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

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 office in 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. 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.

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 ~~June 30,~~December 31, 2022 and the results of operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and 2021, and cash flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and ~~2021.~~2021. 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 net income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and the consolidated statements of cash flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2022 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.

Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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. TheThe 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 March 2022, the FASB issued ASU ~~2022-02,~~ 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.In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (Topic 848)~~. 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 expedients 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 Federal Reserve Board (“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.

Derivatives and Hedging.In In March 2022, FASB ASU No. ~~2022-01,~~2022-01, Derivatives and Hedging (Topic ~~815)~~815): Fair Value ~~Hedging—~~Hedging—Portfolio Layer Method.This update will allow non-prepayable financial assets to be included in a closed portfolio hedge using the 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 is effective for public business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating the effects, if any, that the adoption of this amendment will have on its consolidated financial statements.

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 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”). The Merger Agreement was unanimously approved by the board of directors of each of First Bank, Malvern Bancorp and Malvern Bank.

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 not equal or exceed $140,000,000.

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

The Corporation recorded $511,000 of merger-related expenses for the three months ended December 31, 2022, related to the pending merger with First Bank. These expenses primarily consisted of legal and professional fees.

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 nine~~ months ended ~~June 30,~~December 31, 2022 and 2021, the Company granted ~~4,200~~2,758 and ~~13,848~~zero restricted shares, ~~respectively and 2,336 shares were forfeited for~~respectively. During the ~~nine~~three months ended ~~June 30, 2022. Of the 13,848 restricted shares issued during the nine months ended June 30,~~December 31, 2022 ~~4,517 were fully vested. During the three~~ and ~~nine months ended June 30, 2022, 6,000~~2021 no stock options were granted. During the three ~~and nine~~ months ended ~~June 30, 2021, the Company granted a total of 12,363 restricted shares. During the three~~December 31, 2022 and ~~nine months ended June 30,~~ 2021 ~~options to acquire a total of 7,000 shares of common stock were granted. During the three~~ zero and ~~nine months ended June 30, 2022, 0~~1,216 restricted shares were ~~forfeited.~~ forfeited, respectively.

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

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 nine~~ months ended ~~June 30,~~December 31, 2022 and 2021, there were 3,600 ~~and 10,800~~ shares ~~respectively,~~ committed to be released. At ~~June 30,~~December 31, 2022, there were ~~60,765~~53,565 unallocated shares and ~~198,453~~205,653 allocated shares held by the ~~ESOP.~~ESOP. The unallocated shares had an aggregate fair value of approximately ~~$976,000~~$951,000 at ~~June 30, 2022~~

The Company’s investment in debt securities are classified as available-for-sale or held-to-maturity at ~~June~~December 31, 2022 and at September 30, 2022 ~~and at September 30, 2021.~~. 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 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 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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

There were 0no sales, ofcalled or matured available-for-sale investment securities for the ~~nine~~three months ended ~~June 30,~~December 31, 2022. One held-to-maturity investment security matured during the three month period ended December 31, 2022. For the ~~nine~~three months ended ~~June 30,~~December 31, 2021 ~~proceeds~~, $945,000 and $2.5 million of available-for-sale and held-to-maturity investment securities, ~~sold amounted~~respectively, were called. No purchases were made for during the three months ended December 31, 2022. For the same period ended December 31, 2021, $2.0 million of available-for sale and $13.7 million of held-for-sale investment securities were purchased.

The varying amount of sales from the available-for-sale portfolio over the past few years reflect the significant volatility present in the market. Given the historic low interest rates prevalent in the market, it is necessary for the Company to ~~$17.3 million. There were gains~~protect itself from interest rate exposure. Securities that once appeared to be sound investments can, after changes in the market, become securities that the Company has the flexibility to sell to avoid losses and mismatches of ~~$779,000 associated with sales~~interest-earning assets and ~~calls.~~interest-bearing liabilities at a later time.

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

As of ~~June 30,~~December 31, 2022, 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~~ ~~June 30, 2022 on available for sale securities.~~market rate yielding investments. As of ~~June 30,~~December 31, 2022, the Company held 13 corporate debt securities, 11 municipal bonds, 1one U.S. government agency, 1one U.S. Treasury note, 1one mortgage-backed security, and 1one single issuer trust preferred security which were 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 ~~June 30,~~December 31, 2022 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 FED interest rate hikes.

Investment securities having a carrying value of ~~$12.0~~$11.7 million and ~~$2.9~~$11.9 million at ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021,~~, respectively, were pledged to secure public funds deposits and prospective FRB discount window borrowings. ~~NaN~~No investment securities were pledged to secure hedges at ~~June 30~~,December 31, 2022 or September 30, ~~2021.NaN~~2022. No investment securities were pledged to secure short-term borrowings at ~~June 30,~~December 31, 2022 and September 30, ~~2021.~~ 2022.

The following table presents information for investment securities at ~~June 30,~~December 31, 2022, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

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

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021.~~. Activity in the ALLL is presented for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and 2021 and the fiscal year ended September 30, ~~2021:~~2022:

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 commercial loan portfolio and increased historical loss levels are factored in accessing 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.

~~Impaired~~Total impaired loans ~~with no specific allowance decreased~~increased by ~~$20.2~~$4.8 million from ~~$39.7~~$19.7 million at September 30, ~~2021~~2022 to ~~$19.5~~$24.5 million at ~~June 30, 2022, due primarily to three commercial real estate loans totaling $18.9 million being sold during the~~ December 31, ~~2021 period and a $2.2 million partial charge down~~2022, primarily due to the additional impairment of one commercial and industrial loan ~~during the March 31, 2022 period.~~ at a carrying value of $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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

The following table presents the average recorded investment in impaired loans in the loan portfolio and related interest income recognized for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and ~~2021:~~2021:

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

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

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 June 30, 2022, and $3.7 million at September 30, 2021.~~ The ~~decrease~~increase in non-accrual loans was primarily due to the addition of two residential loans with a ~~partial charge down~~combined carrying value of ~~$2.2 million one commercial and industrial loan~~$573,000 during the ~~nine~~three months ended ~~June 30, 2022.~~December 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 $29,000~~$26,000 for the three months ended ~~June 30,~~December 31, 2022, and ~~$29,000~~$28,000 for the ~~nine~~three months ended June 30, 2022. Interest income that would have been recognized on non-accrual loans had they been current in accordance with their original terms was approximately $300,000 for the three months ended June 30, 2021 and $845,000 for the nine months ended June 30, 2021. At June 30,December 31, 2022 ~~there were three loans for $401,000 that were 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.~~.

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

~~Restructured~~The Company had 23 and 20 loans ~~deemed to be Troubled~~classified as troubled debt restructures (“TDRs”) ~~are typically the result 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~~at December 31, 2022 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.

~~The Company had 22 and 26 loans classified as TDRs at June 30, 2022 and~~ September 30, ~~2021,~~2022, respectively, with an aggregate outstanding balance of ~~$6.2~~$10.9 million and ~~$18.2~~$6.1 million, respectively. At ~~June 30,~~December 31, 2022, these loans were also classified as ~~impaired.~~impaired, except for one residential loan with a carrying value of $72,000. The ~~decrease~~increase is primarily related to ~~two~~the addition of one TDR commercial ~~real estate loans totaling $11.4 million that were sold during the December 31, 2021 period,~~and industrial loan of $4.8 million. 19 of the TDR loans continue to perform under the restructured terms through ~~June 30,~~December 31, 2022 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.

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 ~~$132,000~~$730,000 and ~~$185,000~~$359,000 of residential real estate properties in the process of foreclosure at ~~June~~December 31, 2022 and September 30, 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 December 31, 2022. The court entered into a Judgment of Foreclosure with respect to a commercial real estate loan held for sale at a
carrying value of $13.3 million (i) directing the sale the property at public auction prior to December 13, 2023, (ii) upon sale of the property, directing the payment to the Company of the sum of approximately $17.2 million plus interest at the note rate from September 16, 2022 through December 14, 2022 and ~~September 30, 2021, respectively.~~ at the statutory rate of 9% thereafter through the date of the foreclosure sale, (iii) directing that the Company pay 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 day of the foreclosure sale.

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

The following table reports the performing status of all TDR loans as of ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021.~~. The performing status is determined by a loan’s compliance with the modified terms:

The following ~~tables show~~table shows the new TDRs for the ~~nine~~three months ended ~~June 30~~,December 31, 2022 and ~~2021:~~2021:

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 ~~June 30,~~December 31, 2022, there were 4three such loan modifications totaling ~~$42.1~~$31.8 million, all rated “special mention”.At September 30, ~~2021,~~2022, the Company had ~~8 COVID-19~~four COVID-19 modified loans totaling ~~$61.2~~$32.0 million, all of which were rated “special mention”.

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

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 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.

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 ~~June~~both December 31, 2022 and September 30, 2022 ~~and as of September 30, 2021, the Company’s and~~, 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.

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

~~(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~~ ~~June 30, 2022 and September 20, 2021.~~company.

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

Failure to meet any of the capital requirements could result in enforcement actions by the regulators, including a capital directive, a cease and ~~September 30, 2021:~~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.

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 ~~June 30,~~December 31, 2022, 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 months, the Company estimates approximately $1.3 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).

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

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

The tables below present the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Net Income relating to the cash flow derivative instruments for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and ~~2021:~~2021:

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 nine~~ months ended ~~June 30,~~December 31, 2022 and ~~2021:~~2021:

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 agreements.

At ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021,~~, the fair value of derivatives was in a net asset ~~and liability~~ position, ~~respectively,~~ which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. There were no adjustments for nonperformance risk at ~~June~~December 31, 2022 and September 30, 2022. At December 31, 2022 and September 30, ~~2021.~~ ~~At June 30,~~ 2022, the Company had no collateral posting requirement ~~at September 30, 2021, the Company hadminimum collateral posting thresholds with certain of its derivative counterparties and has posted cashcollateral of 0 and $8.3 million, respectively,~~ against its obligations under these agreements. If the Company had breached any of these provisions 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.

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, 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.

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 affects the valuation method chosen. There were no changes in valuation techniques or transfers between levels at ~~June~~December 31, 2022 or September 30, 2022 ~~or September 30, 2021.~~.

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

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 nine~~three months ended ~~June 30,~~December 31, 2022 and ~~June 30,~~December 31, 2021

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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021:~~:

At ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, the Company did not have any additions to our mortgage servicing assets. At ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021,~~, 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 ~~June~~December 31, 2022 and September 30, 2022 ~~and September 30, 2021.~~. 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 ~~June 30,~~December 31, 2022 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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 securities available for sale and mutual funds 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~~December 31, 2022, one of the Company’s real estate loans totaling ~~$33.2~~$13.2 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~~ 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 are equity interests in the Federal Reserve Bank, FHLB and ACBB, they are carried at cost because they do not have a readily determinable fair value as ~~it’s~~its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount.

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.

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.

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

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

(2)

~~(2)~~

Amounts are included in interest and dividends on investment securities on the Consolidated Statements of 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 ~~June 30,~~December 31, 2022, there were ~~279,440~~281,018 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 ~~awarded 6,000~~did not grant any stock options during the ~~nine~~three months ended ~~June 30, 2022. For the nine months ended June 30,~~December 31, 2022 ~~2,000~~ There were no stock options ~~were~~ forfeited or expired for the same periods ended December 31, 2022 and ~~expired.~~2021, respectively. Total compensation expense related to stock options granted under the 2014 Plan was ~~approximately $8,000 and $26,000~~$9,000 for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and ~~$7,000 and $23,000 for the three and nine months ended June 30, 2021.~~2021, respectively.

