TEB BANCORP: Management report and analysis of the financial situation and operating results (form 10-K)

This discussion and analysis reflects our consolidated financial statements and
other relevant statistical data, and is intended to enhance your understanding
of our financial condition and results of operations. The information in this
section has been derived from the consolidated financial statements, which
appear elsewhere in this annual report. You should read the information in this
section in conjunction with the other business and financial information
provided in this annual report.

Overview

Total assets increased $10.2 million, or 3.3%, to $315.7 million at June 30,
2021 from $305.5 million at June 30, 2020, primarily reflecting increases in
cash and cash equivalents and available for sale securities offset by decreases
in loans held for investment and loans held for sale. Total deposits increased
$13.8 million, or 5.4%, to $269.9 million at June 30, 2021 from $256.1 million
at June 30, 2020. This resulted from an increase in interest-bearing savings and
NOW accounts, which increased $12.8 million, or 16.9%, to $88.2 million at June
30, 2021 from $75.4 million at June 30, 2020, and an increase in demand
deposits, which increased $15.4 million, or 16.4%, to $109.0 million at June 30,
2021 from $93.6 million at June 30, 2020.

Borrowed funds, consisting solely of Federal Home Loan Bank of Chicago ("FHLB")
advances, decreased $4.0 million, or 44.4%, to $5.0 million at June 30, 2021
from $9.0 million at June 30, 2020. Increased levels of deposits and cash during
the year reduced our reliance on borrowed funds.



Net income was $6.4 million for the year ended June 30, 2021, compared to $1.1
million for the year ended June 30, 2020. The increase in income was due to an
increase in non-interest income during the year ended June 30, 2021, offset by a
decrease in net interest income and an increase in non-interest expense. Net
interest income after provision for loan losses decreased $454,000, or 4.8%, to
$9.1 million for the year ended June 30, 2021 from $9.5 million for the year
ended June 30, 2020, primarily as a result of a lower average balance of loans.
Non-interest income increased by $7.0 million, or 111.7%, to $13.2 million for
the year ended June 30, 2021 from $6.2 million for the year ended June 30, 2020,
primarily resulting from a $6.9 million, or 135.0%, increase in gain on sales of
mortgage loans. Non-interest expenses increased $1.2 million, or 8.4%, to $15.9
million for the year ended June 30, 2021 compared to $14.7 million for the year
ended June 30, 2020. The increase in non-interest expenses was due to an
increase in compensation and benefits expense during the year ended June 30,
2021.

Change in Fiscal Year

The Equitable Bank changed his exercise to June 30th of September 30, effective with June 30, 2018 fiscal year.

Summary of significant accounting policies

The discussion and analysis of the financial condition and results of operations
are based on our financial statements, which are prepared in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). 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 significant accounting policies. The estimates and assumptions that
we use are based on 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.

The JOBS Act contains provisions that, among other things, reduce certain
reporting requirements for qualifying public companies. As an "emerging growth
company" we may delay adoption of new or revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to
private companies. We determined to take advantage of the benefits of this
extended transition period. Accordingly, our financial statements may not be
comparable to companies that comply with such new or revised accounting
standards.

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The following are our main accounting policies:

Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to operations. Loan losses are charged against the allowance when
management believes the uncollectability of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance for loan losses.
The allowance for loan losses consists of specific reserves on certain impaired
loans from analyses developed through specific credit allocations for individual
loans. The specific reserve relates to all loans for which the allowance for
loan losses is estimated on a loan by loan basis using either the present value
of expected future cash flows discounted at the loan's effective interest rate,
the loan's obtainable market price, or the fair value of the collateral if the
loan is collateral dependent. The general reserve is based on our historical
loss experience along with consideration of certain qualitative factors such as
(i) changes in the nature, volume and terms of loans, (ii) changes in lending
personnel, (iii) changes in the quality of the loan review function,
(iv) changes in nature and volume of past-due, non-accrual and/or classified
loans, (v) changes in concentration of credit risk, (vi) changes in economic and
industry conditions, (vii) changes in legal and regulatory requirements,
(viii) unemployment and inflation statistics, and (ix) changes in underlying
collateral values.

There are many factors affecting the allowance for loan losses, some are
quantitative while others require qualitative judgment. The allowance for loan
losses reflects management's best estimate of the probable and inherent losses
on loans. The adequacy of the allowance for loan losses is reviewed and approved
by our board of directors. Allocations of the allowance for loan losses may be
made for specific loans, but the entire allowance for loan losses is available
for any loan that, in management's judgment, should be charged-off.

As an integral part of their examination process, various regulatory agencies
review the allowance for loan losses as well. Such agencies may require that
changes in the allowance for loan losses be recognized when such regulatory
credit evaluations differ from those of management based on information
available to the regulators at the time of their examinations.

Income Taxes. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.

We recognize the tax effects from an uncertain tax position in the consolidated
financial statements only if the position is more likely than not to be
sustained on audit, based on the technical merits of the position. We recognize
the financial statement benefit of a tax position only after determining that
the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the consolidated financial statements is the
largest benefit that has a greater than 50% likelihood of being realized, upon
ultimate settlement with the relevant tax authority. We recognize interest and
penalties accrued or released related to uncertain tax positions in current
income tax expense or benefit.

Covid-19 epidemic

In December 2019, a coronavirus (COVID-19) was reported in China, and, in March
2020 was declared a national emergency in the United States. The COVID-19
pandemic has caused significant economic dislocation in the United States as
many state and local governments ordered non-essential businesses to close and
residents to shelter in place at home. Certain industries have been particularly
hard-hit, including the travel and hospitality industry, the restaurant
industry, and the retail industry. The following table shows the Company's
exposure within these hard-hit industries.



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Commercial Loan Type              June 30, 2021      Percentage of Portfolio Loans
Restaurant, food service, bar    $     1,572,457                        0.73 %
Retail                                 2,255,298                        1.04 %
Hospitality and tourism                        -                           - %
                                 $     3,827,755                        1.77 %



The Company's allowance for loan losses increased $59,000 to $1.4 million at
June 30, 2021 compared to $1.4 million at June 30, 2020. Provisions were booked
totaling $150,000 during the year ended June 30, 2021, compared to $135,000
during the year ended June 30, 2020. At June 30, 2021 and June 30, 2020, the
allowance for loan losses represented 0.65% and 0.57% of total loans,
respectively. In determining its allowance for loan loss level at June 30, 2021,
the Company considered the health and composition of its loan portfolio going
into the COVID-19. At June 30, 2021, approximately 98.8% of the Company's loan
portfolio was collateralized by real estate. Approximately 1.8% of the Company's
loan portfolio is to borrowers in the more particularly hard-hit industries
(including the restaurant and food service industries, retail industry, and
hospitality and tourism industries) and the Company has no international
exposure.

Given the ongoing and dynamic nature of the circumstances, it is difficult to
predict the full impact of the COVID-19 outbreak on our business. The extent of
such impact will depend on future developments, which are highly uncertain,
including when the coronavirus can be controlled and abated and when and how the
economy continues to reopen. As the result of the COVID-19 pandemic and the
related adverse local and national economic consequences, we could be subject to
any of the following risks, any of which could have a material, adverse effect
on our business, financial condition, liquidity, and results of operations:

? demand for our products and services may decrease, making it difficult to grow

assets and income;

if the economy is unable to continue to reopen, and / or high levels of

? return to unemployment, loan delinquencies, problematic assets and foreclosures can

increase, resulting in increased expenses and decreased income;

? loan guarantees, especially real estate, may lose value, which could

increase loan losses;

our allowance for loan losses may need to be increased if borrowers

? financial difficulties beyond the abstention periods, which will negatively affect

our net income;

? the equity and liquidity of loan guarantors may decline, compromising their

ability to honor commitments to us;

as a result of the drop in of the Federal Reserve Board federal target

? funds close to 0%, the return on our assets could fall further

that the decrease in our cost of interest-bearing debt, reducing our

interest margin and spread and reduction in net income;

? our uninsured investment income may decline as a result of continuing market turmoil;

? our cybersecurity risks are increased due to an increase in the

number of employees working remotely;

we rely on third-party providers for certain services and the unavailability of a

? critical service due to the COVID-19 outbreak could have a negative effect on

we; and

? Federal Deposit Insurance Corporation premiums may increase if the agency

incurs additional resolution costs.


Moreover, our future success and profitability substantially depends on the
management skills of our executive officers and directors, many of whom have
held officer and director positions with us for many years. The unanticipated
loss or unavailability of key employees due to the outbreak could harm our
ability to operate our business or execute our

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business strategy. We may not be able to find and integrate suitable successors in the event of loss or unavailability of key employees.

Any or a combination of the factors identified above could have a negative impact on our business, financial condition, results of operations and prospects.

As of June 30, 2021, the Company originated 26 PPP loans totaling $1.8 million
and generated approximately $76,000 from the processing fees. All PPP loan
originations occurred before the end of the June 30, 2021 reporting period. As
of June 30, 2021, 18 PPP loans totaling $1.1 million have been forgiven.

As of June 30, 2021, the Company had modified 88 loans aggregating $22.9
million, primarily consisting of the deferral of principal and interest payments
and the extension of the maturity date. Of these modifications, $22.8 million,
or 99.5%, were performing in accordance with the accounting treatment under
Section 4013 of the CARES Act and therefore did not qualify as TDRs. As of June
30, 2021, all of these modifications have resumed monthly loan payments and no
modifications remain in a deferred status. Three loans totaling $294,000 that
were modified did not qualify for the favorable accounting treatment under
Section 4013 of the CARES Act and therefore each loan was reported as a TDR;
however, one of the loans was transferred out of TDR status after receiving six
consecutive monthly payments after the end of the deferral period. Management
has evaluated the loans and determined that based on the liquidation value of
the collateral, no specific reserve is necessary.


                                                            As of June 30, 2021
                                            Payments Resumed                   Payments Deferred
Loan Classification                 Number of Loans       Balance       Number of Loans         Balance
Construction, land, development                    2    $    113,324                   -        $      -
1-4 family owner occupied                         50       6,928,668                   -               -
1-4 family non-owner occupied                     16       2,255,510                   -               -
Multifamily                                       13      10,716,179                   -               -
Commercial owner occupied                          2       1,419,056                   -               -
Commercial non-owner occupied                      2       1,408,571                   -               -
Consumer and installment loans                     3          40,655                   -               -
Total loan modification requests                  88    $ 22,881,963                   -        $      -



Comparison of financial position to June 30, 2021 and June 30, 2020

Total assets increased $10.2 million, or 3.3%, to $315.7 million at June 30,
2021 from $305.5 million at June 30, 2020, primarily reflecting increases in
cash and cash equivalents and available for sale securities offset by decreases
in loans held for investment and loans held for sale.

Cash and cash equivalents increased $36.3 million, or 276.8%, to $49.4 million
at June 30, 2021 from $13.1 million at June 30, 2020 due to the increased
balance in deposit accounts and decrease in total loans outstanding during the
year.

Available-for-sale securities increased $12.6 million, or 61.9%, to $32.9
million at June 30, 2021 from $20.3 million at June 30, 2020, due to utilizing
excess cash to purchase securities totaling $16.9 million, offset by maturities
and calls of $4.3 million.

Loans held for investment decreased $21.8 million, or 9.1%, to $216.8 million at
June 30, 2021 from $238.7 million at June 30, 2020, primarily reflecting a
decrease in one- to four-family owner occupied loans of $28.5 million, or 28.4%,
to $72.0 million at June 30, 2021 from $100.5 million at June 30, 2020. The
decrease in one- to four-family owner occupied loans resulted from increased
refinances and loan paydowns. These decreases were partially offset by an
increase in multifamily loans of $15.4 million, or 20.2%, to $91.9 million at
June 30, 2021 from $76.4 million at June 30, 2020, as we continue to focus on
originating this type of loan.

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Loans held for sale decreased $11.8 million, or 63.3%, to $6.9 million at June
30, 2021 from $18.7 million at June 30, 2020. We currently sell a majority of
the fixed-rate one- to four-family residential real estate loans that we
originate. The balances at any month end vary based on the timing and volume of
loan originations and sales. The decrease in mortgage interest rates due to
COVID-19 resulted in a greater volume of loans originated and sold in the last
quarter of the fiscal year ended June 30, 2020.

Total deposits increased $13.8 million, or 5.4%, to $269.9 million at June 30,
2021 from $256.1 million at June 30, 2020. The increase was due to increases in
demand deposits of $15.4 million, or 16.4%, to $109.0 million at June 30, 2021,
from $93.6 million at June 30, 2020 and interest-bearing savings and NOW
accounts of $12.8 million, or 16.9%, to $88.2 million at June 30, 2021 from
$75.4 million at June 30, 2020, offset by a decrease in certificates of deposit
of $14.3 million, or 16.4%, to $72.7 million at June 30, 2021 from $87.0 million
at June 30, 2020. These increases are largely due to increased economic stimulus
payments with decreases in certificates of deposit balances resulting from
decreases in interest rates offered.

Borrowed funds, consisting solely of FHLB advances, decreased $4.0 million, or
44.4%, to $5.0 million at June 30, 2021 from $9.0 million at June 30, 2020.
During the year, deposits increased and assets decreased, which allowed us to
pay down borrowings.



Total equity increased $9.6 million, or 40.9%, to $33.1 million at June 30, 2021
from $23.5 million at June 30, 2020 as a result of net income for the year.
Accumulated other comprehensive loss decreased as a result of higher yields on
our pension investments, resulting in a net positive funded status as of June
30, 2021.

Average Balance Sheet

The following table sets 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
were included in the computation of average balances.

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The yields set forth below include the effect of deferred fees, discounts, and
premiums that are amortized or accreted to interest income or interest expense.
Loan balances exclude loans held for sale.



                                        For the Year Ended June 30, 2021            For the Year Ended June 30, 2020
                                      Average                                     Average
                                    Outstanding                    Average      Outstanding                     Average
                                      Balance        Interest     Yield/Rate      Balance         Interest     Yield/Rate

                                                                   (Dollars in thousands)
Interest-earning assets:
Loans                                $   229,258     $   9,879          4.31 %   $   249,657     $   11,173          4.48 %
Securities                                21,867           577          2.64 %        21,719            604          2.78 %
Federal Home Loan Bank of Chicago
stock                                      1,116            30          2.69 %         1,288             53          4.12 %
Other                                     19,602             3          0.01 %         4,688             49          1.05 %
Total interest-earning assets            271,843        10,489         
3.86 %       277,352         11,879          4.28 %
Non-interest-earning assets               30,707                                      25,971
Total assets                        $    302,550                                $    303,323

Interest-bearing liabilities:
Demand deposits                     $     61,442            37          0.06 %  $     49,837             29          0.06 %
Savings and NOW deposits                  82,191            69          0.08 %        74,453             62          0.08 %
Certificates of deposit                   78,629         1,158          1.47 %        94,481          1,733          1.84 %
Total interest-bearing deposits          222,262         1,264          0.57 %       218,771          1,824          0.83 %
Borrowings                                 5,215             7          0.14 %        23,300            398          1.71 %
Total interest-bearing
liabilities                              227,477         1,271         

0.56% 242,071 2,222 0.92% Non-interest bearing debts 48,249

          35,852
Total liabilities                        275,726                                     277,923
Total equity                              26,824                                      25,400
Total liabilities and equity        $    302,550                                $    303,323
Net interest income                                  $   9,218                                   $    9,657
Net interest rate spread (1)                                            3.30 %                                       3.36 %
Net interest-earning assets (2)     $     44,366                                $     35,281
Net interest margin (3)                                                 3.39 %                                       3.48 %
Average interest-earning assets
to interest-bearing liabilities           119.50 %                          

114.57%

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The net interest rate differential represents the difference between the weighted average return (1) on interest-bearing assets and the weighted average rate of

interest bearing liabilities.

(2) Net interest-bearing assets represent the total of interest-bearing assets less

total interest-bearing liabilities.

(3) The net interest margin represents the net interest income divided by the average total

    interest-earning assets.


Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our
net interest income for the years 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.



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                                         Year Ended June 30, 2021 vs.                Year Ended June 30, 2020 vs.
                                                     2020                                        2019
                                      Increase (Decrease)         Total           Increase (Decrease)          Total
                                            Due to               Increase               Due to               Increase
                                      Volume         Rate       (Decrease)       Volume          Rate       (Decrease)

                                                                      (In thousands)
Interest-earning assets:
Loans                               $    (879)     $  (415)    $    (1,294)    $    (508)     $     (81)    $     (589)
Securities                                   4         (30)            (26)            20            (7)             13
Federal Home Loan Bank of
Chicago stock                              (5)         (18)            (23)          (38)           (31)           (69)
Other                                        2         (49)            (47)            22           (28)            (6)
Total interest-earning assets            (878)        (512)         (1,390)         (504)          (147)          (651)

Interest-bearing liabilities:
Demand deposits                              7            1               8             2            (1)              1
Savings and NOW deposits                     6            1               7           (6)              2            (4)
Certificates of deposit                  (233)        (342)           (575)            73            254            327
Total interest-bearing deposits          (220)        (340)           (560)            69            255            324
Borrowings                                (25)        (366)           (391)         (415)          (360)          (775)
Total interest-bearing
liabilities                              (245)        (706)           (951)         (346)          (105)          (451)

Change in net interest income       $    (633)     $    194    $      (439)    $    (158)     $     (42)    $     (200)



Comparison of operating results for the years ended June 30, 2021 and 2020

General. Net income was $6.4 million for the year ended June 30, 2021, compared
to $1.1 million for year ended June 30, 2020. The increase in income was due to
an increase in non-interest income offset by a decrease in net interest income
and an increase in non-interest expense, described in more detail below.

Interest Income. Interest income decreased $1.4 million, or 11.7%, to $10.5
million for the year ended June 30, 2021 compared to $11.9 million for the year
ended June 30, 2020. Interest income on loans, which is our primary source of
interest income, decreased $1.3 million, or 11.6%, to $9.9 million for the year
ended June 30, 2021 compared to $11.2 million for the year ended June 30, 2020.
Our average yield on loans decreased 17 basis points to 4.31% for the year ended
June 30, 2021 from 4.48% for the year ended June 30, 2020, reflecting recent
decreases in market interest rates. The average balance of loans also decreased
by $20.4 million, or 8.2%, to $229.3 million for the year ended June 30, 2021
from $249.7 million for the year ended June 30, 2020.

Interest Expense. Interest expense decreased $951,000, or 42.8%, to $1.3 million
for the year ended June 30, 2021 compared to $2.2 million for the year ended
June 30, 2020, due to decreases in interest expense on borrowings and decreases
in interest rates paid on deposits.

Interest expense on borrowings decreased $391,000 to $7,000 for the year ended
June 30, 2021 from $398,000 for the year ended June 30, 2020. This decrease
resulted from the decreases in both the average balance of borrowings and the
average rate we paid on borrowings. The average balance of borrowings decreased
$18.1 million to $5.2 million for the year ended June 30, 2021 from $23.3
million for the year ended June 30, 2020, and the annualized average rate we
paid on borrowings decreased 157 basis points to 0.14% for the year ended June
30, 2021, from 1.71% for the year ended June 30, 2020. As described above,
increased levels of deposits and cash during the year ended June 30, 2021
reduced our reliance on borrowed funds. The decrease in rates paid on borrowings
reflects recent decreases in market interest rates.



Interest expense on deposits decreased $560,000, or 30.7%, to $1.3 million for
the year ended June 30, 2021 from $1.8 million for the year ended June 30, 2020.
Specifically, interest expense on certificates of deposit decreased $575,000, or
33.2%, to $1.2 million for the year ended June 30, 2021 from $1.7 million for
the year ended June 30, 2020. This decrease resulted from an decrease in the
annualized average rate we paid on certificates of deposit, which decreased 37

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basis points at 1.47% for the year ended June 30, 2021 by 1.84% for the year ended June 30, 2020. Lower rates paid on certificates of deposit reflect lower market interest rates during the year ended June 30, 2021.

Net Interest Income. Net interest income decreased $454,000, or 4.8%, to $9.1
million for the year ended June 30, 2021 from $9.5 million for the year ended
June 30, 2020, primarily as a result of the decreased interest income from
loans. Our net interest rate spread decreased by six basis points to 3.30% for
the year ended June 30, 2021 from 3.36% for the year ended June 30, 2020, and
our net interest margin decreased by nine basis points to 3.39% for the year
ended June 30, 2021 from 3.48% for the year ended June 30, 2020.

Provision for Loan Losses. Provisions for loan losses are charged to operations
to establish an allowance for loan losses at a level necessary to absorb known
and inherent losses in our loan portfolio that are both probable and reasonably
estimable at the date of the financial statements. In evaluating the level of
the allowance for loan losses, management analyzes several qualitative loan
portfolio risk factors including, but not limited to, management's ongoing
review and grading of loans, facts and issues related to specific loans,
historical loan loss and delinquency experience, trends in past due and
non-accrual loans, existing risk characteristics of specific loans or loan
pools, changes in the nature, volume and terms of loans, the fair value of
underlying collateral, changes in lending personnel, current economic conditions
and other qualitative and quantitative factors which could affect potential
credit losses. See "-Summary of Significant Accounting Policies" for additional
information.

After an evaluation of these factors, we recorded a $150,000 provision for
the year ended June 30, 2021 and $135,000 for the year ended June 30, 2020. Our
allowance for loan losses increased $59,000, or 4.4%, to $1.4 million at June
30, 2021 from $1.4 million at June 30, 2020. The allowance for loan losses to
total loans increased to 0.65% at June 30, 2021 from 0.57% at June 30, 2020, and
the allowance for loan losses to non-performing loans increased to 178.09% at
June 30, 2021 from 100.91% at June 30, 2020.

To the best of our knowledge, we have recorded all loan losses that are both
probable and reasonable to estimate at June 30, 2021. However, future changes in
the factors described above, including, but not limited to, actual loss
experience with respect to our loan portfolio, could result in material
increases in our provision for loan losses. In addition, the WDFI and the
Federal Deposit Insurance Corporation, as an integral part of their examination
process, will periodically review our allowance for loan losses, and as a result
of such reviews, we may have to adjust our allowance for loan losses.

Income other than interest. Information on non-interest income is as follows.




                                              Year Ended June 30,              Change
                                              2021            2020        Amount     Percent

                                                        (Dollars in thousands)
Service fees on deposits                   $       409     $      430    $   (21)      (4.9) %
Service fees on loans                              224            238        (14)      (5.9)
Gain on sale of mortgage loans                  12,033          5,120       6,913      135.0
Income on sale of uninsured products               503            321         182       56.7
Gain (loss) on sale of other real
estate owned                                        33            118        (85)     (72.0)
Other                                               25             20           5       25.0
Total non-interest income                  $    13,227     $    6,247    $  6,980      111.7 %




Gain on sale of mortgage loans (consisting solely of one- to four-family
residential real estate loans) increased as we earned a higher servicing release
premium in addition to selling $496.5 million of mortgage loans during the year
ended June 30, 2021 compared to $334.9 million of such sales during the year
ended June 30, 2020. Gain on sale of other real estate owned decreased as we
made one sale of other real estate during the year eneded June 30, 2021 in
excess of the principal balance and four sales of other real estate during
the year ended June 30, 2020 in excess of the principal balance.

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Non-interest charges. Information on non-interest charges is as follows.




                                            Year Ended June 30,              Change
                                             2021           2020        Amount     Percent
                                                       (Dollars in thousands)
Compensation and benefits                 $    10,000     $   8,503    $  1,497       17.6 %
Occupancy                                       2,121         1,969         152        7.7
Advertising                                       164           227        (63)     (27.8)
Data processing services                        1,067         1,096        (29)      (2.6)
FDIC assessment                                    90           112        (22)     (19.6)
Cost of operations of other real
estate owned                                      174         1,047       (873)     (83.4)
Insurance                                         116           156        (40)     (25.6)
Professional Fees                                 525           489          36        7.4
Other                                           1,652         1,078         574       53.2
Total non-interest income                 $    15,909     $  14,677    $  1,232        8.4 %




Compensation and benefits expense increased primarily as a result of the
increased commissions from greater loan volume. Advertising expenses decreased
due to the large volume of applications received without the need to advertise.
FDIC assessments decreased due to improved financial condition. Cost of
operations of other real estate owned decreased due to a large write off on
other real estate loans during the year ending June 30, 2020. Insurance expenses
decreased as we were able to renegotiate our contract and lock in a multi-year
term. Other expenses increased due the increase in sold loan commsion fees
offset due to the increased volume in loans sold, which are offset within
compensation and benefits once the loans are sold.

Income Tax Expense. We recognized no income tax expense or benefit for the years
ended June 30, 2021 and June 30, 2020 due to a full valuation allowance being
recorded against the Company's deferred tax assets.

Market risk management

General. Our most significant form of market risk is interest rate risk because,
as a financial institution, the majority of our assets and liabilities are
sensitive to changes in interest rates. Therefore, a principal part of our
operations is to manage interest rate risk and limit the exposure of our
financial condition and results of operations to changes in market interest
rates. Our Asset/Liability Management Committee, consisting of members of our
senior management, is responsible for evaluating the interest rate risk inherent
in our assets and liabilities, for determining the level of risk that is
appropriate, given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with
the policy and guidelines approved by our board of directors. The board of
directors receives a monthly report from the Asset/Liability Management
Committee. We currently utilize a third-party modeling program, prepared on a
quarterly basis, to evaluate our sensitivity to changes in interest rates.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. The following are our main strategies for managing our interest rate risk:

? sell the majority of our long-term fixed rate secondary loans

Marlet;

? limit our dependence on non-core / wholesale funding sources;

? increase our volume of transaction deposit accounts; and

? diversify our loan portfolio by adding more commercial loans, which

   typically have shorter maturities and/or balloon payments.


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By following these strategies, we believe we are in a better position to respond to increases in market interest rates.

We do not engage in hedging activities, such as futures, options or swaps, or investing in high-risk mortgage derivatives, such as residual interest on guaranteed mortgage bonds, residual interest of real estate mortgage investment conduits or dismembered mortgage-backed securities.

Net Interest Income. We analyze our sensitivity to changes in interest rates
through a net interest income model. Net interest income is the difference
between the interest income we earn on our interest-earning assets, such as
loans and securities, and the interest we pay on our interest-bearing
liabilities, such as deposits and borrowings. We estimate what our net interest
income would be for a 12-month period. We then calculate what the net interest
income would be for the same period under the assumptions that the United States
Treasury yield curve increases or decreases instantaneously by 200 and 400 basis
point increments, with changes in interest rates representing immediate and
permanent, parallel shifts in the yield curve. A basis point equals
one-hundredth of one percent, and 100 basis points equals one percent. An
increase in interest rates from 3% to 4% would mean, for example, a 100 basis
point increase in the "Change in Interest Rates" column below.

The tables below show, as of June 30, 2021, calculating the estimated changes in our net interest income that would result from the designated immediate changes in United States Treasury yield curve.


                                   June 30, 2021
        Change in Interest Rates     Net Interest Income      Year 1 Change
           (basis points) (1)          Year 1 Forecast          from Level
                               (Dollars in thousands)
                  +400              $               11,198             25.97 %
                  +200                              10,160             14.29 %
                 Level                               8,889                 - %
                  -200                               8,284            (6.81) %
                  -400                               8,052            (9.42) %

————————————————– ——————————

(1) Assumes an immediate uniform change in interest rates at all maturities.


The table above indicates that at June 30, 2021, in the event of an
instantaneous parallel 200 basis point increase in interest rates, we would have
experienced a 14.29% increase in net interest income, and in the event of an
instantaneous 200 basis point decrease in interest rates, we would have
experienced an 6.81% decrease in net interest income. At June 30, 2020 in the
event of an instantaneous parallel 200 basis point increase in interest rates,
we would have experienced a 7.33% increase in net interest income, and in the
event of an instantaneous 200 basis point decrease in interest rates, we would
have experienced a 4.69% decrease in net interest income.

Net Economic Value. We also compute amounts by which the net present value of
our assets and liabilities (net economic value or "NEV") would change in the
event of a range of assumed changes in market interest rates. This model uses a
discounted cash flow analysis and an option-based pricing approach to measure
the interest rate sensitivity of net portfolio value. The model estimates the
economic value of each type of asset, liability and off-balance sheet contract
under the assumptions that the United States Treasury yield curve increases or
decreases instantaneously by 200 and 400 basis point increments, with changes in
interest rates representing immediate and permanent, parallel shifts in the
yield curve.

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The tables below show, as of June 30, 2021, the calculation of the estimated variations of our NEV that would result from the designated immediate variations of United States Treasury yield curve.

                                               At June 30, 2021
                                                                              NEV as a Percentage of Present
                                                                                   Value of Assets (3)
   Change in
  Rates (basis                       Estimated Increase (Decrease) in                            Increase
Interest points)     Estimated                      NEV                         NEV             (Decrease)
      (1)             NEV (2)           Amount               Percent         Ratio (4)       (basis  points)
                                            (Dollars in thousands)
      +400          $    54,555    $           6,557               13.66 %        19.11 %                  407
      +200               53,122                5,124               10.68 %        17.58 %                  254
       -                 47,998                    -                   - %        15.04 %                    -
      -200               38,872              (9,126)             (19.01) %        11.64 %                (340)
      -400               44,460              (3,538)              (7.37) %        13.00 %                (204)

————————————————– ——————————

(1) Assumes an immediate uniform change in interest rates at all maturities.

(2) NEV is the present value of the expected cash flows of the assets,

liabilities and off-balance sheet contracts.

(3) The present value of the assets represents the present present value of the entries

cash flow from interest-bearing assets.

(4) The NEV ratio represents the NEV divided by the present value of the assets.


The table above indicates that at June 30, 2021, in the event of an
instantaneous parallel 200 basis point increase in interest rates, we would have
experienced a 10.68% increase in net economic value, and in the event of an
instantaneous 200 basis point decrease in interest rates, we would have
experienced a 19.01% decrease in net economic value. At June 30, 2020 in the
event of an instantaneous parallel 200 basis point increase in interest rates,
we would have experienced a 14.97% increase in net economic value, and in the
event of an instantaneous 200 basis point decrease in interest rates, we would
have experienced a 6.41% decrease in net economic value.

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. In this regard, the net
interest income and net economic value tables presented assume that the
composition of our interest-sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured and
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net interest income and NEV tables
provide 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 net interest
income and NEV and will differ from actual results. Furthermore, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Additionally, certain assets, such as adjustable-rate loans, have
features that restrict changes in interest rates both on a short-term basis and
over the life of the asset.

Calculations of interest rate risk may also not reflect the fair value of financial instruments. For example, decreases in market interest rates can increase the fair value of our loans, deposits and borrowings.

Liquidity and capital resources

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 maturities of securities. We also have the ability
to borrow from the FHLB and from U.S. Bank. At June 30, 2021, we had a $121.4
million line of credit with the FHLB, and had $5.0 million of borrowings
outstanding as of that date, and we also had a $5.0 million line of credit with
U.S. Bank, with no borrowings outstanding as of that date.

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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 short-term investments including
interest-bearing demand deposits. 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 (used in) operating activities was $12.4 million and ($4.7) million
for the year ended June 30, 2021 and the year ended June 30, 2020. Net cash
provided by 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 and pay downs on
securities, was $13.5 million and $26.2 million for the year ended June 30,
2021, and the year ended June 30, 2020. Net cash provided by (used in) financing
activities, consisting of activity in deposit accounts, borrowings, and advance
payments by borrowers for property taxes and insurance, was $10.4 million and
($14.0) million for the year ended June 30, 2021 and the year ended June 30,
2020.

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. Based on our deposit retention
experience, current pricing strategy and regulatory restrictions, we anticipate
that a substantial portion of maturing time deposits will be retained, and that
we can supplement our funding with borrowings in the event that we allow these
deposits to run off at maturity.

At June 30, 2021, we exceeded all of our regulatory capital requirements, and we
were categorized as well capitalized at June 30, 2021. Management is not aware
of any conditions or events since the most recent notification that would change
our category.

Off-balance sheet arrangements and global 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, 2021, we had outstanding commitments to originate loans of $20.9
million, and outstanding commitments to sell loans of $41.0 million. We
anticipate that we will have sufficient funds available to meet our current
lending commitments. Time deposits that are scheduled to mature in one year or
less from June 30, 2021 totaled $32.1 million. Management expects that a
substantial portion of the maturing time deposits will be renewed. However, if a
substantial portion of these deposits is not retained, we may utilize FHLB
advances or other borrowings to offset projected portfolio loan production.

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

Recent accounting positions

Please refer to Note 1 to the Financial Statements included as Item 8 in this
Annual Report for a description of recent accounting pronouncements that may
affect our financial condition and results of operations.

Impact of inflation and price changes

The financial statements and related data presented herein have been prepared in
accordance with U.S. GAAP, which requires the measurement of financial position
and operating results in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary impact of inflation on our operations is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant

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impact on a financial institution's performance than does inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

ARTICLE 7A. Quantitative and qualitative information on market risk

For more information on market risk, see section 7. Management report and analysis of the financial position and results of operations.

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