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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-16 · 361 added, 228 removed, 143 unchanged (80% of the section changed)

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative

from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Our MD&A should be read in conjunction with the Consolidated Financial

Statements and related Notes included in Part I “Item 1, Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022.

Certain statements herein are forward-looking

statements within the meaning of Section 21E of the U.S.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from

the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and

related Notes included in Part I “Item 1, Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022.

Certain statements herein are forward-looking statements within the

meaning of Section 21E of the U.S.

Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the U.S.

Securities Act of 1933, as amended that reflect our current views with respect to future events

and financial performance.

Forward-looking statements typically include words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,”

“continue,” “poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” and other similar expressions.

These forward-looking statements are subject to risks and uncertainties, which could cause

actual future results to differ materially from historical results or from those anticipated or implied by such statements.

Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no

date is provided, then as of the date of this Form 10-Q.

Securities Act of 1933, as amended that reflect our current views with respect to future events and financial

“poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” and other similar expressions.

These forward-looking statements are subject to risks and uncertainties, which could cause actual future

results to differ materially from historical results or from those anticipated or implied by such statements.

Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is

provided, then as of the date of this Form 10-Q.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

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All accounting policies are important;

however, and therefore you are

encouraged to review each of the policies included in Note 1 “Summary of Significant Accounting Principles” of the Notes to Consolidated Financial Statements in our 2022 Form 10-K to gain a better understanding of how our financial performance is

measured and reported.

however, and therefore you are encouraged

to review each of the policies included in Note 1 “Summary of Significant Accounting Principles” of the Notes to Consolidated Financial Statements in our 2022 Form 10-K to gain a better understanding of how our financial performance is measured and

Management has identified the Company’s critical accounting policies as follows:

Allowance for Credit Losses

Allowance for Credit Losses for Loans

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit

losses for loans at the time of origination or acquisition.

The allowance for credit losses (“ACL”) is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the

consolidated statements of financial condition.

The allowance for credit losses (“ACL”) is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated

statements of financial condition.

Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.

The measurement of the ACL is performed

by collectively evaluating loans with similar risk characteristics.

The measurement of the ACL is performed by collectively

evaluating loans with similar risk characteristics.

The Company measures the ACL for each of its loan segments using the weighted-average remaining maturity (“WARM”) method.

The weighted average remaining life, including the

effect of estimated prepayments, is calculated for each loan pool on a quarterly basis.

The weighted average remaining life, including the effect of estimated

prepayments, is calculated for each loan pool on a quarterly basis.

The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions.

The Company’s ACL model also includes adjustments for qualitative factors, where appropriate.

Certain loans, such as those that are nonperforming or are considered to be collateral dependent, are deemed to no longer possess risk characteristics similar to other loans in

the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates.

As such, these loans may require individual evaluation to determine an appropriate

ACL for the loan.

When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent in which case the ACL is

determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

The Company’s ACL

model also includes adjustments for qualitative factors, where appropriate.

Certain loans, such as those that are nonperforming or are considered to be collateral dependent, are deemed to no longer possess risk characteristics similar to other loans in the

loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates.

As such, these loans may require individual evaluation to determine an appropriate ACL for

using estimates of the fair value of the underlying collateral, less estimated selling costs.

Allowance for Loan Losses

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affect borrowers’ ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and feedback from regulatory examinations.

The estimates used to determine the fair values of non-PCI and PCI acquired loans can be complex and require significant judgment regarding items such as default rates, timing and

amount of future cash flows, prepayment rates and other factors.

Goodwill and Intangible Assets

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment

at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.

Goodwill and intangible assets acquired in a purchase business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at

least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed.

The Company has selected November 30th as the date to perform the annual impairment test.

assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

Intangible assets

with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated statement of financial condition.

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In assessing the realization of deferred tax assets,

management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry‑back years, forecasts of future income and

available tax planning strategies.

tax planning strategies.

This analysis is updated quarterly.

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assumptions or in market conditions could significantly affect the estimates.

Total assets increased by $20.8 million to $1.2 billion at March 31, 2023 from December 31, 2022, primarily due to growth in cash and cash equivalents of $13.5 million, growth of

$8.0 million in loans receivable held for investment, net of allowance, and an increase in FHLB stock of $1.8 million.

These increases were partially offset by decreases of $1.7 million in Federal Reserve Bank (“FRB”) stock and $1.0 million in

deferred tax assets, net.

Total liabilities increased by $20.6 million to $925.2 million at March 31, 2023 from $904.6 million at December 31, 2022.

The increase in total liabilities primarily consisted of

increases of $40.5 million in FHLB advances and $7.5 million in securities sold under agreements to repurchase, which were partially offset by decreases in deposits of $29.4 million.

During the first quarter of 2023, net interest income increased by $1.1 million or 15.4% compared to the first quarter of 2022.

This increase resulted from additional interest

income, primarily generated from growth of $81.4 million in average interest-earning assets.

The increase in the net interest margin was attributable to the investment of the proceeds from the sale of the Series C Preferred Stock, which increased

interest earning assets without any associated interest cost.

Also, the net interest margin increased to 2.96% for the first quarter of 2023, compared to 2.76% for the first quarter of 2022, primarily due to an increase of 86 basis points in the

average yield earned on interest-earning assets due to higher rates earned on investments in the increasing interest rate environment.

Partially offsetting these improvements was an increase in income tax expense of $311 thousand and an increase in non-interest expenses of $246 thousand during the

three months ended March 31, 2023, compared to the same period in 2022.

The increase in tax expense reflected an increase of $924 thousand in pre-tax income between the two periods.

For the first quarter of 2023, the Company reported net income of $1.6 million compared to $982 thousand for the first quarter of 2022.

Total assets increased by $47.1 million to $1.2 billion at June 30, 2023 from December 31, 2022, primarily due to growth in loans receivable held for

investment of $56.6 million, partially offset by a decrease of securities available-for-sale of $6.2 million and a decrease of cash and cash equivalents of $5.4 million.

Loans held for investment, net of the ACL, increased by $56.6 million to $824.6 million at June 30, 2023, compared to $768.0 million at December 31, 2022.

The increase was primarily due to loan

originations of $98.2 million during the first six months of 2023, which consisted of $38.6 million of multi-family loans, $36.6 million of construction loans and $23.0 million of other commercial loans, offset in part by loan payoffs and

repayments of $41.6 million.

Deposits decreased by $40.9 million to $646.1 million at June 30, 2023, from $686.9 million at December 31, 2022, with $29.4 million of the decrease occurring in the first quarter of 2023.

Management has made reasonable attempts to be responsive to the higher interest rate environment, but some depositors have left the Bank for the highest rates available from other financial institutions in response to rate increases by the Federal

As of June 30, 2023, our uninsured deposits, including deposits from affiliates, represented 38% of our total deposits, as compared to 31% as of December 31, 2022.

Total borrowings increased by $89.8 million to $295.6 million at June 30, 2023 , from $205.8 million at December 31, 2022,

primarily due to a net increase of $81.9 million in advances from the Federal Home Loan Bank (the “FHLB”) of Atlanta and $7.9 million in additional securities sold under agreements to repurchase.

Stockholders’ equity was $277.3 million, or 22.5% of the Company’s total assets, at June 30, 2023, compared to $279.5 million, or 23.6% of the Company’s total assets, at December 31, 2022.

adoption of CECL on January 1, 2023, the Company recognized a net decrease in retained earnings of $1.3 million.

S tockholders’ equity also decreased due to an increase in unearned shares in the employee stock

ownership plan of $2.8 million.

These decreases were offset by year-to-date net earnings of $1.8 million and a reduction of $54 thousand in the accumulated other comprehensive loss, net of tax.

Book value per share was $1.71 at June 30, 2023

and $1.76 at December 31, 2022.

For the three months ended June 30, 2023, the Company reported consolidated net earnings of $246 thousand compared to consolidated net earnings of $1.9 million for the

three months ended June 30, 2022.

The decrease in net earnings was primarily due to an increase in interest expense before provision for credit losses of $4.0 million, which more than offset growth in interest income of $3.3 million.

decrease in net earnings was also attributable to a provision for credit losses of $768 thousand during the second quarter of 2023, compared to a recapture of credit losses of $577 thousand during the second quarter

of 2022, and an increase in non-interest expense of $155 thousand.

For the six months ended June 30, 2023, the Company reported net income of $1.8 million compared to net income of $2.8 million for the six months ended June 30, 2022.

primarily resulted from a provision for credit losses of $810 thousand during the first six months of 2023, compared to a recapture of credit losses of $429 thousand during the first six months of 2022.

In addition, non-interest expense increased

by $447 thousand during the first six months of 2023, compared to the first six months of 2022.

These amounts were partially offset by improvement in net interest income of $332 thousand during the first six months of 2023, compared to the first

six months of 2022.

Results of Operations

Net Interest Income

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Net interest income for the first quarter of 2023 totaled $8.3 million, representing an increase of $1.1 million, or 15.4%, over net interest income of $7.2 million for the first

quarter of 2022.

The increase resulted from additional interest income, primarily generated from growth of $81.4 million in average interest-earning assets during the first quarter of 2023, compared to the first quarter of 2022.

Interest income and fees on loans receivable increased by $1.2 million, or 16.3%, to $8.5 million for the first quarter of 2023, from $7.3 million for the first quarter of 2022

due to an increase of $109.2 million in the average balance of loans receivable, which increased interest income by $1.2 million.

Interest income on securities increased by $1.6 million, or 294.2%, for the first quarter of 2023, compared to the first quarter of 2022.

The increase in interest income on

securities primarily resulted from an increase of 128 basis points in the average interest rate earned on securities, which increased interest income by $767 thousand, and an increase of $167.8 million in the average balance of securities, which

increased interest income by $860 thousand.

The increase in the average balance of securities resulted from the investment of funds received from the sale of the Series C Preferred Stock pursuant to the ECIP award.

We also made a concerted effort

to deploy assets from federal funds to higher yielding investment securities.

Interest income on interest-earning cash in other banks increased by $35 thousand primarily due to an increase of 264 basis points in the average interest rate earned on cash

deposits, which increased interest income by $180 thousand, and was partially offset by a decrease of $203.2 million in average cash deposits, which reduced interest income by $145 thousand.

Dividend income on FHLB and FRB stock also increased by

$171 thousand between the two periods.

Interest expense on deposits increased by $953 thousand, or 272.3%, for the first quarter of 2023, compared to the first quarter of 2022.

The increase was attributable to an

increase of 70 basis points paid on interest-bearing deposits, which caused interest expense on deposits to increase by $1.0 million.

This was partially offset by a decrease of $124.2 million in the average balance of interest-bearing deposits

which reduced interest expense by $72 thousand.

Interest expense on borrowings increased by $977 thousand, or 199.8%, for the first quarter of 2023, compared to the first quarter of 2022.

Interest expense on FHLB advances

increased by $981 thousand between the two periods due to an increase of $67.4 million in the average balance of FHLB advances, which increased interest expense by $438 thousand, and an increase of 189 basis points in the average rate paid, which

increased interest expense by $543 thousand.

Interest expense on other borrowings decreased by $4 thousand between the two periods.

