Broadway Financial (BYFC) 10-Q 2024 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from__________ to___________

Commission file number      001-39043

BROADWAY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-4547287
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4601 Wilshire Boulevard, Suite 150 Los Angeles, California	90010
(Address of principal executive offices)	(Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock, par value $0.01 per share (including attached preferred stock purchase rights)	BYFC	Nasdaq Capital Market

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 ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☒  

As of July 31, 2024, 6,033,843 shares of the registrant’s Class A voting common stock, 1,425,574 shares of the registrant’s Class B non-voting common stock and 1,672,562 shares of the registrant’s Class C non-voting common stock were outstanding.

TABLE OF CONTENTS
			Page
PART I.	FINANCIAL STATEMENTS
	Item 1.	Consolidated Financial Statements (Unaudited)
		Consolidated Statements of Financial Condition as of June 30, 2024 and December 31, 2023	1
		Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023	2
		Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023	3
		Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023	4
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3.	Defaults Upon Senior Securities	36
	Item 4.	Mine Safety Disclosures	36
	Item 5.	Other Information	36
	Item 6.	Exhibits	36
	Signatures		37

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Financial Condition

(In thousands, except share and per share amounts)

	June 30, 2024			December 31, 2023
	(Unaudited)
Assets:
Cash and due from banks	$	6,242		$	5,460
Interest-bearing deposits in other banks		83,571			99,735
Cash and cash equivalents		89,813			105,195
Securities available-for-sale, at fair value (amortized cost of $280,411 and $335,978)		261,454			316,950
Loans receivable held for investment, net of allowance of $8,104 and $7,348		938,736			880,457
Accrued interest receivable		5,228			4,938
Federal Home Loan Bank (“FHLB”) stock		10,292			10,156
Federal Reserve Bank (“FRB”) stock		3,543			3,543
Office properties and equipment, net		9,613			9,840
Bank owned life insurance, net		3,297			3,275
Deferred tax assets, net		9,846			9,538
Core deposit intangible, net		1,943			2,111
Goodwill		25,858			25,858
Other assets		7,667			3,543
Total assets	$	1,367,290		$	1,375,404
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	687,369		$	682,635
Securities sold under agreements to repurchase		72,658			73,475
FHLB advances		209,242			209,319
Bank Term Funding Program (“BTFP”) borrowing		100,000			100,000
Notes payable		–			14,000
Accrued expenses and other liabilities		15,551			13,878
Total liabilities		1,084,820			1,093,307
Non-Cumulative Redeemable Perpetual Preferred stock, Series C; authorized 150,000 shares at June 30, 2024 and December 31, 2023; issued and outstanding 150,000 shares at June 30, 2024 and December 31, 2023; liquidation value $1,000 per share		150,000			150,000
Common stock, Class A, $0.01 par value, voting; authorized 75,000,000 shares at June 30, 2024 and December 31, 2023; issued 6,361,071 shares at June 30, 2024 and 6,242,089 shares at December 31, 2023; outstanding 6,033,843 shares at June 30, 2024 and 5,914,861 shares at December 31, 2023		64			62
Common stock, Class B, $0.01 par value, non-voting; authorized 15,000,000 shares at June 30, 2024 and December 31, 2023; issued and outstanding 1,425,574 shares at June 30, 2024 and December 31, 2023		14			14
Common stock, Class C, $0.01 par value, non-voting; authorized 25,000,000 shares at June 30, 2024 and December 31, 2023; issued and outstanding 1,672,562 at June 30, 2024 and December 31, 2023		17			17
Additional paid-in capital		142,690			142,601
Retained earnings		12,657			12,552
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(4,348	)		(4,492	)
Accumulated other comprehensive loss, net of tax		(13,475	)		(13,525	)
Treasury stock-at cost, 327,228 shares at June 30, 2024 and at December 31, 2023		(5,326	)		(5,326	)
Total Broadway Financial Corporation and Subsidiary stockholders’ equity		282,293			281,903
Non-controlling interest		177			194
Total liabilities and stockholders’ equity	$	1,367,290		$	1,375,404

See accompanying notes to unaudited consolidated financial statements.

1

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share amounts)

 (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024			2023
Interest income:
Interest and fees on loans receivable	$	12,179	$	9,098		$	23,308		$	17,633
Interest on available-for-sale securities		1,876		2,183			3,951			4,363
Other interest income		1,433		359			3,022			687
Total interest income		15,488		11,640			30,281			22,683
Interest expense:
Interest on deposits		3,086		1,549			5,885			2,852
Interest on borrowings		4,484		2,823			8,954			4,289
Total interest expense		7,570		4,372			14,839			7,141
Net interest income		7,918		7,268			15,442			15,542
Provision for credit losses		494		768			754			810
Net interest income after provision for credit losses		7,424		6,500			14,688			14,732
Non-interest income:
Service charges		38		38			78			99
Other		235		222			501			450
Total non-interest income		273		260			579			549
Non-interest expense:
Compensation and benefits		4,469		3,734			8,866			7,483
Occupancy expense		432		443			867			888
Information services		663		735			1,370			1,450
Professional services		563		607			1,973			1,112
Supervisory costs		216		201			393			295
Office services and supplies		48		26			82			48
Advertising and promotional expense		63		59			91			127
Corporate insurance		64		61			125			123
Appraisal and other loan expense		–		26			–			69
Amortization of core deposit intangible		84		97			168			195
Travel expense		55		37			134			115
Other expense		623		395			1,021			768
Total non-interest expense		7,280		6,421			15,090			12,673
Income before income taxes		417		339			177			2,608
Income tax expense		146		93			89			767
Net income	$	271	$	246		$	88		$	1,841
Less: Net income (loss) attributable to non-controlling interest		2		3			(17	)		25
Net income attributable to Broadway Financial Corporation	$	269	$	243		$	105		$	1,816
Other comprehensive income (loss), net of tax:
Unrealized income (losses) on securities available-for-sale arising during the period	$	874	$	(3,356	)	$	71		$	77
Income tax expense (benefit)		253		(965	)		21			23
Other comprehensive income (loss), net of tax		621		(2,391	)		50			54
Comprehensive income (loss)	$	890	$	(2,148	)	$	155		$	1,870
Earnings per common share-basic(1)	$	0.03	$	0.03		$	0.01		$	0.20
Earnings per common share-diluted(1)	$	0.03	$	0.03		$	0.01		$	0.20

⁽¹⁾ Retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023 - see Note 1

See accompanying notes to unaudited consolidated financial statements.

2

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2024			2023
	(In thousands)
Cash flows from operating activities:
Net income	$	88		$	1,841
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for credit losses		754			810
Depreciation		327			323
Net change of deferred loan origination costs		238			(460	)
Net accretion of premiums and discounts on available-for-sale securities		(483	)		(511	)
Accretion of purchase accounting marks on loans		(177	)		(66	)
Amortization of core deposit intangible		168			195
Director compensation expense-common stock		96			95
Accretion of premium on FHLB advances		(7	)		(6	)
Stock-based compensation expense		115			90
ESOP compensation expense		91			22
Earnings on bank owned life insurance		(22	)		(20	)
Change in assets and liabilities:
Net change in deferred taxes		(328	)		461
Net change in accrued interest receivable		(290	)		(141	)
Net change in other assets		(4,124	)		(595	)
Net change in accrued expenses and other liabilities		1,673			97
Net cash (used in) provided by operating activities		(1,881	)		2,135
Cash flows from investing activities:
Net change in loans receivable held for investment		(59,094	)		(58,668	)
Principal payments on available-for-sale securities		56,049			6,821
Purchase of FHLB stock		(136	)		(3,783	)
Proceeds from redemption of FHLB stock		–			256
Proceeds from redemption of FRB stock		–			1,721
Purchase of office properties and equipment		(100	)		(32	)
Net cash used in investing activities		(3,281	)		(53,685	)
Cash flows from financing activities:
Net change in deposits		4,734			(40,853	)
Net change in securities sold under agreements to repurchase		(817	)		7,910
Purchase of unreleased ESOP shares		–			(2,800	)
Repayment of notes payable		(14,000	)		–
Cash dividends paid - ECIP		(67	)		–
Proceeds from FHLB advances		–			82,000
Repayments of FHLB advances		(70	)		(70	)
Net cash (used in) provided by financing activities		(10,220	)		46,187
Net change in cash and cash equivalents		(15,382	)		(5,363	)
Cash and cash equivalents at beginning of the period		105,195			16,105
Cash and cash equivalents at end of the period	$	89,813		$	10,742
Supplemental disclosures of cash flow information:
Cash paid for interest	$	12,032		$	4,648
Cash paid for income taxes		–			236

See accompanying notes to unaudited consolidated financial statements.

3

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Three Month Periods Ended June 30, 2024 and 2023
	Preferred Stock Non-Voting		Common Stock Voting		Common Stock Non-Voting		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Unearned ESOP Shares			Treasury Stock			Non-Controlling Interest		Total Stockholders’ Equity
	(In thousands)
Balance at April 1, 2024	$	150,000	$	62	$	31	$	142,653		$	(14,096	)	$	12,388	$	(4,420	)	$	(5,326	)	$	175	$	281,467
Net income		–		–		–		–			–			269		–			–			2		271
Release of unearned ESOP shares		–		2		–		(30	)		–			–		72			–			–		44
Stock-based compensation expense		–		–		–		38			–			–		–			–			–		38
Director stock compensation expense		–		–		–		96			–			–		–			–			–		96
Dividends paid - ECIP		–		–		–		(67	)		–			–		–			–			–		(67	)
Other comprehensive income, net of tax		–		–		–		–			621			–		–			–			–		621
Balance at June 30, 2024	$	150,000	$	64	$	31	$	142,690		$	(13,475	)	$	12,657	$	(4,348	)	$	(5,326	)	$	177	$	282,470
Balance at April 1, 2023	$	150,000	$	64	$	31	$	144,287		$	(15,028	)	$	9,611	$	(3,963	)	$	(5,326	)	$	192	$	279,868
Net income		–		–		–		–			–			243		–			–			3		246
Release of unearned ESOP shares		–		–		–		(6	)		–			–		16			–			–		10
Increase in unreleased shares		–		–		–		–			–			–		(300	)		–			–		(300	)
Stock-based compensation expense		–		1		–		50			–			–		–			–			–		51
Other comprehensive loss, net of tax		–		–		–		–			(2,391	)		–		–			–			–		(2,391	)
Balance at June 30, 2023	$	150,000	$	65	$	31	$	144,331		$	(17,419	)	$	9,854	$	(4,247	)	$	(5,326	)	$	195	$	277,484

See accompanying notes to unaudited consolidated financial statements.

4

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Six Month Periods Ended June 30, 2024 and 2023
	Preferred Stock Non-Voting		Common Stock Voting		Common Stock Non-Voting		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Unearned ESOP Shares			Treasury Stock			Non-Controlling Interest			Total Stockholders’ Equity
	(In thousands)
Balance at January 1, 2024	$	150,000	$	62	$	31	$	142,601		$	(13,525	)	$	12,552		$	(4,492	)	$	(5,326	)	$	194		$	282,097
Net income (loss)		–		–		–		–			–			105			–			–			(17	)		88
Release of unearned ESOP shares		–		2		–		(55	)		–			–			144			–			–			91
Stock-based compensation expense		–		–		–		115			–			–			–			–			–			115
Director stock compensation expense		–		–		–		96			–			–			–			–			–			96
Dividends paid - ECIP		–		–		–		(67	)		–			–			–			–			–			(67	)
Other comprehensive income, net of tax		–		–		–		–			50			–			–			–			–			50
Balance at June 30, 2024	$	150,000	$	64	$	31	$	142,690		$	(13,475	)	$	12,657		$	(4,348	)	$	(5,326	)	$	177		$	282,470
Adjusted balance, January 1, 2023	$	150,000	$	64	$	31	$	144,157		$	(17,473	)	$	9,294		$	(1,265	)	$	(5,326	)	$	170		$	279,652
Cumulative change related to adoption of ASU 2016-13		–		–		–		–			–			(1,256	)		–			–			–			(1,256	)
Adjusted balance, January 1, 2023		150,000		64		31		144,157			(17,473	)		8,038			(1,265	)		(5,326	)		170			278,396
Net income		–		–		–		–			–			1,816			–			–			25			1,841
Release of unearned ESOP shares		–		–		–		(10	)		–			–			(182	)		–			–			(192	)
Stock-based compensation expense		–		1		–		89			–			–			–			–			–			90
Director stock compensation expense		–		–		–		95			–			–			–			–			–			95
Increase in unreleased shares		–		–		–		–			–			–			(2,800	)		–			–			(2,800	)
Other comprehensive income, net of tax		–		–		–		–			54			–			–			–			–			54
Balance at June 30, 2023	$	150,000	$	65	$	31	$	144,331		$	(17,419	)	$	9,854		$	(4,247	)	$	(5,326	)	$	195		$	277,484

See accompanying notes to unaudited consolidated financial statements.

5

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

NOTE 1 – Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, City First Bank, National Association (the “Bank” and, together with the Company, “City First Broadway”). Also included in the unaudited consolidated financial statements are the following subsidiaries of City First Bank: 1432 U Street LLC, Broadway Service Corporation, City First Real Estate LLC, City First Real Estate II LLC, City First Real Estate III LLC, City First Real Estate IV LLC, and CF New Markets Advisors, LLC (“CFNMA”). In addition, CFNMA also consolidates CFC Fund Manager II, LLC; City First New Markets Fund II, LLC; City First Capital IX, LLC; and City First Capital 45, LLC (“CFC 45”) into its financial results. 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, 2023 (“2023 Form 10-K”) 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Except as discussed below, our accounting policies are described in Note 1 – Summary of Significant Accounting Policies of our audited consolidated financial statements included in the 2023 Form 10-K.

Reverse Stock Split

On October 30, 2023, the Company effected a reverse stock split of the Company’s outstanding shares of Class A common stock, Class B common stock, and Class C common stock, par value $0.01 per share at a ratio of 1-for-8 (the “Reverse Stock Split”). The shares of Class A common stock listed on The Nasdaq Capital Market commenced trading on The Nasdaq Capital Market on a post-Reverse Stock Split adjusted basis at the open of business on November 1, 2023.  As a result of the Reverse Stock Split, the number of issued and outstanding shares of common stock immediately prior to the Reverse Stock Split was reduced such that every eight shares of common stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of common stock.  All common stock share amounts and per share numbers discussed herein have been retroactively adjusted for the Reverse Stock Split.

NOTE 2 – Earnings Per Share of Common Stock

Basic earnings per share of common stock is computed pursuant to the two-class method by dividing net income available to common stockholders less dividends paid on participating securities (unvested shares of restricted common stock) and any undistributed earnings attributable to participating securities by the weighted average common shares outstanding during the period.  The weighted average common shares outstanding includes the weighted average number of shares of common stock outstanding less the weighted average number of unvested shares of restricted common stock. Employee Stock Ownership Plan (“ESOP”) shares are considered outstanding for this calculation unless unearned.  Diluted earnings per share of common stock includes the dilutive effect of unvested stock awards and additional potential common shares issuable under stock compensation plans. Stock options for 12,500 and 31,250 shares of common stock at June 30,2024 and 2023, respectively, were not considered in computing diluted earnings per common share because they were anti‑dilutive.

The following table shows how the Company computed basic and diluted earnings per share of common stock for the periods indicated: 

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(In thousands, except share and per share data)
Net income attributable to Broadway Financial Corporation	$	269	$	243	$	105	$	1,816
Less: Net income attributable to participating securities		6		4		3		27
Income available to common stockholders	$	263	$	239	$	102	$	1,789
Weighted average common shares outstanding for basic earnings per common share(1)		8,394,367		8,683,764		8,308,359		8,772,198
Add: Dilutive effects of unvested restricted stock awards(1)		202,618		128,230		204,903		130,149
Weighted average common shares outstanding for diluted earnings per common share(1)		8,596,985		8,811,994		8,513,262		8,902,347
Earnings per common share - basic(1)	$	0.03	$	0.03	$	0.01	$	0.20
Earnings per common share - diluted(1)	$	0.03	$	0.03	$	0.01	$	0.20

⁽¹⁾ Retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023 - see Note 1

6

NOTE 3 – Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2024:
Federal agency mortgage-backed securities	$	67,240	$	4	$	(10,209	)	$	57,035
Federal agency collateralized mortgage obligations (“CMO”)		23,180		7		(1,451	)		21,736
Federal agency debt		46,733		–		(2,933	)		43,800
Municipal bonds		4,817		–		(482	)		4,335
U. S. Treasuries		127,534		–		(2,250	)		125,284
U.S. Small Business Administration (“SBA”) pools		10,907		6		(1,649	)		9,264
Total available-for-sale securities	$	280,411	$	17	$	(18,974	)	$	261,454
December 31, 2023:
Federal agency mortgage-backed securities	$	76,091	$	3	$	(9,316	)	$	66,778
Federal agency CMOs		24,720		–		(1,381	)		23,339
Federal agency debt		50,893		–		(3,057	)		47,836
Municipal bonds		4,833		–		(460	)		4,373
U. S. Treasuries		167,055		–		(3,175	)		163,880
SBA pools		12,386		4		(1,646	)		10,744
Total available-for-sale securities	$	335,978	$	7	$	(19,035	)	$	316,950

As of June 30, 2024, investment securities with a fair value of $70.9 million were pledged as collateral for securities sold under agreements to repurchase and included $30.5 million of federal agency debt securities, $30.1 million of U.S. Treasury securities and $10.3 million of federal agency mortgage-backed securities. As of December 31, 2023, investment securities with a fair value of $89.0 million were pledged as collateral for securities sold under agreements to repurchase and included $47.8 million of U.S. Treasury securities, $30.2 million of federal agency debt securities, and $11.0 million of federal agency mortgage-backed securities. Investment securities with a fair value of $94.0 million and $98.3 million were pledged as collateral for the BTFP borrowing as of June 30, 2024 and December 31, 2023, respectively (See Note 6 – Borrowings). Accrued interest receivable on securities was $1.0 million and $1.4 million at June 30, 2024 and December 31, 2023, respectively, and is included in the consolidated statements of financial condition under accrued interest receivable.

At June 30, 2024, and December 31, 2023, 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.

The amortized cost and estimated fair value of all investment securities available-for-sale at June 30, 2024, by contractual maturities are shown below. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Due in one year or less	$	98,666	$	–	$	(1,322	)	$	97,344
Due after one year through five years		74,828		–		(3,899	)		70,929
Due after five years through ten years		27,551		10		(1,757	)		25,804
Due after ten years (1)		79,366		7		(11,996	)		67,377
	$	280,411	$	17	$	(18,974	)	$	261,454

^{(1) Mortgage-backed securities, collateralized mortgage obligations and SBA pools do not have a single stated maturity date and therefore have been included in the “Due after ten years” category.}

7

The table below indicates the length of time individual securities had been in a continuous unrealized loss position:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
June 30, 2024:
Federal agency mortgage-backed securities	$	–	$	–		$	56,791	$	(10,209	)	$	56,791	$	(10,209	)
Federal agency CMOs		–		–			20,962		(1,451	)		20,962		(1,451	)
Federal agency debt		–		–			43,800		(2,933	)		43,800		(2,933	)
Municipal bonds		–		–			4,335		(482	)		4,335		(482	)
U. S. Treasuries		–		–			125,284		(2,250	)		125,284		(2,250	)
SBA pools		–		–			8,082		(1,649	)		8,082		(1,649	)
Total unrealized loss position investment securities	$	–	$	–		$	259,254	$	(18,974	)	$	259,254	$	(18,974	)
December 31, 2023:
Federal agency mortgage-backed securities	$	–	$	–		$	66,575	$	(9,316	)	$	66,575	$	(9,316	)
Federal agency CMOs		–		–			23,339		(1,381	)		23,339		(1,381	)
Federal agency debt		3,018		(37	)		44,818		(3,020	)		47,836		(3,057	)
Municipal bonds		–		–			4,373		(460	)		4,373		(460	)
U. S. Treasuries		–		–			163,880		(3,175	)		163,880		(3,175	)
SBA pools		286		(1	)		9,439		(1,645	)		9,725		(1,646	)
Total unrealized loss position investment securities	$	3,304	$	(38	)	$	312,424	$	(18,997	)	$	315,728	$	(19,035	)

At June 30, 2024, and December 31, 2023, there were no securities in nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. At June 30, 2024, and December 31, 2023, there were no securities purchased with deterioration in credit quality since their origination. At June 30, 2024, and December 31, 2023, there were no collateral dependent securities.

The Company’s assessment of available-for-sale investment securities as of June 30, 2024 and December 31, 2023, indicated that an allowance for credit losses (“ACL”) was not required. The Company analyzed available-for-sale investment securities that were in an unrealized loss position and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities as of  June 30, 2024 and December 31, 2023.

8

NOTE 4. – Loans Receivable Held for Investment

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

	June 30, 2024			December 31, 2023
	(In thousands)
Real estate:
Single-family	$	27,265		$	24,702
Multi-family		614,014			561,447
Commercial real estate		125,789			119,436
Church		11,775			12,717
Construction		93,951			89,887
Commercial – other		59,538			63,450
SBA loans (1)		12,886			14,954
Consumer		1			13
Gross loans receivable before deferred loan costs and premiums		945,219			886,606
Unamortized net deferred loan costs and premiums		2,216			1,971
Gross loans receivable		947,435			888,577
Credit and interest marks on purchased loans, net		(595	)		(772	)
Allowance for credit losses		(8,104	)		(7,348	)
Loans receivable, net	$	938,736		$	880,457

(1) Including Paycheck Protection Program (“PPP”) loans.

As of June 30, 2024 and December 31, 2023, the SBA loan category above included $15 thousand and $2.5 million, respectively, of loans issued under the SBA’s PPP. PPP loans have terms of two to five years and earn interest at 1%. PPP loans are fully guaranteed by the SBA and have virtually no risk of loss. The bank expects the vast majority of the PPP loans to be fully forgiven by the SBA.

Accrued interest on loans receivable was $3.9 million and $3.3 million at June 30, 2024 and December 31, 2023, respectively.

The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the weighted average remaining maturity (“WARM”) method when determining estimates for the allowance for credit losses (“ACL”) for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Qualitative adjustments may include, but are not limited to, factors such as: (i) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; (ii) changes in international, national, regional, and local conditions; (iii) changes in the nature and volume of the portfolio and terms of loans; (iv) changes in the experience, depth, and ability of lending management; (v) changes in the volume and severity of past due loans and other similar conditions; (vi) changes in the quality of the organization’s loan review system; (vii) changes in the value of underlying collateral for collateral dependent loans; (viii) the existence and effect of any concentrations of credit and changes in the levels of such concentrations; and (ix) the effect of other external factors (i.e., competition, legal and regulatory requirements) on the level of estimated credit losses. These qualitative factors incorporate the concept of reasonable and supportable forecasts, as required by ASC 326.

For the three months ended June 30, 2024, the Company recorded a provision for credit losses of $494 thousand, compared to $768 thousand for the three months ended June 30, 2023.  For the six months ended June 30, 2024, the Company recorded a provision for credit losses of $754 thousand, compared to $810 thousand for the six months ended June 30, 2023.  The provisions for credit losses during the three and six months ended June 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $58 thousand and $2 thousand, respectively.  The provisions for credit losses during the three and six months ended June 30, 2023 include provisions for credit losses for off-balance sheet loan commitments of $83 thousand and $37 thousand, respectively. The decreases in the provisions for credit losses were primarily due to lower loan originations and declines in the provision for credit losses for off-balance sheet loan commitments.

9

The allowance for credit losses (“ACL”) increased to $8.1 million as of June 30, 2024, compared to $7.3 million as of December 31, 2023 due to growth in the loan portfolio.

The following tables summarize the activity in the allowance for credit losses on loans for the periods indicated:

	Three Months Ended June 30, 2024
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) (1)				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	298		$	–		$	–		$	3			$	301
Multi-family			4,325			–			–			365				4,690
Commercial real estate			1,109			–			–			62				1,171
Church			90			–			–			(6	)			84
Construction			956			–			–			154				1,110
Commercial - other			722			–			–			(104	)			618
SBA loans			52			–			–			78				130
Consumer			–			–			–			–				–
Total		$	7,552		$	–		$	–		$	552			$	8,104

	Six Months Ended June 30, 2024
	Beginning Balance		Charge-offs		Recoveries		Provision (Recapture) (1)		Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single family	$	260	$	–	$	–	$	41	$	301
Multi-family		4,413		–		–		277		4,690
Commercial real estate		1,094		–		–		77		1,171
Church		72		–		–		12		84
Construction		932		–		–		178		1,110
Commercial - other		529		–		–		89		618
SBA loans		48		–		–		82		130
Consumer		–		–		–		–		–
Total	$	7,348	$	–	$	–	$	756	$	8,104

(1) The bank also recorded a recovery of provision for off-balance sheet loan commitments of $58 thousand and $2 thousand for the three and six months ended June 30, 2024, respectively.

	Three Months Ended June 30, 2023
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) (1)				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	261		$	–		$	–		$	(14	)		$	247
Multi-family			3,932			–			–			323				4,255
Commercial real estate			1,012			–			–			–				1,012
Church			92			–			–			(9	)			83
Construction			593			–			–			195				788
Commercial - other			357			–			–			189				546
SBA loans			38			–			–			1				39
Consumer			–			–			–			–				–
Total		$	6,285		$	–		$	–		$	685			$	6,970

10

	Six Months Ended June 30, 2023
	Beginning Balance		Impact of CECL Adoption			Charge-offs		Recoveries		Provision (Recapture) (1)			Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single family	$	109	$	214		$	–	$	–	$	(76	)	$	247
Multi-family		3,273		603			–		–		379			4,255
Commercial real estate		449		466			–		–		97			1,012
Church		65		37			–		–		(19	)		83
Construction		313		219			–		–		256			788
Commercial - other		175		254			–		–		117			546
SBA loans		–		20			–		–		19			39
Consumer		4		(4	)		–		–		–			–
Total	$	4,388	$	1,809		$	–	$	–	$	773		$	6,970

(1) The bank also recorded a provision for off-balance sheet loan commitments of $83 thousand and $37 thousand for the three and six months ended June 30, 2023, respectively.

The Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified from those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated selling costs. The Company may increase or decrease the ACL for collateral dependent loans based on changes in the estimated fair value of the collateral.

The following table presents collateral dependent loans by collateral type as of the date indicated:

	June 30, 2024
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	39	$	–	$	–	$	–	$	39
Commercial real estate		–		–		55		–		55
Church		–		–		387		–		387
Total	$	39	$	–	$	442	$	–	$	481

	December 31, 2023
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	45	$	–	$	–	$	–	$	45
Multi-family		–		5,672		–		–		5,672
Commercial real estate		–		–		65		–		65
Church		–		–		391		–		391
Commercial – other		–		–		–		268		268
Total	$	45	$	5,672	$	456	$	268	$	6,441

11

At June 30, 2024 and December 31, 2023, $0.5 million and $6.4 million, respectively, of individually evaluated loans were evaluated based on the underlying value of the collateral. These loans had an associated ACL of $0 and $112 thousand, as of June 30, 2024 and December 31, 2023, respectively.  None of these collateral dependent loans were on nonaccrual status at June 30, 2024 or December 31, 2023.  At June 30, 2024 one $81 thousand individually evaluated loan was evaluated using a discounted cash flow approach. At December 31, 2023, no individually evaluated loans were evaluated using a discounted cash flow approach.

Past Due Loans

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

	June 30, 2024
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single-family	$	–	$	–	$	–	$	–	$	27,265	$	27,265
Multi-family		–		–		–		–		616,230		616,230
Commercial real estate		–		–		–		–		125,789		125,789
Church		387		–		–		387		11,388		11,775
Construction		–		–		–		–		93,951		93,951
Commercial - other		–		–		–		–		59,538		59,538
SBA loans		–		323		5		328		12,558		12,886
Consumer		–		–		–		–		1		1
Total	$	387	$	323	$	5	$	715	$	946,720	$	947,435

	December 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(In thousands)
Loans receivable held for investment:
Single-family	$	–	$	–	$	–	$	–	$	24,702	$	24,702
Multi-family		–		401		–		401		563,017		563,418
Commercial real estate		–		–		–		–		119,436		119,436
Church		–		–		–		–		12,717		12,717
Construction		–		–		–		–		89,887		89,887
Commercial - other		–		–		–		–		63,450		63,450
SBA loans		379		–		–		379		14,575		14,954
Consumer		–		–		–		–		13		13
Total	$	379	$	401	$	–	$	780	$	887,797	$	888,577

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

	June 30, 2024		December 31, 2023
	(In thousands)
Loans receivable held for investment:
SBA loans	$	328		$	–
Total non-accrual loans	$	328		$	–

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2024 or December 31, 2023.

Modified Loans to Troubled Borrowers

GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported, which consist of the following: (i) principal forgiveness, (ii) interest rate reduction, (iii) other-than-insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing. The ACL for loans that were modified in response to a borrower’s financial difficulty is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for such loans is determined through individual evaluation. There were no loan modifications to borrowers that were experiencing financial difficulty during the three or six months ended June 30, 2024 or 2023.

12

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:

● 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.

13

The following tables stratify the loans held for investment portfolio by the Company’s internal risk grading and by year of origination as of June 30, 2024 and December 31, 2023:

	Term Loans Amortized Cost Basis by Origination Year - As of June 30, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	549	$	4,112	$	1,836	$	2,033	$	14,294	$	–	$	22,824
Watch		–		–		–		740		862		194		–		1,796
Special Mention		–		–		–		1,186		–		113		–		1,299
Substandard		–		–		–		–		1,346		–		–		1,346
Total	$	–	$	549	$	4,112	$	3,762	$	4,241	$	14,601	$	–	$	27,265
Multi-family:
Pass	$	55,871	$	86,086	$	180,799	$	130,893	$	27,029	$	88,504	$	–	$	569,182
Watch		–		–		8,528		14,485		–		9,707		–		32,720
Special Mention		–		–		–		3,155		–		2,007		–		5,162
Substandard		–		–		–		888		–		8,278		–		9,166
Total	$	55,871	$	86,086	$	189,327	$	149,421	$	27,029	$	108,496	$	–	$	616,230
Commercial real estate:
Pass	$	21,500	$	1,742	$	21,258	$	25,758	$	14,851	$	20,140	$	–	$	105,249
Watch		–		–		437		–		13,203		2,557		–		16,197
Special Mention		–		880		–		–		–		–		–		880
Substandard		–		–		–		–		–		3,463		–		3,463
Total	$	21,500	$	2,622	$	21,695	$	25,758	$	28,054	$	26,160	$	–	$	125,789
Church:
Pass	$	–	$	2,861	$	–	$	2,182	$	1,722	$	2,559	$	–	$	9,324
Watch		–		–		–		–		–		850		–		850
Special Mention		–		–		–		–		–		643		–		643
Substandard		–		–		–		–		–		958		–		958
Total	$	–	$	2,861	$	–	$	2,182	$	1,722	$	5,010	$	–	$	11,775
Construction:
Pass	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Watch		2,725		45,611		22,937		5,870		–		1,714		–		78,857
Special Mention		–		252		10,761		–		–		–		–		11,013
Substandard		–		1,561		–		2,520		–		–		–		4,081
Total	$	2,725	$	47,424	$	33,698	$	8,390	$	–	$	1,714	$	–	$	93,951
Commercial – other:
Pass	$	–	$	15,000	$	8,052	$	–	$	2,841	$	7,399	$	–	$	33,292
Watch		17,594		–		718		–		–		2,250		–		20,562
Special Mention		–		–		351		–		927		4,300		–		5,578
Substandard		–		–		–		106		–		–		–		106
Total	$	17,594	$	15,000	$	9,121	$	106	$	3,768	$	13,949	$	–	$	59,538
SBA:
Pass	$	500	$	9,050	$	150	$	15	$	–	$	1,406	$	–	$	11,121
Substandard		–		–		–		–		405		1,360		–		1,765
Total	$	500	$	9,050	$	150	$	15	$	405	$	2,766	$	–	$	12,886
Consumer:
Pass	$	1	$	–	$	–	$	–	$	–	$	–	$	–	$	1
Total	$	1	$	–	$	–	$	–	$	–	$	–	$	–	$	1
Total loans:
Pass	$	77,872	$	115,288	$	214,371	$	160,684	$	48,476	$	134,302	$	–	$	750,993
Watch		20,319		45,611		32,620		21,095		14,065		17,272		–		150,982
Special Mention		–		1,132		11,112		4,341		927		7,063		–		24,575
Substandard		–		1,561		–		3,514		1,751		14,059		–		20,885
Total loans	$	98,191	$	163,592	$	258,103	$	189,634	$	65,219	$	172,696	$	–	$	947,435

14

	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	2,474	$	1,862	$	2,940	$	1,485	$	12,374	$	–	$	21,135
Watch		–		–		750		–		–		999		–		1,749
Special Mention		–		–		–		–		–		116		–		116
Substandard		–		–		–		1,365		–		337		–		1,702
Total	$	–	$	2,474	$	2,612	$	4,305	$	1,485	$	13,826	$	–	$	24,702
Multi-family:
Pass	$	81,927	$	183,295	$	145,652	$	27,356	$	44,511	$	47,119	$	–	$	529,860
Watch		–		4,686		6,203		–		1,186		6,474		–		18,549
Special Mention		–		–		899		–		–		1,344		–		2,243
Substandard		–		–		–		–		363		12,403		–		12,766
Total	$	81,927	$	187,981	$	152,754	$	27,356	$	46,060	$	67,340	$	–	$	563,418
Commercial real estate:
Pass	$	9,881	$	22,131	$	26,019	$	24,684	$	6,718	$	15,106	$	–	$	104,539
Watch		–		442		–		5,286		–		2,599		–		8,327
Special Mention		–		–		–		–		325		–		–		325
Substandard		–		–		–		–		–		6,245		–		6,245
Total	$	9,881	$	22,573	$	26,019	$	29,970	$	7,043	$	23,950	$	–	$	119,436
Church:
Pass	$	2,923	$	–	$	2,210	$	1,748	$	–	$	2,704	$	–	$	9,585
Watch		–		–		–		–		636		1,525		–		2,161
Substandard		–		–		–		–		–		971		–		971
Total	$	2,923	$	–	$	2,210	$	1,748	$	636	$	5,200	$	–	$	12,717
Construction:
Pass	$	–	$	1,109	$	1,198	$	–	$	–	$	–	$	–	$	2,307
Watch		42,300		35,179		5,484		–		–		2,097		–		85,060
Special Mention		–		–		2,520		–		–		–		–		2,520
Total	$	42,300	$	36,288	$	9,202	$	–	$	–	$	2,097	$	–	$	89,887
Commercial – other:
Pass	$	15,000	$	9,077	$	87	$	5,600	$	–	$	25,154	$	–	$	54,918
Watch		–		312		–		1,500		6,550		–		–		8,362
Special Mention		–		–		170		–		–		–		–		170
Total	$	15,000	$	9,389	$	257	$	7,100	$	6,550	$	25,154	$	–	$	63,450
SBA:
Pass	$	11,809	$	109	$	2,453	$	–	$	16	$	100	$	–	$	14,487
Special Mention		–		–		–		467		–		–		–		467
Total	$	11,809	$	109	$	2,453	$	467	$	16	$	100	$	–	$	14,954
Consumer:
Pass	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13
Total	$	13	$	–	$	–	$	–	$	–	$	–	$	–	$	13
Total loans:
Pass	$	121,553	$	218,195	$	179,481	$	62,328	$	52,730	$	102,557	$	–	$	736,844
Watch		42,300		40,619		12,437		6,786		8,372		13,694		–		124,208
Special Mention		–		–		3,589		467		325		1,460		–		5,841
Substandard		–		–		–		1,365		363		19,956		–		21,684
Total loans	$	163,853	$	258,814	$	195,507	$	70,946	$	61,790	$	137,667	$	–	$	888,577

Allowance for Credit Losses for Off-Balance Sheet Commitments

The Company maintains an allowance for credit losses on off-balance sheet commitments related to unfunded loans and lines of credit, which is included in accrued expenses and other liabilities in the consolidated statements of financial condition. The Company applies an expected credit loss estimation methodology for off-balance sheet commitments. This methodology is commensurate with the methodology applied to each respective segment of the loan portfolio in determining the ACL for loans held-for-investment. The loss estimation process includes assumptions for the probability that a loan will fund, as well as the expected amount of funding. These assumptions are based on the Company’s own historical internal loan data.

The allowance for off-balance sheet commitments was $367 thousand and $364 thousand at June 30, 2024 and December 31, 2023, respectively.  The recovery of provision for off-balance sheet loan commitments was $58 thousand for the three months ended June 30, 2024 and $2 thousand for the six months ended June 30, 2024. The provision for off-balance sheet loan commitments was $83 thousand for the three months ended June 30, 2023 and $37 thousand for the six months ended June 30, 2023.

15

NOTE 5 – Goodwill and Core Deposit Intangible

The Company recognized goodwill of $25.9 million and a core deposit intangible of $1.9 million as of June 30, 2024. The following tables present the changes in the carrying amounts of goodwill and core deposit intangibles for the six months ended June 30, 2024 and 2023:

	June 30, 2024
	Goodwill		Core Deposit Intangible
	(In thousands)
Balance at the beginning of the period	$	25,858	$	2,111
Additions		–		–
Change in deferred tax estimate		–		–
Amortization		–		(168	)
Balance at the end of the period	$	25,858	$	1,943

	June 30, 2023
	Goodwill		Core Deposit Intangible
	(In thousands)
Balance at the beginning of the period	$	25,858	$	2,501
Additions		–		–
Change in deferred tax estimate		–		–
Amortization		–		(195	)
Balance at the end of the period	$	25,858	$	2,306

The carrying amount of the core deposit intangible consisted of the following (in thousands):

		June 30, 2024			December 31, 2023
Core deposit intangible acquired	$	3,329		$	3,329
Less: Accumulated amortization		(1,386	)		(1,218	)
	$	1,943		$	2,111

The following table outlines the estimated amortization expense for the core deposit intangible during the next five fiscal years (in thousands):

Remainder of 2024	$	168
2025		315
2026		304
2027		291
2028		279
Thereafter		586
	$	1,943

16

NOTE 6 – Borrowings

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of June 30, 2024 securities sold under agreements to repurchase totaled $72.7 million at an average rate of 3.68%. The fair value of securities pledged totaled $70.9 million as of June 30, 2024. As of December 31, 2023, securities sold under agreements to repurchase totaled $73.5 million at an average rate of 3.64%. The fair value of securities pledged totaled $89.0 million as of December 31, 2023.

At June 30, 2024 and December 31, 2023, the Company had outstanding advances from the FHLB totaling $209.2 million and $209.3 million, respectively. The weighted interest rate was 4.91% as of both June 30, 2024 and December 31, 2023. The weighted average contractual maturity was one month as of June 30, 2024 and two months as of December 31, 2023, respectively. The advances were collateralized by loans with an unpaid balance of $506.2 million at June 30, 2024 and $435.4 million at December 31, 2023. The Company is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Company provides qualifying collateral and holds sufficient FHLB stock. Based on collateral pledged and FHLB stock held, the Company was eligible to borrow an additional $171.4 million as of June 30, 2024.

On December 27, 2023, the Company borrowed $100.0 million from the Federal Reserve under the BTFP. As of  both June 30, 2024 and December 31, 2023, $100.0 million was outstanding. The interest rate on this borrowing is fixed at 4.84% and the borrowing matures on December 29, 2024. Investment securities with a fair value of $94.0 million and $98.3 million were pledged as collateral for this borrowing as of June 30, 2024 and December 31, 2023, respectively. There are no prepayment penalties for early payoff. As the BTFP ended on March 11, 2024, no additional borrowings can be made under the program.

In addition, the Company had additional lines of credit of $10.0 million with other financial institutions as of June 30, 2024 and December 31, 2023. These lines of credit are unsecured, bear interest at the Federal funds rate as of the date of utilization and mature in 30 days.  There were no amounts outstanding under these lines of credit as of June 30, 2024 or December 31, 2023.

In connection with the New Market Tax Credit activities of the Bank, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This community development entity (“CDE”) acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a Qualified Active Low-Income Business (“QALICB”). The loan to the QALICB was secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, was operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the QALICB were passed through to Merrill Lynch in return for which CFC 45 received a servicing fee. The financial statements of CFC 45 are consolidated with those of the Bank and the Company.

There were two notes for CFC 45. Note A was in the amount of $9.9 million with a fixed interest rate of 5.2% per annum. Note B was in the amount of $4.1 million with a fixed interest rate of 0.24% per annum. Quarterly interest only payments commenced in March 2016 and continued through March 2023 for Notes A and B. These notes were paid off during January 2024.

NOTE 7 – Fair Value

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

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

The fair value of 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. Collateral dependent loans are evaluated on a quarterly basis for additional required calculation adjustments (taken as part of the ACL) and adjusted accordingly.

17

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

Assets Measured on a Recurring Basis

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

	Fair Value Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
At June 30, 2024:
Securities available-for-sale:
Federal agency mortgage-backed securities	$	–	$	57,035	$	–	$	57,035
Federal agency CMOs		–		21,736		–		21,736
Federal agency debt		–		43,800		–		43,800
Municipal bonds		–		4,335		–		4,335
U.S. Treasuries		125,284		–		–		125,284
SBA pools		–		9,264		–		9,264
At December 31, 2023:
Securities available-for-sale:
Federal agency mortgage-backed securities	$	–	$	66,778	$	–	$	66,778
Federal agency CMOs		–		23,339		–		23,339
Federal agency debt		–		47,836		–		47,836
Municipal bonds		–		4,373		–		4,373
U.S. Treasuries		163,880		–		–		163,880
SBA pools		–		10,744		–		10,744

18

There were no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2024 and 2023.

As of June 30, 2024 and December 31, 2023, the Bank did not have any assets or liabilities carried at fair value on a nonrecurring basis.

Fair Values of Financial Instruments

The following tables present the carrying amount, fair value, and level within the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

			Fair Value Measurements at June 30, 2024
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	89,813	$	89,813	$	–	$	–	$	89,813
Securities available-for-sale		261,454		125,284		136,170		–		261,454
Loans receivable held for investment		938,736		–		–		916,566		916,566
Accrued interest receivable		5,228		319		966		3,943		5,228
Bank owned life insurance		3,297		3,297		–		–		3,297
Financial Liabilities:
Deposits	$	687,369	$	–	$	604,328	$	–	$	604,328
FHLB advances		209,242		–		208,437		–		208,437
BTFP borrowing		100,000		–		100,000		–		100,000
Securities sold under agreements to repurchase		72,658		–		71,438		–		71,438
Accrued interest payable		4,272		–		4,272		–		4,272

			Fair Value Measurements at December 31, 2023
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	105,195	$	105,195	$	–	$	–	$	105,195
Securities available-for-sale		316,950		163,880		153,070		–		316,950
Loans receivable held for investment		880,457		–		–		746,539		746,539
Accrued interest receivable		4,938		306		1,301		3,331		4,938
Bank owned life insurance		3,275		3,275		–		–		3,275
Financial Liabilities:
Deposits	$	682,635	$	–	$	536,171	$	–	$	536,171
FHLB advances		209,319		–		208,107		–		208,107
BTFP borrowing		100,000		–		100,000		–		100,000
Securities sold under agreements to repurchase		73,475		–		72,597		–		72,597
Notes payable		14,000		–		–		14,000		14,000
Accrued interest payable		1,420		–		1,420		–		1,420

In accordance with ASC 820, the fair value of financial assets and liabilities was measured using an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed.

NOTE 8 – Stock-based Compensation

Prior to June 21, 2023, the Company issued stock-based compensation awards to its directors and officers under the 2018 Long Term Incentive Plan (“LTIP”) which allowed the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards.  The maximum number of shares available to be awarded under the LTIP was 161,638 shares.

On June 21, 2023, stockholders approved an Amendment and Restatement of the 2018 Long Term Incentive Plan (“Amended and Restated LTIP”) which allows the issuance of 487,500 additional shares and brought the number of shares that may be issued under the Amended and Restated LTIP to 649,138 shares.

Stock-based compensation is recognized on a straight-line basis over the vesting period. During the three months ended June 30, 2024 and 2023, the Company recorded $38 thousand and $51 thousand of stock-based compensation expense, respectively.  During the six months ended June 30, 2024 and 2023, the Company recorded $115 thousand and $90 thousand of stock-based compensation expense, respectively. During the three months ended June 30, 2024 and 2023, the Company recorded $96 thousand and $0 thousand of director stock compensation expense, respectively, which was determined using the fair value of the stock on the dates of the awards. During the six months ended June 30, 2024 and 2023, the Company recorded $96 thousand and $95 thousand, respectively, of director stock compensation expense, which was determined using the fair value of the stock on the dates of the awards.

As of June 30, 2024, 269,111 shares had been awarded under the Amended and Restated LTIP and 380,027 shares were available to be awarded.  The following tables present stock award activity during the three and six months ended June 30, 2024 and 2023:

	Three months ended
	June 30, 2024			June 30, 2023
	(In thousands)
Outstanding at the beginning of the period		225,047			37,922
Granted during period		19,832			92,700
Forfeited during period		(27,149	)		(977	)
Vested during period		(40,215	)		–
Outstanding at the end of the period		177,515			129,645

	Six months ended
	June 30, 2024			June 30, 2023
	(In thousands)
Outstanding at the beginning of the period		111,723			52,953
Granted during period		145,890			101,930
Forfeited during period		(27,149	)		(1,360	)
Vested during period		(52,949	)		(23,878	)
Outstanding at the end of the period		177,515			129,645

19

No stock options were granted, exercised or expired during the three and six months ended June 30, 2024 or 2023. During the three and six months ended June 30, 2024, 18,750 stock options were forfeited.

Options outstanding and exercisable at June 30, 2024 were as follows:

Outstanding							Exercisable
Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
	12,500	1.65 years	$	12.96	$	–		12,500	$	12.96	$	–

The Company did not record any stock-based compensation expense related to stock options during the three and six months ended June 30, 2024 and 2023.

All common stock share amounts above have been retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023.  See Note 1.

NOTE 9 – ESOP Plan

Employees participate in the ESOP after attaining certain age and service requirements. During 2022, the ESOP purchased 58,369 shares of the Company’s common stock at an average cost of $8.57 per share for a total cost of $500 thousand and during 2023, the ESOP purchased 369,958 shares of the Company’s common stock at an average cost of $9.19 per share for a total cost of $3.4 million. These purchases were funded with a $5.0 million line of credit from the Company. The loan will be repaid from the Bank’s annual discretionary contributions to the ESOP, net of dividends paid, over a period of 20 years. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. When loan payments are made, shares are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. Any dividends on allocated shares increase participant accounts. Any dividends on unallocated shares will be used to repay the loan. Participants will receive shares for their vested balance at the end of their employment. Compensation expense related to the ESOP was $72 thousand and $16 thousand for the three months ended June 30, 2024 and 2023, respectively, and $144 thousand and $22 thousand for the six months ended June 30, 2024 and 2023, respectively.

Shares held by the ESOP were as follows:

	June 30, 2024		December 31, 2023
	(Dollars in thousands)
Allocated to participants	$	148,778	$	134,444
Committed to be released		15,018		28,669
Suspense shares		443,812		458,829
Total ESOP shares		607,608		621,942
Fair value of unearned shares	$	2,281	$	4,217

The book value of unearned shares, which are reported as Unearned ESOP shares in the equity section of the consolidated statements of financial condition, were $4.3 million and $4.5 million at June 30, 2024 and December 31, 2023, respectively.

All share amounts and per share amounts above have been retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023. See Note 1.

20

NOTE 10 – 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.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. Actual and required capital amounts and ratios as of the dates indicated are presented below:

	Actual					Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
June 30, 2024:
Community Bank Leverage Ratio	$	186,524		13.82	%	$	121,468		9.00	%
December 31, 2023:
Community Bank Leverage Ratio	$	185,773		14.97	%	$	111,696		9.00	%

At June 30, 2024, the Company and the Bank met all the capital adequacy requirements to which they were subject. In addition, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since June 30, 2024 that would materially adversely change the Bank’s capital classifications. From time to time, the Bank may need to raise additional capital to support its further growth and to maintain its “well capitalized” status.

21

NOTE 11 – Income Taxes

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

At June 30, 2024, the Company maintained a $449 thousand valuation allowance on its deferred tax assets because the number of shares sold in the private placements completed on April 6, 2021 triggered limitations on the use of certain tax attributes under the Section 382 of the federal tax code. The ability to use net operating losses (“NOLs”) to offset future taxable income will be restricted and these NOLs could expire or otherwise be unavailable. In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period.

The Company recorded an income tax expense of $146 thousand for the second quarter of 2024 and $93 thousand for the second quarter of 2023.  The increase in tax expense reflected an increase of $78 thousand in pre-tax income between the two periods. The effective tax rate was 35.01% for the second quarter of 2024, compared to 27.43% for the second quarter of 2023.  The increase in the effective tax rate was due to the vesting of stock awards.

For the six months ended June 30, 2024, income tax expense was $89 thousand, compared to $767 thousand for the six months ended June 30, 2023. The decrease in tax expense reflected a decrease in in pretax earnings of $2.4 million between the two periods. The effective tax rate was 50.28% for the six months ended June 30, 2024, compared to 29.41% for the six months ended June 30, 2023.  The increase in the effective tax rate was due to the vesting of stock awards.

22

NOTE 12 – Concentrations

The Bank has a significant concentration of deposits with two customers that accounted for approximately 12% of its deposits as of both June 30, 2024 and December 31, 2023. The Bank also has a significant concentration of short-term borrowings from one customer that accounted for 95% and 85% of the outstanding balance of securities sold under agreements to repurchase as of June 30, 2024 and December 31, 2023, respectively. The Company expects to maintain the relationships with these customers for the foreseeable future.

23

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, 2023. 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 words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” “poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” 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 and Estimates

Critical accounting policies are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations under different assumptions and conditions. This discussion highlights those accounting policies that management considers critical. All accounting policies are important; therefore, you are encouraged to review each of the policies included in Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in our 2023 Form 10-K to gain a better understanding of how our financial performance is measured and reported. Management has identified the Company’s critical accounting policies as follows:

Allowance for Credit Losses for Loans

The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL for each of its loan segments using the weighted-average remaining maturity (“WARM”) method. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions. The Company’s ACL model also includes adjustments for qualitative factors, where appropriate.

Certain loans, such as those that are nonperforming or are considered to be collateral dependent, are deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent in which case the ACL is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

24

Overview

Total assets decreased by $8.1 million to $1.4 billion at June 30, 2024 from December 31, 2023, primarily due to decreases in securities available-for-sale of $55.5 million and cash and cash equivalents of $15.4 million, partially offset by growth in net loans of $58.3 million and other assets of $4.1 million.

Loans held for investment, net of the ACL, increased by $58.3 million to $938.7 million at June 30, 2024, compared to $880.5 million at December 31, 2023.  The increase was primarily due to loan originations of $97.0 million which consisted of $53.8 million in multi-family loans, $21.5 million in commercial real estate loans, $17.5 million in other commercial loans, $3.7 million in construction loans, and $500 thousand in SBA loans, partially offset by loan payoffs and repayments of $38.7 million.

Deposits increased by $4.7 million to $687.4 million at June 30, 2024, from $682.6 million at December 31, 2023. The increase in deposits was attributable to an increase of $19.4 million in Insured Cash Sweep (“ICS”) deposits, partially offset by decreases of $8.4 million in liquid deposits (demand, interest checking, and money market accounts), $3.2 million in savings deposits, $1.7 million in other certificates of deposit accounts and $1.4 million in Certificate of Deposit Registry Service (“CDARS”) deposits.  As of June 30, 2024, our uninsured deposits, including deposits from affiliates, represented 35% of our total deposits, as compared to 37% as of December 31, 2023.

Total borrowings decreased by $14.9 million to $381.9 million at June 30, 2024, from $396.8 million at December 31, 2023, primarily due to the payoff of two notes payable totaling $14.0 million during January 2024.

For the three months ended June 30, 2024, the Company reported net income of $269 thousand compared to net income of $243 thousand for the three months ended June 30, 2023. The increase resulted from an increase in net interest income of $650 thousand and a $274 thousand decrease in the provision for credit losses during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, partially offset by an increase in non-interest expense of $859 thousand during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.  The increase in non-interest expense was primarily due to a $735 thousand increase in compensation and benefits expense.

For the six months ended June 30, 2024, the Company reported net income of $105 thousand compared to net income of $1.8 million for the six months ended June 30, 2023.  The decrease resulted from an increase in non-interest expense of $2.4 million during the first six months of 2024 compared to the first six months of 2023.  The increase in non-interest expense was primarily due to a $1.4 million increase in compensation and benefits expense and an $861 thousand increase in professional services expense.

25

Results of Operations

Net Interest Income

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Net interest income before provision for credit losses for the second quarter of 2024 totaled $7.9 million, representing an increase of $650 thousand, or 8.9%, from net interest income before provision for credit losses of $7.3 million for the second quarter of 2023.  The increase resulted from higher interest income, primarily due to an increase in interest on loans, partially offset by an increase in interest expense, due to increases in the cost of borrowings and deposits.  The increase in interest income was primarily due to growth of $145.5 million in average loans receivable during the second quarter of 2024, compared to the second quarter of 2023.  In addition, the overall rate earned on interest-earning assets increased by 67 basis points as the Bank earned higher rates on interest-earning deposits, securities, and the loan portfolio.  The net interest margin decreased to 2.41% for the second quarter of 2024 from 2.52% for the second quarter of 2023, primarily due to an increase in the average cost of funds, which increased to 3.19% for the second quarter of 2024 from 2.12% for the second quarter of 2023, due to higher rates paid on deposits and borrowings after eleven rate increases by the Federal Open Market Committee of the Federal Reserve (the “FRB”) from March 2022 through December 2023.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Net interest income before provision for credit losses for the six months ended June 30, 2024, totaled $15.4 million, representing a decrease of $100 thousand, or 0.6%, from net interest income before provision for credit losses of $15.5 million for the six months ended June 30, 2023.  The decrease resulted from a $7.7 million increase in interest expense, primarily due to an increase in the average cost of funds, which increased to 3.11% for the first six months of 2024 from 1.76% for the first six months of 2023, due to higher interest rates on deposits and borrowings.  This decrease was partially offset by a $7.6 million increase in interest income for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to a 60 basis point increase in the overall rate earned on interest-earning assets as the Bank earned higher rates on interest-earning deposits, the loan portfolio, and, to a lesser extent, securities, and due to growth of $143.3 million in average loans receivable during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The net interest margin decreased to 2.34% for the six months ended June 30, 2024, compared to 2.74% for the six months ended June 30, 2023.

The following tables set forth the 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, but 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, 2024							June 30, 2023
(Dollars in Thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-bearing deposits	$	88,294	$	1,189		5.42	%	$	16,615	$	167		4.02	%
Securities		276,457		1,876		2.73	%		326,051		2,183		2.68	%
Loans receivable (1)		943,072		12,179		5.19	%		797,550		9,098		4.56	%
FRB and FHLB stock		13,835		244		7.09	%		11,602		192		6.62	%
Total interest-earning assets		1,321,658	$	15,488		4.71	%		1,151,818	$	11,640		4.04	%
Non-interest-earning assets		53,507							67,173
Total assets	$	1,375,165						$	1,218,991
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	274,915	$	1,623		2.37	%	$	253,110	$	931		1.47	%
Savings deposits		57,684		102		0.71	%		60,826		16		0.11	%
Interest checking and other demand deposits		73,853		166		0.90	%		96,340		88		0.37	%
Certificate accounts		163,237		1,195		2.94	%		153,972		514		1.34	%
Total deposits		569,689		3,086		2.18	%		564,248		1,549		1.10	%
FHLB advances		209,261		2,593		4.98	%		186,664		2,141		4.59	%
Bank Term Funding Program borrowing		100,000		1,210		4.87	%		–		–		–	%
Other borrowings		74,523		681		3.68	%		75,821		682		3.60	%
Total borrowings		383,784		4,484		4.70	%		262,485		2,823		4.30	%
Total interest-bearing liabilities		953,473	$	7,570		3.19	%		826,733	$	4,372		2.12	%
Non-interest-bearing liabilities		139,900							113,803
Stockholders’ equity		281,792							278,455
Total liabilities and stockholders’ equity	$	1,375,165						$	1,218,991
Net interest rate spread (2)			$	7,918		1.52	%			$	7,268		1.93	%
Net interest rate margin (3)						2.41	%						2.52	%
Ratio of interest-earning assets to interest-bearing liabilities						138.62	%						139.32	%

(1)   Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.

(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.

26

	For the Six Months Ended
	June 30, 2024							June 30, 2023
(Dollars in Thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-bearing deposits	$	97,640	$	2,533		5.22	%	$	15,187	$	286		3.77	%
Securities		290,721		3,951		2.73	%		327,178		4,363		2.67	%
Loans receivable (1)		925,443		23,308		5.06	%		782,101		17,633		4.51	%
FRB and FHLB stock		13,777		489		7.14	%		11,175		401		7.18	%
Total interest-earning assets		1,327,581	$	30,281		4.59	%		1,135,641	$	22,683		3.99	%
Non-interest-earning assets		51,988							67,953
Total assets	$	1,379,569						$	1,203,594
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	272,290	$	3,065		2.26	%	$	263,265	$	1,700		1.29	%
Savings deposits		58,377		204		0.70	%		61,201		29		0.09	%
Interest checking and other demand deposits		78,772		311		0.79	%		100,006		167		0.33	%
Certificate accounts		164,319		2,305		2.82	%		149,550		956		1.28	%
Total deposits		573,758		5,885		2.06	%		574,022		2,852		0.99	%
FHLB advances		209,280		5,191		4.99	%		165,521		3,464		4.19	%
Bank Term Funding Program borrowing		100,000		2,413		4.85	%		–		–		–	%
Other borrowings		76,688		1,350		3.54	%		72,973		825		2.26	%
Total borrowings		385,968		8,954		4.67	%		238,494		4,289		3.60	%
Total interest-bearing liabilities		959,726	$	14,839		3.11	%		812,516	$	7,141		1.76	%
Non-interest-bearing liabilities		138,012							112,281
Stockholders’ equity		281,831							278,797
Total liabilities and stockholders’ equity	$	1,379,569						$	1,203,594
Net interest rate spread (2)			$	15,442		1.48	%			$	15,542		2.24	%
Net interest rate margin (3)						2.34	%						2.74	%
Ratio of interest-earning assets to interest-bearing liabilities						138.33	%						139.77	%

(1) Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.

(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.

27

Provision for Credit Losses

For the three months ended June 30, 2024, the Company recorded a provision for credit losses of $494 thousand, compared to $768 thousand for the three months ended June 30, 2023.  For the six months ended June 30, 2024, the Company recorded a provision for credit losses of $754 thousand, compared to $810 thousand for the six months ended June 30, 2023.  The provisions for credit losses during the three and six months ended June 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $58 thousand and $2 thousand, respectively.  The provisions for credit losses during the three and six months ended June 30, 2023 include provisions for credit losses for off-balance sheet loan commitments of $83 thousand and $37 thousand, respectively. The decreases in the provisions for credit losses were primarily due to lower loan originations and declines in the provision for credit losses for off-balance sheet loan commitments.

The allowance for credit losses (“ACL”) increased to $8.1 million as of June 30, 2024, compared to $7.3 million as of December 31, 2023 due to growth in the loan portfolio.

The Bank had two non-accrual loans at June 30, 2024 with total unpaid principal balances of $328 thousand. No loan charge-offs were recorded during the quarters or six months ended June 30, 2024 or 2023.

Non-interest Income

Non-interest income for the second quarter of 2024 totaled $273 thousand, compared to $260 thousand for the second quarter of 2023.

For the first six months of 2024, non-interest income totaled $579 thousand, compared to $549 thousand for the same period in the prior year.  The increase was primarily due to an increase in fees from a revenue sharing agreement with another financial institution.

Non-interest Expense

Total non-interest expense was $7.3 million for the second quarter of 2024, compared to $6.4 million for the second quarter of 2023, representing an increase of $859 thousand, or 13.4%.  The increase was primarily due to an increase of $735 thousand in compensation and benefits expense.

For the first six months of 2024, non-interest expense totaled $15.1 million, representing an increase of $2.4 million, or 19.1%, from $12.7 million for the same period in the prior year.  The increase of $2.4 million primarily resulted from increases in compensation and benefits expense of $1.4 million and professional services expense of $861 thousand.  The increase in professional service expense was primarily due to hiring a third-party firm to assist with reviewing certain general ledger account reconciliations, as well as other professionals, in connection with the Company’s investigation of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023.

The increases in compensation and benefits expense were primarily attributable to the addition of full-time employees during 2023 in various production and administrative positions as part of the Bank’s efforts to expand its operational capabilities to grow its balance sheet and fulfill the intersecting lending objectives of the Company’s mission and the ECIP funding received in June 2022.

Income Taxes

Income taxes are computed by applying the statutory federal income tax rate of 21% and the combined California and Washington, D.C. income tax rate of 9.75% to taxable income.  The Company recorded an income tax expense of $146 thousand for the second quarter of 2024 and $93 thousand for the second quarter of 2023.  The increase in tax expense reflected an increase of $78 thousand in pre-tax income between the two periods.  The effective tax rate was 35.01% for the second quarter of 2024, compared to 27.43% for the second quarter of 2023.  The increase in the effective tax rate was primarily due to the vesting of stock awards.

For the six months ended June 30, 2024, income tax expense was $89 thousand, compared to $767 thousand for the six months ended June 30, 2023.  The decrease in tax expense reflected a decrease in pretax earnings of $2.4 million between the two periods. The effective tax rate was 50.28% for the six months ended June 30, 2024, compared to 29.41% for the six months ended June 30, 2023.  The increase in the effective tax rate was primarily due to the vesting of stock awards.

28

Financial Condition

Total Assets

Total assets decreased by $8.1 million at June 30, 2024, compared to December 31, 2023, primarily due to decreases in securities available-for-sale of $55.5 million and cash and cash equivalents of $15.4 million, partially offset by growth in net loans of $58.3 million and other assets of $4.1 million.

Securities Available-For-Sale

Securities available-for-sale totaled $261.5 million at June 30, 2024, compared with $317.0 million at December 31, 2023. The $55.5 million decrease in securities available-for-sale during the six months ended June 30, 2024 was primarily due to maturities and principal paydowns.

The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of June 30, 2024. The table reflects stated final maturities and does not reflect scheduled principal payments or expected payoffs.

	June 30, 2024
	One Year or Less					More Than One Year to Five Years					More Than Five Years to Ten Years					More Than Ten Years					Total
	Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield			Carrying Amount		Weighted Average Yield
	(Dollars in thousands)
Available‑for‑sale:
Federal agency mortgage‑backed securities	$	–		–		$	1,172		1.42	%	$	8,840		1.57	%	$	47,023		2.62	%	$	57,035		2.43	%
Federal agency CMO		–		–			454		0.91	%		10,402		4.46	%		10,880		3.35	%		21,736		3.83	%
Federal agency debt		3,927		2.39	%		34,525		1.83	%		4,689		4.46	%		659		3.07	%		43,800		2.18	%
Municipal bonds		–		–			2,850		1.60	%		–		–			1,485		1.75	%		4,335		1.66	%
U.S. Treasuries		93,417		2.86	%		31,867		2.58	%		–		–			–		–			125,284		2.79	%
SBA pools		–		–			61		6.97	%		1,873		2.69	%		7,330		2.74	%		9,264		2.76	%
Total	$	97,344		2.84	%	$	70,929		2.15	%	$	25,804		3.34	%	$	67,377		2.74	%	$	261,454		2.68	%

Loans Receivable

Loans receivable held for investment, net of the ACL, increased by $58.3 million to $938.7 million at June 30, 2024, compared to $880.5 million at December 31, 2023.  The increase was primarily due to loan originations of $97.0 million which consisted of $53.8 million in multi-family loans, $21.5 million in commercial real estate loans, $17.5 million in other commercial loans, $3.7 million in construction loans, and $500 thousand in SBA loans, partially offset by loan payoffs and repayments of $38.7 million.

The following table presents loan categories by maturity for the period indicated. Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties.

29

	June 30, 2024
	One Year or Less		More Than One Year to Five Years		More Than Five Years to 15 Years		More Than 15 Years		Total
	(Dollars in thousands)
Loans receivable held for investment:
Single-family	$	3,939	$	8,366	$	6,477	$	8,483	$	27,265
Multi-family		14,063		15,359		7,909		576,683		614,014
Commercial real estate		19,646		70,692		32,775		2,676		125,789
Church		3,688		3,032		5,055		–		11,775
Construction		28,960		38,294		26,697		–		93,951
Commercial - other		5,107		28,115		23,953		2,363		59,538
SBA loans		8		502		150		12,226		12,886
Consumer		1		–		–		–		1
	$	75,412	$	164,360	$	103,016	$	602,431	$	945,219
Loans maturities after one year with:
Fixed rates
Single-family			$	8,017	$	3,562	$	5,148	$	16,727
Multi-family				11,374		4,130		–		15,504
Commercial real estate				57,543		20,413		–		77,956
Church				2,406		–		–		2,406
Construction				14,495		21,483		–		35,978
Commercial - other				13,115		22,915		261		36,291
SBA loans				15		–		500		515
Consumer				–		–		–		–
			$	106,965	$	72,503	$	5,909	$	185,377
Variable rates
Single-family			$	349	$	2,915	$	3,335	$	6,599
Multi-family				3,985		3,779		576,683		584,447
Commercial real estate				13,149		12,362		2,676		28,187
Church				626		5,055		–		5,681
Construction				23,799		5,214		–		29,013
Commercial - other				15,000		1,038		2,102		18,140
SBA loans				487		150		11,726		12,363
Consumer				–		–		–		–
			$	57,395	$	30,513	$	596,522	$	684,430
Total			$	164,360	$	103,016	$	602,431	$	869,807

Certain multi-family loans have adjustable-rate features based on the Secured Overnight Financing Rate but are fixed for the first five years. Our experience has shown that these loans typically payoff during the first five years and do not reach the adjustable-rate phase. However, in the current high interest rate environment, we have seen more borrowers maintain their loans instead of paying them off due to interest rate caps which make the adjusted interest rate on their existing loan more desirable than getting a new loan at current interest rates. Multi-family loans in their initial fixed period totaled $585.9 million or 62.0% of our loan portfolio as of June 30, 2024.

Allowance for Credit Losses

The Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses, to determine the ACL. ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan and involves the use of significant management judgment and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the WARM method when determining estimates for the ACL for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

Since historical information (such as historical net losses) may not always, by itself, provide a sufficient basis for determining future expected credit losses, the Company periodically considers the need for qualitative adjustments to the ACL.

The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan portfolio because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. The ACL for collateral dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

30

The estimation of the appropriate level of the ACL requires significant judgment by management. Although management uses the best information available to make these estimates, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Changes in management’s estimates of forecasted net losses could materially change the level of the ACL. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ACL based on judgments different from those of management.

The ACL was $8.1 million, or 0.86% of gross loans held for investment at June 30, 2024, compared to an ACL of $7.3 million, or 0.83% of gross loans held for investment, at December 31, 2023.

There were no recoveries or charge-offs recorded during the three or six month periods ending June 30, 2024 and 2023.

Collateral dependent loans at June 30, 2024 and December 31, 2023 totaled $481 thousand and $6.4 million, respectively.  These loans had an ACL of $0 and $112 thousand as of June 30, 2024 and December 31, 2023, respectively.

The Bank had non-accrual loans of $328 thousand at June 30, 2024.  Loan delinquencies for 30 days or more, but less than 90 days, decreased to $710 thousand at June 30, 2024, compared to $780 thousand at December 31, 2023. There was one $5 thousand loan past due by greater than 90 days at June 30, 2024. There were no loans past due by greater than 90 days at December 31, 2023.

We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of June 30, 2024, but there can be no assurance that actual losses will not exceed the estimated amounts. The OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ACL as an integral part of their examination process. These agencies may require an increase in the ACL based on their judgments of the information available to them at the time of their examinations.

The following table details our allocation of the ACL to the various categories of loans held for investment and the percentage of loans in each category to total loans at the dates indicated:

	June 30, 2024					December 31, 2023					June 30, 2023
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Single-family	$	301		2.88	%	$	260		2.79	%	$	247		3.12	%
Multi‑family		4,690		64.96	%		4,413		63.33	%		4,255		63.67	%
Commercial real estate		1,171		13.31	%		1,094		13.47	%		1,012		15.40	%
Church		84		1.25	%		72		1.43	%		83		1.44	%
Construction		1,110		9.94	%		932		10.14	%		788		9.30	%
Commercial and SBA		748		7.66	%		577		8.84	%		585		7.07	%
Consumer		–		–			–		–			–		–
Total allowance for loan losses	$	8,104		100.00	%	$	7,348		100.00	%	$	6,970		100.00	%

Total Liabilities

Total liabilities decreased by $8.5 million to $1.1 billion at June 30, 2024 from December 31, 2023, largely due to decreases of $14.0 million in notes payable and $817 thousand in securities sold under agreements to repurchase, partially offset by increases in deposits of $4.7 million and $1.7 million in accrued expenses and other liabilities.

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Deposits

Deposits increased by $4.7 million to $687.4 million at June 30, 2024, from $682.6 million at December 31, 2023. The increase in deposits was attributable to an increase of $19.4 million in ICS deposits, partially offset by decreases of $8.4 million in liquid deposits (demand, interest checking, and money market accounts), $3.2 million in savings deposits, $1.7 million in other certificates of deposit accounts and $1.4 million in CDARS deposits.  As of June 30, 2024, our uninsured deposits, including deposits from affiliates, represented 35% of our total deposits, as compared to 37% as of December 31, 2023.

The following table presents the maturity of time deposits as of the dates indicated:

	Three Months or Less		Three to Six Months		Six Months to One Year		Over One Year		Total
	(In thousands)
June 30, 2024
Time deposits of $250,000 or less	$	48,585	$	42,588	$	41,671	$	7,476	$	140,320
Time deposits of more than $250,000		5,667		6,154		6,255		6,583		24,659
Total	$	54,252	$	48,742	$	47,926	$	14,059	$	164,979
Not covered by deposit insurance	$	3,167	$	1,654	$	1,505	$	3,833	$	10,159
December 31, 2023
Time deposits of $250,000 or less	$	36,931	$	26,248	$	63,118	$	18,202	$	144,499
Time deposits of more than $250,000		4,609		3,904		6,895		8,128		23,536
Total	$	41,540	$	30,152	$	70,013	$	26,330	$	168,035
Not covered by deposit insurance	$	3,109	$	2,154	$	4,395	$	6,628	$	16,286

Borrowings

At June 30, 2024 and December 31, 2023, the Company had outstanding advances from the FHLB totaling $209.2 million. and $209.3 million, respectively. The weighted interest rate was 4.91% as of both June 30, 2024 and December 31, 2023. The weighted average contractual maturity was one month as of June 30, 2024 and two months as of December 31, 2023.  The advances were collateralized by loans with an unpaid balance of $506.2 million at June 30, 2024 and $435.4 million at December 31, 2023. The Company is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Company provides qualifying collateral and holds sufficient FHLB stock. Based on collateral pledged and FHLB stock as of June 30, 2024, the Company was eligible to borrow an additional $171.4 million as of June 30, 2024.

