What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2022-02-11 · 332 added, 190 removed, 287 unchanged (65% of the section changed)

81 unchanged sentences

greater than the allowances we have established, which could have a material negative effect on our financial results.

We intend to adopt the Current

Expected Credit Losses (CECL) Methodology effective October 1, 2023.

The adoption of the CECL standard for determining the amount of our

allowance for credit losses may increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan

and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning October 1, 2023.

Other Real Estate Owned.

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Impact of the Coronavirus/COVID-19 Pandemic.

During 2020 and continuing into

2021, the extraordinary impact of the COVID-19 pandemic has created an unprecedented environment for consumers and businesses alike.

protect our employees and customers from potential exposure to the virus, all Magyar Bank lobbies and operational areas continue to observe

best practice protocols to limit exposure and/or spread of the virus.

Beginning in 2020 and continuing

into 2022, the extraordinary impact of the COVID-19 pandemic has created an unprecedented environment for consumers and businesses alike.

To protect our employees and customers from potential exposure to the virus, all Magyar Bank lobbies and operational areas continue to

observe best practice protocols to limit exposure and/or spread of the virus.

To assist our loan customers,

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exposure to the travel or entertainment industry.

Through December 31, 2021, we

had modified 284 loans aggregating $150.9 million for the deferral of principal and/or interest payments.

Through March 31, 2022, we had

modified 284 loans aggregating $150.9 million for the deferral of principal and/or interest payments.

Of these loans, 109 loans totaling

$53.4 million repaid their deferred payments in full and 174 loans aggregating $96.1 million have resumed making their contractual loan

One loan totaling $1.4 million was past its deferral period and delinquent at December 31, 2021.

One loan totaling $1.4 million was past its deferral period and delinquent at March 31, 2022.

The Company was not deferring

any additional loan payments due to the COVID-19 pandemic at December 31, 2021.

any additional loan payments due to the COVID-19 pandemic at March 31, 2022.

A total of $1.4 million in interest payments were deferred

as of December 31, 2021.

as of March 31, 2022.

The Bank participated in the PPP

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These fees are being amortized over the five year contractual term of the loan unless repaid or forgiven sooner.

December 31, 2021, 510 loans totaling $76.5 million had been repaid, leaving 52 loans totaling $14.8 million at December 31, 2021.

Company expects most of these loans to be approved for full forgiveness by the SBA.

March 31, 2022, 543 loans totaling $86.1 million had been repaid, leaving 19 loans totaling $5.2 million at March 31, 2022.

expects most of these loans to be approved for full forgiveness by the SBA.

The health of the banking industry

9 unchanged sentences

of our loan portfolio in future quarters is unknown, however all of these factors are likely to be affected by the COVID-19 pandemic.

Comparison of Financial Condition at December 31,

Comparison of Financial Condition at March 31, 2022

and September 30, 2021

Total Assets.

assets increased $6.7 million, or 0.9%, to $780.7 million during the three months ended December 31, 2021 from $774.0 million at September

The increase was primarily attributable to increases in cash, interest-earning deposits and investment securities, partially

offset by lower balances of loans receivable, net of allowance for loan loss.

assets increased $32.7 million, or 4.2%, to $806.7 million at March 31, 2022 from $774.0 million at September 30, 2021.

The increase was

attributable to higher balances of investment securities and loans receivable, net of allowance for loan loss, partially offset by lower

balances of cash and interest-earning deposits with banks.

Cash and Interest-Earning

Deposits with Banks.

Cash and interest-earning deposits with banks increased $7.1 million, or 9.4%, to $82.3 million at December

31, 2021 from $75.2 million at September 30, 2021 from net loan repayments and deposit inflows during the three months ended December

Total Loans Receivable.

Total loans receivable decreased $11.3 million, or 1.9%, to $583.4 million at December 31, 2021 from $594.6 million at September 30, 2021.

The loans receivable were comprised of $279.0 million (47.8%) in commercial real estate loans, $200.8 million (34.4%) in one-to four-family

residential mortgage loans, $58.3 million (10.0%) in commercial business loans, $24.3 million (4.2%) in construction loans, $17.7 million

(3.0%) in home equity lines of credit, and $3.3 million (0.6%) in other loans.

Included with the commercial business loans were $14.8

million in PPP loans.

The decrease in total loans receivable during the quarter occurred in commercial business loans, which decreased

$10.4 million (PPP loans decreased $10.3 million), one-to four-family residential real estate loans (including home equity lines of credit),

which decreased $2.5 million, commercial real estate loans, which decreased $1.9 million, and other loans, which decreased $462,000.

offsetting these decreases were construction loans, which increased $3.9 million during the quarter.

Total Non-Performing Loans.

Total non-performing loans decreased $2.0 million, or 23.9%, to $6.2 million at December 31, 2021 from $8.2 million at September 30, 2021.

Five loans totaling $1.5 million were brought current by payments from the borrowers.

In addition, one non-performing residential mortgage

loan totaling $473,000 was paid in full.

There were no additions to the non-performing loans during the three months ended December 31,

Included in the non-performing

loan totals were two construction loans totaling $4.6 million, one commercial business loan totaling $1.3 million, three commercial real

estate loans totaling $254,000, and one residential mortgage loan totaling $30,000.

The ratio of non-performing loans to total loans decreased

to 1.1% at December 31, 2021 from 1.4% at September 30, 2021.

During the three months ended

December 31, 2021, the allowance for loan losses increased $153,000 to $8.2 million from $8.1 million at September 30, 2021.

was attributable to provisions for loan losses totaling $101,000 and a $52,000 recovery from a loan previously charged off.

The allowance

for loan losses as a percentage of non-performing loans increased to 132.4% at December 31, 2021 from 99.0% at September 30, 2021.

allowance for loan losses as a percentage of total loans was 1.41% at December 31, 2021 compared with 1.36% at September 30, 2021.

Future increases in the allowance

for loan losses may be necessary based on possible future increases in non-performing loans and charge-offs, the possible deterioration

of collateral values, and the possible deterioration of the current economic environment.

Cash and interest-earning deposits with banks decreased $19.9 million, or 26.5%, to $55.3 million at March

31, 2022 from $75.2 million at September 30, 2021 as funds were used for loan originations and investment securities purchases during

the six months ended March 31, 2022.

Investment Securities.

At December 31, 2021, investment securities totaled $78.6 million, reflecting an increase of $8.1 million, or 11.4%, from September 30,

The Company purchased three mortgage-backed securities totaling $7.5 million, one callable U.S.

government-sponsored enterprise

bond totaling $2.0 million, and one municipal bond totaling $600,000 during the three months ended December 31, 2021.

During the quarter,

the Company received payments from mortgage-backed securities totaling $2.0 million.

There were no sales of investment securities during

Investment securities at December

At March 31, 2022, investment securities totaled $95.3 million, reflecting an increase of $24.7 million, or 35.0%, from $70.6 million

at September 30, 2021.

The Company purchased seven mortgage-backed securities totaling $16.4 million, seven callable U.S.

government-sponsored

enterprise bond totaling $12.3 million, and one municipal bond totaling $600,000 during the six months ended March 31, 2022.

the purchases were payments from mortgage-backed securities totaling $3.7 million and unrealized losses on securities available-for-sale

totaling $795,000 during the six months ended March 31, 2022.

Investment securities at March

31, 2022 consisted of $64.6 million in mortgage-backed securities issued by U.S.

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There were no other-than-temporary-impairment charges for the

Company’s investment securities for the three months ended December 31, 2021.

Company’s investment securities for the six months ended March 31, 2022.

Total Loans Receivable.

Total loans receivable increased $23.8 million, or 4.0%, to $618.5 million at March 31, 2022 from $594.6 million at September 30, 2021.

Total loans receivable were comprised of $317.7 million (51.4%) in commercial real estate loans, $206.1 million (33.3%) in one- to four-

family residential mortgage loans, $48.9 million (7.9%) in commercial business loans, $26.9 million (4.4%) in construction loans, $15.6

million (2.5%) in home equity lines of credit, and $3.3 million (0.5%) in other loans.

Included with the commercial business loans were

$5.2 million in PPP loans.

The increase in total loans receivable

at March 31, 2022 occurred in commercial real estate loans, which increased $36.8 million, or 13.1%, in construction loans, which increased

$6.5 million, or 31.9%, and in one- to four- family residential real estate loans (including home equity lines of credit), which increased

$757,000, or 0.3%.

Partially offsetting these increases were decreases in commercial business loans, which decreased $19.8 million (PPP

loans decreased $19.9 million), and other loans, which decreased $459,000.

Total Non-Performing Loans.

Total non-performing loans decreased $2.3 million, or 27.3%, to $5.9 million at March 31, 2022 from $8.2 million at September 30, 2021.

During the six months ended March 31, 2022, five loans totaling $1.0 million were repaid in full and three loans totaling $1.3 million

were paid current by the borrowers.

There were no additions to the non-performing loans during the six months ended March 31, 2022.

ratio of non-performing loans to total loans decreased to 0.96% at March 31, 2022 from 1.37% at September 30, 2021.

During the six months ended March

31, 2022, the allowance for loan losses increased $225,000 to $8.3 million from $8.1 million at September 30, 2021.

The increase was attributable

to provisions for loan losses totaling $171,000 and $54,000 in net recoveries from loans previously charged off.

The allowance for loan

losses as a percentage of non-performing loans increased to 140.0% at March 31, 2022 from 99.0% at September 30, 2021.

Our allowance for

loan losses as a percentage of total loans was 1.34% at March 31, 2022 compared with 1.36% at September 30, 2021.

