BV Financial, Inc. 10-Q

10-Q 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 March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______to________ Commission File Number: 001-36094 BV FINANCIAL, INC. (Exact Name of Registrant as Specified in Its Charter) Maryland 14-1920944 (State of Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 7114 North Point Road , Baltimore , MD , 21219 (Address of Principal Executive Offices) (Zip Code) ( 410 ) 477-5000 (Registrant’s Telephone Number, Including Area Code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None 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 filer, a smaller reporting company, or an emerging growth company. See definitions 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 June 29, 2023, the registrant had 7,430,575 shares of common stock outstanding. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements of Comprehensive Income (Loss) 3 Consolidated Statements of Changes in Stockholders' Equity 4 Consolidated Statements of Cash Flows 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 Item 3. Quantitative and Qualitative Disclosures About Market Risk 42 Item 4. Controls and Procedures 42 PART II. OTHER INFORMATION Item 1. Legal Proceedings 43 Item 1A. Risk Factors 43 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43 Item 3. Defaults Upon Senior Securities 43 Item 4. Mine Safety Disclosures 43 Item 5. Other Information 43 Item 6. Exhibits 44 Signatures 45 EXPLANATORY NOTE The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and related notes, of BV Financial, Inc. (the "Company") as of and for each of the years ended December 31, 2022 and 2021, contained in the Company's definitive prospectus dated May 15, 2023, as filed with the Securities and Exchange Commission on May 23, 2023. BV FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BAL ANCE SHEETS March 31, 2023 December 31, 2022 (unaudited) derived from audited financial statements (In thousands, except share amounts) Assets Cash $ 8,238 $ 12,704 Interest-bearing deposits in other banks 56,369 55,948 Cash and cash equivalents 64,607 68,652 Equity Investment 211 221 Securities available for sale 36,103 33,034 Securities held to maturity (fair value of $ 9,565 and $ 9,660 , ACL of $ 7 and $ 0 ) 10,395 10,461 Loans held for maturity 680,893 662,944 Allowance for Credit Losses ( 8,095 ) ( 3,813 ) Net Loans 672,798 659,131 Foreclosed real estate 2,044 1,987 Premises and equipment, net 15,007 15,176 Federal Home Loan Bank of Atlanta stock, at cost 2,052 977 Investment in life insurance 19,335 19,983 Accrued interest receivable 2,767 2,952 Goodwill 14,420 14,420 Intangible assets, net 1,149 1,195 Deferred tax assets, net 9,219 9,113 Other assets 7,418 7,661 Total assets $ 857,525 $ 844,963 Liabilities and Stockholders' Equity Liabilities Noninterest-bearing deposits $ 151,667 $ 167,202 Interest-bearing deposits 515,322 517,416 Total deposits 666,989 684,618 Official checks FHLB borrowings 37,500 12,000 Subordinated Debentures 37,092 37,039 Other liabilities 15,291 13,555 Total liabilities 756,872 747,212 Stockholders' equity Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; none issued or outstanding Common stock, $ 0.01 par value; 45,000,000 shares authorized 2023 and 2022; 7,424,595 shares issued and 7,424,595 shares outstanding as of March 31, 2023; 7,418,575 shares issued and 7,418,575 shares outstanding as of December 31, 2022 74 74 Paid-in capital 15,472 15,406 Retained earnings 87,180 84,612 Accumulated other comprehensive loss ( 2,073 ) ( 2,341 ) Total stockholders' equity 100,653 97,751 Total liabilities and stockholders' equity $ 857,525 $ 844,963 See notes to consolidated financial statements. 1 BV FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three Months Ended March 31, Interest Income 2023 2022 Loans, including fees $ 8,773 $ 7,202 Investment securities available for sale 266 136 Investment securities held to maturity 93 36 Other interest income 556 39 Total interest income 9,688 7,413 Interest Expense Interest on deposits 665 367 Interest on FHLB borrowings 289 — Interest on Subordinated debentures 534 503 Other interest expense — 1 Total interest expense 1,488 871 Net interest income 8,200 6,542 Provision for credit losses 2 177 Net interest income after provision for credit losses 8,198 6,365 Noninterest Income Service fees on deposits 94 113 Fees from debit cards 173 182 Income from investment in life insurance 318 93 Other income 222 1,100 Total noninterest income 807 1,488 Noninterest Expense Compensation and related benefits 2,879 2,402 Occupancy 416 464 Data processing 349 365 Advertising 13 5 Professional fees 200 175 Equipment 105 112 Foreclosed real estate and repossessed assets holding costs 127 10 Amortization of intangible assets 46 45 FDIC insurance premiums 54 53 Other 511 727 Total noninterest expense 4,700 4,358 Net income before tax 4,305 3,495 Income tax expense 1,190 1,078 Net income $ 3,115 $ 2,417 Basic earnings per share $ 0.42 $ 0.33 Diluted earnings per share $ 0.42 $ 0.33 See notes to consolidated financial statements. 2 BV FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CO MPREHENSIVE INCOME/LOSS (in thousands) (unaudited) Three Months Ended March 31, 2023 2022 Net income $ 3,115 $ 2,417 Other comprehensive income (loss) Unrealized gain (loss) on securities available for sale 369 ( 1,411 ) Income tax relating to securities available for sale ( 101 ) 388 Other comprehensive income (loss) 268 ( 1,023 ) Total comprehensive income $ 3,383 $ 1,394 See notes to consolidated financial statements. 3 BV FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANG ES IN STOCKHOLDERS' EQUITY (in thousands) (unaudited) For the Three Months Ended March 31, 2023 and 2022 Accumulated other Common Paid-in Retained comprehensive stock capital earnings income (loss) Total (In thousands) Balance, December 31, 2022 $ 74 $ 15,406 $ 84,612 $ ( 2,341 ) $ 97,751 Net Income — — 3,115 — 3,115 Shares Issued to M.H.C. for NASB Merger — — — — — Other comprehensive income (net of tax of $ 101 ) — — — 268 268 Stock Compensation — 66 — — 66 CECL ASU Transition — — ( 547 ) — ( 547 ) Balance, March 31, 2023 $ 74 $ 15,472 $ 87,180 $ ( 2,073 ) $ 100,653 Accumulated other Common Paid-in Retained comprehensive stock capital earnings income (loss) Total (In thousands) Balance, December 31, 2021 $ 71 $ 9,383 $ 74,088 $ ( 96 ) $ 83,446 Net Income — — 2,417 — 2,417 Shares Issued to M.H.C. for NASB Merger 2 4,500 — — 4,502 Other comprehensive loss (net of tax of $ 388 ) — — — ( 1,023 ) ( 1,023 ) Stock Compensation 1 38 — — 39 Balance, March 31, 2022 $ 74 $ 13,921 $ 76,505 $ ( 1,119 ) $ 89,381 See notes to consolidated financial statements. 4 BV FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEME NT OF CASH FLOWS (unaudited) Three Months Ended March 31, (dollars in thousands) 2023 2022 Cash flows from operating activities Net income $ 3,115 $ 2,417 Adjustments to reconcile net income to net cash provided by operating activities Net accretion of discounts and premiums ( 109 ) ( 194 ) Provision for credit losses 2 177 Gain on bargain purchase — ( 1,340 ) Amortization of deferred loan fees/costs ( 173 ) ( 367 ) Amortization of intangible assets 46 45 Amortization of debt issuance costs 39 39 Depreciation of premises and equipment 218 214 Deferred tax expense — 147 Increase in cash surrender value of life insurance ( 83 ) ( 93 ) Stock-based compensation expense 65 41 (Increase) decrease in accrued interest and other assets 431 ( 152 ) Increase in other liabilities 56 906 Net cash provided by operating activities 3,607 1,840 Cash flows from investing activities Proceeds from maturities and principal payments of investment securities available for sale 1,243 1,572 Purchases of investment securities available for sale ( 4,002 ) ( 2,990 ) Proceeds from maturities and principal payments of investment securities held to maturity 58 173 Purchases of investment securities held to maturity — ( 2,904 ) Net increase in loans ( 14,213 ) ( 13,306 ) Purchase of premises and equipment ( 49 ) ( 63 ) Proceeds from life insurance benefits 731 — Proceeds from sale of Federal Home Loan Bank Stock 8 — Purchase of Federal Home Loan Bank of Atlanta stock ( 1,083 ) ( 85 ) Net cash received in acquisition $ — 8,521 Net cash used in investing activities ( 17,307 ) ( 9,082 ) Cash flows provided by financing activities Increase in official checks 400 4,839 Net decrease in deposits ( 17,525 ) ( 11,033 ) Increase (decrease) in advance payments by borrowers for taxes and insurance 1,280 464 Advances from the Federal Home Loan Bank of Atlanta 25,500 — Net cash provided by (used in) financing activities 9,655 ( 5,730 ) Net (decrease) in cash and cash equivalents ( 4,045 ) ( 12,972 ) Cash and cash equivalents at beginning of period 68,652 111,190 Cash and cash equivalents at end of period $ 64,607 $ 98,218 Supplementary cash flows information Interest paid $ 1,488 $ 871 Income taxes paid $ 1,190 $ 1,078 Supplementary noncash transactions Net loans transferred to foreclosed real estate and repossessed assets $ — $ — Impact of ASC 326 adoption $ 547 See notes to consolidated financial statements. 5 BV FINANCIAL, INC. AND SUBSIDIARIES Note 1 – Summary Of Signif icant Accounting Policies Business BV Financial, Inc. (the "Company") was organized as a federally chartered corporation in January 2005 to become the mid-tier stock holding company for Bay-Vanguard Federal Savings Bank, a federally chartered savings bank, upon the completion of its reorganization into the mutual holding company form of organization. Pursuant to the Plan of Reorganization, the Bank converted to stock form with all of its stock owned by the Company and organized Bay-Vanguard, M.H.C. (the "M.H.C.") as a federally chartered mutual holding company that owned 55 % of the common stock of the Company. In August 2018, Bay-Vanguard Federal Savings Bank became a Maryland-chartered stock savings bank and changed its name to BayVanguard Bank (the "Bank"). In February 2019, each of the M.H.C. and the Company became a Maryland-chartered corporation. In February 2019, the Company issued 4,099,822 shares to the M.H.C. in connection with the acquisition of Kopernik Bank (“Kopernik”). In January 2022, the Company issued 251,004 shares to the M.H.C. in connection with the acquisition of North Arundel Savings Bank. At March 31, 2023 and December 31, 2022, the M.H.C. owned 86.21 % and 86.28 % of the common stock of the Company, respectively. The Bank is headquartered in Baltimore, Maryland and is a community-oriented financial institution offering traditional financial services to its local communities. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate one-to-four family real estate, construction, multi-family, commercial real estate, farm, marine loans, commercial and consumer loans. The Bank's deposits are insured up to the applicable legal limits by the Federal Deposit Insurance Corporation's Deposit Insurance Fund. The Bank is a member of the Federal Home Loan Bank System. Principles of Consolidation The consolidated financial statements include the accounts of the Company and the Bank. All intercompany balances and transactions have been eliminated in consolidation. Basis of Financial Statement Presentation and Significant Estimates The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses, goodwill and intangible asset impairment, and the valuation of deferred tax assets. Significant Group Concentrations of Credit Risk Most of the Company's activities are with customers located within the Baltimore metropolitan area and the Eastern Shore of Maryland. The Company does not have any significant concentrations to any one industry or customer. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from banks, cash items in the process of clearing, and interest-bearing deposits with banks with original maturities of less than 90 days. Securities The Company classifies investment securities as held to maturity or available for sale. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost (including amortization of premiums or accretion of discounts). Net unrealized gains and losses for debt securities classified 6 BV FINANCIAL, INC. AND SUBSIDIARIES as available for sale are recognized as increases or decreases in other comprehensive income or loss, net of taxes, and excluded from the determination of net income. Equity securities are reported at fair value with unrealized gains and losses included in net gains/losses in noninterest income. Realized gains and losses on sales of securities are determined using the specific identification method and are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Premiums and discounts on callable debt securities are amortized through the earliest call date. When the fair value of an available-for-sale ("AFS") debt security has declined below its amortized cost basis, the Company is required to assess whether the decline is from a credit loss or other factor. For securities that are not guaranteed by the federal government, an analysis is performed on the individual issuer security using the latest available information to determine if the decline in fair value is attributable to a credit loss. If such determination is made, the Company would record an allowance for credit loss for the debt instrument. As of March 31, 2023, we have recognized no credit losses on AFS securities. For held-to-maturity ("HTM") debt securities, an allowance will be recognized when lifetime credit losses are expected, in an amount that reflects the expected contractual credit losses, even when the risk of such loss is remote. Any security, either explicitly or implicitly guaranteed by the U.S. Government is excluded from this analysis. This includes U.S. Treasury securities, securities issued by agencies of the U.S. Government and mortgage-backed securities issued by GNMA, Fannie Mae and FHLMC. The allowance for credit losses ("ACL") for HTM securities is computed using bind global default rates tracked by S&P with a loss given default of 45 %. Accrued interest receivable on the HTM debt securities excluded from this analysis totaled $ 12,000 at March 31, 2023. Federal Home Loan Bank Stock Federal law requires a member institution of the Federal Home Loan Bank System to hold stock of its district Federal Home Loan Bank (the “FHLB") in an amount determined by both asset size and borrowings from the FHLB. Purchases and sales of stock are made directly with the FHLB at par value. The Bank held $ 2.1 million and $ 977,000 of FHLB restricted stock at March 31, 2023 and December 31, 2022, respectively. The restricted stock is carried at cost. Management evaluates whether this investment is impaired based on their assessment of the ultimate recoverability of the investment rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the investment is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Loans Receivable Loans receivable are stated at unpaid principal balances, adjusted for premiums and discounts on loans purchased, the undisbursed portion of loans in process, net deferred loan origination fees and costs, fair value adjustments on loans acquired in a merger, and the allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment to the yield of the related loans. For purchased loans, the related premium or discount is recognized over the contractual life of the purchased loan and is included as part of interest income. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate 7 BV FINANCIAL, INC. AND SUBSIDIARIES collectability of the total contractual principal and interest is no longer in doubt. Interest payments on impaired loans are recorded in the same manner as interest payments on nonaccrual loans. All of the loans acquired in connection with business combinations on the Company's balance sheet were acquired prior to the adoption of ASC 320 on January 1, 2023. The accounting for these loans is described below. Loans acquired in connection with business combinations are recorded at fair value with no carryover of any allowance for loan losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. These purchased credit impaired (“PCI”) loans are accounted for under FASB’s Accounting Standards Codification (“ASC 310-30”, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The non-accretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases in expected cash flows will require the Company to evaluate the need for an addition to the allowance for loan losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount, which will then be reclassified as accretable discount to be recognized into interest income over the remaining life of the loan. ASC 326 supersedes this guidance for PCI assets and replaces the concept with purchased credit deteriorated "PCD" designation. PCD assets are acquired assets that as of the date of the acquisition have experienced a more than insignificant deterioration in credit quality since origination. Loans acquired through business combinations that do not meet the specific criteria of Accounting Standards Codification ("ASC") 310-30 are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs. These loans are initially recorded at fair value, and include premiums and discounts as acquisition accounting adjustments. These purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. An allowance for credit losses is recorded for any credit deterioration in these loans subsequent to acquisition. Acquired loans that meet the criteria for impairment or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the borrower is contractually delinquent if the Company expects to fully collect the new carrying value (i.e., fair value) of the loans. At acquisition, these loans may have discounts to adjust the loans to fair value. These discounts are considered non-accretable until the loan is paid in full or until an improvement in expected cash flows is illustrated. As such, the Company may no longer consider the loan to be nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the non-accretable discount. Allowance for Credit Losses The ACL is an estimate of the expected credit losses for loans held for investment and for off-balance sheet exposures. ASC 326, "Financial Instruments-Credit Losses" requires an immediate recognition of the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan in uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is maintained in accordance with U.S. GAAP and is in compliance with appropriate regulatory guidelines. The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. The quantitative estimate for collectively evaluated loans is determined using the average charge-off method that utilizes historical losses for all Maryland banks with assets less than $ 1 billion beginning in March 2000. The investor commercial real estate portfolio utilizes the national loss history for banks with assets less than $ 1 billion over the same time period. Adjustments are made to the historical loss factors for economic conditions, portfolio concentrations, collateral values, the level and trend of delinquent and problem loans and internal changes in staffing, loan policies and monitoring of the portfolio. Loans are selected for individual evaluation primarily based on their payment status and whether or not the loan has been placed 8 BV FINANCIAL, INC. AND SUBSIDIARIES on non-accrual. Loans on non-accrual status include all loans greater than 90 days delinquent and other loans that with weaknesses sufficient for management to place these loans on non-accrual status. The ACL is measured on a collective basis when similar risk factors exist as determined by internal loan coding and assignment to a portfolio segment. The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model's calculation also uses an adjustment for a 12-month forecast period utilizing the most recent 12 month economic forecast from the Board of Governors of the Federal Reserve System for national gross domestic product ("GDP"). The model compares the average history of loss rates described above to the forecasted GDP to determine the value of the forward looking adjustment. The establishment of the allowance for credit losses is significantly affected by management's judgment and uncertainties, and there is a likelihood that different amounts would be reported under different conditions or assumptions. The Federal Deposit Insurance Corporation (the "FDIC") and the Maryland Office of the Commissioner of Financial Regulation, as an integral part of their examination process, periodically review the allowance for credit losses for reasonableness. The calculation of ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual status. Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposure The Company's off-balance sheet credit instruments primarily consist of unfunded commitments on existing loans. The Company records a reserve for unfunded commitments on off-balance sheet credit exposures through a charge to the provision for credit loss expense. The reserve is estimated by loan segment at each measurement date under the ASC-326 model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in Other Liabilities on the Company's consolidated balance sheets. In the ordinary course of business, the Company has entered into commitments to extend credit. Such financial instruments are recorded on the balance sheet when they are funded. Mortgage Loans Held for Sale Mortgages originated for sale are carried at the lower of aggregate cost or fair value of each outstanding loan. Sales of loans are recorded when the proceeds are received. Any gain or loss is recorded in noninterest income. There were no mortgage loans held for sale on March 31, 2023, or December 31, 2022. The Company sells its mortgage loans on a best effort basis to third-party investors on a servicing released basis. Upon sale and delivery, loans are legally isolated from the Company and the Company has no ability to restrict or constrain the ability of third-party investors to pledge or exchange the mortgage loans. The Company does not have the entitlement or ability to repurchase the mortgage loans or unilaterally cause third party investors to put the mortgage loans back to the Company. Foreclosed Real Estate and Repossessed Assets Foreclosed real estate and repossessed assets are composed of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. If the fair value of the asset, net of estimated selling costs, is less than the related loan balance at the time of acquisition, a charge against the allowance for credit losses is recorded. After foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or fair value less estimated costs to sell. Revenues and expenses from operations and changes in the valuation allowance are included in noninterest income and expenses. 9 BV FINANCIAL, INC. AND SUBSIDIARIES Premises and Equipment Land is stated at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed based on the straight-line method over the estimated useful lives of the respective assets. Expenditures for improvements are capitalized while costs for maintenance and repairs are expensed as incurred. Leases The Company determines if an arrangement is a lease at inception. All of the Company’s leases are currently classified as operating leases and are included in other assets and other liabilities on the Company’s Consolidated Balance Sheets. Periodic operating lease costs are recorded in occupancy expenses of premises on the Company's Consolidated Statements of Income. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the expected future lease payments over the remaining lease term. In determining the present value of future lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating ROU assets are adjusted for any lease payments made at or before the lease commencement date, initial direct costs, any lease incentives received and, for acquired leases, any favorable or unfavorable fair value adjustments. The present value of the lease liability may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options provided in the lease terms. Lease expense is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components, such as common area maintenance charges, are accounted for separately. Investment in Life Insurance Investment in life insurance is reflected at the net cash surrender value to the Company. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is evaluated for impairment at least annually. Any impairment of goodwill would be recorded against income in the period of impairment. Intangible Assets Intangible assets, consisting of core deposit intangibles, represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged on its own or in combination with a related contract, asset or liability. Core deposit intangibles are amortized on an accelerated basis over an estimated useful life. Any impairment of intangible assets would be recorded against income in the period of impairment. Deferred Income Taxes Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not that such amounts will be realized based on consideration of available evidence. Statements of Cash Flows Cash and cash equivalents in the statements of cash flows include cash, federal funds sold and interest bearing deposits in other banks. Federal funds are generally purchased and sold for one-day periods. 10 BV FINANCIAL, INC. AND SUBSIDIARIES Transfers of Financial Assets Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the appropriate period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding as adjusted for the dilutive effect of stock options based on the treasury stock method. As of March 31, 2023 and March 31, 2022, the Company had 36,350 and 36,350 shares, respectively, of unexercised stock options. Options with an exercise price greater than the average market price of the common shares are excluded from the calculation as their effect would be anti-dilutive. Information related to the calculation of earnings per share is presented in Note 13. Stock Based Compensation The Company accounts for stock-based compensation under the fair value method of accounting. For stock options, the Company uses a Black-Scholes valuation model to measure stock-based compensation expense at the date of grant. Compensation expense related to stock-based awards is recognized over the period during which an individual is required to provide service in exchange for such award. Revenue Recognition Management is required by accounting pronouncements governing the recognition of revenue which require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company records revenue from contracts with customers in accordance with ASC 606, “Revenue from Contracts with Customers.” Under ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASC 606. The Company evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Recently Adopted Accounting Standards On January 1, 2023 , the Company adopted Accounting Standards Updates (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” ASC 326 requires entities to estimate an allowance for credit losses (ACL) on certain types of financial instruments measured at amortized cost using a current expected credit losses (CECL) methodology, replacing the previously-required incurred loss methodology. It also applies to unfunded commitments to extend credit, including loan commitments, standby letters of credit, and other similar instruments. The impairment model for held-to-maturity and available-for-sale debt securities was modified and ASC 326 also provided for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments of ASC 326, upon adoption, were applied on a modified retrospective basis, by recording an 11 BV FINANCIAL, INC. AND SUBSIDIARIES increase in the reported balance of loans and the allowance for credit losses on loans, an increase in the liability for credit losses on commitments to extend credit and reducing total equity of both the Company and the Bank. As a result of adopting ASC 326, the Company recorded a decrease to opening retained earnings, net of taxes, of $ 547,000 . The gross up of the PCD loans and ACL upon adoption of ASC 326 was $ 3.8 million. ASU Update 2022-02 On January 1, 2023 , the Company adopted ASU 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02 eliminated the TDRs recognition and measurement guidance and, instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted ASU 2022-02 using a modified retrospective transition method for TDRs. The impact of adoption was immaterial . The disclosure amendments in the Update 2022-02 will be applied prospectively. The following table shows the impact of the Company's adoption of ASC 326 on loans, the allowance for credit losses, and the Company's reserve for unfunded commitments. January 1, 2023 As Reported Under Pre-ASC 326 (dollars in thousands) ASC 326 Adoption Change Total Loans, net of deferred fees & costs $ 666,722 $ 662,944 $ 3,778 Allowance for credit losses-loans ( 8,045 ) ( 3,813 ) ( 4,232 ) Total loans, net 658,677 659,131 ( 454 ) Liabilities: Reserve for Unfunded Commitments $ 289 $ 5 $ 284 Reclassification Certain prior period amounts have been reclassified to conform with the current period's presentation. Such reclassifications had no effect on net income or stockholders’ equity. Note 2 - Merger On January 1, 2022, North Arundel Savings Bank (“NASB”) was merged into BayVanguard Bank. At closing, NASB had $ 34.2 million in loans and $ 40.8 million in deposits. As part of this transaction, BV Financial, Inc. issued 251,004 shares to the M.H.C. The assets acquired and liabilities assumed were accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of January 1, 2022 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $ 1.3 million and a core deposit intangible of $ 85,000 . In 2022, the Company incurred merger related expenses of $ 1.6 million, which were recorded in the Consolidated Statements of Income. These costs were expensed as incurred. 12 BV FINANCIAL, INC. AND SUBSIDIARIES A summary of the NASB transaction during the period ended December 31, 2022 follows: ACQUISITION OF NORTH ARUNDEL SAVINGS BANK (NASB) As recorded by Fair value As recorded at NASB adjustments acquisition Fair Value of Equity Acquired $ 5,460 Cash & Cash Equivalents $ 8,521 $ — 8,521 Securities held to maturity 772 12 (a) 784 Securities available for sale 1,500 ( 36 ) (a) 1,464 Loans Receivable 34,258 ( 85 ) (b) 34,173 Allowance for Loan Loss ( 236 ) 236 (c) — Premises and equipment 258 1,017 (d) 1,275 Core deposit intangible — 85 (e) 85 Deferred Taxes 49 198 (f) 247 Other Assets 1,259 — 1,259 Total Assets Acquired 46,381 1,427 47,808 Liabilities assumed Deposits 40,321 439 (g) 40,760 Advance payments by borrowers for taxes and insurance 121 — 121 Accrued Expenses and other liabilities 127 — 127 Total liabilities assumed $ 40,569 $ 439 $ 41,008 Net assets acquired 6,800 Bargain purchase gain recorded at merger $ 1,340 (a) Represents the fair value adjustments to the investment securities at the acquisition date. (b) Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment, which will be amortized over the remaining life of the loans. (c) Represents the elimination of the NASB allowance for loan loss. (d) Represents the fair value adjustments to reflect fair value of land and buildings which will be amortized on a straight-line basis over the estimated useful lives of the assets. (e) Represents the intangible asset recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identified intangible asset and will be amortized on a straight-line basis over ten years. (f) Represents the deferred tax asset resulting from the fair value adjustments related to the acquired assets, liabilities assumed, identified intangibles recorded and for the net operating loss carry forward for NASB. (g) Represents fair value adjustments on time deposits, which will be treated as a reduction in interest expense. The fair value of loans acquired from North Arundel Savings Bank was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of North Arundel Savings Bank's allowance for loan losses associated with the loans that were acquired. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the straight-line method. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value. There were no PCI loans acquired in this transaction. The following table details the acquired loans as of January 1, 2022: Contractually required principal at acquisition $ 34,258 Contractual cash flows not expected to be collected (credit mark) ( 394 ) Expected cash flows at acquisition 33,864 Interest component of expected cash flows (accretable premium) 309 Fair value of acquired loans $ 34,173 The NASB merger was a mutual transaction and no consideration was given. 13 BV FINANCIAL, INC. AND SUBSIDIARIES Note 3 - Securities Securities available for sale at March 31, 2023 and December 31, 2022 consisted of the following: March 31, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value (In thousands) Available for sale Agencies $ 4,002 $ — $ 6 $ 3,996 Corporate securities 2,219 — 259 1,960 Mortgage-backed securities 32,742 — 2,595 30,147 Total $ 38,963 $ — $ 2,860 $ 36,103 December 31, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value (In thousands) Available for sale Corporate securities $ 2,218 $ — $ 286 $ 1,932 Mortgage-backed securities 34,045 — 2,943 31,102 Total $ 36,263 $ — $ 3,229 $ 33,034 The Company pledged securities with an amortized cost of $ 41.9 million and a fair value of $ 38.9 million at March 31, 2023 to secure deposits from municipalities. At December 31, 2022, the Company pledged securities with an amortized cost of $ 40.2 million and a fair value of $ 36.9 million to secure deposits from municipalities. Securities held to maturity at March 31, 2023 and December 31, 2022 consisted of the following: Gross Gross Amortized Unrealized Unrealized Fair March 31, 2023 Cost Gains Losses Value (in thousands) Held to maturity Corporate securities (1) $ 3,193 $ — $ 445 $ 2,748 Agencies 4,007 — 17 3,990 Mortgage-backed securities 3,195 3 371 2,827 Total $ 10,395 $ 3 $ 833 $ 9,565 Gross Gross Amortized Unrealized Unrealized Fair December 31, 2022 Cost Gains Losses Value (in thousands) Held to maturity Corporate securities $ 3,200 $ — $ 408 $ 2,792 Agencies 4,009 — 25 3,984 Mortgage-backed securities 3,252 3 371 2,884 Total $ 10,461 $ 3 $ 804 $ 9,660 (1) Amount is net of CECL credit reserve of $ 7,000 at March 31, 2023. 14 BV FINANCIAL, INC. AND SUBSIDIARIES The amortized cost and fair value of securities as of March 31, 2023 and December 31, 2022, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties. Available for sale Held to maturity Amortized Fair Amortized Fair March 31, 2023 cost value cost value (In thousands) Maturing Due under one year $ 7,039 $ 6,945 $ — $ — Due after one year through five years 7,362 7,029 4,038 4,019 Due after five years through ten years 8,320 7,894 3,821 3,333 Due after ten years 16,242 14,235 2,536 2,213 Total $ 38,963 $ 36,103 $ 10,395 $ 9,565 Available for sale Held to maturity Amortized Fair Amortized Fair December 31, 2022 cost value cost value (In thousands) Maturing Due under one year $ 509 $ 502 $ — $ — Due after one year through five years 9,986 9,477 4,042 4,015 Due after five years through ten years 9,160 8,631 3,840 3,383 Due after ten years 16,608 14,424 2,579 2,262 Total $ 36,263 $ 33,034 $ 10,461 $ 9,660 All mortgage-backed securities are guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. 