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Item 2. Management’s Discussion and Analysis

2025-07-24 compared with 2024-11-13 · 251 added, 296 removed, 170 unchanged (76% 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, 2023.

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, 2024.

Certain statements herein are forward-looking statements within the

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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.

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.

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 2024 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 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 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.

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.

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

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

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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

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.

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.

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.

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

The excess of consideration paid over fair value of net assets acquired for acquisitions is recorded as goodwill.

Goodwill is not amortized but is tested at least annually for impairment or more

frequently if events occur or circumstances change that indicate impairment may exist.

A goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying value.

An impairment charge is recorded for the

amount by which the carrying amount exceeds the reporting unit’s fair value.

A weighted average of both the market and income approaches is used in valuing the reporting unit’s fair value.

Weightings are assigned to the approaches regarding fair

value and the sensitivity of other weighting scenarios is considered.

The market approach incorporates comparable public company information, valuation multiples and consideration of a market control premium along with data related to comparable

observed purchase transactions in the financial services industry.

The income approach consists of discounting projected future cash flows, which are derived from internal forecasts and economic expectations for the reporting unit.

The significant

inputs and assumptions for the income approach include a discount rate and projected earnings of the Company in future years for which there is inherent uncertainty.

The sensitivity of a range of reasonable discount rates based on the current

economic environment is considered.

Total assets decreased by $65.7 million at March 31, 2025, compared to December 31, 2024, reflecting decreases in cash and cash equivalents of $45.6

million, securities available-for-sale of $17.9 million and FHLB stock of $5.0 million, partially offset by an increase in net loans of $2.4 million.

Loans receivable held for investment, net of the ACL, increased by $2.4 million to $971.2 million at March 31, 2025, compared to $968.9 million at

December 31, 2024.

Deposits increased by $31.1 million, or 4.2%, to $776.5 million at March 31, 2025, from $745.4 million at December 31, 2024.

The increase in

deposits was attributable to an increase of $53.4 million in certificates of deposit accounts, partially offset of decreases of $9.6 million in Insured Cash Sweep (“ICS”) deposits, $6.5 million in liquid deposits (demand, interest checking, and

money market accounts), $3.8 million in Certificate of Deposit Registry Service (“CDARS”) deposits, and $2.4 million in savings deposits.

Total borrowings decreased by $93.9 million to $168.2 million at March

31, 2025 , from $262.1 million at December 31, 2024, primarily due to a $117.5 million decrease in FHLB advances, partially offset by a $14.1 million increase in

securities sold under agreements to repurchase and a $9.4 million increase in secured borrowings associated with participation loan transactions.

For the three months ended March 31, 2025, the Company reported net loss before preferred dividends of $1.9 million compared to net loss of $164 thousand for the

three months ended March 31, 2024.

Net loss attributable to common stockholders was $2.6 million during the first quarter of 2025 after deducting preferred dividends of $750 thousand, compared to net loss attributable to common

stockholders of $164 thousand for the first quarter of 2024.

During the first quarter of 2025, net interest income increased by $521 thousand, or 6.9%, to $8.0 million, compared to the first quarter of 2024 .

increase resulted from lower interest expense on borrowings, due to decreases in the average balance and average cost of borrowings, and an increase in interest and fees on loans receivable, primarily due to an

increase in rates.

These increases were partially offset by an increase in interest expense on deposits and decreases in interest income on interest-earning deposits and available-for-sale securities.

During the first quarter of 2025,

non-interest expense increased $2.4 million, or 30.6%, compared to the first quarter of 2024, primarily due to a $1.9 million loss incurred from wire fraud, which will result in a gain if recovered.

In addition, compensation and benefits expense

increased $1.0 million, which included $122 thousand of severance expense which negatively impacted diluted loss per share by $0.01, partially offset by a $710 thousand decrease in professional services expense.

During the first quarter of 2025,

the provision for credit losses increased $429 thousand, from $260 thousand for the first quarter of 2024 to $689 thousand for the first quarter of 2025, primarily due to one new non-accrual loan.

The Company recorded an income tax

benefit of $692 thousand for the first quarter of 2025 and an income tax benefit of $57 thousand for the first quarter of 2024.

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

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

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.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Net interest income before provision for credit losses for the first quarter of 2025 totaled $8.0 million, representing an increase of $521 thousand, or 6.9%,

from net interest income before provision for credit losses of $7.5 million for the first quarter of 2024.

The increase resulted from a $2.3 million decrease in interest expense on borrowings, due to

decreases in the average balance and average cost of borrowings.

The Company reduced borrowings to improve the net interest margin and to support capacity for future loan growth.

The decrease in interest expense was complemented by a $1.6

million increase in interest and fees on loans receivable, primarily due to an increase in rates.

These increases were partially offset by a $1.4 million increase in interest expense on deposits, due to increases in rates and the average balance

of deposits, a $1.1 million decrease in interest income on interest-earning deposits due to decreases in rates and the average balance of interest-earning deposits, and an $867 thousand decrease in interest income on available-for-sale securities

due to decreases in rates and the average balance of available-for-sale securities.

The net interest margin increased to 2.70% for the first quarter of 2025 from 2.27% for the first quarter of 2024, due to an

increase in the average rate earned on interest-earnings assets, which increased to 4.82% for the first quarter of 2025 from 4.45% for the first quarter of 2024, and a decrease in the cost of funds, which decreased to 2.

97 % for the first quarter of 2025 from 3.02% for the first quarter of 2024.

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

All average balances are daily average

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For the Three Months Ended

September 30, 2024

September 30, 2023

(Dollars in thousands)

Average Balance

Average Yield/Cost

Average Balance

Average Yield/Cost

Interest-earning assets:

Interest-bearing 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

Bank Term Funding Program borrowing

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

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

For the Nine Months Ended

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

(Dollars in thousands)

Average Balance

Average Yield/Cost

Average Balance

Average Yield/Cost

Interest-earning assets:

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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.

Amount includes non-accrual loans.

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

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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

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.

For the three months ended March 31, 2025, the Company recorded a provision for credit losses of $689 thousand , compared to a provision for credit losses of $260 thousand for the three months ended March 31, 2024, primarily due to one new non-accrual loan.

No loan charge-offs were

recorded during the quarters ended March 31, 2025 or 2024.

The allowance for credit losses (“ACL ”) increased to $8.8 million as of March 31, 2025, compared to $8.1 million as of December 31, 2024.

Bank had three non-accrual loans at March 31, 2025 with an aggregate unpaid principal balance of $860 thousand.

Credit quality remains strong with non-accrual loans as a percentage of total loans at

0.09% and non-performing assets to total assets of 0.07% despite the addition of non-accrual loans.

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%.

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.

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.

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 .

Total non-interest expense was $10.2 million for the first quarter of 2025, compared to $7.8 million for the first quarter of 2024, representing an increase of $2.4 million, or 30.6%.

was primarily due to a $1.9 million loss incurred from wire fraud, which will result in a gain if recovered.

In addition, compensation and benefits expense increased $1.0 million, which included $122 thousand in

severance expense, partially offset by a $710 thousand decrease in professional services expense.

The increase in compensation and benefits expense was primarily attributable to the addition of full-time employees during 2024 in various

production and administrative positions as part of the Bank’s efforts to expand its operational capabilities to grow its balance sheet.

The decrease in professional services expense was primarily due to a

third-party firm reviewing certain general ledger account reconciliations, as well as other professional services, during the first quarter of 2024.

The Company recorded an income tax benefit of $692 thousand for the first quarter of 2025 and income tax benefit of $57 thousand for the first quarter of 2024.

The increase in income tax benefit

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

The effective tax rate was 27.11% for the first quarter of 2025, compared to 23.75% for the first quarter of 2024.

Financial Condition

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.

Total assets decreased by $65.7 million at March 31, 2025, compared to December 31, 2024, reflecting decreases in cash and cash equivalents of

$45.6 million, securities available-for-sale of $17.9 million and FHLB stock of $5.0 million, partially offset by an increase in net loans of $2.4 million.

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.

Securities available-for-sale totaled $185.9 million at March 31, 2025, compared to $203.9 million at December 31, 2024.

The $17.9 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

available-for-sale during the three months ended March 31, 2025 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 March 31, 2025.

The table reflects stated final maturities

and does not reflect scheduled principal payments or expected payoffs.

March 31, 2025

One Year or Less

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More Than Ten Years

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)

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Municipal bonds

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,

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.

Loans Receivable Held for Investment

Loans receivable held for investment, net of the ACL, increased by $2.4 million to $971.2 million at March 31, 2025, compared to $968.9 million at

December 31, 2024.

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

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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

March 31, 2025

Five Years to

(Dollars in thousands)

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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.

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 $593.2 million or 61.2% of our loan portfolio as of

September 30, 2024.

March 31, 2025.

Allowance for Credit Losses

12 unchanged sentences

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

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.

The ACL for collateral dependent

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

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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on judgments different from those of management.

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.

No loan charge-offs were

recorded during the quarters ended March 31, 2025 or 2024.

The ACL increased to $8.8 million as of March 31, 2025, compared to $8.1 million as of December 31, 2024.

The Bank had three non-accrual loans

at March 31, 2025 with an unpaid principal balance of $860 thousand.

At March 31, 2025, $600 thousand of individually evaluated loans were evaluated based on the estimated fair value of the underlying collateral and one $522 thousand loan was individually evaluated

using the remaining life approach.

These loans had an associated ACL of $720 thousand as of March 31, 2025.

The Company had three individually evaluated loans totaling $860 thousand on nonaccrual status at March 31, 2025.

At December 31, 2024, one

$264 thousand individually evaluated loan was evaluated based on the estimated fair value of the underlying collateral.

This loan had no associated ACL as of December 31, 2024 and was on nonaccrual status.

The Bank had non-accrual loans of $860 thousand at March 31, 2025.

Loan delinquencies for 30 days or more, but less than 59 days, increased to $4.0

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

million at March 31, 2025, from $0 at December 31, 2024 and loan delinquencies for 60 days or more, but less than 90 days, decreased to $74 thousand at March 31, 2025, from $270 thousand at December 31, 2024.

Loans past due greater than 90 days

was $264 thousand at March 31, 2025, compared to $0 at December 31, 2024.

We believe that the ACL is adequate to cover currently expected losses in the loan portfolio as of March 31, 2025, but there can be no assurance that actual losses will not

exceed the estimated amounts.

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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

September 30, 2024

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:

March 31, 2025

December 31, 2024

September 30, 2023

Percent of Loans in

Category to Total

Percent of Loans in

Each Category to

Percent of Loans in

March 31, 2024

(Dollars in thousands)

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Commercial real estate

Commercial and SBA

Total allowance for loan losses

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 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

$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.

Total liabilities decreased by $65.1 million to $953.2 million at March 31, 2025 from December 31, 2024, primarily due to a

decrease of $117.5 million in FHLB advances, partially offset by a $31.1 million increase in deposits, a $14.2 million increase in securities sold under agreements to repurchase and a $9.4 million increase in secured borrowings associated

with participation loan transactions.

Deposits increased by $31.1 million, or 4.2%, to $776.5 million at March 31, 2025, from $745.4 million at December 31, 2024.

The increase in deposits was attributable to an increase of $53.4

million in certificates of deposit accounts, partially offset of decreases of $9.6 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) , $6.5 million in liquid deposits (demand, interest checking, and money market accounts), $3.8 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), and $2.4 million in savings deposits.

As of March 31, 2025, our uninsured deposits, including deposits from City First Bank and other affiliates, represented 34% of our total deposits, compared to 32%

as of December 31, 2024.

We leverage our long-standing partnership with IntraFi Deposit Solutions to offer deposit insurance for accounts exceeding the FDIC deposit insurance limit of $250,000.

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

Three Months or Less

Months or Less

Three to Six Months

Six Months to One Year

Over One Year

(In thousands)

September 30, 2024

March 31, 2025

Time deposits of $250,000 or less

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Not covered by deposit insurance

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

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%.

Under these arrangements, the Company may transfer legal control over the

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

As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured

borrowings) and not as a sale and subsequent repurchase of securities.

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

repurchase agreements remain in the respective investment securities asset accounts.

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

These agreements mature on a

As of March 31, 2025 securities sold under agreements to repurchase totaled $80.8 million at an average rate of 3.63%.

The fair value of securities pledged totaled $78.6 million as of March 31, 2025.

As of December 31, 2024,

securities sold under agreements to repurchase totaled $66.6 million at an average rate of 3.62%.

The fair value of securities pledged totaled $83.3 million as of December 31, 2024.

One relationship accounted for 92% of our balance of securities sold under agreements to repurchase as of September 30, 2024.

At March 31, 2025 and December 31, 2024, the Company had

outstanding advances from the FHLB totaling $78.0 million and $195.5 million, respectively.

The weighted average interest rate was 4.45% and 4.03% as of March 31, 2025 and December 31, 2024, respectively.

The weighted average contractual

maturity was less than one month as of both March 31, 2025 and December 31, 2024.

The advances were collateralized by loans with an unpaid balance of $521.4 million and pledged securities with a balance of $94.5 million at March 31, 2025 and

collateralized by loans with an unpaid balance of $521.7 million at December 31, 2024.

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

holds sufficient FHLB stock.

Based on collateral pledged and FHLB stock held, the Company was eligible to borrow an additional $279.5 million as of March 31, 2025.

The Company has secured borrowings associated with participation loan transactions of $9.4 million as of March 31, 2025.

One relationship accounted for 90% of our balance of securities sold under agreements to repurchase as of March 31, 2025.

We expect to maintain this relationship for the

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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.

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.

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.

This borrowing was paid off in December 2024.

The interest rate on this borrowing was fixed at

4.84% and the borrowing matured on December 29, 2024.

Investment securities with a book value of $107.3 million and a fair value of $98.3 million were pledged as collateral for this borrowing as of December 31, 2023.

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

This community

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

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

through to a Qualified Active Low-Income Business (“QALICB”).

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

rather than CFC 45.

Debt service payments received by CFC 45 from the QALICB were passed through to Merrill Lynch in return for which CFC 45 received a servicing fee.

The financial statements of CFC 45 are consolidated with those of the Bank and

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.

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.

the shares issued to officers and employees vest over periods ranging from 36 months to 60 months.

Stockholders’ equity was $284.6 million, or 23.0%, of the Company’s total assets, at March 31, 2025, compared to $285.2 million, or 21.9% of the Company’s total

assets at December 31, 2024.

Stockholders’ equity decreased primarily due to a $2.6 million decrease in retained earnings, partially offset by a $1.7 million increase in accumulated other comprehensive

loss, net of tax.

Book value per share was $14.58 at March 31, 2025 and $14.82 at December 31, 2024.

Capital ratios remain strong with a Community Bank Leverage Ratio of 15.24% at March 31, 2025 compared to 13.96% at December 31,2024.

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.

Each restricted stock award was

valued based on the fair value of the stock on the date of the award.

All the shares issued to officers and employees vest over periods ranging from 36 months to 60 months.

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.

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.

During May of 2024 and March of 2025, the Company issued 19,832 and 23,232 shares of stock, respectively, to its directors under the LTIP and Amended LIP, which were fully

On March 24, 2025, the Company issued 88,295 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.

All the shares issued to officers and employees vest over periods ranging from 36 months to 60 months.

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:

A reconciliation between

common book value and tangible book value per common share is shown as follows:

Common Equity

Shares Outstanding

(Dollars in thousands)

September 30, 2024:

March 31, 2025:

Common book value

6 unchanged sentences

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.

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

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 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.

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 March 31, 2025, the Bank had the

ability to borrow an additional $279.5 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, 2025.

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.

institutions.

The Bank’s liquid assets at March 31, 2025 consisted of $15.8 million in cash and cash equivalents and $462 thousand in securities available-for-sale that were not pledged, compared to $61.4 million in cash and cash equivalents and

$17.6 million in securities available-for-sale that were not pledged at December 31, 2024.

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.

The Bank had commitments to fund $1.3 million in loans that were approved but unfunded as of March 31, 2025.

In addition, the bank had $3.9 million in unfunded line of credit

loans and $47.5 million in unfunded construction loans as of September 30, 2024.

The Bank has a significant concentration of deposits with two customers that accounted for approximately 12% of its deposits as of September 30, 2024.

loans and $40.0 million in unfunded construction loans as of March 31, 2025.

The Bank has a significant concentration of deposits with five customers that accounted for approximately 21% of its deposits as of March 31, 2025.

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.

significant concentration of short-term borrowings with one customer that accounted for 90% of the outstanding balance of securities sold under agreements to repurchase as of March 31, 2025.

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.

The Company recorded consolidated net cash inflows from investing activities of $22.3 million during the three months ended March

31, 2025, compared to net cash outflows from investing activities of $23.4 million during the three months ended March 31, 2024.

Net cash inflows from investing activities for the three months ended March 31, 2025 were primarily due to principal

paydowns on available-for-sale securities of $20.4 million.

Net cash outflows from investing activities during the three months ended March 31, 2024 were primarily due to funding of new loans, net of repayments, of $46.4 million, partially offset

by $23.2 million in proceeds from principal paydowns on available-for-sale securities.

The Company recorded consolidated net cash outflows from financing activities of $63.5 million during the three months ended March

31, 2025, compared to consolidated net cash outflows of $3.0 during the three months ended March 31, 2024.

Net cash outflows from financing activities during the three months ended March 31, 2025 were primarily due to repayments of FHLB advances

of $294.0 million, partially offset by proceeds from FHLB advances of $176.5 million, a net increase in deposits of $31.1 million and a net increase in securities sold under agreements to repurchase.

Net cash outflows from financing activities

during the three months ended March 31, 2024 were primarily attributable to the repayment of a note of $14.0 million, partially offset by a net increase in deposits of $12.9 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 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.)

As of March 31, 2025 and December 31, 2024, 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.)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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