Broadway Financial (BYFC) 10-Q 2024 Q3 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 September 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 October 31, 2024, 6,014,229 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 September 30, 2024 and December 31, 2023	1
		Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023	2
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	3
		Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 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)

	September 30, 2024			December 31, 2023
	(Unaudited)
Assets:
Cash and due from banks	$	3,232		$	5,460
Interest-bearing deposits in other banks		93,847			99,735
Cash and cash equivalents		97,079			105,195
Securities available-for-sale, at fair value (amortized cost of $251,545 and $335,978)		238,489			316,950
Loans receivable held for investment, net of allowance of $8,527 and $7,348		966,788			880,457
Accrued interest receivable		5,744			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		9,467			9,840
Bank owned life insurance, net		3,309			3,275
Deferred tax assets, net		8,415			9,538
Core deposit intangible, net		1,859			2,111
Goodwill		25,858			25,858
Other assets		2,212			3,543
Total assets	$	1,373,055		$	1,375,404
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	672,248		$	682,635
Securities sold under agreements to repurchase		89,798			73,475
FHLB advances		208,568			209,319
Bank Term Funding Program (“BTFP”) borrowing		100,000			100,000
Notes payable		–			14,000
Accrued expenses and other liabilities		15,850			13,878
Total liabilities		1,086,464			1,093,307
Non-Cumulative Redeemable Perpetual Preferred stock, Series C; authorized 150,000 shares at September 30, 2024 and December 31, 2023; issued and outstanding 150,000 shares at September 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 September 30, 2024 and December 31, 2023; issued 6,341,869 shares at September 30, 2024 and 6,242,089 shares at December 31, 2023; outstanding 6,014,641 shares at September 30, 2024 and 5,914,861 shares at December 31, 2023		63			62
Common stock, Class B, $0.01 par value, non-voting; authorized 15,000,000 shares at September 30, 2024 and December 31, 2023; issued and outstanding 1,425,574 shares at September 30, 2024 and December 31, 2023		14			14
Common stock, Class C, $0.01 par value, non-voting; authorized 25,000,000 shares at September 30, 2024 and December 31, 2023; issued and outstanding 1,672,562 at September 30, 2024 and December 31, 2023		17			17
Additional paid-in capital		141,998			142,601
Retained earnings		13,179			12,552
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(4,275	)		(4,492	)
Accumulated other comprehensive loss, net of tax		(9,278	)		(13,525	)
Treasury stock-at cost, 327,228 shares at September 30, 2024 and at December 31, 2023		(5,326	)		(5,326	)
Total Broadway Financial Corporation and Subsidiary stockholders’ equity		286,392			281,903
Non-controlling interest		199			194
Total liabilities and stockholders’ equity	$	1,373,055		$	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 September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Interest income:
Interest and fees on loans receivable	$	12,796		$	9,406		$	36,104		$	27,039
Interest on available-for-sale securities		1,635			2,180			5,586			6,543
Other interest income		1,735			341			4,757			1,028
Total interest income		16,166			11,927			46,447			34,610
Interest expense:
Interest on deposits		3,209			2,126			9,094			4,978
Interest on borrowings		4,627			3,028			13,581			7,317
Total interest expense		7,836			5,154			22,675			12,295
Net interest income		8,330			6,773			23,772			22,315
Provision for (recovery of) credit losses		399			(2	)		1,153			808
Net interest income after provision for credit losses		7,931			6,775			22,619			21,507
Non-interest income:
Service charges		36			42			114			141
Other		380			289			881			739
Total non-interest income		416			331			995			880
Non-interest expense:
Compensation and benefits		4,432			4,380			13,298			11,863
Occupancy expense		505			466			1,372			1,354
Information services		754			698			2,124			2,148
Professional services		982			629			2,955			1,741
Supervisory costs		196			157			589			452
Office services and supplies		33			24			115			72
Advertising and promotional expense		19			11			110			138
Corporate insurance		27			61			152			184
Appraisal and other loan expense		47			69			98			138
Amortization of core deposit intangible		84			98			252			293
Travel expense		50			39			184			154
Other expense		465			349			1,435			1,117
Total non-interest expense		7,594			6,981			22,684			19,654
Income before income taxes		753			125			930			2,733
Income tax expense		209			39			298			806
Net income	$	544		$	86		$	632		$	1,927
Less: Net income (loss) attributable to non-controlling interest		22			(5	)		5			20
Net income attributable to Broadway Financial Corporation	$	522		$	91		$	627		$	1,907
Less: Preferred stock dividends		750			–			817			–
Net (loss) income attributable to common stockholders	$	(228	)	$	91		$	(190	)	$	1,907
Other comprehensive income (loss), net of tax:
Unrealized income (losses) on securities available-for-sale arising during the period	$	5,900		$	(2,677	)	$	5,971		$	(2,600	)
Income tax expense (benefit)		1,703			(770	)		1,724			(747	)
Other comprehensive income (loss), net of tax		4,197			(1,907	)		4,247			(1,853	)
Comprehensive income (loss)	$	3,969		$	(1,816	)	$	4,057		$	54
(Loss) earnings per common share-basic(1)	$	(0.03	)	$	0.01		$	(0.02	)	$	0.21
(Loss) earnings per common share-diluted(1)	$	(0.03	)	$	0.01		$	(0.02	)	$	0.21

⁽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)

	Nine Months Ended September 30,
	2024			2023
	(In thousands)
Cash flows from operating activities:
Net income	$	632		$	1,927
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		1,153			808
Depreciation		502			490
Net change of deferred loan origination costs		370			264
Net accretion of premiums and discounts on available-for-sale securities		(674	)		(778	)
Accretion of purchase accounting marks on loans		(286	)		(148	)
Amortization of core deposit intangible		252			293
Director compensation expense-common stock		96			95
Accretion of premium on FHLB advances		(8	)		(18	)
Stock-based compensation expense		199			173
ESOP compensation expense		137			33
Earnings on bank owned life insurance		(34	)		(31	)
Change in assets and liabilities:
Net change in deferred taxes		(601	)		579
Net change in accrued interest receivable		(806	)		(952	)
Net change in other assets		1,331			(266	)
Net change in accrued expenses and other liabilities		1,972			1,554
Net cash provided by operating activities		4,235			4,023
Cash flows from investing activities:
Net change in loans receivable held for investment		(87,568	)		(70,043	)
Principal payments on available-for-sale securities		85,106			10,498
Purchase of FHLB stock		(136	)		(7,534	)
Proceeds from redemption of FHLB stock		–			3,939
Proceeds from redemption of FRB stock		–			1,721
Purchase of office properties and equipment		(129	)		(114	)
Net cash used in investing activities		(2,727	)		(61,533	)
Cash flows from financing activities:
Net change in deposits		(10,387	)		(15,447	)
Net change in securities sold under agreements to repurchase		16,323			12,344
Purchase of unreleased ESOP shares		–			(3,400	)
Repayment of notes payable		(14,000	)		–
Cash dividends paid - ECIP		(817	)		–
Proceeds from FHLB advances		176,000			329,000
Repayments of FHLB advances		(176,743	)		(269,605	)
Net cash (used in) provided by financing activities		(9,624	)		52,892
Net change in cash and cash equivalents		(8,116	)		(4,618	)
Cash and cash equivalents at beginning of the period		105,195			16,105
Cash and cash equivalents at end of the period	$	97,079		$	11,487
Supplemental disclosures of cash flow information:
Cash paid for interest	$	19,285		$	11,785
Cash paid for income taxes		317			236

See accompanying notes to unaudited consolidated financial statements.

3

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Three Months Ended September 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 July 1, 2024	$	150,000	$	64		$	31	$	142,690		$	(13,475	)	$	12,657	$	(4,348	)	$	(5,326	)	$	177		$	282,470
Net income		–		–			–		–			–			522		–			–			22			544
Release of unearned ESOP shares		–		(1	)		–		(26	)		–			–		73			–			–			46
Stock-based compensation expense		–		–			–		84			–			–		–			–			–			84
Dividends declared and paid - ECIP		–		–			–		(750	)		–			–		–			–			–			(750	)
Other comprehensive income, net of tax		–		–			–		–			4,197			–		–			–			–			4,197
Balance at September 30, 2024	$	150,000	$	63		$	31	$	141,998		$	(9,278	)	$	13,179	$	(4,275	)	$	(5,326	)	$	199		$	286,591
Balance at July 1, 2023	$	150,000	$	65		$	31	$	144,331		$	(17,419	)	$	9,854	$	(4,247	)	$	(5,326	)	$	195		$	277,484
Net income (loss)		–		–			–		–			–			91		–			–			(5	)		86
Release of unearned ESOP shares		–		–			–		(5	)		–			–		16			–			–			11
Stock-based compensation expense		–		(1	)		–		88			–			–		–			–			–			87
Purchase of unreleased ESOP shares		–		–			–		–			–			–		(600	)		–			–			(600	)
Director stock compensation expense		–		–			–		(4	)		–			–		–			–			–			(4	)
Other comprehensive loss, net of tax		–		–			–		–			(1,907	)		–		–			–			–			(1,907	)
Balance at September 30, 2023	$	150,000	$	64		$	31	$	144,410		$	(19,326	)	$	9,945	$	(4,831	)	$	(5,326	)	$	190		$	275,157

See accompanying notes to unaudited consolidated financial statements.

4

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Nine Months Ended September 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		–		–		–		–			–			627			–			–			5		632
Release of unearned ESOP shares		–		1		–		(81	)		–			–			217			–			–		137
Stock-based compensation expense		–		–		–		199			–			–			–			–			–		199
Director stock compensation expense		–		–		–		96			–			–			–			–			–		96
Dividends declared and paid - ECIP		–		–		–		(817	)		–			–			–			–			–		(817	)
Other comprehensive income, net of tax		–		–		–		–			4,247			–			–			–			–		4,247
Balance at September 30, 2024	$	150,000	$	63	$	31	$	141,998		$	(9,278	)	$	13,179		$	(4,275	)	$	(5,326	)	$	199	$	286,591
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		–		–		–		–			–			1,907			–			–			20		1,927
Release of unearned ESOP shares		–		–		–		(15	)		–			–			48			–			–		33
Stock-based compensation expense		–		–		–		173			–			–			–			–			–		173
ESOP adjustment		–		–		–		–			–			–			(214	)		–			–		(214	)
Purchase of unreleased ESOP shares		–		–		–		–			–			–			(3,400	)		–			–		(3,400	)
Director stock compensation expense		–		–		–		95			–			–			–			–			–		95
Other comprehensive loss, net of tax		–		–		–		–			(1,853	)		–			–			–			–		(1,853	)
Balance at September 30, 2023	$	150,000	$	64	$	31	$	144,410		$	(19,326	)	$	9,945		$	(4,831	)	$	(5,326	)	$	190	$	275,157

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 nine months ended September 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.

Accounting Pronouncements Recently Issued

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update require companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period.  The provisions of this ASU become effective for the Company for all annual and interim periods beginning January 1, 2027.  The adoption of ASU No. 2024-03 is not expected to have a material impact on the Company’s financial statements.

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 September 30,2024 and 2023, respectively, were not considered in computing diluted earnings per common share because they were anti‑dilutive.

6

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2024			2023		2024			2023
	(In thousands, except share and per share data)
Net income attributable to Broadway Financial Corporation	$	522		$	91	$	627		$	1,907
Less: Net income attributable to participating securities		5			1		4			27
Less: Preferred stock dividends		750			–		817			–
Net (loss) income available to common stockholders	$	(233	)	$	90	$	(194	)	$	1,880
Weighted average common shares outstanding for basic earnings per common share(1)		8,520,730			8,709,301		8,386,919			8,756,189
Add: Effects of unvested restricted stock awards(1)		163,566			116,493		179,156			123,004
Weighted average common shares outstanding for diluted earnings per common share(1)		8,684,296			8,825,794		8,566,075			8,879,193
(Loss) earnings per common share - basic(1)	$	(0.03	)	$	0.01	$	(0.02	)	$	0.21
(Loss) earnings per common share - diluted(1)	$	(0.03	)	$	0.01	$	(0.02	)	$	0.21

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

7

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)
September 30, 2024:
Federal agency mortgage-backed securities	$	64,839	$	8	$	(7,639	)	$	57,208
Federal agency collateralized mortgage obligations (“CMO”)		22,182		7		(881	)		21,308
Federal agency debt		46,050		2		(1,888	)		44,164
Municipal bonds		4,808		–		(353	)		4,455
U. S. Treasuries		102,725		–		(987	)		101,738
U.S. Small Business Administration (“SBA”) pools		10,941		6		(1,331	)		9,616
Total available-for-sale securities	$	251,545	$	23	$	(13,079	)	$	238,489
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 September 30, 2024, investment securities with a fair value of $97.6 million were pledged as collateral for securities sold under agreements to repurchase and included $56.2 million of U.S. Treasury securities, $31.1 million of federal agency debt securities, $5.8 million of federal agency mortgage-backed securities and $4.4 million of SBA pool investments. 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 $94.3 million and $98.3 million were pledged as collateral for the BTFP borrowing as of September 30, 2024 and December 31, 2023, respectively (See Note 6 – Borrowings). Accrued interest receivable on securities was $887 thousand and $1.2 million at September 30, 2024 and December 31, 2023, respectively, and is included in the consolidated statements of financial condition under accrued interest receivable.

At September 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 September 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	$	100,746	$	–	$	(886	)	$	99,860
Due after one year through five years		49,392		2		(2,142	)		47,252
Due after five years through ten years		24,899		13		(1,006	)		23,906
Due after ten years		76,508		8		(9,045	)		67,471
	$	251,545	$	23	$	(13,079	)	$	238,489

8

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)
September 30, 2024:
Federal agency mortgage-backed securities	$	–	$	–		$	56,732	$	(7,639	)	$	56,732	$	(7,639	)
Federal agency CMOs		–		–			20,536		(881	)		20,536		(881	)
Federal agency debt		–		–			41,635		(1,888	)		41,635		(1,888	)
Municipal bonds		–		–			4,455		(353	)		4,455		(353	)
U. S. Treasuries		–		–			101,738		(987	)		101,738		(987	)
SBA pools		–		–			8,539		(1,331	)		8,539		(1,331	)
Total unrealized loss position investment securities	$	–	$	–		$	233,635	$	(13,079	)	$	233,635	$	(13,079	)
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 September 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 September 30, 2024, and December 31, 2023, there were no securities purchased with deterioration in credit quality since their origination. At September 30, 2024, and December 31, 2023, there were no collateral dependent securities.

The Company’s assessment of available-for-sale investment securities as of September 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 September 30, 2024 or December 31, 2023.

NOTE 4 – Loans Receivable Held for Investment

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

	September 30, 2024			December 31, 2023
	(In thousands)
Real estate:
Single-family	$	23,845		$	24,702
Multi-family		625,662			561,447
Commercial real estate		163,258			119,436
Church		9,543			12,717
Construction		79,396			89,887
Commercial – other		71,236			63,450
SBA loans (1)		895			14,954
Consumer		20			13
Gross loans receivable before deferred loan costs and premiums		973,855			886,606
Unamortized net deferred loan costs and premiums		1,896			1,971
Gross loans receivable		975,751			888,577
Credit and interest marks on purchased loans, net		(436	)		(772	)
Allowance for credit losses		(8,527	)		(7,348	)
Loans receivable, net	$	966,788		$	880,457

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

9

As of September 30, 2024 and December 31, 2023, the SBA loan category above included $0 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 $4.5 million and $3.3 million at September 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 September 30, 2024, the Company recorded a provision for credit losses of $399 thousand, compared to a recovery of provision for credit losses of $2 thousand for the three months ended September 30, 2023.  For the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $1.2 million, compared to $808 thousand for the nine months ended September 30, 2023.  The provisions for credit losses during the third quarter and nine months ended September 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $24 thousand and $26 thousand, respectively.  The increases in the provisions for credit losses during the three and nine months ended September 30, 2024 were primarily due to growth in the loan portfolio.

The allowance for credit losses (“ACL”) increased to $8.5 million as of September 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 September 30, 2024
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) (1)				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	301		$	–		$	–		$	(87	)		$	214
Multi-family			4,690			–			–			46				4,736
Commercial real estate			1,171			–			–			122				1,293
Church			84			–			–			(24	)			60
Construction			1,110			–			–			271				1,381
Commercial - other			618			–			–			141				759
SBA loans			130			–			–			(46	)			84
Consumer			–			–			–			–				–
Total		$	8,104		$	–		$	–		$	423			$	8,527

10

	Nine Months Ended September 30, 2024
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) (1)				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single family		$	260		$	–		$	–		$	(46	)		$	214
Multi-family			4,413			–			–			323				4,736
Commercial real estate			1,094			–			–			199				1,293
Church			72			–			–			(12	)			60
Construction			932			–			–			449				1,381
Commercial - other			529			–			–			230				759
SBA loans			48			–			–			36				84
Consumer			–			–			–			–				–
Total		$	7,348		$	–		$	–		$	1,179			$	8,527

(1) The Bank also recorded a recovery of provision for off-balance sheet loan commitments of $24 thousand and $26 thousand for the three and nine months ended September 30, 2024, respectively.

	Three Months Ended September 30, 2023
	Beginning Balance			Charge-offs			Recoveries			Provision (Recapture) (1)				Ending Balance
	(In thousands)
Loans receivable held for investment:
Real estate:
Single-family		$	247		$	–		$	–		$	(6	)		$	241
Multi-family			4,255			–			–			(8	)			4,247
Commercial real estate			1,012			–			–			9				1,021
Church			83			–			–			(4	)			79
Construction			788			–			–			59				847
Commercial - other			546			–			–			(121	)			425
SBA loans			39			–			–			–				39
Consumer			–			–			–			–				–
Total		$	6,970		$	–		$	–		$	(71	)		$	6,899

	Nine Months Ended September 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		$	–	$	–	$	(82	)	$	241
Multi-family		3,273		603			–		–		371			4,247
Commercial real estate		449		466			–		–		106			1,021
Church		65		37			–		–		(23	)		79
Construction		313		219			–		–		315			847
Commercial - other		175		254			–		–		(4	)		425
SBA loans		–		20			–		–		19			39
Consumer		4		(4	)		–		–		–			–
Total	$	4,388	$	1,809		$	–	$	–	$	702		$	6,899

(1) The Bank also recorded a provision for off-balance sheet loan commitments of $69 thousand and $106 thousand for the three and nine months ended September 30, 2023, respectively.

11

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 dates indicated:

	September 30, 2024
	Single-Family		Multi-Family Residential		Church		Business Assets		Total
Real estate:	(In thousands)
Single-family	$	36	$	–	$	–	$	–	$	36
Total	$	36	$	–	$	–	$	–	$	36

	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

At September 30, 2024 and December 31, 2023, $36 thousand and $6.4 million, respectively, of individually evaluated loans were evaluated based on the estimated fair value of the underlying collateral. These loans had an associated ACL of $0 and $112 thousand, as of September 30, 2024 and December 31, 2023, respectively.  None of these collateral dependent loans were on nonaccrual status at September 30, 2024 or December 31, 2023.  At September 30, 2024, one $73 thousand individually evaluated loan was evaluated using a discounted future cash flow approach. At December 31, 2023, no individually evaluated loans were evaluated using a discounted future cash flow approach.

12

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:

	September 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	$	–	$	–	$	–	$	–	$	23,869	$	23,869
Multi-family		–		–		–		–		628,591		628,591
Commercial real estate		–		1,374		–		1,374		159,434		160,808
Church		–		–		–		–		11,717		11,717
Construction		–		–		–		–		78,950		78,950
Commercial - other		–		–		–		–		70,901		70,901
SBA loans		–		291		–		291		604		895
Consumer		–		–		–		–		20		20
Total	$	–	$	1,665	$	–	$	1,665	$	974,086	$	975,751

13

	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:

	September 30, 2024		December 31, 2023
	(In thousands)
Loans receivable held for investment:
SBA loans	$	291	$	–
Total non-accrual loans	$	291	$	–

There were no loans 90 days or more delinquent that were accruing interest as of September 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 nine months ended September 30, 2024 or 2023.

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.

14

● 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.

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

	Term Loans Amortized Cost Basis by Origination Year - As of September 30, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
	(In thousands)
Single-family:
Pass	$	–	$	556	$	4,073	$	1,822	$	2,016	$	13,813	$	–	$	22,280
Watch		–		–		–		734		855		–		–		1,589
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		–		–		–
Total	$	–	$	556	$	4,073	$	2,556	$	2,871	$	13,813	$	–	$	23,869
Multi-family:
Pass	$	65,883	$	82,266	$	173,000	$	126,251	$	26,941	$	85,822	$	–	$	560,163
Watch		–		1,384		15,727		16,638		–		8,032		–		41,781
Special Mention		–		–		3,238		3,155		–		653		–		7,046
Substandard		–		1,549		–		4,487		–		13,565		–		19,601
Total	$	65,883	$	85,199	$	191,965	$	150,531	$	26,941	$	108,072	$	–	$	628,591
Commercial real estate:
Pass	$	31,882	$	13,695	$	20,982	$	29,797	$	14,695	$	18,944	$	–	$	129,995
Watch		14,886		–		435		–		13,120		1,498		–		29,939
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		874		–		–		–		–		–	$	874
Total	$	46,768	$	14,569	$	21,417	$	29,797	$	27,815	$	20,442	$	–	$	160,808
Church:
Pass	$	–	$	2,465	$	–	$	2,161	$	1,709	$	2,956	$	–	$	9,291
Watch		–		381		–		–		–		842		–		1,223
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		–		–		–		–		1,203		–		1,203
Total	$	–	$	2,846	$	–	$	2,161	$	1,709	$	5,001	$	–	$	11,717
Construction:
Pass	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Watch		5,699		31,804		4,160		–		–		2,037		–		43,700
Special Mention		–		–		–		–		–		–		–		–
Substandard		–		3,896		27,289		4,065		–		–		–		35,250
Total	$	5,699	$	35,700	$	31,449	$	4,065	$	–	$	2,037	$	–	$	78,950
Commercial – other:
Pass	$	–	$	4	$	7,867	$	–	$	2,799	$	6,054	$	–	$	16,724
Watch		8,606		28,147		717		–		–		2,250		–		39,720
Special Mention		8,832		–		351		–		–		–		–		9,183
Substandard		–		–		–		108		867		4,299		–		5,274
Total	$	17,438	$	28,151	$	8,935	$	108	$	3,666	$	12,603	$	–	$	70,901
SBA:
Pass	$	300	$	–	$	150	$	–	$	–	$	76	$	–	$	526
Substandard		–		–		–		–		369		–		–		369
Total	$	300	$	–	$	150	$	–	$	369	$	76	$	–	$	895
Consumer:
Pass	$	20	$	–	$	–	$	–	$	–	$	–	$	–	$	20
Total	$	20	$	–	$	–	$	–	$	–	$	–	$	–	$	20
Total loans:
Pass	$	98,085	$	98,986	$	206,072	$	160,031	$	48,160	$	127,665	$	–	$	738,999
Watch		29,191		61,716		21,039		17,372		13,975		14,659		–		157,952
Special Mention		8,832		–		3,589		3,155		–		653		–		16,229
Substandard		–		6,319		27,289		8,660		1,236		19,067		–		62,571
Total loans	$	136,108	$	167,021	$	257,989	$	189,218	$	63,371	$	162,044	$	–	$	975,751

15

	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 $342 thousand and $364 thousand at September 30, 2024 and December 31, 2023, respectively.  The recovery of provision for off-balance sheet loan commitments was $24 thousand for the three months ended September 30, 2024 and $26 thousand for the nine months ended September 30, 2024. The provision for off-balance sheet loan commitments was $69 thousand for the three months ended September 30, 2023 and $106 thousand for the nine months ended September 30, 2023.

NOTE 5 – Goodwill and Core Deposit Intangible

The following tables present the changes in the carrying amounts of goodwill and core deposit intangibles for the nine months ended September 30, 2024 and 2023:

	September 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		–		(252	)
Balance at the end of the period	$	25,858	$	1,859

16

	September 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		–		(293	)
Balance at the end of the period	$	25,858	$	2,208

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

		September 30, 2024			December 31, 2023
Core deposit intangible acquired	$	3,329		$	3,329
Less: Accumulated amortization		(1,470	)		(1,218	)
	$	1,859		$	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	$	84
2025		315
2026		304
2027		291
2028		279
Thereafter		586
	$	1,859

17

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 September 30, 2024 securities sold under agreements to repurchase totaled $89.8 million at an average rate of 3.68%. The fair value of securities pledged totaled $97.6 million as of September 30, 2024. As of December 31, 2023, securities sold under agreements to repurchase totaled $73.5 million at an average rate of 2.60%. The fair value of securities pledged totaled $89.0 million as of December 31, 2023.

At September 30, 2024 and December 31, 2023, the Company had outstanding advances from the FHLB totaling $208.6 million and $209.3 million, respectively. The weighted average interest rate was 4.35% and 4.91% as of September 30, 2024 and December 31, 2023, respectively. The weighted average contractual maturity was two months as of both September 30, 2024 and December 31, 2023. The advances were collateralized by loans with an unpaid balance of $484.4 million at September 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 $133.9 million as of September 30, 2024.

On December 27, 2023, the Company borrowed $100.0 million from the Federal Reserve under the BTFP.  As of both September 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 $94.3 million and $98.3 million were pledged as collateral for this borrowing as of September 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 September 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 September 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.

18

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 September 30, 2024:
Securities available-for-sale:
Federal agency mortgage-backed securities	$	–	$	57,208	$	–	$	57,208
Federal agency CMOs		–		21,308		–		21,308
Federal agency debt		–		44,164		–		44,164
Municipal bonds		–		4,455		–		4,455
U.S. Treasuries		101,738		–		–		101,738
SBA pools		–		9,616		–		9,616
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

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

As of September 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 September 30, 2024 and December 31, 2023.

			Fair Value Measurements at September 30, 2024
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	97,079	$	97,079	$	–	$	–	$	97,079
Securities available-for-sale		238,489		101,738		136,751		–		238,489
Loans receivable held for investment		966,788		–		–		958,934		958,934
Accrued interest receivable		5,744		5,744		–		–		5,744
Bank owned life insurance		3,309		3,309		–		–		3,309
Financial Liabilities:
Deposits	$	672,248	$	–	$	608,374	$	–	$	608,374
FHLB advances		208,568		–		208,202		–		208,202
BTFP borrowing		100,000		–		100,000		–		100,000
Securities sold under agreements to repurchase		89,798		–		89,671		–		89,671
Accrued interest payable		4,885		–		4,885		–		4,885

19

			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		4,938		–		–		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 September 30, 2024 and 2023, the Company recorded $84 thousand and $88 thousand of stock-based compensation expense, respectively.  During the nine months ended September 30, 2024 and 2023, the Company recorded $199 thousand and $173 thousand of stock-based compensation expense, respectively. During the three months ended September 30, 2024 and 2023, the Company did not record any director stock compensation expense. During the nine months ended September 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 September 30, 2024, 299,048 shares had been awarded under the Amended and Restated LTIP and 350,091 shares were available to be awarded.  The following tables present stock award activity during the three and nine months ended September 30, 2024 and 2023:

	Three months ended
	September 30, 2024			September 30, 2023
	(In thousands)
Outstanding at the beginning of the period		187,749			129,645
Granted during period		–			–
Forfeited during period		(452	)		(10,684	)
Vested during period		–			–
Outstanding at the end of the period		187,297			118,961

20

	Nine months ended
	September 30, 2024			September 30, 2023
	(In thousands)
Outstanding at the beginning of the period		113,568			51,090
Granted during period		145,890			101,930
Forfeited during period		(27,601	)		(12,044	)
Vested during period		(44,560	)		(22,015	)
Outstanding at the end of the period		187,297			118,961

No stock options were granted, exercised or expired during the three and nine months ended September 30, 2024 or 2023. During the three and nine months ended September 30, 2024, zero and 18,750 stock options were forfeited, respectively.

Options outstanding and exercisable at September 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	1.40 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 nine months ended September 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 $46 thousand and $11 thousand for the three months ended September 30, 2024 and 2023, respectively, and $137 thousand and $33 thousand for the nine months ended September 30, 2024 and 2023, respectively.

Shares held by the ESOP were as follows:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Allocated to participants		156,970		134,444
Committed to be released		13,652		28,669
Suspense shares		451,320		458,829
Total ESOP shares		621,942		621,942
Fair value of unearned shares	$	2,907	$	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 September 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.

21

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)
September 30, 2024:
Community Bank Leverage Ratio		$	187,310		13.84	%		$	121,838		9.00	%
December 31, 2023:
Community Bank Leverage Ratio		$	185,773		14.97	%		$	111,696		9.00	%

At September 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 September 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.

22

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 September 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 $209 thousand for the third quarter of 2024, compared to $39 thousand for the third quarter of 2023.  The increase in income tax expense reflected an increase of $628 thousand in pre-tax income between the two periods. The effective tax rate was 27.76% for the third quarter of 2024, compared to 31.20% for the third quarter of 2023.

For the nine months ended September 30, 2024, income tax expense was $298 thousand, compared to $806 thousand for the nine months ended September 30, 2023. The decrease in income tax expense reflected a decrease in pretax earnings of $1.8 million between the two periods. The effective tax rate was 32.04% for the nine months ended September 30, 2024, compared to 29.49% for the nine months ended September 30, 2023.

23

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 September 30, 2024 and December 31, 2023. The Bank also has a significant concentration of short-term borrowings from one customer that accounted for 92% and 85% of the outstanding balance of securities sold under agreements to repurchase as of September 30, 2024 and December 31, 2023, respectively. The Company expects to maintain the relationships with these customers for the foreseeable future.

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 $2.3 million at September 30, 2024 compared to December 31, 2023, primarily due to decreases in securities available-for-sale of $78.5 million, due to maturities and paydowns, cash and cash equivalents of $8.1 million, other assets of $1.3 million, and deferred tax assets of $1.1 million, partially offset by growth in net loans of $86.3 million.

Loans held for investment, net of the ACL, increased by $86.3 million to $966.8 million at September 30, 2024, compared to $880.5 million at December 31, 2023.  The increase was primarily due to loan originations of $136.2 million during the first nine months of 2024, which consisted of $65.7 million in multi-family loans, $46.6 million in commercial real estate loans, $17.6 million in other commercial loans, $5.5 million in construction loans, and $800 thousand in SBA loans, partially offset by loan payoffs and repayments of $49.9 million.

Deposits decreased by $10.4 million to $672.2 million at September 30, 2024, from $682.6 million at December 31, 2023. The decrease in deposits was attributable to a decrease of $33.1 million in liquid deposits (demand, interest checking, and money market accounts), a decrease of $7.4 million in savings deposits, and a decrease of $2.2 million in Certificate of Deposit Registry Service (“CDARS”) deposits, partially offset by an increase of $32.2 million in Insured Cash Sweep (“ICS”) deposits and $148 thousand in other certificates of deposit accounts.  As of September 30, 2024, our uninsured deposits, including deposits from affiliates, represented 34% of our total deposits, as compared to 37% as of December 31, 2023.

Total borrowings increased by $1.6 million to $398.4 million at September 30, 2024, from $396.8 million at December 31, 2023, primarily due to an increase of $16.3 million in securities sold under agreements to repurchase, partially offset by the payoff of two notes payable totaling $14.0 million during January 2024.

For the three months ended September 30, 2024, the Company reported net income attributable to Broadway Financial Corporation ("Broadway") of $522 thousand compared to net income attributable to Broadway of $91 thousand for the three months ended September 30, 2023, an increase of $431 thousand.  Net loss attributable to common stockholders was $228 thousand during the third quarter of 2024 after deducting preferred dividends of $750 thousand, compared to net income attributable to common stockholders of $91 thousand for the third quarter of 2023.

