BROADWAY FINANCIAL CORP DE 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I, Item 1 “Financial Statements,” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. Certain statements herein are forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the U.S. Securities Act of 1933, as amended that reflect our current views with respect to future events and financial performance. Forward-looking statements typically include words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” “poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” and other similar expressions. These forward-looking statements are subject to risks and uncertainties, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. Readers should not place undue reliance on these forward-looking statements, which speak only as of their dates or, if no date is provided, then as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Critical Accounting Policies and Estimates Critical accounting policies are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations under different assumptions and conditions. This discussion highlights those accounting policies that management considers critical. All accounting policies are important; therefore, you are encouraged to review each of the policies included in Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in our 2023 Form 10-K to gain a better understanding of how our financial performance is measured and reported. Management has identified the Company’s critical accounting policies as follows: Allowance for Credit Losses for Loans The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination or acquisition. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated statements of financial condition. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company measures the ACL for each of its loan segments using the weighted-average remaining maturity (“WARM”) method. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions. The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Certain loans, such as those that are nonperforming or are considered to be collateral dependent, are deemed to no longer possess risk characteristics similar to other loans in the loan portfolio, because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent in which case the ACL is determined using estimates of the fair value of the underlying collateral, less estimated selling costs. 24 Table of Contents Overview Total assets decreased by $2.3 million at September 30, 2024 compared to December 31, 2023, primarily due to decreases in securities available-for-sale of $78.5 million, due to maturities and paydowns, cash and cash equivalents of $8.1 million, other assets of $1.3 million, and deferred tax assets of $1.1 million, partially offset by growth in net loans of $86.3 million. Loans held for investment, net of the ACL, increased by $86.3 million to $966.8 million at September 30, 2024, compared to $880.5 million at December 31, 2023. The increase was primarily due to loan originations of $136.2 million during the first nine months of 2024, which consisted of $65.7 million in multi-family loans, $46.6 million in commercial real estate loans, $17.6 million in other commercial loans, $5.5 million in construction loans, and $800 thousand in SBA loans, partially offset by loan payoffs and repayments of $49.9 million. Deposits decreased by $10.4 million to $672.2 million at September 30, 2024, from $682.6 million at December 31, 2023. The decrease in deposits was attributable to a decrease of $33.1 million in liquid deposits (demand, interest checking, and money market accounts), a decrease of $7.4 million in savings deposits, and a decrease of $2.2 million in Certificate of Deposit Registry Service (“CDARS”) deposits, partially offset by an increase of $32.2 million in Insured Cash Sweep (“ICS”) deposits and $148 thousand in other certificates of deposit accounts. As of September 30, 2024, our uninsured deposits, including deposits from affiliates, represented 34% of our total deposits, as compared to 37% as of December 31, 2023. Total borrowings increased by $1.6 million to $398.4 million at September 30, 2024, from $396.8 million at December 31, 2023, primarily due to an increase of $16.3 million in securities sold under agreements to repurchase, partially offset by the payoff of two notes payable totaling $14.0 million during January 2024. For the three months ended September 30, 2024, the Company reported net income attributable to Broadway Financial Corporation ("Broadway") of $522 thousand compared to net income attributable to Broadway of $91 thousand for the three months ended September 30, 2023, an increase of $431 thousand. Net loss attributable to common stockholders was $228 thousand during the third quarter of 2024 after deducting preferred dividends of $750 thousand, compared to net income attributable to common stockholders of $91 thousand for the third quarter of 2023. For the nine months ended September 30, 2024, the Company reported net income attributable to Broadway of $627 thousand compared to net income attributable to Broadway of $1.9 million for the nine months ended September 30, 2023. Net loss attributable to common stockholders was $190 thousand during the first nine months of 2024 after deducting preferred dividends of $817 thousand, compared to net income attributable to common stockholders of $1.9 million for the first nine months of 2023. The decrease in net income attributable to the Company primarily resulted from an increase in non-interest expense of $3.0 million during the first nine months of 2024, compared to the first nine months of 2023, primarily due to increases in compensation and benefits expense of $1.4 million and professional services expense of $1.2 million. The increase in non-interest expense was partially offset by an increase of $1.5 million in net interest income and a decrease in income tax expense of $508 thousand during the first nine months of 2024, compared to the first nine months of 2023. 25 Table of Contents Results of Operations Net Interest Income Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 Net interest income before provision for credit losses for the third quarter of 2024 totaled $8.3 million, representing an increase of $1.5 million, or 23.0%, from net interest income before provision for credit losses of $6.8 million for the third quarter of 2023. The increase resulted from higher interest income of $4.2 million, partially offset by an increase in interest expense of $2.7 million. The increase in interest income was primarily due to growth of $141.8 million in average loans receivable and $95.9 million in average interest-earning deposits, which were partially offset by a decline of $71.0 million in average securities during the third quarter of 2024, compared to the third quarter of 2023. In addition, the overall rate earned on interest-earning assets increased by 73 basis points as the Bank earned higher rates on the loan portfolio, as well as on interest-earning deposits. The increase in interest income was partially offset by an increase in the average cost of funds, which increased to 3.23% for the third quarter of 2024 from 2.47% for the third quarter of 2023, due to higher average balances of borrowings and higher rates paid on deposits. Net interest margin increased to 2.49% for the third quarter of 2024 from 2.33% for the third quarter of 2023. Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 Net interest income before provision for credit losses for the nine months ended September 30, 2024 totaled $23.8 million, representing an increase of $1.5 million, or 6.5%, from net interest income before provision for credit losses of $22.3 million for the nine months ended September 30, 2023. The increase resulted from higher interest income of $11.8 million, partially offset by an increase in interest expense of $10.4 million. The increase in interest income was primarily due to an increase of $144.1 million in the average balance of loans receivable and an increase of $88.2 million in average interest-bearing deposits, which were partially offset by a decrease of $47.8 million in average securities. In addition, interest income increased due to an increase of 63 basis points, or 15.6%, in the overall rate earned on interest-earning assets during the nine months ended September 30, 2024, as the Bank earned higher rates on the loan portfolio, interest-bearing deposits and stock investments with the Federal Reserve and Federal Home Loan Bank. The increase in interest income was partially offset by an increase in the average cost of funds, which increased to 3.14% for the nine months ended September 30, 2024 from 2.00% for the nine months ended September 30, 2023, due to higher average balances of borrowings and higher rates paid on borrowings and deposits. Net interest margin decreased to 2.38% for the nine months ended September 30, 2024, compared to 2.60% for the nine months ended September 30, 2023. The following tables set forth the average balances, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans on non-accrual status, but the balance of these loans is included in the total average balance of loans receivable, which has the effect of reducing average loan yields. For the Three Months Ended September 30, 2024 September 30, 2023 (Dollars in thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Assets Interest-earning assets: Interest-bearing deposits $ 106,569 $ 1,491 5.57 % $ 10,629 $ 139 5.23 % Securities 248,833 1,635 2.61 % 319,866 2,180 2.73 % Loans receivable (1) 963,849 12,796 5.28 % 822,031 9,406 4.58 % FRB and FHLB stock 13,835 244 7.02 % 12,538 202 6.44 % Total interest-earning assets 1,333,086 $ 16,166 4.82 % 1,165,064 $ 11,927 4.09 % Non-interest-earning assets 48,980 67,047 Total assets $ 1,382,066 $ 1,232,111 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Money market deposits $ 282,808 $ 1,740 2.45 % $ 259,184 $ 1,256 1.94 % Savings deposits 55,198 90 0.65 % 58,686 42 0.29 % Interest checking and other demand deposits 67,023 107 0.64 % 101,657 93 0.37 % Certificate accounts 165,483 1,272 3.06 % 152,577 735 1.93 % Total deposits 570,512 3,209 2.24 % 572,104 2,126 1.49 % FHLB advances 209,064 2,588 4.92 % 196,184 2,571 5.24 % Bank Term Funding Program borrowing 100,000 1,220 4.85 % – – – % Other borrowings 86,397 819 3.77 % 67,533 457 2.71 % Total borrowings 395,461 4,627 4.65 % 263,717 3,028 4.59 % Total interest-bearing liabilities 965,973 $ 7,836 3.23 % 835,821 $ 5,154 2.47 % Non-interest-bearing liabilities 131,750 120,162 Stockholders’ equity 284,343 276,128 Total liabilities and stockholders’ equity $ 1,382,066 $ 1,232,111 Net interest rate spread (2) $ 8,330 1.60 % $ 6,773 1.63 % Net interest rate margin (3) 2.49 % 2.33 % Ratio of interest-earning assets to interest-bearing liabilities 138.00 % 139.39 % (1) Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest rate margin represents net interest income as a percentage of average interest-earning assets. 26 Table of Contents For the Nine Months Ended September 30, 2024 September 30, 2023 (Dollars in thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Assets Interest-earning assets: Interest-bearing deposits $ 102,082 $ 4,024 5.27 % $ 13,889 $ 425 4.08 % Securities 276,892 5,586 2.69 % 324,719 6,543 2.69 % Loans receivable (1) 938,666 36,104 5.14 % 794,524 27,039 4.54 % FRB and FHLB stock 13,794 733 7.10 % 11,577 603 6.94 % Total interest-earning assets 1,331,434 $ 46,447 4.66 % 1,144,709 $ 34,610 4.03 % Non-interest-earning assets 50,591 67,712 Total assets $ 1,382,025 $ 1,212,421 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Money market deposits $ 276,802 $ 4,805 2.32 % $ 263,102 $ 2,959 1.50 % Savings deposits 57,272 294 0.69 % 60,275 71 0.16 % Interest checking and other demand deposits 75,636 418 0.74 % 100,921 257 0.34 % Certificate accounts 164,718 3,577 2.90 % 150,651 1,691 1.50 % Total deposits 574,428 9,094 2.11 % 574,949 4,978 1.15 % FHLB advances 209,198 7,779 4.97 % 173,312 6,035 4.64 % Bank Term Funding Program borrowing 100,000 3,633 4.85 % – – – % Other borrowings 80,974 2,169 3.58 % 70,957 1,282 2.41 % Total borrowings 390,172 13,581 4.65 % 244,269 7,317 3.99 % Total interest-bearing liabilities 964,600 $ 22,675 3.14 % 819,218 $ 12,295 2.00 % Non-interest-bearing liabilities 134,455 115,362 Stockholders’ equity 282,970 277,841 Total liabilities and stockholders’ equity $ 1,382,025 $ 1,212,421 Net interest rate spread (2) $ 23,772 1.52 % $ 22,315 2.03 % Net interest rate margin (3) 2.38 % 2.60 % Ratio of interest-earning assets to interest-bearing liabilities 138.03 % 139.73 % (1) Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest rate margin represents net interest income as a percentage of average interest-earning assets. 27 Table of Contents Provision for Credit Losses For the three months ended September 30, 2024, the Company recorded a provision for credit losses of $399 thousand , compared to a recovery of provision for credit losses of $2 thousand for the three months ended September 30, 2023. For the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $1.2 million, compared to $808 thousand for the nine months ended September 30, 2023. The provisions for credit losses during the third quarter and nine months ended September 30, 2024 include recoveries of provisions for credit losses for off-balance sheet loan commitments of $24 thousand and $26 thousand, respectively. The increases in the provisions for credit losses during the third quarter and nine months ended September 30, 2024 were primarily due to growth in the loan portfolio. The allowance for credit losses (“ACL ”) increased to $8.5 million as of September 30, 2024, compared to $7.3 million as of December 31, 2023 due to growth in the loan portfolio. The Bank had one non-accrual loan at September 30, 2024 with an unpaid principal balance of $291 thousand. No loan charge-offs were recorded during the quarters or nine months ended September 30, 2024 or 2023. Non-interest Income Non-interest income for the third quarter of 2024 totaled $416 thousand, compared to $331 thousand for the third quarter of 2023. For the first nine months of 2024, non-interest income totaled $995 thousand, compared to $880 thousand for the same period in the prior year. Non-interest Expense Total