The average rate on other borrowings increased by 4 basis points, which increased interest expense by $7 thousand

and the average balance increased by $1.6 million, which increased interest expense by $3 thousand.

As a result of the changes discussed above, net interest margin increased to 2.96% for the first quarter of 2023 from 2.76% for the first quarter of 2022.

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Net interest income before provision for credit losses for the second quarter of 2023 totaled $7.3 million, representing a decrease of $770 thousand, or 9.6%, from net interest

income before loan loss provision of $8.0 million for the second quarter of 2022.

The decrease resulted from additional interest expense due to an increase of $154.5 million in average borrowings during the second quarter of 2023, compared to the

second quarter of 2022, at an average borrowing rate of 4.30% during the second quarter of 2023, compared to an average borrowing rate of 0.42% during the second quarter of 2022.

The increase in borrowings was due to a decrease in average deposits

of $187.3 million during the second quarter of 2023, compared to the second quarter of 2022, with all but $17.4 million of the decrease in average deposits occurring prior to the start of the second quarter of 2023.

Net interest margin decreased

to 2.52% for the second quarter of 2023, compared to 3.00% for the second quarter of 2022, primarily due to an increase of 190 basis points in the average cost of funds, which reflected higher rates paid on deposits and borrowings because of the

ten interest rate increases implemented by the Federal Open Market Committee of the Federal Reserve (the “Federal Reserve” or “FRB”) from March of 2022 through June of 2023.

The impact of the rising cost of funds was partially offset by an

increase in the yield on interest-earnings assets of 86 basis points, primarily due to higher rates earned on securities, interest-earning deposits, and, to a lesser extent, the loan portfolio.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Net interest income before provision for credit losses for the six months ended June 30, 2023 totaled $15.5 million, representing an increase of $332 thousand, or 2.2%, over net

interest income before loan loss provision of $15.2 million for the six months ended June 30, 2022.

The increase resulted from additional interest income, primarily generated from growth of $81.9 million in average interest-earning assets during

the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

In addition, the overall rate earned on interest-earning assets increased by 88 basis points as the Bank earned higher rates on securities, interest-earning

deposits, and, to a lesser extent, the loan portfolio.

Net interest margin decreased, however, to 2.74% for the six months ended June 30, 2023, compared to 2.89% for the six months ended June 30, 2022, primarily due to an increase of 149 basis

points in the average cost of funds, which grew to 1.76% for the six months ended June 30, 2023, from 0.27% for the six months ended June 30, 2022.

The increase in the cost of funds reflected the higher rates that the Bank paid on deposits and

borrowings because of the interest rate increases implemented by the FRB.

The following tables set forth the average balances, average yields and costs, and certain other information for the periods indicated.

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For the Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

(Dollars in Thousands)

Average Balance

Average Yield/Cost

Average Balance

Average Yield/Cost

Interest-earning assets:

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

For the Six Months Ended

June 30, 2023

June 30, 2022

(Dollars in Thousands)

Average Balance

Interest-earning assets:

Interest-earning deposits

Loans receivable (1)

FRB and FHLB stock

Total interest-earning assets

Non-interest-earning assets

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Money market deposits

Savings deposits

Interest checking and other demand deposits

Certificate accounts

Total deposits

FHLB advances

Other borrowings

Total borrowings

Total interest-bearing liabilities

Non-interest-bearing liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest rate spread (2)

Net interest rate margin (3)

Ratio of interest-earning assets to interest-bearing liabilities

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

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

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

Credit loss provision

For the quarter ended March 31, 2023, the Company recorded a provision for credit losses under CECL of $88 thousand,

compared to a loan loss provision under the previously used incurred loss model of $148 thousand for the quarter ended March 31, 2022.

No loan charge-offs were recorded during the quarters ended March 31, 2023 or March 31, 2022.

increased to $6.3 million as of March 31, 2023, compared to $4.4 million as of December 31, 2022.

The increase was due to the implementation of the CECL methodology adopted by the Company effective January 1, 2023, which increased the ACL by

$1.8 million.

In addition, the Company recorded an additional increase in the provision for credit losses of $88 thousand during the first quarter of 2023 as a result of growth in the loan portfolio.

For the three months ended June 30, 2023, the Company recorded a provision for credit loss under the Current Expected Credit Loss (“CECL”) methodology of $768 thousand , compared to a loan loss provision recapture under the previously used incurred loss model of $577 thousand for the three months ended June 30, 2022.

For the six months ended

June 30, 2023, the Company recorded a provision for credit losses of $810 thousand , compared to a loan loss provision recapture of $429 thousand for the six months ended

June 30, 2022.

The increases in the provisions for credit losses during the three and six months ended June 30, 2023 were due to growth in our loan portfolio and increases in loans rated as watch and special mention, which require additional

provision for credit losses.

The provisions for credit losses during the three and six months ended June 30, 2023 include provisions for off-balance sheet loan commitments of $83 thousand and $37 thousand, respectively.

The loan loss provision

recaptures during the second quarter and six months ended June 30, 2022 were due to the Company’s capital contribution of $75 million to the Bank in June 2022, which reduced the multi-family and commercial real estate loan concentration levels,

and thereby, the risk associated with the qualitative factors used to estimate the required allowance for loan and lease losses (“ALLL”) at that time.

The ACL increased to $7.0 million as of June 30, 2023, compared to $4.4 million as of December 31, 2022.

The increase was

primarily due to the implementation of the CECL methodology adopted by the Bank effective January 1, 2023, which increased the ACL by $1.8 million.

In addition, the Bank recorded an additional increase in the provision for credit losses of $685

thousand and $773 thousand during the three and six months ended June 30, 2023, respectively.

The CECL methodology includes estimates of expected loss rates over the remaining life of loans in the portfolio, whereas the former ALLL methodology

The Bank had no non-accrual loans at June 30, 2023.

No loan charge-offs were recorded

during the three or six months ended June 30, 2023 or June 30, 2022.

Non-interest Income

Non-interest income for the three months ended March 31, 2023 totaled $289 thousand compared to $281 thousand for the three months ended March 31, 2022.

The increase in

non-interest income was due to an increase in other non-interest income of $11 thousand, partially offset by a decrease in service charges of $3 thousand.

Non-interest income for the second quarter of 2023 totaled $260 thousand, compared to $261

thousand for the second quarter of 2022.

For the first six months of 2023, non-interest income totaled $549 thousand, compared to $542 thousand for the same period in the prior year.

The increase was primarily due to an

increase of $70 thousand in fees from a revenue sharing agreement with another financial institution and an increase in branch services fees of $14 thousand for the first six months of 2023, compared to the first six months of 2022.

increases were partially offset by lower management fees from new market tax credit projects of $76 thousand in the first six months of 2023.

Non-interest Expense

Total non-interest expense was $6.2 million for the first quarter of 2023, compared to $6.0 million for the first quarter of 2022.

increase in non-interest expense was primarily due to an increase in other non-interest expense of $286 thousand, an increase in professional services of $141 thousand and in increase of compensation and benefits of $130 thousand, partially

offset by decreases $150 thousand in information services and $139 thousand in occupancy expense.

Income tax expense or benefit is computed by applying the statutory federal income tax rate of 21% to the Company’s pre-tax net income.

State taxes are recorded at

the State of California tax rate and apportioned based on an allocation schedule to reflect that a portion of the Company’s operations are conducted in the Washington, D.C.

The Company recorded income tax expense of $674 thousand during the first quarter of 2023, representing an effective rate of 29.7%, and a tax expense of $363 thousand during the first quarter of 2022, representing an

effective tax rate of 27.0%.

Total non-interest expense was $6.4 million for the second quarter of 2023, representing an increase of 2.5% from $6.3 million for the second quarter of 2022.

The increase of $155 thousand was

primarily due to higher compensation and benefits expense of $427 thousand and supervisory costs of $101 thousand.

These increases were partially offset by a decrease in professional services expense of $351 thousand

and a decrease of $22 thousand in various other operating expenses.

For the first six months of 2023, non-interest expense totaled $12.7 million, representing an increase of 4.0% from $12.2 million for the same period in the prior year.

increase of $447 thousand primarily resulted from increases in compensation and benefits expense of $557 thousand, public relations expense of $60 thousand, trade organization expense of $55 thousand, Delaware franchise taxes of $46 thousand,

occupancy expense of $46 thousand, supervisory costs of $38 thousand and various other operating expenses of $37 thousand.

These increases were partially offset by decreases in professional services expense of $210 thousand and IT consulting costs

of $182 thousand.

Income taxes are computed by applying the statutory federal income tax rate of 21% and the combined California and Washington, D.C.

income tax rate of 9.75% to taxable income.

The Company recorded

income tax expense of $93 thousand for the second quarter of 2023 and $757 thousand for the second quarter of 2022.

The decrease in tax expense reflected a decrease of $2.3 million in pre-tax income between the two periods.

The effective tax rate

was 27.43% for the second quarter of 2023, compared to 29.00% for the second quarter of 2022.

For the six months ended June 30, 2023, income tax expense was $767 thousand, compared to $1.1 million for the six months ended June 30, 2022.

The decrease in tax

expense reflected a decrease in pretax earnings of $1.3 million between the two periods.

The effective tax rate was 29.41% for the six months ended June 30, 2023 , compared to 28.32% for the six months ended

June 30, 2022 .

Financial Condition

Total assets increased by $20.8 million at March 31, 2023, compared to December 31, 2022, reflecting growth in cash and cash equivalents of $13.5 million and growth in net

loans of $8.0 million.

Total assets increased by $47.1 million at June 30, 2023, compared to December 31, 2022, reflecting growth in loans receivable held for investment of $56.6 million, partially offset by a decrease

of securities available-for-sale of $6.2 million and a decrease of cash and cash equivalents of $5.4 million.

Securities Available-For-Sale

Securities available-for-sale totaled $329.0 million at March 31, 2023, compared with $328.7 million at December 31, 2022.

The $0.3 million of increase in securities

available-for-sale during the three months ended March 31, 2023 was primarily due to an increase of $3.4 million in the fair value of the securities as a result of favorable changes in interest rates

during the quarter.

These increases were partially offset by proceeds from principal paydowns on the balance of these securities of $3.4 million during the quarter.

Securities available-for-sale totaled $322.5 million at June 30, 2023, compared with $328.7 million at December 31, 2022.

The $6.2 million of decrease in securities

available-for-sale during the six months ended June 30, 2023 was primarily due to principal paydowns of $6.8 million, offset by increases in the carrying value of $511 thousand due to the amortization of net discounts and $77 thousand due to

improvement in the fair value of the securities.

The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of June 30, 2023.

The table reflects stated final maturities

and does not reflect scheduled principal payments or expected payoffs.

June 30, 2023

One Year or Less

More Than One Year

to Five Years

More Than Five

Years to Ten Years

More Than Ten

(Dollars in thousands)

Available‑for‑sale:

Federal agency mortgage‑backed securities

Federal agency CMO

Federal agency debt

Municipal bonds

Loans Receivable

Loans receivable increased by $8.0 million during first three months of 2023 primarily due to loan originations of $32.9

million which consisted of $18.5 million in construction loans, $11.6 million in multi-family loans, and $2.8 million in other commercial loans, offset in part by loan payoffs and repayments of $24.9 million.

Loans receivable held for investment, net of the ACL, increased by $56.6 million to $824.6 million at June 30, 2023, compared to $768.0 million at December 31, 2022.

The increase was primarily due to loan originations of $98.2 million during the first six months of 2023, which consisted of $38.6 million of multi-family loans, $36.6 million of construction loans and $23.0 million of other commercial

loans, offset in part by loan payoffs and repayments of $41.6 million.

The following tables presents loan categories by maturity for the period indicated.

Actual repayments historically have, and will likely in the future, differ significantly from

contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties.

June 30, 2023

Five Years to

(Dollars in thousands)

Loans receivable held for investment:

Single family

Commercial real estate

Commercial - other

Loans maturities after one year with:

Single family

Commercial real estate

Commercial - other

Variable rates

Single family

Commercial real estate

Commercial - other

Certain multi-family loans have adjustable rate features based on SOFR, but are fixed for the first five years.

Our experience has shown that these loans typically payoff during the

first five years and do not reach the adjustable rate phase.

Multi-family loans in their initial fixed period totaled $24.3 million or 2.93% of our loan portfolio as of June 30, 2023.

Allowance for Credit Losses

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses ,

to determine the ACL.

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses , to determine

ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition.

The recognition of losses at origination or acquisition

represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgement and estimates,

which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model.

The Company uses the WARM method when determining estimates for the ACL for

each of its portfolio segments.

The recognition of losses at origination or acquisition represents the

Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan, and involves the use of significant management judgment and estimates, which are subject to

change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model.

The Company uses the WARM method when determining estimates for the ACL for each of its portfolio

The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis.

The Company then estimates a loss rate for each pool using both its own

historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

The Company then estimates a loss rate for each pool using both its

own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter.

Since historical information (such as historical net losses) may not always, by itself, provide a sufficient basis for determining future expected credit losses, the Company

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The Company has a credit portfolio review process designed to detect problem loans.

Problem loans are typically those of a substandard or worse internal risk grade, and may

consist of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent

loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated.

Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other

loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates.

As such, these loans may require individual evaluation to determine an

appropriate ACL for the loan.

Problem loans are typically those of a substandard or worse internal risk grade, and may consist

of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and

other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated.

Such loans may, in the opinion of management, may be deemed to no longer possess risk characteristics similar to other loans in

the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates.

As such, these loans may require individual evaluation to determine an appropriate ACL

for the loan.

collateral dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

The ACL for collateral

dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs.

The estimation of the appropriate level of the ACL requires significant judgment by management.

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Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process.

Such agencies may require the Company to recognize additions to the ACL

based on judgments different from those of management.

The ACL, formerly known as the allowance for loan losses, was $6.3 million or 0.80% of gross loans held for investment at March 31, 2023, compared to an ALLL of $4.4 million, or

Such agencies may require the Company to recognize additions to the ACL based

on judgments different from those of management.

The ACL, formerly known as the allowance for loan losses, was $7.0 million or 0.85% of gross loans held for investment at June 30, 2023, compared to an ALLL of $4.4 million, or

0.57% of gross loans held for investment, at December 31, 2022.

There were no recoveries or charge-offs recorded during the three month period ending March 31, 2023 and 2022.

Collateral dependent loans at March 31, 2023 were $1.2 million, which had an associated ACL of $53 thousand.

Impaired loans at December 31, 2022 were $1.7 million which had specific reserves of $7 thousand of the aggregate impaired loan amount.

Delinquent loans greater than 30 days as of March 31, 2023, were $406 thousand as compared to none at December 31, 2022.

The $406 thousand of loans delinquent 30-59 days as of

March 31, 2023 consisted primarily of multi-family loans.

Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled debt restructurings that do not qualify for accrual

The Company did not have any NPLs as of March 31, 2023.

NPLs as of December 31, 2022 totaled $144 thousand.

We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of March 31, 2023, but there can be no assurance that actual losses will not exceed

There were no recoveries or charge-offs recorded during either the three or six month period ending June 30, 2023 and 2022.

Collateral dependent loans at June 30, 2023 were $6.8 million, which had an associated ACL of $119 thousand.

There were no delinquent loans greater than 30 days delinquent as of June 30, 2023 and December 31, 2022.

There were no non-performing loans as of June 30, 2023 compared to $144 thousand as of December 31, 2022.

Non-performing loans consist of delinquent loans that are 90 days or more

past due and other loans, including loans modified in response to a borrower's financial difficulty, that do not qualify for accrual status.

We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of June 30, 2023, but there can be no assurance that actual losses will not exceed

the estimated amounts.

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information available to them at the time of their examinations.

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

dates indicated:

June 30, 2023

December 31, 2022

June 30, 2022

(Dollars in thousands)

Single family

Commercial real estate

Total allowance for loan losses

Goodwill and Intangible Assets

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The estimated life of the core deposit intangible is approximately 10 years.

During the three months ended March 31, 2023 and 2022, the Company recorded $98 thousand and $109 thousand, respectively, of amortization expense related to the core

During the three months ended June 30, 2023 and 2022, the Company recorded $97 thousand and $108 thousand, respectively, of amortization expense related to the core

deposit intangible.

As the Company’s stock was recently trading at a discount to tangible book value, an assessment of goodwill impairment was performed as of December 31, 2022, in which no

impairment was determined.

No impairment charges were recorded during the three months ended March 31, 2023 or 2022, for goodwill or the core deposit intangible.

Deposits decreased by $29.4 million to $657.5 million at March 31, 2023, from $686.9 million at December 31, 2022.

The decrease in deposits was attributable to decreases of

$50.0 million in liquid deposits (demand, interest checking and money market accounts), $2.2 million in savings deposits, $1.5 million in other certificates of deposit accounts, and $226 thousand in Insured Cash Sweep (“ICS”) deposits (ICS

deposits are the Company’s money market deposit accounts in excess of FDIC insured limits whereby the Company makes reciprocal arrangements for insurance with other banks), partially offset by an increase of $24.5 million in Certificate of

Deposit Registry Service (“CDARS”) deposits (CDARS deposits are similar to ICS deposits, but involve certificates of deposit, instead of money market accounts).

The decrease in deposits was primarily due to customers who left the Company for

higher interest rates available elsewhere, even after management made reasonable attempts to be responsive to the higher interest rate environment.

As of March 31, 2023, our uninsured deposits represented approximately 25% of our total deposits,

as compared to approximately 31% as of December 31, 2022.

Total borrowings increased by $47.9 million to $253.8 million at March 31, 2023, from $205.8 million at December 31, 2022, primarily due to $40.5 million in advances from the

FHLB of Atlanta and $7.5 million in additional securities sold under agreements to repurchase.

From time to time we enter into agreements under which the Company sells securities subject to an obligation to repurchase the same or similar securities.

these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets.

As a result, these repurchase agreements

are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.

The outstanding balance of these borrowings totaled $70.9 million and $63.5 million as of March 31,

2023 and December 31, 2022, respectively, and the interest rate paid on the borrowings were 0.24% and 0.38%, respectively.

During the six months ended June 30, 2023 and 2022, the Company recorded $195 thousand and $217 thousand, respectively, of amortization expense related to the core deposit intangible.

An assessment of goodwill impairment was performed by a third party as of December 31, 2022, in which no impairment was determined.

No impairment charges were recorded during the

six months ended June 30, 2023 or 2022, for goodwill or the core deposit intangible.

Total Liabilities

Total liabilities increased by $49.2 million to $953.9 million at June 30, 2023 from $904.6 million at December 31, 2022, largely due to an increase in FHLB borrowings which was

partially offset by a decrease in deposits.

Deposits decreased by $40.9 million to $646.1 million at June 30, 2023, from $686.9 million at December 31, 2022, with $29.4 million of the decrease occurring in the first quarter of 2023.

decrease in deposits was attributable to decreases of $36.7 million in liquid deposits (demand, interest checking and money market accounts), $17.8 million in Insured Cash Sweep (“ICS”) deposits (ICS deposits are the Bank’s money market deposit accounts in excess of FDIC insured limits whereby the Bank makes reciprocal arrangements for insurance with other banks), $6.4 million in other certificates of deposit accounts and $1.9 million of savings deposits, partially offset by an increase of $22.0 million in Certificate of Deposit Registry Service (“CDARS”) deposits (CDARS deposits are similar to ICS deposits, but involve certificates of deposit,

instead of money market accounts).

The decrease in deposits was primarily due to customers who left the Bank for higher interest rates available elsewhere.

As of June 30, 2023, our uninsured deposits, including

deposits from affiliates, represented approximately 38% of our total deposits, as compared to approximately 31% as of December 31, 2022.

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

Three to Six Months

(In thousands)

June 30, 2023

Time deposits of $250,000 or less

Time deposits of more than $250,000

Not covered by deposit insurance

December 31, 2022

Time deposits of $250,000 or less

Time deposits of more than $250,000

Not covered by deposit insurance

Total borrowings increased by $89.8 million to $295.6 million at June 30, 2023, from $205.8 million at December 31, 2022, due to a net increase of $81.9 million in

advances from the FHLB of Atlanta and $7.9 million in additional securities sold under agreements to repurchase.

At June 30, 2023 and December 31, 2022, the Company had outstanding advances from the FHLB totaling $210.3 million and $128.3 million, respectively.

The weighted interest rate was

4.74% and 3.74% as of June 30, 2023 and December 31, 2022, respectively.

The weighted average contractual maturity was 3 months and 13 months as of June 30, 2023 and December 31, 2022, respectively.

The advances were collateralized by loans with a

fair value of $446.3 million at June 30, 2023 and $328.1 million at December 31, 2022.

The Company is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Company provides qualifying collateral and holds

sufficient FHLB stock.

Based on collateral pledged and FHLB stock as of June 30, 2023, the Company was eligible to borrow an additional $120.8 million as of June 30, 2023.

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.

Under these arrangements, the Company may

transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets.

As a result, these repurchase agreements are accounted for as collateralized

financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.

The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated statements of financial condition,

while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts.

In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement

These agreements mature on a daily basis.

As of March 31, 2023, securities with a market value of $87.6 million were

pledged as collateral for securities sold under agreements to repurchase and included $33.9 million of U.S.

Treasuries, $26.0 million of U.S.

Government Agency securities, $22.2 million of mortgage-backed securities, $5.3 million of SBA pool

securities and $273 thousand of federal agency CMO.

The market value of securities pledged totaled $64.4 million as of December 31, 2022 and included $33.3 million

of federal agency debt, $19.2 million of U.S.

Treasuries and $11.9 million of federal agency mortgage-backed securities.

One relationship accounted for 75% of our balance of securities sold under agreements to repurchase as of March 31, 2023.

We expect to maintain this relationship for the

foreseeable future.

As of June 30, 2023 securities sold under agreements to repurchase totaled $71.4 million at an average rate of 3.01%.

The market value of securities pledged totaled $86.3 million as of June

As of December 31, 2022, securities sold under agreements to repurchase totaled $63.5 million at an average rate of 0.38%.

The market value of securities pledged totaled $64.4 million as of December 31, 2022.

One relationship accounted for 76% of our balance of securities sold under agreements to repurchase as of June 30, 2023.

We expect to maintain this relationship for the foreseeable

In connection with the New Market Tax Credit activities of the Company, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC.

This CDE acts

in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed.

This CDE acts in

effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed.

In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a QALICB.

The loan to the QALICB is secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45.

Debt service payments received by CFC 45

from the QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee.

loan to the QALICB is secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45.

Debt service payments received by CFC 45 from the

QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee.

The financial statements of CFC 45 are consolidated with those of the Company.

Stockholders’ Equity

Stockholders’ equity was $279.7 million, or 23.2%, of the Company’s total assets, at March 31, 2023, compared to $279.5 million, or 23.6% of the Company’s total

assets at December 31, 2022.

The increase in total stockholders’ equity was primarily due to a decrease in accumulated other comprehensive loss, net of tax of $2.4 million, and net income for the

quarter of $1.6 million, offset by an increase of $2.5 million of unearned shares in the employee stock ownership plan and the $1.3 million charge, net of tax, to retained earnings for the implementation of CECL.

The Bank’s Community Bank Leverage Ratio (“CBLR”) was 15.69% at March 31, 2023 and 15.75% at December 31, 2022.

Stockholders’ equity was $277.3 million, or 22.5%, of the Company’s total assets, at June 30, 2023, compared to $279.5 million, or 23.6% of the Company’s total assets

at December 31, 2022.

Upon adoption of CECL on January 1, 2023, the Company recognized a net decrease in retained earnings of $1.3 million.

S tockholders’ equity also decreased due to an increase in unearned

shares in the employee stock ownership plan of $2.8 million.

These decreases were offset by year-to-date net earnings of $1.8 million and a reduction of $54 thousand in the accumulated other comprehensive loss, net of tax.

Book value per share

was $1.71 at June 30, 2023 and $1.76 at December 31, 2022.

During the first quarter of 2022, the Company completed the exchange of all the Series A Fixed Rate Cumulative Redeemable Preferred Stock, with an aggregate liquidation value of $3

million, plus accrued dividends, for 1,193,317 shares of Class A Common Stock at an exchange price of $2.51 per share of Class A Common Stock.

In addition, during the first quarter of 2022, the Company issued 542,449 shares of Class A Common

Stock to directors, executive officers, and certain employees, including 495,262 shares of restricted stock to executive officers and certain employees, which vest over periods ranging from 36 months to 60 months, and 47,187 shares of

unrestricted stock to directors which vested immediately.

The Company’s book value per share was $1.76 per share as of both March 31, 2023 and December 31, 2022.

Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in

connection with the merger.

During the second quarter of 2022, the Company closed a private placement of shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series C

(“Series C Preferred Stock”), pursuant to a Purchase Agreement with the United States Department of the Treasury (the “Purchaser”) as part of the Emergency Capital Investment Program (“ECIP”), which has provided funding to Minority Depository

Institutions and Community Development Financial Institutions to increase access to capital for underserved communities that may have been disproportionately impacted by the economic effects of the COVID-19 pandemic.

Pursuant to the Purchase

Agreement, the Purchaser acquired an aggregate of 150,000 shares of Series C Preferred Stock for an aggregate purchase price equal to $150.0 million in cash, which is intended to qualify as Tier 1 Capital.

In December of 2022, the Company issued a $5 million line of credit the Employee Stock Ownership Plan to purchase additional shares of Company stock for the Plan.

In December of 2022, the ESOP purchased 466,955 shares of the Company’s common stock at an average cost of $1.07 per share for a total cost of $500 thousand and during the first six months of 2023 the ESOP purchased 2,369,086 shares of the

Company’s stock at an average cost of $1.18 per share for a total cost of $2.8 million.

During the second quarter of 2023, the Company issued 741,758 shares of restricted stock to its officers and employees based on performance during 2022 under the Amended LTIP and,

during the first quarter of 2022, the Company issued 495,262 shares of restricted stock to its officers and employees based on performance during 2021 undet the LTIP.

All the shares issued to officers and employees vest over periods ranging from 36

months to 60 months.

During the first quarter of 2023 and the first quarter of 2022, the Company issued 73,840 and 47,187 shares of stock, respectively to its directors which were fully vested.

Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally

recorded in connection with the merger.

The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s financial condition and operational performance.

A reconciliation between book value and tangible book value

per common share is shown as follows:

A reconciliation between book value and tangible

book value per common share is shown as follows:

Common Equity

1 unchanged sentence

(Dollars in thousands)

March 31, 2023:

June 30, 2023:

Common book value

7 unchanged sentences

sources of funds include deposits, advances from the FHLB, other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities.

The Bank is currently approved by

the FHLB of Atlanta to borrow up to 25% of total assets, or $301.4 million, to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.

Based on FHLB stock held and collateral pledged as of March 31, 2023, the Bank had

the ability to borrow an additional $157.2 million from the FHLB of Atlanta.

In addition, the Bank had additional lines of credit of $10.0 million with other financial institutions as of March 31, 2023.

The Bank’s primary uses of funds include withdrawals of and interest payments on deposits, originations of loans, purchases of investment securities, and the payment of operating

The Bank is currently approved by the

FHLB of Atlanta to borrow up to 25% of total assets, or $343.9 million, to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.

Based on FHLB stock held and collateral pledged as of June 30, 2023, the Bank had the

ability to borrow an additional $120.8 million from the FHLB of Atlanta.

In addition, the Bank had additional lines of credit of $10.0 million with other financial institutions as of June 30, 2023.

The Bank had unpledged securities of $241.4

million as of June 30, 2023 which could be used as collateral for borrowings from the Federal Reserve Bank under the Bank Term Funding Program.

The Bank’s primary uses of funds include originations of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and the payment of operating

Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank invests in federal funds with the Federal Reserve Bank or in money market accounts with other financial institutions.

Bank’s liquid assets at March 31, 2023 consisted of $29.6 million in cash and cash equivalents and $242.7 million in securities available-for-sale that were not pledged, compared to $16.1 million in cash and cash equivalents and $250.3 million in

Bank’s liquid assets at June 30, 2023 consisted of $10.7 million in cash and cash equivalents and $241.4 million in securities available-for-sale that were not pledged, compared to $16.1 million in cash and cash equivalents and $250.3 million in

securities available-for-sale that were not pledged at December 31, 2022.

Currently, we believe that the Bank has sufficient liquidity to support growth over the next twelve months.

The Bank has a significant concentration of deposits with one customer that accounted for approximately 10% of its deposits as of March 31, 2023.

Currently, we believe the Bank has sufficient liquidity to support growth over the next twelve months and in the longer term.

The Bank has a significant concentration of deposits with one customer that accounted for approximately 9% of its deposits as of June 30, 2023.

The Bank also has a significant

concentration of short-term borrowings from one customer that accounted for 75% of the outstanding balance of securities sold under agreements to repurchase as of March 31, 2023.

The Bank expects to maintain the relationships with these customers

concentration of short-term borrowings from one customer that accounted for 76% of the outstanding balance of securities sold under agreements to repurchase as of June 30, 2023.

The Bank expects to maintain its relationships with these customers

for the foreseeable future.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placement completed in June of 2022 and

previous private placements.

The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placement completed in June of 2022 and previous

private placements.

The Bank is currently under no prohibition to pay dividends to the Company, but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines.

On a consolidated basis, the Company recorded net cash inflows from operating activities of $3.8 million the three months ended March 31, 2023, compared to consolidated net cash

outflows from operating activities of $1.8 million during the three months ended March 31, 2022.

Net cash inflows from operating activities during the three months ended March 31, 2023 were primarily attributable to net income during the quarter.

The Company recorded consolidated net cash outflows from investing activities of $6.3 million during the three months ended March 31, 2023, compared to consolidated net cash

outflows from investing activities of $26.3 million during the three months ended March 31, 2022.

Net cash outflows from investing activities for the three months ended March 31, 2023 were primarily due to the funding of new loans, offset by

repayments of principal on loan balances of $9.7 million and purchases of FHLB stock of $1.8 million, partially offset by proceeds from principal paydowns from available-for-sale securities of $3.4 million.

Net cash outflows from investing

activities during the three months ended March 31, 2022 were primarily due to purchases of investment securities of $26.9 million.

The Company recorded consolidated net cash inflows from financing activities of $16.1 million during the three months ended March 31, 2023, compared to consolidated net cash

inflows of $42.7 million during the three months ended March 31, 2022.

Net cash inflows from financing activities during the three months ended March 31, 2023 were primarily due to proceeds from FHLB advances of $40.5 million along with an

increase in securities sold under agreements to repurchase of $7.5 million cash, partially offset by a decrease in deposits of $29.4 million.

Net cash inflows from financing activities during the three months ended March 31, 2022 were primarily

attributable to a net increase in deposits of $51.7 million and a net increase of $4.0 million in securities sold under agreements to repurchase, net of repayments of FHLB advances of $13.0 million.

The Company recorded consolidated net cash outflows from investing activities of $53.7 million during the six months ended June 30, 2023, compared to consolidated net cash outflows

from investing activities of $91.5 million during the six months ended June 30, 2022.

Net cash outflows from investing activities for the six months ended June 30, 2023 were primarily due to the funding of new loans, net of repayments, of $58.7

million and purchases of FHLB stock of $3.8 million, partially offset by proceeds from principal paydowns on available-for-sale securities of $6.8 million.

Net cash outflows from investing activities during the six months ended June 30, 2022 were

primarily due to purchases of investment securities of $104.7 million, partially offset by $9.2 million in proceeds from principal paydowns on available-for-sale securities and $3.4 million in net payoffs of loans receivable, net of new loans

The Company recorded consolidated net cash inflows from financing activities of $46.2 million during the six months ended June 30, 2023, compared to consolidated net cash inflows of

$140.4 million during the six months ended June 30, 2022.

Net cash inflows from financing activities during the six months ended June 30, 2023 were primarily due to proceeds from FHLB advances of $82.0 million along with a net increase in

securities sold under agreements to repurchase of $7.9 million, partially offset by a decrease in deposits of $40.9 million.

Net cash inflows from financing activities during the six months ended June 30, 2022 were primarily attributable to

proceeds from the private placement of preferred stock of $150.0 million, a net increase in deposits of $28.1 million and a net increase of $15.3 million in securities sold under agreements to repurchase, partially offset by net of repayments of

FHLB advances of $53.0 million.

Capital Resources and Regulatory Capital

6 unchanged sentences

amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

As of March 31, 2023 and December 31, 2022, the Bank exceeded all capital adequacy requirements to which

it is subject and meets the qualifications to be considered “well capitalized.” (See Note 10 – Stockholders’ Equity and Regulatory Matters.)

As of June 30, 2023 and December 31, 2022, the Bank exceeded all capital adequacy requirements to which it

is subject and meets the qualifications to be considered “well capitalized.” (See Note 10 – Stockholders’ Equity and Regulatory Matters.)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis