HV BANCORP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Forward-looking statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements
and information relating to the Company within the meaning of the Private
Securities Litigation Reform Act of 1995 that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. Forward-looking statements can be identified by the fact that they
do not relate strictly to historical or current facts. They often include words
like "believe," "expect," "anticipate," "estimate," and "intend" or future or
conditional verbs such as "will," "should," "could," or "may" and similar
expressions or the negative thereof. Certain factors that could cause actual
results to differ materially from expected results include, the negative impact
of severe, wide-ranging and continuing disruptions caused by the spread of
coronavirus COVID-19 and any other pandemic, epidemic or health-related crisis
on our operations, current customers and the economy in general, inflation and
monetary fluctuations and volatility, changes in the interest rate environment,
increases in nonperforming loans, legislative and regulatory changes that
adversely affect the business of the Company, and changes in the securities
markets. Should one or more of these risks or uncertainties materialize or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein. We caution readers not to place undue
reliance on forward-looking statements. The Company disclaims any obligation to
revise or update any forward-looking statements contained in this Form 10-Q to
reflect future events or developments.

Insight

HV Bancorp, Inc. provides financial services to individuals and businesses from
our main office in Doylestown, Pennsylvania, and from our seven full-service
banking offices located in Plumsteadville, Philadelphia, Warrington and
Huntingdon Valley, Pennsylvania and Mount Laurel, New Jersey. We also operate a
limited service branch in Philadelphia, Pennsylvania. Our administrative offices
and executive offices are located in Doylestown, Pennsylvania. Our Business
Banking office is located in Philadelphia, Pennsylvania. We have loan production
and sales offices located in Mount Laurel, New Jersey, Doylestown, Pennsylvania,
Huntingdon Valley, Pennsylvania and Wilmington, Delaware; and a loan origination
office in Montgomeryville, Pennsylvania. Our primary market area includes
Montgomery, Bucks and Philadelphia Counties in Pennsylvania, Burlington County
in New Jersey and New Castle County in Delaware. Our principal business consists
of attracting retail deposits from the general public in our market area and
investing those deposits, together with funds generated from operations and
borrowings, primarily in one-to-four family residential mortgage loans,
commercial real estate loans (including multi-family loans), construction loans,
home equity loans and lines of credit and, to a lesser extent, consumer loans.
We retain our loans in portfolio depending on market conditions, but we
primarily sell our fixed-rate one-to-four family residential mortgage loans in
the secondary market. We also invest in various investment securities. Our
revenue is derived principally from interest on loans and investments and loan
sales. Our primary sources of funds are deposits, Federal Home Loan Bank
("FHLB") advances and principal and interest payments on loans and securities.

Our results of operations depend primarily on our net interest income which is
the difference between the interest income we earn on our interest-earning
assets and the interest we pay on our interest-bearing liabilities. Our results
of operations also are affected by our provision for loan losses, non-interest
income and non-interest expense. Non-interest income currently consists
primarily of gains recognized from the sale of residential mortgage loans in the
secondary market, fees for customer services, gain (loss) from derivative
instruments, gain on sale of mortgage servicing rights, net, change in fair
value of loans held-for-sale and sales of securities. Non-interest expense
currently consists primarily of expenses related to salaries and employee
benefits, occupancy, data processing related operations, professional fees and
other expenses.

Our operating results may also be significantly affected by general, regional and local economic and competitive conditions, changes in market interest rates, government policies and the actions of regulatory authorities.

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Critical accounting policies

The accounting and financial reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. Accordingly, the financial
statements require certain estimates, judgments, and assumptions, which are
believed to be reasonable, based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the periods presented. Critical accounting policies comprise those that
management believes are the most critical to aid in fully understanding and
evaluating our reported financial results. These policies require numerous
estimates or economic assumptions that may prove inaccurate or may be subject to
variations, which may significantly affect our reported results and financial
condition for the current period or in future periods.

Our critical accounting policies involving significant judgments and assumptions
used in the preparation of the consolidated financial statements as of June 30
2022, have remained unchanged from the disclosures presented in our Annual
Report on Form 10-K, for the year ended December 31, 2021. The complete list of
Critical Accounting Policies are described in the Annual Report on Form 10-K,
for the year ended December 31, 2021.

Comparison of the statements of financial position at June 30, 2022 and to December 31, 2021

Total Assets

Total assets increased $10.5 million to $570.6 million at June 30, 2022, from
$560.1 million at December 31, 2021. The increase was primarily the result of
increases of $63.1 million in loans receivable, net, $51.4 million in investment
securities, and $3.9 million in bank-owned life insurance offset by decreases of
$83.7 million in cash and cash equivalents, $21.6 million in loans held-for-sale
and $3.2 million in mortgage servicing rights.

Cash and cash equivalents

Cash and cash equivalents decreased $83.7 million to $37.1 million at June 30,
2022, from $120.8 million at December 31, 2021, primarily as a result of funding
of loans and purchases of investment securities.

Investment security

Investment securities increased $51.4 million or 115.5%, to $95.9 million at
June 30, 2022, from $44.5 million at December 31, 2021. The increase was
primarily due to purchases of $60.4 million of U.S. treasury securities,
mortgage-backed, collateralized mortgage obligations and corporate notes offset
by $5.2 million in maturities and principal repayments during the six months
ended June 30, 2022 and a $2.6 million net unrealized loss on available-for-sale
securities. The increase in comprehensive loss in the available for sale
portfolio reflects recent increases in market interest rates.

At June 30, 2022, our held-to-maturity portion of the securities portfolio, at
amortized cost, was $30.2 million, and our available-for-sale portion of the
securities portfolio, at fair value, was $65.7 million compared to $44.5 million
available-for-sale portion of the securities portfolio at December 31, 2021.
During June 2022, the Company transferred investment securities to
held-to-maturity from available-to-sale with an amortized cost of $30.2 million
at June 30, 2022.

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Net loans

Net loans increased $63.1 million to $388.3 million at June 30, 2022, from
$325.2 million at December 31, 2021. One-to-four family residential real estate
loans increased $28.0 million from $106.3 million at December 31, 2021, to
$134.3 million at June 30, 2022. In addition, commercial real estate loans
increased by $26.8 million to $143.7 million at June 30, 2022, from $116.9
million at December 31, 2021 and there was a $20.6 million increase in
commercial business loans to $50.8 million at June 30, 2022, from $30.2 million
at December 31, 2021. Finally, construction loans increased $7.0 million to
$49.9 million at June 30, 2022, from $42.9 million at December 31, 2021.
Offsetting these increases, was a $17.4 million decrease in SBA Paycheck
Protection Program ("PPP") loans from Rounds 1 and 2 to $5.5 million at June 30,
2022 from $22.9 million at December 31, 2021 as a result of PPP loan forgiveness
from the SBA. Finally, there was a $1.0 million decrease in home equity and
HELOC loans from $3.2 million at December 31, 2021, to $2.2 million at June 30,
2022.

In November 2017, the Bank entered into a loan purchase agreement with a broker
to purchase a portfolio of private education loans made to American citizens
attending AMA-approved medical schools in Caribbean nations. The broker serves
as a lender, holder, program designer and developer, administrator, and
secondary market for the loan portfolios they generate. At June 30, 2022, the
balance of the private education loans was $4.1 million. The private student
loans were made following a proven credit criteria and were underwritten in
accordance with the Bank's policies. At June 30, 2022, there were four loans
with a balance of approximately $299,000 that were past due 90 days or more.


Loans Held For Sale

Loans held for sale decreased $21.6 million to $18.9 million at June 30, 2022
from $40.5 million at December 31, 2021 as a result of originations of $150.3
million of one-to-four family residential real estate loans during the six
months ended June 30, 2022, and net of principal sales of $175.5 million of
loans in the secondary market during this same period.

Deposits


Deposits increased $17.5 million to $481.5 million at June 30, 2022 from $464.0
million at December 31, 2021. Our core deposits (consisting of demand deposits,
money market, passbook and statement and checking accounts) increased $10.8
million to $442.6 million at June 30, 2022 from $431.8 million at December 31,
2021. Certificates of deposit increased $6.7 million to $38.9 million at June
30, 2022 from $32.2 million at December 31, 2021. The increase in certificate of
deposits was the result of a $9.5 million increase of certificates of deposit
issued through brokers and a $2.8 million decrease in retail growth of
certificates of deposit.


Federal Reserve Paycheck Protection Program (“PPPLF”) Liquidity Facility Advances

Of the June 30, 2022there were no advances from the Federal Reserve PPPLF following repayments of $3.1 million SBA PPP Loan Forgiveness vs. $3.1 million at December 31, 2021.

Subordinated debt

On May 28, 2021, the Company issued a $10.0 million subordinated note. This note
has a maturity date of May 28, 2031, and bears interest at a fixed rate of 4.50%
per annum through May 28, 2026. Thereafter, the note rate is adjustable and
resets quarterly based on the then current 90-day average Secured Overnight
Financing Rate ("SOFR") plus 325 basis points for U.S. dollar denominated loans
as published by the Federal Reserve Bank of New York. The Company may, at its
option, at any time on an interest payment date, on or after May 28, 2026,
redeem the note, in whole or in part, at par plus

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accrued interest to the date of redemption. The balance of subordinated debt,
net of unamortized debt issuance costs, was $10.0 million at June 30, 2022 and
December 31, 2021.

Total Shareholders' Equity

Total shareholders' equity decreased $1.4 million to $41.2 million at June 30,
2022, compared to $42.6 million at December 31, 2021. This decrease is primarily
as a result of comprehensive losses of $2.6 million due to the fair value
adjustments, net of deferred tax, on the investment securities
available-for-sale portfolio which reflects recent increases in market interest
rates and $212,000 in treasury stock repurchases primarily as part of the stock
repurchase plan. Offsetting these decreases was net income of $1.2 million for
the six months ended June 30, 2022, share based compensation expense of
$119,000, ESOP shares committed to be released of $46,000 and a stock option
exercise of $21,000.

Comparison of income statements for the three months ended June 30, 2022 and
June 30, 2021

General

Net income decreased $642,000 to $640,000 for the three months ended June 30,
2022, from $1.3 million for the three months ended June 30, 2021. The decrease
in net income for the three months ended June 30, 2022, was primarily due to a
decrease of $1.7 million in non-interest income and $371,000 increase in
provision for loan losses offset by an $860,000 increase in net interest income,
a $362,000 decrease in income taxes and an $185,000 decrease in non-interest
expense.

Interest Income

Total interest income increased $856,000, or 21.0`%, to $4.9 million for the
three months ended June 30, 2022, from $4.1 million for the three months ended
June 30, 2021. The increase was primarily the result of increases in interest
and fees on loans of $436,000, interest on investment securities of $329,000 and
$95,000 in interest on interest-earning deposits with banks. The average yield
on our interest-earning assets increased 80 basis points to 3.75% for the three
months ended June 30, 2022, as compared to 2.95% for the three months ended June
30, 2021. Total average interest-earning assets decreased $26.6 million to
$525.9 million for the three months ended June 30, 2022, from $552.5 million for
the three months ended June 30, 2021. The decrease was primarily the result of
decreases in the average balance of $41.8 million in average balance of
interest-earning deposits with banks, and in the average balance of loans of
$33.7 million offset by an increase of $48.8 million in the average balance of
investment securities.

Interest and fees on loans increased $436,000 to $4.3 million for the three
months ended June 30, 2022, from $3.9 million for the same period in 2021. This
increase was primarily due to an increase in the average yield on loans which
increased 85 basis point to 4.78% for the three months ended June 30, 2022,
versus 3.93% for the three months ended June 30, 2021. Offsetting this increase,
was a decrease in the average loans outstanding of $33.7 million, which
decreased to $358.7 million for the three months ended June 30, 2022, from
$392.4 million for the three months ended June 30, 2021. The decrease in average
loans was primarily a result of a decrease in the average balances of PPP loans
and loans held for sale off set by growth in the average balances of
construction loans, commercial real estate and other commercial business.

Interest income on interest-earning deposits increased by $95,000 to $130,000
for the three months ended June 30, 2022, from $35,000 for the three months
ended June 30, 2021, primarily due to an increase of 49 basis points in the
average yield on interest-earning deposits with banks to 0.60% for the three
months ended June 30, 2022, from 0.11% for the three months ended June 30, 2021.
Offsetting this increase, was a decrease in the average balance of
interest-earning deposits of $41.8 million to $86.1 million for the three months
ended June 30, 2022, from $127.9 million for the three months ended June 30,
2021.


Interest on investment securities increased by $329,000 to $495,000 for the
three months ended June 30, 2022, from $166,000 for the three months ended June
30, 2021, respectively as the average balance of investment securities increased
by $48.8 million to $79.2 million for the three months ended June 30,

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2022, from $30.4 million for the three months ended June 30, 2021. Interest on
investment securities increased as a result of a $290,000 increase in income on
taxable and non-taxable interest and dividend investments to $430,000 for the
three months ended June 30, 2022 from $140,000 for the three months ended June
30, 2021. In addition, interest income on mortgage backed securities and
collateralized mortgage obligation securities increased $39,000 to $65,000 for
the three months ended June 30, 2022, from $26,000 for the three months ended
June 30, 2021. The average yield on total securities increased to 2.50% for the
three months ended June 30, 2022, from 2.18% for the three months ended June 30,
2021.