15 BV FINANCIAL, INC. AND SUBSIDIARIES Investment securities with unrealized losses for continuous periods of less than 12 months and 12 months or longer are as follows: Less than 12 months Over 12 months Total Unrealized Fair Unrealized Fair Unrealized Fair March 31, 2023 losses value losses value losses value (In thousands) Available for sale Corporate securities $ — $ — $ 259 $ 1,211 $ 259 $ 1,211 Agency securities 6 3,995 — — 6 3,995 Mortgage-backed securities 54 4,205 2,541 25,936 2,595 30,141 Total $ 60 $ 8,200 $ 2,800 $ 27,147 $ 2,860 $ 35,347 Held to maturity Corporate securities $ — $ — $ 445 $ 2,755 $ 445 $ 2,755 Agency securities 17 3,990 — — 17 3,990 Mortgage-backed securities 8 364 363 2,391 371 2,755 Total $ 25 $ 4,354 $ 808 $ 5,146 $ 833 $ 9,500 Less than 12 months Over 12 months Total Unrealized Fair Unrealized Fair Unrealized Fair December 31, 2022 losses value losses value losses value (In thousands) Available for sale Corporate securities $ 286 $ 1,182 $ — $ — $ 286 $ 1,182 Mortgage-backed securities 535 10,595 2,408 20,400 2,943 30,995 Total $ 821 $ 11,777 $ 2,408 $ 20,400 $ 3,229 $ 32,177 Held to maturity Corporate securities $ 244 $ 1,706 $ 164 $ 1,086 $ 408 $ 2,792 Agency securities 25 3,984 — — 25 3,984 Mortgage-backed securities 371 2,811 — — 371 2,811 Total $ 640 $ 8,501 $ 164 $ 1,086 $ 804 $ 9,587 All of the securities with unrealized losses in the portfolio have modest duration risk, low credit risk, and minimal unrealized losses when compared to total amortized cost. The unrealized losses on debt securities that exist are the result of market changes in interest rates since original purchase and are not related to credit concerns. Because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary and therefore no impairment has been recorded during the respective periods of presentation. We monitor the credit quality of HTM debt securities through both internal analysis performed on a quarterly basis and credit ratings when available. The following table reflects the credit ratings for the HTM debt securities at March 31, 2023. AAA A- BBB/BBB+ BBB- Not Rated Total Corporate Securities $ — $ 499 $ 1,496 $ 699 $ 499 $ 3,193 Securities issued by Agencies of the U.S. Government 4,007 4,007 Mortgage-backed securities issued by GSEs and GNMA 3,195 — — — — 3,195 $ 7,202 $ 499 $ 1,496 $ 699 $ 499 $ 10,395 16 BV FINANCIAL, INC. AND SUBSIDIARIES The following table provides a breakdown of our HTM debt securities by year of origination at March 31, 2023. Prior 2018 2019 2020 2021 2022 Total Corporate Securities $ — $ — $ — $ — $ 2,445 $ 748 $ 3,193 Securities issued by Agencies of the U.S. Government 4,007 4,007 Mortgage-backed securities issued by GSEs and GNMA 1,184 — — — 179 1,832 3,195 $ 1,184 $ — $ — $ — $ 2,624 $ 6,587 $ 10,395 The following table is a roll forward of our allowance for credit losses on HTM debt securities at March 31, 2023. Beginning Balance $ — Impact of adopting ASC 326 10 Provision for credit losses ( 3 ) Ending Balance $ 7 17 BV FINANCIAL, INC. AND SUBSIDIARIES Note 4 – Loans Receivable Portfolio loans, net of deferred costs and fees, are summarized by type as follows at March 31, 2023 and December 31, 2022: Period Ended March 31, 2023 December 31, 2022 (Amounts in thousands) Amount Percent Amount Percent Real estate One to four family - owner occupied $ 136,272 19.99 % $ 137,742 20.73 % One to four family - non owner occupied 113,724 16.69 % 125,065 18.82 % Commercial owner occupied 95,635 14.03 % 91,853 13.82 % Commercial investor 249,904 36.76 % 226,854 34.14 % Construction and land 20,611 3.02 % 17,937 2.70 % Farm loans 13,701 2.01 % 13,823 2.08 % Total real estate loans 629,847 92.51 % 613,274 92.29 % Marine loans 17,053 2.50 % 15,791 2.38 % Other consumer 2,161 0.32 % 2,361 0.36 % Guaranteed by U.S. Government 4,641 0.68 % 4,933 0.74 % Commercial 27,191 3.99 % 28,052 4.23 % Total consumer and commercial 51,046 7.49 % 51,137 7.71 % Total loans 680,893 100.0 % 664,411 100.0 % Less: Deferred origination fees, net — ( 1,467 ) Allowance for credit losses ( 8,095 ) ( 3,813 ) Total consumer and commercial $ 672,798 $ 659,131 Net deferred loan origination fees and costs at March 31, 2023 totaled $ 1.7 million. In the normal course of banking business, risks related to specific loan categories are as follows: Real Estate Loans – Real estate loans are typically made to consumers and businesses and are secured by real estate. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by the economy as well as borrower-specific occurrences. Also impacting credit risk would be a shortfall in the value of the real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the collateral. Residential lending repayment is generally dependent on economic and market conditions in the Company's lending area. Commercial real estate, commercial and construction loan repayments are generally dependent on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy. Marine Loans – Marine loans are typically made to consumers and are secured by marine-based collateral. Credit risk is similar to real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. Marine loans may entail greater risk than residential mortgage loans, as they are collateralized by assets that depreciate rapidly. Repossessed collateral for a defaulted loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Other Consumer – Other consumer loans include installment loans and personal lines of credit which may be secured or unsecured. Credit risk is similar to real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan, if any. Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Guaranteed by the U.S. Government – Loans guaranteed by the U.S. Government present similar risks as reflected in the other categories mentioned herein. However, the primary differentiating factor is that an explicit guarantee is provided by 18 BV FINANCIAL, INC. AND SUBSIDIARIES the government therefore substantially mitigating any risk of loss in the event of credit deterioration. Guaranteed by the U.S. Government loans in the table above include $ 330,000 and $ 488,000 of Paycheck Protection Program ("PPP") loans at March 31, 2023 and December 31, 2022, respectively. The PPP loans are 100 % guaranteed by the Small Business Administration ("SBA"). A substantial portion of these loans are expected to be forgiven by the SBA. Due to the guarantee from the federal government and nature of the PPP initiative, there is no allowance for credit losses recorded for PPP loans. Commercial – Commercial loans are secured or unsecured loans for business purposes. Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. 19 BV FINANCIAL, INC. AND SUBSIDIARIES Non-accrual loans as of March 31, 2023 and December 31, 2022 were as follows: March 31, 2023 December 31, 2022 No With an No With an (Amounts in thousands) Allowance Allowance Total Allowance Allowance Total Real estate One to four family - owner occupied $ 1,470 $ — $ 1,470 $ 1,371 $ — $ 1,371 One to four family - non owner occupied 508 — 508 585 — 585 Commercial owner occupied 823 — 823 2,167 — 2,167 Commercial investor 1,367 — 1,367 1,433 — 1,433 Construction and land 344 — 344 247 — 247 Farm loans — — — — — — Total real estate loans 4,512 — 4,512 5,803 — 5,803 Marine loans 59 — 59 59 — 59 Other consumer 19 — 19 22 — 22 Guaranteed by U.S. Government — — — — — — Commercial — — — — — — Total consumer and commercial loans 78 — 78 81 — 81 Total nonaccrual loans $ 4,590 $ — $ 4,590 $ 5,884 $ — $ 5,884 Non-accrual loans decreased $ 1.3 million from $ 5.9 million or 0.88 % of total loans at December 31, 2022 to $ 4.6 million or 0.67 % of total loans at March 31, 2023. Loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. In accordance with the Company’s policy, such interest income is recognized on a cash basis or cost-recovery method, until qualifying for return to accrual status. The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. An analysis of days past due loans as of March 31, 2023 follows: March 31, 2023 30 - 59 60 - 89 90+ Days Days Days Total Current Total (Amounts in thousands) Past Due Past Due Past Due Past Due Loans Loans Real estate One to four family - owner occupied $ 2,008 $ — $ 690 $ 2,698 $ 133,574 $ 136,272 One to four family - non owner occupied 94 192 318 604 113,120 113,724 Commercial owner occupied 185 191 632 1,008 94,627 95,635 Commercial investor 1,845 — — 1,845 248,059 249,904 Construction and land 51 — 257 308 20,303 20,611 Farm loans — — — — 13,701 13,701 Total real estate loans 4,183 383 1,897 6,463 623,384 629,847 Marine loans — — 58 58 16,995 17,053 Other consumer 56 — — 56 2,105 2,161 Guaranteed by U.S. Government — — — — 4,641 4,641 Commercial 167 — — 167 27,024 27,191 Total consumer and commercial loans 223 — 58 281 50,765 51,046 Total loans $ 4,406 $ 383 $ 1,955 $ 6,744 $ 674,149 $ 680,893 20 BV FINANCIAL, INC. AND SUBSIDIARIES An analysis of days past due loans as of December 31, 2022 follows: December 31, 2022 30 - 59 60 - 89 90+ Days Days Days Total Current Total (Amounts in thousands) Past Due Past Due Past Due Past Due Loans Loans Real estate One to four family - owner occupied $ 2,311 $ 793 $ 896 $ 4,000 $ 133,742 $ 137,742 One to four family - non owner occupied 777 170 379 1,326 123,739 125,065 Commercial owner occupied 1,048 103 2,056 3,207 88,646 91,853 Commercial investor 310 — 1,433 1,743 225,111 226,854 Construction and land — 43 160 203 17,734 17,937 Farm loans — — — — 13,823 13,823 Total real estate loans 4,446 1,109 4,924 10,479 602,795 613,274 Marine loans — — 59 59 15,732 15,791 Other consumer 65 — — 65 2,296 2,361 Guaranteed by U.S. Government — — — — 4,933 4,933 Commercial — — — — 28,052 28,052 Total consumer and commercial loans 65 — 59 124 51,013 51,137 Total loans $ 4,511 $ 1,109 $ 4,983 $ 10,603 $ 653,808 $ 664,411 Allowance for Credit Losses ("ACL") The following tables detail activity in the ACL at and for the three months ended March 31, 2023 and the allowance for loan losses at and for the three months ended March 31, 2022. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category. Three Months Ended March 31, 2023 (Amounts in thousands) Beginning Balance Impact of ASC 326 Adoption Charge-offs Recoveries Provisions Ending Balance Real estate One to four family - owner occupied $ 344 $ 1,117 $ — $ 9 $ — $ 1,470 One to four family - non owner occupied 562 356 — 21 — 939 Commercial owner occupied 366 78 — — — 444 Commercial investor 2,272 1,506 — — 13 3,791 Construction and land 93 496 — 5 — 594 Farm loans 17 135 — — — 152 Total real estate loans 3,654 3,688 — 35 13 7,390 Marine and other consumer loans 68 336 ( 1 ) 3 — 406 Guaranteed by U.S. Government — — — — — — Commercial 91 208 — — — 299 Total consumer and commercial 159 544 ( 1 ) 3 — 705 Total loans $ 3,813 $ 4,232 $ ( 1 ) $ 38 $ 13 $ 8,095 Provision for Credit Losses - loans $ 13 Reduction in allowance for securities - HTM ( 3 ) Reduction in allowance for credit losses - unfunded commitments ( 8 ) Provision for credit losses per the consolidated statement of income $ 2 21 BV FINANCIAL, INC. AND SUBSIDIARIES Three Months Ended March 31, 2022 (Amounts in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance Real estate One to four family - owner occupied $ 259 $ ( 7 ) $ 26 $ ( 37 ) $ 241 One to four family - non owner occupied 695 — 18 ( 54 ) 659 Commercial owner occupied 280 — — ( 55 ) 225 Commercial investor 1,225 — — 327 1,552 Construction and land 93 — 5 ( 12 ) 86 Farm loans 2 — — — 2 Total real estate loans 2,554 ( 7 ) 49 169 2,765 Marine loans 47 — — 9 56 Other consumer 20 ( 2 ) 4 ( 4 ) 18 Guaranteed by U.S. Government — — — — — Commercial 45 — — 3 48 Total consumer and commercial 112 ( 2 ) 4 8 122 Total loans $ 2,666 $ ( 9 ) $ 53 $ 177 $ 2,887 22 BV FINANCIAL, INC. AND SUBSIDIARIES Term Loans by Origination Year (Amounts in thousands) Term Loans Amortized Cost Basis by Origination Year Balance at March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Total One to four family - owner occupied Pass $ 374 $ 6,968 $ 14,919 $ 10,677 $ 10,636 $ 80,375 $ 11,561 $ 135,510 Special Mention — — — — — — — — Substandard — — 167 — 21 528 46 762 Doubtful — — — — — — — — Loss — — — — — — — — Total One to four family - owner occupied $ 374 $ 6,968 $ 15,086 $ 10,677 $ 10,657 $ 80,903 $ 11,607 $ 136,272 One to four family - non owner occupied Pass $ 8,408 $ 31,495 $ 23,902 $ 11,881 $ 8,830 $ 26,614 $ — $ 111,130 Special Mention — — — — — — — — Substandard — — — — — 2,594 — 2,594 Doubtful — — — — — — — — Loss — — — — — — — — Total One to four family - non owner occupied $ 8,408 $ 31,495 $ 23,902 $ 11,881 $ 8,830 $ 29,208 $ — $ 113,724 Commercial owner occupied Pass $ 6,381 $ 17,580 $ 17,133 $ 6,214 $ 5,512 $ 36,381 $ — $ 89,201 Special Mention — — — — — — — — Substandard — — — 970 1,528 3,936 — 6,434 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial owner occupied $ 6,381 $ 17,580 $ 17,133 $ 7,184 $ 7,040 $ 40,317 $ — $ 95,635 Commercial investor Pass $ 14,246 $ 96,135 $ 74,515 $ 24,009 $ 10,358 $ 24,435 $ — $ 243,698 Special Mention — — — — — — — — Substandard — — — — — 6,206 — 6,206 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial investor $ 14,246 $ 96,135 $ 74,515 $ 24,009 $ 10,358 $ 30,641 $ — $ 249,904 Construction and land Pass $ 1,424 $ 11,638 $ 3,357 $ 1,233 $ 60 $ 818 $ — $ 18,530 Special Mention — — — — — — — — Substandard — — — 1,601 160 320 — 2,081 Doubtful — — — — — — — — Loss — — — — — — — — Total Construction and land $ 1,424 $ 11,638 $ 3,357 $ 2,834 $ 220 $ 1,138 $ — $ 20,611 Farm loans Pass $ — $ 4,333 $ 457 $ 266 $ 2,735 $ 5,910 $ — $ 13,701 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Farm loans $ — $ 4,333 $ 457 $ 266 $ 2,735 $ 5,910 $ — $ 13,701 Marine loans Pass $ 1,516 $ 2,458 $ 7,085 $ 2,004 $ 219 $ 3,711 $ — $ 16,993 Special Mention — — — — — — — — Substandard — — — — — 60 — 60 Doubtful — — — — — — — — Loss — — — — — — — — Total Marine loans $ 1,516 $ 2,458 $ 7,085 $ 2,004 $ 219 $ 3,771 $ — $ 17,053 Other consumer Pass $ 151 $ 214 $ 195 $ 66 $ 210 $ 1,307 $ — $ 2,143 Special Mention — — — — — — — — Substandard — — — — — 18 — 18 Doubtful — — — — — — — — Loss — — — — — — — — Total Other consumer $ 151 $ 214 $ 195 $ 66 $ 210 $ 1,325 $ — $ 2,161 Guaranteed by U.S. Government Pass $ — $ - $ 293 $ 28 $ 499 $ 3,821 $ — $ 4,641 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Guaranteed by U.S. Government $ — $ — $ 293 $ 28 $ 499 $ 3,821 $ — $ 4,641 Commercial Pass $ 463 $ 9,774 $ 5,891 $ 5,148 $ 1,155 $ 4,036 $ — $ 26,467 Special Mention — — — — — — — — Substandard — — — — — 724 — 724 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial $ 463 $ 9,774 $ 5,891 $ 5,148 $ 1,155 $ 4,760 $ — $ 27,191 23 BV FINANCIAL, INC. AND SUBSIDIARIES (Amounts in thousands) Term Loans Amortized Cost Basis by Origination Year Balance at March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Total Total Loans Pass $ 32,963 $ 180,595 $ 147,747 $ 61,526 $ 40,214 $ 187,408 $ 11,561 $ 662,014 Special Mention — — — — — — — — Substandard — — 167 2,571 1,709 14,386 46 18,879 Doubtful — — — — — — — — Loss — — — — — — — — Total loans $ 32,963 $ 180,595 $ 147,914 $ 64,097 $ 41,923 $ 201,794 $ 11,607 $ 680,893 Term Loans by Origination Year (Amounts in thousands) Term Loans by Origination Year Balance at December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Total One to four family - owner occupied Pass $ 7,009 $ 14,907 $ 10,742 $ 10,708 $ 8,285 $ 73,585 $ 11,674 $ 136,910 Special Mention — — — — — — — — Substandard — — — — — 783 49 832 Doubtful — — — — — — — — Loss — — — — — — — — Total One to four family - owner occupied $ 7,009 $ 14,907 $ 10,742 $ 10,708 $ 8,285 $ 74,368 $ 11,723 $ 137,742 One to four family - non owner occupied Pass $ 45,369 $ 27,088 $ 12,325 $ 7,337 $ 5,224 $ 23,369 $ — $ 120,712 Special Mention — — — — — — — — Substandard — — — 1,598 853 1,902 — 4,353 Doubtful — — — — — — — — Loss — — — — — — — — Total One to four family - non owner occupied $ 45,369 $ 27,088 $ 12,325 $ 8,935 $ 6,077 $ 25,271 $ — $ 125,065 Commercial owner occupied Pass $ 17,678 $ 17,244 $ 6,299 $ 5,590 $ 11,502 $ 25,610 $ — $ 83,923 Special Mention — — — — — — — — Substandard — — 979 1,534 936 4,481 — 7,930 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial owner occupied $ 17,678 $ 17,244 $ 7,278 $ 7,124 $ 12,438 $ 30,091 $ — $ 91,853 Commercial investor Pass $ 83,975 $ 74,933 $ 24,133 $ 11,369 $ 3,500 $ 22,186 $ — $ 220,096 Special Mention — — — — — — — — Substandard — — — — 4,836 1,922 — 6,758 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial investor $ 83,975 $ 74,933 $ 24,133 $ 11,369 $ 8,336 $ 24,108 $ — $ 226,854 Construction and land Pass $ 10,135 $ 3,338 $ 1,376 $ 77 $ — $ 986 $ — $ 15,912 Special Mention — — — — — — — — Substandard — — 1,598 160 — 267 — 2,025 Doubtful — — — — — — — — Loss — — — — — — — — Total Construction and land $ 10,135 $ 3,338 $ 2,974 $ 237 $ — $ 1,253 $ — $ 17,937 Farm loans Pass $ 4,165 $ 657 $ 266 $ 2,752 $ 455 $ 5,528 $ — $ 13,823 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Farm loans $ 4,165 $ 657 $ 266 $ 2,752 $ 455 $ 5,528 $ — $ 13,823 Marine loans Pass $ 2,486 $ 7,413 $ 2,028 $ 223 $ 1,145 $ 2,437 $ — $ 15,732 Special Mention — — — — — — — — Substandard — — — — — 59 — 59 Doubtful — — — — — — — — Loss — — — — — — — — Total Marine loans $ 2,486 $ 7,413 $ 2,028 $ 223 $ 1,145 $ 2,496 $ — $ 15,791 Other consumer Pass $ 495 $ 212 $ 78 $ 216 $ 9 $ 1,329 $ — $ 2,339 Special Mention — — — — — — — — Substandard — — — — — 22 — 22 Doubtful — — — — — — — — Loss — — — — — — — — Total Other consumer $ 495 $ 212 $ 78 $ 216 $ 9 $ 1,351 $ — $ 2,361 Guaranteed by U.S. Government Pass $ — $ 304 $ 175 $ 525 $ 840 $ 3,089 $ — $ 4,933 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Guaranteed by U.S. Government $ — $ 304 $ 175 $ 525 $ 840 $ 3,089 $ — $ 4,933 Commercial Pass $ 10,301 $ 6,885 $ 5,116 $ 1,225 $ 1,798 $ 2,282 $ — $ 27,607 Special Mention — — — — — — — — Substandard — — — — — 445 — 445 24 BV FINANCIAL, INC. AND SUBSIDIARIES Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial $ 10,301 $ 6,885 $ 5,116 $ 1,225 $ 1,798 $ 2,727 $ — $ 28,052 (Amounts in thousands) Term Loans Amortized Cost Basis by Origination Year Balance at December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Total Total Loans Pass $ 181,613 $ 152,981 $ 62,538 $ 40,022 $ 32,758 $ 160,401 $ 11,674 $ 641,987 Special Mention — — — — — — — — Substandard — — 2,577 3,292 6,625 9,881 49 22,424 Doubtful — — — — — — — — Loss — — — — — — — — Total loans $ 181,613 $ 152,981 $ 65,115 $ 43,314 $ 39,383 $ 170,282 $ 11,723 $ 664,411 Classified Assets . Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100 % of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, such that additional general or specific loss allowances may be required. In connection with the filing of our periodic reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. Through our loan evaluation process, we have identified certain loans for which the primary source of loan repayment may no longer be a viable option. The Company is dependent on the liquidation of the collateral to provide funds for repayment of the loan. The following table shows the loans determined by management to be collateral dependent. (Amounts in thousands) Real Estate Business\Other Assets One to four family - owner occupied $ 2,286 $ — One to four family - non-owner occupied 508 — Commercial owner occupied real estate 823 — Commercial investor real estate 1,367 — Construction and land 344 — Marine and other consumer — 78 Total $ 5,328 $ 78 Prior to the adoption of ASC 326, an impaired loan generally was one for which it was probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans were individually evaluated for impairment. When the Company classified a problem loan as impaired, it recorded an impairment for that portion of the asset that was deemed uncollectible, based on the present value of the expected future cash flows 25 BV FINANCIAL, INC. AND SUBSIDIARIES discounted at the loan's original effective interest rate or based on the fair value of the collateral if the loan was collateral dependent. The following is a summary of impaired loans by class of loans as of December 31, 2022: Recorded Investment Unpaid Principal Related Allowance Average Recorded Investment Interest Income Recognized With an allowance recorded Real estate loans One to four family - owner occupied $ 100 $ 100 $ 28 $ 103 $ 4 One to four family - non-owner occupied 70 70 2 71 4 Total 170 170 30 174 8 With no allowance recorded Real estate loans One to four family - owner occupied 1,956 1,956 — 2,789 93 One to four family - non-owner occupied 585 585 — 632 39 Commercial owner occupied 1,854 1,854 — 1,406 77 Commercial investor 1,432 1,432 — 1,889 99 Construction and land 248 248 — 203 26 Marine Loans 59 59 — 15 3 Other consumer 45 49 — 56 7 Guaranteed by the U.S. Government — — — 15 — Commercial — — — 2 — Total 6,179 6,183 — 7,006 344 Combined Real estate loans 'One to four family - owner occupied 2,056 2,056 28 2,892 97 One to four family - non-owner occupied 655 655 2 703 43 Commercial owner occupied 1,854 1,854 — 1,406 77 Commercial investor 1,432 1,432 — 1,889 99 Construction and land 248 248 — 203 26 Marine Loans 59 59 — 15 3 Other consumer 45 49 — 56 7 Guaranteed by the U.S. Government — — — 15 — Commercial — — — 2 — Total $ 6,349 $ 6,353 $ 30 $ 7,180 $ 352 Loans that are modified to make concessions to help a borrower remain current and/or to avoid foreclosure are classified as troubled debt restructurings (“TDR”). Generally, we do not forgive principal or interest on a loan or modify the interest rate on loans to below market rates. When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans. If we determine that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized. The Company has no commitments to lend additional funds to borrowers whose loans have been modified. The status of TDRs as of December 31, 2022 follows: December 31, 2022 Recorded Investment (Amounts in thousands) Number of Contracts Performing Non-Performing Total Real estate loans One to four family - owner occupied 8 $ 559 $ 256 $ 815 One to four family - non-owner occupied 1 70 — 70 Commercial owner occupied real estate 2 320 — 320 Commercial investor real estate 1 205 — 205 Other Consumer 1 23 — 23 Total 13 $ 1,177 $ 256 $ 1,433 The following TDRs were modified during the year ended December 31, 2022: December 31, 2022 Recorded Investment (Amounts in thousands) Number of Contracts Performing Non-Performing Total Real estate loans One to four family - owner occupied 1 $ 29 $ - $ 29 Total 1 $ 29 $ - $ 29 26 BV FINANCIAL, INC. AND SUBSIDIARIES Borrowers experiencing financial difficulty ("BEFD") modifications included in the individually assessed loan schedules above, as of March 31, 2023 are as follows: (dollars in thousands) Number of Loans Amortized Cost One to four family - owner occupied 5 $ 721 One to four family - Jr. lien 1 95 Commercial investor real estate 1 1,367 Total accrual BEFD modification loans 7 2,183 Modifications on non-accrual 1 1,367 All BEFD modifications were loan term extensions. 27 BV FINANCIAL, INC. AND SUBSIDIARIES Note 5-Goodwill And Other Intangible Assets Goodwill and other intangible assets are presented in the tables below. (dollars in thousands) As of March 31, 2023 As of December 31, 2022 Goodwill $ 14,420 $ 14,420 March 31, 2023 December 31, 2022 Carrying Amount Accumulated Amortization Net Carrying Amount Accumulated Amortization Net Core deposit intangible $ 1,868 $ 719 $ 1,149 $ 1,868 $ 673 $ 1,195 As of March 31, 2023 future estimated annual amortization expense is as follows: Year ending (in thousands) 2023 $ 137 2024 180 2025 180 2026 180 2027 180 Thereafter 292 Total Estimated Amortization Expense $ 1,149 Management performed its annual analysis of goodwill and core deposit intangibles ("CDI") during the fourth quarter of 2022 and concluded that there was no impairment at December 31, 2022. At March 31, 2023, management's analysis concluded that there were no changes in the Company's financial statements or operations subsequent to the fourth quarter 2022 annual analysis that would indicate that it was more likely than not that goodwill or CDI was impaired. Note 6 – Foreclosed Real Estate (Other Real Estate Owned (“OREO”)) OREO assets are presented net of the valuation allowance. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related selling costs. The Company had OREO of $ 2.0 million at March 31, 2023 and December 31, 2022. During the three months ended March 31, 2023 and March 31, 2022 the Company incurred OREO expenses of $ 127,000 and $ 10,000 , respectively. The Company had $ 44,000 and $ 114,000 in loans secured by residential real estate for which formal foreclosure proceedings were in process as of March 31, 2023 and December 31, 2022, respectively. 28 BV FINANCIAL, INC. AND SUBSIDIARIES Note 7-Deposits Deposits consisted of the following: March 31, 2023 December 31, 2022 (dollars in thousands) Balance Balance Noninterest-bearing checking accounts $ 151,667 22.74 % $ 167,202 24.43 % Interest-bearing checking accounts 89,788 13.46 % 96,829 14.14 % Money market accounts 97,190 14.57 % 102,301 14.94 % Savings accounts 170,161 25.51 % 171,772 25.09 % Certificates of deposit 158,183 23.72 % 146,514 21.40 % Total deposits $ 666,989 100.00 % $ 684,618 100.00 % At March 31, 2023, the Bank had two account relationships from local government entities that comprised 3.7 % and 3.4 % of total deposits, respectively. At March 31, 2023 and December 31, 2022, the Bank had $ 31.2 million and $ 28.6 million in certificates of deposits of $250,000 or more, respectively. Deposits in excess of $250,000 may not be insured by the FDIC. (dollars in thousands) March 31, 2023 Within one year $ 66,078 Year 2 53,132 Year 3 20,048 Year 4 5,540 Year 5 9,994 Thereafter 3,391 Total certificates of deposit $ 158,183 Note 8-Borrowings A summary of the Company’s borrowings at March 31, 2023 and December 31, 2022 are indicated as follows: March 31, 2023 December 31, 2022 Dollars in thousands Maturity Balance Rate Balance Rate Federal Home Loan Bank Advances 2023 $ 37,500 5.07 % $ 12,000 4.58 % BV Financial Inc. Series 2020 Notes 2030 35,000 4.88 % 35,000 4.88 % Easton Capital Trust I 2034 3,093 Libor + 2.85 % 3,093 Libor + 2.85 % Total Borrowings, gross 75,593 50,093 Less: Debt issuance costs ( 388 ) ( 427 ) Add: net fair value adjustment ( 613 ) ( 627 ) Total Borrowings, net $ 74,592 $ 49,039 Note 9 – Lease Commitments And Contingencies Operating Leases The Company's, operating lease agreements are primarily for leases of branches and office space. Topic 842 requires operating lease agreements to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability. The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases: 29 BV FINANCIAL, INC. AND SUBSIDIARIES Consolidated Balance Sheet Classification March 31, 2023 December 31, 2022 (in thousands) Operating lease right of use asset Other assets $ 578 $ 617 Operating lease liabilities Other liabilities $ 607 $ 645 Other information related to leases: Weighted average remaining lease term of operating leases 3.8 years 4.1 years Weighted average discount rate of operating leases 3.96 % 3.96 % Cash paid for amounts included in the measurement of lease liabilities $ 44 $ 44 The table below details the Company's lease cost, which is included in occupancy expense in the Consolidated Statements of Income. Three Months Ended March 31, (dollars in thousands) 2023 2022 Operating lease cost $ 44 $ 41 Cash paid for lease liability $ 44 $ 30 A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows: (dollars in thousands) As of March 31, 2023 Lease payments due: Within one year $ 162 After one but within two years 140 After two but within three years 140 After three but within four years 110 After four but within five years 39 After five years — Total undiscounted lease payments 591 Add: imputed interest 16 Present value of operating lease liabilities $ 607 Note 10 – Regulatory Matters 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. The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined). In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions. 30 BV FINANCIAL, INC. AND SUBSIDIARIES Insured depository institutions are required to meet the following in order to qualify as "well capitalized:" (1) a common equity Tier 1 risk-based capital ratio of 6.5 %; (2) a Tier 1 risk-based capital ratio of 8 %; (3) a total risk-based capital ratio of 10 %; and (4) a Tier 1 leverage ratio of 5 %. The maintenance of a capital conservation buffer of 2.5 % is also required. The Basel III Capital Rules also provide for a "countercyclical capital buffer" that is applicable to only certain covered institutions and does not have any current applicability to the Bank. The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. To be well capitalized under For capital prompt corrective Actual adequacy purposes action provisions As of March 31, 2023 Amount Ratio Amount Ratio Amount Ratio (In thousands) Tier 1 Leverage ratio $ 111,589 13.53 % $ 32,982 4.00 % $ 41,228 5.00 % Tier 1 capital (to risk-weighted assets) $ 111,589 16.86 % $ 56,245 8.50 % $ 52,937 8.00 % Common Equity Tier 1 Capital Ratio (to risk-weighted assets) $ 111,589 16.86 % $ 46,320 7.00 % $ 43,011 6.50 % Total Capital ratio (to risk-weighted assets) $ 119,861 18.11 % $ 69,479 10.50 % $ 66,171 10.00 % To be well capitalized under For capital prompt corrective Actual adequacy purposes action provisions As of December 31, 2022 Amount Ratio Amount Ratio Amount Ratio (In thousands) Tier 1 Leverage ratio $ 109,939 13.39 % $ 32,845 4.00 % $ 41,057 5.00 % Tier 1 capital (to risk-weighted assets) $ 109,939 16.76 % $ 55,762 8.50 % $ 52,482 8.00 % Common Equity Tier 1 Capital Ratio (to risk-weighted assets) $ 109,939 16.76 % $ 45,922 7.00 % $ 42,642 6.50 % Total Capital ratio (to risk-weighted assets) $ 113,757 17.34 % $ 68,883 10.50 % $ 65,602 10.00 % Note 11 – Fair Value Measurements The Company adopted ASC Topic 820, “Fair Value Measurements” and ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides a framework for measuring and disclosing fair value under U.S. GAAP. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the consolidated balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, AFS investment securities) or on a nonrecurring basis (for example, individually evaluated loans). ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis such as loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. 31 BV FINANCIAL, INC. AND SUBSIDIARIES Under ASC Topic 820, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine the fair value. These hierarchy levels are: Level 1 inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. Intra-quarter transfers in and out of level 3 assets and liabilities recorded at fair value on a recurring basis are disclosed. There were no such transfers during the quarter ended March 31, 2023 or the year ended December 31, 2022. Following is a description of valuation methodologies used for assets and liabilities recorded at fair value: Securities Available for Sale AFS investment securities are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include agency and mortgage-backed securities issued by government sponsored entities (“GSEs”), municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets. Equity Securities Carried at Fair Value Through Income Equity securities carried at fair value through income are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 equity securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 equity securities include mutual funds with asset-backed securities issued by GSEs as the underlying investment supporting the fund. Equity securities classified as Level 3 include mutual funds with asset-backed securities in less liquid markets. Loans Receivable The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is individually evaluated and an ACL is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are segregated individually. Management estimates the fair value of individually evaluated loans using one of several methods, including the collateral value, market value of similar debt, or discounted cash flows. Individually evaluated loans not requiring an allowance are those for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At March 31, 2023 and December 31, 2022, substantially all of the individually evaluated loans were based upon the fair value of the collateral. In the quarter ended March 31, 2023, there were no loans or OREO that were individually evaluated on a non-recurring basis. 32 BV FINANCIAL, INC. AND SUBSIDIARIES In accordance with FASB ASC 820, loans where an allowance is established based on the fair value of collateral (loans with impairment) require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the loan as nonrecurring Level 2. When the fair value of the collateral dependent loan is derived from an appraisal, the Company records the loan as nonrecurring Level 3. Fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in the fair value. The fair values of collateral dependent loans that are not measured based on collateral values are measured using discounted cash flows and considered to be Level 3 inputs. Other Real Estate Owned ("OREO") OREO is adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is reported at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the foreclosed asset as nonrecurring Level 2 when the fair value is derived from an appraisal, the Company records the foreclosed asset at nonrecurring Level 3. Assets and Liabilities Recorded at Fair Value on a Recurring Basis The tables below present the recorded amount of assets as of March 31, 2023 and December 31, 2022 measured at fair value on a recurring basis. Level 1 Level 2 Level 3 Quoted prices Significant Significant in active other other markets for observable unobservable As of March 31, 2023 Total identical assets inputs inputs (In thousands) Securities available for sale Agency Securities $ 3,996 $ — $ 3,996 $ — Corporate securities 1,960 — 1,960 — Mortgage-backed securities 30,147 — 30,147 — $ 36,103 $ — $ 36,103 $ — Level 1 Level 2 Level 3 Quoted prices Significant Significant in active other other markets for observable unobservable As of December 31, 2022 Total identical assets inputs inputs (In thousands) Securities available for sale Corporate securities $ 1,932 $ — $ 1,932 $ — Mortgage-backed securities 31,102 — 31,102 — $ 33,034 $ — $ 33,034 $ — Note 12 – Fair Value Of Financial Instruments Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a 33 BV FINANCIAL, INC. AND SUBSIDIARIES material effect on the estimated fair value amounts. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of the Company. The Company’s estimated fair values of financial instruments are presented in the following table. March 31, 2023 December 31, 2022 Fair value Carrying Fair Carrying Fair hierarchy amount value amount value (In thousands) Financial assets Cash and cash equivalents Level 1 $ 64,607 $ 64,607 $ 68,652 $ 68,652 Securities held to maturity Level 2 10,395 9,565 10,461 9,660 Securities held to available for sale Level 2 36,103 36,103 33,034 33,034 Federal Home Loan Bank of Atlanta stock Level 2 2,052 2,052 977 977 Mortgage Loans Held for sale Level 2 — — — — Loans receivable Level 3 672,798 657,030 659,131 639,027 Accrued interest receivable Level 2 2,767 2,767 2,952 2,952 Financial liabilities Deposits Level 3 $ 666,989 $ 552,786 $ 684,618 $ 551,348 FHLB Borrowings Level 3 37,500 37,507 12,000 11,976 Subordinated Debentures Level 3 37,092 33,595 37,039 33,595 Accrued interest payable Level 2 684 684 110 110 Note 13 – Earnings Per Share (“EPS”) Basic earnings per common share represent income available to common shareholders, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may have been issued by the Company related to outstanding unvested restricted stock unit and performance stock unit awards were determined using the treasury stock method and included in the calculation of dilutive common stock equivalents. The Company has not granted any stock options since 2017. As of the three months ended March 31, 2023, and 2022, there were 1,854 and no , unvested restricted stock and performance stock unit awards, respectively, which were excluded from the calculation as their effect would be anti-dilutive. Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows: Three Months Ended March 31, Three Months Ended March 31, 2023 2022 Basic Diluted Basic Diluted (In thousands, except per share data) Net income $ 3,115 $ 3,115 $ 2,417 $ 2,417 Weighted average common shares outstanding 7,425 7,425 7,389 7,389 Dilutive securities Stock options — 25 — 23 Adjusted weighted average shares outstanding 7,425 7,450 7,389 7,412 Earnings-per share amount $ 0.42 $ 0.42 $ 0.33 $ 0.33 34 BV FINANCIAL, INC. AND SUBSIDIARIES Note 14 – Income Taxes The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. Three Months Ended March 31, 2023 2022 (In thousands) Current expense Federal $ 818 $ 755 State 372 323 Total Current Expense 1,190 1,078 Deferred expense — — Income tax expense $ 1,190 $ 1,078 35 BV FINANCIAL, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations General Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this Quarterly Report on Form 10-Q and in the Company’s definitive prospectus dated May 15, 2023, as filed with the Securities and Exchange Commission on May 23, 2023, pursuant to Securities Act Rule 424(b)(3). Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to: • statements of our goals, intentions and expectations; • statements regarding our business plans, prospects, growth and operating strategies; • statements regarding the quality of our loan and investment portfolios; and • estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not undertake any obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: • general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; • the impact of the COVID-19 pandemic on our business and results of operations; • changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; • changes in the economic assumptions used to calculated the allowance for credit losses; • our ability to access cost-effective funding; • changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio; • fluctuations in real estate values and both residential and commercial real estate market conditions; • demand for loans and deposits in our market area; • our ability to implement and change our business strategies; • competition among depository and other financial institutions; • inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations or prepayments on loans we have made and make; 36 BV FINANCIAL, INC. AND SUBSIDIARIES • adverse changes in the securities markets; • changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements and insurance premiums; • monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; • changes in the quality or composition of our loan or investment portfolios; • technological changes that may be more difficult or expensive than expected; • system failure or cyber-security breaches of our information technology infrastructure; • the failure to maintain current technologies and/or successfully implement future information technology enhancements; • the inability of third-party providers to perform as expected; • our ability to manage market risk, credit risk and operational risk in the current economic environment; • our ability to enter new markets successfully and capitalize on growth opportunities; • our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; • changes in consumer spending, borrowing and savings habits; • changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; • our ability to retain key employees; • our compensation expense associated with equity allocated or awarded to our employees; and • changes in the financial condition, results of operations or future prospects of issuers of securities that we own. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by law or regulation, we do not undertake, and we specifically disclaim any obligation to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Critical Accounting Policies and Use of Critical Accounting Estimates Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. On January 1, 2023, the Company adopted Accounting Standards Updates (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” Accounting Standards Codification ("ASC") 326 requires entities to estimate an allowance for credit losses ("ACL") on certain types of financial instruments measured at amortized cost using a current expected credit losses ("CECL") methodology, replacing the prior-required incurred loss methodology. It also applies to unfunded commitments to extend credit, including loan commitments, standby letters of credit, and other similar instruments. The impairment model for available-for-sale debt securities was modified and ASC 326 also provided for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments of ASC 326, upon adoption, were applied on a modified retrospective basis, by recording an increase in the reported balance of loans and the allowance for credit losses on loans, an increase in the liability for credit losses on commitments to extend credit and reducing total equity of both the Company and the Bank. As a result of adopting ASC 326, the Company recorded a decrease to opening retained earnings, net of taxes, of $547,000. 37 BV FINANCIAL, INC. AND SUBSIDIARIES The ACL is an estimate of the expected credit losses for loans held for investment and for off-balance sheet exposures. ASC 326, "Financial Instruments-Credit Losses" requires an immediate recognition of the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan in uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is maintained in accordance with U.S. GAAP and in compliance with appropriate regulatory guidelines. The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. The quantitative estimate for collectively evaluated loans is determined using the average charge-off method that utilizes historical losses for all Maryland banks with assets less than $1 billion beginning in March 2000. The investor commercial real estate portfolio utilizes the national loss history for banks with assets less than $1 billion over the same time period. Adjustments are made to the historical loss factors for economic conditions, portfolio concentrations, collateral values, the level and trend of delinquent and problem loans and internal changes in staffing, loan policies and monitoring of the portfolio. Loans are selected for individual evaluation primarily based on their payment status and whether or not the loan has been placed on non-accrual status. Loans on non-accrual status include all loans greater than 90 days delinquent and other loans that with weaknesses sufficient for management to place these loans on non-accrual status. The ACL is measured on a collective basis when similar risk factors exist as determined by internal loan coding and assignment to a portfolio segment. The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model's calculation also uses an adjustment for a 12-month forecast period utilizing the most recent 12-month economic forecast from the Board of Governors of the Federal Reserve System for national gross domestic product ("GDP"). The model compares the average history of loss rates described above to the forecasted GDP to determine the value of the forward-looking adjustment. The establishment of the allowance for credit losses is significantly affected by management's judgment and uncertainties, and there is a likelihood that different amounts would be reported under different conditions or assumptions. The Federal Deposit Insurance Corporation and the Maryland Office of the Commissioner of Financial Regulation, as an integral part of their examination process, periodically review the allowance for credit losses for reasonableness. The calculation of ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual. ASU Update 2022-02 On January 1, 2023, the Company adopted ASU 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02 eliminates the TDRs recognition and measurement guidance and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted ASU 2022-02 using a modified retrospective transition method for TDRs. The impact of adoption was immaterial. The disclosure amendments in the Update 2022-02 were applied prospectively. Deferred Income Taxes At March 31, 2023, we had a net deferred tax asset totaling $9.2 million. In accordance with ASC Topic 740 “Income Taxes,” we use the asset and liability method of accounting for income taxes. Under this method, 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. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established if it is not more likely than not realizable. 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. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting deferred tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize its federal and state deferred tax asset. 38 BV FINANCIAL, INC. AND SUBSIDIARIES Comparison of Financial Condition at March 31, 2023 (Unaudited) and December 31, 2022 Total Assets . Total assets were $857.5 million at March 31, 2023, an increase of $12.5 million, or 1.5%, from $845.0 million at December 31, 2022. The increase was due primarily to a $13.7 million increase in net loans receivable to $672.8 million at March 31, 2023, partially offset by a decrease of $4.1 million in cash and cash equivalents to $64.6 million at March 31, 2023 and a $700,000 decrease in investment in life insurance to $19.3 million at March 31, 2023. Cash and Cash Equivalents . Cash and cash equivalents decreased $4.1 million, or 5.9%, to $64.6 million at March 31, 2023 from $68.7 million at December 31, 2022 as funds were used to fund the increases in net loans receivable. We regularly review our liquidity position based on alternative uses of available funds as well as market conditions. Net Loans Receivable . Net loans receivable increased $13.7 million, or 2.1%, to $672.8 million at March 31, 2023 from $659.1 million at December 31, 2022. Increases in commercial real estate and construction loans offset decreases in owner and non-owner occupied one- to four-family loans and commercial loans. We continue to see robust demand for non-office commercial real estate properties and the increase in construction loans was due primarily to draws on existing lines of credit. The decreases in one- to four-family loans and commercial loans were due primarily to payoffs and paydowns exceeding originations during the quarter ended March 31, 2023. Securities . Securities increased $3.0 million, or 6.9%, to $46.5 million at March 31, 2023 from $43.5 million at December 31, 2022. This increase was primarily due to an increase of $4.0 million in agency securities, partially offset by a $1.3 million decrease in available for sale mortgage-backed securities to $32.7 million at March 31, 2023. Purchases exceeded paydowns and maturities of debt securities for the period. Total Liabilities. Total liabilities increased $9.7 million, or 1.3%, to $756.9 million at March 31, 2023 from $747.2 million at December 31, 2022. The increase was primarily due to a $25.5 million increase in Federal Home Loan Bank borrowings, partially offset by a decrease in total deposits of $17.6 million. Deposits. Total deposits decreased $17.6 million, or 2.6%, to $667.0 million at March 31, 2023 from $684.6 million at December 31, 2022. Interest-bearing deposits decreased $2.1 million, or 0.4%, to $515.3 million at March 31, 2023 from $517.4 million at December 31, 2022. Noninterest bearing deposits decreased $15.5 million, or 9.27%, to $151.7 million at March 31, 2023 from $167.2 million at December 31, 2022. Of the $17.6 million decrease in deposits that occurred in the quarter ended March 31, 2023, $14.5 million, or 79.5%, of the decrease occurred in January as primarily commercial customers made routine annual post-year end distributions, moved cash to alternative investments and made certain large capital expenditures. The Company has been adjusting interest rates paid on deposits to retain and grow these balances. The turmoil experienced in the banking system in early March 2023 has not led to a measurable increase in customer inquiries or withdrawals. Federal Home Loan Bank Borrowings. We had $37.5 million in Federal Home Loan Bank borrowings at March 31, 2023 compared to $12.0 million in Federal Home Loan Bank borrowings at December 31, 2022. The increase was used to fund loan growth and to maintain on balance sheet liquidity. Stockholders’ Equity. Stockholders’ equity increased $2.9 million, or 3.0%, to $100.7 million at March 31, 2023, primarily due to $3.1 million in net income, a $300,000 reduction in the other comprehensive loss and a $547,000 negative adjustment to retained earnings resulting from the adoption of ASU Topic 326 during the quarter ended March 31, 2023. Average Balances and Yields . The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Average balances exclude loans held for sale, if applicable. Net deferred loan fees totaled $1.7 million and $1.4 million at March 31, 2023 and 2022, respectively. 39 BV FINANCIAL, INC. AND SUBSIDIARIES For the Three Months Ended March 31, 2023 2022 Average Outstanding Balance Interest Average Yield/Rate (1) Average Outstanding Balance Interest Average Yield/Rate (1) (Dollars in thousands) (Unaudited) Interest-earning assets: Loans $ 667,888 $ 8,773 5.33% $ 615,651 $ 7,202 4.75 % Securities available-for-sale 36,134 266 2.99% 38,987 136 1.41 % Securities held-to-maturity 11,915 93 3.18% 5,697 39 2.54 % Cash, cash equivalents and other interest-earning assets 50,883 556 4.43% 100,905 36 0.14 % Total interest-earning assets 766,820 9,688 5.12% 761,240 7,413 3.95 % Noninterest-earning assets 81,403 90,123 Total assets $ 848,223 $ 851,363 Interest-bearing liabilities: Interest-bearing demand deposits $ 91,842 18 0.08% $ 94,047 15 0.06 % Savings deposits 164,818 40 0.10% 167,793 23 0.06 % Money market deposits 99,583 97 0.39% 106,572 45 0.17 % Certificates of deposit 152,264 510 1.36% 159,750 284 0.72 % Total interest-bearing deposits 508,507 665 0.53% 528,162 368 0.28 % Federal Home Loan Bank advances 24,150 289 4.85% — — —% Subordinated debentures 37,069 534 5.84% 36,858 503 5.53 % Total borrowings 61,219 823 5.45% 36,858 503 5.53 % Total interest-bearing liabilities 569,725 1,488 1.06% 565,019 871 0.63 % Noninterest-bearing demand deposits 158,807 170,418 Other noninterest-bearing liabilities 22,042 27,081 Total liabilities 750,584 762,518 Equity 97,649 88,845 Total liabilities and equity $ 848,223 $ 851,363 Net interest income $ 8,200 $ 6,542 Net interest rate spread(2) 4.06% 3.32 % Net interest-earning assets(3) $ 197,095 $ 196,221 Net interest margin(4) 4.34% 3.49 % Average interest-earning assets to interest-bearing liabilities 134.59 % 134.73 % (1) Annualized. (2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022 General . Net income increased $698,000, or 28.9%, to $3.1 million for the three months ended March 31, 2023, compared to $2.4 million for the three months ended March 31, 2022. The increase was due primarily to increases in net interest income and a reduction in the provision for credit losses, partially offset by a decrease in non-interest income and an increase in non-interest expense. Interest Income . Interest income increased $2.3 million, or 30.7%, to $9.7 million for the three months ended March 31, 2023 from $7.4 million for the three months ended March 31, 2022. The increase was due primarily to increases in interest income on loans, which is our primary source of interest income, and interest income on cash, cash equivalents and other interest-earning assets. Interest income on loans increased $1.6 million, or 22.2%, to $8.8 million for the three months ended March 31, 2023 from $7.2 million for the three months ended March 31, 2022 due to increases in the average balance of loans and the average yield. The average balance of loans increased $52.2 million, or 8.5%, to $667.9 million for the three months ended March 31, 2023 from $615.7 million for the three months ended March 31, 2022. The weighted average yield on loans increased 58 basis points to 5.33% for the three months ended March 31, 2023 compared to 4.75% for the three months ended March 31, 2022, as variable rate loans reset to higher interest rates and the rates on new loans exceeded the rates on paid off loans. Interest income on cash, cash equivalents and other interest-earning assets increased $520,000, to $556,000 for the three months ended March 31, 2023 from $39,000 for the three months ended March 31, 2022 due to a 429 basis point increase in the average yield on cash, cash equivalents and other interest-earning assets, partially offset by a $50.1 million decrease in the average balance as excess funds were used to fund loan growth. 40 BV FINANCIAL, INC. AND SUBSIDIARIES Interest Expense . Interest expense increased $617,000, or 70.8%, to $1.5 million for the three months ended March 31, 2023 compared to $871,000 for the three months ended March 31, 2022, due primarily to a $298,000 increase on interest paid on deposits, and a $288,000 increase on interest paid on advances from the Federal Home Loan Bank. The increase in interest expense on deposits was due to a 25 basis point increase in the average rate, offset by a $19.7 million decrease in the average balance of interest-bearing deposits to $508.5 million at March 31, 2023 from $528.2 million for the three months ended March 31, 2022. The average rate on interest-bearing deposits was 0.53% for the three months ended March 31, 2023 compared to 0.28% for the three months ended March 31, 2022. Interest expense on Federal Home Loan Bank advances increased to $288,000 for the three months ended March 31, 2023 due to an average balance of $24.2 million for the three months ended March 31, 2023. The average rate on Federal Home Loan Bank advances was 4.85% for the three months ended March 31, 2023. In recent periods, we have relied more heavily on Federal Home Loan Bank advances to supplement deposits to fund loan growth and maintain liquidity. Interest expense on subordinated debentures increased $31,000, or 6.0%, to $534,000 for the three months ended March 31, 2023 compared to $503,000 for the three months ended March 31, 2022. The average rate on subordinated debentures increased 31 basis points to 5.84% for the three months ended March 31, 2023 compared to 5.53% for the three months ended March 31, 2022, due to increases in market interest rates. Net Interest Income . Net interest income increased $1.7 million, or 26.1%, to $8.2 million for the three months ended March 31, 2023 from $6.5 million for the three months ended March 31, 2022, as a result of a $2.3 million increase in interest income, offset by a $617,000 increase in interest expense. Our interest rate spread increased 74 basis points to 4.06% for the three months ended March 31, 2023, compared to 3.32% for the three months ended March 31, 2022, while our net interest margin increased 85 basis points to 4.34% for the three months ended March 31, 2023 compared to 3.49% for the three months ended March 31. 2022. Provision for Credit Losses . BV Financial adopted ASU 326 on January 1, 2023. Under this new current expected loss model, provisions for credit losses are charged to operations to establish an allowance for credit losses at a level to cover expected losses over the expected life of a loan or securities portfolio. Under the previous “incurred loss” model, provisions for loan losses were charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. Prior to adoption of this standard, BV Financial segregated the loan portfolios acquired via mergers and evaluated them against a credit mark established at acquisition. As part of the adoption of the new accounting standard, $3.8 million in remaining acquisition credit marks were transferred to the allowance for credit losses for loans. An additional $750,000 in allowances for credit losses were established, $454,000 for the allowance for credit losses for loans, $289,000 as a reserve for off balance sheet commitments and $10,000 for held-to-maturity securities as of the adoption date. In evaluating the level of the allowance for credit losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. We recorded provisions for credit losses of $2,000 and $177,000 for the three months ended March 31, 2023 and 2022, respectively. Our allowance for credit losses was $8.1 million at March 31, 2023 compared to $2.9 million at March 31, 2022. The ratio of our allowance for credit losses to total loans was 1.19% at March 31, 2023 compared to 0.45% at March 31, 2022, while the allowance for credit losses to non-performing loans was 176.47% at March 31, 2023 compared to 75.9% at March 31, 2022. BV Financial had net recoveries on previously charged off loans of $37,000 and $44,000 in the quarters ended March 31, 2023 and 2022, respectively. Non-interest Income. Non-interest income decreased $681,000 to $807,000 for the three months ended March 31, 2023 from $1.5 million for the three months ended March 31, 2022. The decrease was due primarily to a $548,000 decrease in other income resulting from a decrease in loan-related fees and bargain purchase gain recognized on the acquisition of North Arundel Savings Bank in 2022. 41 BV FINANCIAL, INC. AND SUBSIDIARIES Non-interest Expense. Non-interest expense increased $342,000, or 7.8%, to $4.7 million for the three months ended March 31, 2023 from $4.4 million for the three months ended March 31, 2022. The increase was due primarily to a $500,000 increase in compensation and related benefits to $2.9 million at March 31, 2023 due to general increases in salary and incentive compensation, additional staffing as we built up the infrastructure to support growth, partially offset by a decrease of $216,000 in other non-interest expenses related to data processing conversion expenses incurred in 2022. Income Tax Expense. We recognized income tax expense of $1.2 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively, resulting in effective rates of 27.7% and 30.9%. Income tax expense increased as a result of the increase in our net income before taxes. Liquidity and Capital Resources Liquidity . Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At March 31, 2023 we had $70.1 million available under a line of credit with the Federal Home Loan Bank of Atlanta, and had $37.5 million outstanding as of March 31, 2023. In addition, at March 31, 2023, the Bank had $40.0 million in unfunded letters of credit used to secure municipal deposits outstanding against the line of credit with the Federal Home Loan Bank of Atlanta. We also have the ability to participate in the Federal Reserve’s new Bank Term Funding Program as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $3.7 million for the quarter ended March 31, 2023. Net cash used in investing activities, which consists primarily of investments in loans and securities, was $17.3 million for the quarter ended March 31, 2023. Net cash provided by financing activities, consisting primarily of changes in deposits and advances and the repayment of advances to the Federal Home Loan Bank, was $9.6 million for the quarter ended March 31, 2023. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Capital Resources . At March 31, 2023, the Bank exceeded all of its regulatory capital requirements and was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category. Item 3. Quanti tative and Qualitative Disclosures About Market Risk Not applicable, as the Company is a smaller reporting company. Item 4. Controls and P rocedures An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2023. Based on that evaluation, the Company’s management, including the Chief Executive Officers and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective. During the quarter ended March 31, 2023, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 42 BV FINANCIAL, INC. AND SUBSIDIARIES Part II – Other Information Item 1. Legal Pro ceedings The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations. Item 1A. Risk F actors In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed under the heading "Risk Factors" contained in the Prospectus. The Company's evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Prospectus. Item 2. Unregistered Sales o f Equity Securities and Use of Proceeds Not applicable. Item 3. Defaults U pon Senior Securities Not applicable. Item 4. Mine Saf ety Disclosures Not applicable. Item 5. Othe r Information Not applicable. 43 BV FINANCIAL, INC. AND SUBSIDIARIES Item 6. Ex hibits 3.1 Amended and Restated Articles of Incorporation of BV Financial, Inc. (1) 3.2 Bylaws of BV Financial Bancorp, Inc . (2) 31.1. 31.2 Certification of Co- Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Co- Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 The following materials for the quarter ended March 31, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements 104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) (1) Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-270496), initially filed on March 13, 2023. (2) Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-270496), initially filed on March 13, 2023. 44 SIGNA TURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BV FINANCIAL, INC. /s/ Timothy L. Prindle Date: June 29, 2023 Timothy L. Prindle Co-President and Chief Executive Officer Date: June 29, 2023 /s/ David M. Flair David M. Flair Co-President and Chief Executive Officer Date: June 29, 2023 /s/ Michael J. Dee Michael J. Dee Executive Vice President and Chief Financial Officer 45