Future increases in the allowance

for loan losses may be necessary based on the growth of the loan portfolio, the change in composition of the loan portfolio, possible

future increases in non-performing loans and charge-offs, and the possible deterioration of the current economic environment.

Additionally,

we intend to adopt the CECL Methodology effective October 1, 2023.

The adoption of the CECL standard for determining the amount of our

allowance for credit losses may increase our allowance for loan and lease losses upon adoption and cause our historic allowance for loan

and lease losses not to be indicative of how we will maintain our allowance for credit losses beginning October 1, 2023.

Other Real Estate Owned.

Other real estate owned increased $13,000, or 2.0%, to $649,000 at December 31, 2021 from $636,000 at September 30, 2021.

was due to capital improvements to one property in order to market it for sale.

At December 31, 2021, of the two properties that remain

in the OREO portfolio, one was under contract of sale and the other was listed for sale.

The Company is determining the proper course

of action for its remaining other real estate owned, which may include holding the properties until the real estate market further improves,

leasing properties to offset carrying costs and selling the properties.

Other real estate owned increased $13,000, or 2.0%, to $649,000 at March 31, 2022 from $636,000 at September 30, 2021.

The increase was

due to capital improvements to one property in order to market it for sale.

At March 31, 2022, of the two properties that remain in the

OREO portfolio, one was under contract of sale and the other was listed for sale.

Total Deposits.

Total deposits increased $7.9 million, or 1.2%, to $647.7 million at December 31, 2021 from $639.8 million at September 30, 2021.

inflow in deposits occurred in interest-bearing checking accounts (NOW), which increased $12.4 million, or 17.4%, to $83.7 million, in

money market accounts, which increased $9.9 million, or 5.3%, to $197.8 million, in savings accounts, which increased $5.0 million, or

6.1%, to $86.7 million, and in non-interest bearing checking accounts, which increased $436,000, or 0.2%, to $182.4 million.

offsetting these increases were certificates of deposit (including individual retirement accounts), which decreased $19.9 million, or

Total deposits increased $35.4 million, or 5.5%, to $675.2 million at March 31, 2022 from $639.8 million at September 30, 2021.

inflow in deposits occurred in money market accounts, which increased $19.8 million, or 10.5%, to $207.7 million, in non-interest bearing

checking accounts, which increased $16.4 million, or 9.0%, to $198.4 million, in interest-bearing checking accounts (NOW), which increased

$16.3 million, or 22.9%, to $87.6 million, and in savings accounts, which increased $5.5 million, or 6.7%, to $87.2 million.

These increases

were partially offset by a decrease in certificates of deposit (including individual retirement accounts), of $22.6 million, or 19.4%,

to $94.3 million.

The Company held $6.0 million in brokered certificates of deposit at December 31, 2021 and September 30, 2021.

decreased $2.0 million, or 8.6%, to $21.4 million at December 31, 2021 from $23.4 million at September 30, 2021.

The Company repaid a

matured $2.0 million term borrowings from the Federal Home Loan Bank of New York during the quarter.

We believe that deposit inflows were the result of a combination of supply chain issues negatively affecting depositors’

ability to spend and depositors’ continued preference for liquidity that began with the onset of the pandemic.

The Company held

$6.0 million in brokered certificates of deposit at March 31, 2022 and September 30, 2021.

decreased $4.2 million, or 18.0%, to $19.2 million at March 31, 2022 from $23.4 million at September 30, 2021.

The Company repaid matured

term borrowings from the Federal Home Loan Bank of New York during the six months ended March 31, 2022.

Stockholders’ Equity.

Stockholders’ equity increased $802,000, or 0.8%, to $98.4 million at December 31, 2021 from $97.6 million at September 30, 2021.

The Company’s book value per share increased to $13.87 at December 31, 2021 from $13.76 at September 30, 2021.

The increase in stockholders’

equity was attributable to the Company’s results from operations, partially offset by the special dividends paid during the quarter.

Stockholders’ equity increased $1.8 million, or 1.8%, to $99.4 million at March 31, 2022 from $97.6 million at September 30, 2021.

The Company’s book value per share increased to $14.00 at March 31, 2022 from $13.76 at September 30, 2021.

The increase was due

to the Company’s net income during the six months ended March 31, 2022, partially offset by dividends totaling $0.15 per share paid

during the six months ended March 31, 2022.

The Company did not repurchase

shares of its common stock during the three months ended December 31, 2021.

Through December 31, 2021, the Company had repurchased 91,000

shares at an average price of $8.41 pursuant to the second stock repurchase plan.

Average Balance Sheet for the Three Months Ended

December 31, 2021 and 2020

The following table presents certain

information regarding the Company’s financial condition and net interest income for the three months ended December 31, 2021 and

The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities.

We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing

liabilities, respectively, for the periods shown.