For the nine months ended September 30, 2024, the Company reported net income attributable to Broadway of $627 thousand compared to net income attributable to Broadway of $1.9 million for the nine months ended September 30, 2023.  Net loss attributable to common stockholders was $190 thousand during the first nine months of 2024 after deducting preferred dividends of $817 thousand, compared to net income attributable to common stockholders of $1.9 million for the first nine months of 2023.  The decrease in net income attributable to the Company primarily resulted from an increase in non-interest expense of $3.0 million during the first nine months of 2024, compared to the first nine months of 2023, primarily due to increases in compensation and benefits expense of $1.4 million and professional services expense of $1.2 million.  The increase in non-interest expense was partially offset by an increase of $1.5 million in net interest income and a decrease in income tax expense of $508 thousand during the first nine months of 2024, compared to the first nine months of 2023.

25

Results of Operations

Net Interest Income

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

Net interest income before provision for credit losses for the third quarter of 2024 totaled $8.3 million, representing an increase of $1.5 million, or 23.0%, from net interest income before provision for credit losses of $6.8 million for the third quarter of 2023.  The increase resulted from higher interest income of $4.2 million, partially offset by an increase in interest expense of $2.7 million.  The increase in interest income was primarily due to growth of $141.8 million in average loans receivable and $95.9 million in average interest-earning deposits, which were partially offset by a decline of $71.0 million in average securities during the third quarter of 2024, compared to the third quarter of 2023.  In addition, the overall rate earned on interest-earning assets increased by 73 basis points as the Bank earned higher rates on the loan portfolio, as well as on interest-earning deposits.  The increase in interest income was partially offset by an increase in the average cost of funds, which increased to 3.23% for the third quarter of 2024 from 2.47% for the third quarter of 2023, due to higher average balances of borrowings and higher rates paid on deposits.  Net interest margin increased to 2.49% for the third quarter of 2024 from 2.33% for the third quarter of 2023.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Net interest income before provision for credit losses for the nine months ended September 30, 2024 totaled $23.8 million, representing an increase of $1.5 million, or 6.5%, from net interest income before provision for credit losses of $22.3 million for the nine months ended September 30, 2023.  The increase resulted from higher interest income of $11.8 million, partially offset by an increase in interest expense of $10.4 million.  The increase in interest income was primarily due to an increase of $144.1 million in the average balance of loans receivable and an increase of $88.2 million in average interest-bearing deposits, which were partially offset by a decrease of $47.8 million in average securities.  In addition, interest income increased due to an increase of 63 basis points, or 15.6%, in the overall rate earned on interest-earning assets during the nine months ended September 30, 2024, as the Bank earned higher rates on the loan portfolio, interest-bearing deposits and stock investments with the Federal Reserve and Federal Home Loan Bank.  The increase in interest income was partially offset by an increase in the average cost of funds, which increased to 3.14% for the nine months ended September 30, 2024 from 2.00% for the nine months ended September 30, 2023, due to higher average balances of borrowings and higher rates paid on borrowings and deposits. Net interest margin decreased to 2.38% for the nine months ended September 30, 2024, compared to 2.60% for the nine months ended September 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
	September 30, 2024							September 30, 2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-bearing deposits	$	106,569	$	1,491		5.57	%	$	10,629	$	139		5.23	%
Securities		248,833		1,635		2.61	%		319,866		2,180		2.73	%
Loans receivable (1)		963,849		12,796		5.28	%		822,031		9,406		4.58	%
FRB and FHLB stock		13,835		244		7.02	%		12,538		202		6.44	%
Total interest-earning assets		1,333,086	$	16,166		4.82	%		1,165,064	$	11,927		4.09	%
Non-interest-earning assets		48,980							67,047
Total assets	$	1,382,066						$	1,232,111
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	282,808	$	1,740		2.45	%	$	259,184	$	1,256		1.94	%
Savings deposits		55,198		90		0.65	%		58,686		42		0.29	%
Interest checking and other demand deposits		67,023		107		0.64	%		101,657		93		0.37	%
Certificate accounts		165,483		1,272		3.06	%		152,577		735		1.93	%
Total deposits		570,512		3,209		2.24	%		572,104		2,126		1.49	%
FHLB advances		209,064		2,588		4.92	%		196,184		2,571		5.24	%
Bank Term Funding Program borrowing		100,000		1,220		4.85	%		–		–		–	%
Other borrowings		86,397		819		3.77	%		67,533		457		2.71	%
Total borrowings		395,461		4,627		4.65	%		263,717		3,028		4.59	%
Total interest-bearing liabilities		965,973	$	7,836		3.23	%		835,821	$	5,154		2.47	%
Non-interest-bearing liabilities		131,750							120,162
Stockholders’ equity		284,343							276,128
Total liabilities and stockholders’ equity	$	1,382,066						$	1,232,111
Net interest rate spread (2)			$	8,330		1.60	%			$	6,773		1.63	%
Net interest rate margin (3)						2.49	%						2.33	%
Ratio of interest-earning assets to interest-bearing liabilities						138.00	%						139.39	%

(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 Nine Months Ended
	September 30, 2024							September 30, 2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Assets
Interest-earning assets:
Interest-bearing deposits	$	102,082	$	4,024		5.27	%	$	13,889	$	425		4.08	%
Securities		276,892		5,586		2.69	%		324,719		6,543		2.69	%
Loans receivable (1)		938,666		36,104		5.14	%		794,524		27,039		4.54	%
FRB and FHLB stock		13,794		733		7.10	%		11,577		603		6.94	%
Total interest-earning assets		1,331,434	$	46,447		4.66	%		1,144,709	$	34,610		4.03	%
Non-interest-earning assets		50,591							67,712
Total assets	$	1,382,025						$	1,212,421
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	276,802	$	4,805		2.32	%	$	263,102	$	2,959		1.50	%
Savings deposits		57,272		294		0.69	%		60,275		71		0.16	%
Interest checking and other demand deposits		75,636		418		0.74	%		100,921		257		0.34	%
Certificate accounts		164,718		3,577		2.90	%		150,651		1,691		1.50	%
Total deposits		574,428		9,094		2.11	%		574,949		4,978		1.15	%
FHLB advances		209,198		7,779		4.97	%		173,312		6,035		4.64	%
Bank Term Funding Program borrowing		100,000		3,633		4.85	%		–		–		–	%
Other borrowings		80,974		2,169		3.58	%		70,957		1,282		2.41	%
Total borrowings		390,172		13,581		4.65	%		244,269		7,317		3.99	%
Total interest-bearing liabilities		964,600	$	22,675		3.14	%		819,218	$	12,295		2.00	%
Non-interest-bearing liabilities		134,455							115,362
Stockholders’ equity		282,970							277,841
Total liabilities and stockholders’ equity	$	1,382,025						$	1,212,421
Net interest rate spread (2)			$	23,772		1.52	%			$	22,315		2.03	%
Net interest rate margin (3)						2.38	%						2.60	%
Ratio of interest-earning assets to interest-bearing liabilities						138.03	%						139.73	%

(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 September 30, 2024, the Company recorded a provision for credit losses of $399 thousand, compared to a recovery of provision for credit losses of $2 thousand for the three months ended September 30, 2023.  For the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $1.2 million, compared to $808 thousand for the nine months ended September 30, 2023.  The provisions for credit losses during the third quarter and nine months ended September 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $24 thousand and $26 thousand, respectively.  The increases in the provisions for credit losses during the third quarter and nine months ended September 30, 2024 were primarily due to growth in the loan portfolio.

The allowance for credit losses (“ACL”) increased to $8.5 million as of September 30, 2024, compared to $7.3 million as of December 31, 2023 due to growth in the loan portfolio.

The Bank had one non-accrual loan at September 30, 2024 with an unpaid principal balance of $291 thousand.  No loan charge-offs were recorded during the quarters or nine months ended September 30, 2024 or 2023.

Non-interest Income

Non-interest income for the third quarter of 2024 totaled $416 thousand, compared to $331 thousand for the third quarter of 2023.

For the first nine months of 2024, non-interest income totaled $995 thousand, compared to $880 thousand for the same period in the prior year.

Non-interest Expense

Total non-interest expense was $7.6 million for the third quarter of 2024, compared to $7.0 million for the third quarter of 2023, representing an increase of $613 thousand, or 8.8%.  The increase was primarily due to an increase in professional and accounting fees in connection with the Company’s remediation efforts of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023.

For the first nine months of 2024, non-interest expense totaled $22.7 million, representing an increase of $3.0 million, or 15.4%, from $19.7 million for the same period in the prior year.  The increase primarily resulted from increases in compensation and benefits expense of $1.4 million and professional services expense of $1.2 million.  The increase in compensation and benefits expense reflects the investment in additional executives and staff to support growth and strengthen overall controls and management depth.  As previously reported, the Company hired a new Chief Financial Officer.  The Company also hired a General Counsel and Chief Risk Officer, Chief Accounting Officer, and Treasurer during the first six months of 2024.  The increase in professional services expense was primarily due to the costs associated with third-party professionals that were retained 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.

Income Taxes

The Company recorded an income tax expense of $209 thousand for the third quarter of 2024, compared to $39 thousand for the third quarter of 2023.  The increase in income tax expense reflected an increase of $628 thousand in pre-tax income between the two periods.  The effective tax rate was 27.76% for the third quarter of 2024, compared to 31.20% for the third quarter of 2023.

For the nine months ended September 30, 2024, income tax expense was $298 thousand, compared to $806 thousand for the nine months ended September 30, 2023.  The decrease in income tax expense reflected a decrease in pretax earnings of $1.8 million between the two periods. The effective tax rate was 32.04% for the nine months ended September 30, 2024, compared to 29.49% for the nine months ended September 30, 2023.

Financial Condition

Total Assets

Total assets decreased by $2.3 million at September 30, 2024, compared to December 31, 2023, reflecting decreases in securities available-for-sale of $78.5 million, cash and cash equivalents of $8.1 million, other assets of $1.3 million, and deferred tax assets of $1.1 million, partially offset by growth in net loans of $86.3 million.

28

Securities Available-For-Sale

Securities available-for-sale totaled $238.5 million at September 30, 2024, compared with $317.0 million at December 31, 2023. The $78.5 million decrease in securities available-for-sale during the nine months ended September 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 September 30, 2024. The table reflects stated final maturities and does not reflect scheduled principal payments or expected payoffs.

	September 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	$	–		–		$	1,061		1.39	%	$	8,582		1.54	%	$	47,565		2.50	%	$	57,208		2.33	%
Federal agency CMO		–		–			411		0.91	%		10,399		4.39	%		10,498		3.26	%		21,308		3.77	%
Federal agency debt		8,801		1.50	%		30,604		1.94	%		4,759		4.37	%		–		–			44,164		2.11	%
Municipal bonds		–		–			2,955		1.55	%		–		–			1,500		1.73	%		4,455		1.61	%
U.S. Treasuries		91,059		2.78	%		10,679		1.71	%		–		–			–		–			101,738		2.67	%
SBA pools		–		–			1,542		2.36	%		166		6.70	%		7,908		2.64	%		9,616		2.67	%
Total	$	99,860		2.67	%	$	47,252		1.86	%	$	23,906		3.38	%	$	67,471		2.62	%	$	238,489		2.56	%

Loans Receivable

Loans receivable held for investment, net of the ACL, increased by $86.3 million to $966.8 million at September 30, 2024, compared to $880.5 million at December 31, 2023.  The increase was primarily due to loan originations of $136.2 million during the first nine months of 2024, which consisted of $65.7 million in multi-family loans, $46.6 million in commercial real estate loans, $17.6 million in other commercial loans, $5.5 million in construction loans, and $800 thousand in SBA loans, partially offset by loan payoffs and repayments of $49.9 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.

	September 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	$	2,354	$	8,507	$	5,058	$	7,926	$	23,845
Multi-family		13,927		16,932		12,026		582,777		625,662
Commercial real estate		16,708		85,983		40,349		20,218		163,258
Church		1,583		2,955		5,005		–		9,543
Construction		36,732		35,300		7,364		–		79,396
Commercial - other		7,963		23,814		37,357		2,102		71,236
SBA loans		3		442		450		–		895
Consumer		20		–		–		–		20
	$	79,290	$	173,933	$	107,609	$	613,023	$	973,855
Loans maturities after one year with:
Fixed rates
Single-family			$	8,166	$	2,346	$	5,106	$	15,618
Multi-family				12,858		7,880		–		20,738
Commercial real estate				81,537		28,854		–		110,391
Church				2,389		1		–		2,390
Construction				6,479		1,564		–		8,043
Commercial - other				8,814		36,319		–		45,133
SBA loans				–		–		–		–
Consumer				–		–		–		–
			$	120,243	$	76,964	$	5,106	$	202,313
Variable rates
Single-family			$	341	$	2,712	$	2,820	$	5,873
Multi-family				4,074		4,146		582,777		590,997
Commercial real estate				4,446		11,495		20,218		36,159
Church				566		5,004		–		5,570
Construction				28,821		5,800		–		34,621
Commercial - other				15,000		1,038		2,102		18,140
SBA loans				442		450		–		892
Consumer				–		–		–		–
			$	53,690	$	30,645	$	607,917	$	692,252
Total			$	173,933	$	107,609	$	613,023	$	894,565

29

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 $592.4 million or 60.8% of our loan portfolio as of September 30, 2024.

Allowance for Credit Losses

The Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses. 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.

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.

30

The ACL was $8.5 million, or 0.87% of gross loans held for investment at September 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 nine month periods ending September 30, 2024 or 2023.

Collateral dependent loans at September 30, 2024 and December 31, 2023 totaled $36 thousand and $6.4 million, respectively.  These loans had an ACL of $0 and $112 thousand as of September 30, 2024 and December 31, 2023, respectively.

The Bank had non-accrual loans of $291 thousand at September 30, 2024.  Loan delinquencies for 30 days or more, but less than 90 days, increased to $1.7 million at September 30, 2024, compared to $780 thousand at December 31, 2023.  There were no loans past due by greater than 90 days at September 30, 2024 or December 31, 2023.

We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of September 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:

	September 30, 2024					December 31, 2023					September 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	$	214		2.45	%	$	260		2.79	%	$	241		3.03	%
Multi‑family		4,736		64.25	%		4,413		63.33	%		4,247		63.29	%
Commercial real estate		1,293		16.54	%		1,094		13.47	%		1,021		13.79	%
Church		60		1.20	%		72		1.43	%		79		1.53	%
Construction		1,381		8.15	%		932		10.14	%		847		9.72	%
Commercial and SBA		843		7.41	%		577		8.84	%		464		8.64	%
Consumer		–		–			–		–			–		–
Total allowance for loan losses	$	8,527		100.00	%	$	7,348		100.00	%	$	6,899		100.00	%

Total Liabilities

Total liabilities decreased by $6.8 million to $1.1 billion at September 30, 2024 from December 31, 2023, largely due to decreases of $14.0 million in notes payable and $10.4 million in deposits, partially offset by an increase of $16.3 million in securities sold under agreements to repurchase.

Deposits

Deposits decreased by $10.4 million to $672.2 million at September 30, 2024, from $682.6 million at December 31, 2023. The decrease in deposits was attributable to a decrease of $33.1 million in liquid deposits (demand, interest checking, and money market accounts), a decrease of $7.4 million in savings deposits, and a decrease of $2.2 million in Certificate of Deposit Registry Service (“CDARS”) deposits, partially offset by an increase of $32.2 million in Insured Cash Sweep (“ICS”) deposits and $148 thousand in other certificates of deposit accounts.  As of September 30, 2024, our uninsured deposits, including deposits from Broadway and other affiliates, represented 34% of our total deposits, as compared to 37% as of December 31, 2023.

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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)
September 30, 2024
Time deposits of $250,000 or less	$	46,630	$	33,994	$	52,295	$	7,285	$	140,204
Time deposits of more than $250,000		6,166		2,626		10,395		6,597		25,784
Total	$	52,796	$	36,620	$	62,690	$	13,882	$	165,988
Not covered by deposit insurance	$	4,166	$	1,376	$	6,395	$	5,847	$	17,784
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 September 30, 2024 and December 31, 2023, the Company had outstanding advances from the FHLB totaling $208.6 million and $209.3 million, respectively. The weighted interest rate was 4.35% and 4.91% as of September 30, 2024 and December 31, 2023, respectively. The weighted average contractual maturity was two months as of both September 30, 2024 and December 31, 2023.  The advances were collateralized by loans with an unpaid balance of $484.4 million at September 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 September 30, 2024, the Company was eligible to borrow an additional $133.9 million as of September 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 September 30, 2024 securities sold under agreements to repurchase totaled $89.8 million at an average rate of 3.68%.  The fair value of securities pledged totaled $97.6 million as of September 30, 2024. As of December 31, 2023, securities sold under agreements to repurchase totaled  $73.5 million at an average rate of 2.60%.  The fair value of securities pledged totaled $89.0 million as of December 31, 2023.

One relationship accounted for 92% of our balance of securities sold under agreements to repurchase as of September 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 September 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 $94.3 million and $98.3 million were pledged as collateral for this borrowing as of September 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.

Stockholders’ Equity

Stockholders’ equity was $286.4 million, or 20.9%, of the Company’s total assets, at September 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 $14.97 at September 30, 2024 and $14.65 at December 31, 2023.

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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)
September 30, 2024:
Common book value	$	136,392		9,112,777	$	14.97
Less:
Goodwill		25,858
Net unamortized core deposit intangible		1,859
Tangible book value	$	108,675		9,112,777	$	11.93
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 to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. Based on FHLB stock held and collateral pledged as of September 30, 2024, the Bank had the ability to borrow an additional $133.9 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 September 30, 2024.

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 September 30, 2024 consisted of $97.1 million in cash and cash equivalents and $35.0 million in securities available-for-sale that were not pledged, compared to $105.2 million in cash and cash equivalents and $186.0 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 $923 thousand in loans that were approved but unfunded as of September 30, 2024.  In addition, the bank had $3.7 million in unfunded line of credit loans and $47.5 million in unfunded construction loans as of September 30, 2024.

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The Bank has a significant concentration of deposits with two customers that accounted for approximately 12% of its deposits as of September 30, 2024. The Bank also has a significant concentration of short-term borrowings with one customer that accounted for 92% of the outstanding balance of securities sold under agreements to repurchase as of September 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 $2.7 million during the nine months ended September 30, 2024, compared to $61.5 million during the nine months ended September 30, 2023. Net cash outflows from investing activities for the nine months ended September 30, 2024 were primarily due to the funding of new loans, net of repayments, of $87.6 million, partially offset by proceeds from principal paydowns on available-for-sale securities of $85.1 million. Net cash outflows from investing activities during the nine months ended September 30, 2023 were primarily due to funding of new loans, net of repayments, of $70.0 million, partially offset by $10.5 million in proceeds from principal paydowns on available-for-sale securities.

The Company recorded consolidated net cash outflows from financing activities of $9.6 million during the nine months ended September 30, 2024, compared to consolidated net cash inflows of $52.9 million during the nine months ended September 30, 2023. Net cash outflows from financing activities during the nine months ended September 30, 2024 were primarily due to repayments of FHLB advances of $176.7 million and the $14.0 million repayment of notes payable, partially offset by proceeds from FHLB advances of $176.0 million. Net cash inflows from financing activities during the nine months ended September 30, 2023 were primarily attributable to proceeds from FHLB advances of $329.0 million, partially offset by repayments of FHLB advances of $269.6 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 September 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 September 30, 2024. Based on their evaluation as of September 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 September 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: November 13, 2024	By:	/s/ Brian Argrett
		Brian Argrett
		Chief Executive Officer
Date: November 13, 2024	By:	/s/ Zack Ibrahim
		Zack Ibrahim
		Chief Financial Officer

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