The Company awarded ~~13,848~~2,758 shares of restricted stock during the ~~nine~~three months ended ~~June 30,~~December 31, 2022 ~~and 12,363 shares of~~ There were no restricted stock ~~during~~awarded for the ~~nine~~same period ended December 31, 2021. There were zero and 1,216 restricted shares forfeited for the three months ended ~~June 30, 2021. Of the 13,848 shares issued during the nine months ended June 30,~~December 31, 2022 ~~4,517 were fully vested~~ and issued at a cost of $68,000. There were 2,336 shares of restricted stock forfeited during the nine months ended June 30, 2022 and there were 0 shares forfeited during nine months ended June 30, 2021. December 31, 2021, respectively. The compensation expense related to restricted stock awards was ~~approximately~~$44,000 and $43,000 ~~and $154,000~~ for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022and ~~$43,000 and $129,000 for the three and three and nine months ended June 30, 2021.~~

~~-40-~~

2021, respectively.

- 37-

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

~~The assumptions used in determining the fair value of stock option grants for the nine months ended June 30, 2022 are as follows:~~

Weighted Average Fair Value of Awards

$
5.93

Risk Free Rate

3.03
%
Dividend Yield

-%

Volatility

30.04
%
Expected Life

6.5 years

~~The assumptions used in determining the fair value of stock option grants for the nine months ended June 30, 2021 are as follows:~~

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 nine months ended June 30, 2022~~

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (In Years)

Aggregate
Intrinsic
Value

Outstanding, beginning of year

32,830

$
20.96

6.875

$
1,940

Granted

6,000

$
16.05

9.843

$
-

Exercised

-

$
-

-

$
-

Forfeited/cancelled/expired

2,000

$
19.49

-

$
-

Outstanding, at June 30, 2022

36,830

$
20.24

7.080

$
220

Exercisable, at June 30, 2022

18,880

$
21.50

5.816

$
100

Nonvested, at June 30, 2022

17,950

$
18.90

8.410

$
120

~~-41-~~

The following is a summary of stock option activity for the ~~nine~~three months ended ~~June 30, 2021~~December 31, 2022

					*Weighted*
			*Weighted*		*Average*
			*Average*		*Remaining*		*Aggregate*
			*Exercise*		*Contractual*		*Intrinsic*
	*Shares*		*Price*		*Term (In Years)*		*Value*
Outstanding, beginning of year		36,830	$	20.24		—	$	—
Granted		—	$	—		—	$	—
Exercised		—	$	—		—	$	—
Forfeited/cancelled/expired		—	$	—		—	$	—
Outstanding, at December 31, 2022		36,830	$	20.24		6.576	$	13,660
Exercisable, at December 31, 2022		20,030	$	21.77		5.294	$	3,460
Nonvested, at December 31, 2022		16,800	$	18.40		8.105	$	10,200

Shares

Weighted Average
Exercise Price

Weighted Average Remaining Contractual Term (In Years)

Aggregate Intrinsic
Value

Outstanding, beginning of year

25,830

$
21.57

$
-

Granted

7,000

$
18.69

$
-

Exercised

-

$
-

$
-

Forfeited/cancelled/expired

-

$
-

$
-

Outstanding, at June 30, 2021

32,830

$
20.96

6.445

$
4,860

Exercisable, at June 30, 2021

13,310

$
21.53

8.461

$
4,860

Nonvested, at June 30, 2021

19,520

$
20.56

- 38-

Table of Contents

The following is a summary of stock option activity for the three months ended December 31, 2021

					*Weighted*
					*Average*
			*Weighted*		*Remaining*		*Aggregate*
			*Average*		*Contractual*		*Intrinsic*
	*Shares*		*Exercise Price*		*Term (In Years)*		*Value*
Outstanding, beginning of year		32,830	$	20.96		—	$	—
Granted		—	$	—		—	$	—
Exercised		—	$	—		—	$	—
Forfeited/cancelled/expired		—	$	—		—	$	—
Outstanding, at December 31, 2021		32,830	$	20.96		7.139	$	—
Exercisable, at December 31, 2021		14,480	$	21.91		5.945	$	—
Nonvested, at December 31, 2021		18,350	$	20.21		8.082	$	—

As of ~~June 30,~~December 31, 2022, there was ~~93,000~~$75,000 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 ~~3.56~~3.30 years.

Restricted Stock Awards

The table below summarizes the activity for the Company’s stock awards outstanding during the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and ~~2021:~~2021:

									*Weighted Average*
	Shares			Weighted Average Fair Value		*Shares*			*Fair Value*
Outstanding, beginning of year		31,486		$	21.10		27,417		$	19.34
Granted		13,848		$	15.84		2,758		$	17.36
Vested		(14,745	)	$	21.77		(1,645	)	$	24.01
Forfeited/cancelled/expired		(2,336	)	$	19.98		—		$	—
Outstanding, at June 30, 2022		28,253		$	18.26
Outstanding, at December 31, 2022							28,530		$	18.88

									*Weighted Average*
	Shares			Weighted Average Fair Value		*Shares*			*Fair Value*
Outstanding, beginning of year		30,653		$	21.98		31,486		$	21.10
Granted		12,363		$	18.69		—		$	—
Vested		(11,851	)	$	20.87		(1,907	)	$	23.83
Forfeited/cancelled/expired		-		$	-		(1,216	)	$	20.63
Outstanding, at June 30, 2021		31,165		$	21.09
Outstanding, at December 31, 2021							28,363		$	20.94

As of ~~June 30,~~December 31, 2022, there was ~~$460,000~~$419,000 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 3.31 years.

- 39-

Table of Contents

~~-42-~~

Note 13– Deposits

~~Note 12 – Deposits~~

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

	June 30,				September 30,				*December 31,*				*September 30,*
	2022				2021				*2022*				*2022*
	(Dollars in thousands)								*(Dollars in thousands)*
Balances by types of deposit:
Savings	$	54,184	6.84	%	$	50,582	5.39	%	$	53,655	7.28	%	$	55,288	7.04	%
Money market accounts		301,165	38.04			385,480	41.09			250,936	34.03			279,699	35.62
Interest-bearing demand		270,532	34.17			336,645	35.88			233,635	31.68			240,819	30.66
Non-interest-bearing demand		56,731	7.17			53,849	5.74			51,066	6.92			58,014	7.39
		682,612	86.22			826,556	88.10			589,292	79.91			633,820	80.71
Certificates of deposit		109,082	13.78			111,603	11.90			148,130	20.09			151,503	19.29
Total Deposits	$	791,694	100.00	%	$	938,159	100.00	%	$	737,422	100	%	$	785,323	100	%

The total amount of certificates of deposit greater than or equal to ~~$250,000~~$250,000 at ~~June 30,~~December 31, 2022 and September 30, ~~2021~~2022 was ~~$17.1~~$55.7 million and ~~$16.9~~$63.0 million, respectively. The Company had brokered deposits totaling $9.1 million at December 31, 2022and ~~$6.1 million at June~~September 30, 2022 ~~and September 30, 2021, respectively.~~.

Interest expense on deposits consisted of the following:

	Three Months Ended June 30				Nine Months Ended June 30,				*Three Months Ended December 31,*
	2022		2021		2022		2021		*2022*		*2021*
	(In thousands)								*(In thousands)*
Savings accounts	$	11	$	13	$	37	$	47	$	15	$	11
Money market accounts		206		586		703		2,053		402		278
Interest-bearing demand		315		431		839		1,457		710		444
Certificates of deposit		280		416		1,106		1,951		703		312
Total	$	812	$	1,446	$	2,685	$	5,508	$	1,830	$	1,045

As of ~~June 30,~~December 31, 2022, the scheduled maturities of certificates of deposits are as follows:

	Scheduled Maturities		*Scheduled Maturities*
	(In thousands)		*(In thousands)*
Period Ending June 30,
Period Ending December 31,
2023	$	56,284	$	92,952
2024		34,625		40,226
2025		7,554		6,912
2026		6,590		5,489
2027		2,844		1,041
Thereafter		1,186		1,510
Total	$	109,082	$	148,130

- 40-

Table of Contents

As of ~~June 30,~~December 31, 2022, 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	$	8,748	$	18,513
Over three through six months		9,075		15,265
Over six through twelve months		13,405		8,734
Over twelve months		29,709		13,146
Total	$	60,937	$	55,658

~~-43-~~

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 rate on the Notes converted from fixed to a variable interest rate. The rate at ~~June 30,~~December 31, 2022 was ~~5.10%~~8.79%. All costs related to ~~2017~~the issuance of the Notes have been amortized. As of ~~June 30,~~December 31, 2022, the Notes bear interest until the maturity date or early redemption date at a variable 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. The Company’s subordinated debt totaled $25.0 million at December 31, 2022.

~~-44-~~

- 41-

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 ~~June 30,~~December 31, 2022 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, 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 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-occurence~~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 announcement of and ~~delay~~pendency of the ~~achievement~~merger; the ability of ~~any benefits that we may expect from such acquisitions;~~ the Company and First Bank to obtain regulatory and shareholder approvals and meet other closing conditions to the 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; 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~~2022 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 ongoingCOVID-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 the effects on general economic conditions. 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 stay reopen; there are high levels of unemployment for an extended periods of time; inflation continues to expand; 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,

~~-45-~~

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 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.

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.

-42-

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~~2022 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~~2022 Annual Report.

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 ~~June 30,~~December 31, 2022, the Company had adequate sources of liquidity.

Capital Strength

The Bank’s capital ratios continued to exceed the highest required regulatory benchmark levels.As of ~~June 30,~~December 31, 2022, common equity Tier 1 capital ratio was ~~16.87 percent,~~19.69%, Tier 1 leverage ratio was ~~15.33 percent,~~16.53%, Tier 1 risk-based capital ratio was ~~18.79 percent~~19.69% and the total risk-based capital ratio was ~~19.87 percent.~~20.77%.

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 ~~June 30,~~December 31, 2022, the Company had ~~four~~three COVID-19 modified loans totaling ~~$42.1~~$31.8 million, representing ~~5.17~~3.94 percent of loans 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

~~-46-~~

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.

	December 31, 2022
	Number of		Loan Modified		Gross		Percentage of Gross
	Loans		Exposure		Loans		Loans Modified
			(Dollars in thousands)
Residential mortgage		—	$	—	$	176,207		0.00	%

Construction and Development:
Residential and commercial		—		—		22,871		0.00	%
Land loans		—		—		545		0.00	%
Total Construction and Development		—		—		23,416		0.00	%

Commercial:
Commercial real estate		3		31,842		408,671		7.79	%
Farmland		—		—		11,435		0.00	%
Multi-family		—		—		50,004		0.00	%
Commercial and industrial		—		—		105,345		0.00	%
Other		—		—		13,192		0.00	%
Total Commercial		3		31,842		588,647		5.41	%

Consumer:
Home equity lines of credit		—		—		12,849		0.00	%
Second mortgages		—		—		4,024		0.00	%
Other		—		—		2,252		0.00	%
Total Consumer		—		—		19,125		0.00	%
Total loans		3	$	31,842	$	807,395		3.94	%

June 30 ,2022

Number of Loans

Loan Modified
Exposure

Gross Loans

Percentage of Gross
Loans Modified

(Dollars in thousands)

Residential mortgage

-

$
-

$
176,499

0.00
%

Construction and Development:

Residential and commercial

-

-

20,459

0.00
%
Land loans

-

-

2,054

0.00
%
Total Construction and Development

-

-

22,513

0.00
%

Commercial:

Commercial real estate

4

42,093

407,783

5.17
%
Farmland

-

-

15,348

0.00
%
Multi-family

-

-

54,879

0.00
%
Commercial and industrial

-

-

104,504

0.00
%
Other

-

-

13,954

0.00
%
Total Commercial

4

42,093

596,468

5.17
%

Consumer:

Home equity lines of credit

-

-

12,432

0.00
%
Second mortgages

-

-

4,605

0.00
%
Other

-

-

2,183

0.00
%
Total Consumer

-

-

19,220

0.00
%
Total loans

4

$
42,093

$
814,700

5.17
%

September 30, 2021

Number of Loans

Loan Modified
Exposure

Gross Loans

Percentage of Gross
Loans 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
%

-43-

Table of Contents

~~-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.

June 30, 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

$
42,093

5.17
%

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

$
42,093

5.17
%

6

$
60,567

6.63
%

ResultsofOperations

Net income available to common shareholders for the three months ended ~~June 30,~~December 31, 2022 amounted to ~~$1.8~~$1.9 million, or $0.24 per fully diluted common share, an increase of $233,000, or 14.6%, as compared with net income of $1.6 million, or $0.21 per common share, for the three months ended June 30, 2021. This increase in net income and diluted earnings per share was primarily due to a decrease in total interest expense for the quarter ended June 30, 2022, in which total interest expense decreased $1.0 million or 44.8%, to $1.3 million when compared to the quarter ended June 30, 2021. The decrease was primarily due to interest rate related factors, as the average rate on interest-bearing liabilities in the current quarter fell 33 basis points to 0.59% compared to 0.92% for the quarter ended June 30, 2021. The annualized return on average assets was 0.69% for the three months ended June 30, 2022, compared to annualized return on average assets of 0.53% for three months ended June 30, 2021. The annualized return on average shareholders’ equity was 5.06% for the three month period ended June 30, 2022, compared to 4.35% in annualized return on average shareholders’ equity for the three months ended June 30, 2021.

~~Net income available to common shareholders for the nine months ended June 30, 2022, amounted to $4.4 million, or $0.58~~$0.25 per fully diluted common share, a decrease of ~~$1.7 million~~$109,000 or ~~28.3%~~5.4%, as compared with net income of ~~$6.1~~$2.0 million or ~~$0.81~~$0.27 per fully diluted common share for the ~~nine~~three months ended ~~June 30,~~December 31, 2021. This decrease in net income and diluted earnings per share was primarily due to an increase in other operating ~~expenses. The increase in other operating~~ expenses, ~~resulted from a $1.7 million valuation allowance recorded on loans held for sale reported~~driven by merger related expenses incurred during the ~~second fiscal quarter~~three months ended ~~March~~December 31, 2022. Total other income decreased $242,000 during the three months ended December 31, 2022 as compared to the three months ended December 31, 2021 mainly due to decreased prepayment penalties and service charges. Partially offsetting these items was a $596,000 increase to net interest income during the three months ended December 31, 2022 due to rate related factors. The annualized return on average assets was 0.75% for the three months ended December 31, 2022, compared to annualized return on average assets of 0.69% for three months ended December 31, 2021. The annualized return on average shareholders’ equity was 5.14% for the three months ended December 31, 2022, compared to 5.61% in annualized return on average shareholders’ equity for the three months ended December 31, 2021.

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-~~

-44-

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 June 30,

For the Nine Months Ended June 30,

2022

2021

Increase
(Decrease)

Percent
Change

2022

2021

Increase
(Decrease)

Percent
Change

(Dollars in thousands)

Interest income:

Loans, including fees

$
7,653

$
8,895

$
(1,242
)

(13.96
)%

$
23,509

$
28,040

$
(4,531
)

(16.16
)%
Investment securities

729

408

321

78.68

1,805

1,123

682

60.73

Interest-bearing cash accounts

95

6

89

1,483.33

124

21

103

490.48

Dividends, restricted stock

80

110

(30
)

(27.27
)

246

370

(124
)

(33.51
)
Total interest income

8,557

9,419

(862
)

(9.15
)

25,684

29,554

(3,870
)

(13.09
)
Interest expense:

Deposits

812

1,446

(634
)

(43.85
)

2,685

5,508

(2,823
)

(51.25
)
Short-term borrowings

-

-

-

-

-

48

(48
)

(100.00
)
Long-term borrowings

158

461

(303
)

(65.73
)

578

1,614

(1,036
)

(64.19
)
Subordinated debt

294

383

(89
)

(23.24
)

1,016

1,149

(133
)

(11.58
)
Total interest expense

1,264

2,290

(1,026
)

(44.80
)

4,279

8,319

(4,040
)

(48.56
)
Net interest income

$
7,293

$
7,129

$
164

2.30
%

$
21,405

$
21,235

$
170

0.80
%

	For the Three Months Ended December 31,
					Increase		Percent
	2022		2021		(Decrease)		Change
	(Dollars in thousands)
Interest income:
Loans, including fees	$	9,150	$	8,228	$	922		11.21	%
Investment securities		820		491		329		67.01
Dividends, restricted stock		267		13		254		1,953.85
Interest-bearing cash accounts		113		91		22		24.18
Total interest income		10,350		8,823		1,527		17.31
Interest expense:
Deposits		1,830		1,045		785		75.12
Short-term borrowings		9		—		9		—
Long-term borrowings		327		237		90		37.97
Subordinated debt		430		383		47		12.27
Total interest expense		2,596		1,665		931		55.92
Net interest income	$	7,754	$	7,158	$	596		8.33	%

Net interest income was ~~$7.3~~$7.8 million for the quarter ended ~~June 30,~~December 31, 2022, an increase of ~~$164,000,~~$596,000, or ~~2.3~~8.3 percent, from ~~$7.1~~$7.2 million for the quarter ended ~~June 30,~~December 31, 2021. The increase was ~~driven by a decrease~~primarily due to an improvement in ~~total~~rate related factors in interest ~~expense of $1.0 million,~~earning assets which was partially offset by ~~decreased total~~an increase in average rates in interest ~~and dividend income of $862,000, primarily related to the payoff of higher yielding loans.~~bearing liabilities. The average yield on interest-earning assets ~~declined 9~~increased 83 basis points for the quarter ended ~~June 30,~~December 31, 2022, to ~~3.48%~~4.26%, when compared to the same period in 2021 primarily due ~~to the decrease~~rising interest rates resulting in additional interest income from net loans and investment securities, which was partially offset by lower average ~~loan balances.~~loans. The average rate on interest-bearing liabilities ~~fell 33~~for the quarter ended December 31, 2022 increased 59 basis points to ~~0.59%~~1.28% compared to the quarter ended ~~June 30,~~December 31, 2021, due to ~~decreases in market~~higher interest rates ~~of interest.~~on deposits and borrowings. Net interest margin increased to ~~2.97%~~3.19% for the quarter ended ~~June 30,~~December 31, 2022, from ~~2.70%~~2.78% for the same period in ~~2021. The margin improvement in~~2021 as a result of the ~~current period, in large part reflected the reduction in~~rising interest ~~expense as the cost of borrowings decreased by 58 basis points and interest-bearing deposits decreased by 25 basis points compared to the quarter ended June 30, 2021.~~

Net interest income was $21.4 million for the nine months ended June 30, 2022, an increase of $170,000, or 0.8% from $21.2 million for the nine months ended June 30, 2021. Consistent with the quarter, the increase was primarily driven by the 42 basis point decrease in cost of interest-bearing deposits compared to the nine months ended June 30, 2021. The cost of borrowings decreased by 18 basis points compared to the nine months ended June 30, 2021. The cost of interest-bearing liabilities decreased by 47 basis points compared to the nine months ended June 30, 2021.rate environment.

Interest Income

For the quarters ended ~~June 30,~~December 31, 2022 and ~~June 30,~~ 2021, total interest income was ~~$8.6~~$10.3 million and ~~$9.4~~$8.8 million, respectively. Total interest income ~~decreased~~increased $1.5 million or 17.3% for the quarter ended ~~June 30,~~December 31, 2022, compared to the quarter ended ~~June 30,~~December 31, 2021,, primarily due to ~~the decrease~~rising interest rates resulting in additional interest income from net loans and investment securities partially offset by lower average ~~loan balances of $146.5 million.~~loans. The average yield on interest-earning assets ~~declined 9~~increased 83 basis points for the quarter ended ~~June 30,~~December 2022, to ~~3.48%~~4.26%, when compared to the same period in ~~2021 primarily due to the~~ ~~payoff~~2021.

-45-

Table of ~~higher yielding loan~~ ~~balances.~~

For the nine months ended June 30, 2022, total interest income was $25.7 million, a decrease of $3.9 million or 13.1 percent, from $29.6 for the nine months ended June 30, 2021. The average balance of our total loans decreased $133.1 million, or 13.3 percent, for the nine months ended June 30, 2022, as compared to the same period in fiscal year 2021, while the average yield on loans decreased by 12 basis points for the nine months ended June 30, 2022, compared with the same period in fiscal year 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the nine months ended June 30, 2022, compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to a decrease in interest income on loans of $3.1 million, while the rate-related factors decreased interest income on loans by $808,000.

~~-49-~~

Contents

Interest Expense

For the quarter ended ~~June 30,~~December 31, 2022, interest expense ~~decreased~~increased by ~~$1.0 million,~~$931,000, or ~~44.8 %,~~55.9%, to ~~$1.3~~$2.6 million, compared to ~~$2.3~~$1.7 million for the quarter ended December 31, 2021. The ~~decrease~~increase in interest expense is ~~primarily~~ attributable to higher interest ~~rate related factors, as~~rates on deposits and borrowings during the comparable period. Total average interest-bearing liabilities declined $159.1 million, or 16.4%, to $809.1 million, and the average rate on interest-bearing liabilities ~~in the current quarter fell 33~~increased 59 basis points to ~~0.59%~~1.28%, compared to ~~0.92%~~0.69%, for the ~~quarter~~quarters ended ~~June 30, 2021.~~December 31, 2022 and 2021, respectively.

Interest expense decreased by $4.0 million, or 48.6%, to $4.3 million for the nine months ended June 30, 2022, compared to $8.3 million for the nine months ended June 30, 2021. The decrease in interest expense on deposits is primarily attributable to rate related factors. The annualized average rate on total interest-bearing liabilities decreased to 0.63% for the nine months ended June 30, 2022, from 1.10% for the nine months ended June 30, 2021. This decrease primarily reflects a decrease in the average rate of interest-bearing deposits of 0.42% and a decrease in the average rate of borrowings of 0.18%. The decrease in the average rate of interest-bearing deposits consisted of a 0.50% decrease in the average rate of certificates of deposit, a 0.55% decrease in the average rate of money market accounts and a 0.17% decrease in average rate of other interest-bearing deposit accounts.

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 December 31,
	2022 and 2021
	Increase (Decrease) Due to Change in:
	Average			Average		Net
	Volume			Rate		Change
	(In thousands)
Interest Earning Assets:
Loans, including fees	$	(803	)	$	1,725	$	922
Investment securities		225			104		329
Interest-bearing cash accounts		(1	)		255		254
Dividends, restricted stock		3			19		22
Total interest-earning assets	$	(576	)	$	2,103	$	1,527
Interest Bearing Liabilities:
Money Market deposits	$	(145	)	$	269	$	124
Savings deposits		—			4		4
Certificates of deposits		100			290		390
Other interest-bearing deposits		(22	)		289		267
Total interest-bearing deposits		(67	)		852		785
Borrowings and Subordinated debt		94			52		146
Total interest-bearing liabilities	$	27		$	904	$	931
Change in net interest income	$	(603	)	$	1,199	$	596

Three Months Ended June 30,

Nine Months Ended June 30,

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

$
(1,348
)

$
106

$
(1,242
)

$
(3,742
)

$
(789
)

$
(4,531
)
Investment securities

280

41

321

763

(81
)

682

Interest-bearing cash accounts

11

78

89

20

83

103

Dividends, restricted stock

(28
)

(2
)

(30
)

(103
)

(21
)

(124
)
Total interest-earning assets

$
(1,085
)

$
223

$
(862
)

$
(3,062
)

$
(808
)

$
(3,870
)
Interest Bearing Liabilities:

Money Market deposits

$
(82
)

$
(298
)

$
(380
)

$
42

$
(1,392
)

$
(1,350
)
Savings deposits

1

(3
)

(2
)

6

(16
)

(10
)
Certificates of deposits

(45
)

(91
)

(136
)

(688
)

(425
)

(1,113
)
Other interest-bearing deposits

(53
)

(63
)

(116
)

47

(397
)

(350
)
Total interest-bearing deposits

(179
)

(455
)

$
(634
)

(593
)

(2,230
)

$
(2,823
)
Borrowings and Subordinated debt

(267
)

(125
)

(392
)

(1,097
)

(120
)

(1,217
)
Total interest-bearing liabilities

$
(446
)

$
(580
)

$
(1,026
)

$
(1,690
)

$
(2,350
)

$
(4,040
)
Change in net interest income

$
(639
)

$
803

$
164

$
(1,372
)

$
1,542

$
170

-46-

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 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 December 31,
																	2022								2021
	Three Months Ended June 30,																Average			Interest					Average			Interest
	2022								2021								Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
	Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate			Balance			Paid		Rate			Balance			Paid		Rate
	(Dollars in thousands)																(Dollars in thousands)
ASSETS
Interest Earning Assets:
Loans, including fees⁽¹⁾	$	821,141		$	7,653		3.73	%	$	967,615		$	8,895		3.68	%	$	824,361		$	9,150		4.44	%	$	913,587		$	8,228		3.60	%
Investment securities		107,472			729		2.71	%		63,693			408		2.56	%		110,033			820		2.98	%		75,427			491		2.60	%
Interest-bearing cash accounts		48,161			95		0.79	%		16,914			6		0.14	%		30,650			267		3.48	%		32,775			13		0.16	%
Dividends, restricted stock		6,068			80		5.27	%		8,118			110		5.42	%		6,949			113		6.50	%		6,699			91		5.43	%
Total interest-earning assets(1)		982,842			8,557		3.48	%		1,056,340			9,419		3.57	%
Total interest-earning assets⁽¹⁾																		971,993			10,350		4.26	%		1,028,488			8,823		3.43	%
Non-interest-earning assets:
Cash and due from banks		36,316								105,792								5,386								105,989
Bank-owned life insurance		25,953								25,793								26,292								26,125
Other assets		26,317								26,925								27,918								26,042
Other real estate owned		4,894								5,778								228								4,961
Allowance for loan losses		(9,312	)							(12,603	)							(9,121	)							(14,157	)
Total non-interest-earning assets		84,168								151,685								50,703								148,960
Total assets	$	1,067,010							$	1,208,025							$	1,022,696							$	1,177,448
LIABILITIES & SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Money Market deposits	$	315,738			206		0.26	%	$	367,290			586		0.64	%	$	174,702			402		0.92	%	$	367,761			278		0.30	%
Savings deposits		54,261			11		0.08	%		49,487			13		0.11	%		53,623			15		0.11	%		53,336			11		0.08	%
Certificates of deposits		112,454			280		1.00	%		126,240			416		1.32	%		150,044			703		1.87	%		113,622			312		1.10	%
Other interest-bearing deposits		285,391			315		0.44	%		325,082			431		0.53	%		324,911			710		0.87	%		341,550			444		0.52	%
Total interest-bearing deposits		767,844			812		0.42	%		868,099			1,446		0.67	%		703,280			1,830		1.04	%		876,269			1,045		0.48	%
Borrowings		85,000			452		2.13	%		124,382			844		2.71	%		105,837			766		2.90	%		91,919			620		2.70	%
Total interest-bearing liabilities		852,844			1,264		0.59	%		992,481			2,290		0.92	%		809,117			2,596		1.28	%		968,188			1,665		0.69	%
Non-interest-bearing liabilities:
Demand deposits		57,479								52,799								56,755								54,092
Other liabilities		11,657								15,399								8,460								11,408
Total non-interest bearing liabilities		69,136								68,198								65,215								65,500
Shareholders' equity		145,030								147,346								148,364								143,760
Total liabilities and shareholders' equity	$	1,067,010							$	1,208,025							$	1,022,696							$	1,177,448
Net interest spread							2.89	%							2.65	%							2.98	%							2.74	%
Net interest margin							2.97	%							2.70	%							3.19	%							2.78	%
Net interest income				$	7,293							$	7,129							$	7,754							$	7,158

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

~~-51-~~

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

Nine Months Ended June 30,

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⁾

$
864,096

$
23,509

3.63
%

$
997,156

$
28,040

3.75
%
Investment securities

91,385

1,805

2.63
%

54,379

1,123

2.75
%
Interest-bearing cash accounts

39,116

124

0.42
%

20,037

21

0.14
%
Dividends, restricted stock

6,345

246

5.17
%

8,791

370

5.61
%
Total interest-earning assets(1)

1,000,942

25,684

3.42
%

1,080,363

29,554

3.65
%

Non-interest-earning assets:

Cash and due from banks

78,038

90,740

Bank-owned life insurance

26,119

25,630

Other assets

25,949

29,069

Other real estate owned

4,939

5,790

Allowance for loan losses

(11,342
)

(12,698
)

Total non-interest-earning assets

123,703

138,531

Total assets

$
1,124,645

$
1,218,894

LIABILITIES & SHAREHOLDERS’ EQUITY

Interest-Bearing Liabilities:

Money Market deposits

$
341,689

703

0.27
%

$
334,779

2,053

0.82
%
Savings deposits

54,045

37

0.09
%

47,657

47

0.13
%
Certificates of deposits

113,395

838

0.99
%

174,998

1,951

1.49
%
Other interest-bearing deposits

315,346

1,107

0.47
%

305,491

1,457

0.64
%
Total interest-bearing deposits

824,475

2,685

0.43
%

862,925

5,508

0.85
%
Borrowings

87,329

1,594

2.43
%

143,368

2,811

2.61
%
Total interest-bearing liabilities

911,804

4,279

0.63
%

1,006,293

8,319

1.10
%

Non-interest-bearing liabilities:

Demand deposits

55,442

50,418

Other liabilities

12,427

17,283

Total non-interest liabilities

67,869

67,701

Shareholders' equity

144,972

144,900

Total liabilities and shareholders' equity

$
1,124,645

$
1,218,894

Net interest spread

2.79
%

2.55
%
Net interest margin

2.85
%

2.62
%
Net interest income

$
21,405

$
21,235

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

-47-

~~-52-~~

Table of Contents

Other Income

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

	Three Months Ended June 30,										Nine Months Ended June 30,										Three Months Ended December 31,
					Increase			Percent							Increase			Percent							Increase			Percent
	2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change
	(Dollars in thousands)																				(Dollars in thousands)
Service charges and other fees	$	248	$	344	$	(96	)		(27.91	)%	$	921	$	1,010	$	(89	)		(8.81	)%	$	177	$	454	$	(277	)		(61.01	)%
Rental income-other		48		55		(7	)		(12.73	)		148		163		(15	)		(9.20	)		49		52		(3	)		(5.77	)
Net gains on sale and call of investments		-		165		(165	)		(100.00	)		-		779		(779	)		(100.00	)
Net gains on sale of loans		15		65		(50	)		(76.92	)		78		743		(665	)		(89.50	)		8		52		(44	)		(84.62	)
Earnings on bank-owned life insurance		171		164		7			4.27			623		489		134			27.40			173		169		4			2.37
Other real estate owned income, net																						78		—		78			—
Total other income	$	482	$	793	$	(311	)		(39.22	)%	$	1,770	$	3,184	$	(1,414	)		(44.41	)%	$	485	$	727	$	(242	)		(33.29	)%

For the three months ended ~~June 30,~~December 31, 2022, total other income amounted to ~~$482,000,~~$485,000, a decrease of ~~$311,000,~~$242,000, or ~~39.2%~~33.3%, compared to the three months ended ~~June 30,~~December 31, 2021. The decrease in total other income was primarily due to a decrease of ~~$261,000~~$277,000 in ~~net gains on sale and calls of investments and~~prepayment penalties, service charges and other fees during the quarter ended ~~June 30, 2022.~~

~~Similar~~December 31, 2022 as compared to the quarter ended ~~June 30, 222, other income for the nine months ended June 30, 2022, decreased $1.4 million, or 44.4% to $1.8 million compared to the same period in~~December 31, 2021. ~~This decrease was primarily the result of a $1.4 million decrease in net gains on sale of investments and loans.~~

Other Expense

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

	Three Months Ended June 30,										Nine Months Ended June 30,										Three Months Ended December 31,
					Increase			Percent							Increase			Percent							Increase			Percent
	2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change
	(Dollars in thousands)																				(Dollars in thousands)
Salaries and employee benefits	$	2,350	$	2,259	$	91			4.03	%	$	6,992	$	6,806	$	186			2.73	%	$	2,582	$	2,295	$	287			12.51	%
Occupancy expense		542		546		(4	)		(0.73	)		1,603		1,656		(53	)		(3.20	)		537		515		22			4.27
Federal deposit insurance premium		68		77		(9	)		(11.69	)		215		236		(21	)		(8.90	)		64		76		(12	)		(15.79	)
Advertising		33		12		21			175.00			97		76		21			27.63			32		32		—			—
Data processing		305		301		4			1.33			984		935		49			5.24			275		320		(45	)		(14.06	)
Professional fees		1,053		841		212			25.21			2,976		2,388		588			24.62			763		1,055		(292	)		(27.68	)
Other real estate owned expense, net		244		835		(591	)		(70.78	)		249		866		(617	)		(71.25	)
Merger related expense																						511		—		511			—
Pennsylvania shares tax		127		170		(43	)		(25.29	)		466		509		(43	)		(8.45	)		127		170		(43	)		(25.29	)
Other operating expenses		717		791		(74	)		(9.36	)		3,930		2,395		1,535			64.09			871		765		106			13.86
Total other expense	$	5,439	$	5,832	$	(393	)		(6.74	)%	$	17,512	$	15,867	$	1,645			10.37	%	$	5,762	$	5,228	$	534			10.21	%

~~For~~Other expenses for the ~~three months~~quarter ended ~~June 30,~~December 31, 2022 ~~total other expense decreased $393,000,~~increased $534,000, or ~~6.7 percent,~~10.2%, to ~~$5.4~~$5.8 million when compared to the quarter ended June 30, 2021. The decrease was primarily due to a decrease of $591,000 in OREO expense, partially offset by an increase of $212,000 in professional fees. The increase in professional fees was primarily due to legal fees associated with loan workouts and disclosure and other matters concerning nonperforming loans. Also, during the quarter ended June 30, 2022, the Company reduced the carrying value of the OREO property by $198,000 based on a negotiated sales price. A purchase agreement for the OREO property has been executed and the parties are currently in a due diligence period, and we expect to close on the transaction during the fourth fiscal quarter.

~~For the nine months ended June 30, 2022, total other expense increased $1.6 million, or 10.4%, when compared to the nine months ended June 30,~~December 31, 2021. The increase was primarily due to an ~~increased valuation allowance~~increase of ~~$395,000 and $1.3 million in real estate tax expense recorded during~~$511,000 of merger related expenses for the ~~nine~~three months ended ~~June 30, 2022, on loans held for sale.~~December 31, 2022. These expenses primarily consisted of legal and professional fees.

~~-53-~~

-48-

Table of Contents

Income Taxes

The Company recorded income tax expense of ~~$502,000~~$569,000 during the quarter ended ~~June 30,~~December 31, 2022, compared to ~~$489,000~~$640,000 for the quarter ended ~~June 30,~~December 31, 2021. The effective tax rates for the Company for the quarters ended ~~June 30, 2022, and June 30, 2021, were 21.5% and 23.4%, respectively.~~

For the nine months ended June 30, 2022 income tax expense decreased by $614,000, or 32.2% to $1.3 million from $1.9 million for the nine months ended June 30, 2021. The effective tax rates for the Company for the nine months ended June 30,December 31, 2022 and 2021, were ~~22.8%~~23.0% and ~~23.8%~~24.1%, respectively. The effective tax rate includes discrete tax items related to non-deductible merger-related expenses recognized in the first quarter of the fiscal year 2023.

Investment Portfolio

For the three months ended ~~June 30,~~December 31, 2022, the average volume of investment securities increased by ~~$43.8~~$34.6 million to ~~$107.5~~$110.0 million, or ~~10.9%~~11.3% of average earning assets, from ~~$63.7~~$75.4 million, or ~~6.0%~~7.3% of average earning assets, for the three months ended June 30, 2021. During the nine months ended June 30, 2022, the average volume of investment securities increased $37.0 million to $91.4 million, or 9.1% of average earnings assets, from $54.4 million, or 5.0% of average earning assets, for the nine months ended June 30,December 31, 2021. At ~~June 30,~~December 31, 2022, the total investment portfolio amounted to $106.8 million, an increase of $36.0 million or 50.9% from September 30, 2021. This increase in the investment portfolio was primarily due to purchases of $45.3 million of investment securities, partially offset by payments, maturities, and calls of $4.0 million of investment securities.$109.9 million. At ~~June 30,~~December 31, 2022, 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, U.S. treasury note, corporate bonds and notes, a trust preferred security, and taxable mutual funds.

~~During the three month period ended June 30, 2022, rate-related factors increasedinvestmentrevenue by $41,000, while volume-related factors~~ increased investment revenue by $280,000 from the three month period ended June 30, 2021. The yield on investments increased by 15 basis points to 2.71% for the three month period ended June 30, 2022, as compared to 2.56% for the three month period ended June 30, 2021. Loan Portfolio

~~During the nine month period ended June 30, 2022, volume-related factors~~ in~~creased investment revenue by $763,000 and rate-related factors decreasedinvestment~~revenue by $81,000 from the nine month period ended June 30, 2021. The yield on investments decreased by 12 basis points to 2.63% for the nine month period ended June 30, 2022, as compared to 2.75% for the nine month period ended June 30, 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. 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 loans, ~~amounted~~which excludes loans held-for-sale decreased by $3.0 million to ~~$814.7~~$807.4 million at ~~June 30,~~December 31, 2022 ~~and $913.8 million at September 30, 2021. The $99.1 million or 10.8% decrease in the gross loan portfolio at June 30, 2022~~when compared to September 30, ~~2021, for the period was driven~~2022. Construction loans decreased by ~~higher loan payoffs and paydowns during the period primarily in the~~$1.5 million, commercial ~~loan category. Commercial~~loans decreased by $1.1 million, consumer loans declined ~~to $596.5 million~~by $600,000, and residential loans increased by $250,000, in each case, at ~~June 30,~~December 31, 2022 ~~from $629.7 million at September 30, 2021 or a 5.3% decline as~~when compared to September 30, ~~2021. Residential loans were $176.5 million and $198.7 million at June 30, 2022 and September 30, 2021, respectively.~~2022.

Loans held-for-sale amounted to ~~$13.9~~$13.2 million at ~~June 30,~~December 31, 2022, compared to ~~$33.2~~$13.4 million at September 30, ~~2021. The decline was primarily related to the sale in the~~2022.

At December 31, 2021, quarter of three commercial loans totaling $18.9 million combined with a valuation allowance of $395,000 and $1.3 million in real estate tax expense recorded during the nine months ended June 30, 2022, on loans held for sale.

~~-54-~~

~~At June 30,~~ 2022 the Company had ~~$130.9~~$111.4 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.

-49-

Table of Contents

Average loan balances decreased ~~$146.5~~$89.2 million, or ~~15.1%~~9.8% for the three months ended June 30, 2022, as compared to the same period in fiscal 2021, while the average yield on loans increased by 5 basis points for the three months ended June 30, 2022, compared with the same period in fiscal 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During th third quarter of fiscal year 2022 compared to the same period in fiscal year 2021, the volume-related factors contributed to the decrease of income on loans of $1.3 million, while the rate-related factors increased interest income on loans by $106,000.

~~The average balance of our total loans decreased $133.1 million, or 13.3% for the nine months ended June 30,~~December 31, 2022, as compared to the same period in fiscal year 2021, while the average yield on loans ~~decreased~~increased by 1284 basis points for the ~~nine~~three months ended ~~June 30,~~December 31, 2022, compared with the same period in fiscal year 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the nine months ended June 30, 2022, 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 $3.7 million, while the rate-related factors decreased interest income on loans by $789,000.

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. Our regulators, as an integral part of their examination process, periodically review the Company’s ALLL. 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.

The allowance for loan losses at ~~June 30,~~December 31, 2022 amounted to ~~$9.3~~$9.1 million, or ~~1.14%~~1.13% of total gross loans excluding loans ~~held for sale,~~held-for-sale, compared to ~~$11.5~~$9.1 million, or ~~1.26%~~1.12% of total gross loans excluding loans held-for-sale, at September 30, ~~2021.~~2022. The Company did not record a provision for loan losses for the ~~quarter~~quarters ended ~~June 30,~~December 31, 2022 ~~compared to $10.6 million provision for loan losses for the quarter ended September 30,~~or 2021. ~~The decline reflected a $2.2 million charge off for the nine months ended June 30, 2022 period and the overall decline in total loans at June 30, 2022 of $99.1 million compared to September 30, 2021.~~

~~The net~~Net charge-offs were ($~~8,000)~~9,000) and ~~$2.2~~$1.0 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 ~~respectively. Net charge-off were $1.0 million~~ and ~~$1.4 million for the three and nine months ended June 30,~~ 2021, respectively. The decrease is reflective of there not being any charge offs recorded during the December 2022 period.

We will continue to experience 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. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of 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 ~~June 30,~~December 31, 2022 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.

~~-55-~~

-50-

Table of Contents

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

	Nine Months Ended June 30,						Three Months Ended December 31,
	2022			2021			2022			2021
	(Dollars in thousands)						(Dollars in thousands)
Average loans outstanding	$	864,096		$	997,156		$	824,361		$	913,857
Total gross loans at end of period	$	814,700		$	951,650		$	807,395		$	867,574
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		-			1,128			—			—
Commercial and industrial		2,194			379			—			1,430
Consumer:
Second mortgages		106			-			—			85
Other		-			1			—			—
Total charge-offs		2,300			1,508			—			1,515
Recoveries:
Residential Mortgage		4			1			5			1
Commercial:
Commercial real estate		77			1			—			75
Commercial and industrial		1			2			1			—
Consumer:								��
Home equity lines of credit		1			16			1			—
Second mortgages		54			103			2			4
Second mortgages		-			2			—			—
Total recoveries		137			125			9			80
Net charge-offs		2,163			1,383			(9	)		1,435
Provision for loan losses		-			550			—			—
Balance at end of period	$	9,309		$	11,600		$	9,099		$	10,037
Ratios:
Ratio of allowance for loan losses to non-performing loans		630.69	%		48.82	%		466.14	%		560.73	%
Ratio of net charge-offs to average loans outstanding (1)		0.30	%		0.18	%		0.00	%		0.19	%
Ratio of net charge-offs to total allowance for loan losses		23.24	%		11.92	%		(0.10	)%		14.30	%

(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:

Non-accrual loans totaled ~~$1.1~~$1.3 million at ~~June 30,~~December 31, 2022 and ~~$3.7 million~~$753,000 at September 30, ~~2021. OREO was $4.8 million at June 30, 2022, a decline of $198,000 or 4.0 percent from $5.0 million 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 off~~carrying value of ~~$2.2~~$569,000 during the three months ended December 31, 2022. OREO was $259,000 at both December 31, 2022, and September 30, 2022. Performing TDR loans were $10.1 million at December 31, 2022 and $4.8 million at September 30, 2022. The increase is primarily related to one ~~non-accrual~~additional new TDR commercial and industrial loan ~~during the March 31, 2022 period. The partial charge-off was the result~~at a carrying value of ~~the ongoing monitoring and evaluation of classified loan values and is reflective of changes in current market and economic conditions. Performing TDR loans were $5.8~~$4.8 million ~~at June 30, 2022 and $17.6 million at September 30, 2021. The decrease is primarily related to two TDR commercial real estate loans totaling $11.4 million that were sold~~ during the December 31, ~~2021~~2022 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~~amounted to $32.5 million ~~compared to $58.1~~and $32.7 million at ~~September 30, 2021. The decrease was primarily due to one $9.3 million commercial real estate loan that paid off during the first fiscal quarter ended~~ December 31, ~~2021. Substandard loans were $11.7 million and $16.1 million at June 30,~~ 2022 and September 30, ~~2021,~~2022 respectively. ~~This decrease in substandard~~Substandard loans ~~is primarily due to a $2.2~~were $11.3 million ~~charge-off of one commercial~~ and ~~industrial loan for the nine months ended June~~$11.4 million at December 31, 2022 and September 30, 2022 ~~period.~~, 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 ~~June 30,~~December 31, 2022, the Company reflected a positive interest sensitivity gap with an interest sensitivity ratio of ~~1.30:~~1.11:1.00 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 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 ~~June 30,~~December 31, 2022, the Company had ~~$39.8~~$35.0 million in cash and cash equivalents compared to ~~$136.6~~$50.4 million at September 30, ~~2021.~~2022. In addition, our available for sale investment securities amounted to ~~$53.1~~$50.4 million at ~~June 30,~~December 31, 2022 and ~~$40.8~~$49.8 million at September 30, ~~2021.~~2022.

Total deposits decreased ~~$146.5~~$47.9 million, or ~~15.6~~6.1 percent, from ~~$938.2~~$785.3 million at September 30, ~~2021~~2022 to ~~$791.7~~$737.4 million at ~~June 30,~~December 31, 2022. The ~~reduction~~decrease in deposits was primarily related to a reduction of $28.8 million in ~~line with the Company’s overall funding strategy to reduce excess balance sheet cash~~money market deposits and ~~better match funding needs.~~$7.2 million in interest-bearing demand deposits, a $7.0 million decline in non-interest-bearing deposits and a decrease of $3.4 million in time deposits. Non-interest-bearing core deposits; interest-bearing core deposits, savings, money market; and time deposits represent approximately 7%, 73%, and 20% of total deposits, respectively as of December 31, 2022.

Total interest-bearing deposits decreased ~~$149.4~~$40.9 million from ~~$884.3~~$727.3 million at September 30, ~~2021~~2022 to ~~$734.9~~$686.4 million at ~~June~~December 31, 2022. Time deposits $250,000 and over decreased $7.3 million as compared to September 30, 2022. Time deposits $250,000 and over ~~decreased $330,000 as compared to September 30, 2021. Time deposits $250,000 and over~~ represented ~~2.1%~~7.5% of total deposits at ~~June 30,~~December 31, 2022 compared to ~~1.8%~~8.0% at September 30, ~~2021. We had brokered~~2022. Brokered deposits ~~totaling~~remained at $9.1 million at ~~June 30,~~both December 31, 2022 ~~compared to $6.1 million at~~and September 30, ~~2021.~~2022.

The Company continues to focus on the maintenance ~~development,~~ and ~~expansion~~development of its deposit base ~~strategically~~to align with its funding requirements and liquidity needs, but with an emphasis on serving the needs of its communities to provide a long-term relationship base 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 ~~June 30,~~December 31, 2022 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 ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, the Company’s outstanding balance of FHLB Pittsburgh advances totaled ~~$60.0 million and $90.0 million, respectively.~~$80.0 million. Of the ~~$60.0~~$80.0 million in advances, all are short-term fixed-rate advances ~~having~~except $60.0 million of advances that have a rolling 90-day maturity.

The Company did not purchase any securities ~~as of June 30, 2022,~~ under agreements to repurchase as a short-term funding source during the quarters ended ~~June 30,~~December 31, 2022 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 ~~nine~~three months ended ~~June 30,~~December 31, 2022, cash and cash equivalents decreased by ~~$96.8~~$18.3 million from the balance at September 30, ~~2021.~~2022. Net cash of ~~$1.5~~$7.0 million was provided by operating activities. Net cash provided by investing activities amounted to ~~approximately $76.7~~$4.1 million primarily due to ~~a net~~ decrease in loans of ~~$97.4~~$3.6 million ~~which was partially offset by purchases of $46.8 million~~combined with $523,000 of investment securities. ~~The decrease~~Net cash used in ~~net cash from~~ financing activities of

~~$175.1~~amounted to $29.4 million, which was primarily attributable to decrease in deposits of ~~$146.5~~$47.9 million ~~and~~which was partially offset by a net ~~decrease~~increase in borrowings of ~~$30.0 million in long term borrowings.~~$18.0 million.

Total shareholders’ equity amounted to ~~$145.2~~$148.7 million, or ~~14.1%~~14.6% of total assets, at ~~June 30,~~December 31, 2022, compared to ~~$142.2~~$146.4 million, or ~~11.8%~~14.0% of total assets, at September 30, ~~2021.~~2022. Book value per common share was ~~$19.03~~$19.48 at ~~June 30,~~December 31, 2022, compared to ~~$18.65~~$19.18 at September 30, ~~2021.~~2022.

At ~~June~~December 31, 2022, the Bank’s common equity Tier 1 capital ratio was 19.69%, Tier 1 leverage ratio was 16.53%, Tier 1 risk-based capital ratio was 19.69% and the total risk-based capital ratio was 20.77%. At September 30, 2022, the Bank’s common equity Tier 1 capital ratio was ~~18.79%~~19.27%, Tier 1 leverage ratio was ~~15.33 percent,~~16.30%, Tier 1 risk-based capital ratio was ~~18.79%~~19.27% and the total risk-based capital ratio was ~~19.87%~~20.34%. At September 30, 2021, the Bank’s common equity Tier 1 capital ratio was 16.13 percent, Tier 1 leverage ratio was 13.14%, Tier 1 risk-based capital ratio was 16.13% and the total risk-based capital ratio was 17.32%. At June 30,December 31, 2022, 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 ~~June 30,~~December 31, 2022, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~June 30,~~December 31, 2022.

There were no changes in the Company’s internal controls over financial reporting during the three months ended ~~June 30,~~December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

For a summary of risk factors relevant to the Company, see Part I, Item 1A, “Risk Factors” in the ~~2021~~2022 Annual Report. There are no material changes to the risk factors as previously disclosed under the section titled “Risk Factors” in Part I, Item 1A of our ~~2021~~2022 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.

There were no repurchases or unregistered sales of the Company’s stock during the ~~quarter.~~quarter ended December 31, 2022.

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:	~~7,633,828~~7,636,586 shares
(Title of Class)	(Outstanding as of ~~August~~February 10, ~~2022)~~2023)

		Page

PART I – FINANCIAL INFORMATION		3

Item 1.	Unaudited Financial Statements	4
	Consolidated Statements of Financial Condition at ~~June 30,~~December 31, 2022 and September 30, ~~2021~~2022	4
	Consolidated Statements of Net Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and 2021	5
	Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and 2021	6
	Consolidated Statements of Changes in Shareholders’ Equity for the t~~hree and~~ ~~nine~~three months ended ~~June 30,~~December 31, 2022 and 2021	7
	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and 2021	8
	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Income	4542

Item 3.	Qualitative and Quantitative Disclosures about Market Risk	6055

Item 4.	Controls and Procedures	6055

PART II – OTHER INFORMATION.		6156

Item 1.	Legal Proceedings	6156

Item 1A.	Risk Factors	6156

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6156

Item 3.	Default Upon Senior Securities	6156

Item 4.	Mine Safety Disclosure	6156

Item 5.	Other Information	6156

Item 6.	Exhibits	6156

SIGNATURES		6257

							*December 31,*			*September 30,*
	June 30, 2022			September 30, 2021			*2022*			*2022*
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Cash and due from depository institutions		9,560			99,670			1,901			4,677
Interest bearing deposits in depository institutions		30,199			36,920			33,106			48,590
Cash and Cash Equivalents		39,759			136,590			35,007			53,267
Investment securities available for sale, at fair value		53,080			40,813			50,385			49,844
Equity securities, at fair value		1,412			1,500			1,376			1,374
Investment securities held to maturity, at amortized cost		52,350			28,507			58,147			58,767
Restricted stock, at cost		6,027			7,776			7,060			7,104
Loans held-for-sale		13,863			33,199			13,232			13,780
Loans receivable, net of allowance for loan losses of $9,309 and $11,472 respectively		805,957			902,981
Loans receivable, net of allowance for loan losses								798,862			801,854
Other real estate owned		4,763			4,961			259			259
Accrued interest receivable		3,671			3,512			4,675			4,252
Operating lease right-of-use assets		1,395			1,796
Property and equipment, net		5,365			5,777			5,134			5,231
Deferred income taxes		3,975			3,530			3,649			3,722
Bank-owned life insurance		26,063			26,056			26,407			26,233
Other assets		11,873			12,145			13,599			18,673
Total Assets	$	1,029,553		$	1,209,143		$	1,017,792		$	1,044,360
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest-bearing		56,731			53,849			51,066			58,014
Interest-bearing		734,963			884,310			686,356			727,309
Total Deposits		791,694			938,159			737,422			785,323
FHLB advances		60,000			90,000			80,000			80,000
Other borrowings								18,000			—
Subordinated debt		25,000			24,934			25,000			25,000
Advances from borrowers for taxes and insurance		2,388			1,022			1,510			1,002
Accrued interest payable	350			572				1,068			543
Operating lease liabilities		1,428			1,830
Other liabilities		3,403			10,458			6,057			6,047
Total Liabilities		884,263			1,066,975			869,057			897,915
Shareholders’ Equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, NaN issued		-			-
Common stock, $0.01 par value, 50,000,000 shares authorized; 7,828,344 and 7,633,828 shares issued and outstanding, respectively, at June 30, 2022 and 7,816,832 and 7,622,316 shares issued and outstanding, respectively, at September 30, 2021		76			76
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued								—			—
Common stock, $0.01 par value, 50,000,000 shares authorized; 7,831,102 and 7,636,586 shares issued and outstanding, respectively, at December 31, 2022 and 7,828,344 and 7,633,828 shares issued and outstanding, respectively, at September 30, 2022								76			76
Additional paid-in-capital		85,838			85,524			85,988			85,917
Retained earnings		64,669			60,296			69,155			67,247
Unearned Employee Stock Ownership Plan (ESOP) shares		(792	)		(901	)		(718	)		(756	)
Accumulated other comprehensive (loss) income		(1,638	)		36
Treasury stock, at cost: 194,516 shares at June 30, 2022 and September 30, 2021		(2,863	)		(2,863	)
Accumulated other comprehensive loss								(2,903	)		(3,176	)
Treasury stock, at cost: 194,516 shares at December 31, 2022 and September 30, 2022								(2,863	)		(2,863	)
Total Shareholders’ Equity		145,290			142,168			148,735			146,445
Total Liabilities and Shareholders’ Equity	$	1,029,553		$	1,209,143		$	1,017,792		$	1,044,360

	Three months ended June 30, 2022 and 2021
	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, April 1, 2021	$	76	$	85,271	$	64,885	$	(974	)		$	(544	)	$	(2,863	)	$	145,851
Net income		-		-		1,601		-				-			-			1,601
Other comprehensive income		-		-		-		-				550			-			550
Treasury stock activity		-		-		-		-				-			-			-
Stock issuance (net of issuance of proceeds of $25,000)		-		72		-		-				-			-			72
Committed to be released ESOP shares (3,600 shares)		-		31		-		37		`		-			-			68
Stock based compensation		-		50		-		-				-			-			50
Balance, June 30, 2021	$	76	$	85,424	$	66,486	$	(937	)		$	6		$	(2,863	)	$	148,192

Balance, April 1, 2022	$	76	$	85,678	$	62,835	$	(829	)		$	(347	)	$	(2,863	)	$	144,550
Net income		-		-		1,834		-				-			-			1,834
Other comprehensive loss		-		-		-		-				(1,291	)		-			(1,291	)
Committed to be released ESOP shares (3,600 shares)		-		21		-		37				-			-			58
Stock based compensation		-		139		-		-				-			-			139
Balance, June 30, 2022	$	76	$	85,838	$	64,669	$	(792	)		$	(1,638	)	$	(2,863	)	$	145,290

	Nine months ended June 30, 2022 and 2021
	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		-		-		6,098		-			-			-			6,098
Other comprehensive loss		-		-		-		-			1,094			-			1,094
Treasury stock activity		-		-		-		-			-			-			-
Stock issuance (net of issuance of proceeds of $25,000)		-		72		-		-			-			-			72
Committed to be released ESOP shares (10,800 shares)		-		73		-		110			-			-			183
Stock based compensation		-		152		-		-			-			-			152
Balance, June 30, 2021		76	$	85,424	$	66,486	$	(937	)	$	6		$	(2,863	)	$	148,192

Balance, October 1, 2021		76	$	85,524	$	60,296	$	(901	)	$	36		$	(2,863	)	$	142,168
Net income		-		-		4,373		-			-			-			4,373
Other comprehensive loss		-		-		-		-			(1,674	)		-			(1,674	)
Committed to be released ESOP shares (10,800 shares)		-		66		-		109			-			-			175
Stock based compensation		-		248		-		-			-			-			248
Balance, June 30, 2022	$	76	$	85,838	$	64,669	$	(792	)	$	(1,638	)	$	(2,863	)	$	145,290

	Three Months Ended December 31, 2022 and 2021
										*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		—		—		2,017		—			—			—			2,017
Other comprehensive income		—		—		—		—			261			—			261
Committed to be released ESOP shares (3,600 shares)		—		23		—		36			—			—			59
Stock based compensation		—		52		—		—			—			—			52
Balance, December 31, 2021	$	76	$	85,599	$	62,313	$	(865	)	$	297		$	(2,863	)	$	144,557

Balance, October 1, 2022	$	76	$	85,917	$	67,247	$	(756	)	$	(3,176	)	$	(2,863	)	$	146,445
Net income		—		—		1,908		—			—			—			1,908
Other comprehensive income		—		—		—		—			273			—			273
Committed to be released ESOP shares (3,600 shares)		—		18		—		38			—			—			56
Stock based compensation		—		53		—		—			—			—			53
Balance, December 31, 2022	$	76	$	85,988	$	69,155	$	(718	)	$	(2,903	)	$	(2,863	)	$	148,735

	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
U.S. government agencies	$	5,000	$	-	$	(1,070	)	$	3,930
State and municipal obligations		12,101		-		(1,676	)		10,425
Single issuer trust preferred security		1,000		-		(81	)		919
Corporate debt securities		35,990		29		(1,945	)		34,074
MBS Securities		2,442		-		(175	)		2,267
U.S. Treasury Note		1,485		-		(20	)		1,465
Total		58,018		29		(4,967	)		53,080
Investment Securities Held-to-Maturity:
U.S. government agencies		23,500		-		(3,433	)		20,067
State and municipal obligations		18,088		5		(1,582	)		16,511
Corporate debt securities		3,294		-		(25	)		3,269
Mortgage-backed securities:
Mortgage Backed Security ("MBS"), fixed-rate		2,311		-		(359	)		1,952
Collateralized mortgage obligations (“CMO”), fixed-rate		5,157		-		(286	)		4,871
Total		52,350		5		(5,685	)		46,670
Equity Securities:
Mutual Funds		1,500		-		(88	)		1,412
Total		1,500		-		(88	)		1,412
Total investment securities	$	111,868	$	34	$	(10,740	)	$	101,162

	*December 31, 2022*
			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
	(In thousands)
Investment Securities Available-for-Sale:
U.S. government agencies	$	5,000	$	—	$	(1,484	)	$	3,516
State and municipal obligations		11,988		—		(1,953	)		10,035
Single issuer trust preferred security		1,000		—		(67	)		933
Corporate debt securities		35,990		1		(3,609	)		32,382
Mortgage Backed Security ("MBS")		2,373		—		(300	)		2,073
U.S. Treasury Note		1,490		—		(44	)		1,446
Total		57,841		1		(7,457	)		50,385
Investment Securities Held-to-Maturity:
U.S. government agencies		29,190		—		(5,121	)		24,069
State and municipal obligations		17,697		—		(1,739	)		15,958
Corporate debt securities		3,232		—		(93	)		3,139
Mortgage-backed securities:
MBS		2,247		—		(481	)		1,766
Collateralized mortgage obligations (“CMO”), fixed-rate		5,781		—		(514	)		5,267
Total		58,147		—		(7,948	)		50,199
Equity Securities:
Mutual Funds		1,500		—		(124	)		1,376
Total		1,500		—		(124	)		1,376
Total investment securities	$	117,488	$	1	$	(15,529	)	$	101,960

	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 security ("MBS"), fixed-rate		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		1,500		-		-			1,500
Total investment securities	$	70,763	$	712	$	(249	)	$	71,226

	*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

	June 30, 2022
	Less than 12 Months					12 Months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Investment Securities Available for Sale:
U.S. government agencies	$	3,930	$	(1,070	)	$	-	$	-		$	3,930	$	(1,070	)
State and municipal obligations		10,425		(1,676	)		-		-			10,425		(1,676	)
Single issuer trust preferred security		-		-			919		(81	)		919		(81	)
Corporate debt securities		30,630		(1,860	)		1,415		(85	)		32,045		(1,945	)
MBS Securities		2,267		(175	)		-		-			2,267		(175	)
U.S. Treasury Note		1,465		(20	)							1,465		(20	)
Total	$	48,717	$	(4,801	)	$	2,334	$	(166	)	$	51,051	$	(4,967	)

	*December 31, 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	$	—	$	—		$	3,516	$	(1,484	)	$	3,516	$	(1,484	)
State and municipal obligations		5,827		(425	)		4,208		(1,528	)		10,035		(1,953	)
Single issuer trust preferred security		—		—			933		(67	)		933		(67	)
Corporate debt securities		6,252		(748	)		25,139		(2,861	)		31,391		(3,609	)
MBS		2,073		(300	)		—		—			2,073		(300	)
U.S. Treasury Note		1,446		(44	)		—		—			1,446		(44	)
Total	$	15,598	$	(1,517	)	$	33,796	$	(5,940	)	$	49,394	$	(7,457	)
Investment Securities Held-to-Maturity:
U.S. government agencies	$	10,940	$	(750	)	$	13,129	$	(4,371	)	$	24,069	$	(5,121	)
State and municipal obligations		9,449		(403	)		6,509		(1,336	)		15,958		(1,739	)
Corporate securities		3,139		(93	)		—		—			3,139		(93	)
Mortgage-backed securities:
MBS		—		—			1,766		(481	)		1,766		(481	)
CMO		2,393		(130	)		2,873		(384	)		5,266		(514	)
Total	$	25,921	$	(1,376	)	$	24,277	$	(6,572	)	$	50,198	$	(7,948	)
Equity Securities
Mutual funds		1,376		(124	)		—		—			1,376		(124	)
Total Mutual funds		1,376		(124	)		—		—			1,376		(124	)
Total investment securities	$	42,895	$	(3,017	)	$	58,073	$	(12,512	)	$	100,968	$	(15,529	)

	June 30, 2022				*December 31, 2022*
	Amortized Cost		Fair Value		*Amortized Cost*		*Fair Value*
	(In thousands)				(In thousands)
Available-for-Sale:
Over 1 year through 5 years	$	6,221	$	6,034	$	6,215	$	5,980
After 5 years through 10 years		32,814		31,047		32,807		29,592
Over 10 years		16,541		13,732		16,446		12,740
Mortgage-backed securities:
Mortgage Backed Security ("MBS"), fixed-rate		2,442		2,267
MBS						2,373		2,073
Total Available-for-sale securities		58,018		53,080		57,841		50,385
Held-to-Maturity:
Within 1 year		253		252		5,050		5,014
Over 1 year through 5 years		9,986		9,875		10,524		10,244
After 5 years through 10 years		3,119		2,769		3,114		2,613
Over 10 years		31,524		26,951		31,431		25,295
Mortgage-backed securities:
Mortgage Backed Security ("MBS"), fixed-rate		2,311		1,952
Collateralized mortgage obligations (“CMO”), fixed-rate		5,157		4,871
MBS						2,247		1,766
CMO						5,781		5,267
Total Held-to-maturity securities		52,350		46,670		58,147		50,199
Equity Securities:
Within 1 year		500		500		1,000		876
After 5 years through ten years		1,000		912		500		500
Total Equity securities		1,500		1,412		1,500		1,376
Total investment securities	$	111,868	$	101,162	$	117,488	$	101,960

	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*
June 30, 2022
											*Impaired Loans with*				*Specific*
											*Specific Allowance*				*Allowance*		*Total Impaired Loans*
																			*Unpaid*
											*Recorded*		*Related*		*Recorded*		*Recorded*		*Principal*
											*Investment*		*Allowance*		*Investment*		*Investment*		*Balance*
											(In thousands)
December 31, 2022
Residential mortgage	$	478	$	56	$	2,368	$	2,847	$	3,050	$	471	$	54	$	2,314	$	2,785	$	3,006
Commercial:
Commercial real estate		-		-		13,777		13,777		15,476		—		—		13,893		13,893		15,475
Farmland		-		-		2,221		2,221		2,221		—		—		2,198		2,198		2,198
Commercial and industrial		-		-		968		968		3,642		—		—		5,481		5,481		5,481
Consumer:
Home equity lines of credit		-		-		20		20		26		—		—		20		20		25
Second mortgages		58		17		182		240		294		—		—		158		158		186
Total impaired loans	$	536	$	73	$	19,536	$	20,073	$	24,709	$	471	$	54	$	24,065	$	24,536	$	26,371
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

				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)
Three Months Ended June 30, 2022
Beginning balance	$	814		$	152		$	27		$	6,205	$	274		$	327		$	1,198		$	-	$	78		$	100		$	17		$	109	$	9,301
Charge-offs		-			-			-			-		-			-			-			-		-			-			-			-		-
Recoveries		3			-			-			1		-			-			1			-		-			3			-			-		8
Provisions		(107	)		(42	)		(16	)		19		(194	)		(31	)		(21	)		58		(15	)		(63	)		(3	)		415		-
Ending balance	$	710		$	110		$	11		$	6,225	$	80		$	296		$	1,178		$	58	$	63		$	40		$	14		$	524	$	9,309

			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 December 31, 2022
Beginning balance	$	708	$	131		$	3	$	6,040		$	57	$	298		$	1,158		$	55		$	67		$	21		$	15	$	537	$	9,090
Charge-offs		—		—			—		—			—		—			—			—			—			—			—		—		—
Recoveries		5		—			—		—			—		—			1			—			1			2			—		—		9
Provisions		82		(10	)		—		(64	)		—		(28	)		(162	)		(1	)		(3	)		(6	)		—		192		—
Ending balance	$	795	$	123		$	3	$	5,976		$	57	$	270		$	996		$	54		$	65		$	17		$	15	$	729	$	9,099
Ending balance: individually evaluated for impairment		54	$	—		$	—	$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	—	$	—		54
Ending balance: collectively evaluated for impairment		741		123			3		5,976			57		270			996			54			65			17			15		729		9,045

Loans receivable:
Ending balance	$	176,207	$	22,871		$	545	$	408,671		$	11,435	$	50,004		$	105,345		$	13,192		$	12,849		$	4,024		$	2,252			$	807,395
Ending balance: individually evaluated for impairment	$	471	$	—		$	—	$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	—			$	471
Ending balance: collectively evaluated for impairment	$	175,736	$	22,871		$	545	$	408,671		$	11,435	$	50,004		$	105,345		$	13,192		$	12,849		$	4,024		$	2,252			$	806,924

																																									*Construction and*
																																									*Development*						*Commercial*													*Consumer*
					Construction and Development						Commercial													Consumer														*Residential*			*Residential and*						*Commercial*					*Multi-*			*Commercial and*					*Home Equity Lines of*			*Second*
		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			*Mortgage*			*Commercial*			*Land*			*Real Estate*			*Farmland*		*Family*			*Industrial*			*Other*		*Credit*			*Mortgages*			*Other*			*Unallocated*		*Total*
Allowance for loan losses:	(In thousands)																																					(In thousands)
Year Ended September 30, 2021
Year Ended September 30, 2022
Beginning balance		$	1,667		$	465		$	23		$	8,682		$	47	$	511		$	578		$	51	$	130		$	196		$	29		$	54	$	12,433		$	934		$	428		$	15		$	7,043		$	56	$	450		$	2,221		$	54	$	76		$	87		$	20		$	88	$	11,472
Charge-offs			-			-			-			(11,930	)		-		-			(379	)		-		-			-			(4	)		-		(12,313	)		—			—			—			—			—		—			(2,415	)		—		—			(106	)		—			—		(2,521	)
Recoveries			41			4			-			1			-		-			2			-		17			108			2			-		176			5			—			—			75			—		—			2			—		1			55			1			—		139
Provisions			(774	)		(41	)		(8	)		10,290			9		(61	)		2,020			3		(71	)		(217	)		(7	)		34		11,176			(231	)		(297	)		(12	)		(1,078	)		1		(152	)		1,350			1		(10	)		(15	)		(6	)		449		—
Ending balance		$	934		$	428		$	15		$	7,043		$	56	$	450		$	2,221		$	54	$	76		$	87		$	20		$	88	$	11,472		$	708		$	131		$	3		$	6,040		$	57	$	298		$	1,158		$	55	$	67		$	21		$	15		$	537	$	9,090
Ending balance: individually evaluated for impairment		$	-		$	-		$	-		$	18		$	-	$	-		$	1,488		$	-	$	-		$	38		$	-		$	-	$	1,544		$	54		$	—		$	—		$	—		$	—	$	—		$	—		$	—	$	—		$	—		$	—		$	—	$	54
Ending balance: collectively evaluated for impairment		$	934		$	428		$	15		$	7,025		$	56	$	450		$	733		$	54	$	76		$	49		$	20		$	88	$	9,928		$	654		$	131		$	3		$	6,040		$	57	$	298		$	1,158		$	55	$	67		$	21		$	15		$	537	$	9,036

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		$	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		$	-		$	-		$	-		$	286		$	-	$	-		$	2,517		$	-	$	-		$	102		$	-				$	2,905		$	477		$	—		$	—		$	—		$	—	$	—		$	—		$	—	$	—		$	—		$	—				$	477
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		$	175,480		$	24,362		$	550		$	406,914		$	11,506	$	55,295		$	102,703		$	13,356	$	13,233		$	4,395		$	2,136				$	809,930

	Three Months Ended June 30, 2022				Nine Months Ended June 30, 2022
	Average Impaired Loans		Interest Income Recognized on Impaired Loans		Average Impaired Loans		Interest Income Recognized on Impaired Loans
	(In thousands)
Residential mortgage	$	2,234	$	29	$	2,472	$	95
Commercial:
Commercial real estate		13,405		22		13,094		67
Farmland		2,226		20		2,236		59
Commercial and industrial		973		6		1,705		16
Consumer:
Home equity lines of credit		21		-		17		-
Second mortgages		863		1		816		3
Total	$	19,722	$	78	$	20,340	$	240

	*Three Months Ended December 31, 2022*
			*Interest Income*
	*Average*		*Recognized on*
	*Impaired Loans*		*Impaired Loans*
	(In thousands)
Residential mortgage	$	2,773	$	20
Commercial:
Commercial real estate		13,894		8
Farmland		2,204		20
Commercial and industrial		2,243		27
Consumer:
Home equity lines of credit		19		—
Second mortgages		163		—
Total	$	21,296	$	75

	Three Months Ended June 30, 2021				Nine Months Ended June 30, 2021
	Average Impaired Loans		Interest Income Recognized on Impaired Loans		Average Impaired Loans		Interest Income Recognized on Impaired Loans
	(In thousands)
Residential mortgage	$	3,280	$	22	$	3,383	$	56
Commercial:
Commercial real estate		38,243		153		32,701		403
Farmland		2,265		31		1,766		50
Commercial and industrial		1,398		5		709		12
Consumer:
Home equity lines of credit		24		-		51		-
Second mortgages		776		2		711		5
Total	$	45,986	$	213	$	39,321	$	526

	*Three Months Ended December 31, 2021*
			*Interest Income*
	*Average*		*Recognized on*
	*Impaired Loans*		*Impaired Loans*
	(In thousands)
Residential mortgage	$	2,782	$	29
Commercial:
Commercial real estate		13,283		8
Farmland		2,247		20
Commercial and industrial		2,655		6
Consumer:
Home equity lines of credit		15		—
Second mortgages		678		—
Total	$	21,660	$	63

	Pass		Special Mention		Substandard		Doubtful		Total
	(In thousands)
June 30, 2022:
Residential mortgage	$	174,073	$	-	$	2,426	$	-	$	176,499
Construction and Development:
Residential and commercial		20,459		-		-		-		20,459
Land		2,054		-		-		-		2,054
Commercial:
Commercial real estate		364,341		42,738		704		-		407,783
Farmland		13,127		-		2,221		-		15,348
Multi-family		54,879		-		-		-		54,879
Commercial and industrial		98,657		-		5,847		-		104,504
Other		13,954		-		-		-		13,954
Consumer:
Home equity lines of credit		12,340		-		92		-		12,432
Second mortgages		4,133		60		412		-		4,605
Other		2,183		-		-		-		2,183
Total	$	760,200	$	42,798	$	11,702	$	-	$	814,700

	*Pass*		*Special Mention*		*Substandard*		*Doubtful*		*Total*
	(In thousands)
December 31, 2022:
Residential mortgage	$	173,375	$	—	$	2,832	$	—	$	176,207
Construction and Development:
Residential and commercial		22,871		—		—		—		22,871
Land		545		—		—		—		545
Commercial:
Commercial real estate		375,690		32,477		504		—		408,671
Farmland		9,237		—		2,198		—		11,435
Multi-family		50,004		—		—		—		50,004
Commercial and industrial		99,918		—		5,427		—		105,345
Other		13,192		—		—		—		13,192
Consumer:
Home equity lines of credit		12,762		—		87		—		12,849
Second mortgages		3,746		55		223		—		4,024
Other		2,252		—		—		—		2,252
Total	$	763,592	$	32,532	$	11,271	$	—	$	807,395

													*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)
December 31, 2022:
Residential mortgage	$	173,402	$	1,267	$	502	$	1,036	$	2,805	$	176,207	$	171
Construction and Development:
Residential and commercial		22,871		—		—		—		—		22,871		—
Land		545		—		—		—		—		545		—
Commercial:
Commercial real estate		408,077		90		—		504		594		408,671		504
Farmland		11,435		—		—		—		—		11,435		—
Multi-family		50,004		—		—		—		—		50,004		—
Commercial and industrial		105,306		39		—		—		39		105,345		—
Other		13,192		—		—		—		—		13,192		—
Consumer:														—
Home equity lines of credit		12,711		138		—		—		138		12,849		—
Second mortgages		3,805		65		128		26		219		4,024		—
Other		2,233		—		19		—		19		2,252		—
Total	$	803,581	$	1,599	$	649	$	1,566	$	3,814	$	807,395	$	675

	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)
June 30, 2022:
Residential mortgage	$	172,846	$	3,221	$	72	$	359	$	3,652	$	176,499	$	172
Construction and Development:
Residential and commercial		20,459		-		-		-		-		20,459		-
Land		2,054		-		-		-		-		2,054		-
Commercial:
Commercial real estate		407,418		165		-		200		365		407,783		200
Farmland		15,348		-		-		-		-		15,348		-
Multi-family		54,879		-		-		-		-		54,879		-
Commercial and industrial		104,129		-		95		280		375		104,504		-
Other		13,955		-		-		-		-		13,954		-
Consumer:
Home equity lines of credit		12,432		-		-		-		-		12,432		-
Second mortgages		4,497		72		-		37		109		4,605		29
Other		2,177		5		-		-		5		2,183		-
Total	$	810,194	$	3,463	$	167	$	876	$	4,506	$	814,700	$	401

	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*
June 30, 2022:
									*Restructurings*				*12 Months*
									*Number of*		*Recorded*		*Number of*		*Recorded*
									*Loans*		*Investment*		*Loans*		*Investment*
									(Dollars in thousands)
December 31, 2022:
Residential mortgage		14	$	2,660		-	$	-		15	$	2,671		1	$	471
Commercial:
Commercial real estate		3		595		2		986		3		593		—		—
Farmland		1		2,221		-		-		1		2,198		—		—
Commercial and industrial		1		625		-		-		2		5,427		—		—
Consumer:
Second mortgages		3		65		-		-		2		41		—		—
Total		22	$	6,166		2	$	986		23	$	10,930		1	$	471
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		—	$	—

													*For the Three Months Ended December 31,*
													*2022*						*2021*
															*Pre-*		*Post-*				*Pre-*		*Post-*
															*Modifications*		*Modification*				*Modifications*		*Modification*
	For the Nine Months Ended June 30,														*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		-	$	-	$	-		1	$	72	$	72	$	—	$	—	$	—
Commercial:
Commercial real estate		-		-		-		-		-		-		—		—		—		2		504		504
Farmland		-		-		-		1		2,287		2,287		—		—		—		—		—		—
Commercial and industrial		1		504		504		1		549		549		1		4,802		4,802		—		—		—
Consumer:
Second mortgages														1		38		38		—
Total troubled debt restructurings		2	$	986	$	986		2	$	2,836	$	2,836		3	$	4,912	$	4,912		2	$	504	$	504

	*December 31, 2022*
	*Number of*		*Loan Modified*		*Gross*		*Percentage of Gross Loans*
	Loans		Exposure		Loans		Modified
			(Dollars in thousands)
Residential mortgage		—	$	—	$	176,207		0.00	%

Construction and Development:
Residential and commercial		—		—		22,871		0.00	%
Land loans		—		—		545		0.00	%
Total Construction and Development		—		—		23,416		0.00	%

Commercial:
Commercial real estate		3		31,842		408,671		7.79	%
Farmland		—		—		11,435		0.00	%
Multi-family		—		—		50,004		0.00	%
Commercial and industrial		—		—		105,345		0.00	%
Other		—		—		13,192		0.00	%
Total Commercial		3		31,842		588,647		5.41	%

Consumer:
Home equity lines of credit		—		—		12,849		0.00	%
Second mortgages		—		—		4,024		0.00	%
Other		—		—		2,252		0.00	%
Total Consumer		—		—		19,125		0.00	%
Total loans		3	$	31,842	$	807,395		3.94	%

	June 30 ,2022
	Number of Loans		Loan Modified Exposure		Gross Loans		Percentage of Gross Loans Modified
			(Dollars in thousands)
Residential mortgage		-	$	-	$	176,499		0.00	%

Construction and Development:
Residential and commercial		-		-		20,459		0.00	%
Land loans		-		-		2,054		0.00	%
Total Construction and Development		-		-		22,513		0.00	%

Commercial:
Commercial real estate		4		42,093		407,783		5.17	%
Farmland		-		-		15,348		0.00	%
Multi-family		-		-		54,879		0.00	%
Commercial and industrial		-		-		104,504		0.00	%
Other		-		-		13,954		0.00	%
Total Commercial		4		42,093		596,468		5.17	%

Consumer:
Home equity lines of credit		-		-		12,432		0.00	%
Second mortgages		-		-		4,605		0.00	%
Other		-		-		2,183		0.00	%
Total Consumer		-		-		19,220		0.00	%
Total loans		4	$	42,093	$	814,700		5.17	%

	September 30, 2021
	Number of Loans		Loan Modified Exposure		Gross Loans		Percentage of Gross Loans 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	%

	Actual					For Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2022
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	146,928		13.77	%	$	42,680		4.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		146,928		16.87	%		39,196		4.50	%
Tier 1 Capital (to risk weighted assets)		146,928		16.87	%		52,261		6.00	%
Total Risk Based Capital (to risk weighted assets)		181,319		20.82	%		69,681		8.00	%
As of September 30, 2021
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	142,132		11.84	%	$	48,020		4.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		142,132		14.53	%		44,024		4.50	%
Tier 1 Capital (to risk weighted assets)		142,132		14.53	%		58,699		6.00	%
Total Risk Based Capital (to risk weighted assets)		178,620		18.26	%		78,265		8.00	%

											*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 December 31, 2022
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	168,734		16.53	%	$	40,820		4.00	%	$	51,025		5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		168,734		19.69	%		38,555		4.50	%		55,690		6.50	%
Tier 1 Capital (to risk weighted assets)		168,734		19.69	%		51,406		6.00	%		68,542		8.00	%
Total Risk Based Capital (to risk weighted assets)		177,916		20.77	%		68,542		8.00	%		85,680		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	%

	Actual					Minimum For Capital Adequacy Purposes					Minimum To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2022
Tier 1 Leverage (Core) Capital (to adjusted assets)	$	163,237		15.33	%	$	42,590		4.00	%	$	53,237		5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)		163,237		18.79	%		39,091		4.50	%		56,465		6.50	%
Tier 1 Capital (to risk weighted assets)		163,237		18.79	%		52,122		6.00	%		69,496		8.00	%
Total Risk Based Capital (to risk weighted assets)		172,628		19.87	%		69,496		8.00	%		86,870		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	%

`	June 30, 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	$	2,848	Other assets	$	—	$	—	Other liabilities
Derivatives not designated as a hedging instrument:
Interest rate swap agreement	$	44,334	$	1,841	Other assets	$	44,334	$	1,842	Other liabilities

	*December 31, 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	$	3,770	Other assets	$	—	$	—	Other liabilities
Derivatives not designated as a hedging instrument:
Interest rate swap agreements	$	43,930	$	3,574	Other assets	$	43,930	$	3,574	Other liabilities