We derived average balances from daily balances over the period indicated.

income includes fees that we consider adjustments to yields.

the Three Months Ended December 31,

shares of its common stock during the three months ended March 31, 2022.

Under current federal regulations, subject to limited exceptions,

the Company may not repurchase shares of its common stock during the first year following the completion of its second-step conversion

offering, which was completed on July 14, 2021.

Through March 31, 2022, the Company had repurchased 91,000 shares at an average price

of $8.41 pursuant to the second stock repurchase plan.

Average Balance Sheet for the Three and Six Months

Ended March 31, 2022 and 2021

The following tables present certain

information regarding the Company’s financial condition and net interest income for the three and six months ended March 31, 2022

The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing

We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets

and interest-bearing liabilities, respectively, for the periods shown.

We derived average balances from daily balances over the period

Interest income includes fees that we consider adjustments to yields.

For the Three Months Ended

(Dollars in thousands)

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as annualized net interest income divided by average total interest-earning assets.

For the Six Months Ended

(Dollars In Thousands)

Interest-earning assets:

Interest-earning deposits

Loans receivable, net

Tax-exempt (1)

Total interest-earning assets

Noninterest-earning assets

Interest-bearing liabilities:

Savings accounts (2)

NOW accounts (3)

Time deposits (4)

Total interest-bearing deposits

Total interest-bearing liabilities

Noninterest-bearing liabilities

Total liabilities

Retained earnings

Total liabilities and retained earnings

Tax-equivalent basis adjustment

Net interest and dividend income

Interest rate spread

Net interest-earning assets

Net interest margin (5)

Average interest-earning assets to

average interest-bearing liabilities

Calculated using the Company's 21% federal tax rate.

Includes passbook savings, money market passbook and club accounts.

interest-bearing checking and money market accounts.

certificates of deposits and individual retirement accounts.

(5) Calculated

as annualized net interest income divided by average total interest-earning assets.

Comparison of Operating Results for the Three Months

Ended December 31, 2021 and 2020

income increased $356,000, or 26.6% to $1.7 million for the three-month period ended December 31, 2021 compared with net income of $1.3

million for the three-month period ended December 31, 2020.

The increase was due to higher net interest and dividend income, lower provisions

for loan loss and lower other expenses, partially offset by lower non-interest income.

Ended March 31, 2022 and 2021

Company’s net income increased $173,000, or 11.5% to $1.7 million for the three-month period ended March 31, 2022 compared with

net income of $1.5 million for the three-month period ended March 31, 2021.

The increase was due to lower provisions for loan loss and

other expenses, partially offset by lower non-interest income.

Net Interest and Dividend

Net interest and dividend income increased $394,000, or 6.5%, to $6.4 million for the three months ended December 31,

2021 from $6.0 million for the three months ended December 31, 2020.

An eight basis point increase

in the Company’s net interest margin to 3.46% for the three months ended December 31, 2021 from 3.38% for the three months ended

December 31, 2020 as well as a $28.9 million increase in average-interest-earning assets to $739.0 million for the 2021 quarter from $710.1

million for the 2020 quarter resulted in higher net interest and dividend income.

The cost of the Company’s

interest-bearing liabilities decreased 26 basis points to 0.47% for the three months ended December 31, 2021 from 0.73% for the three

months ended December 31, 2020 due to lower market interest rates.

The cost of interest-bearing deposits decreased 28 basis points to

0.39% for the three months ended December 31, 2021 from 0.67% for the three months ended December 31, 2020.

In addition, the average balance

of non-interest bearing liabilities increased $28.1 million to $204.0 million for the three months ended December 31, 2021 from $175.9

million for the three months ended December 31, 2020.

The increase in non-interest bearing liabilities was due to higher business checking

account balances resulting from supply chain issues and a preference for liquidity during the COVID-19 pandemic.

Net interest and dividend income was unchanged at $6.4 million for the three months ended March 31, 2022 and 2021.

million increase in the average balance of net interest-earning assets between periods was offset by a 27 basis point decrease in the

Company’s net interest margin to 3.37% for the three months ended March 31, 2022 from 3.64% for the three months ended March 31,

Interest and Dividend Income.

Interest and dividend income was unchanged at $7.0 million for the three months ended December 31, 2021 and December 31, 2020.

million, or 4.1%, increase in the average balance of interest-earning assets to $739.0 million was entirely offset by a 15 basis point

decrease in the yield on such assets to 3.76% for the three months ended December 31, 2021 compared with 3.91% the prior year period.

The yield on average investment

securities and interest-earning deposits decreased 19 basis points to 0.68% for the three months ended December 31, 2021 from 0.87% for

the three months ended December 31, 2020 due to lower market interest rates.

Offsetting this decrease was an 18 basis point increase in

the yield on loans receivable to 4.60% for the three months ended December 31, 2021 from 4.42% for the three months ended December 31,

Lower interest income from lower average balances of loans receivable was offset by the receipt of $173,000 in interest payments

received during the current quarter on previously non-performing loans.

Also included in the yield on loans receivable is the recognition

of PPP loan fees, which have been accelerated with the repayment of PPP loans through forgiveness by the SBA.

The Company recorded $407,000

in PPP fees during the three months ended December 31, 2021 compared with $417,000 during the three months ended December 31, 2020.

Interest and dividend income decreased $219,000, or 3.1%, to $6.9 million for the three months ended March 31, 2022 from $7.1 million

for the three months ended March 31, 2021.

The decrease was attributable to a 41 basis point decline in yield on interest-earning assets,

partially offset by higher average balances of interest-earning assets, which increased $39.3 million between periods.

The lower yield

on interest-earning assets was attributable to lower yields on loans receivable, which decreased 16 basis points to 4.44% for the three

months ended March 31, 2022 compared with 4.60% for the three months ended March 31, 2021 as well as higher average balances of lower

yielding interest-earnings deposits, which increased $23.1 million, or 47.2%, between periods.

Interest earned on investment

securities, including interest-earning deposits and excluding FHLB stock, increased $43,000, or 19.1%, to $268,000 for the quarter ended

December 31, 2021 from $225,000 for the prior year quarter.

A $56.1 million, or 55.0%, increase in the average balance of investment securities

and interest-earning deposits to $158.2 million for the quarter ended December 31, 2021 more than offset the 19 basis point decrease in

their average yield.

securities, including interest-earning deposits and excluding FHLB stock, increased $135,000, or 65.2%, to $342,000 for the three months

ended March 31, 2022 from $207,000 for the three months ended March 31, 2021.

The increase resulted primarily from a $62.1 million, or

61.3%, increase in the average balance of investment securities and interest-earning deposits to $163.5 million for the three months ended

March 31, 2022 from $101.4 million for the three months ended March 31, 2021.

Interest Expense.

Interest expense decreased $386,000, or 40.4%, to $570,000 for the three months ended December 31, 2021 from $956,000 for the three months

ended December 31, 2020.

A 26 basis point decrease in the cost of interest-bearing liabilities to 0.47% for the three months ended December

31, 2021 as well as a lower average balance of interest-bearing liabilities, which decreased $36.7 million, or 7.1%, to $482.0 million,

accounted for the lower interest expense between periods.

The average balance of interest-bearing

deposits increased $6.8 million, or 1.5%, to $460.0 million for the quarter ended December 31, 2021 from $453.2 million for the same quarter

ended December 31, 2020, while the average cost of such deposits decreased 28 basis points to 0.39% from 0.67% between the two periods.

As a result, interest paid on interest-bearing deposits decreased $314,000 to $451,000 for the three months ended December 31, 2021 compared

with $765,000 for the three months ended December 31, 2020.

Interest expense decreased $218,000, or 29.3%, to $526,000 for the three months ended March 31, 2022 from $744,000 for the three months

ended March 31, 2021.

The cost of the Company’s interest-bearing liabilities decreased 17 basis points to 0.42% for the three months

ended March 31, 2022 from 0.59% for the three months ended March 31, 2021 due to lower market interest rates between periods.

The cost of interest-bearing deposits

decreased 16 basis points to 0.35% for the three months ended March 31, 2022 from 0.51% for the three months ended March 31, 2021.

addition, the average balance of non-interest bearing liabilities increased $18.4 million, or 9.8%, to $205.2 million for the three months

ended March 31, 2022 from $186.8 million for the three months ended March 31, 2021.

The increase in non-interest bearing liabilities was

due to higher business checking account balances resulting from supply chain issues and a preference for liquidity during the COVID-19

As a result, interest paid on interest-bearing deposits decreased $154,000 to $415,000 for the three months ended March 31,

2022 compared with $569,000 for the three months ended March 31, 2021.

Interest paid on borrowings decreased

$72,000, or 37.7%, to $119,000 for the three months ended December 31, 2021 from $191,000 for the prior year period.

$64,000, or 36.6%, to $111,000 for the three months ended March 31, 2022 from $175,000 for the prior year period.

A $34.9 million decrease

in the average balance of such borrowings to $21.9 million for the quarter ended December 31, 2021 from $65.4 million for the quarter

ended December 31, 2020 more than offset a 100 basis point increase in the cost of borrowings to 2.16% for the three months ended December

31, 2021 from 1.16% for the three months ended December 31, 2020.

The reduction in average balances and corresponding increase in cost

of borrowings between periods resulted from the repayment of $29.8 million in PPP Liquidity Facility borrowings costing 0.35% from the

Federal Reserve Bank of New York.

in the average balance of such borrowings to $20.3 million for the quarter ended March 31, 2022 from $55.2 million for the quarter ended

March 31, 2021 more than offset a 89 basis point increase in the cost of borrowings to 2.17% for the three months ended March 31, 2022

from 1.28% for the three months ended March 31, 2021.

The reduction in average balances and corresponding increase in cost of borrowings

between periods resulted from the repayment of Paycheck Protection Program Liquidity Facility (“PPPLF”) advances to the Federal

Reserve Bank of New York.

Provision for Loan Losses.

8 unchanged sentences

After an evaluation of these factors,

management recorded a provision of $101,000 for the three months ended December 31, 2021 compared to $640,000 for the three months ended

December 31, 2020.

The decreased provision for loan losses resulted from contraction in the Company’s loan portfolio and a decrease

in non-performing loans between periods.

In addition, the Company recorded higher provisions during the three months ended December 31,

2020 related to COVID-19 pandemic adjustments to the historical loss rates used in its calculation.

The Company recorded $52,000 in net

recoveries for the three months ended December 31, 2021 compared with $90,000 in net recoveries during the three months ended December

management recorded a provision of $71,000 for the three months ended March 31, 2022 compared to $467,000 for the three months ended March

The lower provisions for loss resulted from lower adjustments to the Company’s historical loan losses related to the COVID-19

pandemic’s anticipated impact on the Company’s consumer and business loan portfolios.

In addition, the Company recorded $1,000

in net recoveries during the three months ended March 31, 2022 compared with $43,000 in net charge-offs during the three months ended

March 31, 2021.

Determining the amount of the

5 unchanged sentences

business loans may result in larger additions to the allowance for loan losses in future periods .

In addition, the ongoing effects of

the COVID-19 pandemic on the Company’s loan portfolio may also result in larger additions to the allowance for loan losses in future

Other Income.

income decreased $575,000, or 46.9%, to $650,000 during the three months ended December 31, 2021 compared to $1.2 million for the three

months ended December 31, 2020.

income decreased $365,000, or 39.0%, to $572,000 during the three months ended March 31, 2022 compared to $937,000 for the three months

ended March 31, 2021.

Fees for other customer services

were $0 for the three months ended December 31, 2021 compared with $464,000 for the three months ended December 31, 2020.

the 2020 quarter were earned from the a local Small Business Relief Grant program offered in 2020 in response to the COVID-19 pandemic

for which the Company received a fee of 3.0% of the grants it assisted with processing.

In addition, the Company did not receive any interest

rate swap fees during the three months ended December 31, 2021, compared with $102,000 during the three months ended December 31, 2020.

were $0 for the three months ended March 31, 2022 compared with $303,000 for the three months ended March 31, 2021.

The fees in the 2021

quarter were earned from the Small Business Relief Grant program offered in response to the COVID pandemic for which the Company received

a fee of 3.0% of the grants it assisted with processing.

In addition, the Company did not receive any interest rate swap fees during the

three months ended March 31, 2022 compared with $107,000 during the three months ended March 31, 2021.

However, the Company recorded higher

gains from the sales of loans, which were $139,000 for the three months ended March 31, 2022 compared with $106,000 for the three months

ended March 31, 2021.

Other Expenses.

expenses decreased $103,000, or 2.2%, to $4.6 million during the three months ended December 31, 2021 from $4.7 million during the three

months ended December 31, 2020.

expenses decreased $181,000, or 3.9%, to $4.5 million during the three months ended March 31, 2022 from $4.7 million during the three

months ended March 31, 2021.

The decrease in other expenses

was primarily attributable to decreases in professional fees, which decreased $141,000 to $387,000, due to lower legal and consulting

fees related to the collection and foreclosure of non-performing loans, and in OREO expenses, which decreased $146,000 to $34,000, due

to lower valuation allowances and fewer OREO properties between periods.

Partially offsetting the decrease

in professional fees and OREO expenses were increases in compensation and benefit expenses as well as marketing and business development

Compensation and benefit expense increased $155,000, or 6.1%, to $2.7 million for the three months ended December 31, 2021 from

$2.5 million for the three months ended December 31, 2020 from the addition of one commercial lending position as well as annual merit

increases for employees and higher education and training expenses.

Marketing and business development expense increased $81,000, or 184.1%,

to $125,000 for the three months ended December 31, 2021 from $44,000 for the three months ended December 31, 2020 due to COVID-19 pandemic

restrictions suppressing the 2020 spend and reflecting a higher spend in the current year as the Company celebrates its 100 th

year anniversary in 2022.

was primarily attributable to lower professional fees, which decreased $205,000, or 43.2%, due to lower legal and consulting fees related

to the collection and foreclosure of non-performing loans.

FDIC deposit insurance assessment premiums and loan servicing expenses decreased

$78,000 and $76,000, respectively, from the Company’s higher capital levels and lower levels of non-performing loans.

offsetting these decreases were higher compensation and other expenses.

Compensation and benefit expense increased $71,000, or 2.7%, due

to annual merit increases as well as expenses for the employee stock ownership plan resulting from the Company’s stock offering

in July 2021.

Other expenses increased $69,000, or 17.8%, from higher expenses related to being a fully public company as well as annual

increases in vendor contracts.

Income Tax Expense.

The Company recorded tax expense of $674,000 on pre-tax income of $2.4 million for the three months ended December 31, 2021, compared

to $569,000 on pre-tax income of $1.9 million for the three months ended December 31, 2020.

The Company’s effective tax rate for

the three months ended December 31, 2021 was 28.5% compared with 29.9% for the three months ended December 31, 2020.

The Company recorded tax expense of $690,000 on pre-tax income of $2.4 million for the three months ended March 31, 2022, compared to

$652,000 on pre-tax income of $2.2 million for the three months ended March 31, 2021.

The Company’s effective tax rate for the three

months ended March 31, 2022 was 29.1% compared with 30.2% for the three months ended March 31, 2021.

Comparison of Operating Results for the Six Months

Ended March 31, 2022 and 2021

income increased $529,000, or 18.6%, to $3.4 million during the six-month period ended March 31, 2022 compared with $2.8 million for the

six-month period ended March 31, 2021 due to higher net interest and dividend income and non-interest income, lower provisions for loan

loss and lower other expenses, partially offset by lower other income.

Net Interest and Dividend

Net interest and dividend income increased $391,000, or 3.1%, to $12.8 million for the six months ended March 31, 2022

from $12.4 million for the six months ended March 31, 2021.

The increase was attributable to a $61.0 million increase in the average balance

of net interest-earning assets, partially offset by a six basis point decrease in the Company’s net interest margin to 3.45% for

the six months ended March 31, 2022 compared to 3.51% for the six months ended March 31, 2021.

Interest and Dividend Income.

Interest and dividend income decreased $212,000, or 1.5%, to $13.9 million for the six months ended March 31, 2022 from $14.1 million

for the six months ended March 31, 2021.

The decrease was attributable to a 24 basis point decline in yield on interest-earning assets,

partially offset by higher average balances of interest-earning assets, which increased $34.1 million between periods.

Interest earned on investment

securities, including interest-earning deposits, and excluding FHLB stock, increased $177,000, or 40.9%, to $610,000 for the six months

ended March 31, 2022 from $433,000 the prior year period.

The increase resulted primarily from a $59.1 million, or 58.1%, increase in

the average balance of investment securities and interest-earning deposits to $160.8 million for the six months ended March 31, 2022 from

$101.7 million for the six months ended March 31, 2021.

Offsetting the higher interest from higher average balances was a 28 basis point

decline in yield on investment securities to 1.32% for the six months ended March 31, 2022 compared with 1.60% for the six months ended

March 31, 2021.

Interest earned on loans receivable,

net, decreased $378,000, or 2.8%, to $13.3 million for the six months ended March 31, 2022 from $13.6 million the prior year period.

decrease resulted from a $24.6 million, or 4.1%, decline in the average balance of loans receivable and lower PPP fees recognized, partially

offset by a six basis point increase in the yield on such assets to 4.57% for the six months ended March 31, 2022 from 4.51% for the six

months ended March 31, 2021.

Included in the yield on loans receivable is the recognition of PPP loan fees, which have been accelerated

with the repayment of PPP loans through forgiveness by the SBA.

The Company recorded $730,000 in PPP fees during the six months ended

March 31, 2022 compared with $1.0 million during the six months ended March 31, 2021.

Interest Expense.

Interest expense decreased $603,000, or 35.5%, to $1.1 million for the six months ended March 31, 2022 compared with $1.7 million for

the six months ended March 31, 2021.

The average balance of interest-bearing liabilities decreased $26.8 million, or 5.2%, to $487.2 million

compared with $514.0 million between the two periods while the cost of such liabilities decreased 21 basis points to 0.45% for the six

months ended March 31, 2022 compared with 0.66% for the prior year period.

The average balance of interest-bearing

deposits increased $12.4 million, or 2.7%, to $466.1 million for the six months ended March 31, 2022 from $453.7 million for the six months

ended March 31, 2021, while the average cost of such deposits decreased 22 basis points to 0.37% from 0.59% between the two periods.

a result, interest paid on interest-bearing deposits decreased $467,000, or 36.0%, to $867,000 for the six months ended March 31, 2022

compared with $1.3 million for the six months ended March 31, 2021.

Lower market interest rates accounted for the decrease in the cost

of interest-bearing deposits.

Interest paid on borrowings decreased

$136,000, or 37.2%, to $230,000 for the six months ended March 31, 2022 from $366,000 for the prior year period.

The average balance of

such borrowings decreased $39.2 million to $21.1 million for the six months ended March 31, 2022 from $60.3 million for the six months

ended March 31, 2021 while the average cost of such borrowings increased 98 basis points to 2.19% for the six months ended March 31, 2022

from 1.21% for the six months ended March 31, 2021.

Lower average balances of PPPLF advances (costing 0.35%) contributed to the lower

average balance of borrowings as well as their higher cost.

Provision for Loan Losses.

We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that

are both probable and reasonably estimable at the date of the financial statements.

In evaluating the level of the allowance for loan

losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations

that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing

economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as

more information becomes available or as future events occur.

After an evaluation of these factors,

management recorded a provision of $171,000 for the six months ended March 31, 2022 compared to $1.1 million for the six months ended

March 31, 2021.

The lower provisions for loan loss resulted from lower adjustments to the Company’s historical loan losses related

to the COVID-19 pandemic’s anticipated impact on the Company’s consumer and business loan portfolios.

In addition, the Company

recorded $54,000 in net recoveries during the six months ended March 31, 2022 compared with $47,000 in net recoveries during the six months

ended March 31, 2021.

Determining the amount of the

allowance for loan losses necessarily involves a high degree of judgment.

Management reviews the level of the allowance on a quarterly

basis, and establishes the provision for loan losses based on the factors set forth “Summary of Significant Accounting Policies

− Allowance for Loan Losses.” As management evaluates the allowance for loan losses, the increased risk associated with larger

non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for

loan losses in future periods.

In addition, the ongoing effects of the COVID-19 pandemic on our borrowers may also result in larger additions

to the allowance for loan losses in future periods.

Other Income.

income decreased $941,000, or 43.5%, to $1.2 million during the six months ended March 31, 2022 compared to $2.2 million for the six months

ended March 31, 2021.

Fees for other customer services

were $0 for the six months ended March 31, 2022 compared with $768,000 for the six months ended March 31, 2021.

The fees during the 2021

fiscal period were earned from the Small Business Relief Grant program offered in response to the COVID pandemic for which the Company

received a fee of 3.0% of the grants it assisted with processing.

In addition, the Company did not receive any interest rate swap fees

during the six months ended March 31, 2022 compared with $208,000 during the six months ended March 31, 2021.

However, the Company recorded

higher gains from the sales of loans, which were $420,000 for the six months ended March 31, 2022 compared with $369,000 for the six months

ended March 31, 2021.

Other Expenses.

expenses decreased $286,000, or 3.0%, to $9.1 million during the six months ended March 31, 2022 from $9.4 million during the six months

ended March 31, 2021.

Lower other expenses were primarily

attributable to professional fees, which decreased $345,000, or 34.4%, due to lower legal and consulting fees related to the collection

and foreclosure of non-performing loans.

OREO, FDIC deposit insurance assessment premiums and loan servicing expenses decreased $151,000,

$150,000 and $115,000, respectively, from lower OREO valuation allowances, higher capital levels and lower levels of non-performing loans.

Partially offsetting these decreases were higher compensation and other expenses.

Compensation and benefit expense increased $225,000,

or 4.4%, due to annual merit increases and higher professional development expenses as well as higher expenses for the employee stock

ownership plan resulting from the Company’s stock offering in July 2021.

Other expenses increased $112,000, or 15.1%, from higher

expenses related to being a fully public company as well as annual increases in vendor contracts.

Income Tax Expense.

The Company recorded tax expense of $1.4 million on pre-tax income of $4.7 million for the six months ended March 31, 2022, compared to

$1.2 million on pre-tax income of $4.1 million for the six months ended March 31, 2021.

The Company’s effective tax rate for the

six months ended March 31, 2022 was 28.8% compared with 30.0% for the six months ended March 31, 2021.

LIQUIDITY AND CAPITAL RESOURCES

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deposits, other borrowings, and new advances from the Federal Home Loan Bank.

There has been no material adverse change during the three

months ended December 31, 2021 in the ability of the Company and its subsidiaries to fund their operations.

There has been no material adverse change during the six

months ended March 31, 2022 in the ability of the Company and its subsidiaries to fund their operations.

Whether through significant deposit

1 unchanged sentence

COVID-19 pandemic will have a negative effect on the liquidity and capital resources of the Company.

At December 31, 2021, the Company

had commitments outstanding under letters of credit of $2.8 million, commitments to originate loans of $28.5 million, and commitments

to fund undisbursed balances of closed loans and unused lines of credit of $61.9 million.

There has been no material change during

the three months ended December 31, 2021 in any of the Company’s other contractual obligations or commitments to make future payments.

At March 31, 2022, the Company

had commitments outstanding under letters of credit of $788,000, commitments to originate loans of $33.0 million, and commitments to fund

undisbursed balances of closed loans and unused lines of credit of $67.3 million.

There has been no material change during the six

months ended March 31, 2022 in any of the Company’s other contractual obligations or commitments to make future payments.

Capital Requirements

At December 31, 2021, the Bank’s

At March 31, 2022, the Bank’s

Tier 1 capital as a percentage of the Bank's total assets was 10.56%, and total qualifying capital as a percentage of risk-weighted assets

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis