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, 2024. 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 2024 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. 21 Table of Contents Goodwill 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. Overview 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 . The 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. 22 Table of Contents Results of Operations Net Interest Income 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 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 March 31, 2025 March 31, 2024 (Dollars in thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Assets Interest-earning assets: Interest-bearing deposits $ 28,958 $ 312 4.37 % $ 99,103 $ 1,344 5.42 % Securities 196,463 1,208 2.49 % 305,615 2,075 2.72 % Loans receivable (1) 972,479 12,690 5.29 % 909,965 11,129 4.89 % FRB and FHLB stock 11,188 164 5.94 % 13,733 245 7.14 % Total interest-earning assets 1,209,088 $ 14,374 4.82 % 1,328,416 $ 14,793 4.45 % Non-interest-earning assets 50,360 52,561 Total assets $ 1,259,448 $ 1,380,977 Liabilities and Stockholders’ Equity Interest-bearing liabilities: Money market deposits $ 119,101 $ 257 0.88 % $ 125,704 $ 1,444 4.59 % Savings deposits 48,712 68 0.57 % 59,056 102 0.69 % Interest checking and other demand deposits 255,647 1,911 3.03 % 227,504 143 0.25 % Certificate accounts 224,317 1,963 3.55 % 163,116 1,110 2.72 % Total deposits 647,777 4,199 2.63 % 575,380 2,799 1.95 % FHLB advances 149,135 1,529 4.16 % 209,299 2,598 4.97 % Bank Term Funding Program borrowing – – – % 100,000 1,203 4.81 % Other borrowings 67,275 601 3.62 % 77,601 669 3.45 % Total borrowings 216,410 2,130 3.99 % 386,900 4,470 4.62 % Total interest-bearing liabilities 864,187 $ 6,329 2.97 % 962,280 $ 7,269 3.02 % Non-interest-bearing liabilities 108,632 137,035 Stockholders’ equity 286,629 281,662 Total liabilities and stockholders’ equity $ 1,259,448 $ 1,380,977 Net interest rate spread (2) $ 8,045 1.85 % $ 7,524 1.43 % Net interest rate margin (3) 2.70 % 2.27 % Ratio of interest-earning assets to interest-bearing liabilities 139.90 % 138.05 % (1) Amount includes non-accrual loans. (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. 23 Table of Contents Provision for Credit Losses 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. The 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 $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%. The increase 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. Income Taxes 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 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 $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 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 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 $ 27 0.25 % $ 1,404 1.28 % $ 7,732 1.67 % $ 43,168 2.59 % $ 52,331 2.42 % Federal agency CMO – – 311 0.92 % 9,845 4.10 % 9,099 3.29 % 19,255 3.67 % Federal agency debt 17,462 1.47 % 20,048 1.92 % 3,017 4.85 % – – 40,527 1.94 % Municipal bonds – – 2,964 1.54 % – – 1,454 1.76 % 4,418 1.62 % U.S. Treasuries 60,552 2.50 % – – – – – – 60,552 2.50 % SBA pools – – 1,486 2.61 % – – 7,369 2.48 % 8,855 2.50 % Total $ 78,041 2.27 % $ 26,213 1.87 % $ 20,594 3.30 % $ 61,090 2.66 % $ 185,938 2.46 % 24 Table of Contents 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. 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. March 31, 2025 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 $ 2,438 $ 8,394 $ 4,551 $ 7,673 $ 23,056 Multi-family 13,427 17,106 12,436 584,334 627,303 Commercial real estate 21,657 78,465 38,580 22,354 161,056 Church 835 2,694 5,757 – 9,286 Construction 44,925 38,157 994 – 84,076 Commercial - other 11,115 21,561 37,367 2,064 72,107 SBA loans 54 338 735 – 1,127 Consumer 125 – – – 125 $ 94,576 $ 166,715 $ 100,420 $ 616,425 $ 978,136 Loans maturities after one year with: Fixed rates Single-family $ 8,003 $ 1,526 $ – $ 9,529 Multi-family 13,149 8,218 – 21,367 Commercial real estate 70,890 29,057 – 99,947 Church 2,138 – – 2,138 Construction 5,582 994 – 6,576 Commercial - other 6,561 36,356 – 42,917 SBA loans – – – – Consumer – – – – $ 106,323 $ 76,151 $ – $ 182,474 Variable rates Single-family $ 391 $ 3,025 $ 7,673 $ 11,089 Multi-family 3,957 4,218 584,334 592,509 Commercial real estate 7,575 9,523 22,354 39,452 Church 556 5,757 – 6,313 Construction 32,575 – – 32,575 Commercial - other 15,000 1,011 2,064 18,075 SBA loans 338 735 – 1,073 Consumer – – – – $ 60,392 $ 24,269 $ 616,425 $ 701,086 Total $ 166,715 $ 100,420 $ 616,425 $ 883,560 25 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 $593.2 million or 61.2% of our loan portfolio as of March 31, 2025. 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. 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 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 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. 26 Table of Contents 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. 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: March 31, 2025 December 31, 2024 March 31, 2024 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 $ 188 2.38 % $ 196 2.42 % $ 298 3.02 % Multi‑family 4,583 64.56 % 4,568 64.94 % 4,325 64.43 % Commercial real estate 1,184 16.26 % 1,129 16.01 % 1,109 13.37 % Church 51 0.96 % 54 0.97 % 90 1.35 % Construction 1,411 8.45 % 1,475 8.30 % 956 9.68 % Commercial 1,279 7.26 % 670 7.24 % 722 6.81 % SBA loans 78 0.12 % 11 0.12 % 52 1.34 % Consumer – 0.01 % – – – – Total allowance for loan losses $ 8,774 100.00 % $ 8,103 100.00 % $ 7,552 100.00 % Total Liabilities 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 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 Three to Six Months Six Months to One Year Over One Year Total (In thousands) March 31, 2025 Time deposits of $250,000 or less $ 44,262 $ 46,305 $ 91,894 $ 3,948 $ 186,409 Time deposits of more than $250,000 12,359 45,976 10,206 7,474 76,015 Total $ 56,621 $ 92,281 $ 102,100 $ 11,422 $ 262,424 Not covered by deposit insurance $ 9,109 $ 40,726 $ 7,956 $ 6,473 $ 64,264 December 31, 2024 Time deposits of $250,000 or less $ 46,350 $ 37,239 $ 92,028 $ 4,060 $ 179,677 Time deposits of more than $250,000 3,149 5,712 16,864 7,437 33,162 Total $ 49,499 $ 42,951 $ 108,892 $ 11,497 $ 212,839 Not covered by deposit insurance $ 1,399 $ 3,212 $ 12,363 $ 6,437 $ 23,411 27 Table of Contents Borrowings The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated statements of financial condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. These agreements mature on a daily basis. As of 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. 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 foreseeable future. On December 27, 2023, the Company borrowed $100.0 million from the Federal Reserve under the BTFP. 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 the Company. Stockholders’ Equity 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. 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. 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 vested. 28 Table of Contents 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: Common Equity Capital Shares Outstanding Per Share Amount (Dollars in thousands) March 31, 2025: Common book value $ 134,581 9,231,180 $ 14.58 Less: Goodwill 25,858 Net unamortized core deposit intangible 1,696 Tangible book value $ 107,027 9,231,180 $ 11.59 December 31, 2024: Common book value $ 135,157 9,120,363 $ 14.82 Less: Goodwill 25,858 Net unamortized core deposit intangible 1,775 Tangible book value $ 107,524 9,120,363 $ 11.79 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 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. 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 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 $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 $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 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. 29 Table of Contents 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 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 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.) 30 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable