employee of the Company (including subsidiaries of the Company) due to permanent disability, or (ii) the Option Expiration Date.

(d) In the event of termination of Optionee’s service as an employee of the Company (including subsidiaries of the Company) for any other reason, this Option may be exercised no later than the earlier to occur of: (i) 90 days after Optionee’s termination of such service as an employee, or (ii) the Option Expiration Date.

(f) The exercisability of this Option may be accelerated in certain events as more fully set forth in Section 6 of the Plan.

(g) This Option may not be exercised for a fraction of a share.

(ii) Method of Exercise . This Option may be exercised by Optionee (or a transferee pursuant to a “qualified domestic relations order” within the meaning of the Code or, in the event of Optionee’s death, by the person or persons to whom that right passes by will or by the laws of descent and distribution), to the extent then vested, by giving written notice of such exercise to the Secretary of the Company. Such notice shall specify the number of shares of Optioned Stock to be purchased and shall be accompanied by payment, or specification of the method of payment if such payment is to be made as provided in Section 4 (iii) or (iv) hereof, of the Option Price for such shares in any form and manner specified in Section 4. The form of notice of exercise attached hereto as Exhibit A has been approved for the foregoing purpose by the Committee. The Company’s obligation to issue or deliver shares of Common Stock upon the exercise of the Option shall be subject to the satisfaction of any applicable federal, state and local tax withholding requirements by the Optionee in accordance with Section 5.4 of the Plan.

4. Method of Payment . Payment of the exercise price shall be made in any of the following ways, or any combination thereof, at the election of the Optionee:

(i) cash;

(ii) check;

(iii) tendering shares of Common Stock of the Company (either by actual delivery or by attestation), including shares otherwise distributable pursuant to the exercise of the Option, which have a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; and

(iv) irrevocably authorizing a third party to sell a sufficient number of the shares of Optioned Stock acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding requirement resulting from such exercise.

5. Restrictions on Exercise . The Option may not be exercised if the issuance of shares of the Optioned Stock upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the shares of the Company’s Common Stock may then be listed. As a condition to the exercise of the Option, the Company may require Optionee to make any representation and warranty to the Company as may be reasonably requested by the Company to comply or to confirm compliance with any applicable law or regulation. In addition, the provisions of Section 6 of the Plan regarding exercise of the Option upon a change in Control shall not apply, and the vesting of the Option shall not be accelerated following a Change in Control as therein provided, at any time that such provisions would not be consistent with the requirements of Part 359 of the Rules and Regulations of the Federal Deposit Insurance Corporation (12 C.F.R. Part 359).

6. Non-Transferability of Option . The Option may not be transferred, pledged or assigned by the holder thereof (except, in the event of the holders’ death, by will or the laws of descent and distribution or pursuant to a “qualified domestic relations order” within the meaning of the Code), and the Company shall not be required to recognize any attempted assignment of such rights by any holder. During an Optionee’s lifetime, the Option may be exercised only by him or her or by his or her guardian or legal representative.

7. Term of Option . The Option may not be exercised more than ten years from the date of grant of this Option and may be exercised during such period only in accordance with the Plan and the terms of this Agreement.

8. Taxation Upon Exercise of Option . Optionee understands that Optionee may be required to recognize income for tax purposes upon exercise of the Option. Optionee acknowledges and agrees that the Company may withhold shares of Optioned Stock the Optionee is otherwise entitled to receive on exercise of this Option to satisfy tax withholding obligations as provided in Section 5.4 of the Plan.

9. Applicable Law. The provisions of this Agreement shall be governed by and interpreted in accordance with the laws of the State of California, without regard to the conflict of laws provisions of any jurisdiction.

10. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

11. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

12. Force and Effect . The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

13. Successors . This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties.

14. Entire Agreement . This Agreement, together with the Plan, contains the entire understanding of the parties and shall not be modified or amended except by a written document duly signed by both parties hereto. No waiver by either party of any default under this Agreement shall be deemed a waiver of any later default.

DATE OF GRANT:

	BROADWAY FINANCIAL CORPORATION,
	a Delaware corporation

	By:

	Name:

	Its:

Optionee acknowledges receipt of the copy of the Plan attached hereto, represents that Optionee is familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee and of the Board of Directors of the Company upon any questions relating to the Option or otherwise arising under the Plan.



	Optionee: [name]



	Optionee: [signature]


	Dated:

EXHIBIT A

BROADWAY FINANCIAL CORPORATION

OPTION EXERCISE NOTICE

Broadway Financial Corporation

5055 Wilshire Boulevard, Suite 500

Los Angeles, California 90036

Attention: Corporate Secretary

1. Exercise of Option . The undersigned (“ Optionee ”) hereby elects to exercise the option that was granted to Optionee effective as of _________________ to purchase ________________ shares of the Common Stock (the “ Shares ”) of Broadway Financial Corporation, a Delaware corporation (the “ Company ”), under and pursuant to the Company’s 2008 Long-Term Incentive Plan(the “ Plan ”), and the related Award (the “ Agreement ”).

2. Representations of Optionee . Optionee acknowledges that Optionee has received, read and understands the Plan and the Agreement.

3. Federal Restrictions on Transfer . Optionee understands that the Shares must be held indefinitely unless they are registered under the Securities Act of 1933, as amended (the “Securities Act”), or unless an exemption from the registration requirements of the Securities Act is available, and that the certificate(s) representing the Shares may bear a legend to that effect. Optionee understands that the Company is under no obligation to register the Shares and that an exemption may not be available to permit Optionee to transfer Shares in the amounts or at the times proposed by Optionee.

4. Tax Consequences . Optionee understands that Optionee may be required to recognize taxable income as a result of Optionee’s purchase or disposition of the Shares being purchased by Optionee pursuant hereto. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of such shares and that Optionee is not relying on the Company for any tax advice.

5. Delivery of Payment . Optionee herewith delivers to the Company the aggregate exercise price for the shares of the Optioned Stock that Optionee has elected to purchase and has made provision pursuant to Section 5.4 of the Plan for the payment of any federal or state withholding taxes required to be paid or withheld by the Company in connection with this exercise of the Option.

OPTIONEE:
		[Name]

Date:



Address:

Exhibit 10.2

BROADWAY FINANCIAL CORPORATION

AWARD AGREEMENT

Pursuant to the Broadway Financial Corporation 2008 Long-Term Incentive Plan (the “Plan”), Broadway Financial Corporation (the “ Company ”) hereby grants a Full Value Award in the form of restricted stock to the Grantee named above covering 120,483 shares of Common Stock of the Company (the “ Award ”). Upon acceptance of this Award, the Grantee shall receive the number of shares of Stock of the Company covered by the Award, subject to the restrictions and conditions set forth herein and in the Plan (the “ Restricted Stock ”). The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Committee.

The Company is currently a participant in the Capital Purchase Program, developed pursuant to the United States Department of Treasury’s Troubled Asset Relief Program (“ TARP ”) under the Emergency Economic Stabilization Act of 2008, as amended. To the extent that, with respect to this Award, the Grantee is subject to the restrictions of Section 30.10 of 31 C.F.R. part 30, an interim final regulation promulgated by the United States Department of Treasury (“ Treasury ”) governing executive compensation for recipients of financial assistance under TARP, and the guidance related thereto (the “ TARP Rules ”), this Award is and shall be intended to satisfy the requirements for and qualify as an award of “long term restricted stock,” as defined the TARP Rules, and this Agreement shall be interpreted and construed in accordance therewith.

1. Acceptance of Award . The Grantee shall have no rights with respect to this Award unless Grantee shall have accepted this Award by signing a copy of this Award Agreement and delivering the signed copy to the Company. Upon acceptance of this Award by the Grantee, the shares of Restricted Stock so accepted shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below.

2. Restrictions and Conditions .

(a) Any certificates or book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Committee in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

(c) Notwithstanding anything herein or in the Plan to the contrary, but only to the extent the Grantee is subject to the restrictions of Section 30.10 of the TARP Rules with respect to this Award, vested shares of the Stock granted hereunder shall not be transferable (as defined in 26 C.F.R. 1.83–3(d)) at any time earlier than the time permitted under the following schedule (except to the extent provided below or as necessary to reflect a merger or acquisition of the Company (within the meaning of the TARP Rules)):

(i) 25 percent of the shares of Stock at the time of repayment of 25 percent of the aggregate financial assistance received by the Company from Treasury under TARP;

(ii) an additional 25 percent of the shares of Stock granted (for an aggregate total of 50 percent of the shares of Stock) at the time of repayment of 50 percent of the aggregate financial assistance received by the Company from Treasury under TARP;

(iii) an additional 25 percent of the shares of Stock granted (for an aggregate total of 75 percent of the shares of Stock granted) at the time of repayment of 75 percent of the aggregate financial assistance received by the Company from Treasury under TARP; and

(iv) the remainder of the shares of Stock granted at the time of repayment of 100 percent of the aggregate financial assistance received by the Company from Treasury under TARP.

Notwithstanding the foregoing, at any time beginning with the date upon which shares of Restricted Stock become vested and ending on December 31 of the calendar year including such vesting date, a portion of the vested shares of Stock may be made transferable to the extent reasonably required to pay the Federal, state or local taxes that are anticipated to apply to the income recognized due to such vesting. The amounts made transferable for such purpose shall not count toward the percentages in the schedule above.

3. Vesting of Restricted Stock . To the extent not previously forfeited, the shares of Restricted Stock shall vest and become nonforfeitable on the earlier of (i) (A) with respect to 100,000 shares of Restricted Stock, the second anniversary of the Date of Grant, and (B) with respect to the remaining 20,483 shares of Restricted Stock, the third anniversary of the Date of Grant, (ii) Grantee’s death or permanent disability, or (iii) Grantee’s termination of employment by the Company (including its subsidiaries or any successor) within one year following a Change in Control; provided , however , that the Change in Control-based vesting provided for in this clause (iii) shall not apply at any time that such vesting would not be consistent with the requirements of Part 359 of the Rules and Regulations of the Federal Deposit Insurance Corporation (12 C.F.R. Part 359). If Grantee’s employment with the Company (including subsidiaries) terminates for any reason prior to the third anniversary of the Date of Grant, all shares of Restricted Stock that are unvested (and that do not vest upon such termination pursuant to clause (ii) or (iii) of the preceding sentence) shall be immediately forfeited. For purposes of this Agreement, the term “Change in Control” means, with respect to the Company, a

change in control within the meaning of Treasury Regulations Section 1.280G-1Q&A 27-29 or Section 1.409A-3(i)(5)(i). Section 6 of the Plan shall not apply.

4. Dividends . Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

5. Incorporation of Plan . Except as otherwise provided herein, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee set forth in the Plan. Capitalized terms in this Agreement that are not defined herein shall have the meaning specified in the Plan, unless a different meaning is indicated herein. The terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. In addition, the Award is subject to any rules and regulations promulgated by the Committee. However, any Award subject to this Agreement may not in any way be restricted or limited by any Plan amendment or termination or by change of Committee rules and regulations approved after the Date of Grant indicated on the first page hereof without the Award recipient’s written consent.

6. Transferability . This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than (i) by will or the laws of descent and distribution or (ii) pursuant to an order issued under state domestic relations laws.

7. Tax Withholding . The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Committee for payment of all Federal, state, and local taxes required by law to be withheld on account of such taxable event. Except in the case where an election is made pursuant to Paragraph 8 below, and to the extent permitted under Paragraph 2(c) above, the Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.

8. Election Under Section 83(b) . The Grantee and the Company hereby agree that the Grantee may, within 30 days following the acceptance of this Award as provided in Paragraph 1 hereof, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

9. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

10. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the

address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

11. Force and Effect . The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

12. Successors . This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties.

13. Applicable Law . The provisions of this Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflict of law provisions of any jurisdiction.


	BROADWAY FINANCIAL CORPORATION

	By:
		Name:
		Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned.

Dated:
				Grantee’s Signature


				Grantee’s Name

Exhibit 10.3

AMENDED AND RESTATED

BROADWAY FINANCIAL CORPORATION 2008 LONG-TERM INCENTIVE PLAN

SECTION 1
GENERAL

1.1. Purpose . The Broadway Financial Corporation 2008 Long-Term Incentive Plan (the “Plan”) has been established by Broadway Financial Corporation (the “Company”) to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide incentive compensation opportunities that are competitive with those of other similar companies; and (iv) further identify Participants’ interests with those of the Company’s other shareholders through compensation that is based on the Company’s common stock; and thereby promote the long-term interest of the Company and the Subsidiaries, including the growth in value of the Company’s equity and enhancement of long-term shareholder return.

1.2. Participation . Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals, those persons who will be granted one or more Awards under the Plan, and thereby become “Participants” in the Plan.

1.3. Operation, Administration, and Definitions . The operation and administration of the Plan, including the Awards made under the Plan, shall be subject to the provisions of Section 5 (relating to operation and administration). Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Section 9).

SECTION 2
OPTIONS AND SARS

2.1. Definitions .

(a) The grant of an “Option” entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Any Option granted under this Section 2 may be either an incentive stock option (an “ISO”) or a non-qualified option (an “NQO”), as determined in the discretion of the Committee. An “ISO” is an Option that is intended to satisfy the requirements applicable to an “incentive stock option” described in section 422(b) of the Code. An “NQO” is an Option that is not intended to be an “incentive stock option” as that term is described in section 422(b) of the Code. Each Option granted under this Plan shall be an NQO, unless the Option satisfies all of the requirements of an ISO and the Committee designates such Option as an ISO.

(b) A stock appreciation right (an “SAR”) entitles the Participant to receive, in cash or Stock (as determined in accordance with subsection 5.7), value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (b) an Exercise Price established by the Committee.

2.2. Exercise Price . The “Exercise Price” of each Option and SAR granted under this Section 2 shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted. The Exercise Price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of a share of Stock).

2.3. Exercise . An Option and an SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee. In no event, however, shall an Option or SAR expire later than ten years after the date of its grant.

A- 1

2.4. Payment of Option Exercise Price . The payment of the Exercise Price of an Option granted under this Section 2 shall be subject to the following:

(a) Subject to the following provisions of this subsection 2.4, the full Exercise Price for shares of Stock purchased upon the exercise of any Option shall be paid at the time of such exercise, except that, in the case of an exercise arrangement approved by the Committee and described in paragraph 2.4(c) payment may be made as soon as practicable after the exercise.

(b) Subject to applicable law, the Exercise Price shall be payable in cash, by promissory note or by tendering, either by actual delivery of shares or by attestation, shares of Stock acceptable to the Committee, including shares otherwise distributable pursuant to the exercise of the Option, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee.

(c) Subject to applicable law, the Committee may permit a Participant to elect to pay the Exercise Price upon the exercise of an Option by irrevocably authorizing a third party to sell a sufficient portion of the shares of Stock acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise.

2.5. No Repricing . Except for adjustments pursuant to paragraph 5.2(f) (relating to the adjustment of shares) or reductions of the Exercise Price approved by the Company’s stockholders, the Exercise Price for any outstanding Option or SAR may not be decreased after the date of grant nor may an outstanding Option or SAR granted under the Plan be surrendered to the Company as consideration for the grant of a replacement Option or SAR with a lower exercise price.

2.6. Grants of Options and SARs . An Option may, but need not be, in tandem with an SAR and an SAR may, but need not be in tandem with an Option, in either case, regardless of whether the original award was granted under this Plan or another plan or arrangement. If an Option is in tandem with an SAR, the exercise price of both the Option and SAR shall be the same, and the exercise of the Option or SAR with respect to a share of Stock shall cancel the corresponding tandem SAR or Option right with respect to such share. If an SAR is in tandem with an Option but is granted after the grant of the Option, or if an Option is in tandem with an SAR but is granted after the grant of the SAR, the later granted tandem Award shall have the same exercise price as the earlier granted Award, and the exercise price for the later granted Award may be less than the Fair Market Value of the Stock at the time of such grant.

SECTION 3
FULL VALUE AWARDS

3.1. Definition . A “Full Value Award” is a grant of one or more shares of Stock or a right to receive one or more shares of Stock in the future, with such grant being made subject to one or more of the following, as determined by the Committee:

(a) The grant shall be in consideration of a Participant’s previously performed services, or surrender of other compensation that may be due.

(b) The grant shall be contingent on the achievement of performance or other objectives during a specified period.

(c) The grant shall be subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives.

The grant of Full Value Awards may also be made subject to such other conditions, restrictions and contingencies, as the Committee shall determine.

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3.2. Restrictions on Awards .

(a) The Committee may designate a Full Value Award granted to any Participant as Performance-Based Compensation. To the extent required by Code section 162(m), any Full Value Award so designated shall be conditioned on the achievement of one or more performance objectives. The performance objectives shall be based on the Performance Measures selected by the Committee. For Awards under this Section 3 intended to be Performance-Based Compensation, the grant of the Awards and the establishment of the Performance Measures shall be made during the period required under Code section 162(m).

(b) If the right to become vested in a Full Value Award is conditioned on the completion of a specified period of service with the Company or the Subsidiaries, without achievement of Performance Measures or other performance objectives (whether or not related to Performance Measures) being required as a condition of vesting, and without the Full Value Award being granted in lieu of other compensation, then the required period of service for full vesting shall be not less than three years (subject to acceleration of vesting, to the extent permitted by the Committee, in the event of the Participant’s death, disability, retirement, change in control or involuntary termination). However, the Committee may grant Full Value Awards that do not condition vesting on achievement of performance objectives, and such Awards shall not be subject to the limits of foregoing provisions of this paragraph (b), provided that the aggregate number of shares subject to Full Value Awards granted pursuant to this paragraph (b) (excluding any such Awards to the extent that they have been forfeited or cancelled) may not exceed 5% of the limit imposed by paragraph 5.2(b) (relating to the limit on shares granted under the Plan).

SECTION 4
CASH INCENTIVE AWARDS

A Cash Incentive Award is the grant of a right to receive a payment of cash (or in the discretion of the Committee, Stock having value equivalent to the cash otherwise payable) that is contingent on achievement of performance objectives over a specified period established by the Committee. The grant of Cash Incentive Awards may also be made subject to such other conditions, restrictions and contingencies as may be determined by the Committee. The Committee may designate a Cash Incentive Award granted to any Participant as Performance-Based Compensation as that term is used in section 162(m) of the Code. To the extent required by Code section 162(m), any such Award so designated shall be conditioned on the achievement of one or more Performance Measures selected by the Committee. For Awards under this Section 4 intended to be Performance-Based Compensation, the grant of the Awards and the establishment of the Performance Measures shall be made during the period required under Code section 162(m). Except as otherwise provided in the applicable plan or arrangement, distribution of any bonus awards by the Company or its Subsidiaries (whether granted pursuant to this Plan or otherwise) for a performance period ending in a calendar year, shall be made to the participant not later than March 15 of the following calendar year; provided, however, that for purposes of determining compliance with Code section 409A, a payment will be considered to satisfy the requirement of this sentence if distribution is made no later than the end of the calendar year following the end of the applicable performance period.

SECTION 5
OPERATION AND ADMINISTRATION

5.1. Effective Date . Subject to the approval of the shareholders of the Company at the Company’s 2008 annual shareholders meeting, the Plan shall be effective as of May 8, 2008 (the “Effective Date”); provided, however, that Awards may be granted contingent on approval of the Plan by the shareholders of the Company at such annual meeting. In the event of Plan termination, the terms of the Plan shall remain in effect as long as any Awards under it are outstanding; provided, however, that no Awards may be granted under the Plan after the ten-year anniversary of the Effective Date.

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5.2. Shares and Other Amounts Subject to Plan . The shares of Stock for which Awards may be granted under the Plan shall be subject to the following:

(a) The shares of Stock with respect to which Awards may be made under the Plan shall be shares currently authorized but unissued or, to the extent permitted by applicable law, currently held or acquired by the Company as treasury shares, including shares purchased in the open market or in private transactions.

(b) Subject to the following provisions of this subsection 5.2, the maximum number of shares of Stock that may be delivered to Participants and their beneficiaries under the Plan shall be 2,000,000. However, the limit under this paragraph (b), as well as the limits under paragraph (e) below, shall not apply to Awards granted pursuant to subsection 5.5 in replacement of awards granted under plans other than this Plan.

(d) Shares of Stock with respect to an Award will be treated as delivered for purposes of the determination under paragraph (b) above, subject to the following:

(i) To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, such shares shall not be deemed to have been delivered for purposes of the determination under paragraph (b) above.

(ii) Subject to the provisions of paragraph (i) above, the total number of shares covered by an Award will be treated as delivered for purposes of this paragraph (b) to the extent payments or benefits are delivered to the Participant with respect to such shares. Accordingly (A) if an Award denominated in shares of Stock is settled in cash, the total number of shares with respect to which such payment is made shall be considered to have been delivered; (B) if shares covered by an Award are used to satisfy the applicable tax withholding obligation, the number of shares held back by the Company to satisfy such withholding obligation shall be considered to have been delivered; (C) if the exercise price of any Option granted under the Plan is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation), the number of shares tendered to satisfy such exercise price shall be considered to have been delivered; and (D) if cash or shares of Stock are delivered in settlement of the exercise of an SAR, the total number of shares with respect to which such SAR is exercised shall be deemed delivered.”

(e) Subject to paragraph 5.2(f), the following additional maximums are imposed under the Plan.

(i) The maximum number of shares of Stock that may be delivered to Participants and their beneficiaries with respect to ISOs granted under the Plan shall be 351,718 shares.

(ii) The maximum number of shares that may be covered by Awards granted to any one Participant during any one calendar-year period pursuant to Section 2 (relating to Options and SARs) shall be 250,000 shares. For purposes of this paragraph (ii), if an Option is in tandem with an SAR, such that the exercise of the Option or SAR with respect to a share of Stock cancels the tandem SAR or

Option right, respectively, with respect to such share, the tandem Option and SAR rights with respect to each share of Stock shall be counted as covering but one share of Stock for purposes of applying the limitations of this paragraph (ii).

(iii) The maximum number of shares of Stock that may be issued in conjunction with Awards granted pursuant to Section 3 (relating to Full Value Awards) and Section 4 (relating to

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Cash Incentive Awards, but only to the extent they are settled in Stock) shall be 175,859 shares.

(iv) For Full Value Awards that are intended to be Performance-Based Compensation, no more than 120,000 shares of Stock may be delivered pursuant to such Awards granted to any one Participant during any one calendar-year period (regardless of whether settlement of the Award is to occur prior to, at the time of, or after the time of vesting); provided that Awards described in this paragraph (iv) that are intended to be Performance-Based Compensation shall be subject to the following:

(A) If the Awards are denominated in Stock but an equivalent amount of cash is delivered in lieu of delivery of shares of Stock, the foregoing limit shall be applied to the Stock based on the methodology used by the Committee to convert the number of shares of Stock into cash.

(B) If delivery of Stock or cash is deferred until after shares of Stock have been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the shares are earned shall be disregarded.

(v) For Cash Incentive Value Awards that are intended to be Performance-Based Compensation, the maximum amount payable to any Participant with respect to any performance period shall equal $83,333 multiplied by the number of calendar months included in the performance period; provided that Awards described in this paragraph (v) that are intended to be Performance-Based Compensation, shall be subject to the following:

(A) If the Awards are denominated in cash but an equivalent amount of Stock is delivered in lieu of delivery of cash, the foregoing limit shall be applied to the cash based on the methodology used by the Committee to convert the cash into shares of Stock.

(B) If delivery of Stock or cash is deferred until after cash has been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the cash is earned shall be disregarded.

(f) In the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, sale of assets or subsidiaries, combination or exchange of shares), the Committee shall adjust Awards to preserve the benefits or potential benefits of the Awards. Action by the Committee may include: (i) adjustment of the number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the Exercise Price of outstanding Options and SARs; and (iv) any other adjustments that the Committee determines to be equitable (which may include, without limitation, (I) replacement of Awards with other Awards which the Committee determines have comparable value and which are based on stock of a company resulting from the transaction, and (II) cancellation of the Award in return for cash payment of the current value of the Award, determined as though the Award is fully vested at the time of payment, provided that in the case of an Option or SAR, the amount of such payment may be the excess of value of the Stock subject to the Option or SAR at the time of the transaction over the exercise price). However, in no event shall this paragraph (f) be construed to permit a modification (including a replacement) of an Option or SAR if such modification either: (A) would result in accelerated recognition of income or imposition of additional tax under Code section 409A; or (B) would cause the Option or SAR subject to the modification (or cause a replacement Option or SAR) to be subject to Code section 409A, provided that the restriction of this clause (B) shall not apply to any Option or SAR that, at the time it is granted or otherwise, is designated as being deferred compensation subject to Code section 409A.

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5.3. General Restrictions . Delivery of shares of Stock or other amounts under the Plan shall be subject to the following:

(a) Notwithstanding any other provision of the Plan, the Company shall have no obligation to deliver any shares of Stock or make any other distribution of benefits under the Plan unless such delivery or distribution complies with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.

(b) To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

5.4. Tax Withholding . All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. Except as otherwise provided by the Committee, such withholding obligations may be satisfied (i) through cash payment by the Participant; (ii) through the surrender of shares of Stock which the Participant already owns; or (iii) through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan, provided, however, that such shares under this clause (iv) may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such taxable income).

5.5. Grant and Use of Awards . In the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Subject to subsection 2.5 (relating to repricing), Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). Subject to the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations. Notwithstanding the provisions of subsection 2.2, Options and SARs granted under the Plan in replacement for awards under plans and arrangements of the Company, Subsidiaries, or other companies that are assumed in business combinations may provide for exercise prices that are less than the Fair Market Value of the Stock at the time of the replacement grants, if the Committee determines that such exercise price is appropriate to preserve the economic benefit of the award. The provisions of this subsection shall be subject to the provisions of subsection 5.15.

5.6. Dividends and Dividend Equivalents . An Award (including without limitation an Option or SAR Award) may provide the Participant with the right to receive dividend or dividend equivalent payments with respect to Stock subject to the Award (both before and after the Stock subject to the Award is earned, vested, or acquired), which payments may be either made currently or credited to an account for the Participant, and may be settled in cash or Stock, as determined by the Committee. Any such settlements, and any such crediting of dividends or dividend equivalents or reinvestment in shares of Stock, may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Stock equivalents. The provisions of this subsection shall be subject to the provisions of subsection 5.15.

5.7. Settlement of Awards . The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine. Satisfaction of any such obligations under an Award, which is sometimes referred to as “settlement” of the Award, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment or distribution, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, and may include converting such credits into deferred Stock equivalents. Except for Options and SARs designated at the time of grant or otherwise as intended to be subject to Code section 409A, this subsection 5.7 shall not be construed to permit the deferred settlement of Options or SARs if such settlement would result in deferral of compensation under Treas. Reg. §1.409A-

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1(b)(5)(i)(A)(3) (except as permitted in paragraphs (i) and (ii) of that section). Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee. The provisions of this subsection shall be subject to the provisions of subsection 5.15.

5.8. Transferability . Except as otherwise provided by the Committee, Awards under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution.

5.9. Form and Time of Elections . Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.

5.10. Agreement With Company . An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written (including electronic) document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature is required.

5.11. Action by Company or Subsidiary . Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company.

5.12. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.

5.13. Limitation of Implied Rights .

(a) Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.

(b) The Plan does not constitute a contract of employment, and selection as a Participant will not give any participating employee or other individual the right to be retained in the employ of the Company or any Subsidiary or the right to continue to provide services to the Company or any Subsidiary, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights.

5.14. Evidence . Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.

5.15. Limitations under Section 409A . The provisions of the Plan shall be subject to the following:

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(a) Neither subsection 5.5 nor any other provision of the Plan shall be construed to permit the grant of an Option or SAR if such action would cause the Option or SAR being granted or the option or stock appreciation right being replaced to be subject to Code section 409A, provided that this paragraph (a) shall not apply to any Option or SAR (or option or stock appreciation right granted under another plan) being replaced that, at the time it is granted or otherwise, is designated as being deferred compensation subject to Code section 409A.

(b) Except with respect to an Option or SAR that, at the time it is granted or otherwise, is designated as being deferred compensation subject to Code section 409A, no Option or SAR shall condition the receipt of dividends with respect to an Option or SAR on the exercise of such Award, or otherwise provide for payment of such dividends in a manner that would cause the payment to be treated as an offset to or reduction of the exercise price of the Option or SAR pursuant Treas. Reg. §1.409A-1(b)(5)(i)(E).

(c) The Plan shall not be construed to permit a modification of an Award, or to permit the payment of a dividend or dividend equivalent, if such actions would result in accelerated recognition of taxable income or imposition of additional tax under Code section 409A.

SECTION 6
CHANGE IN CONTROL

(a) Unless determined otherwise by the Committee, upon a Participant’s termination of employment within the twelve months following a Change in Control, all unvested Full Value Awards shall become fully vested and all Options and SARs shall be exercisable for a period ending on the earlier of the Expiration Date of the Option or SAR or the first anniversary of the Participant’s termination of employment. Notwithstanding the foregoing provisions of this Section 6, in the event of a Change in Control as the result of a Terminating Event, a Participant’s Options, SARs, and Full Value Awards will become vested and exercisable pursuant to this paragraph only if no provision has been made in writing in connection with such Terminating Event for the continuance of this Plan and for the assumption of the awards theretofore granted hereunder, or the substitution for such awards of new awards issued by the successor corporation or, if applicable, the publicly traded entity that is the parent entity of the successor corporation, with such appropriate adjustments as may be determined or approved by the Committee, in which event this Plan and the awards theretofore granted or substituted therefore shall continue in the manner and under the terms so provided.

(b) As used in this Plan, a “Change in Control” of the Company shall mean an event of a nature that (i) would be required to be reported in response to Item 1 of a current report filed on Form 8-K pursuant to Section 13 or 15(d) of the Exchange Act as in effect on the Effective Date of this Plan; or (ii) results in any person acquiring control of the Bank or the Holding Company within the meaning of the Home Owners’ Loan Act of 1933, as amended and the rules and regulations promulgated by the Office of Thrift Supervision (“OTS”) (or its predecessor agency), as in effect on the Effective Date of this Plan, (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); and, without limitation, such a change in control shall be deemed to have occurred at such time as (A) any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act and the regulations of the SEC thereunder, each as in effect on the date of the adoption of this Plan by the Board of Directors of the Holding Company, and including any such persons that may be deemed to be acting in concert with respect to the Bank or the Holding Company, or the acquisition, ownership or voting of Bank or Holding Company Securities) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the date of the adoption of this Plan by the Board of Directors of the Holding Company), directly or indirectly, of securities of the Bank or the Holding Company representing 20% or more of the Bank’s or the Holding Company’s outstanding securities except for any securities of the Bank purchased by the Holding Company in connection with the conversion of the Bank to the stock form and any securities purchased by any

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tax qualified employee benefit plan of the Bank; or (B) individuals who constitute the Board on the date of the adoption of this Plan by the Board of Directors of the Holding Company (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board, or whose nomination for election by the Holding Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board; or (C) a plan of liquidation reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Holding Company or similar transaction in which the Bank or Holding Company is not the resulting entity (a “Terminating Event”) is approved by the Board and the stockholders or otherwise occurs; or (D) solicitations of stockholders of the Holding Company, by someone other than the Incumbent Board of the Holding Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Holding Company or Bank or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to this Plan are exchanged for or converted into cash or property or securities not issued by the Bank or the Holding Company shall be distributed; or (E) a tender offer is made for 20% or more of the voting securities of the Bank or the Holding Company; or (F) any other event, transaction or series of transactions occurs as a result of which any person may be deemed to “acquire control” of the Bank or the Holding Company (as such terms are defined in the regulations of the OTS set forth at 12 C.F.R. Part 574 as in effect on the effective date of this Plan).

SECTION 7
COMMITTEE

7.1. Administration . The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) in accordance with this Section 7. The Committee shall be selected by the Board, and shall consist solely of two or more members of the Board. If the Committee does not exist, or for any other reason determined by the Board, and to the extent not prohibited by applicable law or the applicable rules of any stock exchange, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.

7.2. Powers of Committee . The Committee’s administration of the Plan shall be subject to the following:

(a) Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Employees those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by Section 8) to amend, cancel, or suspend Awards.

(b) To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

(c) The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.

(d) Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons.

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(e) In controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the articles and by-laws of the Company, and applicable state corporate law.

(f) The Committee shall take such actions as it determines to be necessary or appropriate with respect to this Plan, and the Awards granted under the Plan, to avoid acceleration of income recognition or imposition of penalties under Code section 409A.

(g) Notwithstanding any other provision of the Plan, no benefit shall be distributed under the Plan unless the Committee, in its sole discretion, determines that such person is entitled to benefits under the Plan.

7.3. Delegation by Committee . Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.

7.4. Information to be Furnished to Committee . The Company and Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and Subsidiaries as to an employee’s or Participant’s employment (or other provision of services), termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.

7.5. Applicable Law . The provisions of the Plan shall be construed in accordance with the laws of the State of California, without regard to the conflict of law provisions of any jurisdiction.

SECTION 8
AMENDMENT AND TERMINATION

The Board may, at any time, amend or terminate the Plan, and the Board or the Committee may amend any Award Agreement, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board (or the Committee, if applicable); and further provided that adjustments pursuant to paragraph 5.2(f) shall not be subject to the foregoing limitations of this Section 8; and further provided that the provisions of subsection 2.5 (relating to Option and SAR repricing) cannot be amended unless the amendment is approved by the Company’s stockholders. No amendment or termination shall be adopted or effective if it would result in accelerated recognition of income or imposition of additional tax under Code section 409A or, except as otherwise provided in the amendment, would cause amounts that were not otherwise subject to Code section 409A to become subject to section 409A.

SECTION 9
DEFINED TERMS

In addition to the other definitions contained herein, the following definitions shall apply:

(a) Award . The term “Award” means any award or benefit granted under the Plan, including, without limitation, the grant of Options, SARs, Full Value Awards, and Cash Incentive Awards.

(b) Board . The term “Board” means the Board of Directors of the Company.

(c) Code . The term “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.

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(d) Eligible Individual . For purposes of the Plan, the term “Eligible Individual” means any employee of the Company or a Subsidiary, and any consultant, director, or other person providing services to the Company or a Subsidiary; provided, however, that an ISO may only be granted to an employee of the Company or a Subsidiary. An Award may be granted to an employee or other individual providing services, in connection with hiring, retention or otherwise, prior to the date the employee first performs services for the Company or the Subsidiaries, provided that such Awards shall not become vested prior to the date the employee or service provider first performs such services.

(e) Fair Market Value . Except as otherwise provided by the Committee, for purposes of determining the “Fair Market Value” of a share of Stock as of any date means the average of the high and low bid prices of the Stock as reported by the Nasdaq Stock Market (as published by the Wall Street Journal, if then so published) or, if the Common Stock is then listed on or quoted through a stock exchange or transaction reporting system on or through which actual sale prices are regularly reported, the closing sale price of the Common Stock, on the grant date, or if the Common Stock was not traded on such date, on the next preceding day on which the Common Stock was quoted or traded, as the case may be.

(f) Performance-Based Compensation . The term “Performance-Based Compensation” shall have the meaning ascribed to it under Code section 162(m) and the regulations thereunder.

(g) Performance Measures . The “Performance Measures” shall be based on any one or more of the following Company, subsidiary, operating unit or division performance measures: net earnings; net interest income; operating or interest rate margins; earnings per share; efficiency ratio or other cost control measures or objectives; return on equity; return on assets; stock price; comparisons with stock market indices; regulatory achievements; economic value added metrics; strategic business objectives, consisting of one or more objectives based on meeting specified volume or market share targets, business expansion goals, or goals relating to acquisitions or divestitures; or any combination thereof. Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders’ equity and/or shares outstanding or investments, or to assets or net assets..

(h) Stock . The term “Stock” means shares of common stock, $0.01 par value of the Company.

(i) Subsidiaries . For purposes of the Plan, the term “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.

(j) Termination of Service . With respect to Awards that constitute Deferred Compensation, references to the Participant’s termination of employment (including references to the Participant’s employment termination, and to the Participant terminating employment, a Participant’s separation from service, and other similar reference) and references to a Participant’s termination as a director (including separation from service and other similar references) shall mean, respectively, the Participant ceasing to be employed by, or ceasing to perform director services for, the Company and the Affiliates, subject to the following:

(i) The employment relationship or director relationship will be deemed to have ended at the time the Participant and the applicable company reasonably anticipate that a level of bona fide services the Participant would perform for the Company and the Affiliates after such date would permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36 month period (or the full period of

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service to the Company and the Affiliates if the Participant has performed services for the Company and the Affiliates for less than 36 months). In the absence of an expectation that the Participant will perform at the above-described level, the date of termination of employment or termination as a director will not be delayed solely by reason of the Participant continuing to be on the Company’s and the Affiliates’ payroll after such date.

(ii) The employment or director relationship will be treated as continuing intact while the Participant is on a bona fide leave of absence (determined in accordance with Treas. Reg. §409A-1(h)).

(iii) The determination of a Participant’s termination of employment or termination as a director by reason of a sale of assets, sale of stock, spin-off, or other similar transaction of the Company or an Affiliate will be made in accordance with Treas. Reg. §1.409A-1(h).

(iv) If a Participant performs services both as an employee of the Company or an Affiliate, and a member of the board of directors of the Company or an Affiliate, the determination of whether termination of employment or termination of service as a director shall be made in accordance with Treas. Reg. §1.409A-1(h)(5) (relating to dual status service providers).

(v) The term “Affiliates” means all persons with whom the Company is considered to be a single employer under section 414(b) of the Code and all persons with whom the Company would be considered a single employer under section 414(c) thereof.

(vi) The term “Deferred Compensation” means payments or benefits that would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1.

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Exhibit 31.1

SECTION 302 CERTIFICATION

I, Wayne-Kent A. Bradshaw, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2016	By: /s/ Wayne-Kent A. Bradshaw
		Wayne-Kent A. Bradshaw
		Chief Executive Officer

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Brenda J. Battey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2016	By: /s/ Brenda J. Battey
		Brenda J. Battey
		Chief Financial Officer

Exhibit 32.1

SECTION 906 CERTIFICATION

The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.

The undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.

Date: August 12, 2016	By:	/s/ Wayne-Kent A. Bradshaw
		Wayne-Kent A. Bradshaw
		Chief Executive Officer

Exhibit 32.2

SECTION 906 CERTIFICATION

Date: August 12, 2016	By:	/s/ Brenda J. Battey
		Brenda J. Battey
		Chief Financial Officer