Interest Expense

Total interest expense decreased $4,000 to $542,000 for the three months ended
June 30, 2022, from $546,000 for the three months ended June 30, 2021, primarily
due to a $47,000 decrease in interest expense on deposits and a $26,000 decrease
in interest expense on advances from the PPPLF offset by an increase of $69,000
interest expense on subordinated debt.

Interest expense on deposits decreased $47,000 to $331,000 for the three months
ended June 30, 2022, from $378,000 for the three months ended June 30, 2021,
primarily as a result of a decrease in the average balance of interest bearing
deposits of $24.2 million from $399.4 million for the three months ended June
30, 2021, to $375.2 million for the three months ended June 30, 2022. This
decrease was primarily the result of a $24.4 million decrease in the average
balance of our certificates of deposit from the three months ended June 30,
2021, to the three months ended June 30, 2022. The average cost of deposits was
0.35% for the three months ended June 30, 2022, compared to 0.38% for the three
months ended June 30, 2021. The average rate paid on money market deposits
decreased to 0.49% for the three months ended June 30, 2022, from 0.59% for the
three months ended June 30, 2021. The balance of our certificates of deposits
decreased $24.4 million from $55.7 million for the three months ended June 30,
2021, to $31.3 million for the three months ended June 30, 2022. This was
primarily the result of decrease of $17.8 million in the average balance in
retail certificate of deposits and a $6.6 million decrease in the average
balance of certificates of deposit issued through brokers from $6.8 million for
the three months ended June 30, 2021 to $156,000 for three months ended June 30,
2022. The average cost of certificates of deposit was 0.68% for the three months
ended June 30, 2022, as compared to 0.90% for the three months ended June 30,
2021.

Interest expense on advances from the PPPLF decreased from $26,000 for the three
months ended June 30, 2021 to no expense for the three months ended June 30,
2022. The average balance in advances from the PPPLF decreased $31.3 million to
$105,000 for the three months June 30, 2022 from $31.4 million for the three
months June 30, 2021.

Interest expense on advances from the Federal Home Loan Bank was $99,000 for
three months ended June 30, 2022, and for the three months ended June 30, 2021.
The average balance increased $159,000 to $26.5 million for the three months
ended June 30, 2022 from $26.3 million for the three months ended June 30, 2021.
The average rate on Federal Home Loan Bank advances was 1.50% for the three
months ended June 30, 2022 and 2021.

Interest expense on subordinated debt increased $69,000 to $112,000 for the
three months ended June 30, 2022 compared to $43,000 for the three months ended
June 30, 2021. The average balance increased $7.2 million to $10.0 million for
the three months ended June 30, 2022 from $2.8 million for the three months
ended June 30, 2021. Offsetting this increase, was a decrease in the average
rate on subordinated debt of 169 basis points to 4.48% for the three months
ended June 30, 2022 from 6.17% for the three months ended June 30, 2021. As
previously discussed, on May 28, 2021, the Company issued a $10.0 million
principal amount 4.50% fixed to floating rate subordinated note due 2031.

Net interest income

Net interest income increased $860,000 at $4.4 million for the three months ended June 30, 2022of $3.5 million for the three months ended June 30, 2021. Our net interest-earning assets increased $21.4

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million to $114.1 million for the three months ended June 30, 2022, from $92.7
million for the three months ended June 30, 2021. Our interest rate spread
increased by 75 basis points to 3.23% for the three months ended June 30, 2022,
from 2.48% for the three months ended June 30, 2021. Our net interest margin
increased 78 basis points to 3.34% for the three months ended June 30, 2022,
from 2.56% for the three months ended June 30, 2021.

Average balances, net interest income, returns earned and rates 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 net interest margin.  All average balances are
based on daily balances.

                                                                 For the Three Months Ended June 30,
                                                          2022                                        2021
                                                         Interest                                    Interest
                                          Average        Income/        Yield/        Average        Income/        Yield/
                                          Balance        Expense       Cost (5)       Balance        Expense       Cost (5)
                                                                       (Dollars in thousands)
Interest-earning assets:
Loans (1)                                $  358,711     $    4,287          

4.78% $392,409 $3,851 3.93% Interest-bearing deposits with banks 86,095

            130          0.60 %      127,907             35          0.11 %
Investment securities                        79,173            495          2.50 %       30,392            166          2.18 %
Restricted investment in bank stock           1,915             22          4.60 %        1,835             26          5.67 %
Total interest-earning assets               525,894          4,934          3.75 %      552,543          4,078          2.95 %
Non-interest-earning assets                  32,104                                      25,409
Total assets                             $  557,998                                  $  577,952

Interest-bearing liabilities:
Demand deposits                          $  135,137             77          0.23 %   $  169,974             68          0.16 %
Money market deposit accounts               108,393            133          0.49 %       87,690            129          0.59 %

Savings on passbook and statement

  accounts                                   39,093             11          0.11 %       33,773             13          0.15 %
Checking accounts-Municipal                  61,269             57          0.37 %       52,240             42          0.32 %
Certificates of deposit                      31,345             53          0.68 %       55,734            126          0.90 %
Total deposits                              375,237            331          0.35 %      399,411            378          0.38 %
Federal Home Loan Bank advances              26,478             99          1.50 %       26,319             99          1.50 %
Federal Reserve PPPLF advances                  105              -          0.00 %       31,372             26          0.33 %
Subordinated debt                             9,996            112          4.48 %        2,786             43          6.17 %
Total interest-bearing liabilities          411,816            542          0.53 %      459,888            546          0.47 %
Non-interest-bearing liabilities:
Checking                                     94,706                                      64,787
Other                                        10,395                                      13,107
Total liabilities                           516,917                                     537,782
Shareholders' Equity                         41,081                                      40,170

Total liabilities and shareholders

  equity                                 $  557,998                                  $  577,952

Net interest income                                     $    4,392                                  $    3,532
Interest rate spread (2)                                                    3.23 %                                      2.48 %
Net interest-earning assets (3)          $  114,078                                  $   92,655
Net interest margin (4)                                                     3.34 %                                      2.56 %

Average interest-earning assets at

  average interest-bearing liabilities                                    127.70 %                                    120.15 %



(1) Includes loans held for sale.

(2) The interest rate spread represents the difference between the average yield

     average interest-earning assets and the average cost of average
     interest-bearing liabilities.

(3) Net interest-earning assets represent total average interest-earning assets

minus the total interest-bearing liabilities.


(4)  Net interest margin represents net interest income divided by total average
     interest-earning assets.


(5) Annualized.


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Rate/ Volume Analysis
The following table presents the effects of changing rates and volumes on net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns.

For purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately, based on the changes
due to rate and the changes due to volume.


                                                          For the Three Months Ended
                                                            June 30, 2022 vs 2021
                                                                                          Total
                                                Increase (Decrease) Due to              Increase
                                              Volume                   Rate            (Decrease)
                                                                (In thousands)
Interest-earning assets:
Loans                                     $          (563 )       $          999     $           436
Interest-earning deposits with banks                  (21 )                  116                  95
Investment securities                                 242                     87                 329
Restricted investment in bank stock                     2                     (6 )                (4 )
Total interest-earning assets                        (340 )                1,196                 856
Interest-bearing liabilities:
Demand deposits                                       (24 )                   33                   9
Money market deposit accounts                          46                    (42 )                 4
Passbook and statement savings accounts                 3                     (5 )                (2 )
Checking accounts-Municipal                             3                     12                  15
Certificates of deposit                               (22 )                  (51 )               (73 )
Total deposits                                          6                    (53 )               (47 )
Federal Home Loan Bank advances                         1                     (1 )                 -
Federal Reserve PPPLF                                  (5 )                  (21 )               (26 )
Subordinated debt                                     111                    (42 )                69
Total interest-bearing liabilities                    113                   (117 )                (4 )
Change in net interest income             $          (453 )       $        1,313     $           860


Provision for Loan Losses

We establish a provision for loan losses, which is charged to operations, in
order to maintain the allowance for loan losses at a level we consider necessary
to absorb credit losses incurred in the loan portfolio that are both probable
and reasonably estimated at the balance sheet date. In determining the level of
the allowance for loan losses, we consider past and current loss experience,
evaluations of real estate collateral, current economic conditions, volume and
type of lending, adverse situations that may affect a borrower's ability to
repay a loan and the levels of non-performing loans. The amount of the allowance
is based on estimates, and actual losses may vary from such estimates, as more
information becomes available or economic conditions change. However, due to the
uncertainty of the impact, the Company will continue to monitor and additional
adjustment to the allowance for loan losses may be necessary.

This evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as circumstances change as more information
becomes available. The allowance for loan losses is assessed on a quarterly
basis and provisions are made for loan losses as required in order to maintain
the allowance for loan losses.



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Provision for loan losses increased by $371,000 to $638,000 for the three months
ended June 30, 2022, from $267,000 for the three months ended June 30, 2021.
Non-performing loans decreased $1.2 million, or 31.6% from $3.8 million at
December 31, 2021, to $2.6 million as of June 30, 2022, as a result of a
decrease in one construction loan totaling $1.0 million and $271,000 decrease in
medical education loans compared to December 31, 2021. During the three months
ended June 30, 2022, there were net charge-offs of $94,000 recorded compared to
no net charge-offs recorded during the three months ended June 30, 2021.

Non-interest income

Non-interest income decreased $1.7 million or 43.5% to $2.2 million for the
three months ended June 30, 2022, from $3.9 million for the three months ended
June 30, 2021. Non-interest income decreased $1.7 million compared to the same
period in 2021 primarily due to a $1.5 million decrease in the gain on sale of
loans, a decrease of $1.0 million in loss of derivative instruments, net offset
by $593,000 increase in change in fair value of loans held for sale. The gain on
sale of loans, net decreased $1.5 million to $1.7 million for the three months
ended June 30, 2022 compared to $3.2 million for the three months ended June 30,
2021 primarily as a result of lower loan sales which decreased $79.4 million
from $149.1 million for the three months ended June 30, 2021 to $69.7 million
for the three months ended June 30, 2022. Additionally, the gain on derivative
instruments decreased $1.0 million from a gain on derivative instruments of
$713,000 for the three months ended June 30, 2021 to a loss on derivative
instruments of ($338,000) for the three months ended June 30, 2022 as a result
of decreased volume of locked loans associated with hedging. Offsetting these
decreases, was a $593,000 increase in the change in fair value to $238,000 for
the three months ended June 30, 2022 from ($355,000) for the three months ended
June 30, 2021.


Non-Interest Expense

Non-interest expense decreased $185,000 or 3.5% to $5.1 million for the three
months ended June 30, 2022, from $5.3 million for the three months ended June
30, 2021. The decrease for the three months ended June 30, 2022, compared to the
three months of June 30, 2021, was primarily a result of decreases of $111,000
in other expenses and $63,000 in federal deposit insurance premiums. Other
expenses decreased $111,000 or 13.0%, to $742,000 for the three months ended
June 30, 2022 from $853,000 for the three months ended June 30, 2021. Federal
deposit insurance premiums decreased $63,000 or 47.4%, to $70,000 for the three
months ended June 30, 2022, from $133,000 for the three months ended June 30,
2021.

Income Tax Expense

Income tax expense was $182,000 for the three months ended June 30, 2022,
compared to expense of $544,000 in expense for the three months ended June 30,
2021. Federal income taxes included in total taxes for the three months ended
June 30, 2022 and 2021 was $131,000 and $338,000, respectively, with effective
federal tax rates of 15.9% and 18.5%. The decrease in the effective tax rate for
the three months ended June 30, 2022, compared to the same period a year ago
reflected a decrease in income before taxes.



For the three months ended June 30, 2022, Pennsylvania state tax was a benefit
of ($16,000) for the three months ended June 30, 2022 compared to expense of
$118,000, with effective rate of 6.5% for the three months ended June 30, 2021.
The decrease in the effective tax rate for the three months ended June 30, 2022,
compared to the same period a year ago reflected a decrease in income before
taxes. In addition, New Jersey state tax was $67,000 and $88,000 for the three
months ended June 30, 2022 and 2021, respectively.



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Comparison of income statements for the six months ended June 30, 2022 and
June 30, 2021

General

Net income decreased $1.4 million to $1.2 million for the six months ended June
30, 2022, from $2.6 million for the six months ended June 30, 2021. The decrease
in net income for the six months ended June 30, 2021, was primarily due to a
decrease of $2.7 million in non-interest income, $317,000 increase in
non-interest expenses and an increase of $336,000 in provision for loan losses
offset by increases of $1.2 million in net interest income and a decrease of
$720,000 in income tax expense.

interest income

Total interest income increased $1.2 million, or 15.5% to $9.1 million for the
six months ended June 30, 2022 from $7.9 million for the six months ended June
30, 2021. The increase was primarily the result of an increase in interest and
fees on loans of $706,000 and $432,000 in interest on investment securities. The
average yield on our interest-earning assets increased 83 basis points to 3.44%
for the six months ended June 30, 2022, as compared to 2.61% for the six months
ended June 30, 2021. Total average interest-earning assets decreased $74.1
million from $602.9 million for the six months ended June 30, 2021, to $528.8
million for the six months ended June 30, 2022. The decrease was primarily a
result of a decrease in the average balance of interest-earning deposits with
banks of $73.5 million and a decrease of $37.1 million in the average balance of
loans offset by a $36.6 million increase in the average balance of investment
securities.

Interest and fees on loans increased $706,000 to $8.1 million for the six months
ended June 30, 2022, from $7.4 million for the six months ended June 30, 2021.
This increase was primarily due to an increase the average yield on loans of 79
basis point to 4.55% for the six months ended June 30, 2022, versus 3.76% for
the six months ended June 30, 2021. The average loans outstanding decreased
$37.1 million to $356.9 million for the six months ended June 30, 2022, from
$394.0 million for the six months ended June 30, 2021 primarily as a result of a
decrease in the average balance of PPP loans, loans held for sale offset by
increases in the average balances of construction loans, commercial real estate
and other commercial business.

Interest income on interest-earning deposits increased by $88,000 to $188,000
for the six months ended June 30, 2022, from $100,000 for the six months ended
June 30, 2021. The increase was primarily due to an increase in average yield on
interest-earning deposits with banks, which increased 25 basis points, to 0.36%
for the six months ended June 30, 2022, from 0.11% for the six months ended June
30, 2021. Offsetting this increase, was a decrease in the average balance of
interest-earning deposits of $73.5 million to $105.4 million for the six months
ended June 30, 2021, from $178.9 million for the six months ended June 30, 2021.


Interest on investment securities increased by $432,000 to $749,000 for the six
months ended June 30, 2022, from $317,000 for the six months ended June 30,
2021, respectively. Interest on investment securities increased as a result of a
$373,000 increase in income on taxable and non-taxable interest and dividend
investments and a $59,000 increase in interest income on mortgage backed
securities and collateralized mortgage obligation securities. The average
balance of investment securities increased by $36.6 million to $64.7 million for
the six months ended June 30, 2022, from $28.1 million for the six months ended
June 30, 2021. The average yield on total securities increased to 2.32% for the
six months ended June 30, 2022, from 2.26% for the six months ended June 30,
2021.

Interest Expense

Total interest expense was $1.1 million for the six months ended June 30, 2022
and 2021, respectively. Interest expense on deposits decreased $130,000 and
interest expense on advances from the PPPLF decreased $58,000. These decreases
were offset by an increase of $182,000 in interest expense on subordinated debt.

Interest expense on deposits decreased $130,000 at $654,000 for the six months ended June 30, 2022of $784,000 for the six months ended June 30, 2021mainly from a drop in the average

                                       55
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balance of interest bearing deposits of $68.8 million from $448.3 million in the
average balance of interest bearing deposits from June 30, 2021 to $379.5 in
million in the average balance of interest bearing deposits for the six months
ended June 30, 2022. The average cost of deposits was 34 basis points for the
six months ended June 30, 2022 compared to 35 basis points for the six months
ended June 30, 2021. The decrease in the average balance of interest bearing
deposits of $68.8 million from $448.3 million as of June 30, 2021, to $379.5
million as of June 30, 2022, was primarily as a result of a $42.1 million
decrease in the average balance of our core deposit accounts and a decrease of
$26.7 million in the average balance of our certificates of deposit. The average
rate paid on money market deposits decreased 10 basis points to 0.49% for the
six months ended June 30, 2022, from 0.59% for the six months ended June 30,
2021. The decrease in the balance of our certificates of deposits of $26.7
million from $58.4 million for the six months ended June 30, 2021, to $31.7
million for the six months ended June 30, 2022, was primarily the result of a
decrease of $18.7 million in the average balance in retail certificate of
deposits and a $8.0 million decrease in the average balance of certificates of
deposit issued through brokers of $8.1 million for the six months ended June 30,
2021 compared to $90,000 for the six months ended June 30, 2022. The average
cost of certificates of deposit was 0.68% for the six months ended June 30,
2022, as compared to 0.98% for the six months ended June 30, 2021.

Interest expense on advances from the FHLB was $196,000 for the six months ended
June 30, 2022 and 2021. The average rate on advances from the FHLB was 1.48% for
the six months ended June 30, 2022 and 1.49% for the six months ended June 30,
2021 and the average balance increased $160,000 to $26.5 million for the six
months ended June 30, 2022 from $26.3 million for the six months ended June 30,
2021.

Interest expense on advances from the PPPLF decreased $58,000 to $1,000 for the
six months ended June 30, 2022, from $59,000 for the six months ended June 30,
2021. The decrease was primarily the result of a $37.3 million decrease in the
average balance in advances from the PPPLF to $924,000 for the six months ended
June 30, 2022 from $38.2 million for the six months ended June 30, 2021.

Interest expense on subordinated debt increased $182,000 to $225,000 for the six
months ended June 30, 2022 from $43,000 for the six months ended June 30, 2021.
The increase was primarily the result of an $8.4 million increase in the average
balance in subordinated debt to $10.0 million for the six months ended June 30,
2022 from $1.6 million for the six months ended June 30, 2021 offset by a
decrease in the average rate of 86 basis points from 5.36% for the six months
ended June 30, 2021, to 4.50% for the six months ended June 30, 2022. As
previously discussed, on May 28, 2021, the Company sold and issued a $10.0
million in aggregate principal amount 4.50% fixed to floating rate subordinated
note due 2031.

Net Interest Income

Net interest income increased $1.2 million to $8.0 million for the six months
ended June 30, 2022, from $6.8 million for the six months ended June 30, 2021.
Our net interest-earning assets increased $23.4 million to $111.9 million for
the six months ended June 30, 2022, from $88.5 million for the six months ended
June 30, 2021. Our interest rate spread increased by 74 basis points to 2.93%
for the six months ended June 30, 2022 from 2.19% for the six months ended June
30, 2021. Our net interest margin was 3.04% for the six months ended June 30,
2022, compared to 2.26% for the six months ended June 30, 2021.













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Average balances, net interest income, returns earned and rates 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 net interest margin.  All average balances are
based on daily balances.


                                                                  For the Six Months Ended June 30,
                                                          2022                                        2021
                                                         Interest                                    Interest
                                          Average        Income/        Yield/        Average        Income/        Yield/
                                          Balance        Expense       Cost (5)       Balance        Expense       Cost (5)
                                                                       (Dollars in thousands)
Interest-earning assets:
Loans (1)                                $  356,855     $    8,122          

4.55% $394,005 $7,416 3.76% Interest-bearing deposits with banks 105,370

            188          0.36 %      178,943            100          0.11 %
Investment securities                        64,657            749          2.32 %       28,106            317          2.26 %
Restricted investment in bank stock           1,922             44          4.58 %        1,810             48          5.30 %
Total interest-earning assets               528,804          9,103          3.44 %      602,864          7,881          2.61 %
Non-interest-earning assets                  30,686                                      23,825
Total assets                             $  559,490                                  $  626,689

Interest-bearing liabilities:
Demand deposits                          $  140,511            161          0.23 %   $  226,223            148          0.13 %
Money market deposit accounts               106,770            261          0.49 %       82,210            243          0.59 %

Savings on passbook and statement

  accounts                                   38,514             22          0.11 %       32,562             24          0.15 %
Checking accounts-Municipal                  62,005            102          0.33 %       48,944             83          0.34 %
Certificates of deposit                      31,742            108          0.68 %       58,402            286          0.98 %
Total deposits                              379,542            654          0.34 %      448,341            784          0.35 %
Federal Home Loan Bank advances              26,458            196          1.48 %       26,298            196          1.49 %
Federal Reserve PPPLF advances                  924              1          0.22 %       38,152             59          0.31 %
Subordinated debt                             9,996            225          4.50 %        1,603             43          5.36 %
Total interest-bearing liabilities          416,920          1,076          0.52 %      514,394          1,082          0.42 %
Non-interest-bearing liabilities:
Checking                                     90,420                                      59,994
Other                                        11,104                                      13,296
Total liabilities                           518,444                                     587,684
Shareholders' Equity                         41,046                                      39,005

Total liabilities and shareholders

  equity                                 $  559,490                                  $  626,689

Net interest income                                     $    8,027                                  $    6,799
Interest rate spread (2)                                                    2.93 %                                      2.19 %
Net interest-earning assets (3)          $  111,884                                  $   88,470
Net interest margin (4)                                                     3.04 %                                      2.26 %

Average interest-earning assets at

  average interest-bearing liabilities                                    126.84 %                                    117.20 %



(1) Includes loans held for sale.

(2) The interest rate spread represents the difference between the average yield

     average interest-earning assets and the average cost of average
     interest-bearing liabilities.

(3) Net interest-earning assets represent total average interest-earning assets

minus the total interest-bearing liabilities.


(4)  Net interest margin represents net interest income divided by total average
     interest-earning assets.


(5) Annualized.


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Rate/ Volume Analysis
The following table presents the effects of changing rates and volumes on net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns.

For purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately, based on the changes
due to rate and the changes due to volume.


                                                               For the Six Months Ended
                                                                June 30, 2022 vs 2021
                                                                                            Total
                                                     Increase (Decrease) Due to            Increase
                                                      Volume                Rate          (Decrease)
                                                                    (In thousands)
Interest-earning assets:
Loans                                            $         (1,011 )     $      1,717     $        706
Interest-earning deposits with banks                          (68 )              156               88
Investment securities                                         416                 16              432
Restricted investment in bank stock                             4                 (8 )             (4 )
Total interest-earning assets                                (659 )            1,881            1,222
Interest-bearing liabilities:
Demand deposits                                               (87 )              100               13
Money market deposit accounts                                  86                (68 )             18
Passbook and statement savings accounts                         6                 (8 )             (2 )
Checking accounts-Municipal                                    24                 (5 )             19
Certificates of deposit                                       (76 )             (102 )           (178 )
Total deposits                                                (47 )              (83 )           (130 )
Federal Home Loan Bank advances                                 1                 (1 )              -
Federal Reserve PPPLF                                         (36 )              (22 )            (58 )
Subordinated debt                                             225                (43 )            182
Total interest-bearing liabilities                            143               (149 )             (6 )
Change in net interest income                    $           (802 )     $      2,030     $      1,228


Provision for Loan Losses

Provision for loan losses increased by $336,000 to $751,000 for the six months
ended June 30, 2022, from $415,000 for the six months ended June 30, 2021.
Non-performing loans decreased $1.2 million, or 31.6% from $3.8 million at
December 31, 2021, to $2.6 million as of June 30, 2022, as a result of a
decrease in one construction loan totaling $1.0 million and $271,000 decrease in
medical education loans compared to December 31, 2021. During the six months
ended June 30, 2022, total charge-offs were $129,000. During the six months
ended June 30, 2021, total charge-offs were $172,000.

Non-interest income

Non-interest income decreased $2.7 million to $5.3 million for the six months
ended June 30, 2022, from $8.0 million for the six months ended June 30, 2021.
The decrease in non-interest income compared to the same period in 2021 was
primarily due to a $4.0 million decrease in the gain on sale of loans, net and a
$867,000 increase in loss on derivative instruments, net offset by a $1.0
million gain on sale of mortgage servicing right, net and a $582,000 increase in
change in fair value of loans held-for-sale. The gain on sale of loans, net
decreased $4.0 million to $4.1 million for the six months ended June 30, 2022,
from $8.1 million for the six months ended June 30, 2021, primarily as a result
of lower volume of loan

                                       58
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sales, which decreased $178.5 million from $354.0 million for the six months
ended June 30, 2021, to $175.5 million for the six months ended June 30, 2022.
In addition, there was an increase of $867,000 in loss on derivative instruments
from a gain on derivative instruments of $477,000 for the six months ended June
30, 2021 to a loss on derivative instruments of ($390,000) for the six months
end June 30, 2022. Offsetting these decreases, was a $1.0 million gain on sale
of mortgage servicing right, net resulting from the sale of approximately $3.2
million of the mortgage servicing rights during the six months ended June 30,
2022. In addition, the fair value of loans held for sale increased $582,000 to
($482,000) for six months end June 30, 2022 compared to ($1.1 million) for six
months end June 30, 2021. Finally, other income increased $397,000 to $569,000
for the six months ended June 30, 2022 from $172,000 for the six months ended
June 30, 2021. Included in other income for the six months ended was $209,000 in
gain on settlement of bank-owned life insurance ("BOLI").

Non-interest charges

Non-interest expense increased $317,000 or 3.0% to $11.1 million for the six
months ended June 30, 2022, from $10.7 million for the six months ended June 30,
2021. The increase was primarily as a result of $173,000 increase in salaries
and employee benefits and $105,000 increase in occupancy expenses offset by a
$158,000 decrease in federal deposit insurance premiums.

Salaries and employee benefits expense increased by $173,000 to $6.9 million for
the six months ended June 30, 2022, from $6.7 million for the six months ended
June 30, 2021. Occupancy expenses increased approximately $105,000 to $1.2
million for the six months ended June 30, 2022, from $1.1 million for the six
months ended June 30, 2021, primarily because of increases in expenses related
to leases of additional offices space compared to the same period in 2021.
Offsetting these increases, was a $158,000 decrease in federal deposit insurance
premiums to $198,000 for the six months ended June 30, 2022 from $356,000 for
the six months ended June 30, 2021 as the average balance of interest bearing
deposits decreased $68.8 million from $448.3 million for the six months ended
June 30, 2021 to $379.5 million for the six months ended June 30, 2022.

income tax expense

Income tax expense was $312,000 for the six months ended June 30, 2022, compared
to $1.0 million for the six months ended June 30, 2021. Federal income taxes
included in total taxes for the six months ended June 30, 2022 and 2021 was
$237,000 and $681,000, respectively, with effective federal tax rates of 15.3%
and 18.8%. The decrease in the effective tax rate for the six months ended June
30, 2022, compared to the same period a year ago reflected a decrease in income
before taxes and the tax benefit related to BOLI claim proceeds.



For the six months ended June 30, 2022, Pennsylvania state tax was a benefit of
($12,000) compared to expense of $263,000 with effective rate of 7.3% for the
six months ended June 30, 2021, respectively. In addition, New Jersey state tax
was $87,000 for the six months ended June 30, 2022 compared to $88,000 for the
six months ended June 30, 2021.





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Non-Performing Assets We define non-performing loans as loans that are either
non-accruing or accruing whose payments are 90 days or more past due and
non-accruing TDRs. Non-performing assets, including non-performing loans and
other real estate owned, totaled $2.6 million, or 0.5% of total assets, at June
30, 2022. There were no non-accruing TDRs at June 30, 2022, and at December 31,
2021. The following table sets forth the amounts and categories of our
non-performing assets at the dates indicated. There were no accruing loans past
due 90 days or more at June 30, 2022, and at December 31, 2021.

                                        At June 30,       At December 31,
                                           2022                2021
                                             (Dollars in thousands)
Non-accrual loans:
Residential:
One- to four-family                    $       1,257     $           1,064
Home equity & HELOCs                              64                    68
Commercial:
Commercial real estate                             -                     -
Commercial business                                -                    95
SBA PPP loans                                      -                     -
Main Street Lending Program                        -                     -
Construction                                     192                 1,168
Consumer:
Medical education                              1,087                 1,358
Total non-accrual loans                        2,600                 3,753

Loans accruing past 90 days                        -                     -

Total non-performing loans                     2,600                 3,753

Real estate owned                                  -                     -
Other non-performing assets                        -                     -
Total non-performing assets            $       2,600     $           3,753

Reports :

Total non-performing loans in total

  loans receivable                              0.66 %                1.14 %

Total non-performing loans in total

  assets                                        0.46 %                0.67 %

Total non-performing assets in total

  assets                                        0.46 %                0.67 %




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Allowance for loan losses

The following table sets forth activity in our allowance for loan losses for the
periods indicated.

                                                              For the                         For the
                                                        Three Months Ended               Six Months Ended
                                                             June 30,                        June 30,
                                                         2022            2021           2022             2021
                                                      (Dollars in thousands)          (Dollars in thousands)
Balance at beginning of year                        $        2,446      $ 1,993     $       2,368       $ 2,017

Charge-offs:
Residential:
One-to-four family                                               -            -                 -             -
Home equity & HELOCs                                             -            -                 -             -
Commercial real estate                                           -            -                 -             -
Commercial business                                            (75 )          -               (75 )           -
Construction                                                     -            -                 -             -
Consumer:                                                        -            -                 -             -
Medical education                                              (31 )          -               (67 )        (172 )
Other                                                            -            -                 -             -
Total charge-offs                                             (106 )          -              (142 )        (172 )

Recoveries:
Residential:
One-to-four family                                               -            -                 -             -
Home equity & HELOCs                                             -            -                 -             -
Commercial real estate                                           -            -                 -             -
Commercial business                                              -            -                 -             -
Construction                                                     -            -                 -             -
Consumer:
Medical education                                               12            -                13             -
Other                                                            -            -                 -             -
Total recoveries                                                12            -                13             -

Net (charge-offs) recoveries                                   (94 )          -              (129 )        (172 )
Provision for loan losses                                      638          267               751           415
Balance at end of period                            $        2,990      $ 

2,260 $2,990 $2,260

Reports :

Net charge-offs to average loans outstanding                  0.03 %       0.00 %            0.04 %        0.05 %

Provision for losses on non-performing loans

  loans at end of period                                    115.00 %      80.23 %          115.00 %       80.23 %
Allowance for loan losses to total loans at
  end of period                                               0.76 %       0.67 %            0.76 %        0.67 %




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Cash and capital resources

Liquidity Management. Liquidity describes our ability to meet the financial
obligations that arise in the ordinary course of business. Liquidity is
primarily needed to meet the borrowing and deposit withdrawal requirements of
our customers and to fund current and planned expenditures. Our primary sources
of funds are deposits, principal and interest payments on loans and securities,
proceeds from sales of loans and securities, and matured loans and securities.
In addition, we can use brokered certificates of deposit as a funding source of
our asset base. As of June 30, 2022, the Company had $9.5 million in brokered
certificates of deposits, or 1.7% of total assets. At December 31, 2021, there
were no brokered certificates of deposit outstanding. We also have the ability
to borrow from the FHLB of Pittsburgh. Huntingdon Valley Bank had FHLB of
Pittsburgh advances of $26.5 million outstanding with unused borrowing capacity
of $70.3 million as of June 30, 2022. Additionally, at June 30, 2022, the Bank
has the ability to borrow $6.0 million from Atlantic Community Bankers Bank and
HV Bancorp Inc. has the ability to borrow up to $3.0 million for a total of $9.0
million. We have not borrowed against the credit lines with Atlantic Community
Bankers Bank for the six months ended June 30, 2022.

The board of directors is responsible for establishing and monitoring our
liquidity targets and strategies in order to ensure that sufficient liquidity
exists for meeting the borrowing needs and deposit withdrawals of our customers
as well as unanticipated contingencies. We believe that we have enough sources
of liquidity to satisfy our short and long-term liquidity needs as of June 30,
2022.

We monitor and adjust our investments in liquid assets based upon our assessment
of: (1) expected loan demand; (2) expected deposit flows; (3) yields available
on interest-earning deposits and securities; and (4) the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short-and intermediate-term securities.

While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. Our
most liquid assets are cash and cash equivalents, which include federal funds
sold and interest-earning deposits in other banks. The levels of these assets
are dependent on our operating, financing, lending and investing activities
during any given period. At June 30, 2022, cash and cash equivalents totaled
$37.1 million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $65.7 million at June 30, 2022.

Our cash flows are comprised of three primary classifications: cash flows from
operating activities, investing activities, and financing activities. Net cash
provided by operating activities was $24.1 million for the six months ended June
30, 2022, compared to $12.7 million for the six months ended June 30, 2021. Net
cash used in investing activities, which consists primarily of disbursements for
loan originations and the purchase of securities, offset by principal
collections on loans and proceeds from maturing securities, was $122.0 million
and $32.2 million for the six months ended June 30, 2022, and June 30, 2021,
respectively. Net cash provided by financing activities of $14.2 million for the
six months ended June 30, 2021 compared to net cash used in financing activities
was $315.6 million for the six months ended June 30, 2021 respectively. Net cash
provided by financing activities for the six months ended June 30, 2022,
consisted primarily of increases in deposits of $17.5 million offset by
repayments of $3.1 million in repayments in PPPLF advances from the Federal
Reserve, and purchases of treasury stock of $212,000. Net cash used in financing
activities for the six months ended June 30, 2021, consisted primarily of a
decrease in deposits of $293.4 million and repayments of $31.1 million from the
PPPLF offset by proceeds of $10.0 million from the issuance of subordinated
debt.

We are committed to maintaining a strong liquidity position. We monitor our
liquidity position on a daily basis. We anticipate that we will have sufficient
funds to meet our current funding commitments. Certificates of deposit due
within one year of June 30, 2022, totaled $31.9 million of total deposits.
Included in certificate of deposits of $31.9 million due within one year, is
approximately $9.5 million of brokered certificate of deposits maturing in one
year. If these deposits do not remain with us, we will be required to seek other
sources of funds, including other deposits and FHLB advances. Depending on
market conditions, we may be required to pay higher rates on such deposits or
borrowings than we currently pay. We believe, however, based on past experience
that a significant portion of such deposits will remain with us. We have the
ability to attract and retain deposits by adjusting the interest rates offered.


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Capital Management. The Bank is subject to various regulatory capital
requirements, including a risk-based capital measure. The risk-based capital
guidelines include both a definition of capital and a framework for calculating
risk-weighted assets by assigning balance sheet assets and off-balance sheet
items to broad risk categories. At June 30, 2022, the Bank exceeded all
regulatory capital requirements and was considered "well capitalized" under
regulatory guidelines.

Regulatory capital

Information presented for June 30, 2022, and December 31, 2021, reflects the
Basel III capital requirements that became effective January 1, 2015, for the
Bank. Under these capital requirements 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 regulators about components, risk- weightings and other factors.

Federal bank regulators require the Bank maintain minimum ratios of core capital
to adjusted average assets of 4.0%, common equity Tier 1 capital to
risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of 6.0% and
total risk-based capital to risk-weighted assets of 8.0%. At June 30, 2022, the
Bank met all the capital adequacy requirements to which it was subject. At June
30, 2022, the Bank was "well capitalized" under the regulatory framework for
prompt corrective action. In February 2022, the Company infused $5.0 million to
the Bank as Tier 1 capital. To be "well capitalized," the Bank must maintain
minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total
risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively.
Management believes that no conditions or events have occurred since June 30,
2022 that would materially adversely change the Bank's capital classifications.

The actual amounts and ratios of the Bank’s capital are presented in the table (in thousands of dollars):

                                                                               To Be Well Capitalized
                                                                                  Under the Prompt
                                                         Capital Adequacy         Corrective Action
                                     Actual                  Purposes                 Provision

(in thousands of dollars) Amount Ratio Amount Ratio

      Amount         Ratio
As of June 30, 2022
Total risk-based capital
(to

risk-weighted assets) $55,036 12.9% $>34,120 > 8.0%

      $>42,650       >10.0%
Tier 1 capital (to
risk-weighted
  assets)                       52,046         12.2       >25,590    > 6.0%        >34,120       > 8.0%
Tier 1 capital (to average
assets)                         52,046          9.4       >22,238    > 4.0%        >27,798       > 5.0%
Tier 1 common equity (to
risk
  -weighted assets)             52,046         12.2       >19,193    > 4.5% 

>27,723 >6.5%

As of December 31, 2021
Total risk-based capital
(to

risk-weighted assets) $47,797 13.1% $>29,168 > 8.0%

      $>36,460       >10.0%
Tier 1 capital (to
risk-weighted
  assets)                       45,429         12.5       >21,876    > 6.0%        >29,168       > 8.0%
Tier 1 capital (to average
assets)                         45,429          8.2       >22,045    > 4.0%        >27,557       > 5.0%
Tier 1 common equity (to
risk
  -weighted assets)             45,429         12.5       >16,407    > 4.5%        >23,699       > 6.5%



As a licensed mortgagee, the Bank is subject to the rules and regulations of the
Department of Housing and Urban Development ("HUD"), Federal Housing Authority
("FHA") and state regulatory authorities with respect to originating, processing
and selling loans. Those rules and regulations, among other things, require the
maintenance of minimum net worth levels (which vary based on the portfolio of
FHA loans originated by the Bank). Failure to meet the net worth requirements
could adversely impact the ability of the Bank to originate loans and access
secondary markets. As of June 30, 2022, and December 31, 2021, the Bank
maintained the minimum required net worth levels.

                                       63
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The Bank must hold a capital conservation buffer above its minimum risk-based
capital requirements. As of June 30, 2022, the Bank is required to maintain a
capital conservation buffer of 2.50%. At June 30, 2022, the Bank met the capital
conservation buffer requirements. Failure to maintain the full amount of the
buffer will result in restrictions on the Bank's ability to make capital
distributions and to pay discretionary bonuses to executive officers.

Off-balance sheet arrangements and contractual obligations

Commitments. As a financial services provider, we routinely are a party to
various financial instruments with off-balance-sheet risks, such as commitments
to extend credit and unused lines of credit. While these contractual obligations
represent our future cash requirements, a significant portion of commitments to
extend credit may expire without being drawn upon. Such commitments are subject
to the same credit policies and approval process accorded to loans we make. At
June 30, 2022, we had outstanding commitments to originate loans of $53.3
million, unused lines of credit totaling $85.3 million and $655,000 in stand-by
letters of credit outstanding. We had $56.1 million outstanding in letters of
credit issued by the FHLB to secure certain deposits. We anticipate that we will
have sufficient funds available to meet our current lending commitments.
Certificates of deposit that are scheduled to mature in less than one year from
June 30, 2022, totaled $31.9 million of total deposits. Included in certificate
of deposits of $31.9 million due within one year, is approximately $9.5 million
of brokered certificate of deposits maturing in one year. Management expects
that a substantial portion of the maturing certificates of deposit will be
renewed. However, if a substantial portion of these deposits is not retained, we
may utilize Federal Home Loan Bank advances or raise interest rates on deposits
to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into
certain contractual obligations. Such obligations include data processing
services, operating leases for equipment, agreements with respect to borrowed
funds and deposit liabilities.

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