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obliges the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of June 30, 2024 securities sold under agreements to repurchase totaled $72.7 million at an average rate of 3.68%.  The fair value of securities pledged totaled $70.9 million as of June 30, 2024. As of December 31, 2023, securities sold under agreements to repurchase totaled  $73.5 million at an average rate of 3.64%.  The fair value of securities pledged totaled $89.0 million as of December 31, 2023.

One relationship accounted for 95% of our balance of securities sold under agreements to repurchase as of June 30, 2024. We expect to maintain this relationship for the foreseeable future.

On December 27, 2023, the Company borrowed $100.0 million from the Federal Reserve under the BTFP.  As of both June 30, 2024 and December 31, 2023, $100.0 million was outstanding.  The interest rate on this borrowing is fixed at 4.84% and the borrowing matures on December 29, 2024. Investment securities with a fair value of $94.0 million and $98.3 million were pledged as collateral for this borrowing as of June 30, 2024 and December 31, 2023, respectively. There are no prepayment penalties for early payoff.  As the BTFP ended on March 11, 2024, no additional borrowings can be made under the program.

In connection with the New Market Tax Credit activities of the Company, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This CDE acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a QALICB. The loan to the QALICB was secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee. This loan was paid off on January 18, 2024. The financial statements of CFC 45 are consolidated with those of the Company.

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Stockholders’ Equity

Stockholders’ equity was $282.3 million, or 20.6%, of the Company’s total assets, at June 30, 2024, compared to $281.9 million, or 20.5% of the Company’s total assets at December 31, 2023.  Book value per share was $14.49 at June 30, 2024 and $14.65 at December 31, 2023.

During the second quarter of 2023, the Company issued 92,720 shares of restricted stock to its officers and employees based on performance during 2022 under the Amended LTIP.  All the shares issued to officers and employees vest over periods ranging from 36 months to 60 months.

On March 26, 2024, the Company issued 94,413 shares of restricted stock to its officers and employees under the Amended and Restated LTIP. Each restricted stock award was valued based on the fair value of the stock on the date of the award.

During February of 2023 and May of 2024, the Company issued 9,230 and 19,832 shares of stock, respectively, to its directors under the LTIP and Amended LIP, which were fully vested.

On April 5, 2024, the Company issued 31,645 shares of restricted stock to an officer under the Amended LTIP.

All common stock share amounts and per share amounts above have been retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023.  See Note 1.

Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the CFBanc merger. The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s financial condition and operational performance. A reconciliation between common book value and tangible book value per common share is shown as follows:

	Common Equity Capital		Shares Outstanding		Per Share Amount
	(Dollars in thousands)
June 30, 2024:
Common book value	$	132,293		9,131,979	$	14.49
Less:
Goodwill		25,858
Net unamortized core deposit intangible		1,943
Tangible book value	$	104,492		9,131,979	$	11.44
December 31, 2023:
Common book value	$	131,903		9,001,613	$	14.65
Less:
Goodwill		25,858
Net unamortized core deposit intangible		2,111
Tangible book value	$	103,934		9,001,613	$	11.55

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 and other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities. The Bank is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets, or $284.3 million, to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. Based on FHLB stock held and collateral pledged as of June 30, 2024, the Bank had the ability to borrow an additional $171.4 million from the FHLB of Atlanta. In addition, the Bank had additional lines of credit of $10.0 million with other financial institutions as of June 30, 2024.

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The Bank’s primary uses of funds include originations of loans, withdrawals of and interest payments on deposits, 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 invests in federal funds with the Federal Reserve Bank or in money market accounts with other financial institutions. The Bank’s liquid assets at June 30, 2024 consisted of $89.8 million in cash and cash equivalents and $85.0 million in securities available-for-sale that were not pledged, compared to $105.2 million in cash and cash equivalents and $173.3 million in securities available-for-sale that were not pledged at December 31, 2023. Currently, we believe the Bank has sufficient liquidity to support growth over the next twelve months and in the longer term.

The Bank had commitments to fund $408 thousand in loans that were approved but unfunded as of June 30, 2024.  In addition, the bank had $3.1 million in unfunded line of credit loans and $49.2 million in unfunded construction loans as of June 30, 2024.

The Bank has a significant concentration of deposits with two customers that accounted for approximately 12% of its deposits as of June 30, 2024. The Bank also has a significant concentration of short-term borrowings with one customer that accounted for 95% of the outstanding balance of securities sold under agreements to repurchase as of June 30, 2024. The Bank has long-term relationships with these customers and expects to maintain its relationships with them for the foreseeable future.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placement completed in June of 2022 and previous private placements. The Bank is currently under no prohibition from paying dividends to the Company but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

The Company recorded consolidated net cash outflows from investing activities of $3.3 million during the six months ended June 30, 2024, compared to $53.7 million during the six months ended June 30, 2023. Net cash outflows from investing activities for the six months ended June 30, 2024 were primarily due to the funding of new loans, net of repayments, of $59.1 million, partially offset by proceeds from principal paydowns on available-for-sale securities of $56.0 million. Net cash outflows from investing activities during the six months ended June 30, 2023 were primarily due to funding of new loans, net of repayments, of $58.7 million, partially offset by $6.8 million in proceeds from principal paydowns on available-for-sale securities.

The Company recorded consolidated net cash outflows from financing activities of $10.2 million during the six months ended June 30, 2024, compared to consolidated net cash inflows of $46.2 million during the six months ended June 30, 2023. Net cash outflows from financing activities during the six months ended June 30, 2024 were primarily due to the $14.0 million repayment of notes payable, partially offset by a net increase in deposits of $4.7 million. Net cash inflows from financing activities during the six months ended June 30, 2023 were primarily attributable to proceeds from FHLB advances of $82.0 million, partially offset by a net decrease in deposits of $40.9 million.

Capital Resources and Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of June 30, 2024 and December 31, 2023, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” (See Note 10 – Regulatory Matters.)

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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

Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances.

Under the supervision and with the participation of our PEO and PFO, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of June 30, 2024. Based on their evaluation as of June 30, 2024, the PEO and PFO have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level because of the material weaknesses in our internal control over financial reporting described below.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The Company did not maintain a sufficient complement of personnel with appropriate levels of knowledge, experience, and training in internal control matters to perform assigned responsibilities and have appropriate accountability for the design and operation of internal control over financial reporting. The lack of sufficient appropriately skilled and trained personnel contributed to the Company’s failure to: (i) design and implement certain internal controls; and (ii) consistently operate its internal controls. This matter was considered to be a material weakness in the Company’s control environment.

The control environment material weaknesses contributed to other material weaknesses within the Company’s system of internal control over financial reporting in the following COSO Framework components such that the Company did not design and implement effective controls, including the following:

• Risk assessment – The Company did not appropriately identify and analyze risks to achieve its control objectives. This ineffective risk assessment process limited the Company’s ability to identify and remediate the weaknesses in the control activities, as described below.

• Control activities – The Company did not design and implement effective controls over the consolidation, financial statement reporting, and the monthly close processes, including the lack of effectively designed and implemented controls related to the preparation and review of account reconciliations with appropriate supporting documentation. Specifically, several general ledger account reconciliations were discovered to have unidentified or stale reconciling items.

• Monitoring activities – The Company’s ongoing evaluation of internal controls failed to detect the issues described above, and as a result limited management’s ability to correct and remediate the internal control issues in a timely manner.

Remediation Plan

In response to the material weaknesses that were identified, the Company has hired additional senior personnel with relevant experience and training in finance and accounting that will be able to assist the Company with appropriately assessing the risks of the Company and designing, implementing, and monitoring a system of internal control over financial reporting to address those risks. Related to the control over account reconciliations, the Company engaged a third-party firm to assist with reviewing general ledger account reconciliations to identify the population of account balance differences that were in need of correction. Such corrections were made to the consolidated financial statements as of December 31, 2023. Going forward, the Company’s controls over general ledger account reconciliations will be strengthened to require the use of a reconciliation checklist, with a formal signoff by the preparer and reviewer on each reconciliation, as well as by a separate member of management as evidence that every account reconciliation was reviewed each month. In addition, the Company will also request that its internal audit firm perform additional testing on the enhanced controls over general ledger account reconciliation during its audits.

Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weaknesses. Additional time is required to complete the design and test the operating effectiveness of the applicable controls to demonstrate the effectiveness of the remediation efforts. The material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

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Changes in Internal Control Over Financial Reporting

Except for the remediation activities discussed above, there were no other changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the 2023 Annual Report on Form 10-K and Part II, Item 1A "Risk Factors" in the Quarterly Report on Form 10-Q for the period ended March 31, 2024.

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	Amended and Restated Certificate of Incorporation of Registrant effective as of April 1, 2021 (Exhibit 3.1 to Form 8-K filed by Registrant on April 5, 2021)
3.2	Certificate of Amendment to Certificate of Incorporation of Registrant (Exhibit 3.1 to Form 8-K filed by the Registrant on November 1, 2023)
3.3	Bylaws of Registrant (Exhibit 3.2 to Form 8-K filed by Registrant on August 24, 2020)
3.4	Certificate of Designations of Senior Non-Cumulative Perpetual Preferred Stock, Series C (Exhibit 3.1 to Form 8-K filed by Registrant on June 8, 2022)
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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* 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.

** Management contract or compensatory plan or arrangement.

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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 14, 2024	By:	/s/ Brian Argrett
		Brian Argrett
		Chief Executive Officer
Date: August 14, 2024	By:	/s/ Zack Ibrahim
		Zack Ibrahim
		Chief Financial Officer

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