non-interest expense was $7.6 million for the third quarter of 2024, compared to $7.0 million for the third quarter of 2023, representing an increase of $613 thousand, or 8.8%. The increase was primarily due to an increase in professional and accounting fees in connection with the Company’s remediation efforts of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023. For the first nine months of 2024, non-interest expense totaled $22.7 million, representing an increase of $3.0 million, or 15.4%, from $19.7 million for the same period in the prior year. The increase primarily resulted from increases in compensation and benefits expense of $1.4 million and professional services expense of $1.2 million. The increase in compensation and benefits expense reflects the investment in additional executives and staff to support growth and strengthen overall controls and management depth. As previously reported, the Company hired a new Chief Financial Officer. The Company also hired a General Counsel and Chief Risk Officer, Chief Accounting Officer, and Treasurer during the first six months of 2024. The increase in professional services expense was primarily due to the costs associated with third-party professionals that were retained in connection with the Company’s investigation of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023. Income Taxes The Company recorded an income tax expense of $209 thousand for the third quarter of 2024, compared to $39 thousand for the third quarter of 2023. The increase in income tax expense reflected an increase of $628 thousand in pre-tax income between the two periods. The effective tax rate was 27.76% for the third quarter of 2024, compared to 31.20% for the third quarter of 2023. For the nine months ended September 30, 2024, income tax expense was $298 thousand, compared to $806 thousand for the nine months ended September 30, 2023. The decrease in income tax expense reflected a decrease in pretax earnings of $1.8 million between the two periods. The effective tax rate was 32.04% for the nine months ended September 30, 2024 , compared to 29.49% for the nine months ended September 30, 2023 . Financial Condition Total Assets Total assets decreased by $2.3 million at September 30, 2024, compared to December 31, 2023, reflecting decreases in securities available-for-sale of $78.5 million, cash and cash equivalents of $8.1 million, other assets of $1.3 million, and deferred tax assets of $1.1 million, partially offset by growth in net loans of $86.3 million. 28 Table of Contents Securities Available-For-Sale Securities available-for-sale totaled $238.5 million at September 30, 2024, compared with $317.0 million at December 31, 2023. The $78.5 million decrease in securities available-for-sale during the nine months ended September 30, 2024 was primarily due to maturities and principal paydowns. The table below presents the carrying amount, weighted average yields and contractual maturities of our securities as of September 30, 2024. The table reflects stated final maturities and does not reflect scheduled principal payments or expected payoffs. September 30, 2024 One Year or Less More Than One Year to Five Years More Than Five Years to Ten Years More Than Ten Years Total Carrying Amount Weighted Average Yield Carrying Amount Weighted Average Yield Carrying Amount Weighted Average Yield Carrying Amount Weighted Average Yield Carrying Amount Weighted Average Yield (Dollars in thousands) Available‑for‑sale: Federal agency mortgage‑backed securities $ – – $ 1,061 1.39 % $ 8,582 1.54 % $ 47,565 2.50 % $ 57,208 2.33 % Federal agency CMO – – 411 0.91 % 10,399 4.39 % 10,498 3.26 % 21,308 3.77 % Federal agency debt 8,801 1.50 % 30,604 1.94 % 4,759 4.37 % – – 44,164 2.11 % Municipal bonds – – 2,955 1.55 % – – 1,500 1.73 % 4,455 1.61 % U.S. Treasuries 91,059 2.78 % 10,679 1.71 % – – – – 101,738 2.67 % SBA pools – – 1,542 2.36 % 166 6.70 % 7,908 2.64 % 9,616 2.67 % Total $ 99,860 2.67 % $ 47,252 1.86 % $ 23,906 3.38 % $ 67,471 2.62 % $ 238,489 2.56 % Loans Receivable Loans receivable held for investment, net of the ACL, increased by $86.3 million to $966.8 million at September 30, 2024, compared to $880.5 million at December 31, 2023. The increase was primarily due to loan originations of $136.2 million during the first nine months of 2024, which consisted of $65.7 million in multi-family loans, $46.6 million in commercial real estate loans, $17.6 million in other commercial loans, $5.5 million in construction loans, and $800 thousand in SBA loans, partially offset by loan payoffs and repayments of $49.9 million. The following table presents loan categories by maturity for the period indicated. Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. September 30, 2024 One Year or Less More Than One Year to Five Years More Than Five Years to 15 Years More Than 15 Years Total (Dollars in thousands) Loans receivable held for investment: Single-family $ 2,354 $ 8,507 $ 5,058 $ 7,926 $ 23,845 Multi-family 13,927 16,932 12,026 582,777 625,662 Commercial real estate 16,708 85,983 40,349 20,218 163,258 Church 1,583 2,955 5,005 – 9,543 Construction 36,732 35,300 7,364 – 79,396 Commercial - other 7,963 23,814 37,357 2,102 71,236 SBA loans 3 442 450 – 895 Consumer 20 – – – 20 $ 79,290 $ 173,933 $ 107,609 $ 613,023 $ 973,855 Loans maturities after one year with: Fixed rates Single-family $ 8,166 $ 2,346 $ 5,106 $ 15,618 Multi-family 12,858 7,880 – 20,738 Commercial real estate 81,537 28,854 – 110,391 Church 2,389 1 – 2,390 Construction 6,479 1,564 – 8,043 Commercial - other 8,814 36,319 – 45,133 SBA loans – – – – Consumer – – – – $ 120,243 $ 76,964 $ 5,106 $ 202,313 Variable rates Single-family $ 341 $ 2,712 $ 2,820 $ 5,873 Multi-family 4,074 4,146 582,777 590,997 Commercial real estate 4,446 11,495 20,218 36,159 Church 566 5,004 – 5,570 Construction 28,821 5,800 – 34,621 Commercial - other 15,000 1,038 2,102 18,140 SBA loans 442 450 – 892 Consumer – – – – $ 53,690 $ 30,645 $ 607,917 $ 692,252 Total $ 173,933 $ 107,609 $ 613,023 $ 894,565 29 Table of Contents Certain multi-family loans have adjustable-rate features based on the Secured Overnight Financing Rate but are fixed for the first five years. Our experience has shown that these loans typically payoff during the first five years and do not reach the adjustable-rate phase. However, in the current high interest rate environment, we have seen more borrowers maintain their loans instead of paying them off due to interest rate caps which make the adjusted interest rate on their existing loan more desirable than getting a new loan at current interest rates. Multi-family loans in their initial fixed period totaled $592.4 million or 60.8% of our loan portfolio as of September 30, 2024. Allowance for Credit Losses The Company accounts for credit losses on loans in accordance with ASC 326 – Financial Instruments-Credit Losses . ASC 326 requires the Company to recognize estimates for lifetime losses on loans and off-balance sheet loan commitments at the time of origination or acquisition. The recognition of losses at origination or acquisition represents the Company’s best estimate of the lifetime expected credit loss associated with a loan given the facts and circumstances associated with the particular loan and involves the use of significant management judgment and estimates, which are subject to change based on management’s on-going assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. The Company uses the WARM method when determining estimates for the ACL for each of its portfolio segments. The weighted average remaining life, including the effect of estimated prepayments, is calculated for each loan pool on a quarterly basis. The Company then estimates a loss rate for each pool using both its own historical loss experience and the historical losses of a group of peer institutions during the period from 2004 through the most recent quarter. Since historical information (such as historical net losses) may not always, by itself, provide a sufficient basis for determining future expected credit losses, the Company periodically considers the need for qualitative adjustments to the ACL. The Company has a credit portfolio review process designed to detect problem loans. Problem loans are typically those of a substandard or worse internal risk grade, and may consist of loans on nonaccrual status, loans that have recently been modified in response to a borrower’s deteriorating financial condition, loans where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans, and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. Such loans may, in the opinion of management, be deemed to no longer possess risk characteristics similar to other loans in the loan portfolio because the specific attributes and risks associated with the loan have likely become unique as the credit quality of the loan deteriorates. As such, these loans may require individual evaluation to determine an appropriate ACL for the loan. When a loan is individually evaluated, the Company typically measures the expected credit loss for the loan based on a discounted cash flow approach, unless the loan has been deemed collateral dependent. The ACL for collateral dependent loans is determined using estimates of the fair value of the underlying collateral, less estimated selling costs. The estimation of the appropriate level of the ACL requires significant judgment by management. Although management uses the best information available to make these estimates, future adjustments to the ACL may be necessary due to economic, operating, regulatory, and other conditions that may extend beyond the Company’s control. Changes in management’s estimates of forecasted net losses could materially change the level of the ACL. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL and credit review process. Such agencies may require the Company to recognize additions to the ACL based on judgments different from those of management. 30 Table of Contents The ACL was $8.5 million, or 0.87% of gross loans held for investment at September 30, 2024, compared to an ACL of $7.3 million, or 0.83% of gross loans held for investment, at December 31, 2023. There were no recoveries or charge-offs recorded during the three or nine month periods ending September 30, 2024 or 2023. Collateral dependent loans at September 30, 2024 and December 31, 2023 totaled $36 thousand and $6.4 million, respectively. These loans had an ACL of $0 and $112 thousand as of September 30, 2024 and December 31, 2023, respectively. The Bank had non-accrual loans of $291 thousand at September 30, 2024. Loan delinquencies for 30 days or more, but less than 90 days, increased to $1.7 million at September 30, 2024, compared to $780 thousand at December 31, 2023. There were no loans past due by greater than 90 days at September 30, 2024 or December 31, 2023. We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of September 30, 2024, but there can be no assurance that actual losses will not exceed the estimated amounts. The OCC and the Federal Deposit Insurance Corporation (“FDIC”) periodically review the ACL as an integral part of their examination process. These agencies may require an increase in the ACL based on their judgments of the information available to them at the time of their examinations. The following table details our allocation of the ACL to the various categories of loans held for investment and the percentage of loans in each category to total loans at the dates indicated: September 30, 2024 December 31, 2023 September 30, 2023 Amount Percent of Loans in Each Category to Total Loans Amount Percent of Loans in Each Category to Total Loans Amount Percent of Loans in Each Category to Total Loans (Dollars in thousands) Single-family $ 214 2.45 % $ 260 2.79 % $ 241 3.03 % Multi‑family 4,736 64.25 % 4,413 63.33 % 4,247 63.29 % Commercial real estate 1,293 16.54 % 1,094 13.47 % 1,021 13.79 % Church 60 1.20 % 72 1.43 % 79 1.53 % Construction 1,381 8.15 % 932 10.14 % 847 9.72 % Commercial and SBA 843 7.41 % 577 8.84 % 464 8.64 % Consumer – – – – – – Total allowance for loan losses $ 8,527 100.00 % $ 7,348 100.00 % $ 6,899 100.00 % Total Liabilities Total liabilities decreased by $6.8 million to $1.1 billion at September 30, 2024 from December 31, 2023, largely due to decreases of $14.0 million in notes payable and $10.4 million in deposits, partially offset by an increase of $16.3 million in securities sold under agreements to repurchase. Deposits Deposits decreased by $10.4 million to $672.2 million at September 30, 2024, from $682.6 million at December 31, 2023. The decrease in deposits was attributable to a decrease of $33.1 million in liquid deposits (demand, interest checking, and money market accounts), a decrease of $7.4 million in savings deposits, and a decrease of $2.2 million in Certificate of Deposit Registry Service (“CDARS”) deposits, partially offset by an increase of $32.2 million in Insured Cash Sweep (“ICS”) deposits and $148 thousand in other certificates of deposit accounts. As of September 30, 2024, our uninsured deposits, including deposits from Broadway and other affiliates, represented 34% of our total deposits, as compared to 37% as of December 31, 2023. 31 Table of Contents The following table presents the maturity of time deposits as of the dates indicated: Three Months or Less Three to Six Months Six Months to One Year Over One Year Total (In thousands) September 30, 2024 Time deposits of $250,000 or less $ 46,630 $ 33,994 $ 52,295 $ 7,285 $ 140,204 Time deposits of more than $250,000 6,166 2,626 10,395 6,597 25,784 Total $ 52,796 $ 36,620 $ 62,690 $ 13,882 $ 165,988 Not covered by deposit insurance $ 4,166 $ 1,376 $ 6,395 $ 5,847 $ 17,784 December 31, 2023 Time deposits of $250,000 or less $ 36,931 $ 26,248 $ 63,118 $ 18,202 $ 144,499 Time deposits of more than $250,000 4,609 3,904 6,895 8,128 23,536 Total $ 41,540 $ 30,152 $ 70,013 $ 26,330 $ 168,035 Not covered by deposit insurance $ 3,109 $ 2,154 $ 4,395 $ 6,628 $ 16,286 Borrowings At September 30, 2024 and December 31, 2023, the Company had outstanding advances from the FHLB totaling $208.6 million and $209.3 million, respectively. The weighted interest rate was 4.35% and 4.91% as of September 30, 2024 and December 31, 2023, respectively. The weighted average contractual maturity was two months as of both September 30, 2024 and December 31, 2023. The advances were collateralized by loans with an unpaid balance of $484.4 million at September 30, 2024 and $435.4 million at December 31, 2023. The Company is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Company provides qualifying collateral and holds sufficient FHLB stock. Based on collateral pledged and FHLB stock as of September 30, 2024, the Company was eligible to borrow an additional $133.9 million as of September 30, 2024. The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obliges the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of September 30, 2024 securities sold under agreements to repurchase totaled $89.8 million at an average rate of 3.68%. The fair value of securities pledged totaled $97.6 million as of September 30, 2024. As of December 31, 2023, securities sold under agreements to repurchase totaled $73.5 million at an average rate of 2.60%. The fair value of securities pledged totaled $89.0 million as of December 31, 2023. One relationship accounted for 92% of our balance of securities sold under agreements to repurchase as of September 30, 2024. We expect to maintain this relationship for the foreseeable future. On December 27, 2023, the Company borrowed $100.0 million from the Federal Reserve under the BTFP. As of both September 30, 2024 and December 31, 2023, $100.0 million was outstanding. The interest rate on this borrowing is fixed at 4.84% and the borrowing matures on December 29, 2024. Investment securities with a fair value of $94.3 million and $98.3 million were pledged as collateral for this borrowing as of September 30, 2024 and December 31, 2023, respectively. There are no prepayment penalties for early payoff. As the BTFP ended on March 11, 2024, no additional borrowings can be made under the program. In connection with the New Market Tax Credit activities of the Company, CFC 45 is a partnership whose members include CFNMA and City First New Markets Fund II, LLC. This CDE acts in effect as a pass-through for a Merrill Lynch allocation totaling $14.0 million that needed to be deployed. In December 2015, Merrill Lynch made a $14.0 million non-recourse loan to CFC 45, whereby CFC 45 passed that loan through to a QALICB. The loan to the QALICB was secured by a Leasehold Deed of Trust that, due to the pass-through, non-recourse structure, is operationally and ultimately for the benefit of Merrill Lynch rather than CFC 45. Debt service payments received by CFC 45 from the QALICB are passed through to Merrill Lynch in return for which CFC 45 receives a servicing fee. This loan was paid off on January 18, 2024. The financial statements of CFC 45 are consolidated with those of the Company. Stockholders’ Equity Stockholders’ equity was $286.4 million, or 20.9%, of the Company’s total assets, at September 30, 2024, compared to $281.9 million, or 20.5% of the Company’s total assets at December 31, 2023. Book value per share was $14.97 at September 30, 2024 and $14.65 at December 31, 2023. 32 Table of Contents During the second quarter of 2023, the Company issued 92,720 shares of restricted stock to its officers and employees based on performance during 2022 under the Amended LTIP. All the shares issued to officers and employees vest over periods ranging from 36 months to 60 months. On March 26, 2024, the Company issued 94,413 shares of restricted stock to its officers and employees under the Amended and Restated LTIP. Each restricted stock award was valued based on the fair value of the stock on the date of the award. During February of 2023 and May of 2024, the Company issued 9,230 and 19,832 shares of stock, respectively, to its directors under the LTIP and Amended LIP, which were fully vested. On April 5, 2024, the Company issued 31,645 shares of restricted stock to an officer under the Amended LTIP. All common stock share amounts and per share amounts above have been retroactively adjusted, as applicable, for the 1-for-8 reverse stock split effective November 1, 2023. See Note 1. Tangible book value per common share is a non-GAAP measurement that excludes goodwill and the net unamortized core deposit intangible asset, which were both originally recorded in connection with the CFBanc merger. The Company uses this non-GAAP financial measure to provide supplemental information regarding the Company’s financial condition and operational performance. A reconciliation between common book value and tangible book value per common share is shown as follows: Common Equity Capital Shares Outstanding Per Share Amount (Dollars in thousands) September 30, 2024: Common book value $ 136,392 9,112,777 $ 14.97 Less: Goodwill 25,858 Net unamortized core deposit intangible 1,859 Tangible book value $ 108,675 9,112,777 $ 11.93 December 31, 2023: Common book value $ 131,903 9,001,613 $ 14.65 Less: Goodwill 25,858 Net unamortized core deposit intangible 2,111 Tangible book value $ 103,934 9,001,613 $ 11.55 Liquidity The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis. The Bank’s sources of funds include deposits, advances from the FHLB and other borrowings, proceeds from the sale of loans and investment securities, and payments of principal and interest on loans and investment securities. The Bank is currently approved by the FHLB of Atlanta to borrow up to 25% of total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. Based on FHLB stock held and collateral pledged as of September 30, 2024, the Bank had the ability to borrow an additional $133.9 million from the FHLB of Atlanta. In addition, the Bank had additional lines of credit of $10.0 million with other financial institutions as of September 30, 2024. The Bank’s primary uses of funds include originations of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and the payment of operating expenses. Also, when the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank invests in federal funds with the Federal Reserve Bank or in money market accounts with other financial institutions. The Bank’s liquid assets at September 30, 2024 consisted of $97.1 million in cash and cash equivalents and $35.0 million in securities available-for-sale that were not pledged, compared to $105.2 million in cash and cash equivalents and $186.0 million in securities available-for-sale that were not pledged at December 31, 2023. Currently, we believe the Bank has sufficient liquidity to support growth over the next twelve months and in the longer term. The Bank had commitments to fund $923 thousand in loans that were approved but unfunded as of September 30, 2024. In addition, the bank had $3.7 million in unfunded line of credit loans and $47.5 million in unfunded construction loans as of September 30, 2024. 33 Table of Contents The Bank has a significant concentration of deposits with two customers that accounted for approximately 12% of its deposits as of September 30, 2024. The Bank also has a significant concentration of short-term borrowings with one customer that accounted for 92% of the outstanding balance of securities sold under agreements to repurchase as of September 30, 2024. The Bank has long-term relationships with these customers and expects to maintain its relationships with them for the foreseeable future. The Company’s liquidity, separate from the Bank, is based primarily on the proceeds from financing transactions, such as the private placement completed in June of 2022 and previous private placements. The Bank is currently under no prohibition from paying dividends to the Company but is subject to restrictions as to the amount of the dividends based on normal regulatory guidelines. The Company recorded consolidated net cash outflows from investing activities of $2.7 million during the nine months ended September 30, 2024, compared to $61.5 million during the nine months ended September 30, 2023. Net cash outflows from investing activities for the nine months ended September 30, 2024 were primarily due to the funding of new loans, net of repayments, of $87.6 million, partially offset by proceeds from principal paydowns on available-for-sale securities of $85.1 million. Net cash outflows from investing activities during the nine months ended September 30, 2023 were primarily due to funding of new loans, net of repayments, of $70.0 million, partially offset by $10.5 million in proceeds from principal paydowns on available-for-sale securities. The Company recorded consolidated net cash outflows from financing activities of $9.6 million during the nine months ended September 30, 2024, compared to consolidated net cash inflows of $52.9 million during the nine months ended September 30, 2023. Net cash outflows from financing activities during the nine months ended September 30, 2024 were primarily due to repayments of FHLB advances of $176.7 million and the $14.0 million repayment of notes payable, partially offset by proceeds from FHLB advances of $176.0 million. Net cash inflows from financing activities during the nine months ended September 30, 2023 were primarily attributable to proceeds from FHLB advances of $329.0 million, partially offset by repayments of FHLB advances of $269.6 million. Capital Resources and Regulatory Capital The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of September 30, 2024 and December 31, 2023, the Bank exceeded all capital adequacy requirements to which it is subject and meets the qualifications to be considered “well capitalized.” (See Note 10 – Regulatory Matters.) 34 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable