Array


Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the Company's consolidated
financial condition at March 31, 2022 and consolidated results of operations for
the three months ended March 31, 2022 and 2021 and should be read in conjunction
with our unaudited consolidated financial statements and accompanying notes
presented elsewhere in this report and with the Company's audited consolidated
financial statements and accompanying notes presented in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2021, filed on March
25, 2022 with the Securities and Exchange Commission. Certain prior year amounts
have been reclassified to conform to the current year presentation.

Array


Our business consists primarily of taking deposits from the general public and
investing those deposits, together with funds generated from operations and
borrowings from the FHLB, in one- to four-family residential real estate loans,
commercial real estate and multi-family loans, acquisition, development and land
loans, commercial and industrial loans, home equity loans and lines of credit
and consumer loans. In recent years, we have increased our focus, consistent
with what we believe to be conservative underwriting standards, on originating
higher yielding commercial real estate and commercial and industrial loans.

We conduct our operations from four full-service banking offices in Strafford
County, New Hampshire and one full-service banking office in Rockingham County,
New Hampshire. We consider our primary lending market area to be Strafford and
Rockingham Counties in New Hampshire and York County in southern Maine.

Array


On March 11, 2020, the world health organization declared the outbreak of
COVID-19 a global pandemic. Since then, the COVID-19 pandemic has continued to
evolve and mutate, including through its variants, and has adversely affected,
and may continue to adversely affect, local, national and global economic
activity. Actions taken to help mitigate the spread of COVID-19 include
restrictions on travel, localized quarantines and government-mandated closures
of certain businesses. While certain of these restrictions have been loosened,
the same or new restrictions may be implemented again. Although vaccines for
COVID-19 have largely been made available in the U.S., the ultimate efficacy of
the vaccines will depend on various factors including, the number of people who
receive the vaccines as well as the vaccines' effectiveness against contracting
and spreading COVID-19 and any of its existing or new variants. While management
has taken measures to mitigate the impact of the pandemic on the Company, such
as temporary branch closures, transitioning to a more remote work environment
and participation in government stimulus programs, the long-term impact to the
Company remains uncertain. We continue to monitor the impact of COVID-19
closely; however, the extent to which the COVID-19 pandemic will impact our
operations and financial results during the remainder of 2022 and beyond is
uncertain.

Array


This quarterly report contains forward-looking statements, which can be
identified by the use of words such as "estimate," "project," "believe,"
"intend," "anticipate," "plan," "seek," "expect," "will," "may" and words of
similar meaning. These forward-looking statements include, but are not limited
to:

Array



These forward-looking statements are based on current beliefs and expectations
of our management and are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change.

                                       30
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Array


  • our ability to access cost-effective funding;

Array

      estate market conditions;


  • demand for loans and deposits in our market area;


  • our ability to implement and change our business strategies;


  • competition among depository and other financial institutions;


   •  inflation and changes in the interest rate environment that reduce our
      margins and yields, our mortgage banking revenues, the fair value of
      financial instruments or our level of loan originations or increase the

Array


  • adverse changes in the securities or secondary mortgage markets;

Array


  • the inability of third-party providers to perform as expected;

Array

      opportunities;


  • system failures or breaches of our network security;

Array

      expected time frames and any goodwill charges related thereto;


  • changes in consumer spending, borrowing and savings habits;

Array

      regulatory agencies, the Financial Accounting Standards Board, the
      Securities and Exchange Commission or the Public Company Accounting
      Oversight Board;


  • our ability to retain key employees;

Array

      employees; and


   •  changes in the financial condition, results of operations or future
      prospects of issuers of securities that we own.

Array


The discussion and analysis of the financial condition and results of operations
are based on our consolidated financial statements, which are prepared in
conformity with generally accepted accounting principles used in the United
States of America. The preparation of these financial statements requires
management to make estimates and assumptions affecting the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of income and expenses. We consider the accounting policies
discussed below to be critical accounting policies. The estimates and
assumptions that we use are based on

                                       31
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historical experience and various other factors and are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions, resulting in a change that
could have a material impact on the carrying value of our assets and liabilities
and our results of operations.

Our critical accounting policies involve the calculation of the allowance for
loan losses and the measurement of the fair value of financial instruments. A
detailed description of these critical accounting policies can be found in Note
2 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.

Array Array Array Array


Total Assets. Total assets were $499.8 million as of March 31, 2022, an increase
of $12.7 million, or 2.6%, when compared to total assets of $487.1 million at
December 31, 2021. The increase was due primarily to a $3.1 million increase in
net loans and a $7.1 million increase in the available-for-sale securities
portfolio partially offset by a $1.1 million decrease in cash and due from
banks.

Cash and Due From Banks. Cash and due from banks decreased $1.1 million, or
17.2%, to $5.5 million at March 31, 2022 from $6.6 million at December 31, 2021.
This decrease was due primarily to the purchase of $16.0 million of securities
available-for-sale, $1.4 million of net loan originations and principal payments
and a $3.2 million decrease in deposits and escrow balances, offset by a $20.2
million increase in advances from Federal Home Loan Bank during three months
ended March 31, 2022.

Available-for-Sale Securities. Available-for-sale securities increased by $7.1
million, or 7.8%, to $98.5 million at March 31, 2022 from $91.4 million at
December 31, 2021. This increase was due primarily to purchases of
available-for-sale securities totaling $16.0 million, offset by $1.8 million of
principal payments received and proceeds from sales and a $6.9 million increase
in net unrealized losses within the portfolio during the three months ended
March 31, 2022, as a result of the increase in market interest rates during the
quarter ended March 31, 2022.

Net Loans. Net loans increased $3.1 million, or 0.8%, to $376.2 million at
March 31, 2022 from $373.1 million at December 31, 2021. During the three months
ended March 31, 2022, we originated $22.3 million of loans. We also purchased
$1.3 million of one- to four-family residential mortgage loans and $346,000 of
consumer loans secured by manufactured housing properties. As of March 31, 2022
and December 31, 2021, the portfolio of purchased loans had outstanding
principal balances of $30.5 million and $29.7 million, respectively, and were
performing in accordance with their original repayment terms. Net deferred loan
costs increased $164,000, or 9.9%, to $1.8 million at March 31, 2022 from $1.7
million at December 31, 2021 due primarily to the increase in deferred costs on
consumer loans and the net decrease in unearned fees received from the SBA for
processing PPP loans. SBA fee and interest income recognized during the three
months ended March 31, 2022 and 2021 was $114,000 and $420,000, respectively,
and is included in interest and fees on loans.

One- to four-family residential mortgage loans increased $1.1 million, or 0.5%,
to $235.3 million at March 31, 2022 from $234.2 million at December 31, 2021.
Multi-family loans decreased $98,000, or 1.1%, to $8.9 million at March 31, 2022
from $9.0 million at December 31, 2021. Acquisition, development and land loans
decreased $3.9 million, or 18.5%, to $17.4 million at March 31, 2022 from $21.4
million at December 31, 2021. Home equity loans and lines of credit decreased
$378,000, or 5.4%, to $6.6 million at March 31, 2022 from $6.9 million at
December 31, 2021. Consumer loans increased $414,000, or 9.1%, to $5.0 million
at March 31, 2022 from $4.6 million at December 31, 2021. Commercial real estate
mortgage loans increased $4.3 million, or 6.0%, to $76.4 million at March 31,
2022 from $72.1 million at December 31, 2021. Commercial and industrial loans
increased $1.6 million, or 6.0%, to $28.5 million at March 31, 2022 from $26.9
million at December 31, 2021. The increase in commercial and industrial loans
was net of $2.3 million of PPP loan forgiveness during the three months ended
March 31, 2022.

Our strategy to grow the balance sheet continues to be through originations of
one- to four-family residential mortgage loans, while also diversifying into
higher yielding commercial real estate mortgage loans and commercial and
industrial loans to improve net margins and manage interest rate risk. We also
continue to sell selected, conforming 15-year and 30-year fixed rate residential
mortgage loans to the secondary market on a servicing retained basis, providing
us a recurring source of revenue from loan servicing income and gains on the
sale of such loans.

Our allowance for loan losses was $3.6 million at March 31, 2022 and
December 31, 2021. The Company measures and records its allowance for loan
losses based upon an incurred loss model. Under this approach, loan loss is
recognized when it is probable that a loss event was incurred. This approach
also considers qualitative adjustments to the quantitative baseline determined
by the model. The Company considers the impact of current environmental factors
at the measurement date that did not exist over the period from which historical
experience was used. Relevant factors include, but are not limited to,
concentrations of credit risk (geographic, large borrower and industry),
economic trends and conditions, changes in underwriting standards, experience
and depth of lending staff, trends in delinquencies and the level of criticized
loans. The Company made relevant adjustments to its qualitative factors in the
measurement of its allowance for loan losses at March 31, 2022 and December 31,
2021 that balanced the need to recognize an

                                       32
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Array


The Company has limited or no direct exposure to industries that have been
significantly impacted by the COVID-19 pandemic, including oil and gas/energy,
credit cards, airlines, cruise ships, arts/entertainment/recreation, casinos and
shopping malls. Our exposure to the transportation and hospitality/restaurant
industries amounted to less than 5% of our gross loan portfolio at March 31,
2022 and December 31, 2021.

Deposits. Our deposits are generated primarily from residents within our primary
market area. We offer a selection of deposit accounts, including
non-interest-bearing and interest-bearing checking accounts, savings accounts,
money market accounts and time deposits, for both individuals and businesses.

Deposits decreased $4.5 million, or 1.1%, to $388.8 million at March 31, 2022
from $393.2 million at December 31, 2021 primarily as a result of a $4.9 million
decrease in commercial deposits and partially offset by a $457,000 increase in
retail deposits. Core deposits (defined as deposits other than time deposits)
decreased $2.9 million, or 0.9%, to $332.0 million at March 31, 2022 from $334.9
million at December 31, 2021. As of March 31, 2022, savings deposits increased
$834,000, money market deposits decreased $3.3 million, NOW and demand deposit
accounts decreased $428,000 and time deposits decreased $1.6 million. There were
$18.1 million of brokered deposits included in time deposits at March 31, 2022
and December 31, 2021.

Borrowings. Advances from the Federal Home Loan Bank increased $20.2 million, or
68.7%, to $49.7 million at March 31, 2022 from $29.5 million at December 31,
2021 in support of the Company's investment and loan growth initiatives.

Total Stockholders' Equity. Total stockholders' equity decreased $4.5 million,
or 7.4%, to $56.0 million at March 31, 2022 from $60.5 million at December 31,
2021. This decrease was due primarily to an other comprehensive loss of $4.7
million related to net changes in unrealized holding losses in the
available-for-sale securities portfolio and changes in the fair value of
interest rate swap derivatives, as a result of an increase in market interest
rates during the quarter ended March 31, 2022, and treasury stock purchases of
$248,000, partially offset by the recognition of $130,000 of previously unearned
compensation and net income of $392,000 for the three months ended March 31,
2022.

Non-performing Assets. Non-performing assets include loans that are 90 or more
days past due or on non-accrual status, including TDRs on non-accrual status,
and real estate and other loan collateral acquired through foreclosure and
repossession. TDRs include loans for which either a portion of interest or
principal has been forgiven or loans modified at interest rates materially less
than current market rates.

Management determines that a loan is impaired or non-performing when it is
probable at least a portion of the loan will not be collected in accordance with
the original terms due to a deterioration in the financial condition of the
borrower or the value of the underlying collateral if the loan is
collateral-dependent. When a loan is determined to be impaired, the measurement
of the loan in the allowance for loan losses is based on present value of
expected future cash flows, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral. Non-accrual
loans are loans for which collectability is questionable and, therefore,
interest on such loans will no longer be recognized on an accrual basis.

We generally cease accruing interest on our loans when contractual payments of
principal or interest have become 90 days past due or management has serious
doubts about further collectability of principal or interest, even though the
loan is currently performing. Interest received on non-accrual loans generally
is applied against principal or applied to interest on a cash basis. Generally,
loans are restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for at least six consecutive
months and the ultimate collectability of the total contractual principal and
interest is no longer in doubt.

Non-performing loans were $795,000 and $837,000, or 0.21% and 0.22% of total
loans, at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022
and December 31, 2021, non-performing loans consisted primarily of a residential
mortgage loan and a HELOC to deceased borrowers which had outstanding balances
totaling $602,000. The property, securing both credit facilities, has an
estimated market value of approximately $1.2 million. Additionally, a $195,000
non-performing residential mortgage loan was repurchased from an investor and
restructured in 2021. The outstanding balance of this TDR was approximately
$194,000 and $195,000 at March 31, 2022 and December 31, 2021, respectively. At
March 31, 2022 and December 31, 2021, we had no foreclosed assets.

                                       33
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Array Array Array


Net Income. Net income was $392,000 for the three months ended March 31, 2022,
compared to net income of $908,000 for the three months ended March 31, 2021, a
decrease of $516,000, or 56.8%. The decrease was due primarily to an increase in
non-interest expenses of $576,000 and a decrease in non-interest income of
$207,000, offset by a decrease in income tax expense of $198,000 and an increase
in net interest and dividend income after provision for loan losses of $69,000
during the three months ended March 31, 2022 compared to the three months ended
March 31, 2021.

Interest and Dividend Income. Interest and dividend income decreased $17,000, or
0.4%, to $3.9 million for the three months ended March 31, 2022 compared to the
three months ended March 31, 2021. This decrease was due to a $227,000, or 6.2%,
decrease in interest and fees on loans, offset by a $210,000, or 79.5%, increase
in interest and dividend income on investments for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021. Interest and
fees on loans for the three months ended March 31, 2022 and 2021 included
$114,000 and $420,000 of interest and fees earned on PPP loans, respectively.

Average interest-earning assets increased $36.6 million, to $482.3 million for
the three months ended March 31, 2022 from $445.7 million for the three months
ended March 31, 2021. The weighted average annualized yield on interest
earning-assets decreased 28 basis points, or 7.9%, to 3.25%, for the three
months ended March 31, 2022 from 3.53% for the three months ended March 31,
2021. The weighted average annualized yield for the loan portfolio decreased 33
basis points, or 8.1%, to 3.65% for the three months ended March 31, 2022 from
3.98% for the three months ended March 31, 2021. The weighted average annualized
yield for all other interest-earning assets increased to 1.80% for the three
months ended March 31, 2022 from 1.37% for the three months ended March 31, 2021
due primarily to the investment in higher-yielding taxable debt securities.

Interest Expense. Total interest expense decreased $86,000, or 32.5%, to
$179,000 for the three months ended March 31, 2022, from $265,000 for the three
months ended March 31, 2021. Interest expense on deposit accounts decreased
$51,000, or 28.5%, to $128,000 for the three months ended March 31, 2022 from
$179,000 for the three months ended March 31, 2021. The average balance of
interest-bearing deposits increased $11.2 million, or 4.0%, to $293.5 million
for the three months ended March 31, 2022 from $282.4 million for the three
months ended March 31, 2021 primarily as a result of an increase in the average
balances of NOW and demand deposits and savings deposits. The weighted average
annualized rate of interest-bearing deposits decreased to 0.17% for the three
months ended March 31, 2022 from 0.25% for the three months ended March 31, 2021
due to a decrease in market interest rates offset by an increase in average
interest-bearing deposit balances.

Interest expense on borrowings decreased $35,000, or 40.7%, to $51,000 for the
three months ended March 31, 2022 from $86,000 for the three months ended
March 31, 2021 primarily due to the retirement of $20.0 million of long-term
borrowings from the FHLB in advance of their scheduled maturities in late 2021.
The interest rates on the retired borrowings were above market rates and were
scheduled to mature in 2024 and 2025. We were able to retire these borrowings
without incurring prepayment penalties. The average balance of borrowings
decreased $4.0 million, or 9.1%, to $40.3 million for the three months ended
March 31, 2022 from $44.3 million for the three months ended March 31, 2021. The
weighted average annualized rate of borrowings decreased to 0.51% for the three
months ended March 31, 2022 from 0.78% for the three months ended March 31, 2021
due primarily to a decrease in the interest expense associated with the retired
borrowings offset by the interest expense associated with replacement long-term
borrowings from the FHLB.

Net Interest and Dividend Income. Net interest and dividend income increased
$69,000, or 1.9%, to $3.7 million for the three months ended March 31, 2022.
This increase was due to a $36.6 million, or 8.2%, increase in the average
balance of interest-earning assets offset by a $7.1 million, or 2.2%, increase
in the balance of average interest-bearing liabilities during the three months
ended March 31, 2022. Annualized net interest margin decreased to 3.10% for the
three months ended March 31, 2022 from 3.29% for the three months ended
March 31, 2021.

Array Array Array Array Array


Non-Interest Income. Non-interest income decreased $207,000, or 31.9%, to
$442,000 for the three months ended March 31, 2022 compared to $649,000 for the
three months ended March 31, 2021. The decrease in non-interest income during
the three months ended March 31, 2022 was due primarily to a $151,000 decrease
in securities gains, net, a $38,000 decrease in gain on sale of loans and a
$31,000 decrease in loan servicing fee income, reflecting less of an increase in
the fair value of our mortgage servicing intangible asset during the three
months ended March 31, 2022 versus the three months ended March 31, 2021, offset
by a $34,000 increase in investment service fees.

Non-Interest Expense. Non-interest expense increased $576,000, or 18.6%, to $3.7
million for the three months ended March 31, 2022 from $3.1 million for the
three months ended March 31, 2021. The increase in non-interest expense was due
primarily

                                       34
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to increased salaries and employee benefits expense of $398,000, or 21.3%, an
increase in data processing expense of $38,000, or 11.9%, and a $37,000, of
22.2% increase in occupancy expense. The increase in salaries and benefits
during the three months ended March 31, 2022 was due to filling certain open
positions and associated recruitment fees, normal salary increases and the
recognition of previously unearned compensation associated with the restricted
stock awards granted in 2021.

Income Taxes. Income tax expense decreased $198,000 or 77.3%, to $58,000 for the
three months ended March 31, 2022 from $256,000 for the three months ended
March 31, 2021. The effective tax rate was 12.9% and 22.0% for the three months
ended March 31, 2022 and 2021, respectively. The decrease in income tax expense
was due primarily to the decrease in income before income tax expense. Income
before income tax expense decreased $714,000, or 61.3%, to $450,000 for the
three months ended March 31, 2022 from $1.2 million for the three months ended
March 31, 2021. The decrease in the effective tax rate for the three months
ended March 31, 2022 as compared to the prior period was due primarily to the
amount of non-taxable income as a percentage of income before income tax expense
for the three months ended March 31, 2022 as compared to the prior period.

                                       35
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Array


The following tables set forth average balance sheets, average yields and costs
and certain other information at and for the periods indicated. No
tax-equivalent yield adjustments have been made, as the effects would be
immaterial. All average balances are daily average balances. Non-accrual loans
are included in the computation of average balances only. The yields set forth
below include the effect of net deferred fee income and discounts and premiums
that are amortized or accreted to interest income or interest expense. Average
loan balances exclude loans held for sale, if applicable. The following tables
include no out-of-period items or adjustments.

Array ArrayArray

                                                                     2022                                             2021
                                                    Average                                          Average
                                                  Outstanding                       Average        Outstanding                       Average
                                                    Balance         Interest      Yield/Rate         Balance         Interest      Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans (4)                                        $     376,690     $    3,441            3.65 %   $     368,845     $    3,668            3.98 %
Taxable debt securities                                 49,042            187            1.53 %          15,340             24            0.63 %
Non-taxable debt securities                             46,944            264            2.25 %          36,691            222            2.42 %
Interest-bearing deposits with other banks               7,503              9            0.48 %          22,911             18            0.31 %
Federal Home Loan Bank stock                             2,118             14            2.64 %           1,865              -            0.00 %
Total interest-earning assets                          482,297          3,915            3.25 %         445,652          3,932            3.53 %
Non-interest-earning assets                             12,877                                           11,506
Total assets                                     $     495,174                                    $     457,158
Interest-bearing liabilities:
NOW and demand deposits                          $     108,302     $       24            0.09 %   $     100,315     $       35            0.14 %
Money market deposits                                   70,223             19            0.11 %          71,625             28            0.16 %
Savings deposits                                        57,780              6            0.04 %          51,019              8            0.06 %
Time deposits                                           57,243             79            0.55 %          59,392            108            0.73 %
Total interest-bearing deposits                        293,548            128            0.17 %         282,351            179            0.25 %
Borrowings                                              40,274             51            0.51 %          44,298             86            0.78 %
Other                                                    1,484              -               -             1,590              -               -
Total interest-bearing liabilities                     335,306            179            0.21 %         328,239            265            0.32 %
Non-interest-bearing deposits                           96,800                                           66,179
Other non-interest-bearing liabilities                   3,785                                            3,735
Total liabilities                                      435,891                                          398,153
Total stockholders' equity                              59,283                                           59,005
Total liabilities and stockholders' equity       $     495,174                                    $     457,158
Net interest income                                                $    3,736                                       $    3,667
Net interest rate spread (1)                                                             3.03 %                                           3.21 %
Net interest-earning assets (2)                  $     146,991                                    $     117,413
Net interest margin (3)                                                                  3.10 %                                           3.29 %
Average interest-earning assets to
interest-bearing liabilities                            143.84 %                                         135.77 %

Array

Array Array Array

Array Array Array Array

                                       36
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Array


The following table presents the effects of changing rates and volumes on our
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 total 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.

                                                          Three Months

Array Array Array

                                                             Increase (Decrease) Due to Change in
                                                      Volume                 Rate                 Total
(Dollars in thousands)
Interest-earning assets:
Loans                                               $        77         $         (304 )       $      (227 )
Taxable debt securities                                      99                     64                 163
Non-taxable debt securities                                  59                    (17 )                42
Interest-bearing deposits with other banks                  (16 )                    7                  (9 )
Federal Home Loan Bank stock                                  -                     14                  14
Total interest-earning assets                               219                   (236 )               (17 )
Interest-bearing liabilities:
NOW and demand deposits                                       3                    (14 )               (11 )
Money market deposits                                        (1 )                   (8 )                (9 )
Savings deposits                                              1                     (3 )                (2 )
Time deposits                                                (4 )                  (25 )               (29 )
Total interest-bearing deposits                              (1 )                  (50 )               (51 )
Borrowings                                                   (7 )                  (28 )               (35 )
Total interest-bearing liabilities                           (8 )                  (78 )               (86 )
Change in net interest income                       $       227         $         (158 )       $        69

Array


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 the sale
of loans and proceeds from sales and maturities of securities. We also rely on
borrowings from the FHLB as supplemental sources of funds. At March 31, 2022 and
December 31, 2021, we had $49.7 million and $29.5 million outstanding in
advances from the FHLB, respectively, and the ability to borrow an additional
$91.3 million and $109.7 million, respectively. Additionally, at March 31, 2022
and December 31, 2021, we had an overnight line of credit with the FHLB for up
to $3.0 million and unsecured Fed Funds borrowing lines of credit with two
correspondent banks for up to $5.0 million. At March 31, 2022 and December 31,
2021, there were no outstanding balances under any of these additional credit
facilities.

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 and available-for-sale
investment securities. The levels of these assets are dependent on our
operating, financing, lending and investing activities during any given period.

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 $141,000 and $1.6 million for the three
months ended March 31, 2022 and 2021, respectively. Net cash used by investing
activities, which consists primarily of disbursements for loan originations and
purchases, and the purchase of securities available-for-sale, offset by
principal collections on loans, proceeds from the sale, maturity and principal
payments received on securities available-for-sale, was $18.0 million and $5.6
million for the three months ended March 31, 2022 and 2021, respectively. Net
cash provided by financing activities, consisting primarily of activity in
deposit accounts and Federal Home Loan Bank advances, was $16.8 million and
$20.7 million for the three months ended March 31, 2022 and 2021, respectively.

Array

37
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March 31, 2022. COVID-19 has impacted our business and that of many of our
customers, and the ultimate impact will depend on future developments, which
remain uncertain, including the scope and duration of the pandemic and actions
taken by governmental authorities in response to it. Our current strategy is to
increase core deposits and utilize FHLB advances, as well as brokered deposits
to fund loan growth.

First Seacoast Bancorp is a separate legal entity from First Seacoast Bank and
must provide for its own liquidity to fund repurchases of its outstanding common
stock and to pay its operating expenses and other financial obligations. The
Company's primary source of income is dividends received from the Bank. The
amount of dividends that the Bank may declare and pay to the Company is governed
by applicable bank regulations. At March 31, 2022, the Company (on an
unconsolidated basis) had liquid assets of $9.5 million. As of March 31, 2022,
the Company repurchased 101,936 shares of its common stock at a weighted average
price of $9.77 per share.

At March 31, 2022, First Seacoast Bank exceeded all its regulatory capital
requirements. See Note 11 of the unaudited consolidated financial statements
appearing under Item 1 of this quarterly report. Management is not aware of any
conditions or events that would change First Seacoast Bank's categorization as
well-capitalized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

General. Most of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk.
Our assets, consisting primarily of loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage our exposure to changes in market interest
rates. Accordingly, the board of directors established a management-level
Asset/Liability Management Committee (the "ALCO"), which takes responsibility
for overseeing the asset/liability management process and related procedures.
The ALCO meets on at least a quarterly basis and reviews asset/liability
strategies, liquidity positions, alternative funding sources, interest rate risk
measurement reports, capital levels and economic trends at both national and
local levels. Our interest rate risk position is also monitored quarterly by the
board of directors.

We manage our interest rate risk in an effort to minimize the exposure of our
earnings and capital to changes in market interest rates. We have implemented
the following strategies to manage our interest rate risk: originating loans
with adjustable interest rates; promoting core deposit products; selling a
portion of fixed-rate one- to four-family residential real estate loans;
maintaining investments as available-for-sale; diversifying our loan portfolio;
utilizing interest rate swaps; and strengthening our capital position. By
following these strategies, we believe that we are better positioned to react to
changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in
interest rates through a net portfolio value of equity ("NPV") model. NPV
represents the present value of the expected cash flows from our assets less the
present value of the expected cash flows arising from our liabilities adjusted
for the value of off-balance sheet contracts. The NPV ratio represents the
dollar amount of our NPV divided by the present value of our total assets for a
given interest rate scenario. NPV attempts to quantify our economic value using
a discounted cash flow methodology while the NPV ratio reflects that value as a
form of capital ratio. We estimate what our NPV would be at a specific date. We
then calculate what the NPV would be at the same date throughout a series of
interest rate scenarios representing immediate and permanent, parallel shifts in
the yield curve. We currently calculate NPV under the assumptions that interest
rates increase 100, 200, 300 and 400 basis points from current market rates and
that interest rates decrease 100 basis points from current market rates.

The following table presents the estimated changes in our net portfolio value
that would result from changes in market interest rates as of March 31, 2022.

NPV as Percent of Portfolio
Net Portfolio Value ("NPV") Value of Assets
Basis Point ("bp") Change in Dollar Dollar Percent
Interest Rates Amount Change Change NPV Ratio Change
(Dollars in thousands)
400 bp $ 51,648 $ (11,294 ) (17.9 )% 12.6 % $ (27 )
300 bp 54,898 (8,044 ) (12.8 ) 12.8 (4 )
200 bp 58,065 (4,877 ) (7.7 ) 13.0 11
100 bp 61,552 (1,390 ) (2.2 ) 13.1 27
0 62,942 - - 12.9 -
(100) bp 61,306 (1,636 ) (2.6 ) 12.0 (82 )

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Certain shortcomings are inherent in the methodologies used in the above
interest rate risk measurements. Modeling changes require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The above table assumes that
the composition of our interest-sensitive assets and liabilities existing at the
date indicated remains constant uniformly across the yield curve regardless of
the duration or repricing of specific assets and liabilities. Accordingly,
although the table provides an indication of our interest rate risk exposure at
a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our NPV and will differ from actual results.

Economic Value of Equity. Like most financial institutions, our profitability
depends to a large extent upon our net interest income, which is the difference
between our interest income on interest-earning assets, such as loans and
securities, and our interest expense on interest-bearing liabilities, such as
deposits and borrowed funds. Accordingly, our results of operations depend
largely on movements in market interest rates and our ability to manage our
interest-rate sensitive assets and liabilities in response to these movements.
Factors such as inflation and instability in financial markets, among other
factors beyond our control, may affect interest rates.

In a rising interest rate environment, we would expect that the rates on our
deposits and borrowings would reprice upwards faster than the rates on our
long-term loans and investments, which would be expected to compress our
interest rate spread and have a negative effect on our profitability.
Furthermore, increases in interest rates may adversely affect the ability of our
borrowers to make loan repayments on adjustable-rate loans, as the interest owed
on such loans would increase as interest rates increase. Conversely, decreases
in interest rates can result in increased prepayments of loans and
mortgage-related securities, as borrowers refinance to reduce their borrowing
costs. Under these circumstances, we are subject to reinvestment risk as we may
have to redeploy such loan or securities proceeds into lower-yielding assets,
which might also negatively impact our income. If interest rates rise, we expect
that our economic value of equity would decrease. Economic value of equity
represents the present value of the expected cash flows from our assets less the
present value of the expected cash flows arising from our liabilities. The
Bank's economic value of equity analysis as of March 31, 2022 estimated that, in
the event of an instantaneous 200 basis point increase in interest rates, the
Bank would experience a 7.7% decrease in economic value of equity. At the same
date, our analysis estimated that, in the event of an instantaneous 100 basis
point decrease in interest rates, the Bank would experience a 2.6% decrease in
the economic value of equity.

Any substantial, unexpected, prolonged change in market interest rates could
have a material adverse effect on our financial condition, liquidity and results
of operations. Changes in the level of interest rates also may negatively affect
our ability to originate real estate loans, the value of our assets and our
ability to realize gains from the sale of our assets, all of which ultimately
affect our earnings. Also, our interest rate risk modeling techniques and
assumptions likely may not fully predict or capture the impact of actual
interest rate changes on our balance sheet or projected operating results.
Item 4. Controls and Procedures


Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. As
of March 31, 2022, the Company conducted an evaluation, under the supervision
and with the participation of the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of March 31, 2022
for recording, processing, summarizing and reporting the information the Company
is required to disclose in the reports it files under the Securities Exchange
Act of 1934, within the time periods specified in SEC rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject
to various inherent limitations, including cost limitations, judgments used in
decision making, assumptions about the likelihood of future events, the
soundness of our systems, the possibility of human error and the risk of fraud.
Moreover, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions and the risk that the degree of compliance with policies or
procedures may deteriorate over time. Due to such inherent limitations, there
can be no assurance that any system of disclosure controls and procedures will
be successful in preventing all errors or fraud or in making all material
information known in a timely manner to the appropriate levels of management.

Changes in Internal Controls over Financial Reporting. During the quarter ended
March 31, 2022, there were no changes in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.



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