M&F Bancorp : 2021 Annual Report

ANNUAL REPORT

2021 Annual Report

TABLE OF CONTENTS

This annual report contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company and the Bank. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and the Bank and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like "expect," "anticipate," "estimate" and "believe," variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Effects of COVID-19 may negatively impact significant estimates and exacerbate a vulnerability due of certain concentrations (e.g., business concentration in a market or geographical area severely affected by effects of COVID-19). Neither the Company nor the Bank undertakes an obligation to update any forward-looking statements.

Chairman and President's Letter

To Our Fellow Shareholders:

2021 was the best year in the history of our organization! We really stepped up to meet the challenges of the second year of the pandemic. We are incredibly proud of how M&F Bancorp, Inc., (the "Company") and M&F Bank (the "Bank") responded to serve our customers during a very challenging year. As we close this second year of unprecedented disruption, we believe that the Company is stronger, growing and well-positioned for the future. Our associates continued to operate our branch locations with excellence. Some of our associates worked from home and continued to advance our strategy and support our thousands of customers and businesses, who have placed their trust in us. We are proud to say that our associates did this without missing a beat.

Although we experienced two consecutive years in a global pandemic, we are pleased to report that the Company experienced an 18.12% or $56.0 million increase in total asset growth in 2021 over 2020. This was the second year of consecutive significant increases in asset growth in the history of the Company. During the year, our total deposits increased 12.92% or $36.3 million due to the tremendous support from across the nation and region. This support came from businesses and individuals both large and small seeking to support our mission of providing credit and financial services to low and moderate income areas within our footprint.

We are pleased to report that we delivered net income available to common stockholders of $2.7 million in 2021 versus $1.1 million in 2020. This is the highest earnings total in the history of the Company. We are pleased to note that this is the third consecutive year that we have generated over $1.0 million in earnings. We were successful in executing our strategic plan to provide access to capital to small and medium size businesses in all the markets served in 2021. We are pleased to report that we participated in round two of the Paycheck Protection Program, which generated over $35.0 million in needed loans to 642 businesses and provided funding in 81 different markets in North Carolina. The Company's loan delinquency rate was 0.51% and has been significantly under 1.00% for the past four years.

2021 was the "year of capital" for the Company. The four largest banks in the U.S. (JP Morgan, Bank of America, Wells Fargo and Citi Bank) invested $17.5 million in new capital into the Company. In January of 2022, we received some great news from the U.S. Treasury that we were allocated $76.0 million in new capital through the Emergency Capital Investment Program. These investments reflect support for the Company's mission to provide needed capital and financial services to communities served all across North Carolina.

Some key highlights over the past year:

• Total assets increased 18.12% or $56.0 million in 2021 over 2020
• We resumed payment of quarterly dividends to our shareholders
• Money Service Business non-interest income topped $2.0 million
• JP Morgan Empower Share Class Fund has over $1.0 billion in assets under management, which generated fee income for the Bank
• Our customers have access to over 13 thousand Wells Fargo ATMs free of charge

As noted above, we had a number of major highlights in 2021. Total loans were $231.9 million as of December 31, 2021 versus $187.5 million in 2020. Total deposits were $317.0 million as of December 31, 2021 versus $280.7 million as of December 31, 2020. Total assets as of December 31, 2021 were $365.1 million versus $309.1 million as of December 31, 2020. We finished the year with $42.9 million in capital versus $23.5 million in 2020. The Company's capital ratios are extremely strong going into this transformational year for the Company and we believe that it will allow us to fund loan and deposit growth.

In closing, 2021 was a great year for the Company in terms of earnings performance, increased capital and asset growth, and dividend performance. Finally, we are extremely proud of our Company's associates, management team, and Board of Directors for all their efforts this past year.

Thank you for your continued support.

Sincerely,

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Independent Auditor's Report

To the Board of Directors and Shareholders

M&F Bancorp, Inc. and Subsidiary

Durham, North Carolina

Opinion

We have audited the consolidated financial statements of M&F Bancorp, Inc. and Subsidiary (the "Company"), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable).

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.

elliottdavis.com

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We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Raleigh, North Carolina

March 2, 2022

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