(1)

~~Amounts are included in net gains on sale and call of investments on the Consolidated Statements of Operations in total other income.~~

	~~(2)~~	Amounts are included in interest and dividends on investment securities on the ~~Consolidated Statements~~consolidated Statement of ~~Operations.~~Net Income.
	(2)	See footnote 9 for additional details on amount of gains on derivatives reclassified to interest expense.

See accompanying notes to unaudited consolidated financial statements.

~~-6-~~

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Table of Contents

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN ~~SHAREHOLDERS’~~SHAREHOLDERS’ EQUITY

(Unaudited)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Unearned
ESOP
Shares

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Total
Shareholders'
Equity

(In thousands, except share data)

Balance, January 1, 2021

76

85,195

62,661

(1,010
)

(793
)

(2,863
)

143,266

Net Income

-

-

2,224

-

-

-

2,224

Other comprehensive income

-

-

-

-

249

-

249

Committed to be released ESOP
shares (3,600 shares)

-

26

-

36

`

-

-

62

Stock based compensation

-

50

-

-

-

-

50

Balance, March 31, 2021

76

85,271

64,885

(974
)

(544
)

(2,863
)

145,851

Balance, January 1, 2022

76

85,599

62,313

(865
)

297

(2,863
)

144,557

Net Income

-

-

522

-

-

-

522

Other comprehensive loss

-

-

-

-

(644
)

-

(644
)
Committed to be released ESOP
shares (3,600 shares)

-

22

-

36

-

-

58

Stock based compensation

-

57

-

-

-

-

57

Balance, March 31, 2022

$
76

$
85,678

$
62,835

$
(829
)

$
(347
)

$
(2,863
)

$
144,550

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Unearned
ESOP
Shares

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Total
Shareholders'
Equity

(In thousands, except share data)

Balance, October 1, 2020

76

85,127

60,388

(1,047
)

(1,088
)

(2,863
)

140,593

Net Income

-

-

4,497

-

-

-

4,497

Other comprehensive loss

-

-

-

-

544

-

544

Treasury stock activity

-

-

-

-

-

-

-

Committed to be released ESOP
shares (7,200 shares)

-

42

-

73

-

-

115

Stock based compensation

-

102

-

-

-

-

102

Balance, March 31, 2021

76

85,271

64,885

(974
)

(544
)

(2,863
)

145,851

Balance, October 1, 2021

76

85,524

60,296

(901
)

36

(2,863
)

142,168

Net Income

-

-

2,539

-

-

-

2,539

Other comprehensive loss

-

-

-

-

(383
)

-

(383
)
Committed to be released ESOP
shares (7,200 shares)

-

45

-

72

-

-

117

Stock based compensation

-

109

-

-

-

-

109

Balance, March 31, 2022

$
76

$
85,678

$
62,835

$
(829
)

$
(347
)

$
(2,863
)

$
144,550

	Three Months Ended March 31, 2023 and 2022
										*Accumulated*
			*Additional*				*Unearned*			*Other*						*Total*
	*Common*		*Paid-In*		*Retained*		*ESOP*			*Comprehensive*			*Treasury*			*Shareholders'*
	*Stock*		*Capital*		*Earnings*		*Shares*			*Income (Loss)*			*Stock*			*Equity*
	(In thousands, except share data)
Balance, January 1, 2022	$	76	$	85,599	$	62,313	$	(865	)	$	297		$	(2,863	)	$	144,557
Net income		—		—		522		—			—			—			522
Other comprehensive income (loss)		—		—		—		—			(644	)		—			(644	)
Committed to be released ESOP shares (3,600 shares)		—		22		—		36			—			—			58
Stock based compensation		—		57		—		—			—			—			57
Balance, March 31, 2022	$	76	$	85,678	$	62,835	$	(829	)	$	(347	)	$	(2,863	)	$	144,550

Balance, January 1, 2023	$	76	$	85,988	$	69,155	$	(718	)	$	(2,903	)	$	(2,863	)	$	148,735
Net income		—		—		571		—			—			—			571
Other comprehensive income (loss)		—		—		—		—			(1,488	)		—			(1,488	)
Committed to be released ESOP shares (3,600 shares)		—		26		—		35			—			—			61
Stock based compensation		—		47		—		—			—			—			47
Balance, March 31, 2023	$	76	$	86,061	$	69,726	$	(683	)	$	(4,391	)	$	(2,863	)	$	147,926

See accompanying notes to unaudited consolidated financial statements.

~~-7-~~

	Six Months Ended March 31, 2023 and 2022
										*Accumulated*
			*Additional*				*Unearned*			*Other*						*Total*
	*Common*		*Paid-In*		*Retained*		*ESOP*			*Comprehensive*			*Treasury*			*Shareholders'*
	*Stock*		*Capital*		*Earnings*		*Shares*			*Income (Loss)*			*Stock*			*Equity*
	(In thousands, except share data)
Balance, October 1, 2021	$	76	$	85,524	$	60,296	$	(901	)	$	36		$	(2,863	)	$	142,168
Net income		—		—		2,539		—			—			—			2,539
Other comprehensive loss		—		—		—		—			(383	)		—			(383	)
Committed to be released ESOP shares (7,200 shares)		—		45		—		72			—			—			117
Stock based compensation		—		109		—		—			—			—			109
Balance, March 31, 2022	$	76	$	85,678	$	62,835	$	(829	)	$	(347	)	$	(2,863	)	$	144,550

Balance, October 1, 2022	$	76	$	85,917	$	67,247	$	(756	)	$	(3,176	)	$	(2,863	)	$	146,445
Net income		—		—		2,479		—			—			—			2,479
Other comprehensive loss		—		—		—		—			(1,215	)		—			(1,215	)
Committed to be released ESOP shares (7,200 shares)		—		43		—		73			—			—			116
Stock based compensation		—		101		—		—			—			—			101
Balance, March 31, 2023	$	76	$	86,061	$	69,726	$	(683	)	$	(4,391	)	$	(2,863	)	$	147,926

See accompanying notes to unaudited consolidated financial statements.

-7-

Table of Contents

MALVERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended March 31,						*Six Months Ended March 31,*
	2022			2021			*2023*			*2022*
	(In thousands)						(In thousands)
Cash Flows from Operating Activities
Net income	$	2,539		$	4,497		$	2,479		$	2,539
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		316			336			288			316
Provision for loan losses		-			550
Valuation allowance for loan held for sale		1,683			-			—			1,683
Deferred income tax expense		(102	)		145
Deferred income tax benefit								(396	)		(102	)
ESOP expense		117			115			116			117
Stock based compensation		109			102			101			109
Amortization of premiums and discounts on investments securities, net		144			94			238			144
Amortization of loan origination fees and costs		64			1,108
(Accretion) Amortization of mortgage servicing rights		(13	)		15
Net gain on sale and call of investments securities available-for-sale		-			(614	)
Amortization (accretion) of loan origination fees and costs								(45	)		64
(Accretion) amortization of mortgage servicing rights								7			(13	)
Net gain on sale of secondary market loans		(63	)		(678	)		(14	)		(63	)
Proceeds from sale of secondary market loans		3,108			18,934			1,774			3,108
Originations of secondary market loans		(3,045	)		(18,256	)		(1,212	)		(3,045	)
Write down of other real estate owned								59			—
Earnings on bank-owned life insurance		(452	)		(325	)		(546	)		(452	)
Decrease in accrued interest receivable		34			79
Decrease in accrued interest payable		(220	)		(80	)
(Increase) decrease in accrued interest receivable								(577	)		34
Increase (decrease) in accrued interest payable								703			(220	)
Operating lease liability payments		(293	)		(326	)		259			(293	)
Increase (decrease) in other liabilities		3,816			(4,492	)		(769	)		3,816
Decrease in other assets		2,307			5,395			5,728			2,307
Amortization of subordinated debt		66			79
Net Cash Provided by Operating Activities		10,115			6,678

Amortization of subordinated debt issuance costs								—			66
Net cash provided by operating activities								8,193			10,115
Cash Flows from Investing Activities
Investment securities available-for-sale:
Purchases		(17,569	)		(10,500	)		—			(17,569	)
Sales		-			13,132
Maturities, calls and principal repayments		1,455			446			1,065			1,455
Investment securities held-to-maturity:
Purchases		(23,783	)		(12,500	)		—			(23,783	)
Maturities, calls and principal repayments		3,640			1,571			2,332			3,640
Proceeds from sale of loans held for sale		18,900			-			—			18,900
Net decrease in loans held for investment		104,290			50,640			15,899			104,290
Net decrease in restricted stock		1,314			731			289			1,314
Purchase of property and equipment		(26	)		(102	)		(115	)		(26	)
Net Cash Provided by Investing Activities		88,221			43,418
Net cash provided by investing activities								19,470			88,221
Cash Flows from Financing Activities
Net (decrease) increase in deposits		(83,722	)		21,307
Proceeds for long-term borrowings		-			160,000
Repayment of long-term borrowings		(30,000	)		(180,000	)
Repayment of secured borrowings		-			(4,225	)
Net decrease in deposits								(45,141	)		(83,722	)
Repayment of borrowings								(5,000	)		(30,000	)
Increase in advances from borrowers for taxes and insurance		819			297			666			819
Net Cash (Used in) Financing Activities		(112,903	)		(2,621	)
Net (Decrease) Increase in Cash and Cash Equivalents		(14,567	)		47,475
Net cash used in financing activities								(49,475	)		(112,903	)
Net Decrease in Cash and Cash Equivalents								(21,812	)		(14,567	)
Cash and Cash Equivalents - Beginning		136,590			61,439			53,267			136,590
Cash and Cash Equivalents - Ending	$	122,023		$	108,914		$	31,455		$	122,023
Supplemental Cash Flows Information
Interest paid	$	3,235		$	6,109		$	5,830		$	3,235
Income taxes paid	$	-		$	894		$	—		$	—
Non-cash investing activities:	$	-		$	-
Transfer of property and equipment to held-for-sale							$	375		$	—
Bank owned life insurance death benefit proceeds receivable	$	612		$	-		$	539		$	612

See accompanying notes to unaudited consolidated financial statements.

-8-

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1– The Company

Malvern Bancorp, Inc. (the “Company” or “Malvern Bancorp”), a Pennsylvania corporation, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”). Malvern Bancorp is the holding company for Malvern Bank, National Association (“Malvern Bank” or the “Bank”), a national bank that was originally organized in 1887 as a federally-chartered savings bank.

The Company’s primary business is the ownership and operation of the Bank. The Bank’s principal business consists of attracting deposits from businesses and the general public and investing those deposits, together with borrowings and funds generated from operations, in commercial and multi-family real estate loans, ~~one-to-four~~one-to-four family residential real estate loans, construction and development loans, commercial business loans, home equity loans, lines of credit, and other consumer loans. The Company also invests in and maintains a portfolio of investment securities, primarily comprised of corporate ~~debt~~bonds, mortgage-backed securities, U.S. ~~government agencies, mortgage-backed securities, and state~~agency and municipal obligations. Malvern Bank is one of the oldest banks headquartered on the Philadelphia Main Line. For more than a century, the Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect, and integrity. The Bank’s primary market niche is providing personalized service to its client base.

The Bank conducts business from its headquarters in Paoli, Pennsylvania, a suburb of Philadelphia, and through its nine other banking locations in Chester and Delaware counties, Pennsylvania, Morristown, New Jersey, its New Jersey regional headquarters, and Palm Beach, Florida. The Bank also maintains a representative ~~offices~~office in ~~Wellington, Florida and~~ Allentown, Pennsylvania.

In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the unaudited consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other real estate owned, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, ~~and~~ the valuation of derivative ~~positions.~~positions and the evaluation of contingent liability. The unaudited consolidated financial statements have been prepared in conformity with GAAP.

As used in this Quarterly Report on Form ~~10-Q,~~10-Q, the terms “Malvern”, “the Company”, “registrant”, “we”, “us”, and “our” mean Malvern Bancorp, Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

Note 2– Summary of Significant Accounting Policies

Basis of financial statement presentation. The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements present the Company’s financial condition at March 31, ~~2022~~2023 and the results of operations for the three and six months ended March 31, ~~2022~~ 2023 and ~~2021,~~2022, and cash flows for the six months ended March 31, ~~2022~~ 2023 and ~~2021.~~2022. The consolidated statement of financial condition as of September 30, ~~2021~~2022 was derived from the audited consolidated statement of financial condition as of that date.

In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments, which include normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of the dates and for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and note disclosures included in the ~~2021~~2022 Annual Report filed with the SEC. The consolidated statements of ~~operations~~net income for the three and six months ended March 31, ~~2022~~2023 and the consolidated statements of cash flows for the three and six months ended March 31, ~~2022~~2023 are not necessarily indicative of the results of operations or cash flows for the full fiscal year ending September 30, ~~2022~~ 2023 or any interim period. Subsequent events have been evaluated through the date of the issuance of the unaudited consolidated financial statements. ~~No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.~~

- 9-

Table of Contents

~~-9-~~

Recent Accounting Pronouncements Yet to Be Adopted

Credit Losses. In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2016-13,~~ 2016-13,Financial Instruments-Credit Losses (Topic ~~326)~~326): Measurement of Credit Losses on Financial Instruments. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied currently will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, this ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. As amended, ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements. Although no financial impacts have been determined the Company expects this ASU to have a significant impact on the methodology for calculating the ALLL.

In ~~April 2019,~~ March 2022, the FASB issued ASU ~~2019-04,~~ ~~Codification Improvements~~, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, ~~Targeted Transition Relief,~~ ~~which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326.~~ ~~This ASU will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Bank has a software system in place to assist with the calculation of Current Expected Credit Losses (“CECL”). In November 2019, the FASB issued ASU No. 2019-10,~~ 2022-02,Financial ~~Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)~~ making this ASU effective for interim and annual periods beginning after December 15, 2022. As such, the Company would be required to implement the ASU on October 1, 2023. In November 2019, the FASB issued ASU No. 2019-11, ~~Codification Improvements to Topic 326, Financial Instruments-Credit Losses,~~ which provides guidance on stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13. The Company formed a cross functional implementation team to review the requirements of ASU 2016-13 and contracted with a third-party provider to assist in the development and implementation of the revised credit loss methodology. The impact on the consolidated earnings, financial position, and cash flows of the Company upon adoption of this ASU are currently unknown. The Company plans to adopt this guidance when required to on October 1, 2023.

~~In March 2022, the FASB issued ASU 2022-02,~~ ~~Financial Instruments—~~Instruments—Credit Losses (Topic ~~326)~~326): Troubled Debt Restructurings and Vintage Disclosures. These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic ~~326-20.~~326-20. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.

~~Reference Rate Reform.~~Derivatives and Hedging.In March ~~2020,~~2022, FASB ASU No.2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. This update will allow non-prepayable financial assets to be included in a closed portfolio hedge using the ~~FASB issued Accounting Standards Update (“ASU”) No. 2020-04,~~ ~~Reference Rate Reform (Topic 848)~~.portfolio method, rather than only prepayable assets. It also allows entities to hedge multiple layers rather than just a single layer of closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption by the Company and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time. ASU 2020-04 is effective March 12, 2020, through December 31, 2022. ~~The Company has elected certain optional expedient related to hedge accounting and~~ ~~will continue to monitor and assess the impact as the reference rate transition occurs over the next two years and proactively adopt applicable expedient(s).~~ In connection with ongoing procedures to monitor the work of the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York in identifying an alternative U.S. dollar reference interest rate the bank will continue to assess the Secured Overnight Financing Rate (“SOFR”) as the currently identified benchmark rate.

~~Income Taxes.~~ ~~In December 2019,~~ ~~the FASB issued~~ ~~ASU~~ ~~No. 2019-12,~~ ~~Income Taxes (Topic 740).~~ This ASU identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. ~~The ASU~~ is effective for public business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, ~~2020, with early adoption permitted.~~ 2022. The Company ~~plans to adopt ASU 2019-12 during~~is currently evaluating the ~~current fiscal year and does not expect it to~~effects, if any, that the adoption of this amendment will have ~~a material impact~~ on its consolidated financial ~~statements or disclosure.~~statements.

~~-10-~~

- 10-

Table of Contents

Note 3 -Business Combinations

Pending Business Combination – First Bank

On December 13, 2022, Malvern Bancorp, Malvern Bank and First Bank (“First Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which and subject to the terms and conditions of the Merger Agreement, Malvern Bancorp will merge with and into First Bank (through a newly created merger subsidiary of First Bank) immediately followed by the merger of Malvern Bank with and into First Bank, with First Bank continuing as the surviving corporation in each case (collectively, the “Merger”). At the effective time of the Merger each share of common stock of Malvern Bancorp will be converted into the right to receive $7.80 in cash and 0.7733 shares of common stock, par value $5.00 per share, of First Bank, subject to adjustment in accordance with the terms of the Merger Agreement if Malvern’s adjusted shareholders’ equity as of the tenth day prior to the closing of the Merger does does not equal or exceed $140,000,000.

The Merger Agreement was unanimously approved by the board of directors of each of First Bank, Malvern Bancorp and Malvern Bank. On April 28, 2023, Malvern Bancorp held a special meeting of shareholders related to the Merger, primarily for purposes of the Malvern Bancorp shareholders voting on the proposal to adopt the Merger Agreement. At the special meeting, the Malvern Bancorp shareholders voted to approve the proposal to adopt the Merger Agreement, and also approved the related shareholder proposals with respect to executive compensation that will or may be paid in connection with the Merger. Also on April 28, 2023, First Bank held its annual meeting of shareholders to vote upon, among other things, the proposal for First Bank to adopt the Merger Agreement. The First Bank shareholders voted to approve the proposal to adopt the Merger Agreement. Accordingly, both Malvern Bancorp and First Bank have obtained the necessary shareholder approval to consummate the Merger in accordance with the terms of the Merger Agreement.

The Merger is anticipated to be completed in the second quarter of 2023, but remains subject to regulatory approval and other customary closing conditions.

Malvern Bancorp recorded $1.0 million of merger-related expenses for the six months ended March 31, 2023 related to the pending merger with First Bank. These expenses primarily consisted of legal and professional fees.

Note 3 4– Earnings Per Share

Basic earnings per common share is computed based on the weighted average number of shares outstanding reduced by unearned Employee Stock Ownership Plan (“ESOP”) shares. Diluted earnings per share is computed based on the weighted average number of shares outstanding and common stock equivalents that would arise from the exercise of dilutive securities, reduced by unearned ESOP shares. During the three and six months ended March 31, ~~2022~~2023 , the ~~company~~Company granted 4,200 and 6,958 restricted shares, respectively. The Company also granted 3,979 unrestricted shares during the three and six months ended March 31, 2023. During the three and six months ended March 31, 2023 the Company granted 6,000 stock options. During the three and six months ended March 31, 2023 the Company granted 5,131 restricted shares ~~respectively,~~ and 2,336 shares were forfeited for the six months ended March 31, ~~2022.~~ 2023. There were 0no unrestricted shares or stock options granted during the three and six months ended March 31, 2022.There were 1,120 and 1,216 restricted shares forfeited during the three and six months ended March 31, 2022, respectively. During the three and six months ended March 31, ~~2021~~ 2023, there were~~0 restricted~~ 4,560 and 5,394 shares ~~issued or stock options granted.~~considered anti-dilutive and excluded from diluted weighted average shares outstanding while during the same period in 2022, there were 4,356 and 5,306 anti-dilutive shares.

The following table sets forth the composition of the weighted average shares (denominator) used in the earnings per share computations:

	Three Months Ended March 31,						Six Months Ended March 31,						*Three Months Ended March 31,*						*Six Months Ended March 31,*
	2022			2021			2022			2021			*2023*			*2022*			*2023*			*2022*
	(In thousands, except share and per share data)												(In thousands, except share and per share data)
Net Income	$	522		$	2,224		$	2,539		$	4,497		$	571		$	522		$	2,479		$	2,539
Weighted average shares outstanding		7,621,100			7,609,953			7,621,227			7,609,953			7,641,690			7,621,100			7,637,913			7,621,227
Average unearned ESOP shares		(66,145	)		(80,545	)		(67,965	)		(82,365	)		(51,745	)		(66,145	)		(53,565	)		(67,965	)
Basic weighted average shares outstanding		7,554,955			7,529,408			7,553,262			7,527,588			7,589,945			7,554,955			7,584,348			7,553,262
Plus: effect of potential dilutive common stock equivalents - stock options		1,239			743			1,197			601			4,279			1,239			2,779			1,197
Diluted weighted average common shares outstanding		7,556,194			7,530,151			7,554,459			7,528,189			7,594,224			7,556,194			7,587,127			7,554,459
Earnings per common share:
Basic	$	0.07		$	0.30		$	0.34		$	0.60		$	0.08		$	0.07		$	0.33		$	0.34
Diluted	$	0.07		$	0.30		$	0.34		$	0.60		$	0.08		$	0.07		$	0.33		$	0.34

Note 4 5– Employee Stock Ownership Plan

The Company maintains an ESOP for substantially all of its full-time employees. The current ESOP trustee is Pentegra. Shares of the Company’s common stock purchased by the ESOP are held until released for allocation to participants. Shares released are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of all eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the ESOP shares released differs from the cost of such shares, the difference is charged or credited to additional paid-in capital. During the period from May 20, 2008 to September 30, 2008, the ESOP purchased 241,178 shares of Company common stock for approximately $2.6 million, at an average price of $10.86 per share, which was funded by a loan from Malvern Federal Bancorp, Inc. (the Company’s predecessor). The ESOP loan, which bears an interest rate of 5%, is being repaid in quarterly installments through 2026 principally from the Bank’s contributions to the ESOP.Shares are released to participants proportionately as the ESOP loan is repaid. During the three and six months ended March 31, ~~2022~~ 2023 and ~~2021,~~2022, there were 3,600 ~~and7,200~~and 7,200 shares, respectively, committed to be released. At March 31, ~~2022,~~2023, there were ~~64,365~~46,943 unallocated ~~shares and 194,853 allocated~~ shares held by the ~~ESOP.~~ESOP. The unallocated shares had an aggregate fair value of approximately ~~$1.0 million~~$714,000 at March 31, ~~2022~~2023.

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Table of Contents

Note 56 - Investment Securities

The Company’s investment in debt securities are classified as available-for-sale or ~~held-to-maturity at March 31, 2022 and at September 30, 2021.~~held-to-maturity. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in shareholder’s equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. Held-to-maturity securities, which are carried at amortized cost, are investments where there is positive intent and ability to hold to maturity. Equity securities are stated at fair value with any changes in fair value reported in ~~non-interest~~other income.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses

~~-11-~~

that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

The following tables present information related to the Company’s investment securities at March 31, 2023 and September 30, 2022:

	*March 31, 2023*
			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
	(In thousands)
Investment Securities Available-for-Sale:
U.S. government agencies	$	5,000	$	—	$	(1,283	)	$	3,717
State and municipal obligations		11,951		—		(1,635	)		10,316
Single issuer trust preferred security		1,000		—		(54	)		946
Corporate debt securities		35,000		—		(5,330	)		29,670
Mortgage Backed Security ("MBS")		2,347		—		(255	)		2,092
U.S. Treasury Note		1,492		—		(34	)		1,458
Total		56,790		—		(8,591	)		48,199
Investment Securities Held-to-Maturity:
U.S. government agencies		27,690		—		(4,328	)		23,362
State and municipal obligations		17,625		—		(1,326	)		16,299
Corporate debt securities		3,202		—		(86	)		3,116
Mortgage-backed securities:
MBS		2,229		—		(434	)		1,795
Collateralized mortgage obligations (“CMO”), fixed-rate		5,496		—		(402	)		5,094
Total		56,242		—		(6,576	)		49,666
Equity Securities:
Mutual Funds		1,500		—		(110	)		1,390
Total		1,500		—		(110	)		1,390
Total investment securities	$	114,532	$	—	$	(15,277	)	$	99,255

- 12-

Table of Contents

	*September 30, 2022*
			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
	(In thousands)
Investment Securities Available-for-Sale:
U.S. government agencies	$	5,000		—	$	(1,420	)	$	3,580
State and municipal obligations		12,014		—		(2,354	)		9,660
Single issuer trust preferred security		1,000		—		(54	)		946
Corporate debt securities		35,990		—		(3,862	)		32,128
MBS		2,403		—		(316	)		2,087
U.S. Treasury		1,488		—		(45	)		1,443
Total		57,895		—		(8,051	)		49,844
Investment Securities Held-to-Maturity:
U.S. government agencies		29,190		—		(4,907	)		24,283
State and municipal obligations		18,017		—		(2,526	)		15,491
Corporate debt securities		3,264		—		(96	)		3,168
Mortgage-backed securities:
MBS		2,278		—		(489	)		1,789
CMO		6,018		—		(483	)		5,535
Total		58,767		—		(8,501	)		50,266
Equity Securities:
Mutual Funds		1,500		—		(126	)		1,374
Total		1,500		—		(126	)		1,374
Total investment securities	$	118,162	$	—	$	(16,678	)	$	101,484

For the six months ended March 31, 2023 there was one 1.0 million available-for-sale investment security called, one $10,000 available-for-sale investment security partially called, and three held-to-maturity investment securities totaling $2.0 million matured. There were no sales or called investment securities during the same period. For the six months ended March 31, 2022, $945,000 and ~~September 30, 2021:~~

March 31, 2022

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

(In thousands)

Investment Securities Available-for-Sale:

U.S. government agencies

$
5,000

$
-

$
(558
)

$
4,442

State and municipal obligations

10,886

-

(935
)

9,951

Single issuer trust preferred security

1,000

-

(78
)

922

Corporate debt securities

35,989

94

(1,133
)

34,950

MBS Securities

2,505

-

(66
)

2,439

U.S. Treasury Note

1,483

-

(4
)

1,479

Total

$
56,863

$
94

$
(2,774
)

$
54,183

Investment Securities Held-to-Maturity:

U.S. government agencies

$
23,500

$
-

$
(1,659
)

$
21,841

State and municipal obligations

13,764

12

(731
)

13,045

Corporate debt securities

3,324

14

-

3,338

Mortgage-backed securities:

Mortgage Backed Security ("MBS"), fixed-rate

2,358

-

(203
)

2,155

Collateralized mortgage obligations (“CMO”), fixed-rate

5,566

-

(229
)

5,337

Total

$
48,512

$
26

$
(2,822
)

$
45,716

Equity Securities:

Mutual Funds

$
1,500

$
-

$
(55
)

$
1,445

Total equity securities

$
1,500

$
-

$
(55
)

$
1,445

Total investment securities

$
106,875

$
120

$
(5,651
)

$
101,344

September 30, 2021

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

(In thousands)

Investment Securities Available-for-Sale:

U.S. government agencies

$
5,000

$
-

$
(7
)

$
4,993

State and municipal obligations

2,767

1

(3
)

2,765

Single issuer trust preferred security

1,000

-

(125
)

875

Corporate debt securities

31,989

243

(52
)

32,180

Total

$
40,756

$
244

$
(187
)

$
40,813

Investment Securities Held-to-Maturity:

U.S. government agencies

$
10,000

$
11

$
-

$
10,011

State and municipal obligations

$
6,062

$
104

$
(49
)

$
6,117

Corporate debt securities

3,383

224

-

3,607

Mortgage-backed securities:

Mortgage-backed securities:

2,461

-

(13
)

2,448

Collateralized mortgage obligations (“CMO”), fixed-rate

6,601

129

-

6,730

Total

$
28,507

$
468

$
(62
)

$
28,913

Equity Securities:

Mutual Funds

$
1,500

$
-

$
-

#

$
1,500

Total equity securities

$
1,500

$
-

$
-

$
1,500

Total investment securities

$
70,763

$
712

$
(249
)

$
71,226

~~There~~$2.5 million of available-for-sale and held-to-maturity investment securities, respectively, were ~~0 sales of available~~called, one $10,000 available-for-sale investment security partially called, and one $250,000 mutual fund equity security matured. No purchases were made for ~~sale securities for~~during the three and six months ended March 31, ~~2022.~~2023.

~~-12-~~

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position, at March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

																*March 31, 2023*
	March 31, 2022															*Less than 12 Months*					*12 Months or more*					*Total*
	Less than 12 Months					More than 12 Months					Total					*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
	(In thousands)															(In thousands)
Investment Securities Available for Sale:
U.S. government agencies	$	4,442	$	(558	)	$	-	$	-		$	4,442	$	(558	)	$	—	$	—		$	3,717	$	(1,283	)	$	3,717	$	(1,283	)
State and municipal obligations		9,951		(935	)		-		-			9,951		(935	)		1,209		(11	)		9,107		(1,624	)		10,316		(1,635	)
Single issuer trust preferred security		-		-			922		(78	)		922		(78	)		—		—			946		(54	)		946		(54	)
Corporate debt securities		28,408		(1,092	)		1,459		(41	)		29,867		(1,133	)		1,829		(171	)		27,841		(5,159	)		29,670		(5,330	)
MBS Securities		2,438		(66	)		-		-			2,438		(66	)
MBS																	—		—			2,092		(255	)		2,092		(255	)
U.S. Treasury Note		1,479		(4	)		-		-			1,479		(4	)		—		—			1,458		(34	)		1,458		(34	)
Total	$	46,718	$	(2,655	)	$	2,381	$	(119	)	$	49,099	$	(2,774	)	$	3,038	$	(182	)	$	45,161	$	(8,409	)	$	48,199	$	(8,591	)

Investment Securities Held-to-Maturity:
U.S. government agencies																$	4,161	$	(29	)	$	19,201	$	(4,299	)	$	23,362	$	(4,328	)
State and municipal obligations																	3,020		(22	)		13,279		(1,304	)		16,299		(1,326	)
Corporate securities																	—		—			3,116		(86	)		3,116		(86	)
Mortgage-backed securities:
MBS																	—		—			1,795		(434	)		1,795		(434	)
CMO																	1,071		(21	)		4,023		(381	)		5,094		(402	)
Total																$	8,252	$	(72	)	$	41,414	$	(6,504	)	$	49,666	$	(6,576	)
Equity Securities
Mutual funds																	1,390		(110	)		—		—			1,390		(110	)
Total Mutual funds																	1,390		(110	)		—		—			1,390		(110	)
Total investment securities																$	12,680	$	(364	)	$	86,575	$	(14,913	)	$	99,255	$	(15,277	)

September 30, 2021

Less than 12 Months

More than 12 Months

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

Investment Securities Available for Sale:

U.S. government agencies

$
4,993

$
(7
)

$
-

$
-

$
4,993

$
(7
)
State and municipal obligations

1,819

(3
)

-

-

1,819

(3
)
Single issuer trust preferred security

             -

             -

         875

        (125
)

          875

       (125
)
Corporate debt securities

8,475

(25
)

2,973

(27
)

11,448

(52
)
Total investment securities

$
15,287

$
(35
)

$
3,848

$
(152
)

$
19,135

$
(187
)

- 13-

Table of Contents

	*September 30, 2022*
	*Less than 12 Months*					*12 Months or more*					*Total*
	*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
	*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
	(In thousands)
Investment Securities Available for Sale:
U.S. government agencies	$	—	$	—		$	3,580	$	(1,420	)	$	3,580	$	(1,420	)
State and municipal obligations		9,660		(2,354	)		—		—			9,660		(2,354	)
Single issuer trust preferred security		—		—			946		(54	)		946		(54	)
Corporate debt securities		26,717		(3,273	)		5,411		(589	)		32,128		(3,862	)
MBS		2,087		(316	)		—		—			2,087		(316	)
U.S. Treasury Note		1,443		(45	)		—		—			1,443		(45	)
Total investment securities	$	39,907	$	(5,988	)	$	9,937	$	(2,063	)	$	49,844	$	(8,051	)
Investment Securities Held-to-Maturity:
U.S. government agencies	$	18,662	$	(3,028	)	$	5,621	$	(1,879	)	$	24,283	$	(4,907	)
State and municipal obligations		15,491		(2,526	)		—		—			15,491		(2,526	)
Corporate securities		3,167		(96	)		—		—			3,167		(96	)
Mortgage-backed securities:
MBS		—		—			1,789		(489	)		1,789		(489	)
CMO		5,536		(483	)		—		—			5,536		(483	)
Total	$	42,856	$	(6,133	)	$	7,410	$	(2,368	)	$	50,266	$	(8,501	)
Equity Securities
Mutual funds		1,500		(126	)		—		—			1,374		(126	)
Total Mutual funds		1,500		(126	)		—		—			1,374		(126	)
Total investment securities	$	84,263	$	(12,247	)	$	17,347	$	(4,431	)	$	101,484	$	(16,678	)

As of March 31, ~~2022,~~2023, the estimated fair value of the securities disclosed above was primarily dependent upon the movement in market interest rates, particularly given the inherent credit risk associated with these securities. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service. ~~Management believes that~~Although the ~~unrealized losses on these securities are a function of changes in~~fair value will fluctuate as the market interest rates move, management believes that these fair values will recover as the underlying portfolios mature and ~~credit spreads, not changes~~are reinvested in ~~credit quality. NaN allowance for credit losses was recorded at~~ market rate yielding investments. As of March 31, ~~2022 on available for sale securities. As of March 31, 2022,~~2023, the Company held 1113 corporate debt securities, 711 municipal bonds, 1one U.S. government agency, 1one U.S. ~~Tressury~~Treasury note, 1one mortgage-backed security, and 1one single issuer trust preferred security which were all in an unrealized loss position. The Company does not intend to sell, and expects that it is ~~unlikely~~not more likely than not that it will be required to sell, these securities until such time as the value recovers or the securities mature. Management does not believe any individual unrealized loss as of March 31, ~~2022~~2023 represents an other-than-temporary impairment. The decrease in market value is primarily due to an increase in overall in interest rates, primarily the recent Federal Reserve interest rate hikes.

Investment securities having a carrying value of ~~approximately $2.4~~$33.8 million and ~~$2.9~~$11.9 million at March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, respectively, were pledged to secure public funds deposits, prospective Federal Reserve Board discount window borrowings, and prospective ~~FRB discount window~~Federal Reserve Board Bank Term Funding Program borrowings. ~~NaN~~No investment securities were pledged to secure hedges at March 31, ~~2022~~2023 or September 30, ~~2021.NaN~~2022. No investment securities were pledged to secure short-term borrowings at March 31, ~~2022~~2023 and September 30, ~~2021.~~ 2022.

~~-13-~~

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Table of Contents

The following table presents information for investment securities at March 31, ~~2022,~~2023, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	March 31, 2022				*March 31, 2023*
	Amortized Cost		Fair Value		*Amortized Cost*		*Fair Value*
	(In thousands)				(In thousands)
Available-for-Sale:
Within 1 year	$	-	$	-
Over 1 year through five years		4,984		4,915
After 5 years through ten years		31,989		30,969
Over 1 year through 5 years					$	6,212	$	6,019
After 5 years through 10 years						31,812		26,828
Over 10 years		19,890		18,299		16,419		13,260
Total	$	56,863	$	54,183
Mortgage-backed securities:
MBS						2,347		2,092
Total Available-for-sale securities						56,790		48,199
Held-to-Maturity:
Within 1 year	$	254	$	254		5,044		5,008
Over 1 year through five years		10,036		10,062
After 5 years through ten years		3,122		2,929
Over 1 year through 5 years						8,978		8,759
After 5 years through 10 years						3,111		2,709
Over 10 years		27,176		24,979		31,384		26,301
Mortgage-backed securities:
Mortgage Backed Security ("MBS"), fixed-rate		2,358		2,155
Collateralized mortgage obligations (“CMO”), fixed-rate		5,566		5,337
Total	$	48,512	$	45,716
MBS						2,229		1,795
CMO						5,496		5,094
Total Held-to-maturity securities						56,242		49,666
Equity Securities:
Within 1 year	$	500	$	500		1,000		890
After 5 years through ten years		1,000		945		500		500
	$	1,500	$	1,445
Total Equity securities						1,500		1,390
Total investment securities	$	106,875	$	101,344	$	114,532	$	99,255

- 15-

Table of Contents

Note 6 7– Loans Receivable and Related Allowance for Loan Losses

Loans receivable in the Company’s portfolio consisted of the following at the dates indicated below:

	March 31, 2022			September 30, 2021			*March 31, 2023*			*September 30, 2022*
	(In thousands)						(In thousands)
Residential mortgage	$	177,669		$	198,710
Residential Mortgage							$	163,734		$	175,957
Construction and Development:
Residential and commercial		25,558			61,492			18,966			24,362
Land		4,603			2,204			540			550
Total Construction and Development		30,161			63,696			19,506			24,912
Commercial:
Commercial real estate		400,974			426,915			402,503			406,914
Farmland		15,624			10,297			13,560			11,506
Multi-family		54,789			66,332			61,272			55,295
Commercial and industrial		101,354			115,246			104,781			102,703
Other		7,977			10,954			10,417			13,356
Total Commercial		580,718			629,744			592,533			589,774
Consumer:
Home equity lines of credit		12,283			13,491			13,002			13,233
Second mortgages		4,969			5,884			3,577			4,395
Other		2,237			2,299			2,210			2,136
Total Consumer		19,489			21,674			18,789			19,764
Total loans		808,037			913,824			794,562			810,407
Deferred loan costs, net		574			629
Deferred loan fees and costs, net								536			537
Allowance for loan losses		(9,301	)		(11,472	)		(9,098	)		(9,090	)
Total loans receivable, net	$	799,310		$	902,981
Total loans receivable, net of allowance for loan losses							$	786,000		$	801,854

~~-14-~~

- 16-

Table of Contents

The following tables summarize the primary classes of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment, as of March 31, ~~2022~~2023 and September 30, ~~2021.~~2022. Activity in the ALLL is presented for the three and six months ended March 31, ~~2022~~ 2023 and ~~2021~~2022 and the fiscal year ended September 30, ~~2021:~~2022:

				*Construction and*
				*Development*					*Commercial*													*Consumer*
	*Residential*			*Residential and*					*Commercial*					*Multi-*		*Commercial and*						*Home Equity Lines of*			*Second*
	*Mortgage*			*Commercial*			*Land*		*Real Estate*			*Farmland*		*Family*		*Industrial*			*Other*			*Credit*			*Mortgages*			*Other*			*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)
Three Months Ended March 31, 2023
Beginning balance	$	795		$	123		$	3	$	5,976		$	57	$	270	$	996		$	54		$	65		$	16		$	15		$	729	$	9,099
Charge-offs		—			—			—		—			—		—		—			—			—			(8	)		—			—		(8	)
Recoveries		1			—			—		1			—		—		1			—			1			3			—			—		7
Provisions		(59	)		(21	)		—		(55	)		12		61		(37	)		(11	)		(3	)		4			(3	)		112		—
Ending balance	$	737		$	102		$	3	$	5,922		$	69	$	331	$	960		$	43		$	63		$	15		$	12		$	841	$	9,098

				*Construction and*
				*Development*					*Commercial*														*Consumer*
	*Residential*			*Residential and*					*Commercial*					*Multi-*			*Commercial and*						*Home Equity Lines of*		*Second*
	*Mortgage*			*Commercial*			*Land*		*Real Estate*			*Farmland*		*Family*			*Industrial*			*Other*			*Credit*		*Mortgages*			*Other*			*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)
Three Months Ended March 31, 2022
Beginning balance	$	935		$	428		$	15	$	7,118		$	56	$	450		$	791		$	54		$	76	$	6		$	20		$	88	$	10,037
Charge-offs		-			-			-		-			-		-			(764	)		-			-		(21	)		-			-		(785	)
Recoveries		-			-			-		1			-		-			1			-			-		47			-			-		49
Provisions		(121	)		(276	)		12		(914	)		218		(123	)		1,169			(54	)		2		69			(3	)		21		-
Ending balance	$	814		$	152		$	27	$	6,205		$	274	$	327		$	1,197		$	—		$	78	$	101		$	17		$	109	$	9,301

			*Construction and*
			*Development*					*Commercial*													*Consumer*
	*Residential*		*Residential and*					*Commercial*					*Multi-*		*Commercial and*						*Home Equity Lines of*			*Second*
	*Mortgage*		*Commercial*			*Land*		*Real Estate*			*Farmland*		*Family*		*Industrial*			*Other*			*Credit*			*Mortgages*			*Other*			*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)
Six Months Ended March 31, 2023
Beginning balance	$	708	$	131		$	3	$	6,040		$	57	$	298	$	1,158		$	55		$	67		$	21		$	15		$	537	$	9,090
Charge-offs		—		—			—		—			—		—		—			—			—			(8	)		—			—		(8	)
Recoveries		6		—			—		3			—		—		1			—			1			5			—			—		16
Provisions		23		(29	)		—		(121	)		12		33		(199	)		(12	)		(5	)		(3	)		(3	)		304		—
Ending balance	$	737	$	102		$	3	$	5,922		$	69	$	331	$	960		$	43		$	63		$	15		$	12		$	841	$	9,098
Ending balance: individually evaluated for impairment		—	$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—		—
Ending balance: collectively evaluated for impairment		737		102			3		5,922			69		331		960			43			63			15			12			841		9,098

Loans receivable:
Ending balance	$	163,734	$	18,966		$	540	$	402,503		$	13,560	$	61,272	$	104,781		$	10,417		$	13,002		$	3,577		$	2,210				$	794,562
Ending balance: individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	—		$	—		$	—				$	—
Ending balance: collectively evaluated for impairment	$	163,734	$	18,966		$	540	$	402,503		$	13,560	$	61,272	$	104,781		$	10,417		$	13,002		$	3,577		$	2,210				$	794,562

				*Construction and*
				*Development*					*Commercial*														*Consumer*
	*Residential*			*Residential and*					*Commercial*					*Multi-*			*Commercial and*						*Home Equity Lines of*		*Second*
	*Mortgage*			*Commercial*			*Land*		*Real Estate*			*Farmland*		*Family*			*Industrial*			*Other*			*Credit*		*Mortgages*			*Other*			*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)
Six Months Ended March 31, 2022
Beginning balance	$	934		$	428		$	15	$	7,043		$	56	$	450		$	2,221		$	54		$	76	$	87		$	20		$	88	$	11,472
Charge-offs		—			—			—		—			—		—			(2,194	)		—			—		(105	)		—			—		(2,299	)
Recoveries		1			—			—		76			—		—			1			—			—		50			—			—		128
Provisions		(121	)		(276	)		12		(914	)		218		(123	)		1,169			(54	)		2		69			(3	)		21		—
Ending balance	$	814		$	152		$	27	$	6,205		$	274	$	327		$	1,197		$	—		$	78	$	101		$	17		$	109	$	9,301
Ending balance: individually evaluated for impairment		58		$	—		$	—	$	—		$	180	$	—		$	5		$	—		$	—	$	—		$	—		$	—	$	243
Ending balance: collectively evaluated for impairment	$	756		$	152		$	27	$	6,205		$	94	$	327		$	1,192		$	—		$	78	$	101		$	17		$	109	$	9,058

- 17-

Table of Contents

~~-15-~~

Construction and
Development

Commercial

Consumer

Residential
Mortgage

Residential
and
Commercial

Land

Commercial
Real Estate

Farmland

Multi-
Family

Commercial and Industrial

Other

Home Equity
Lines of Credit

Second
Mortgages

Other

Unallocated

Total

Allowance for loan losses:

(In thousands)

Six Months Ended March 31,
2022

Beginning balance

$
934

$
428

$
15

$
7,043

$
56

$
450

$
2,221

$
54

$
76

$
87

$
20

$
88

$
11,472

Charge-offs

-

-

-

-

-

-

(2,194
)

-

-

(105
)

-

-

(2,299
)
Recoveries

1

-

-

76

-

-

1

-

-

50

-

-

128

Provisions

(121
)

(276
)

12

(914
)

218

(123
)

1,169

(54
)

2

69

(3
)

21

-

Ending balance

$
814

$
152

$
27

$
6,205

$
274

$
327

$
1,197

$
-

$
78

$
101

$
17

$
109

$
9,301

Ending balance: individually evaluated
   for impairment

$
58

$
-

$
-

$
-

$
180

$
-

$
5

$
-

$
-

$
-

$
-

$
-

$
243

Ending balance: collectively evaluated
   for impairment

$
756

$
152

$
27

$
6,205

$
94

$
327

$
1,192

$
-

$
78

$
101

$
17

$
109

$
9,058

Loans receivable:

Ending balance

$
177,669

$
25,558

$
4,603

$
400,974

$
15,624

$
54,789

$
101,354

$
7,977

$
12,283

$
4,969

$
2,237

$
808,037

Ending balance: individually evaluated
   for impairment

$
482

$
-

$
-

$
-

$
2,232

$
-

$
625

$
-

$
-

$
-

$
-

$
3,339

Ending balance: collectively evaluated
   for impairment

$
177,187

$
25,558

$
4,603

$
400,974

$
13,392

$
54,789

$
100,729

$
7,977

$
12,283

$
4,969

$
2,237

$
804,698

~~-16-~~

Construction and
Development

Commercial

Consumer

Residential
Mortgage

Residential
and
Commercial

Land

Commercial
Real Estate

Farmland

Multi-
Family

Commercial and
Industrial

Other

Home Equity
Lines of Credit

Second
Mortgages

Other

Unallocated

Total

Allowance for loan
losses:

(In thousands)

Six Months Ended
March 31,2021

Beginning balance

$
1,667

$
465

$
23

$
8,682

$
47

$
511

$
578

$
51

$
130

$
196

$
29

$
54

$
12,433

Charge-offs

-

-

-

(484
)

-

-

-

-

-

-

(1
)

-

(485
)
Recoveries

1

-

-

1

-

-

1

-

1

98

1

-

103

Provisions

(240
)

67

1

178

(12
)

(5
)

(22
)

(2
)

(12
)

(180
)

(4
)

781

550

Ending balance

$
1,428

$
532

$
24

$
8,377

$
35

$
506

$
557

$
49

$
119

$
114

$
25

$
835

$
12,601

Ending balance:
individually evaluated
   for impairment

$
-

$
-

$
-

$
1,476

$
-

$
-

$
-

$
-

$
-

$
38

$
-

$
-

$
1,514

Ending balance:
collectively evaluated
   for impairment

$
1,428

$
532

$
24

$
6,901

$
35

$
506

$
557

$
49

$
119

$
76

$
25

$
835

$
11,087

Loans receivable:

Ending balance

$
218,165

$
76,257

$
3,596

$
482,611

$
7,344

$
67,122

$
94,706

$
9,927

$
15,936

$
8,114

$
2,650

$
986,428

Ending balance:
individually evaluated
   for impairment

$
3,671

$
-

$
-

$
38,838

$
2,266

$
-

#

$
549

$
-

$
24

$
352

$
-

$
45,700

Ending balance:
collectively evaluated
   for impairment

$
214,494

$
76,257

$
3,596

$
443,773

$
5,078

$
67,122

$
94,157

$
9,927

$
15,912

$
7,762

$
2,650

$
940,728

~~-17-~~

Construction and
Development

Commercial

Consumer

Residential
Mortgage

Residential
and
Commercial

Land

Commercial
Real Estate

Farmland

Multi-
Family

Commercial and
Industrial

Other

Home Equity
Lines of Credit

Second
Mortgages

Other

Unallocated

Total

Allowance for loan
losses:
(In thousands)

Year Ended
September 30, 2021

Beginning balance

$
1,667

$
465

$
23

$
8,682

$
47

$
511

$
578

$
51

$
130

$
196

$
29

$
54

$
12,433

Charge-offs

-

-

-

(11,930
)

-

-

(379
)

-

-

-

(4
)

-

(12,313
)
Recoveries

41

4

-

1

-

-

2

-

17

108

2

-

176

Provisions

(774
)

(41
)

(8
)

10,290

9

(61
)

2,020

3

(71
)

(217
)

(7
)

34

11,176

Ending balance

$
934

$
428

$
15

$
7,043

$
56

$
450

$
2,221

$
54

$
76

$
87

$
20

$
88

$
11,472

Ending balance:
individually evaluated
   for impairment

$
-

$
-

$
-

$
18

$
-

$
-

$
1,488

$
-

$
-

$
38

$
-

$
-

$
1,544

Ending balance:
collectively evaluated
   for impairment

$
934

$
428

$
15

$
7,025

$
56

$
450

$
733

$
54

$
76

$
49

$
20

$
88

$
9,928

Loans receivable:

Ending balance

$
198,710

$
61,492

$
2,204

$
426,915

$
10,297

$
66,332

$
115,246

$
10,954

$
13,491

$
5,884

$
2,299

$
913,824

Ending balance:
individually evaluated
   for impairment

$
-

$
-

$
-

$
286

$
-

$
-

$
2,517

$
-

$
-

$
102

$
-

$
2,905

Ending balance:
collectively evaluated
   for impairment

$
198,710

$
61,492

$
2,204

$
426,629

$
10,297

$
66,332

$
112,729

$
10,954

$
13,491

$
5,782

$
2,299

$
910,919

~~-18-~~

			*Construction and*
			*Development*				*Commercial*										*Consumer*
	*Residential*		*Residential and*				*Commercial*				*Multi-*		*Commercial and*				*Home Equity Lines of*		*Second*
	*Mortgage*		*Commercial*		*Land*		*Real Estate*		*Farmland*		*Family*		*Industrial*		*Other*		*Credit*		*Mortgages*		*Other*		*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)
Year Ended September 30, 2022
Ending balance	$	708	$	131	$	3	$	6,040	$	57	$	298	$	1,158	$	55	$	67	$	21	$	15	$	537	$	9,090
Ending balance: individually evaluated for impairment	$	54	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	54
Ending balance: collectively evaluated for impairment	$	654	$	131	$	3	$	6,040	$	57	$	298	$	1,158	$	55	$	67	$	21	$	15	$	537	$	9,036

Loans receivable:
Ending balance	$	175,957	$	24,362	$	550	$	406,914	$	11,506	$	55,295	$	102,703	$	13,356	$	13,233	$	4,395	$	2,136			$	810,407
Ending balance: individually evaluated for impairment	$	477	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—			$	477
Ending balance: collectively evaluated for impairment	$	175,480	$	24,362	$	550	$	406,914	$	11,506	$	55,295	$	102,703	$	13,356	$	13,233	$	4,395	$	2,136			$	809,930

In assessing the adequacy of the ALLL, it is recognized that the process, methodology and underlying assumptions require a significant degree of judgment. The estimation of loan losses is not precise; the range of factors considered is wide and is significantly dependent upon management’s judgment, including the outlook and potential changes in the economic environment. At present, reduction of the commercial loan portfolio and increased historical loss levels are factored in assessing the portfolio. Any unallocated portion of the ALLL in conjunction with the quarterly review and changes to the qualitative factors to adjust for the risk due to current economic conditions reflects management’s estimate of probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, regulatory requirements, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors.

- 18-

Table of Contents

~~The Company recorded 0 provision for loan losses for the three month period ended~~ Total impaired loans increased $4.8 million from $19.7 million at September 30, 2022 to $24.5 million at March 31, ~~2022 or 2021. During~~2023, primarily due to the three months period ended March 31, 2022, the Company recorded two charge offs of $785,000 and recoveries of $49,000. During the three months period ended March 31, 2021, the Company recorded one charge off of $484,000 and recoveries of $50,000.

The Company recorded 0 provision for loan losses for the six month period ended March 31, 2022 and a $550,000 provision during the six months period ended March 31, 2021. For the six months period ended March 31, 2022, the Company recorded charge offs of $2.3 million and recoveries of $128,000. During the six months period ended March 31, 2021, the Company recorded charge offs of $485,000 and recoveries of $103,000.

~~-19-~~

Impaired loans with no specific allowance decreased by $22.9 million from $39.7 million at September 30, 2021 to $16.9 million at March 31, 2022, due primarily to three commercial real estate loans totaling $18.9 million being sold during the six months period, as part of the note sale, previously announced, $2.2 million partial charge downadditional impairment of one commercial and industrial loan ~~and~~at a ~~$1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists~~carrying value of ~~approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense.~~ $4.8 million.

The following table presents impaired loans in the portfolio by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary, as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans								*Impaired*
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance						*Loans*
	(In thousands)														*with No*
March 31, 2022
											*Impaired Loans with*				*Specific*
											*Specific Allowance*				*Allowance*		*Total Impaired Loans*
																			*Unpaid*
											*Recorded*		*Related*		*Recorded*		*Recorded*		*Principal*
											*Investment*		*Allowance*		*Investment*		*Investment*		*Balance*
											(In thousands)
March 31, 2023
Residential mortgage	$	482	$	58	$	2,394	$	2,876	$	2,876	$	—	$	—	$	2,965	$	2,965	$	3,190
Commercial:
Commercial real estate		-		-		13,840		13,840		13,840		—		—		13,803		13,803		15,384
Farmland		2,232		180		-		2,232		2,232		—		—		2,210		2,210		2,210
Commercial and industrial		625		5		356		981		981		—		—		5,381		5,381		5,381
Consumer:
Home equity lines of credit		-		-		21		21		21		—		—		18		18		24
Second mortgages		-		-		253		253		253		—		—		99		99		112
Total impaired loans	$	3,339	$	243	$	16,864	$	20,203	$	20,203	$	—	$	—	$	24,476	$	24,476	$	26,301
September 30, 2021
September 30, 2022
Residential mortgage	$	-	$	-	$	2,594	$	2,594	$	2,766	$	477	$	54	$	2,342	$	2,819	$	3,029
Commercial:
Commercial real estate		286		18		33,543		33,829		33,368		—		—		13,826		13,826		15,475
Farmland						2,254		2,254		2,254		—		—		2,213		2,213		2,213
Commercial and industrial		2,517		1,488		630		3,147		3,584		—		—		684		684		684
Consumer:
Home equity lines of credit		-		-		23		23		28		—		—		20		20		25
Second mortgages		102		38		696		798		874		—		—		152		152		191
Total impaired loans	$	2,905	$	1,544	$	39,740	$	42,645	$	42,874	$	477	$	54	$	19,237	$	19,714	$	21,617

The following table presents the average recorded investment in impaired loans in the loan portfolio and related interest income recognized for the three and six months ended March 31, ~~2022~~ 2023 and ~~2021:~~2022:

Three Months Ended March 31, 2022

Six Months Ended March 31, 2022

Average
Impaired Loans

Interest Income
Recognized on
Impaired Loans

Average
Impaired Loans

Interest Income
Recognized on
Impaired Loans

(In thousands)

Residential mortgage

$
2,610

$
25

$
1,727

$
47

Commercial:

Commercial real estate

12,757

7

8,626

9

Farmland

2,236

20

1,494

40

Commercial and industrial

1,476

5

1,381

10

Consumer:

Home equity lines of credit

22

-

10

-

Second mortgages

685

-

528

-

Total

$
19,786

$
57

$
13,766

$
106

~~-20-~~

	*Three Months Ended March 31, 2023*				*Six Months Ended March 31, 2023*
			*Interest Income*				*Interest Income*
	*Average*		*Recognized on*		*Average*		*Recognized on*
	*Impaired Loans*		*Impaired Loans*		*Impaired Loans*		*Impaired Loans*
	(In thousands)
Residential mortgage	$	2,910	$	21	$	2,546	$	40
Commercial:
Commercial real estate		13,862		6		13,878		13
Farmland		2,209		19		2,207		39
Commercial and industrial		5,435		68		3,822		95
Consumer:
Home equity lines of credit		19		—		19		—
Second mortgages		130		1		441		1
Total	$	24,565	$	115	$	22,913	$	188

	*Three Months Ended March 31, 2022*				*Six Months Ended March 31, 2022*
			*Interest Income*				*Interest Income*
	*Average*		*Recognized on*		*Average*		*Recognized on*
	*Impaired Loans*		*Impaired Loans*		*Impaired Loans*		*Impaired Loans*
	(In thousands)
Residential mortgage	$	2,610	$	25	$	1,727	$	47
Commercial:
Commercial real estate		12,757		7		8,626		9
Farmland		2,236		20		1,494		40
Commercial and industrial		1,476		5		1,381		10
Consumer:
Home equity lines of credit		22		—		10		—
Second mortgages		685		—		528		—
Total	$	19,786	$	57	$	13,766	$	106

Three Months Ended March 31, 2021

Six Months Ended March 31, 2021

Average
Impaired Loans

Interest Income
Recognized on
Impaired Loans

Average
Impaired Loans

Interest Income
Recognized on
Impaired Loans

(In thousands)

Residential mortgage

$
3,383

$
19

$
3,434

$
34

Commercial:

Commercial real estate

34,226

145

29,930

250

Farmland

2,278

19

1,516

19

Commercial and industrial

549

5

365

7

Consumer:

Home equity lines of credit

56

-

65

-

Second mortgages

658

2

679

3

Total

$
41,150

$
190

$
35,989

$
313

- 19-

~~No additional funds are committed to be advanced in connection with impaired loans.]~~

Table of Contents

The following table presents the classes of the loan portfolio categorized as ~~pass, special mention, substandard~~“pass”, “special mention”, “substandard” and ~~doubtful~~“doubtful” within the Company’s internal risk rating system as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

	Pass		Special Mention		Substandard		Doubtful		Total		*Pass*		*Special Mention*		*Substandard*		*Doubtful*		*Total*
	(In thousands)										(In thousands)
March 31, 2022:
March 31, 2023:
Residential mortgage	$	174,594	$	-	$	3,075	$	-	$	177,669	$	160,724	$	—	$	3,010	$	—	$	163,734
Construction and Development:
Residential and commercial		25,558		-		-		-		25,558		18,696		—		—		—		18,966
Land		4,603		-		-		-		4,603		540		—		—		—		540
Commercial:
Commercial real estate		357,298		42,972		704		-		400,974		374,900		27,100		503		—		402,503
Farmland		13,392		-		2,232		-		15,624		11,350		—		2,210		—		13,560
Multi-family		54,789		-		-		-		54,789		61,272		—		—		—		61,272
Commercial and industrial		95,347		-		6,007		-		101,354		99,400		—		5,381		—		104,781
Other		7,977		-		-		-		7,977		10,417		—		—		—		10,417
Consumer:
Home equity lines of credit		12,107		-		176		-		12,283		12,916		—		86		—		13,002
Second mortgages		4,560		63		346		-		4,969		3,375		53		149		—		3,577
Other		2,234		-		3		-		2,237		2,210		—		—		—		2,210
Total	$	752,459	$	43,035	$	12,543	$	-	$	808,037	$	756,070	$	27,153	$	11,339	$	—	$	794,562

Pass

Special Mention

Substandard

Doubtful

Total

(In thousands)

September 30, 2021:

Residential mortgage

$
195,658

$
-

$
3,052

$
-

$
198,710

Construction and Development:

Residential and commercial

61,492

-

-

-

61,492

Land

2,204

-

-

-

2,204

Commercial:

Commercial real estate

376,721

48,705

1,489

-

426,915

Farmland

8,043

-

2,254

-

10,297

Multi-family

57,052

9,280

-

-

66,332

Commercial and industrial

106,910

-

8,336

-

115,246

Other

10,954

-

-

-

10,954

Consumer:

Home equity lines of credit

13,390

-

101

-

13,491

Second mortgages

4,908

68

908

-

5,884

Other

2,299

-

-

-

2,299

Total

$
839,631

$
58,053

$
16,140

$
-

$
913,824

- 20-

~~-21-~~

Table of Contents

	*Pass*		*Special Mention*		*Substandard*		*Doubtful*		*Total*
	(In thousands)
September 30, 2022:
Residential mortgage	$	173,083	$	—	$	2,874	$	—	$	175,957
Construction and Development:
Residential and commercial		24,362		—		—		—		24,362
Land		550		—		—		—		550
Commercial:
Commercial real estate		373,729		32,682		504		—		406,914
Farmland		9,293		—		2,213		—		11,506
Multi-family		55,295		—		—		—		55,295
Commercial and industrial		97,219		—		5,484		—		102,703
Other		13,356		—		—		—		13,356
Consumer:
Home equity lines of credit		13,143		—		90		—		13,233
Second mortgages		4,110		58		227		—		4,395
Other		2,136		—		—		—		2,136
Total	$	766,276	$	32,740	$	11,391	$	—	$	810,407

The following table presents loans that are no longer accruing interest as of March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, by portfolio class:

					*March 31,*		*September 30,*
	March 31, 2022		September 30, 2021		*2023*		*2022*
	(In thousands)				(In thousands)
Non-accrual loans:
Residential mortgage	$	610	$	879	$	929	$	585
Commercial:
Commercial and industrial		285		2,517
Consumer:
Home equity lines of credit		22		23		18		20
Second mortgages		184		278		60		148
Total non-accrual loans	$	1,101	$	3,697	$	1,007	$	753

Under the Bank’s loan policy, once a loan has been placed on non-accrual status we do not resume interest accruals until the loan has been brought current and has maintained a current payment status for not less than six consecutive months. Total non-accrual loans exclude loans held-for-sale. ~~Non-accrual loans totaled $1.1 million at March 31, 2022, and $3.7 million at September 30, 2021.~~ The ~~decrease~~increase in non-accrual loans was ~~primarily due~~attributable to two new residential loans moving to non-accrual status with a ~~partial charge down~~combined carrying value of ~~$2.2 million related~~$561,000, which was offset in part by two residential loans moving out of non-accrual status as they were sold through foreclosure. One consumer loan returned to ~~one non-accrual commercial and industrial loan. This loan had a specific allocation of $1.5 million previously reported at September 30, 2021. The partial charge down was~~accrual status during the ~~result of the ongoing monitoring and evaluation of the loan’s value in light of indications of interest received with respect to the note.~~ six months ended March 31, 2023.

Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms ~~was approximately~~was$8,000for the six months ended March 31, 2023 and $20,000 for the ~~three~~six months ended March 31, 2022 and $23,000 for the six months ended March 31, 2022. Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms was approximately $407,000 for the three months ended March 31, 2021 and $545,000 for the six months ended March 31, 2021.. At March 31, 2022 there was one loan for $3,000 that was past due 90 days or more and still accruing interest. At September 30, 2021, there were 0 loans past due 90 days or more and still accruing interest.

- 21-

Table of Contents

Management monitors the performance and credit quality of the loan portfolio by analyzing the age of the loans in the loan portfolio and categorizing each loan as “current”, meaning payment is received from a borrower by the scheduled due date, or by the length of time a scheduled payment is past due.

The following table presents the classes of the loan portfolio categorized by the following aging categories as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

Current

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
and More
Past Due

Total Past
Due

Total
Loans
Receivable

Loans Receivable >
90 Days and
Accruing

(In thousands)

March 31, 2022:

Residential mortgage

$
176,171

$
1,311

$
-

$
187

$
1,498

$
177,669

$
-

Construction and Development:

Residential and commercial

25,558

-

-

-

-

25,558

-

Land

4,603

-

-

-

-

4,603

-

Commercial:

Commercial real estate

400,471

503

-

-

503

400,974

-

Farmland

15,624

-

-

-

-

15,624

-

Multi-family

54,789

-

-

-

-

54,789

-

Commercial and industrial

101,069

285

-

-

285

101,354

-

Other

7,977

-

-

-

-

7,977

-

Consumer:

-

Home equity lines of credit

12,206

77

-

-

77

12,283

-

Second mortgages

4,961

-

-

8

8

4,969

-

Other

2,234

-

-

3

3

2,237

-

Total

$
805,663

$
2,176

$
-

$
198

$
2,374

$
808,037

$
-

~~-22-~~

													*Loans*
							*90 Days*				*Total*		*Receivable >*
			*30-59 Days*		*60-89 Days*		*and More*		*Total Past*		*Loans*		*90 Days and*
	*Current*		*Past Due*		*Past Due*		*Past Due*		*Due*		*Receivable*		*Accruing*
	(In thousands)
March 31, 2023:
Residential mortgage	$	162,882	$	121	$	—	$	731	$	852	$	163,734	$	170
Construction and Development:
Residential and commercial		18,966		—		—		—		—		18,966		—
Land		540		—		—		—		—		540		—
Commercial:
Commercial real estate		402,000		—		—		503		503		402,503		503
Farmland		13,560		—		—		—		—		13,560		—
Multi-family		61,272		—		—		—		—		61,272		—
Commercial and industrial		104,781		—		—		—		—		104,781		—
Other		10,417		—		—		—		—		10,417		—
Consumer:														—
Home equity lines of credit		12,883		119		—		—		119		13,002		—
Second mortgages		3,577		—		—		—		—		3,577		—
Other		2,186		24		—		—		24		2,210		—
Total	$	793,064	$	264	$	—	$	1,234	$	1,498	$	794,562	$	673

			��											*Loans*
								*90 Days*				*Total*		*Receivable >*
				*30-59 Days*		*60-89 Days*		*and More*		*Total Past*		*Loans*		*90 Days and*
	*Current*			*Past Due*		*Past Due*		*Past Due*		*Due*		*Receivable*		*Accruing*
	(In thousands)
September 30, 2022:
Residential mortgage	$	173,852		$	1,198	$	477	$	430	$	2,105	$	175,957	$	243
Construction and Development:
Residential and commercial		24,362			—		—		—		—		24,362		—
Land		550			—		—		—		—		550		—
Commercial:
Commercial real estate		406,809			105		—		—		105		406,914		—
Farmland		9,293			2,213		—		—		2,213		11,506		—
Multi-family		55,295			—		—		—		—		55,295		—
Commercial and industrial		101,328			1,375		—		—		1,375		102,703		—
Other		13,356			—		—		—		—		13,356		—
Consumer:
Home equity lines of credit		13,160			53		20		—		73		13,233		—
Second mortgages		4,384			3		—		8		11		4,395		—
Other		2,132			4		—		—		4		2,136		—
Total	$	804,521		$	4,951	$	497	$	438	$	5,886	$	810,407	$	243

Current

30-59 Days
Past Due

60-89 Days
Past Due

Greater than
90 Days
Past Due

Total Past
Due

Total
Loans
Receivable

Loans Receivable >
90 Days and
Accruing

(In thousands)

September 30, 2021:

Residential mortgage

$
197,062

$
796

$
241

$
611

$
1,648

$
198,710

$
-

Construction and Development:

Residential and commercial

61,492

-

-

-

-

61,492

-

Land

2,204

-

-

-

-

2,204

-

Commercial:

Commercial real estate

426,915

-

-

-

-

426,915

-

Farmland

10,297

-

-

-

-

10,297

-

Multi-family

66,332

-

-

-

-

66,332

-

Commercial and industrial

115,246

-

-

-

-

115,246

-

Other

10,954

-

-

-

-

10,954

-

Consumer:

Home equity lines of credit

13,394

97

-

-

97

13,491

-

Second mortgages

5,697

4

83

100

187

5,884

-

Other

2,296

3

-

-

3

2,299

-

Total

$
911,889

$
900

$
324

$
711

$
1,935

$
913,824

$
-

- 22-

~~Restructured loans deemed to be TDRs are typically the result~~

Table of an extension of the loan maturity date or a reduction of the interest rate of the loan to a rate that is below market, a combination of rate and maturity extension, or by other means, including covenant modifications, forbearance and other concessions. However, the Bank generally restructures loans by modifying the payment structure to require payments of interest only for a specified period or by reducing the actual interest rate. Once a loan becomes a TDR, it will continue to be reported as a TDR during the term of the restructuring.

Contents

The Company had 2223 and 2620 loans classified as ~~TDRs~~troubled debt restructures (“TDRs”) at March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, respectively, with an aggregate outstanding balance of ~~$6.2~~$11.0 million and ~~$18.2~~$6.1 million, respectively. At March 31, ~~2022,~~2023, these loans were also classified as ~~impaired.~~impaired. The ~~decrease~~$4.9 million increase in aggregate outstanding balances is primarily related to ~~two~~the addition of one TDR commercial ~~real estate loans totaling $11.4 million that were sold during the period, with 0 gains or losses recognized on the sale, as part~~and industrial loan of ~~the note sale previously announced. 19~~$4.8 million. 13 of the TDR loans continue to perform under the restructured terms through March 31, ~~2022~~2023 and the Company continued to accrue interest on such loans through such date.

Loans that have been classified as TDRs have modified payment terms and in some cases modified interest rates from the original agreements, which allow the borrowers, who were experiencing financial difficulty, to ~~make~~relieve some of their overall cash flow burden, including but not limited to making interest only payments for a period of ~~time in order to relieve some of their overall cash flow burden.~~time. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and could result in potential incremental losses. These potential incremental losses have been factored into our overall estimate of the ALLL. The level of any defaults will likely be affected by future economic conditions. A default on a TDR loan for purposes of this disclosure occurs when the borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred.

~~-23-~~

TDRs may arise in cases where, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to other real estate owned (“OREO”), which is included within other assets in the Consolidated Statements of Financial Condition.For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. Excluding OREO, the Company had 0$265,000 and ~~$185,000~~$359,000 of residential real estate properties in the process of foreclosure at March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, respectively. The Company also has one commercial real estate loan held for sale at a carrying value of $13.3 million in process of foreclosure at March 31, 2023. The court entered into a Judgment of Foreclosure with respect to the commercial real estate loan held for sale (i) directing the sale of the property at public auction prior to December 13, 2023, (ii) upon sale of the property, directing the payment to the Company in the sum of approximately $17.2 million plus interest at the note rate from September 16, 2022 through December 14, 2022 and at the statutory rate of 9% thereafter through the date of the foreclosure sale, (iii) directing that the Company pay for the transfer of the foreclosure sale and (iv) if Malvern is the successful bidder, directing that the Company must place the property back on the market for sale or leasing within 180 days of the foreclosure sale.

The following table presents total TDRs as of ~~December~~March 31, ~~2021~~2023 and September 30, ~~2021:~~2022:

	Total Troubled Debt Restructurings				Troubled Debt Restructured Loans That Have Defaulted on Modified Terms Within The Past 12 Months								*Troubled Debt Restructured*
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment						*Loans That Have Defaulted on*
	(Dollars in thousands)								*Total Troubled Debt*				*Modified Terms Within The Past*
December 31, 2021:
									*Restructurings*				*12 Months*
									*Number of*		*Recorded*		*Number of*		*Recorded*
									*Loans*		*Investment*		*Loans*		*Investment*
									(Dollars in thousands)
March 31, 2023:
Residential mortgage		14	$	2,689		-	$	-		16	$	2,869		1	$	465
Commercial:
Commercial real estate		3		595		2		504		2		503		—		—
Farmland		1		2,232		-		-		1		2,210		—		—
Commercial and industrial		1		625		-		-		2		5,381		—		—
Consumer:
Second mortgages		3		69		-		-		2		39		—		—
Total		22	$	6,210		2	$	504		23	$	11,002		1	$	465
September 30, 2021:
September 30, 2022:
Residential mortgage		16	$	3,180		4	$	640		14		2,632		—		—
Commercial:								-
Commercial real estate		5		12,180		-		-		3		594		—		—
Farmland		1		2,254		-		-		1		2,213		—		—
Commercial and industrial		1		549		-		-		1		625		—		—
Consumer:
Second mortgages		3		78		-		-		1		4		—		—
Total		26	$	18,241		4	$	640		20	$	6,068		—	$	—

- 23-

Table of Contents

The following table reports the performing status of all TDR ~~loans.~~loans as of March 31, 2023 and September 30, 2022. The performing status is determined by a loan’s compliance with the modified terms:

March 31, 2022

September 30, 2021

Performing

Non-Performing

Performing

Non-Performing

(In thousands)

Residential mortgage

$
2,266

$
423

$
2,540

$
640

Commercial:

Commercial real estate

595

-

12,180

-

Farmland

2,232

-

2,254

-

Commercial and industrial

625

-

549

-

Consumer:

Second mortgages

69

-

78

-

Total

$
5,787

$
423

$
17,601

$
640

~~-24-~~

	*March 31, 2023*				*September 30, 2022*
			*Non-*				*Non-*
	*Performing*		*Performing*		*Performing*		*Performing*
	(In thousands)
Residential mortgage	$	1,866	$	1,003	$	1,543	$	1,089
Commercial:
Commercial real estate		—		503		594		—
Farmland		2,210		—		2,213		—
Commercial and industrial		5,381		—		625		—
Consumer:
Second mortgages		39		—		4		—
Total	$	9,496	$	1,506	$	4,979	$	1,089

~~There were 2 new TDRs for the six months ended March 31, 2022.~~

The following ~~tables show~~table shows the new TDRs for the ~~three and~~ six months ended March 31, ~~2022 compared to the three~~ 2023 and ~~six months ended March 31, 2021:~~2022:

For the Three Months Ended March 31,

2022

2021

Number of
Contracts

Pre-
Modifications
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-
Modifications
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

(In thousands)

Troubled Debt Restructurings:

Residential mortgage

-

$
-

$
-

-

$
-

$
-

Commercial:

Commercial real estate

-

$
-

$
-

-

$
-

$
-

Farmland

-

$
-

$
-

1

$
2,287

$
2,287

Commercial and industrial

-

$
-

$
-

1

$
549

$
549

Consumer:

Second mortgages

-

$
-

$
-

-

$
-

$
-

Total troubled debt restructurings

-

$
-

$
-

2

$
2,836

$
2,836

													*For the Six Months Ended March 31,*
													*2023*						*2022*
															*Pre-*		*Post-*				*Pre-*		*Post-*
															*Modifications*		*Modification*				*Modifications*		*Modification*
	For the Six Months Ended March 31,														*Outstanding*		*Outstanding*				*Outstanding*		*Outstanding*
	2022						2021						*Number of*		*Recorded*		*Recorded*		*Number of*		*Recorded*		*Recorded*
	Number of Contracts		Pre- Modifications Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modifications Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		*Contracts*		*Investment*		*Investment*		*Contracts*		*Investment*		*Investment*
	(Dollars in thousands)												(Dollars in thousands)
Troubled Debt Restructurings:
Residential mortgage		1	$	482	$	482		-	$	-	$	-		2	$	304	$	306		1	$	482	$	482
Commercial:
Commercial real estate		-	$	-	$	-		-	$	-	$	-		—		—		-		-		-		-
Farmland		-	$	-	$	-		1	$	2,287	$	2,287		—		—		-		-		-		-
Commercial and industrial		1	$	504	$	504		1	$	549	$	549		1		4,802		4,802		1		504		504
Consumer:
Second mortgages														1		38		39		—		—		—
Total troubled debt restructurings		2	$	986	$	986		2	$	2,836	$	2,836		4	$	5,144	$	5,147		2	$	986	$	986

Under Section 4013 of the CARES Act, and separately based upon regulatory guidance promulgated by federal banking regulators (collectively, the “Interagency Statement”), qualifying short-term loan modifications resulting in payment deferrals that are attributable to the adverse impact of ~~COVID-19~~COVID-19 are not considered to be TDRs. As such, the applicable loans are reported as current with regard to payment status and continue to accrue interest during the payment deferral period. At March 31, ~~2022,~~2023, there were 4two such loan modifications totaling ~~approximately $42.3~~$26.6 million all rated “special mention”.At September 30, ~~2021,~~2022, the Company had ~~8 COVID-19~~three COVID-19 modified loans totaling ~~approximately $61.2~~$32.0 million, all of which were rated “special mention”.

~~-25-~~

- 24-

Table of Contents

The following tables set forth the composition of these loans by loan segments as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

	*March 31, 2023*
	*Number of*		*Loan Modified*		*Gross*		*Percentage of Gross Loans*
	*Loans*		*Exposure*		*Loans*		*Modified*
			(Dollars in thousands)
Residential mortgage		—	$	—	$	163,734		0.00	%

Construction and Development:
Residential and commercial		—		—		18,966		0.00	%
Land loans		—		—		540		0.00	%
Total Construction and Development		—		—		19,506		0.00	%

Commercial:
Commercial real estate		2		26,560		402,503		6.60	%
Farmland		—		—		13,560		0.00	%
Multi-family		—		—		61,272		0.00	%
Commercial and industrial		—		—		104,781		0.00	%
Other		—		—		10,417		0.00	%
Total Commercial		2		26,560		592,533		4.48	%

Consumer:
Home equity lines of credit		—		—		13,002		0.00	%
Second mortgages		—		—		3,577		0.00	%
Other		—		—		2,210		0.00	%
Total Consumer		—		—		18,789		0.00	%
Total loans		2	$	26,560	$	794,562		3.34	%

	*September 30, 2022*
	*Number of*		*Loan Modified*		*Gross*		*Percentage of Gross Loans*
	Loans		Exposure		Loans		Modified
			(Dollars in thousands)
Residential mortgage		—	$	—	$	175,957		0.00	%
Construction and Development:
Residential and commercial		—		—		24,362		0.00	%
Land loans		—		—		550		0.00	%
Total Construction and Development		—		—		24,912		0.00	%
Commercial:
Commercial real estate		3		32,041		406,914		7.87	%
Farmland		—		—		11,506		0.00	%
Multi-family		—		—		55,295		0.00	%
Commercial and industrial		—		—		102,703		0.00	%
Other		—		—		13,356		0.00	%
Total Commercial		3		32,041		589,774		5.74	%
Consumer:
Home equity lines of credit		—		—		13,233		0.00	%
Second mortgages		—		—		4,395		0.00	%
Other		—		—		2,136		0.00	%
Total Consumer		—		—		19,764		0.00	%
Total loans		3	$	32,041	$	810,407		3.95	%

March 31 ,2022

Number of Loans

Loan Modified
Exposure

Gross Loans
March 31 ,2022

Percentage of Gross
Loans on Modified

(Dollars in thousands)

Residential mortgage

-

$
-

$
177,669

0.00
%

Construction and Development:

Residential and commercial

-

-

25,558

0.00
%
Land loans

-

-

4,603

0.00
%
Total Construction and Development

-

-

30,161

0.00
%

Commercial:

Commercial real estate

4

42,321

400,974

5.24
%
Farmland

-

-

15,624

0.00
%
Multi-family

-

-

54,789

0.00
%
Commercial and industrial

-

-

101,354

0.00
%
Other

-

-

7,977

0.00
%
Total Commercial

4

42,321

580,718

5.24
%

Consumer:

Home equity lines of credit

-

-

12,283

0.00
%
Second mortgages

-

-

4,969

0.00
%
Other

-

-

2,237

0.00
%
Total Consumer

-

-

19,489

0.00
%
Total loans

4

$
42,321

$
808,037

5.24
%

September 30, 2021

Number of Loans

Loan Modified
Exposure

Gross Loans
September 30, 2021

Percentage of Gross
Loans on Modified

(Dollars in thousands)

Residential mortgage

2

$
667

$
198,710

0.07
%

Construction and Development:

Residential and commercial

-

-

61,492

0.00
%
Land loans

-

-

2,204

0.00
%
Total Construction and Development

-

-

63,696

0.00
%

Commercial:

Commercial real estate

6

60,567

426,915

6.63
%
Farmland

-

-

10,297

0.00
%
Multi-family

-

-

66,332

0.00
%
Commercial and industrial

-

-

115,246

0.00
%
Other

-

-

10,954

0.00
%
Total Commercial

6

60,567

629,744

6.63
%

Consumer:

Home equity lines of credit

-

-

13,491

0.00
%
Second mortgages

-

-

5,884

0.00
%
Other

-

-

2,299

0.00
%
Total Consumer

-

-

21,674

0.00
%
Total loans

8

$
61,234

$
913,824

6.70
%

- 25-

Table of Contents

Note 8 - Regulatory Matters

~~-26-~~

~~Note 7 - Regulatory Matters~~

Regulatory Capital Requirements

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 possibly additional discretionary actions by 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.

InJuly~~2013,the~~ r~~espect~~iveU.S.~~fede~~ral~~banking~~a~~genciesissued~~final~~rulesimplementingBas~~el~~IIIandthe~~Dodd-Fr~~ankAct c~~a~~pit~~alr~~equi~~r~~ements~~ tobe~~ful~~l~~y phased~~inona~~glob~~al~~basis~~onJan~~uary~~ 1,~~2019. The~~r~~egul~~a~~tions est~~ab~~lish~~anew~~tangi~~ble~~commonequity~~ca~~pit~~alr~~equi~~r~~ement,inc~~r~~easethemini~~mumr~~equi~~r~~ement~~ ~~forthe cur~~r~~entTier~~1~~risk-~~w~~eightedasset~~(“RWA”) ~~ratio~~,~~phaseoutcertainkinds~~of~~intangi~~b~~les~~trea~~ted~~asca~~pit~~a~~l andcertaintypes~~of~~instrumentsandchangetherisk~~w~~eightings~~of~~certainassetsused~~to~~dete~~r~~mine~~ r~~equi~~r~~ed c~~a~~pit~~alra~~tio~~s.~~The~~new~~commonequityTier~~1ca~~pit~~al~~component~~ r~~equi~~resca~~pit~~alof~~thehighest qu~~a~~lity~~–pr~~edominant~~ly~~composed~~ofr~~etainedearningsandcommonstockinstrument~~s.For~~com~~m~~unity banks,such~~as ~~the~~ ~~Bank,~~a~~commonequityTier~~1ca~~pit~~alra~~tio~~ of ~~4.5% became~~ef~~fect~~iveon Jan~~uary~~ 1,~~2015. The~~newca~~pit~~al~~rules~~a~~lsoinc~~r~~easedthemini~~mum~~Tier~~1ca~~pit~~alra~~tio~~from~~4.0% to6.0% beginning~~onJan~~uary~~ 1,2015. The rules also establish a capital conservation buffer of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement began to be phased in on January 1, 2016 at 0.625% of risk-weighted assets and increased by that amount each year until it became fully implemented at 2.5% on January 1, 2019. An institution is also subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted tangible assets (as defined in the regulations) and of risk-based capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations).

As of both March 31, ~~2022~~2023 and ~~as of~~ September 30, ~~2021, the Company’s and~~2022, the Bank’s current capital levels exceeded the required capital amounts to be considered “well capitalized” and they also met the fully-phased in minimum capital requirements, including the related capital conservation buffers, as required by the Basel III capital rules.

~~-27-~~

The ~~following table summarizes the Company’s compliance with applicable~~Company is not subject to regulatory capital requirements ~~as of March 31, 2022 and September 30, 2021:~~

Actual

For Capital
Adequacy Purposes

To be Well
Capitalized
Under Prompt
Corrective Action
Provisions (1)

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)
As of March 31, 2022

Tier 1 Leverage (Core) Capital (to
   adjusted assets)

$
144,898

12.83
%

$
45,158

4.00
%

N/A

N/A
Common Equity Tier 1 Capital (to risk
   weighted assets)

144,898

16.38
%

39,804

4.50
%

N/A

N/A
Tier 1 Capital (to risk weighted assets)

144,898

16.38
%

53,073

6.00
%

N/A

N/A
Total Risk Based Capital (to risk
   weighted assets)

179,280

20.27
%

70,763

8.00
%

N/A

N/A
As of September 30, 2021

Tier 1 Leverage (Core) Capital (to
   adjusted assets)

$
142,132

11.84
%

$
48,020

4.00
%

N/A

N/A
Common Equity Tier 1 Capital (to risk
   weighted assets)

142,132

14.53
%

44,024

4.50
%

N/A

N/A
Tier 1 Capital (to risk weighted assets)

142,132

14.53
%

58,699

6.00
%

N/A

N/A
Total Risk Based Capital (to risk
   weighted assets)

178,620

18.26
%

78,265

8.00
%

N/A

N/A

~~(1) The Company is not subject to the regulatory capital ratios~~ imposed by Basel III on bank holding companies because ~~the Company was~~it is deemed to be a small bank holding ~~company as of March 31, 2022 and September 20, 2021.~~company.

- 26-

Table of Contents

The following table summarizes the Bank’s compliance with applicable regulatory capital requirements as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

											*Minimum To be Well*
											*Capitalized*
											*Under Prompt*
						*Minimum For Capital*					*Corrective*
	*Actual*					*Adequacy Purposes*					*Action Provisions*
	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*
	(Dollars in thousands)
As of March 31, 2023
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	170,015		17.01	%	$	39,977		4.00	%	$	49,971		5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		170,015		20.05	%		38,160		4.50	%		55,119		6.50	%
Tier 1 Capital (to risk weighted assets)		170,015		20.05	%		50,879		6.00	%		67,839		8.00	%
Total Risk Based Capital (to risk weighted assets)		179,195		21.13	%		67,839		8.00	%		84,799		10.00	%
As of September 30, 2022
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	166,340		16.30	%	$	40,820		4.00	%	$	51,025		5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		166,340		19.27	%		38,836		4.50	%		56,096		6.50	%
Tier 1 Capital (to risk weighted assets)		166,340		19.27	%		51,751		6.00	%		69,042		8.00	%
Total Risk Based Capital (to riskweighted assets)		175,512		20.34	%		69,042		8.00	%		86,302		10.00	%

Failure to meet any of the capital requirements could result in enforcement actions by the regulators, including a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver.

Actual

For Capital
Adequacy Purposes

To be Well
Capitalized
Under Prompt
Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of March 31, 2022

Tier 1 Leverage (Core) Capital (to
   adjusted assets)

$
160,992

14.29
%

$
45,074

4.00
%

$
56,343

5.00
%
Common Equity Tier 1 Capital (to risk
   weighted assets)

160,992

18.25
%

39,802

4.50
%

57,347

6.50
%
Tier 1 Capital (to risk weighted assets)

160,992

18.25
%

52,936

6.00
%

70,582

8.00
%
Total Risk Based Capital (to risk
   weighted assets)

170,374

19.31
%

70,582

8.00
%

88,227

10.00
%
As of September 30, 2021

Tier 1 Leverage (Core) Capital (to
   adjusted assets)

$
157,518

13.14
%

$
47,946

4.00
%

$
59,933

5.00
%
Common Equity Tier 1 Capital (to risk
   weighted assets)

157,518

16.13
%

43,934

4.50
%

63,460

6.50
%
Tier 1 Capital (to risk weighted assets)

157,518

16.13
%

58,579

6.00
%

78,105

8.00
%
Total Risk Based Capital (to risk
   weighted assets)

169,072

17.32
%

78,105

8.00
%

97,632

10.00
%

~~-28-~~

Note 8 9– Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. At March 31, ~~2022,~~2023, such derivatives were used to hedge the variable cash flows associated with advances from the Federal Home Loan Bank of Pittsburgh.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next ~~twelve~~12 months, the Company estimates approximately ~~$10,000~~$2.3 million to be reclassified to earnings as a decrease to interest expense. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of ~~twenty~~20 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

- 27-

Table of Contents

The Company also executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service the Company provides to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

`

March 31, 2022

Asset derivatives

Liability derivatives

Notional Amount

Fair Value

Statement of Financial Condition Location

Notional Amount

Fair Value

Statement of Financial Condition Location

(In thousands)
Derivatives designated as a hedging instrument:

Interest rate swap agreement

$
60,000

$
2,224

Other assets

$
—

$
—

Other liabilities
Derivatives not designated as a hedging instrument:

Interest rate swap agreement

$
44,535

$
2,860

Other assets

$
44,535

$
2,862

Other liabilities

	*March 31, 2023*
	*Asset derivatives*					*Liability derivatives*
					*Statement of*					*Statement of*
	*Notional*				*Financial Condition*	*Notional*				*Financial Condition*
	*Amount*		*Fair Value*		*Location*	*Amount*		*Fair Value*		*Location*
	*(In thousands)*
Derivatives designated as a hedging instrument:
Interest rate swap agreements	$	60,000	$	3,023	Other assets	$	—	$	—	Other liabilities
Derivatives not designated as a hedging instrument:
Interest rate swap agreements	$	43,727	$	2,393	Other assets	$	43,727	$	2,394	Other liabilities

	*September 30, 2022*
	*Asset derivatives*					*Liability derivatives*
					*Statement of*					*Statement of*
	*Notional*				*Financial Condition*	*Notional*				*Financial Condition*
	*Amount*		*Fair Value*		*Location*	*Amount*		*Fair Value*		*Location*
	*(In thousands)*
Derivatives designated as a hedging instrument:
Interest rate swap agreements	$	60,000	$	4,017	Other assets	$	—	$	—	Other liabilities
Derivatives not designated as a hedging instrument:
Interest rate swap agreements	$	44,132	$	3,711	Other assets	$	44,132	$	3,712	Other liabilities

September 30, 2021

Asset derivatives

Liability derivatives

Notional Amount

Fair Value

Statement of Financial Condition Location

Notional Amount

Fair Value

Statement of Financial Condition Location

(In thousands)
Derivatives designated as a hedging instrument:

Interest rate swap agreement

$
40,000

$
14

Other assets

$
30,000

$
47

Other liabilities
Derivatives not designated as a hedging instrument:

Interest rate swap agreement

$
44,748

$
4,671

Other assets

$
44,748

$
4,673

Other liabilities

- 28-

~~-29-~~

~~For the period ended March 31, 2022, $20.0 million short-term fixed-rate advances was hedged for aperiod~~

Table of ~~4 years with a rolling 90 day maturity.~~

Contents

The tables below present the derivative assets and liabilities offsetting as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

Offsetting of Derivative Assets
(In thousands)

as of March 31, 2022

Gross Amounts Not Offset in the Statements of Financial Condition

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Statement of Financial Condition

Net Amounts of Assets presented in the Statement of Financial Condition

Financial Instruments

Cash Collateral Received

Net Amount

Derivatives
$
5,084

$
-

$
5,084

$
1,975

$
-

$
3,109

Offsetting of Derivative Liabilities
(In thousands)

as of March 31, 2022

Gross Amounts Not Offset in the Statements of Financial Condition

Gross Amounts of Recognized Liabilities

Gross Amounts Offset in the Statement of Financial Condition

Net Amounts of Liabilities presented in the Statement of Financial Condition

Financial Instruments

Cash Collateral Posted

Net Amount

Derivatives
$
2,862

$
-

$
2,862

$
1,975

$
-

$
887

Offsetting of Derivative Assets
(In thousands)

as of September 30, 2021

Gross Amounts Not Offset in the Statements of Financial Condition

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Statement of Financial Condition

Net Amounts of Assets presented in the Statement of Financial Condition

Financial Instruments

Cash Collateral Received

Net Amount

Derivatives
$
4,685

$
-

$
4,685

$
-

$
-

$
4,685

Offsetting of Derivative Liabilities
(In thousands)

as of September 30, 2021

Gross Amounts Not Offset in the Statements of Financial Condition

Gross Amounts of Recognized Liabilities

Gross Amounts Offset in the Statement of Financial Condition

Net Amounts of Liabilities presented in the Statement of Financial Condition

Financial Instruments

Cash Collateral Posted

Net Amount

Derivatives
$
4,720

$
-

$
4,720

$
221

$
8,257

$
(3,758
)

Offsetting of Derivative Assets

(In thousands)

as of March 31, 2023

Gross Amounts Not Offset in the Statements of

Financial Condition

Gross

Net Amounts

Amounts

of Assets

Gross

Offset in the

presented in

Amounts

Statement of

the Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Assets

Condition

Instruments

Received

Net Amount

Derivatives

5,416

—

5,416

—

3,670

1,746

Offsetting of Derivative Liabilities

(In thousands)

as of March 31, 2023

Gross Amounts Not Offset in the Statements of

Financial Condition

Gross

Net Amounts

Amounts

of Liabilities

Gross

Offset in the

presented in

Amounts

Statement of

the Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Liabilities

Condition

Instruments

Posted

Net Amount

Derivatives

2,394

—

2,394

—

2,394

Offsetting of Derivative Assets

(In thousands)

as of September 30, 2022

Gross Amounts Not Offset in the Statements of

Financial Condition

Gross

Net Amounts

Amounts

of Assets

Gross

Offset in the

presented in

Amounts

Statement of

the Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Assets

Condition

Instruments

Received

Net Amount

Derivatives

7,728

—

4,210

3,518

~~-30-~~

Offsetting of Derivative Liabilities

(In thousands)

as of September 30, 2022

Gross Amounts Not Offset in the Statements of

Financial Condition

Gross

Net Amounts

Amounts

of Liabilities

Gross

Offset in the

presented in

Amounts

Statement of

the Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Liabilities

Condition

Instruments

Posted

Net Amount

Derivatives

3,712

—

3,712

- 29-

Table of Contents

The tables below present the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of ~~Operations~~Net Income relating to the cash flow derivative instruments for the three and six months ended March 31, ~~2022~~ 2023 and ~~2021:~~2022:

	Three Months Ended March 31, 2022
	Amount of Gain Recognized in OCI on Derivative		Amount of Loss Reclassified from OCI to Interest Expense
	(In thousands)
Interest rate swap agreements	$	1,748	$	(26		)
Total derivatives		1,748		(26		)
							*Three Months Ended March 31, 2023*
	Six Months Ended March 31, 2022						*Amount of Gain (Loss) Recognized*			*Amount of Gain Reclassified from OCI to*
	Amount of Gain Recognized in OCI on Derivative				Amount of Loss Reclassified from OCI to Interest Expense		*in OCI on Derivative*			*Interest Expense*
	(In thousands)						(In thousands)
Interest rate swap agreements	$	2,142	$	(111		)	$	(182	)	$	565
Total derivatives		2,142		(111		)	$	(182	)	$	565

	Three Months Ended March 31, 2021
	Amount of Gain Recognized in OCI on Derivative		Amount of Loss Reclassified from OCI to Interest Expense
	(In thousands)
Interest rate swap agreements	$	322	$	(243	)
Total derivatives		322		(243	)
						*Three Months Ended March 31, 2022*
	Six Months Ended March 31, 2021					*Amount of Loss Recognized*		*Amount of Loss Reclassified from OCI to*
	Amount of Gain Recognized in OCI on Derivative		Amount of Loss Reclassified from OCI to Interest Expense			*in OCI on Derivative*		*Interest Expense*
	(In thousands)					(In thousands)
Interest rate swap agreements	$	314	$	(523	)	$	1,748	$	(26	)
Total derivatives		314		(523	)	$	1,748	$	(26	)

	*Six Months Ended March 31, 2023*
	*Amount of Loss Recognized*		*Amount of Gain Reclassified from OCI to*
	*in OCI on Derivative*		*Interest Expense*
	(In thousands)
Interest rate swap agreements	$	22	$	1,016
Total derivatives	$	22	$	1,016

	*Six Months Ended March 31, 2022*
	*Amount of Loss Recognized*		*Amount of Loss Reclassified from OCI to*
	*in OCI on Derivative*		*Interest Expense*
	(In thousands)
Interest rate swap agreements	$	2,142	$	(111	)
Total derivatives	$	2,142	$	(111	)

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of ~~Operations~~net Income for the three and six months ended March 31, ~~2022~~ 2023 and ~~2021:~~2022:

~~-31-~~

Three Months Ended March 31, 2022

Consolidated Statements of Operations

Amount of Gain Recognized in Income on derivatives

(In thousands)

Derivatives not designated as a hedging instrument:

Interest rate swap agreement

Other income

$
1

Total

$
1

Six Months Ended March 31, 2022

Consolidated Statements of Operations

Amount of Gain Recognized in Income on derivatives

(In thousands)

Derivatives not designated as a hedging instrument:

Interest rate swap agreement

Other income

$
2

Total

$
2

Three Months Ended March 31, 2021

Consolidated Statements of Operations

Amount of Loss Recognized in Income on derivatives

(In thousands)

Derivatives not designated as a hedging instrument:

Interest rate swap agreement

Other income

$
2

Total

$
2

Six Months Ended March 31, 2021

Consolidated Statements of Operations

Amount of Loss Recognized in Income on derivatives

(In thousands)

Derivatives not designated as a hedging instrument:

Interest rate swap agreement

Other income

$
3

Total

$
3

	*Six Months Ended March 31, 2023*
	*Consolidated Statements of Income*	*Amount of Loss Recognized in Income on derivatives*
	(In thousands)
Derivatives not designated as a hedging instrument:
Interest rate swap agreement	Other income	$	—
Total		$	—

	*Six Months Ended March 31, 2022*
	*Consolidated Statements of Income*	*Amount of Loss Recognized in Income on derivatives*
	(In thousands)
Derivatives not designated as a hedging instrument:
Interest rate swap agreement	Other income	$	2
Total		$	2

The Company has agreements with each of its derivative counterparties that contain a provision providing that if the Company defaults on any of its indebtedness, including defaults where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative ~~obligations.~~agreements.

At March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, the fair value of derivatives was in a net ~~liability~~asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. There were no adjustments for nonperformance risk at March 31, ~~2022~~2023 and September 30, ~~2021.~~2022. At March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company ~~hasminimum~~had no collateral posting ~~thresholds with certain of its derivative counterparties and has posted cashcollateral of~~ 0 ~~and $8.3 million, respectively,~~requirement against its obligations under these agreements. If the Company had breached any of these provisions ~~at March 31, 2022,~~of its contracts, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

~~-32-~~

Note 910 - Fair Value Measurements

The Company follows FASB ASC Topic 820Fair Value Measurement to record fair value adjustments to certain assets and to determine fair value disclosures for the Company’s financial instruments. Investment and mortgage-backed securities available for sale and equity securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, ~~real estate owned~~OREO and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

- 30-

Table of Contents

The Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1— valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2—valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3—valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy.

Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the Company’s or other ~~third-party’s~~third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment, and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

The Company monitors and evaluates available data to perform fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date event or a change in circumstances ~~that~~ affects the valuation method chosen. There were no changes in valuation ~~technique~~techniques or transfers between levels at March 31, ~~2022~~2023 or September 30, ~~2021.~~2022.

~~-33-~~

The tables below present the balances of assets measured at fair value on a recurring basis as of March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

	March 31, 2022								*March 31, 2023*
	Total		Level 1		Level 2		Level 3		*Total*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)								(In thousands)
Assets:
Investment securities available for sale:
Debt securities:
U.S. government agencies		4,442	$	-	$	4,442	$	-	$	3,717	$	—	$	3,717	$	—
State and municipal obligations		9,951		-		9,951		-		10,316		—		10,316		—
Single issuer trust preferred security		922		-		922		-		946		—		946		—
Corporate debt securities		34,950		-		34,950		-		29,670		—		29,670		—
Mortgage backed securities		2,439		-		2,439		-		2,092		—		2,092		—
U.S. treasury note		1,479		-		1,479		-		1,458		—		1,458		—
Total investment Securities available -for-sale		54,183		-		54,183		-	$	48,199	$	—		48,199	$	—
Equity Securities:
Mutual Funds		1,445		945		-		500		1,390		890		—		500
Total equity investment securities		1,445		945		-		500		1,390		890		—		500
Total investment securities available for sale	$	55,628	$	945	$	54,183	$	500

Assets:
Derivative instruments	$	5,804	$	-	$	5,804	$	-	$	5,416	$	—	$	5,416	$	—

Liabilities:
Derivative instruments	$	2,862	$	-	$	2,862	$	-	$	2,394	$	—	$	2,394	$	—

September 30, 2021

Total

Level 1

Level 2

Level 3

(In thousands)

Assets:

Investment securities available for sale:

Debt securities:

U.S. government agencies

$
4,993

$
-

$
4,993

$
-

State and municipal obligations

2,765

-

2,765

-

Single issuer trust preferred security

875

-

875

-

Corporate debt securities

32,180

-

32,180

-

Total investment Securities available -for-sale

40,813

-

40,813

-

Equity Securities:

Mutual Funds

1,500

1,000

-

500

Total equity investment securities

1,500

1,000

-

500

Total investment securities available for sale

$
42,313

$
1,000

$
40,813

$
500

Assets:

Derivative instruments

$
4,685

$
-

$
4,685

$
-

Liabilities:

Derivative instruments

$
4,720

$
-

$
4,720

$
-

- 31-

~~-34-~~

Table of Contents

	*September 30, 2022*
	*Total*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)
Assets:
Investment securities available for sale:
Debt securities:
U.S. government agencies	$	3,580	$	—	$	3,580	$	—
State and municipal obligations		9,660		—		9,660		—
Single issuer trust preferred security		946		—		946		—
Corporate debt securities		32,128		—		32,128		—
Mortgage backed securities		2,087		—		2,087		—
U.S. treasury note		1,443		—		1,443		—
Total investment Securities available -for-sale	$	49,844	$	—		49,844	$	—
Equity Securities:
Mutual Funds		1,374		874		—		500
Total equity investment securities		1,374		874		—		500

Derivative instruments	$	7,728	$	—	$	7,728	$	—
Liabilities:
Derivative instruments	$	3,712	$	—	$	3,712	$	—

The following tables present additional information about the equity securities measured at fair value on a recurring basis and for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value for ~~the~~ six months ended March 31, 2023 and March 31, 2022 ~~and March 31, 2021~~

	*Fair value measurements*
	*using significant*
	*unobservable inputs*
	*(Level 3)*
	(In thousands)
Balance, October 1, 2022	$	500
Payments received		—
Total gains or losses (realized/unrealized)		—
Included in earnings		—
Included in other comprehensive income		—
Purchases		—
Transfers in and/or out of Level 3		—
Balance, March 31, 2023	$	500

	*Fair value measurements*
	*using significant*
	*unobservable inputs*
	*(Level 3)*
	(In thousands)
Balance, October 1, 2021	$	500
Payments received		—
Total gains or losses (realized/unrealized)		—
Included in earnings		—
Included in other comprehensive income		—
Purchases		—
Transfers in and/or out of Level 3		—
Balance, March 31, 2022	$	500

Fair value measurements

using significant

unobservable inputs

(Level 3)

(In thousands)
    Balance, October 1, 2021
$
500

Payments received

0

Total gains or losses (realized/unrealized)

Included in earnings

0

Included in other comprehensive income

0

Purchases

0

Transfers in and/or out of Level 3

0

    Balance, March 31, 2022
$
500

Fair value measurements

using significant

unobservable inputs

(Level 3)

(In thousands)
    Balance, October 1, 2020
$
500

Payments received

0

Total gains or losses (realized/unrealized)

Included in earnings

0

Included in other comprehensive income

0

Purchases

0

Transfers in and/or out of Level 3

0

    Balance, March 31, 2021
$
500

- 32-

Table of Contents

All of the Company’s available for sale investment securities and derivative instruments are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from ~~third-party~~third-party sources or derived using internal models.

For assets measured at fair value on a nonrecurring basis that were still held at the end of the period, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

March 31, 2022

Total

Level 1

Level 2

Level 3

(In thousands)

Other real estate owned

$
4,961

$
-

$
-

$
4,961

Impaired loans⁽¹⁾

16,819

-

-

16,819

Total

$
21,780

$
-

$
-

$
21,780

~~-35-~~

	*March 31, 2023*
	*Total*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)
Other real estate owned	$	200	$	—	$	—	$	200
Impaired loans⁽¹⁾		13,300		—		—		13,300
Total	$	13,500	$	—	$	—	$	13,500

	*March 31, 2023*
	*Fair Value at*				*Range/(Weighted*
	*March 31, 2023*		*Valuation Technique*	*Unobservable Input*	*Average)*
	(Dollars in thousands)
Other real estate owned	$	200	Appraisal of Collateral⁽²⁾	Collateral discount⁽³⁾		33.6%/(33.6%)
Impaired loans⁽¹⁾		13,300	Appraisal of Collateral⁽²⁾	Collateral discount⁽³⁾		(10%-12%)/(10.5%)
Total	$	13,500

March 31, 2022

Fair Value at
March 31, 2022

Valuation Technique

Unobservable Input

Range/(Weighted
Average)

(Dollars in thousands)
Other real estate owned

$
4,961

Appraisal of Collateral(2)

Collateral discount(3)

4%/(4%)
Impaired loans⁽¹⁾

16,819

Appraisal of Collateral(2)

Collateral discount(3)

12%/(12%)
Total

$
21,780

(1)	There was no specific loan loss allowance related to impaired loans.

(2)	Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.

(3)	Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.

	*September 30, 2022*
	*Total*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)
Other real estate owned	$	259	$	—	$	—	$	259
Impaired loans⁽¹⁾		13,722		—		—		13,722
Total	$	13,981	$	—	$	—	$	13,981

	*September 30, 2022*
	*Fair Value at*				*Range/(Weighted*
	*September 30, 2022*		*Valuation Technique*	*Unobservable Input*	*Average)*
	(Dollars in thousands)
Other real estate owned	$	259	Appraisal of Collateral⁽²⁾	Collateral discount⁽³⁾	33.6%/(33.6%)
Impaired loans⁽¹⁾		13,722	Appraisal of Collateral⁽²⁾	Collateral discount⁽³⁾	(10.4%) – (12%)/(10.5%)
Total	$	13,981

~~(1)~~(1)

Consisted of three loans with an aggregate balance of ~~$16.5~~$13.7 million and with ~~$243,000~~$54,000 in specific loan loss allowance.

~~(2)~~(2)

Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.

~~Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.~~

~~(3)~~(3)

Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.

September 30, 2021

Total

Level 1

Level 2

Level 3

(In thousands)

Other real estate owned

$
4,961

$
-

$
-

$
4,961

Impaired loans⁽¹⁾

33,876

18,900

-

14,976

Total

$
38,837

$
18,900

$
-

$
19,937

- 33-

September 30, 2021

Fair Value at
September 30, 2021

Valuation Technique

Unobservable Input

Range/(Weighted
Average)

(Dollars in thousands)
Other real estate owned

$
4,961

Appraisal of Collateral(2)

Collateral discount(3)

6.4%/(6.4%)
Impaired loans⁽¹⁾

33,876

Appraisal of Collateral(2)

Collateral discount(3)

(4.0%)-(12.0%)/(8%)
Total

$
38,837

Table of Contents

~~(1)~~

~~Consisted of eight loans with an aggregate balance of $35.4 million and with $1.5 million in specific loan loss allowance.~~

~~(2)~~

~~Fair value is generally determined through independent appraisals of the underlying collateral primarily using comparable sales.~~

~~(3)~~

~~Appraisals may be adjusted by management for qualitative factors such as time, changes in economic conditions and estimated liquidation expense.~~

At March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company did not have any additions to our mortgage servicing assets. At March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company only sold loans with servicing released.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB ASC 825. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methods. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. FASB ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The fair value estimates presented herein are based on pertinent information available to management as of March 31, ~~2022~~2023 and September 30, ~~2021.~~2022. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, ~~2022~~2023 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

~~-36-~~

The following assumptions were used to estimate the fair value of the Company’s financial instruments:

Cash and Cash Equivalents—These assets are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Investment Securities—~~Investment and mortgage-backed securities available for sale, and mutual funds(carried at fair value), are measured at fair value on a recurring basis.~~ Fair value measurements for these securities are typically obtained from independent pricing services that the Company has engaged for this purpose. When available, the Company, or its independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, our independent pricing service’s applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. For each asset class, pricing applications and models are based on information from market sources and integrate relevant credit information. All of our securities available for sale are valued using either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements.

Loans Receivable—The Company does not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for FASB ASC 825 disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments to loans to reflect partial write-downs for impairment or the full charge-off of the loan carrying value. The valuation of impaired loans is discussed below. The fair value estimate for FASB ASC 825 purposes differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by loan type and rate. The fair value of loans is estimated by discounting contractual cash flows using discount rates based on current industry pricing, adjusted for prepayment and credit loss estimates.

Impaired Loans—Impaired loans are valued utilizing independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. The appraisals are adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date and are considered Level 3 inputs.At ~~September 30, 2021, 4~~March 31, 2023, one of the Company’s real estate loans totaling ~~$33.2~~$13.3 million classified as held-for-sale ~~were~~was deemed impaired. ~~NaN of the commercial real estate loans totaling $19.6 million were~~This loan is fair valued at ~~level 1 input as based off of a subsequent sale, and the other commercial real estate loan totaling $13.6 million was fair valued at level~~ Level 3 is based off an appraisal.

Accrued Interest Receivable—This asset is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Restricted Stock—Although restricted stock ~~is an~~are equity ~~interest~~interests in the Federal Reserve Bank, FHLB and ACBB, ~~it is~~they are carried at cost because ~~it does~~ they do not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.

- 34-

Table of Contents

Other Real Estate Owned—Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at estimated fair value less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the ALLL. If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of, among other factors, changes in the economic conditions.

Deposits—Deposit liabilities are carried at cost. As such, valuation techniques discussed herein for deposits are primarily for estimating fair value for FASB ASC 825 disclosure purposes. The fair value of deposits is discounted based on rates available for time deposits of similar maturities. Fair value approximates book value for saving accounts, checking and negotiable order of withdrawal accounts (“NOW accounts”), and money market accounts.

~~-37-~~

Borrowings—Advances from the FHLB are carried at amortized cost. However, the Company is required to estimate the fair value of long-term debt under FASB ASC 825. The fair value is based on the contractual cash flows discounted using rates currently offered for new notes with similar remaining maturities.

Subordinated Debt—The calculation of fair value in Level 2 is based on observable market values where available.

Derivatives—The fair value of derivatives are based on valuation models using observable market data as of the measurement date (Level 2)2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs is actively quoted and can be validated through external sources, including brokers, market transactions and ~~third-party~~third-party pricing services.

Accrued Interest Payable—This liability is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Commitments to Extend Credit and Letters of Credit— The majority of the Company’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans and are not included in the table below. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Company and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

Mortgage Servicing Rights—The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available. Assumptions, such as loan default rates, costs to service, and prepayment speeds significantly affect the estimate of future cash flows.

~~-38-~~

- 35-

Table of Contents

The carrying amount and estimated fair value of the Company’s financial instruments as of March 31, ~~2022~~2023 and September 30, ~~2021~~2022 are presented below:

	March 31, 2022										*March 31, 2023*
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		*Carrying Amount*		*Fair Value*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)										(In thousands)
Financial assets:
Cash and cash equivalents	$	122,023	$	122,023	$	122,023	$	-	$	-	$	31,455	$	31,455	$	31,455	$	—	$	—
Investment securities available-for-sale		54,183		54,183		-		54,183		-		48,199		48,199		—		48,199		—
Investment securities held-to-maturity		48,512		45,716		-		45,716		-		56,242		49,666		—		49,666		—
Equity investment securities		1,445		1,445		945		-		500		1,390		1,390		890		—		500
Loans held for sale		13,244		13,244		-		-		13,244		13,232		13,232		—		—		13,232
Loans receivable, net (including impaired loans)		799,310		785,164		-		-		785,164
Loans receivable, net												786,000		745,771		—		—		745,771
Accrued interest receivable		3,478		3,478		-		3,478		-		4,829		4,829		—		4,829		—
Restricted stock		6,462		6,462		-		6,462		-		6,815		6,815		—		6,815		—
Mortgage servicing rights (included in Other Assets)		96		103		-		103		-		80		106		—		106		—
Derivatives (included in Other Assets)		5,084		5,084		-		5,084		-		5,416		5,416		—		5,416		—
Financial liabilities:
Savings accounts		54,074		54,074		-		54,074		-		52,905		52,905		—		52,905		—
Checking and NOW accounts		357,180		357,180		-		357,180		-		276,890		276,890		—		276,890		—
Money market accounts		328,324		328,324		-		328,324		-		253,672		253,672		—		253,672		—
Certificates of deposit		114,859		116,240		-		116,240		-		156,715		158,594		—		158,594		—
Borrowings (excluding sub debt)		60,000		60,066		-		60,066		-		75,000		75,135		—		75,135		—
Subordinated debt		25,000		25,043		-		25,027		-		25,000		27,075		—		27,075		—
Derivatives (included in Other Liabilities)		2,862		2,862		-		2,862		-		2,394		2,394		—		2,394		—
Accrued interest payable		352		352		-		352		-		1,246		1,246		—		1,246		—

	September 30, 2021
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and cash equivalents	$	136,590	$	136,590	$	136,590	$	-	$	-
Investment securities available-for-sale		40,813		40,813		-		40,813		-
Investment securities held-to-maturity		28,507		28,913		-		28,913		-
Equity investment securities		1,500		1,500		1,000		-		500
Loans receivable, net (including impaired loans)		902,981		900,357		-		-		900,357
Loans held for sale		33,199		33,199		19,583				13,616
Accrued interest receivable		3,512		3,512		-		3,512		-
Restricted stock		7,776		7,776		-		7,776		-
Mortgage servicing rights (included in Other Assets)		83		83		-		83		-
Derivatives (included in Other Assets)		4,685		4,685		-		4,685		-
Financial liabilities:
Savings accounts		50,582		50,582		-		50,582		-
Checking and NOW accounts		390,494		390,494		-		390,494		-
Money market accounts		385,480		385,480		-		385,480		-
Certificates of deposit		111,603		113,323		-		113,323		-
Borrowings (excluding sub debt)		90,000		90,215		-		90,215		-
Subordinated debt		24,934		25,027		-		25,027		-
Derivatives (included in Other Liabilities)		4,720		4,720		-		4,720		-
Accrued interest payable		572		572		-		572		-

~~-39-~~

	*September 30, 2022*
	*Carrying Amount*		*Fair Value*		*Level 1*		*Level 2*		*Level 3*
	(In thousands)
Financial assets:
Cash and cash equivalents	$	53,267	$	53,267	$	53,267	$	—	$	—
Investment securities available-for-sale		49,844		49,844		—		49,844		—
Investment securities held-to-maturity		58,767		50,266		—		50,266		—
Equity investment securities		1,374		1,374		874		—		500
Loans receivable, net		801,854		763,311		—		—		763,311
Loans held for sale		13,780		13,780		—		—		13,780
Accrued interest receivable		4,252		4,252		—		4,252		—
Restricted stock		7,104		7,104		—		7,104		—
Mortgage servicing rights (included in Other Assets)		87		117		—		117		—
Derivatives (included in Other Assets)		7,728		7,728		—		7,728		—
Financial liabilities:
Savings accounts		55,288		55,288		—		55,288		—
Checking and NOW accounts		298,833		298,833		—		298,833		—
Money market accounts		279,699		279,699		—		279,699		—
Certificates of deposit		151,503		153,087		—		153,087		—
Borrowings (excluding sub debt)		80,000		80,022		—		80,022		—
Subordinated debt		25,000		25,045		—		25,045		—
Derivatives (included in Other Liabilities)		3,712		3,712		—		3,712		—
Accrued interest payable		543		543		—		543		—

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Table of Contents

Note 10 11– Comprehensive Income

Other comprehensive ~~(loss)~~ income and related tax effects are presented in the following table:

Three Months Ended March 31,

Six Months Ended March 31,

2022

2021

2022

2021

(In thousands)

Net unrealized holding  (losses) gains on available-for-sale
   securities

$
(2,588
)

$
7

$
(2,737
)

$
464

Reclassification adjustment for net gains arising during the
   period (1)

-

(259
)

-

(614
)

Amortization of unrealized holding losses on securities transferred
   from available-for-sale to held-to-maturity (2)

2

1

4

2

Adjustment for loss recorded on replacement of derivative

-

(2
)

-

(4
)

Fair value adjustments on derivatives

1,773

567

2,252

840

Other comprehensive (loss) income before taxes

(813
)

314

(481
)

688

Tax effect

169

(65
)

98

(144
)
Total other comprehensive (loss) income

$
(644
)

$
249

$
(383
)

$
544

	*Three Months Ended March 31,*						*Six Months Ended March 31,*
	*2023*			*2022*			*2023*			*2022*
	(In thousands)
Net unrealized holding (losses) gains on available-for-sale securities	$	(1,135	)	$	(2,588	)	$	(541	)	$	(2,737	)
Amortization of unrealized holding losses on securities transferred from available-for-sale to held-to-maturity (1)		1			2			2			4
Fair value adjustments on derivatives		(747	)		1,773			(994	)		2,252
Other comprehensive loss before taxes		(1,881	)		(813	)		(1,533	)		(481	)
Tax effect		393			169			318			98
Total other comprehensive loss	$	(1,488	)	$	(644	)	$	(1,215	)	$	(383	)

(1)

~~(1)~~

~~Amounts are included in net gains on sale and call of investments on the Consolidated Statements of Operations in total other income.~~

~~(2)~~

Amounts are included in interest and dividends on investment securities on the Consolidated Statements of ~~Operations.~~

Net Income.

Note 11 12– Equity Based Incentive Compensation Plan

The Company maintains the Malvern Bancorp, Inc. 2014 Long-Term Incentive Compensation Plan (the ~~“2014~~“2014 Plan”), which permits the grant of long-term incentive and other stock and cash awards. The purpose of the 2014 Plan is to promote the success of the Company and the Bank by providing incentives to officers, employees and directors of the Company and the Bank that will link their personal interests to the financial success of the Company and to growth in shareholder value. The maximum total number of shares of the Company’s common stock available for grants under the 2014 Plan is 400,000. As of March 31, ~~2022,~~2023, there were ~~$294,157~~266,839 remaining shares available for future grants.

Restricted stock and option awards granted typically vest annually in 20% increments beginning on the ~~one-year~~one-year anniversary of the grant date, and accelerate upon a change in control of the Company. The options generally expire ten years from the date of grant. All issuances are subject to forfeiture if the recipient leaves the Company or is terminated prior to the awards vesting. Shares of restricted stock have the same dividend and voting rights as common stock, while stock options do not have such rights.

All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant.

The Company granted 6,000 stock options during the six months ended March 31, 2023. The Company did 0tnot grant any stock options during the ~~three and~~ six months ended March 31, 2022. There were no stock options forfeited or expired for the three and six month periods ended March 31,2023. During the six months ended March 31, 2022, ~~or the three and six months ended March 31, 2021. During the three and six months ended March 31, 2022,~~ 2,000 stock options were forfeited. ~~During the three and six months ended March 31, 2021 0 stock options were forfeited and 0 stock options expired.~~ Total compensation expense related to stock options granted under the 2014 Plan was ~~approximately~~$7,000 and $16,000 for the three and six months ended March 31, 2023 respectively, and $9,000 and $18,000 for the three and six months ended March 31, 2022, ~~and $8,000 and $16,000 for the six months ended March 31, 2021~~.respectively.

The Company awarded ~~5,131shares of restricted stock during the three and six months ended March 31, 2022 and 0~~10,937 shares of restricted stock during the ~~three and~~ six months ended March 31, ~~2021. There were 2,336~~2023 and 5,131 shares of restricted stock ~~forfeited~~ during the ~~three and~~ six months ended March 31, ~~2022~~2022. There were zero and ~~there were 0~~2,336 restricted shares ~~forefeited during~~forfeited for the ~~three and~~ six months ended March 31, ~~2021.~~ 2023 and 2022, respectively. The compensation expense related to restricted stock awards was ~~approximately $68,000 and $111,000 for the three and six months ended March 31, 2022, and $42,000~~$43,000 and $86,000 for the three and six months ended March 31, ~~2021.~~ 2023, and $47,000 and $86,000 for the three and six months ended March 31, 2022. 3,979 unrestricted shares were issued at a cost of $71,000 for the six months ended March 31, 2023.

~~-40-~~

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Table of Contents

Stock-based compensation expense for the cost of the restricted stock awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options.

Stock Options

Weighted Average Fair Value of Awards

$
6.06

Risk Free Rate

1.25
%
Dividend Yield

-%

Volatility

29.72
%
Expected Life

6.5 years

The following is a summary of stock option activity for the six months ended March 31, 2023

					*Weighted*
			*Weighted*		*Average*
			*Average*		*Remaining*		*Aggregate*
			*Exercise*		*Contractual*		*Intrinsic*
	*Shares*		*Price*		*Term (In Years)*		*Value*
Outstanding, beginning of year		36,830	$	20.24		—	$	—
Granted		6,000	$	17.86		—	$	720
Exercised		—	$	—		—	$	—
Forfeited/cancelled/expired		—	$	—		—	$	—
Outstanding, at March 31, 2023		42,830	$	19.90		6.835	$	—
Exercisable, at March 31, 2023		22,430	$	21.65		5.194	$	—
Nonvested, at March 31, 2023		20,400	$	17.99		8.639	$	—

- 38-

Table of Contents

The following is a summary of stock option activity for the six months ended March 31, 2022

													*Weighted*
													*Average*
											*Weighted*		*Remaining*		*Aggregate*
											*Average*		*Contractual*		*Intrinsic*
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value		*Shares*		*Exercise Price*		*Term (In Years)*		*Value*
Outstanding, beginning of year		32,830	$	20.96	6.875		$	1,940		32,830	$	20.96		—	$	1,940
Granted		-	$	-			$	-		—	$	—		—	$	—
Exercised		-	$	-			$	-		—	$	—		—	$	—
Forfeited/cancelled/expired		2,000	$	19.49			$	-		2,000	$	19.49		—	$	—
Outstanding, at March 31, 2022		30,830	$	21.05	6.7918		$	180		30,830	$	21.05		6.792	$	180
Exercisable, at March 31, 2022		17,680	$	21.70	5.8660		$	180		17,680	$	21.70		5.866	$	180
Nonvested, at March 31, 2022		13,150	$	20.19		8.0365				13,150	$	20.19		8.037	$	—

As of March 31, ~~2022,~~2023, there was ~~approximately 65,000~~ $68,000 of total unrecognized compensation cost related to unvested stock options under the 2014 Plan. The cost is expected to be recognized over a weighted average period of ~~2.97~~3.10 years.

~~The following is a summary of stock option activity for the six months ended March 31, 2021:~~

Shares

Weighted Average
Exercise Price

Weighted Average Remaining Contractual Term (In Years)

Aggregate Intrinsic
Value

Outstanding, beginning of year

25,830

$
21.57

$
-

Granted

-

$
-

$
-

Exercised

-

$
-

$
-

Forfeited/cancelled/expired

-

$
-

$
-

Outstanding, at March 31, 2021

25,830

$
21.57

6.694

$
-

Exercisable, at March 31, 2021

13,310

$
21.53

7.988

$
-

Nonvested, at March 31, 2021

12,520

$
21.61

~~-41-~~

Restricted Stock Awards

The table below summarizes the activity for the Company’s ~~restricted~~ stock awards outstanding during the six months ended March 31, ~~2022:~~2023 and 2022:

								*Weighted Average*
	Shares			Weighted Average Fair Value		*Shares*		*Fair Value*
Outstanding, beginning of year		31,486		$	21.10		27,417	$	19.34
Granted		5,131		$	15.50		10,937	$	17.69
Vested		(6,711	)	$	22.17		8,252	$	19.32
Forfeited/cancelled/expired		(2,336	)	$	20.54		—	$	—
Outstanding, at March 31, 2022		27,570		$	19.82
Outstanding, at March 31, 2023							30,102	$	18.75

									*Weighted Average*
	Shares			Weighted Average Fair Value		*Shares*			*Fair Value*
Outstanding, beginning of year		30,653		$	21.98		31,486		$	21.10
Granted		-		$	-		5,131		$	15.50
Vested		(7,978	)	$	21.92		(6,711	)	$	22.17
Forfeited/cancelled/expired		-		$	-		(2,336	)	$	20.54
Outstanding, at March 31, 2022		22,675		$	22.00		27,570		$	19.82

As of March 31, ~~2022,~~2023, there was ~~approximately 436,000~~$453,000 of total unrecognized compensation cost related to unvested shares of restricted stock granted under the 2014 Plan. The cost is expected to be recognized over a weighted average period of ~~3.20~~3.28 years.

- 39-

Table of Contents

Note 13– Deposits

~~Note 12 – Deposits~~

Deposits classified by type with percentages to total deposits at March 31, ~~2022~~2023 and September 30, ~~2021~~2022 consisted of the following:

	March 31,				September 30,				*March 31,*				*September 30,*
	2022				2021				*2023*				*2022*
	(Dollars in thousands)								*(Dollars in thousands)*
Balances by types of deposit:
Savings	$	54,074	6.33	%	$	50,582	5.39	%	$	52,905	7.15	%	$	55,288	7.04	%
Money market accounts		328,324	38.43			385,480	41.09			253,672	34.27			279,699	35.62
Interest-bearing demand		302,468	35.40			336,645	35.88			227,228	30.70			240,819	30.66
Non-interest-bearing demand		54,712	6.40			53,849	5.74			49,662	6.71			58,014	7.39
		739,578	86.56	%		826,556	88.10	%		583,467	78.83			633,820	80.71
Certificates of deposit		114,859	13.44	%		111,603	11.90	%		156,715	21.17			151,503	19.29
Total Deposits	$	854,437	100.00	%	$	938,159	100.00	%	$	740,182	100	%	$	785,323	100	%

The total amount of certificates of deposit greater than or equal to ~~$250,000~~$250,000 at March 31, ~~2022~~2023 and September 30, ~~2021~~2022 was ~~$17.1~~$57.8 million and ~~$16.5~~$63.0 million, respectively. The Company had brokered deposits totaling ~~$9.0~~$21.6 and $19.1 million at March 31, 2023 and September 30, 2022, respectively. Estimated uninsured deposits (in excess of the Federal Deposit Insurance Corporation limit) were $193.1 million and ~~$6.1~~$169.8 million at March 31, ~~2022~~ 2023 and September 30, ~~2021,~~ 2022 respectively.

Interest expense on deposits consisted of the following:

	Three Months Ended March 31				Six Months Ended March 31,				*Three Months Ended March 31,*				*Six Months Ended March 31,*
	2022		2021		2022		2021		*2023*		*2022*		*2023*		*2022*
	(In thousands)								*(In thousands)*
Savings accounts	$	12	$	16	$	24	$	34	$	19	$	12	$	34	$	24
Money market accounts		219		676		497		1,467		698		219		1,100		497
Interest-bearing demand		323		478		780		1,026		1,032		323		1,743		780
Certificates of deposit		274		635		572		1,535		895		274		1,597		572
Total	$	828	$	1,805	$	1,873	$	4,062	$	2,644	$	828	$	4,474	$	1,873

~~-42-~~

As of March 31, ~~2022,~~2023, the scheduled maturities of certificates of deposits are as follows:

	Scheduled Maturities		*Scheduled Maturities*
	(In thousands)		*(In thousands)*
Period Ending December 31
2023	$	59,415
Period Ending March 31,
2024		34,728	$	101,864
2025		8,365		42,638
2026		7,079		6,955
2027		4,122		2,849
2028				829
Thereafter		1,150		1,580
Total	$	114,859	$	156,715

- 40-

Table of Contents

As of March 31, ~~2022,~~2023, the scheduled maturities of certificates of deposits in amounts greater than ~~$100,000~~$250,000 are as follows:

	Scheduled Maturities		*Scheduled Maturities*
	(In thousands)		*(In thousands)*
Three months or less	$	10,277	$	22,818
Over three through six months		8,090		5,901
Over six through twelve months		15,093		16,929
Over twelve months		31,085		12,155
Total	$	64,545	$	57,803

Note 13 14– Subordinated Debt

On February 7, 2017, the Company issued $25.0 million in aggregate principal amount of its 6.125% fixed-to-floating rate subordinated notes (the “Notes”). From February 7, 2017 to February 15, 2022, the Notes had a fixed rate of ~~6.125%~~6.125%. During the period ended March 31, 2022, the ~~note~~ rate on the Notes converted from fixed to a variable interest rate. The rate at ~~march~~March 31, ~~2022~~2023 was ~~5.10%~~9.01%. All costs related to ~~2017~~the issuance of the Notes have been amortized. As of March 31, ~~2022,~~2023, the Notes bear interest until the maturity date or early redemption date at a variable ~~rat~~rate equal to the then current ~~three-month~~three-month LIBOR rate plus 414.5 basis points. The Notes were structured to qualify as Tier 2 capital for regulatory purposes, subject to limitations. Per applicable Federal Reserve Rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital is phased out by 20% of the original amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes. The Company’s subordinated debt totaled $25.0 million at March 31, 2023.

~~-43-~~

- 41-

Table of Contents

Note 15 - Contingencies

On January 25, 2021, the Company received notice that the Securities and Exchange Commission (“SEC”) was conducting a non-public investigation (the “Non-Public Investigation”). As part of the Non-Public Investigation, the SEC subpoenaed documents relating to five commercial loans extended by Malvern Bank in July 2016, July 2017, March 2017, and April 2017, two of which were previously subject to prior period restatements made by the Company in 2020 and 2021.

In April 2023, the Company and its Chief Financial Officer (“CFO”) reached agreements in principle with the SEC Staff to settle, without admitting or denying, potential charges against the Company arising out of the Non-Public Investigation and to pay civil money penalties of $350,000 and $40,000, respectively. The Company, the CFO, and the SEC Staff are working to document the proposed settlements, which are subject to approval by the SEC Commissioners. There can be no assurance that the settlements will be finalized and approved by the SEC Commissioners or that any final settlements will not have different terms. No formal charges have been issued against the Company or its officers in connection with the Non-Public Investigation, nor have the Company or the CFO received a “Wells” notice. The Company has recorded a $350,000 contingent liability, referred to as a non-recurring expense in the accompanying unaudited financial statements, as of March 31, 2023, related to this Non-Public Investigation.

In addition to the foregoing, the Company and its subsidiaries are from time to time parties to lawsuits and involved in ongoing routine legal proceedings related to their operations. When the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts will be recorded. Actual losses may materially differ from the amounts recorded.

Note 16 - Subsequent Events

On May 5, 2023, the Bank took action to reduce overall exposure to a $4.0 million corporate debt security of a regional bank held in its available-for-sale portfolio, which had been impacted by recent market volatility. The security was carried at fair market value at the March 31, 2023 quarter end with an unrealized loss of $1,110,000. The Bank sold $2.0 million worth of the $4.0 million corporate debt security, which resulted in an after-tax loss of $912,000 that will be reflected in the June 30, 2023 financial statements. The remaining unrealized loss still held will be evaluated for other than temporary impairment as of June 30, 2023.

- 42-

Table of Contents

Item 2 – ~~Management’s~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for the periods presented herein and financial condition as of March 31, ~~2022~~2023 and September 30, ~~2021.~~2022. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Forward-Looking Statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. The statements contained herein that are not historical facts are forward-looking statements based on management’s experience and beliefs concerning current conditions and future developments and their potential effects on the Company, including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, and shareholder value creation.

Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of or resulting from the COVID-19 pandemic, and the related increase in FDIC premiums, the effects of, and changes in, trade, monetary and fiscal policies and laws, including changes in interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of competition and the acceptance of the Company’s products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations; technological changes; any undersupply or oversupply of inventory and deterioration in values of real estate in the markets in which the Company operates, ~~both~~including residential and commercial; changes in the value of real estate ~~held for sale;~~held-for-sale; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters; possible other-than-temporary impairment of securities held by the Company; the effects of the Company’s lack of a widely-diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract and retain deposits and other sources of liquidity; changes in the competitive environment among financial and bank holding companies and other financial service providers and banks; unanticipated or prolonged litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, that delay the occurrence or ~~non-occurance~~non-occurrence of events or results in elevated expenses or unexpected outcomes;changes in the interest rate environment may reduce interest margins or the fair value of financial instruments, or increase the cost of our subordinated debt securities; unexpected loss of key personnel and future to attract and retain talent; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; general economic conditions and real estate valuations may be less favorable than expected; political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; legislative or regulatory changes or actions may adversely affect the businesses in which the Company is engaged; changes and trends in the securities markets may adversely impact the Company; ~~difficulties~~the impact on our business, operations, results of operations and prospects resulting from our pending merger with First Bank could be significant, including the Company’s ability to retain talent in ~~integrating any businesses that we may acquire, which may increase our expenses~~connection with the pendency of the merger; the ability of the Company and ~~delay~~First Bank to obtain regulatory approvals and meet other closing conditions to the ~~achievement of any benefits that we may expect from such acquisitions;~~pending merger on the expected terms and schedule; the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; the outcome of any regulatory or legal investigations and ~~proceedings may not be anticipated;~~ proceedings; the impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount;and the Company’s ability to manage the risk involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s ~~2021~~2023 Annual Report filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

Further, given its ongoing and dynamic nature, it is difficult to predict the full and continuing impact of the COVID-19 outbreak, including the outbreak of its variants, on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus and its variants can be controlled and abated and when and how the economy may be fully reopened, and for how long it will remain as such. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are subject to the following risks, any of which could continue to have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to continue to substantially reopen, and there are high levels of unemployment for an extended period of time, inflation continues to expand, or there are continued disruptions in global and domestic supply chains, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; due to fluctuation in interest rates, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing

~~-44-~~

liabilities, reducing net interest margin and spread and reducing net income; cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.

The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, unless required by law.

-43-

Table of Contents

Critical Accounting Policies

The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and for the periods indicated in the statements of ~~operations.~~net income. Actual results could differ significantly from those estimates.

The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. The Company has identified the determination of the ALLL, loans held for sale, ~~OREO,~~ fair value measurements, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of our derivative positions to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found in the Company’s ~~2021~~2023 Annual Report and Note 2 of the Notes to the Unaudited Consolidated Financial Statements. There have been no significant changes to the Company’s Critical Accounting Policies as described in its ~~2021~~2023 Annual Report.

~~Paycheck Protection Program~~

~~The CARES Act established the PPP, an expansion of the EIDL, administrated directly by the SBA.~~

The Company started accepting and processing applications for loans under the PPP in early April 2020, when the program was officially launched by the SBA and Treasury Department under the CARES Act. The Company sold the entirety of its PPP loan portfolio in December 2020 and have not participated directly in new activity after the sale.

Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized such sources based on available capacity, term flexibility, and cost. As of March 31, ~~2022,~~2023, the Company had adequate sources of liquidity.

Capital Strength

The ~~Company’s~~Bank’s capital ratios continued to exceed the highest required regulatory benchmark levels.As of March 31, ~~2022,~~2023, common equity Tier 1 capital ratio was ~~16.38 percent,~~20.05%, Tier 1 leverage ratio was ~~12.83 percent,~~17.01%, Tier 1 risk-based capital ratio was ~~16.38 percent~~20.05% and the total risk-based capital ratio was ~~20.27 percent.~~21.13%.

Deferral and Modification Requests

The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of ~~December~~March 31, ~~2021,~~2023, the Company had ~~four~~two COVID-19 modified loans totaling ~~$42.3~~$26.6 million, representing ~~5.23~~3.34 percent of loans ~~outstanding.~~outstanding as of such date. The COVID-19 loan modifications do not classify as TDRs as they fall under Section 4013 of the CARES Act, as amended, and f~~urther~~further details regarding these modifications are provided in the table below. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term.

~~-45-~~

	March 31, 2023
	Number of		Loan Modified		Gross		Percentage of Gross
	Loans		Exposure		Loans		Loans Modified
			(Dollars in thousands)
Residential mortgage		—	$	—	$	163,734		0.00	%

Construction and Development:
Residential and commercial		—		—		18,966		0.00	%
Land loans		—		—		540		0.00	%
Total Construction and Development		—		—		19,506		0.00	%

Commercial:
Commercial real estate		2		26,560		402,503		6.60	%
Farmland		—		—		13,560		0.00	%
Multi-family		—		—		61,272		0.00	%
Commercial and industrial		—		—		104,781		0.00	%
Other		—		—		10,417		0.00	%
Total Commercial		2		26,560		592,533		4.48	%

Consumer:
Home equity lines of credit		—		—		13,002		0.00	%
Second mortgages		—		—		3,577		0.00	%
Other		—		—		2,210		0.00	%
Total Consumer		—		—		18,789		0.00	%
Total loans		2	$	26,560	$	794,562		3.34	%

March 31 ,2022

Number of Loans

Loan Modified Exposure

Gross Loans March 31 ,2022

Percentage of Gross Loans on Modified

(Dollars in thousands)

Residential mortgage

-

$
-

$
177,669

0.00
%

Construction and Development:

Residential and commercial

-

-

25,558

0.00
%
Land loans

-

-

4,603

0.00
%
Total Construction and Development

-

-

30,161

0.00
%

Commercial:

Commercial real estate

4

42,321

400,974

5.24
%
Farmland

-

-

15,624

0.00
%
Multi-family

-

-

54,789

0.00
%
Commercial and industrial

-

-

101,354

0.00
%
Other

-

-

7,977

0.00
%
Total Commercial

4

42,321

580,718

5.24
%

Consumer:

Home equity lines of credit

-

-

12,283

0.00
%
Second mortgages

-

-

4,969

0.00
%
Other

-

-

2,237

0.00
%
Total Consumer

-

-

19,489

0.00
%
Total loans

4

$
42,321

$
808,037

5.24
%

September 30, 2021

Number of Loans

Loan Modified Exposure

Gross Loans September 30, 2021

Percentage of Gross Loans on Modified

(Dollars in thousands)

Residential mortgage

2

$
667

$
198,710

0.07
%

Construction and Development:

Residential and commercial

-

-

61,492

0.00
%
Land loans

-

-

2,204

0.00
%
Total Construction and Development

-

-

63,696

0.00
%

Commercial:

Commercial real estate

6

60,567

426,915

6.63
%
Farmland

-

-

10,297

0.00
%
Multi-family

-

-

66,332

0.00
%
Commercial and industrial

-

-

115,246

0.00
%
Other

-

-

10,954

0.00
%
Total Commercial

6

60,567

629,744

6.63
%

Consumer:

Home equity lines of credit

-

-

13,491

0.00
%
Second mortgages

-

-

5,884

0.00
%
Other

-

-

2,299

0.00
%
Total Consumer

-

-

21,674

0.00
%
Total loans

8

$
61,234

$
913,824

6.70
%

-44-

Table of Contents

~~-46-~~

March 31 ,2022

Number of Loans

Loan Modified Exposure

Gross Loans March 31 ,2022

Percentage of Gross Loans on Modified

(Dollars in thousands)

Residential mortgage

-

$
-

$
177,669

0.00
%

Construction and Development:

Residential and commercial

-

-

25,558

0.00
%
Land loans

-

-

4,603

0.00
%
Total Construction and Development

-

-

30,161

0.00
%

Commercial:

Commercial real estate

4

42,321

400,974

5.24
%
Farmland

-

-

15,624

0.00
%
Multi-family

-

-

54,789

0.00
%
Commercial and industrial

-

-

101,354

0.00
%
Other

-

-

7,977

0.00
%
Total Commercial

4

42,321

580,718

5.24
%

Consumer:

Home equity lines of credit

-

-

12,283

0.00
%
Second mortgages

-

-

4,969

0.00
%
Other

-

-

2,237

0.00
%
Total Consumer

-

-

19,489

0.00
%
Total loans

4

$
42,321

$
808,037

5.24
%

September 30, 2021

Number of Loans

Loan Modified Exposure

Gross Loans September 30, 2021

Percentage of Gross Loans on Modified

(Dollars in thousands)

Residential mortgage

2

$
667

$
198,710

0.07
%

Construction and Development:

Residential and commercial

-

-

61,492

0.00
%
Land loans

-

-

2,204

0.00
%
Total Construction and Development

-

-

63,696

0.00
%

Commercial:

Commercial real estate

6

60,567

426,915

6.63
%
Farmland

-

-

10,297

0.00
%
Multi-family

-

-

66,332

0.00
%
Commercial and industrial

-

-

115,246

0.00
%
Other

-

-

10,954

0.00
%
Total Commercial

6

60,567

629,744

6.63
%

Consumer:

Home equity lines of credit

-

-

13,491

0.00
%
Second mortgages

-

-

5,884

0.00
%
Other

-

-

2,299

0.00
%
Total Consumer

-

-

21,674

0.00
%
Total loans

8

$
61,234

$
913,824

6.70
%

~~-47-~~

	September 30, 2022
	Number of		Loan Modified		Gross		Percentage of Gross
	Loans		Exposure		Loans		Loans Modified
			(Dollars in thousands)
Residential mortgage		—	$	—	$	175,957		0.00	%
Construction and Development:
Residential and commercial		—		—		24,362		0.00	%
Land loans		—		—		550		0.00	%
Total Construction and Development		—		—		24,912		0.00	%
Commercial:
Commercial real estate		3		32,041		406,914		7.87	%
Farmland		—		—		11,506		0.00	%
Multi-family		—		—		55,295		0.00	%
Commercial and industrial		—		—		102,703		0.00	%
Other		—		—		13,356		0.00	%
Total Commercial		3		32,041		589,774		5.74	%
Consumer:
Home equity lines of credit		—		—		13,233		0.00	%
Second mortgages		—		—		4,395		0.00	%
Other		—		—		2,136		0.00	%
Total Consumer		—		—		19,764		0.00	%
Total loans		3	$	32,041	$	810,407		3.95	%

Certain industries included within our commercial real estate loans ~~are widely expected to be~~were particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 ~~pandemic, including~~pandemic. All the ~~following:~~three COVID-19 modified commercial real estate loans were hotels.

March 31, 2022

September 30, 2021

Number of Loans

Loan Modified Exposure

Percentage of Gross Loans on Modified

Number of Loans

Loan Modified Exposure

Percentage of Gross Loans on Modified

(Dollars in thousands)

(Dollars in thousands)

Industries:

     Hotel

4

$
42,321

5.24
%

6

$
60,567

6.63
%
     Retail

-

-

0.00
%

-

-

0.00
%
     Office/Medical Office

-

-

0.00
%

-

-

0.00
%
     Fitness Centers

-

-

0.00
%

-

-

0.00
%
     Restaurants and food service

-

-

0.00
%

-

-

0.00
%
     Other

-

-

0.00
%

-

-

0.00
%
         Total Outstanding Exposure

4

$
42,321

5.24
%

6

$
60,567

6.63
%

ResultsofOperations

Net income available to common shareholders for the three months ended March 31, ~~2022~~2023 amounted to $571,000, or $0.08 per fully diluted common share, an increase of $49,000, or 9.5%, as compared with net income of $522,000, or $0.07 per fully diluted common share, ~~a decrease of $1.7 million, or 76.5 percent, as compared with net income of $2.2 million, or $0.30 per common share,~~ for the three ~~months~~month period ended March 31, ~~2021.~~2022. This ~~decrease~~increase in net income and diluted earnings per share was primarily due to an increase in other expense for the quarter ended March 31, 2022, in which other expense increased $1.8 million or 35.2 percent, to $6.8 million when compared to the quarter ended March 31, 2021. The increase was primarily due to an increase of ~~$1.7~~$122,000, or 21.7%, in total other income, driven by higher earnings on bank owned life insurance of $90,000, and higher service charges and other fees of $37,000. Also impacting net income was a $389,000 reduction in total other expense, driven by a reduction of $1.8 million, or 72.1%, in other operating expenses, resulting from a $1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense.The annualized return on average assets was 0.18 percentexpense, for the three months ended March 31, 2022, the Company recorded a $395,000 valuation allowance and $1.3 million in real estate tax expense on loans held for sale. These were offset by $550,000 of nonrecurring expenses, $492,000 of merger related expenses and an increase of $220,000 in salaries and employee benefit expenses. These expense items were offset by $380,000 decrease in net interest income, driven by a higher average cost of total interest bearing liabilities of $2.6 million partially offset by a higher yield on total interest earning assets of $2.2 million. Annualized return on average assets (“ROAA”) was 0.23 percent for the quarter ended March 31, 2023, compared to 0.18 percent for the quarter ended March 31, 2022, and annualized return on average ~~assets of 0.73~~equity (“ROAE”) was 1.53 percent for ~~three months~~the quarter ended March 31, ~~2021. The annualized return on average shareholders’ equity was 1.43 percent~~2023, compared with 1.43% for the ~~three month period~~quarter ended March 31, ~~2022, compared to 6.14 percent in annualized return on average shareholders’ equity for the three months ended March 31, 2021.~~2022.

Net income available to common shareholders for the six months ended March 31, ~~2022~~2023 amounted to $2.5 million, or ~~$0.34~~$0.33 per fully diluted common share, a decrease of ~~$2.0 million~~$60,000, or ~~43.5 percent,~~2.4%, as compared with net income of ~~$4.5~~$2.5 million, or ~~$0.60~~$0.34 per fully diluted common share, for the six months ended March 31, ~~2021.~~2022. This decrease in net income and diluted earnings per share was ~~primarily~~ due to a decrease in other income of $188,000, or 14.6%, combined with an increase in other operating expenses and professional fees. The increase in other operating expenses resulted from a $1.7 million valuation allowance recorded on loans held for sale as stated above. The increase in professional fees wasof $77,000, or 0.6%, primarily due to ~~increases~~decreased prepayment penalties and service charges on loans during the six months ended March 31, 2023. Offsetting these items was a $216,000, or 1.5%, increase in ~~legal fees related~~net interest income income for the six months ended March 31, 2023 driven by higher average yields on interest earning assets of $3.7 million, or 21.8%, partially offset by a $3.5 million, or 116.7%, increase in average cost of total interest bearing liabilities. The annualized ROAA was 0.49% for the six months ended March 31, 2023, compared to ~~loan workouts and reporting and disclosure matters related to nonperforming loans.~~annualized ROAA of 0.45% for six months ended March 31, 2022.

Net Interest Income and Margin

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which primarily support the loans and investments comprising these assets.

~~-48-~~

-45-

Table of Contents

Net Interest Income

The following table presents the components of net interest income for the periods indicated:

For the Three Months Ended March 31,

For the Six Months Ended March 31,

2022

2021

Increase
(Decrease)

Percent
Change

2022

2021

Increase
(Decrease)

Percent
Change

(Dollars in thousands)

Interest income:

Loans, including fees

$
7,628

$
9,069

$
(1,441
)

(15.89
)%

$
15,856

$
19,145

$
(3,289
)

(17.18
)%
Investment securities

585

344

241

70.06

1,076

715

361

50.49

Interest-bearing cash accounts

16

7

9

128.57

29

15

14

93.33

Dividends, restricted stock

75

119

(44
)

(36.97
)

166

260

(94
)

(36.15
)
Total interest income

8,304

9,539

(1,235
)

(12.95
)

17,127

20,135

(3,008
)

(14.94
)
Interest expense:

Deposits

828

1,805

(977
)

(54.13
)

1,873

4,062

(2,189
)

(53.89
)
Short-term borrowings

-

3

(3
)

(100.00
)

-

48

(48
)

(100.00
)
Long-term borrowings

183

546

(363
)

(66.48
)

420

1,153

(733
)

(63.57
)
Subordinated debt

339

383

(44
)

(11.49
)

722

766

(44
)

(5.74
)
Total interest expense

1,350

2,737

(1,387
)

(50.68
)

3,015

6,029

(3,014
)

(49.99
)
Net interest income

$
6,954

$
6,802

$
152

2.23
%

$
14,112

$
14,106

$
6

0.04
%

	For the Three Months Ended March 31,										For the Six Months Ended March 31,
					Increase			Percent							Increase		Percent
	2023		2022		(Decrease)			Change			2023		2022		(Decrease)		Change
	(Dollars in thousands)
Interest income:
Loans, including fees	$	9,354	$	7,628	$	1,726			22.63	%	$	18,504	$	15,856	$	2,648		16.70	%
Investment securities		811		585		226			38.63			1,631		1,076		555		51.58
Dividends, restricted stock		146		16		130			812.50			259		29		230		793.10
Interest-bearing cash accounts		200		75		125			166.67			467		166		301		181.33
Total interest income		10,511		8,304		2,207			26.58			20,861		17,127		3,734		21.80
Interest expense:
Deposits		2,644		828		1,816			219.32			4,474		1,873		2,601		138.87
Short-term borrowings		40		—		40			—			49		—		49		—
Long-term borrowings		547		183		364			198.91			874		420		454		108.10
Subordinated debt		706		339		367			108.26			1,136		722		414		57.34
Total interest expense		3,937		1,350		2,587			191.63			6,533		3,015		3,518		116.68
Net interest income	$	6,574	$	6,954	$	(380	)		(5.46	)%	$	14,328	$	14,112	$	216		1.53	%

Net interest income ~~was~~for the three months ended March 31, 2023 amounted to $6.6 million, a decrease of $380,000, or 5.5%, from $7.0 million for the ~~quarter~~three months ended March 31, ~~2022, an~~2022. The decrease was primarily due to increase in average cost of ~~$152,000, or 2.2 percent, from $6.8 million for the quarter ended March 31, 2021. The increase~~interest- bearing liabilities which was ~~driven by a decrease in interest paid on deposits and borrowings of $1.4 million,~~ partially offset by ~~decreased~~an improvement in rate related factors in interest ~~income of $1.2 million, primarily related a decline in average to loans.~~earning assets. The average yield on interest-earning assets ~~declined~~ 21increased 104 basis points for the quarter ended March 31, ~~2022,~~2023, to ~~3.35 percent,~~4.39%, when compared to the same period in ~~2021~~2022, primarily due to ~~the decrease~~rising interest rates resulting in ~~average loan balances~~additional interest income from net loans and investment securities, which was partially offset by lower average ~~yield on~~ loans. The average rate on interest-bearing liabilities ~~fell 49~~for the quarter ended March 31, 2023 increased 140 basis points to ~~0.59 percent~~1.99% compared to the quarter ended March 31, ~~2021,~~2022, due to ~~decreases in market~~higher interest rates ~~of interest.~~on deposits and borrowings. Net interest margin ~~increased~~decreased 6 basis points to ~~2.81 percent~~2.75% for the quarter ended March 31, ~~2022,~~2023, from ~~2.54 percent~~2.81% for the same period in ~~2021. The margin improvement in~~2022, as a result of the ~~current period, in large part reflected the decline in interest-bearing liabilities partially offset by the decline in yield earned on interest-earning assets.~~rising interest rate environment.

Net interest income ~~was~~for the six months ended March 31, 2023 amounted to $14.3 million, an increase of $216,000, or 1.5 percent, from $14.1 million for the six months ended March 31, ~~2022, and a slight increase compared to the six months ended March 31, 2021. Consistent with the quarter, the slight~~2022. The increase was primarily ~~driven by a reduction~~due to an improvement in rate related factors in interest expense as the cost of interest-bearing deposits decreased by 50 basis points compared to the six months ended March 31, 2021. The cost of interest-bearing liabilities decreased by 55 basis points compared to the six months ended March 31, 2021. Thisearning assets which was partially offset by ~~a decrease~~an increase in ~~the~~average rates in interest bearing liabilities. The average yield on interest-earning assets ~~which declined 30~~increased 94 basis points for the six months ended March 31, ~~2022,~~2023, to ~~3.39 percent,~~4.33%, when compared to the same period in ~~2021. The decrease in interest-earning assets was~~2022, primarily due to rising interest rates resulting in additional interest income from net loans and investment securities, which was partially offset by lower average loans. The average rate on interest-bearing liabilities for the ~~decrease~~quarter ended March 31, 2023 increased 99 basis points to 1.63% compared to the six months ended March 31, 2022, due to higher interest rates on deposits and borrowings. Net interest margin increased to 2.97% for the six months ended March 31, 2023, from 2.79% for the same period in ~~loan balances and~~2022, as a result of the ~~average yield on loans.~~rising interest rate environment.

Interest Income

For the ~~quarters~~three month periods ended March 31, ~~2022,~~2023 and ~~March 31, 2021,~~2022, total interest income was $10.5 million and $8.3 million, ~~and $9.5~~respectively, representing an increase of $2.2 million, ~~respectively.~~or 26.6%, primarily due to rising interest rates resulting in higher interest income on interest earning assets of $2.4 million, partially offset by lower average volume of interest earning assets of $226,000. The average yield on interest-earning assets ~~declined 21~~increased 104 basis points for the quarter ended March 31, ~~2022,~~2023, to ~~3.35 percent when~~4.39%, compared to ~~the same period in 2021. Total interest income fell for~~3.35% at the quarter ended March 31, ~~2022, compared to the quarter ended March 31, 2021, primarily due to the decrease in average loan balances and average yield on loans.~~2022. For the six months ended March 31, ~~2022,~~2023, and March 31, ~~2021,~~2022, total interest income was $20.9 million and $17.1 million, ~~and $20.1~~respectively, representing an increase of $3.7 million, ~~respectively.~~or 21.8%. The average yield on interest-earning assets ~~declined 30~~increased 94 basis points for the six months ended March 31, ~~2022,~~2023, to ~~3.39 percent~~4.33%, when compared to the same period in ~~2021.~~2022. Total interest income ~~fell~~increased for the six months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, primarily due to ~~the decrease in~~higher interest income on interest earning assets of $4.5 million, partially offset by lower average ~~loan balances and average yield on loans.~~volume of interest earning assets of $803,000.

-46-

Table of Contents

Interest Expense

For the ~~quarter~~three month period ended March 31, 2023, interest expense increased by $2.6 million, or 191.6%, to $3.9 million, compared to $1.4 million for the three month period ended March 31, 2022. The increase in interest expense is attributable to higher interest rates on deposits and borrowings during the comparable period. Total average interest-bearing liabilities for the three month period ended March 31, 2023 declined $124.1 million, or 13.6%, to $789.9 million, compared to the three month period ended March 31, 2022, and the average rate on interest-bearing liabilities for the three month period ended March 31, 2023 increased 140 basis points to 1.99%, compared to 0.59% for the three month period ended March 31, 2022. For the six months ended March 31, 2023, interest expense ~~decreased by $1.4~~increased $3.5 million or ~~50.7 percent,~~116.7%. to ~~$1.4~~$6.5 million, compared to ~~$2.7~~$3.0 million for the ~~quarter~~six months ended March 31, ~~2021.~~2022. The ~~decrease~~increase in interest expense is primarily attributable to interest rate related factors, as the average rate on interest-bearing liabilities ~~fell 55~~increased 99 basis points to ~~0.64 percent compared to the quarter ended March 31, 2021.~~

~~-49-~~

For the six months ended March 31, 2022, interest expense decreased by $3.0 million, or 50.0 percent, to $3.0 million, compared to $6.0 million for the six months ended March 31, 2021. The decrease in interest expense is primarily attributable to interest rate related factors, as the average rate on interest-bearing liabilities fell 55 basis points to 0.64 percent1.63% compared to the same period in ~~2021.~~2022.

Variance in NetInterestIncome

The following table quantifies the impact on net interest income resulting from changes in average balances and average rates during the periods presented. Any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated to change in rate of each category.

Analysis of Variance in Net Interest Income Due to Changes in Volume and Rates

	Three Months Ended March 31,								Six Months Ended March 31,
	2023 and 2022								2023 and 2022
	Increase (Decrease) Due to Change in:								Increase (Decrease) Due to Change in:
	Average			Average		Net			Average			Average		Net
	Volume			Rate		Change			Volume			Rate		Change
	(In thousands)
Interest Earning Assets:
Loans, including fees	$	(347	)	$	2,073	$	1,726		$	(1,152	)	$	3,800	$	2,648
Investment securities		112			114		226			337			218		555
Interest-bearing cash accounts		(6	)		190		184			(7	)		445		438
Dividends, restricted stock		15			56		71			19			74		93
Total interest-earning assets	$	(226	)	$	2,433	$	2,207		$	(803	)	$	4,537	$	3,734
Interest Bearing Liabilities:
Money Market deposits	$	(66	)	$	545	$	479		$	(145	)	$	748	$	603
Savings deposits		—			7		7			—			10		10
Certificates of deposits		105			516		621			202			823		1,025
Other interest-bearing deposits		(102	)		812		710			(235	)		1,198		963
Total interest-bearing deposits		(63	)		1,880		1,817			(178	)		2,779		2,601
Borrowings and Subordinated debt		232			538		770			331			586		917
Total interest-bearing liabilities	$	169		$	2,418	$	2,587		$	153		$	3,365	$	3,518
Change in net interest income	$	(395	)	$	15	$	(380	)	$	(956	)	$	1,172	$	216

Three Months Ended March 31,

Six Months Ended March 31,

2022 and 2021

2022 and 2021

Increase (Decrease) Due to Change in:

Increase (Decrease) Due to Change in:

Average Volume

Average Rate

Net
Change

Average Volume

Average Rate

Net
Change

(In thousands)

Interest Earning Assets:

Loans, including fees

$
(1,226
)

$
(215
)

$
(1,441
)

$
(1,194
)

$
(2,095
)

$
(3,289
)
Investment securities

289

(48
)

241

242

119

361

Interest-bearing cash accounts

5

4

9

5

9

14

Dividends, restricted stock

(35
)

(9
)

(44
)

(38
)

(56
)

(94
)
Total interest-earning assets

$
(967
)

$
(268
)

$
(1,235
)

$
(985
)

$
(2,023
)

$
(3,008
)
Interest Bearing Liabilities:

Money Market deposits

$
31

$
(488
)

$
(457
)

$
83

$
(1,053
)

$
(970
)
Savings deposits

2

(6
)

(4
)

3

(13
)

(10
)
Certificates of deposits

(240
)

(121
)

(361
)

(329
)

(634
)

(963
)
Other interest-bearing deposits

17

(172
)

(155
)

60

(306
)

(246
)
Total interest-bearing deposits

(190
)

(787
)

$
(977
)

(183
)

(2,006
)

$
(2,189
)
Borrowings and Subordinated debt

(384
)

(26
)

(410
)

(414
)

(411
)

(825
)
Total interest-bearing liabilities

$
(574
)

$
(813
)

$
(1,387
)

$
(597
)

$
(2,417
)

$
(3,014
)
Change in net interest income

$
(393
)

$
545

$
152

$
(388
)

$
394

$
6

-47-

Table of Contents

~~-50-~~

Average Balances, Net Interest Income, and Yields Earned and Rates ~~Paid.~~Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the ~~NIM~~net interest margin (“NIM”) (net interest income as a percentage of average interest-earning assets). All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be. Quarterly rates, yields, spreads, and margins throughout this MD&A are calculated on an annualized basis where appropriate. No tax equivalent adjustments have been made as the amounts are not material.

	Three Months Ended March 31,
	2023								2022
	Average			Interest					Average			Interest
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
	Balance			Paid		Rate			Balance			Paid		Rate
	(Dollars in thousands)
ASSETS
Interest Earning Assets:
Loans, including fees⁽¹⁾	$	817,973		$	9,354		4.57	%	$	856,937		$	7,628		3.56	%
Investment securities		108,864			811		2.98	%		91,433			585		2.56	%
Interest-bearing cash accounts		22,399			200		3.57	%		36,452			16		0.18	%
Dividends, restricted stock		7,544			146		7.74	%		6,263			75		4.79	%
Total interest-earning assets⁽¹⁾		956,780			10,511		4.39	%		991,087			8,304		3.35	%
Non-interest-earning assets:
Cash and due from banks		1,914								91,651
Bank-owned life insurance		26,465								26,282
Other assets		25,476								25,479
Other real estate owned		256								4,961
Allowance for loan losses		(9,102	)							(10,517	)
Total non-interest-earning assets		45,009								137,856
Total assets	$	1,001,789							$	1,128,943
LIABILITIES & SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Money Market deposits	$	239,188			698		1.17	%	$	341,138			219		0.26	%
Savings deposits		52,944			19		0.15	%		54,550			12		0.09	%
Certificates of deposits		157,718			895		2.27	%		114,115			274		0.96	%
Other interest-bearing deposits		217,358			1,032		1.90	%		319,246			323		0.40	%
Total interest-bearing deposits		667,208			2,644		1.59	%		829,049			828		0.40	%
Borrowings		122,700			1,293		4.22	%		84,991			522		2.46	%
Total interest-bearing liabilities		789,908			3,937		1.99	%		914,040			1,350		0.59	%
Non-interest-bearing liabilities:
Demand deposits		50,789								54,502
Other liabilities		11,226								14,249
Total non-interest bearing liabilities		62,015								68,751
Shareholders' equity		149,866								146,152
Total liabilities and shareholders' equity	$	1,001,789							$	1,128,943
Net interest spread							2.40	%							2.76	%
Net interest margin							2.75	%							2.81	%
Net interest income				$	6,574							$	6,954

(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

Three Months Ended March 31,

2022

2021

Average Outstanding Balance

Interest
Earned/
Paid

Yield/
Rate

Average Outstanding Balance

Interest
Earned/
Paid

Yield/
Rate

(Dollars in thousands)

ASSETS

Interest Earning Assets:

Loans, including fees⁽¹⁾

$
856,937

$
7,628

3.56
%

$
990,913

$
9,069

3.66
%
Investment securities

91,433

585

2.56
%

49,658

344

2.77
%
Interest-bearing cash accounts

36,452

16

0.18
%

21,506

7

0.13
%
Dividends, restricted stock

6,263

75

4.79
%

8,901

119

5.35
%
Total interest-earning assets(1)

991,087

8,304

3.35
%

1,070,978

9,539

3.56
%
Non-interest-earning assets:

Cash and due from banks

91,651

105,485

Bank-owned life insurance

26,282

25,631

Other assets

25,479

29,030

Other real estate owned

4,961

5,796

Allowance for loan losses

(10,517
)

(13,037
)

Total non-interest-earning assets

137,856

152,905

Total assets

$
1,128,943

$
1,223,883

LIABILITIES & SHAREHOLDERS’ EQUITY

Interest-Bearing Liabilities:

Money Market deposits

$
341,138

219

0.26
%

$
326,110

676

0.83
%
Savings deposits

54,550

12

0.09
%

47,888

16

0.13
%
Certificates of deposits

114,115

274

0.96
%

183,617

635

1.38
%
Other interest-bearing deposits

319,246

323

0.40
%

308,538

478

0.62
%
Total interest-bearing deposits

829,049

828

0.40
%

866,153

1,805

0.83
%
Borrowings

84,991

522

2.46
%

144,835

932

2.57
%
Total interest-bearing liabilities

914,040

1,350

0.59
%

1,010,988

2,737

1.08
%
Non-interest-bearing liabilities:

Demand deposits

54,502

50,327

Other liabilities

14,249

17,751

Total non-interest bearing liabilities

68,751

68,078

Shareholders' equity

146,152

144,817

Total liabilities and shareholders' equity

$
1,128,943

$
1,223,883

Net interest spread

2.76
%

2.48
%
Net interest margin

2.81
%

2.54
%
Net interest income

$
6,954

$
6,802

(1)Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

-48-

Table of Contents

~~-51-~~

	Six Months Ended March 31,
	2023								2022
	Average			Interest					Average			Interest
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
	Balance			Paid		Rate			Balance			Paid		Rate
	(Dollars in thousands)
ASSETS
Interest Earning Assets:
Loans, including fees⁽¹⁾	$	821,202		$	18,504		4.51	%	$	885,573		$	15,856		3.58	%
Investment securities		109,455			1,631		2.98	%		83,342			1,076		2.58	%
Interest-bearing cash accounts		26,570			467		3.52	%		34,594			29		0.17	%
Dividends, restricted stock		7,243			259		7.15	%		6,484			166		5.12	%
Total interest-earning assets⁽¹⁾		964,470			20,861		4.33	%		1,009,993			17,127		3.39	%
Non-interest-earning assets:
Cash and due from banks		3,669								98,899
Bank-owned life insurance		26,378								26,202
Other assets		16,132								25,764
Other real estate owned		242								4,961
Allowance for loan losses		(9,102	)							(12,357	)
Total non-interest-earning assets		37,319								143,469
Total assets	$	1,012,358							$	1,153,462

LIABILITIES & SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Money Market deposits	$	250,929			1,100		0.88	%	$	354,596			497		0.28	%
Savings deposits		53,287			34		0.13	%		53,936			24		0.09	%
Certificates of deposits		153,839			1,597		2.08	%		113,866			572		1.01	%
Other interest-bearing deposits		230,543			1,743		1.51	%		330,521			780		0.47	%
Total interest-bearing deposits		688,598			4,474		1.30	%		852,919			1,873		0.44	%
Borrowings		114,176			2,059		3.61	%		88,493			1,142		2.58	%
Total interest-bearing liabilities		802,774			6,533		1.63	%		941,412			3,015		0.64	%
Non-interest-bearing liabilities:
Demand deposits		50,648								54,294
Other liabilities		9,830								12,813
Total non-interest liabilities		60,478								67,107
Shareholders' equity		149,106								144,493
Total liabilities and shareholders' equity	$	1,012,358							$	1,153,462

Net interest spread							2.70	%							2.75	%
Net interest margin							2.97	%							2.79	%
Net interest income				$	14,328							$	14,112

(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

Six Months Ended March 31,

2022

2021

Average Outstanding Balance

Interest
Earned/
Paid

Yield/
Rate

Average Outstanding Balance

Interest
Earned/
Paid

Yield/
Rate

(Dollars in thousands)

ASSETS

Interest Earning Assets:

Loans, including fees⁽¹⁾

$
885,573

$
15,856

3.58
%

$
1,011,927

$
19,145

3.78
%
Investment securities

83,342

1,076

2.58
%

49,722

715

2.88
%
Interest-bearing cash accounts

34,594

29

0.17
%

21,599

15

0.14
%
Dividends, restricted stock

6,484

166

5.12
%

9,128

260

5.70
%
Total interest-earning assets(1)

1,009,993

17,127

3.39
%

1,092,376

20,135

3.69
%

Non-interest-earning assets:

Cash and due from banks

98,899

83,213

Bank-owned life insurance

26,202

25,549

Other assets

25,764

30,141

Other real estate owned

4,961

5,796

Allowance for loan losses

(12,357
)

(12,746
)

Total non-interest-earning assets

143,469

131,953

Total assets

$
1,153,462

$
1,224,329

LIABILITIES & SHAREHOLDERS’ EQUITY

Interest-Bearing Liabilities:

Money Market deposits

$
354,596

497

0.28
%

$
318,524

1,467

0.92
%
Savings deposits

53,936

24

0.09
%

46,742

34

0.15
%
Certificates of deposits

113,866

572

1.01
%

199,376

1,535

1.54
%
Other interest-bearing deposits

330,521

780

0.47
%

295,696

1,026

0.69
%
Total interest-bearing deposits

852,919

1,873

0.44
%

860,338

4,062

0.94
%
Borrowings

88,493

1,142

2.58
%

152,861

1,967

2.57
%
Total interest-bearing liabilities

941,412

3,015

0.64
%

1,013,199

6,029

1.19
%

Non-interest-bearing liabilities:

Demand deposits

54,294

49,228

Other liabilities

12,813

18,225

Total non-interest liabilities

67,107

67,453

Shareholders' equity

144,943

143,677

Total liabilities and shareholders' equity

$
1,153,462

$
1,224,329

Net interest spread

2.75
%

2.50
%
Net interest margin

2.79
%

2.58
%
Net interest income

$
14,112

$
14,106

(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.

-49-

~~-52-~~

Table of Contents

Other Income

The following table presents the principal categories of other income for the periods indicated:

	Three Months Ended March 31,										Six Months Ended March 31,										Three Months Ended March 31,										Six Months Ended March 31,
					Increase			Percent							Increase			Percent							Increase			Percent							Increase			Percent
	2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change			2023		2022		(Decrease)			Change			2023		2022		(Decrease)			Change
	(Dollars in thousands)																				(Dollars in thousands)
Service charges and other fees	$	219	$	419	$	(200	)		(47.73	)%	$	673	$	666	$	7			1.05	%	$	256	$	219	$	37			16.89	%	$	433	$	673	$	(240	)		(35.66	)%
Rental income-other		48		54		(6	)		(11.11	)		100		108		(8	)		(7.41	)		48		48		—			—			97		100		(3	)		(3.00	)
Net gains on sale and call of investments		-		259		(259	)		(100.00	)		-		614		(614	)		(100.00	)		—		—		—			—			—		—		—			—
Net gains on sale of loans		11		274		(263	)		(95.99	)		63		678		(615	)		(90.71	)		6		11		(5	)		(45.45	)		14		63		(49	)		(77.78	)
Earnings on bank-owned life insurance		283		161		122			75.78			452		325		127			39.08			373		283		90			31.80			546		452		94			20.80
Other real estate owned income, net																						—		—		—			—			10		—		10			—
Total other income	$	561	$	1,167	$	(606	)		(51.93	)%	$	1,288	$	2,391	$	(1,103	)		(46.13	)%	$	683	$	561	$	122			21.75	%	$	1,100	$	1,288	$	(188	)		(14.60	)%

Other income increased $122,000, or 21.7 percent, to $683,000 for the three month period ended March 31, 2023, compared to $561,000 for the three month period ended March 31, 2022. The increase in other income was primarily due to an increase in earnings on bank-owned life insurance of approximately $200,000during the quarter ended March 31, 2023.

For the ~~three~~six months ended March 31, ~~2022,~~2023, total other income amounted to ~~$561,000,~~$1.1 million, a decrease of ~~$606,000,~~$188,000, or ~~51.9 percent,~~14.6%, compared to the ~~three~~six months ended March 31, ~~2021.~~2022. The decrease in total other income was primarily due to a decrease of ~~$533,000~~$240,000 in service charges and other fees, primarily made up of prepayments on commercial loans, and a decrease in net gains on ~~sale~~sales of loans ~~and net gains on sale and call~~ of ~~investments,~~$49,000, partially offset by an increase in earnings on ~~bank-owned~~bank owned life insurance of ~~$122,000~~$94,000 during ~~the quarter ended March 31, 2022.~~

~~Similar to the quarter, other income for~~ the six months ended March 31, ~~2022, decreased by $1.1 million mainly due~~2023 as compared to ~~reductions in~~ the ~~net gains on sale of loans and investments of $1.2 million.~~six months ended March 31, 2022.

Other Expense

The following table presents the principal categories of other expense for the periods indicated:

	Three Months Ended March 31,										Six Months Ended March 31,										Three Months Ended March 31,										Six Months Ended March 31,
					Increase			Percent							Increase			Percent							Increase			Percent							Increase			Percent
	2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change			2023		2022		(Decrease)			Change			2023		2022		(Decrease)			Change
	(Dollars in thousands)																				(Dollars in thousands)
Salaries and employee benefits	$	2,347	$	2,275	$	72			3.16	%	$	4,642	$	4,547	$	95			2.09	%	$	2,567	$	2,347	$	220			9.37	%	$	5,149	$	4,642	$	507			10.92	%
Occupancy expense		546		568		(22	)		(3.87	)		1,061		1,110		(49	)		(4.41	)		556		546		10			1.83			1,093		1,061		32			3.02
Federal deposit insurance premium		71		83		(12	)		(14.46	)		147		159		(12	)		(7.55	)		119		71		48			67.61			183		147		36			24.49
Advertising		32		32		-			-			64		64		-			-			33		32		1			3.13			65		64		1			1.56
Data processing		359		306		53			17.32			679		634		45			7.10			299		359		(60	)		(16.71	)		574		679		(105	)		(15.46	)
Other real estate owned expense, net																						69		—		69			—			—		5		(5	)		—
Professional fees		868		884		(16	)		(1.81	)		1,923		1,547		376			24.31			894		868		26			3.00			1,657		1,923		(266	)		(13.83	)
Other real estate owned expense, net		-		3		(3	)		(100.00	)		5		31		(26	)		(83.87	)
Merger related expense																						492		—		492			—			1,003		—		1,003			—
Pennsylvania shares tax		169		169		-			-			339		339		-			-			193		169		24			14.20			320		339		(19	)		(5.60	)
Non-recurring expense																						550		—		550			—			550		—		550			—
Other operating expenses		2,453		743		1,710			230.15			3,213		1,604		1,609			100.31			684		2,453		(1,769	)		(72.12	)		1,556		3,213		(1,657	)		(51.57	)
Total other expense	$	6,845	$	5,063	$	1,782			35.20	%	$	12,073	$	10,035	$	2,038			20.31	%	$	6,456	$	6,845	$	(389	)		(5.68	)%	$	12,150	$	12,073	$	77			0.64	%

Other expenses for the three month period ended March 31, 2023 decreased $389,000, or 5.7%, to $6.5 million when compared to the three month period ended March 31, 2022. The decrease was primarily due to a decrease of $1.8 million of other operating expenses for the three months ended March 31, 2023. For the three months ended March 31, 2022, ~~total other expense increased $1.8 million, or 35.2 percent, from~~ the ~~comparable three months ended March 31, 2021. This increase was primarily due to~~Company recorded a ~~$1.7 million~~$395,000 valuation allowance ~~recorded on loans held for sale. The valuation allowance adjustment consists of approximately $395,000 in reduced value~~ and ~~approximately~~ $1.3 million in real estate tax expense. The decrease in other operating expense was partially offset by non-recurring expenses of $550,000, consisting of a valuation allowance related to an equity investment in a limited liability company of $200,000 and a contingent liability of $350,000, and merger related expenses of $492,000 consisting of legal and professional related expenses. See Note 15 Contingencies in “Item 1. Financial Statements (unaudited)” of Part 1 of this report for more information on the contingent liability.

Other expenses remained relatively flat for the six months ended March 31, 2023 compared to the six months ended March 31, 2022. Other expenses amounted to $12.2 million, an increase of $77,000, compared to $12.1 million for the six months ended March 31, 2022. Changes noted during the period were consistent with those noted during the three month periods ending March 31, 2023 and 2022.

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Income Taxes

The Company recorded income tax expense of $230,000 during the three month period ended March 31, 2023, compared to $148,000 for the three month period ended March 31, 2022. The effective tax rates for the Company for the three month periods ended March 31, 2023 and March 31, 2022 were 28.7% and 22.1%, respectively. The effective tax rate includes discrete tax items related to non-deductible merger-related expenses and contingent liability recognized in the current three month period ended March 31, 2023.

For the six months ended March 31, ~~2022, total other~~2023, the Company recorded income tax expense ~~increased $2.0 million, or 20.3 percent, from~~of $799,000, compared to $788,000 for the ~~comparable~~ six months ended March 31, ~~2021.~~2022. The ~~primary components of~~effective tax rates for the ~~increase were~~Company for the aforementioned valuation allowance and increased professional fees. The increase in professional fees was primarily due to increases in legal fees related to loan workouts and reporting and disclosure matters related to nonperforming loans.

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~~Income Taxes~~

~~TheCompanyrecorded income tax expense of $148,000 and $788,000 during the three and~~ six ~~months~~month periods ended March 31, 2023 and March 31, 2022 ~~respectively, reflecting an effective tax rate of~~ ~~22.1~~ ~~percent~~were 24.4% and ~~23.7 percent,~~23.7%, respectively. ~~The reduction in the effective tax rate was due primarily to the tax free income received from the additional bank-owned life insurance.~~

The Company recorded a provision for income taxes of $682,000 and $1.4 million for the three and six months ended March 31, 2021, respectively, reflecting an effective tax rate of 23.5 percent and 23.9 percent, respectively.

Investment Portfolio

For the three months ended March 31, ~~2022,~~2023, the average volume of investment securities increased by ~~$41.8~~$17.4 million to approximately ~~$91.4~~$108.9 million, or ~~9.2 percent~~11.4% of average earning assets, from ~~$49.7~~$91.4 million, or ~~4.6 percent~~9.2% of average earning assets, for the three months ended March 31, ~~2021.~~2022. During the six months ended March 31, ~~2022,~~2023, the average volume of investment securities increased ~~$33.6~~by $26.1 million to ~~approximately~~$109.5 million, or 11.3% of average earning assets, from $83.3 million, or ~~8.3 percent of average earnings assets, from $49.7 million, or 4.6 percent~~8.3% of average earning assets for the six months ended March 31, ~~2021.~~2022. At March 31, ~~2022,~~2023, the total investment portfolio amounted to ~~$104.1~~$105.8 million, ~~an increase~~a decrease of ~~$33.4~~$4.2 million, or ~~47.1 percent~~3.8%, from September 30, ~~2021.~~2022. This ~~increase~~decrease in the investment portfolio was primarily due to ~~purchases of $41.4 million of investment securities, partially offset by payments,~~amortization, maturities, calls and ~~calls of $5.1 million of investment securities.~~partial calls. At March 31, ~~2022,~~2023, the principal components of the investment portfolio were government agency obligations, federal agency obligations, including mortgage-backed securities, obligations of U.S. states and political subdivisions, one U.S. treasury note, corporate bonds and notes, a trust preferred security, and taxable mutual funds.

~~During the three month period ended March 31, 2022, rate-related factors decreasedinvestmentrevenue by approximately $48,000, while volume-related factors~~ increased investment revenue by approximately $289,000 from the three month period ended March 31, 2021. The yield on investments decreased by 21 basis points to 2.56 percent for the three month period ended March 31, 2022, as compared to 2.77 percent for the three month period ended March 31, 2021. Loan Portfolio

~~During the six month period ended March 31, 2022, rate-related factors increasedinvestmentrevenue by approximately $119,000, and volume-related factors~~ increased investment revenue by approximately $242,000 from the six month period ended March 31, 2021. The yield on investments decreased by 30 basis points to 2.58 percent for the three month period ended March 31, 2022, as compared to 2.88 percent for the six month period ended March 31, 2021.

~~Loan Portfolio~~

The Company’s loan portfolio consists of residential, construction and development, commercial, and consumer loans, serving the diverse customer base in its market area. The composition of the Company’s portfolio continues to change due to local competition. Factors such as the economic climate, interest rates, real estate values and employment all contribute to changes in the composition of the Company’s portfolio. ~~Growth~~Any growth of the loan portfolio is generated through business development efforts, repeat customer requests for new financings, penetration into existing markets, and entry into new markets.

The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, farmland, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Company’s customers. It is the objective of the Company’s credit policies to diversify the commercial loan portfolio and limit concentrations in any single industry.

~~Total gross~~

Net loans, ~~amounted~~which excludes loans held-for-sale, decreased by $15.9 million, or 2.0%, to ~~$808.0~~$786.0 million at March 31, ~~2022 and $913.8 million at September 30, 2021. The $105.8 million decrease in the gross loan portfolio at March 31, 2022~~2023, when compared to September 30, ~~2021 or 11.6 percent, for the period~~2022. The decrease was driven by ~~higher loan payoffs~~decrease in construction loans by $5.4 million, or 21.7%, residential loans by $12.2 million, or 6.9%, and ~~paydowns during the period primarily~~consumer loans by $974,000, or 4.9%, partially offset by an increase of $2.8 million, or 0.5%, in ~~the~~ commercial loan category. Commercial loans declined to $580.7 million at March 31, 2022 from $629.7 million at September 30, 2021 or a 7.8 percent decline as compared to September 30, 2021. Residential loans were $30.2 million and $63.7 million at March 31, 2022 and September 30, 2021, respectively.

loans. Loans held-for-sale amounted to $13.2 ~~(rather than the previously reported $11.9)~~ million at March 31, ~~2022,~~2023, compared to ~~$33.2~~$13.8 million at September 30, ~~2021. The decline was primarily related to the sale of three commercial loans totaling $18.9 million combined with a a $1.7 million valuation allowance recorded on loans held for sale.~~ ~~The valuation allowance adjustment consists of approximately $395,000 in reduced value and approximately $1.3 million in real estate tax expense.~~ 2022.

At March 31, ~~2022,~~2023 the Company had ~~$142.3~~$136.8 million in overall undisbursed loan commitments, which consisted primarily of available usage from active construction facilities, unused commercial lines of credit, and home equity lines of credit.

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Average loan balances of our total loans decreased ~~$134.0~~$39.0 million or ~~13.5 percent,~~4.6%, for the three months ended March 31, ~~2022~~2023 as compared to the same period in fiscal ~~2021,~~year 2022, while the average yield on loans ~~decreased~~increased by 10101 basis points for the three months ended March 31, ~~2022~~2023 compared ~~with~~to the same period in fiscal ~~2021.~~year 2022. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the ~~the second quarter of fiscal year 2022~~three month period ended March 31, 2023 compared to ~~the same period in fiscal year 2021, the volume-related factors during the period contributed to the decrease of income on loans of $1.2 million, while~~2022, the rate-related factors ~~decreased~~increased interest income on loans by ~~$215,000.~~ $2.4 million while the volume related factors decreased interest income $226,000 during the period.

~~The average balance of our total loans~~

Average loan balances decreased ~~$126.4~~$64.4 million, or ~~12.5 percent,~~7.3%, for the six months ended March 31, ~~2022~~2023, as compared to the same period in fiscal year ~~2021,~~2022, while the average yield on loans ~~decreased~~increased by 2093 basis points for the six months ended March 31, ~~2022~~2023, compared with the same period in fiscal year ~~2021.~~2022. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the six ~~months~~month period ended March 31, ~~2022~~2023 compared to ~~the same period in fiscal year 2021, the volume-related factors during the period contributed to a decrease of interest income on loans of $1.2 million, while~~2022, the rate-related factors ~~decreased~~increased interest income on loans by ~~$2.1 million.~~$3.8 million while the volume related factors decreased interest income $1.2 million during the period.

Allowance for Loan Losses and Related Provision

The ~~purpose~~ALLL provides an estimate of ~~the ALLL is to absorb the impact of~~probable but unconfirmed losses ~~inherent~~ in the loan ~~portfolio.~~portfolio as of the financial statement date. Additions to the ALLL are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The ALLL is maintained at an amount considered adequate by management to provide for probable loan losses inherent in the loan portfolio based upon a periodic evaluation of the portfolio’s risk characteristics. In establishing an appropriate ALLL, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such qualitative factors as changes in lending policies and procedures, economic and business conditions, nature and volume of the portfolio, changes in delinquency, concentration of credit trends, value of underlying collateral, the level and trend of interest rates ~~and current economic conditions~~ and peer group statistics are also reviewed. Given the economic volatility impacting national, regional, and local markets, the Company’s analysis of its ALLL takes into consideration the potential impact that current trends may have on the Company’s borrower base.

Although management uses the best information reasonably available to management, the level of the ALLL remains an estimate, which is subject to significant judgment and short-term change. ~~Various regulatory agencies,~~Our regulators, as an integral part of their examination process, periodically review the Company’s ALLL. ~~Such agencies~~Our regulators may require the Company to increase the ALLL based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and the State of Pennsylvania. Future adjustments to the ALLL may be necessary due to economic factors impacting New Jersey and Pennsylvania real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Company’s control.

AtThe ALLL at March 31, ~~2022, the ALLL~~2023 amounted to ~~approximately $9.3~~$9.1 million, or ~~1.15 percent of total gross loans. At September 30, 2021, the ALLL amounted to approximately $11.5 million, or 1.26 percent~~1.15% of total gross loans excluding loans ~~held-for-sale. The decrease in the allowance for loan losses of $2.2~~held-for-sale, compared to $9.1 million, or ~~18.9 percent is in line with the Company’s improved asset quality and, more specifically, improvement in non-performing~~1.12% of total gross loans ~~which declined $2.6 million, or 70.2 percent compared to the period ended~~excluding loans held-for-sale, at September 30, ~~2021.~~2022. The Company did not record a provision for loan losses for ~~both~~the quarters ~~ending~~ended March 31, ~~2022~~2023 or 2022. ~~and 2021.~~

~~The net~~Net charge-offs were ~~$ 736,000~~were $1,000 for the three months ended March 31, 2023 while net recoveries were $8,000 for the six months ended March 31, 2023. Net charge-offs were $736,000 and $2.2 million for the three and six months ended March 31, 2022, respectively. ~~Net loan charge-offs increased during the six months ended March 31, 2022 due to one non-accrual commercial and industrial loan totaling $2.5 million that was charged-off in the amount of $2.2 million. This credit had a specific reserve of $1.5 million as of September 30, 2021.~~ The ~~partial charge-off was primarily the result of the ongoing monitoring and evaluation of classified loan values and~~decrease is reflective of ~~changes in current economic conditions.~~low charge-offs recorded during the March 31, 2023 period.

We ~~will~~may continue to experience ~~some level of~~ periodic charge-offs in the future as exit strategies with respect to certain of our loans are considered and ~~executed, in particular as it relates to our clients impacted by the COVID-19 pandemic.~~executed. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of ~~scenarios.The~~scenarios. The level of the ALLL for the respective periods ~~of fiscal year 2022 and fiscal year 2021~~ reflects the credit quality within the loan portfolio, the loan volume recorded or lost during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management’s view, the level of the ALLL at March 31, ~~2022~~2023 was adequate to cover losses inherent in the loan portfolio. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the ALLL.

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Changes in the ALLL are presented in the following table for the periods indicated:

	Six Months Ended March 31,						Six Months Ended March 31,
	2022			2021			2023			2022
	(Dollars in thousands)						(Dollars in thousands)
Average loans outstanding	$	856,937		$	1,011,927
Average loans outstanding, excluding held for sale							$	808,871		$	856,937
Total gross loans at end of period	$	808,037		$	986,428		$	794,562		$	808,037
Analysis of the Allowance of Loan Losses:
Balance at beginning of period	$	11,472		$	12,433		$	9,090		$	11,472

Charge-offs:
Commercial:
Commercial real estate					484			—			—
Commercial and industrial		2,194			-			—			2,194
Consumer:
Second mortgages		106			-			8			106
Other		-			1			—			—
Total charge-offs		2,300			485			8			2,300
Recoveries:

Residential Mortgage		1			1			6			1
Commercial:
Commercial real estate		76			1			3			76
Commercial and industrial		1			1			1			1

Consumer:
Home equity lines of credit		1			1			1			1
Second mortgages		50			98			5			50
Second mortgages		-			1			—			—
Total recoveries		129			103			16			129
Net charge-offs		2,171			382
Net (recoveries) charge-offs								(8	)		2,171
Provision for loan losses		-			550			—			—
Balance at end of period	$	9,301		$	12,601		$	9,098		$	9,301
Ratios:
Ratio of allowance for loan losses to non-performing loans		842.48	%		54.68	%		903.48	%		842.48	%
Ratio of net charge-offs to average loans outstanding (1)		0.49	%		0.08	%		0.00	%		0.49	%
Ratio of net charge-offs to total allowance for loan losses		23.34	%		3.03	%
Ratio of net charge-offs (recoveries) to total allowance for loan losses								(0.09	)%		23.34	%

(1)

~~(1)~~Annualized

~~Annualized~~

The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to the loan portfolio’s dynamics and mix of assets. The Company endeavors to identify loans experiencing difficulty early in the process in an attempt to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate ALLL at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of 90 days. When a loan is placed on non-accrual status, interest accruals cease, and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only ~~may~~ be restored to an accruing basis when it again becomes well-secured, all past due amounts have been collected and a satisfactory period of ongoing repayments ~~exist.~~exists. Accruing loans past due 90 days or more are generally well-secured and in the process of collection.

Non-performing~~loansincludenon-accrualloansandaccruing~~loans include non-accrual loans and accruing loans thatarecontractuallypastdue 90daysormore.Non-accrual loans represent loans on which interest accruals have been suspended. It is the Company’s general policy to consider the charge-off of loans at the point they become past due in excess of 90 days, with the exception of loans that are both well-secured and in the process of collection.

TDR loans represent loans to borrowers experiencing financial difficulties on which a concession was granted, such as a reduction in interest rate which is lower than the current market rate for new debt with similar risks, or modified repayment terms, and are performing under the restructured terms. Such loans, as long as they are performing in accordance with their restructured terms, are not included within the Company’s non-performing loans. For additional information regarding loans, see Note 67 of the Notes to the Unaudited Consolidated Financial Statements.

The following table sets forth, as of the dates indicated, the amount of the Company’s non-accrual loans, accruing loans past due 90 days or more ~~OREO~~ and ~~performing TDR loans:~~OREO:

Non-accrual loans totaled ~~$1.1~~$1.0 million at March 31, ~~2022~~2023 and ~~$3.7 million~~$753,000 at September 30, ~~2021. OREO was $5.0 million at March 31, 2022, and September 30, 2021.~~2022. The ~~decrease~~increase in non-accrual loans was primarily due to addition of two residential loans with a ~~partial charge down~~combined carrying value of ~~$2.2 million related~~$569,000 during the six months ended March 31, 2023 which was offset in part by two residential loans with a combined carrying value of $187,000 moving out of non-accrual status as they were sold through foreclosure, and one consumer loan with a carrying value of $35,000 returning to ~~one non-accrual commercial and industrial loan. This loan had a specific allocation of $1.5 million previously reported~~accrual status during the quarter. OREO was $200,000 at March 31, 2023 compared to $259,000 at September 30, ~~2021.~~2022. The ~~partial charge-off was~~adjustment to the ~~result~~fair value of the ~~ongoing monitoring and evaluation~~OREO was based on a contract for sale of the ~~loan’s value in light of indications of interest received with respect~~property that was executed during the three months ended March 31, 2023 and expected to settle during the ~~note. Performing TDR~~third fiscal quarter ending June 30, 2023.

Troubled debt restructured (“TDR”) loans were ~~$5.8~~$11.0 million at March 31, ~~2022~~2023, and ~~$17.6~~$6.1 million at September 30, ~~2021.~~2022. The ~~decrease~~increase is primarily related to ~~two TDR~~one new $4.8 million commercial ~~real estate loans totaling $11.4 million~~and industrial loan that ~~were sold~~was modified during the ~~December 31, 2021~~ ~~period, as part of the note sale, previously announced in September 30, 2021.~~period.

Credit quality risk ratings include categories of “pass,” “special mention,” “substandard” and “doubtful.” Assets classified as “pass” are those protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. Assets which do not currently expose the Company to sufficient risk to warrant classification as substandard or doubtful but possess certain identified weaknesses are required to be designated as “special mention.” If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”

Special mention loans ~~were $43.0 million compared~~amounted to $58.1 million at September 30, 2021. The decrease was primarily due to one $9.3 million commercial real estate loan that paid off during the three months ended December 31, 2021. Substandard loans were $12.5$27.1 million and ~~$16.1~~$32.7 million at March 31, ~~2022~~2023 and September 30, ~~2021,~~2022 respectively. ~~This decrease in substandard~~Substandard loans ~~is primarily due to a $2.2~~were $11.3 million ~~charge down of one commercial~~ and ~~industrial loan.~~$11.4 million at March 31, 2023 and September 30, 2022, respectively. Our loans that have been identified as special mention or substandard are considered potential problem loans due to a variety of changing conditions affecting the credits, including general economic conditions and/or conditions applicable to the specific borrowers.

Note 2 of the Notes to the Unaudited Consolidated Financial Statements discusses the expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Company’s statement of condition is planned and monitored by the Company’s Asset and Liability Committee (“ALCO”). In general, management’s objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring the components of the statement of condition and the interaction of interest rates.

Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Company utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning asset matures or when its interest rate changes in a time period different than that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different than that of an earning asset that it supports. While the Company matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest-sensitive assets and interest-sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Company may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending in part on management’s judgment as to projected interest rate trends.

The Company’s interest rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets (“RSA”) and rate sensitive liabilities (“RSL”). For example, a short-funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, an RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset-sensitive position and a ratio less than 1 indicates a liability-sensitive position.

A negative gap and/or a rate sensitivity ratio less than 1 tends to expand NIMs in a falling rate environment and reduce NIMs in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Company may elect to deliberately mismatch liabilities and assets in a strategic gap position.

At March 31, ~~2022,~~2023, the Company reflected a positive interest sensitivity gap with an interest sensitivity ratio of ~~1.30:~~1.25:1.00 at the cumulative one-year position. Based on current rising interest rate environment, that at the current time is estimated to continue through the first half of calendar year 2023, emphasis will be on controlling liability costs and duration in our efforts to insulate the net interest spread for a potential future decline in rates.

The estimation of fair value is significant to a number of the Company’s assets, including loans held for sale, investment securities available-for-sale and loan swaps. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The liquidity position of the Company is dependent primarily on successful management of the Bank’s assets and liabilities so as to meet the needs of both deposit and credit customers. Liquidity needs arise principally to accommodate possible deposit outflows and to meet customers’ requests for loans. Scheduled principal loan repayments, maturing investments, short-term liquid assets, and deposit inflows can satisfy such needs. The objective of liquidity management is to enable the Company to maintain sufficient liquidity to meet its obligations in a timely and cost-effective manner.

Management monitors current and projected cash flows and adjusts positions as necessary to maintain adequate levels of liquidity. Under its liquidity risk management program, the Company regularly monitors correspondent bank funding exposure and credit exposure in accordance with guidelines issued by the banking regulatory authorities. Management uses a variety of potential

funding sources and staggering maturities to reduce the risk of potential funding pressure. Management also maintains a detailed contingency funding plan designed to adequately respond ~~adequately~~ to situations which could lead to stresses on liquidity. Management believes that the Company has the funding capacity to meet the liquidity needs arising from potential events. The Company maintains borrowing capacity through the Federal Home Loan Bank of Pittsburgh secured with loans and marketable securities.

The Company’s primary sources of short-term liquidity consist of cash and cash equivalents ~~interest bearing deposits with banks (including the FHLB Pittsburgh),~~and investment securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities available-for-sale, loans held or sale, and from time to time federal funds sold and receivables related to unsettled securities transactions.available-for-sale.

Additionally, liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received. As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio ~~or alleviated~~ from the temporary curtailment of lending activities. At March 31, ~~2022,~~2023, the Company had ~~$122.0~~$31.5 million in cash and cash ~~equivalent~~equivalents compared to ~~$136.6~~$53.3 million at September 30, ~~2021. In addition, our~~2022. Our available for sale investment securities amounted to ~~$54.2~~$48.2 million at March 31, ~~2022 and $40.8~~2023 compared to $49.8 million at September 30, ~~2021.~~2022. In addition, the Company had $150 million FHLB line of credit available for both periods ended March 31, 2023 and September 30, 2022, respectively.

Total deposits decreased ~~$83.7~~$45.1 million, or ~~8.9~~5.7 percent, from ~~$938.2~~$785.3 million at September 30, ~~2021~~2022 to ~~$854.4~~$740.2 million at March 31, ~~2022.~~2023. The decrease in deposits was primarily related to a reduction of $26.0 million in money market deposits and $13.6 million in interest-bearing demand deposits, a $8.4 million decline in non-interest-bearing deposits and a decrease of $2.4 million in savings, partially offset by an increase of $5.2 million in time deposits. Non-interest-bearing core deposits; interest-bearing core deposits, savings, money market; and time deposits represent approximately 7%, 72%, and 21% of total deposits, respectively, as of March 31, 2023.

Time deposits $250,000 and over decreased ~~$84.6~~ $5.2 million ~~from $884.3 million at~~as compared to September 30, ~~2021 to $799.7 million at March 31,~~ 2022. Time deposits $250,000 and over ~~decreased $613,000 as compared to September 30, 2021. Time deposits $250,000 and over~~ represented ~~2.0 percent~~7.8% of total deposits at March 31, ~~2022~~2023 compared to ~~1.8 percent~~8.0% at September 30, ~~2021. We had brokered~~2022. Brokered deposits ~~totaling $9.0~~were $21.6 million and $19.1 at March 31, 2023 and September 30, 2022

respectively. Estimated uninsured deposits (in excess of the Federal Deposit Insurance Corporation limit) were $193.1 million and $169.8 million at March 31, ~~2022 compared to $6.1 million at~~2023 and September 30, ~~2021.~~2022 respectively. At those dates, the Bank had no deposits that were otherwise uninsured.

The Company continues to focus on the maintenance ~~development,~~ and ~~expansion~~development of its deposit ~~base. Management believes that the~~base to align with its funding requirements and liquidity needs, but with an emphasis on serving the needs of ~~our~~its communities ~~will~~to provide a long-term relationship base ~~which in turn will allow the Company to efficiently compete for and retain deposits in its market.~~

The Company continues to focus on the maintenance, development, and expansion of its deposit base. Management believes that the emphasis on serving the needs of our communities will provide a long-term relationship base which in turn will allow the Company to efficiently compete for and retain deposits in its market.

The following table depicts the Company’s d~~eposits~~deposits classified by type, with percentages to total deposits, at March 31, ~~2022~~2023 and September 30, ~~2021:~~2022:

Advances from FHLB Pittsburgh are available to supplement the Company’s liquidity position and, to the extent that maturing deposits do not remain with the Company, management may replace such funds with these advances. As of March 31, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company’s outstanding balance of FHLB Pittsburgh advances totaled ~~$60.0~~$75.0 million and ~~$90.0~~$80.0 million, respectively. Of the ~~$60.0~~$75.0 million in advances, all are short-term fixed-rate advances ~~having~~except $60.0 million of advances that are hedged to terms ranging from 1 - 2 years with a rolling ~~90 day~~90-day maturity.

The Company did not purchase any securities ~~sold~~ under agreements to repurchase as a short-term funding source during the ~~first fiscal~~ quarters ~~of 2022~~ended March 31, 2023 or ~~2021.~~

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents resulting from the Company’s operating, investing, and financing activities. During the six months ended March 31, ~~2022,~~2023, cash and cash equivalents decreased by ~~$14.6~~$21.8 million from the balance at September 30, ~~2021.~~2022. Net cash of ~~$10.1~~$7.6 million was provided by operating ~~activities primarily due to net income of $2.5 million, an increase of $8.3 million in other liabilities and $3.0 million decrease in other assets.~~activities. Net cash provided by investing activities amounted to ~~approximately $88.2~~$20.0 million primarily due to ~~a net~~ decrease in loans of ~~$123.2~~$16.4 million ~~which was partially offset by purchases of $41.4~~combined with $3.4 million of investment securities. ~~The~~Net cash used in financing activities amounted to $49.5 million, which was primarily attributable to decrease in ~~net cash from financing activities~~deposits of ~~$112.9~~$45.1 million ~~was primarily from the net decrease~~combined with repayment of ~~$30.0 million in long term~~ borrowings ~~and $83.7 million in deposits.~~of $5.0 million.

Total shareholders’ equity amounted to ~~$144.6~~$147.9 million, or ~~13.1 percent~~14.8% of total assets, at March 31, ~~2022,~~2023, compared to ~~$142.2~~$146.4 million, or ~~11.8 percent~~14.0% of total assets, at September 30, ~~2021.~~2022. Book value per common share was ~~$18.95~~$19.35 at March 31, ~~2022,~~2023, compared to ~~$18.65~~$19.18 at September 30, ~~2021.~~2022.

At March 31, 2023, the Bank’s common equity Tier 1 capital ratio was 20.05%, Tier 1 leverage ratio was 17.01%, Tier 1 risk-based capital ratio was 20.05% and the total risk-based capital ratio was 21.13%. At September 30, 2022, the Bank’s common equity Tier 1 capital ratio was ~~18.25 percent,~~19.27%, Tier 1 leverage ratio was ~~14.29 percent,~~16.30%, Tier 1 risk-based capital ratio was ~~18.25 percent~~19.27% and the total risk-based capital ratio was 19.31 percent. At September 30, 2021, the Bank’s common equity Tier 1 capital ratio was 16.13 percent, Tier 1 leverage ratio was 13.14 percent, Tier 1 risk-based capital ratio was 16.13 percent and the total risk-based capital ratio was 17.32 percent.20.34%. At March 31, ~~2022,~~2023, the Bank was in compliance with all applicable regulatory capital requirements.

Information on Stock Repurchases is provided in “Part II. Other Information, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds” herein.

This Item has been omitted based on the Company’s status as a smaller reporting company.

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of March 31, ~~2022,~~2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, ~~2022.~~2023.

There were no changes in the Company’s internal controls over financial reporting during the ~~three~~six months ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

See Note 15 Contingencies to ~~various legal actions arising~~the condensed consolidated financial statements included in ~~the normal course~~"Item 1. Financial Statements (unaudited)" of ~~business. In the opinion~~Part 1 of ~~management, the resolution~~this report, which is incorporated by reference into this Item 1 of ~~these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.~~Part II.

For a summary of risk factors relevant to the Company, see Part I, Item 1A, “Risk Factors” in the ~~2021~~2023 Annual Report. ~~There are no~~The following represents a material ~~changes to the~~change in our risk factors ~~as previously~~from those disclosed ~~under the section titled “Risk Factors”~~ in Part I - Item 1A, ~~of our 2021~~“ Risk Factors” in the 2023 Annual Report. Additional risks not presently known to the Company, or that the Company currently deems immaterial, may also adversely affect the business, financial condition or results of operations.

Adverse developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on the Company’s operations and/or stock price.

The recent high-profile bank failures and related negative media attention have generated significant market volatility among publicly-traded bank holding companies and, in particular, regional, as well as community banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional and community banks. As a result, customers may choose to withdraw their deposits and maintain such deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact our liquidity, cost of funding, loan funding capacity, NIM, capital and results of operations. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. There is no guarantee that any anticipatory or mitigating actions we may take will be successful or sufficient in the event of sudden liquidity needs.

In connection with the high-profile bank failures mentioned above, uncertainty and concern have been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional and community banks and the banking system more broadly, nor is there a guarantee that such regulators will make these same assurances with respect to any additional banks that might fail. In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially our results of operations. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

There were no repurchases or unregistered sales of the Company’s stock during the ~~quarter.~~quarter ended March 31, 2023.

Title of each class	Trading Symbol(s)	Name of each ~~class~~exchange on which registered
Common Stock, par value $0.01 per share	~~Trading Symbol(s)~~MLVF	~~Name of each exchange on which registered~~Nasdaq Stock Market, LLC
~~Common Stock, par value $0.01 per share~~	~~MLVF~~	~~Nasdaq Stock Market, LLC~~

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

Common Stock, par value $0.01:	~~7,625,111~~7,644,765 shares
(Title of Class)	(Outstanding as of ~~May 10, 2022)~~May11, 2023)

		Page

PART I – FINANCIAL INFORMATION		3

Item 1.	Unaudited Financial Statements	4
	Consolidated Statements of Financial Condition at March 31, ~~2022 (unaudited)~~2023 and September 30, ~~2021~~2022	4
	Consolidated Statements of ~~Operations for the three and six months ended March 31, 2022 and 2021 (unaudited)~~	5
	~~Consolidated Statements of Comprehensive~~ ~~(Loss)~~Net Income for the three and six months ended March 31, ~~2022~~2023 and ~~2021 (unaudited)~~2022	65
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31, 2023 and 2022	6
	Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended March 31, ~~2022~~2023 and ~~2021 (unaudited)~~2022	7
	Consolidated Statements of Cash Flows for the six months ended March 31, ~~2022~~2023 and ~~2021 (unaudited)~~2022	8
	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Income	4443

Item 3.	Qualitative and Quantitative Disclosures about Market Risk	6057

Item 4.	Controls and Procedures	6057

PART II – OTHER INFORMATION.		6158

Item 1.	Legal Proceedings	6158

Item 1A.	Risk Factors	6158

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6158

Item 3.	Default Upon Senior Securities	6158

Item 4.	Mine Safety Disclosure	6158

Item 5.	Other Information	6158

Item 6.	Exhibits	6158

SIGNATURES		6259

2.1		Agreement and Plan of Merger, dated December 13, 2022, by and among First Bank, Malvern Bancorp, Inc. and Malvern Bank, National Association (1)
3.1		Amended and Restated Articles of Incorporation of Malvern Bancorp, Inc.~~(1)~~(2)
3.2		Amended and Restated Bylaws of Malvern Bancorp, Inc.~~(2)~~(3)
10.1		Form of Voting Agreement dated December 13, 2022, by and among First Bank, Malvern Bancorp, Inc. and certain stockholders of Malvern Bancorp, Inc. (4)
31.1		Rule 13a-14(a)/15d-14(a) Section 302 Certification
31.2		Rule 13a-14(a)/15d-14(a) Section 302 Certification
32.0		Section 1350 Certification


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~~(2)~~ (3)	Incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K of Malvern Bancorp, Inc. filed with the SEC on February 17, 2017.
(4)	Incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K of Malvern Bancorp, Inc. filed with the SEC on December 14, 2022.


	~~MALVERN BANCORP, INC.~~


May ~~16, 2022~~12, 2023	By:	/s/ Anthony C. Weagley
		Anthony C. Weagley
		President and Chief Executive Officer



May ~~16, 2022~~12, 2023	By:	/s/ Joseph D. Gangemi
		Joseph D. Gangemi
		Executive Vice President and Chief Financial	Officer
		~~Officer~~

Three Months Ended March 31, 2023

Consolidated Statements of Net Income

Amount of Gain Recognized in Income on derivatives

(In thousands)

Derivatives not designated as a hedging instrument:

Interest rate swap agreement

Other income