CATALYST BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

General

Management's discussion and analysis of financial condition and results of
operations at June 30, 2022 and for the three and six months ended June 30, 2022
and 2021 is intended to assist in understanding our financial condition and
results of operations. The information contained in this section should be read
in conjunction with the unaudited consolidated financial statements of the
Company and the notes thereto appearing in Part I, Item 1, of this Quarterly
Report on Form 10-Q as well as the business and financial information included
in the Company's Annual Report on Form 10-K filed with the SEC for the year
ended December 31, 2021.

Cautionary Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.

 Forward-looking statements are not statements of historical fact, are based on
certain assumptions and are generally identified by use of words such as
"believes," "expects," "anticipates," "estimates," "forecasts," "intends,"
"plans," "targets," "potentially," "probably," "projects," "outlook" or similar
expressions or future or conditional verbs such as "may," "will," "should,"
"would," and "could."   These forward-looking statements include, but are not
limited to:

? statements of our goals, intentions and expectations;

? statements regarding our business plans, prospects, growth and operating

strategies;

? statements regarding the quality of our loan and investment portfolios; and

? estimates of our risks and future costs and benefits.



You are cautioned not to place undue reliance on any forward-looking statements,
which speak only as of the date made. These forward-looking statements are based
on our current beliefs and expectations and, by their nature, 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.

Important factors that could cause our actual results to differ materially from
the results anticipated or projected, include, but are not limited to, the
following:

? general economic conditions, either nationally or in our market areas, that are

different than expected;

conditions relating to the COVID-19 pandemic, or other infectious disease

? outbreaks, including the severity and duration of the associated economic

slowdown, either nationally or in our market areas, that are worse than

expected;

? changes in the level and direction of loan delinquencies and charge-offs and

   changes in estimates of the adequacy of the allowance for loan losses;

? our ability to access cost-effective funding;

major catastrophes such as hurricanes, floods or other natural disasters, the

? related disruption to local, regional and global economic activity and

financial markets, and the impact that any of the foregoing may have on us and

our customers and other constituencies;


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? technological changes that may be more difficult or expensive than expected;

? success or consummation of new business initiatives may be more difficult or

expensive than expected;

? the inability of third party service providers to perform;

? fluctuations in real estate values and both residential and commercial real

estate market conditions;

? demand for loans and deposits in our market area;

? our ability to continue to implement our business strategies;

? competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins

? and yields, reduce the fair value of financial instruments or reduce the

origination levels in our lending business, or increase the level of defaults,

losses and prepayments on loans;

? adverse changes in the securities markets;

? changes in laws or government regulations or policies affecting financial

institutions, including changes in regulatory fees and capital requirements;

? our ability to manage market risk, credit risk and operational risk in the

current economic conditions;

? our ability to enter new markets successfully and capitalize on growth

opportunities;

our ability to successfully integrate any assets, liabilities, customers,

? systems and management personnel we may acquire into our operations and our

ability to realize related revenue synergies and cost savings within expected

time frames and any goodwill charges related thereto;

? changes in consumer spending, borrowing and savings habits;

changes in accounting policies and practices, as may be adopted by the bank

? regulatory agencies, the Financial Accounting Standards Board, the U. S.

Securities and Exchange Commission or the Public Company Accounting Oversight

Board;

? our ability to retain key employees; and our compensation expense associated

with equity allocated or awarded to our employees.

We undertake no obligation to publicly update or revise any forward-looking
statements included in this report or to update the reasons why actual results
could differ from those contained in such statements, whether as a result of new
information, future events or otherwise.  In light of these risks, uncertainties
and assumptions, the forward-looking statements discussed in this report might
not occur and you should not put undue reliance on any forward-looking
statements.

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Overview
Catalyst Bancorp, Inc. ("Catalyst Bancorp" or the "Company") is the holding
company for Catalyst Bank (the "Bank"), formerly known as St. Landry Homestead
Federal Savings Bank. The Company was incorporated by the Bank in February 2021
as part of the conversion of the Bank from the mutual to the stock form of
organization (the "Conversion). The Conversion was completed on October 12,
2021, at which time the Company acquired all of the issued and outstanding
shares of common stock of the Bank and became the holding company for the Bank.
As a result of the Conversion, the Bank is a wholly owned subsidiary of Catalyst
Bancorp. The Company was not engaged in operations and had not issued any shares
of stock prior to the completion of the Conversion.

Founded in 1922, the Bank is a community-oriented savings bank serving the
banking needs of customers in the Acadiana region of south-central Louisiana. We
are headquartered in Opelousas, Louisiana and serve our customers through six
full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and
Port Barre. Our primary business consists of attracting deposits from the
general public and using those funds together with funds we borrow from the
Federal Home Loan Bank ("FHLB") of Dallas and other sources to originate loans
to our customers and invest in securities. Historically, we operated as a
traditional thrift relying on long-term, single-family residential mortgage
loans secured by properties located primarily in St. Landry Parish and adjoining
areas to generate interest income. We have re-focused our business strategy to a
relationship-based community bank model targeting small- to mid-sized businesses
and business professionals in our market areas while continuing to serve our
traditional customer base. The Conversion and offering were important factors in
our efforts to become a more dynamic, profitable and growing institution.

At June 30, 2022, total assets were $281.0 million, including total loans of
$133.6 million and total investment securities of $95.8 million, total deposits
were $178.7 million and total shareholders' equity was $92.4 million. The
Company reported net income of $18,000 for the three months ended June 30, 2022,
compared to net income of $260,000 for the three months ended June 30, 2021. For
the six months ended June 30, 2022, the Company reported a net loss of $113,000,
compared to net income of $411,000 for the six months ended June 30, 2021. The
decrease in net income over the comparable prior periods was primarily due to
increases in non-interest expense, partially offset by increases in non-interest
income. On June 23, 2022, the Bank rebranded and officially changed its name to
Catalyst Bank. Pre-tax costs associated with the rebranding of the Bank totaled
$208,000 and $242,000 for the three and six months ended June 30, 2022,
respectively. The Company also received and recognized into income a $171,000
Bank Enterprise Award ("BEA") Program grant from the Community Development
Financial Institution ("CDFI") Fund during the three months ended June 30, 2022.
Professional fees associated with the grant totaled $26,000 and were recorded in
non-interest expense in the same period.

Our results of operations depend, to a large extent, on net interest income,
which is the difference between the income earned on our loan and investment
portfolios and interest expense on deposits and borrowings. Our net interest
income is largely determined by our net interest spread, which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on interest-bearing liabilities, and the relative amounts of
interest-earning assets and interest-bearing liabilities. Results of operations
are also affected by our provisions for loan losses, fee income and other
non-interest income and non-interest expense. Non-interest expense principally
consists of compensation, office occupancy and equipment expense, data
processing, advertising and business promotion and other expense. We expect that
our non-interest expenses will continue to increase as we grow and expand our
operations. In addition, our compensation expense will increase due to the new
stock benefit plans we intend to implement. Our results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, the impact of the COVID-19 pandemic,
government policies and actions of regulatory authorities. Future changes in
applicable law, regulations or government policies may materially impact our
financial condition and results of operations.

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Critical Accounting Estimates


In reviewing and understanding financial information for the Company, you are
encouraged to read and understand the significant accounting policies used in
preparing our financial statements. These policies are described in Note 1 of
the notes to our consolidated financial statements included in the Company's
Annual Report on Form 10-K filed with the SEC for the year ended December 31,
2021. Our accounting and financial reporting policies conform to accounting
principles generally accepted in the United States of America and to general
practices within the banking industry. Accordingly, the financial statements
require certain estimates, judgments, and assumptions, which are believed to be
reasonable based upon the information available. These estimates and assumptions
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
periods presented. 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 are taking 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.

The following accounting policies comprise those that management believes are
the most critical to aid in fully understanding and evaluating our reported
financial results. These policies require numerous estimates or economic
assumptions that may prove inaccurate or may be subject to variations which may
significantly affect our reported results and financial condition for the period
or in future periods.

Allowance for Loan Losses.  We have identified the evaluation of the allowance
for loan losses as a critical accounting policy where amounts are sensitive to
material variation. The allowance for loan losses represents management's
estimate for probable losses that are inherent in our loan portfolio but which
have not yet been realized as of the date of our balance sheet. It is
established through a provision for loan losses charged to earnings. Loans, or
portions of loans, are charged off against the allowance in the period that such
loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are
added to the allowance. The allowance is an amount that management believes will
cover probable and reasonably estimable losses in the loan portfolio based on
evaluations of the collectability of loans. The evaluations take into
consideration such factors as changes in the types and amount of loans in the
loan portfolio, historical loss experience, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
estimated losses relating to specifically identified loans, and current economic
conditions. This evaluation is inherently subjective as it requires material
estimates including, among others, exposure at default, the amount and timing of
expected future cash flows on impacted loans, value of collateral, estimated
losses on our commercial and residential loan portfolios and general amounts for
historical loss experience. All of these estimates may be susceptible to
significant changes as more information becomes available. The allowance for
loans losses totaled $2.0 million, or 1.48% of total loans, at June 30, 2022 and
$2.3 million, or 1.73% of total loans, at December 31, 2021.  The decrease in
the allowance for loan losses primarily related to improvements in our
assessment of the impact of the COVID-19 pandemic on our borrowers and a
decrease in reserves for loans individually evaluated for impairment.

While management uses the best information available to make loan loss allowance
evaluations, adjustments to the allowance may be necessary based on changes in
economic and other conditions or changes in accounting guidance. Historically,
our estimates of the allowance for loan loss have not required significant
adjustments from management's initial estimates. In addition, the Office of the
Comptroller of the Currency as an integral part of their examination processes
periodically reviews our allowance for loan losses. While management is
responsible for the establishment of the allowance for loan losses and for
adjusting such allowance through provisions for loan losses, management may
determine, as a result of such regulatory reviews, that an increase or decrease
in the allowance or provision for loan losses may be necessary or that loan
charge-offs are needed. To the extent that actual outcomes differ from
management's estimates, additional provisions to the allowance for loan losses
may be required that would adversely impact earnings in future periods.

Investment Securities. Available-for-sale securities consist of investment
securities not classified as trading securities or held-to-maturity securities.
Available-for-sale securities are reported at fair value and unrealized holding
gains and losses, net of tax, on available-for-sale securities are included in
other comprehensive income. The fair market values of investment securities are
obtained from a third party service provider, whose prices are

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based on a combination of observed market prices for identical or similar
instruments and various matrix pricing programs. The fair market values of
investment securities are classified within Level 2 of the fair value hierarchy.


Management evaluates securities for other-than-temporary impairment at least
quarterly, and more frequently when economic or market concerns warrant such
evaluation. The term "other-than-temporary" is not intended to indicate a
permanent decline in value. Rather, it means that the prospects for near term
recovery of value are not necessarily favorable, or that there is a lack of
evidence to support fair values equal to, or greater than, the carrying value of
the investment. Declines in the estimated fair value of individual investment
securities below their cost that are considered other-than-temporary are
recognized as realized losses in the statement of income. Factors affecting the
determination of whether an other-than-temporary impairment has occurred
include, among other things, (1) the length of time and the extent to which the
fair value has been less than cost, (2) the financial condition and near term
prospects of the issuer, (3) that the Company does not intend to sell these
securities, and (4) it is more likely than not that the Company will not be
required to sell before a period of time sufficient to allow for any anticipated
recovery in fair value. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are included in other comprehensive income. At
June 30, 2022 and December 31, 2021, net unrealized losses on available-for-sale
securities totaled $8.4 million and $864,000, respectively. The increase in
unrealized losses on available-for-sale securities relates principally to the
change in interest rates for similar types of securities. No declines in fair
value of available-for-sale securities were deemed to be other-than-temporary.

Income Taxes. Deferred income tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various assets and liabilities
and gives current recognition to changes in tax rates and laws. Realizing our
deferred tax assets principally depends upon our achieving projected future
taxable income. We may change our judgments regarding future profitability due
to future market conditions and other factors. We may adjust our deferred tax
asset balances if our judgments change.

COVID-19


The CARES Act, enacted in March of 2020 in response to the economic disruption
brought about by the COVID-19 pandemic, contains many provisions related to
banking, lending, mortgage forbearance and taxation. Under the provisions of the
act, we supported our customers through the Small Business Administration's
("SBA") Paycheck Protection Program ("PPP"), loan modifications and loan
deferrals. We funded 240 SBA PPP loans totaling $8.5 million with an average
initial loan balance of $36,000 to existing customers and key prospects located
primarily in our markets in south central Louisiana. As of June 30, 2022 and
December 31, 2021, the total unpaid principal balance of PPP loans totaled
$22,000 and $2.8 million, respectively.

In addition, we granted modifications, generally in the form of three-month
deferrals of principal payments and a three-month extension of the maturity
date, to 204 loans with principal balances totaling $28.2 million under the
CARES Act. In accordance with guidance from the Federal Deposit Insurance
Corporation (the "FDIC"), borrowers who were current prior to becoming affected
by COVID-19, that received loan modifications as a result of the pandemic,
generally were not reported as past due or categorized as troubled debt
restructurings. This relief provided by the CARES Act expired January 1, 2022.
At December 31, 2021, we had no loans under deferral or extension agreements due
to COVID-19.

Management's assumptions and estimates, such as the allowance for loan losses,
may be negatively impacted as the Company continues to evaluate and consider the
effects of the COVID-19 pandemic. However, it is difficult to assess or predict
how and to what extent COVID-19 will affect the Company in the future.

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Comparison of Financial Condition at June 30, 2022 and December 31, 2021


Total Assets.  Total assets decreased $4.4 million, or 1.5%, to $281.0 million
at June 30, 2022 from $285.3 million at December 31, 2021. The decrease resulted
primarily from declines in cash and cash equivalents, down $11.7 million, and
available-for-sale investment securities, down $6.1 million, partially offset by
an increase in bank-owned life insurance of $10.1 million and an increase in
total loans of $1.8 million.

Loans.  Total loans receivable increased by $1.8 million, or 1.4%, to $133.6
million at June 30, 2022, compared to $131.8 million at December 31, 2021. Loan
growth during the six months ended June 30, 2022 was primarily fueled by new
originations of commercial and industrial loans and residential mortgage loans,
partially offset by net declines in commercial real estate and multifamily
loans. The total unpaid principal balance of PPP loans, included in commercial
and industrial loans, amounted to $22,000 at June 30, 2022, down from $2.8
million at December 31, 2021.

The following table summarizes the changes in the composition of our loan
portfolio by type of loan as of the dates indicated.

                              June 30, 2022          December 31, 2021
(Dollars in thousands)      Amount         %         Amount         %               Change
Real estate loans
One- to four-family
residential               $   89,531     67.0 %    $   87,303     66.2 %    $    2,228      2.6 %
Commercial real estate        21,521     16.1          23,112     17.5         (1,591)    (6.9)
Construction and land          3,843      2.9           4,079      3.1           (236)    (5.8)
Multi-family
residential                    3,315      2.5           4,589      3.5         (1,274)   (27.8)
Total real estate
loans                        118,210     88.5         119,083     90.3           (873)    (0.7)
Other loans
Commercial and
industrial                    11,410      8.5           8,374      6.4           3,036     36.3
Consumer                       4,004      3.0           4,385      3.3           (381)    (8.7)
Total other loans             15,414     11.5          12,759      9.7           2,655     20.8
Total loans               $  133,624    100.0 %       131,842    100.0 %    $    1,782      1.4 %


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Allowance for Loan Losses. The allowance for loans losses totaled $2.0 million,
or 1.48% of total loans, at June 30, 2022 and $2.3 million, or 1.73% of total
loans, at December 31, 2021. The decline in the allowance for loan losses
primarily reflects the reversal of provisions made for estimated loan losses
during 2020 associated with our initial assessment of COVID-19's impact on
credit risk and a $56,000 decrease in reserves for loans individually evaluated
for impairment. During the six months ended June 30, 2022, net loan charge-offs
totaled $36,000 and the Company recorded a reversal to the allowance for loan
losses of $260,000.

The following table presents the changes in the allowance for loan losses and
other related data for the periods indicated.

                                                                                           Year
                                                                                          Ended
                                                                                         December
                                                    Six Months Ended June 30,              31,
(Dollars in thousands)                               2022                   2021           2021
Allowance for loan losses, beginning of
period                                         $       2,276             $   3,022     $    3,022
Provision for (reversal of) loan losses                (260)                 (286)          (660)
Net loan charge-offs:
One- to four-family residential                         (14)               
  (82)           (69)
Commercial real estate                                     -                     -              -
Construction and land                                      -                     -              -
Multi-family residential                                   -                     -              -
Commercial and industrial                               (14)                     -              -
Consumer                                                 (8)                   (5)           (17)
Total net charge-offs                                   (36)                  (87)           (86)
Allowance for loan losses, end of period       $       1,980             $ 

2,649 $ 2,276

Total loans at end of period                   $     133,624             $ 140,288     $  131,842
Total non-accrual loans at end of period               1,246                   754            890
Total non-performing loans at end of period            1,287                   897            891
Total average loans                                  132,291              

146,148 141,592


Allowance for loan losses as a percent of:
Total loans                                             1.48 %                1.89 %         1.73 %
Non-accrual loans                                     158.91                351.33         255.73
Non-performing loans                                  153.85                295.32         255.44

Net annualized charge-offs as a percent of
average loans by portfolio:
One- to four-family residential                       (0.03) %             
(0.17) %       (0.07) %
Commercial real estate                                     -                     -              -
Construction and land                                      -                     -              -
Multi-family residential                                   -                     -              -
Commercial and industrial                             (0.30)                     -              -
Consumer                                              (0.38)                (0.23)         (0.37)
Total loans                                           (0.05)                (0.12)         (0.06)


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Non-performing Assets. The following table shows the amounts of our
non-performing assets, which include non-accruing loans, accruing loans 90 days
or more past due and real estate owned at the dates indicated, and our
performing TDRs.


                                                         June 30,        December 31,
(Dollars in thousands)                                      2022              2021
Non-accruing loans
One- to four-family residential                        $     1,132      $  
      791
Commercial real estate                                          51                  -
Construction and land                                           63                 68
Multi-family residential                                         -                  -
Commercial and industrial                                        -                 18
Consumer                                                         -                 13
Total non-accruing loans                                     1,246                890
Accruing loans 90 days or more past due
One- to four-family residential                                 41         
        -
Commercial real estate                                           -                  -
Construction and land                                            -                  -
Multi-family residential                                         -                  -
Commercial and industrial                                        -                  -
Consumer                                                         -                  1
Total accruing loans 90 days or more past due                   41         
        1
Total non-performing loans                                   1,287                891
Foreclosed assets                                              320                340
Total non-performing assets                                  1,607              1,231
Performing troubled debt restructurings                      1,126         

1,873

Total non-performing assets and performing TDRs $ 2,733 $

    3,104
Total loans                                            $   133,624      $     131,842
Total assets                                           $   280,983      $     285,349
Total non-accruing loans as a percentage of total
loans                                                         0.93 %             0.68 %
Total non-performing loans as a percentage of total
loans                                                         0.96 %             0.68 %
Total non-performing loans as a percentage of total
assets                                                        0.46 %             0.31 %
Total non-performing assets as a percentage of
total assets                                                  0.57 %             0.43 %


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Investment Securities.  Our total investment securities, available-for-sale and
held-to-maturity, amounted to $95.8 million at June 30, 2022, a decrease of $6.1
million, or 6.0%, compared to $101.8 million in investment securities at
December 31, 2021. Net unrealized losses on securities available-for-sale
totaled $8.4 million at June 30, 2022, compared to $864,000 at December 31,
2021. The increase in unrealized losses on available-for-sale securities related
principally to increases in market interest rates for similar securities. At
June 30, 2022, $82.3 million, or 85.9%, of our total investment securities were
classified as available-for-sale. Our investment securities portfolio at such
date consisted primarily of debt obligations issued by the U.S. government and
government agencies and government-sponsored mortgage-backed securities. During
the six months ended June 30, 2022, purchases of $7.7 million of investment
securities exceeded $6.0 million of maturities, calls and principal repayments.

The following table presents the amortized cost of our total investment
securities portfolio that mature during each of the periods indicated and the
weighted average yields for each range of maturities at June 30, 2022.

                                                          Contractual Maturity as of June 30, 2022
                                 One Year or      After One Through    After Five Through
(Dollars in thousands)               Less            Five Years             Ten Years         Over Ten Years       Total
Total investment securities
Mortgage-backed securities      $         -      $     1,312           $    10,061           $      62,857      $  74,230
U.S. Government and agency
obligations                               -            8,976                11,000                   4,013         23,989
Municipal obligations                     -            1,083                 2,302                   2,569          5,954
Total                           $         -      $    11,371           $    23,363           $      69,439      $ 104,173

Weighted average yield
Mortgage-backed securities                - %           1.19 %                1.33 %                  1.50 %         1.47 %
U.S. Government and agency
obligations                               -             1.03                  1.21                    2.13           1.30
Municipal obligations                     -             0.83                  2.06                    1.35           1.53
Total weighted average yield              - %           1.03 %                1.35 %                  1.53 %         1.44 %


Securities are classified according to their contractual maturities without
consideration of principal amortization, potential prepayments, or call options.
The expected maturities may differ from contractual maturities because of the
exercise of call options and potential paydowns. Accordingly, actual maturities
may differ from contractual maturities. Weighted average yields are calculated
by dividing the estimated annual income divided by the average amortized cost of
the applicable securities.

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Deposits.  Our total deposits amounted to $178.7 million at June 30, 2022, an
increase of $1.9 million, or 1.1%, compared to December 31, 2021. This increase
resulted primarily from increases in NOW, money market and savings account
balances, partially offset by declines in certificates of deposit.

The following table presents total deposits by account type for the dates
indicated.

                              June 30, 2022         December 31, 2021
(Dollars in thousands)      Amount         %        Amount          %             Change
Non-interest-bearing
demand deposits           $   30,400    17.0 %     $   30,299    17.1 %    $      101     0.3 %
Negotiable order of
withdrawal ("NOW")            39,454    22.1           34,357    19.4           5,097    14.8
Money market                  19,525    10.9           18,878    10.7             647     3.4
Savings                       27,388    15.3           26,698    15.1             690     2.6
Certificates of
deposit                       61,968    34.7           66,563    37.7         (4,595)   (6.9)
Total deposits            $  178,735     100 %     $  176,795     100 %    $    1,940     1.1


Borrowings. Our borrowings, which consist of FHLB advances, amounted to $9.1
million at June 30, 2022, compared to $9.0 million at December 31, 2021. The
increase in the carrying value of our FHLB advances reflects the amortization of
deferred prepayment penalties on $10.0 million in advances restructured in
December of 2020. Deferred prepayment penalties on our FHLB advances totaled
$892,000 and $982,000 at June 30, 2022 and December 31, 2021, respectively.

Shareholders' Equity.  Shareholders' equity decreased $5.9 million to $92.4
million at June 30, 2022 compared to $98.3 million at December 31, 2021. The
primary reason for the decrease in total shareholders' equity was a $6.0 million
increase in the Company's accumulated other comprehensive loss position due to
unrealized losses on available-for-sale securities. At June 30, 2022, our ratio
of total shareholders' equity to total assets was 32.9% compared to 34.5% at
December 31, 2021.

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Average Balances, Net Interest Income, and Yields Earned and Rates Paid.  The
following tables show for the periods indicated the total dollar amount of
interest from average interest-earning assets and the resulting yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollars and rates, and the net interest margin. Taxable equivalent ("TE")
yields have been calculated using a marginal tax rate of 21%. All average
balances are based on daily balances.

                                                       Three Months Ended June 30,
                                              2022                                      2021
                             Average                     Average        Average                     Average
(Dollars in thousands)       Balance      Interest      Yield/Rate      Balance      Interest     Yield/Rate
Interest-earning assets:
Loans receivable(1)         $  133,810   $    1,555       4.66 %       $  143,145   $    1,865        5.23 %
Investment
securities(TE)(2)              104,137          352       1.37             50,105          141        1.15
Other interest-earning
assets                          30,108           58       0.78             30,193           10        0.13
Total interest-earning
assets(TE)                     268,055        1,965       2.94            223,443        2,016        3.62
Non-interest-earning
assets                          18,233                                     14,483
Total assets                $  286,288                                 $  237,926
Interest-bearing
liabilities:
Savings, NOW and money
market accounts                 85,646           24       0.11             78,600           26        0.13
Certificates of deposit         64,936           63       0.39             69,314          109        0.63
Total interest-bearing
deposits                       150,582           87       0.23            147,914          135        0.37
FHLB advances                    9,079           68       3.00              8,898           68        3.07
Total interest-bearing
liabilities                    159,661          155       0.39            156,812          203        0.52
Non-interest-bearing
liabilities                     33,309                                     30,740
Total liabilities              192,970                                    187,552
Shareholders' equity            93,318                                     50,374
Total liabilities and
shareholders' equity        $  286,288                                 $  237,926
Net interest-earning
assets                      $  108,394                                 $   66,631
Net interest income;
average interest rate
spread(TE)                               $    1,810       2.55 %                    $    1,813        3.10 %
Net interest
margin(TE)(3)                                             2.71 %                                      3.26 %
Average interest-earning
assets to average
interest-bearing
liabilities                                             167.89 %                                    142.49 %


(1) Includes non-accrual loans during the respective periods. Calculated net of

deferred fees and discounts and loans in process.

(2) Average investment securities does not include unrealized holding gains/

losses on available-for-sale securities.

(3) Equals net interest income divided by average interest-earning assets.

    Taxable equivalent yields are calculated using a marginal tax rate of 21%.


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  Table of Contents

                                                         Six Months Ended June 30,
                                               2022                                       2021
                              Average                     Average        Average                     Average
(Dollars in thousands)        Balance      Interest      Yield/Rate      Balance      Interest      Yield/Rate
Interest-earning assets:
Loans receivable(1)          $  132,291   $    3,118       4.75 %       $  146,148   $    3,673       5.07 %
Investment
securities(TE)(2)               103,888          681       1.32             45,293          262       1.18
Other interest-earning
assets                           34,830           77       0.45             28,058           24       0.17
Total interest-earning
assets(TE)                      271,009        3,876       2.88            219,499        3,959       3.64
Non-interest-earning
assets                           15,457                                     14,324
Total assets                 $  286,466                                 $  233,823
Interest-bearing
liabilities:
Savings, NOW and money
market accounts                  83,776           48       0.12             76,037           58       0.15
Certificates of deposit          65,434          131       0.40             69,199          232       0.68
Total interest-bearing
deposits                        149,210          179       0.24            145,236          290       0.40
FHLB advances                     9,057          136       3.01              8,876          136       3.07
Total interest-bearing
liabilities                     158,267          315       0.40            154,112          426       0.56
Non-interest-bearing
liabilities                      32,968                                     29,173
Total liabilities               191,235                                    183,285
Shareholders' equity             95,231                                     50,538
Total liabilities and
shareholders' equity         $  286,466                                 $  233,823
Net interest-earning
assets                       $  112,742                                 $   65,387
Net interest income;
average interest rate
spread(TE)                                $    3,561       2.48 %                    $    3,533       3.08 %
Net interest
margin(TE)(3)                                              2.65 %                                     3.25 %
Average interest-earning
assets to average
interest-bearing
liabilities                                              171.24 %                                   142.43 %


(1) Includes non-accrual loans during the respective periods. Calculated net of

deferred fees and discounts and loans in process.

(2) Average investment securities does not include unrealized holding gains/

losses on available-for-sale securities.

(3) Equals net interest income divided by average interest-earning assets.

Taxable equivalent yields are calculated using a marginal tax rate of 21%.


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  Table of Contents

Rate/Volume Analysis.  The following tables show the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities affected our interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year
volume, and (2) changes in volume, which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.

                                                Three Months Ended                                    Six Months Ended
                                               June 30, 2022 vs 2021                                June 30, 2022 vs 2021
                                    Increase (Decrease) Due to          Total            Increase (Decrease) Due to          Total
                                                                       Increase                                             Increase
(Dollars in thousands)                Rate             Volume         (Decrease)           Rate             Volume         (Decrease)
Interest income:
Loans receivable                 $         (194)    $       (116)   $        (310)    $         (220)    $       (335)   $        (555)
Investment securities                         33              178              211                 39              380              419
Other interest-earning assets                 48                -               48                 46                7               53
Total interest income                      (113)               62             (51)              (135)               52             (83)
Interest expense:
Savings, NOW and money market
accounts                                     (4)                2              (2)               (15)                5             (10)
Certificates of deposit                     (39)              (7)             (46)               (89)             (12)            (101)
Total deposits                              (43)              (5)             (48)              (104)              (7)            (111)
FHLB advances and other
borrowings                                   (1)                1                -                (2)                2                -
Total interest expense                      (44)              (4)             (48)              (106)              (5)            (111)
Increase (decrease) in net
interest income                  $          (69)    $          66   $          (3)    $          (29)    $          57   $           28




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Comparison of Results of Operations for the Three Months Ended June 30, 2022 and
2021.

General. For the three months ended June 30, 2022, the Company reported net
income of $18,000, compared to net income of $260,000 for the three months ended
June 30, 2021. The decrease in net income over the comparable three-month
periods was primarily due to an increase in non-interest expense of $415,000, or
21.1%, and a $97,000, or 33.9%, decline in our reversal of the allowance for
loan losses, partially offset by an increase in non-interest income of $189,000,
or 99.5%. During the three months ended June 30, 2022, pre-tax costs associated
with the rebranding of the Bank to Catalyst Bank totaled $208,000 and the
Company received and recognized into non-interest income a $171,000 BEA Program
grant from the CDFI Fund. Professional fees associated with the grant totaled
$26,000 and were recorded in non-interest expense in the same period.

Interest Income. Total interest income decreased $51,000, or 2.5%, to $2.0
million for the three months ended June 30, 2022, compared to the three months
ended June 30, 2021. This decrease was primarily attributable to a $310,000
decrease in interest income on loans receivable, partially offset by an increase
in income on investment securities of $211,000 and an increase in other interest
income of $48,000.

The average loan yield was 4.66% for the three months ended June 30, 2022, down
from 5.23% for the three months ended June 30, 2021. In addition, average loans
were $133.8 million for the three months ended June 30, 2022, down $9.3 million,
or 6.5%, compared to the same period in 2021. Loan income from the recognition
of deferred PPP loan fees totaled $96,000 for the three months ended June 30,
2022, down $78,000, or 44.5%, from $174,000 recognized in the same period in
2021.

The increase in interest income on investment securities was primarily due to an
increase in the average volume of our securities portfolio. The average
amortized cost of our investment securities was up $54.0 million, or 107.8%, for
the three months ended June 30, 2022, compared to the same period in 2021.
During the fourth quarter of 2021, the Company deployed $41.9 million of the
proceeds from our IPO into the investment securities portfolio.

Interest Expense. Total interest expense decreased $48,000, or 23.6%, to
$155,000 for the three months ended June 30, 2022 from $203,000 for the three
months ended June 30, 2021. Interest expense on deposits was $87,000 during the
three months ended June 30, 2022, down $48,000, or 35.6%, from $135,000 for the
three months ended June 30, 2021.  While the average balance of our total
interest-bearing deposits increased by $2.7 million, or 1.8%, to $150.6 million
for the three months ended June 30, 2022 compared to the three months ended June
30, 2021, the average rate paid on interest-bearing deposits was down 14 basis
points to 0.23% for the three months ended June 30, 2022 compared to the three
months ended June 30, 2021.

Net Interest Income. Net interest income was $1.8 million for both the three
months ended June 30, 2022 and 2021. Our interest rate spread was 2.55% and
3.10% for the three months ended June 30, 2022 and 2021, respectively. Our net
interest margin was 2.71% and 3.26% for the three months ended June 30, 2022 and
2021, respectively. The decline in interest rate spread and net interest margin
over the prior comparable periods was primarily the result of lower average
yields on loans and a shift in the mix of our interest-earning assets as we grew
our investment securities portfolio and experienced a decline in total loans.
These factors reduced the average yield earned on total interest-earning assets
in an amount which more than offset the reduction in the average cost of our
interest-bearing liabilities.

Provision for Loan Losses.  During the three months ended June 30, 2022 and
2021, the Company recorded reversals to the allowance for loan losses of
$189,000 and $286,000, respectively. The amounts recorded during both periods
primarily reflect the release of reserve builds recorded during 2020 for the
anticipated effects of the COVID-19 pandemic on credit quality.

Non-interest Income.  Non-interest income increased $189,000, or 99.5%, to
$379,000 for the three months ended June 30, 2022 from $190,000 for the three
months ended June 30, 2021. During the three months ended June 30, 2022, the
Company received and recognized into income a $171,000 BEA Program grant from
the CDFI Fund. The BEA Program grants awards to depository institutions that
have successfully increased their investments in economically distressed
communities through certain qualified activities, including investments in CDFIs
and providing loans, investments and financial services to businesses and
residents located in distressed communities.  In addition, income from
bank-owned life insurance ("BOLI") increased by $75,000 to $98,000 for the three
months ended June 30, 2022, compared to the same

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period in 2021 largely due to an aggregate of $10.0 million in additional BOLI
policies purchased in March and April of 2022.

The increases in non-interest income due to the BEA Program grant and BOLI were
partially offset by losses on the disposal of fixed assets with a total net book
value of $77,000 during the three months ended June 30, 2022. Of the assets
disposed, $55,000 was attributable to branch signage that was replaced due to
our rebranding.

Non-interest Expense.  Non-interest expense increased $415,000, or 21.1%, to
$2.4 million for the three months ended June 30, 2022, compared to $2.0 million
for the three months ended June 30, 2021. Total non-interest expense for the
three months ended June 30, 2022 included $153,000 of rebranding-related
expenses. The increase in non-interest expense also reflects the additional
costs associated with operating as a public company since the completion of our
IPO in October 2021 and additional resources needed to expand our business.

Salaries and employee benefits expense totaled $1.2 million for the three months
ended June 30, 2022, an increase of $38,000, or 3.2%, over the comparable period
in 2021 primarily due to ESOP compensation expense recognized in the 2022
period. Allocations under the Company's ESOP commenced during the fourth quarter
of 2021.

Occupancy and equipment expense totaled $227,000 for the three months ended June
30, 2022, an increase of $55,000, or 32.0%, over the comparable period in 2021
primarily due to expenses related to an additional branch location opened in
November 2021 and rebranding-related expenses of $14,000.

Data processing and communication expense totaled $242,000 for the three months
ended June 30, 2022, an increase of $61,000, or 33.7%, over the comparable
period in 2021 primarily due to rebranding-related expenses of $32,000 for
project support provided by our core software vendor and the cost of technology
resources for additional personnel and our newest branch location.

Professional fees totaled $175,000 for the three months ended June 30, 2022, an
increase of $81,000, or 86.2%, over the comparable period in 2021 primarily due
to public company consulting and legal services and professional fees of $26,000
incurred for assistance with the BEA Program grant application during the three
months ended June 30, 2022.

Advertising and marketing expense totaled $109,000 for the three months ended
June 30, 2022, an increase of $97,000 over the comparable period in 2021
primarily due to rebranding-related expenses of $87,000.

Franchise and shares tax expense totaled $58,000 for the three months ended June
30, 2022. As a result of the mutual-to-stock conversion of the Bank and the
establishment of Catalyst Bancorp as its holding company, the Company became
subject to franchise tax and the Bank became subject to Louisiana shares tax for
2022.

Income Tax Expense.  The Company reported an income tax benefit of $21,000 for
the three months ended June 30, 2022, compared to income tax expense of $63,000
for the three months ended June 30, 2021. The change in income tax expense over
the comparable three-month periods was primarily due to the change in taxable
earnings.

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  Table of Contents

Comparison of Results of Operations for the Six Months Ended June 30, 2022 and
2021.

General. For the six months ended June 30, 2022, the Company reported a net loss
of $113,000, compared to net income of $411,000 for the six months ended June
30, 2021. The decrease in net income over the comparable periods was primarily
due to an increase in non-interest expense of $877,000, or 23.8%, partially
offset by an increase in non-interest income of $199,000, or 52.8%. During the
six months ended June 30, 2022, pre-tax costs associated with the rebranding of
the Bank to Catalyst Bank totaled $242,000 and the Company received and
recognized into income the $171,000 BEA Program grant from the CDFI Fund.
Professional fees associated with the grant totaled $26,000 and were recorded in
non-interest income in the same period.

Interest Income. Total interest income decreased $83,000, or 2.1%, to $3.9
million for the six months ended June 30, 2022, from $4.0 million for the six
months ended June 30, 2021. This decrease was primarily attributable to a
$555,000 decrease in interest income on loans receivable, partially offset by an
increase in income on investment securities of $419,000 and an increase in other
interest income of $53,000.

The average loan yield was 4.75% for the six months ended June 30, 2022, down
from 5.07% for the six months ended June 30, 2021. In addition, average loans
were $132.3 million for the six months ended June 30, 2022, down $13.9 million,
or 9.5%, compared to the same period in 2021. Loan income from the recognition
of deferred PPP loan fees totaled $186,000 for the six months ended June 30,
2022, down $24,000, or 11.4%, from $210,000 recognized in the same period in
2021.

The increase in interest income on investment securities was primarily due to an
increase in the average volume of our securities portfolio. The average
amortized cost of our investment securities was up $58.6 million, or 129.4%, for
the six months ended June 30, 2022, compared to the same period in 2021. During
the fourth quarter of 2021, the Company deployed $41.9 million of the proceeds
from our IPO into the investment securities portfolio.

Interest Expense. Total interest expense decreased $111,000, or 26.1%, to
$315,000 for the six months ended June 30, 2022 from $426,000 for the six months
ended June 30, 2021. Interest expense on deposits was $179,000 during the six
months ended June 30, 2022, down $111,000, or 38.3%, from $290,000 for the six
months ended June 30, 2021.  While the average balance of our total
interest-bearing deposits increased by $4.0 million, or 2.7%, to $149.2 million
for the six months ended June 30, 2022 compared to the six months ended June 30,
2021, the average rate paid on interest-bearing deposits decreased by 16 basis
points to 0.24% for the six months ended June 30, 2022 compared to the six
months ended June 30, 2021.

Net Interest Income. Net interest income was $3.6 million for the six months
ended June 30, 2022, an increase of $28,000, or 0.8%, compared to the six months
ended June 30, 2021. Our interest rate spread was 2.48% and 3.08% for the six
months ended June 30, 2022 and 2021, respectively. Our net interest margin was
2.65% and 3.25% for the six months ended June 30, 2022 and 2021, respectively.
The decline in interest rate spread and net interest margin over the prior
comparable periods was primarily the result of lower average yield on loans and
a shift in the mix of our interest-earning assets as we grew our investment
securities portfolio and experienced a decline in total loans. These factors
reduced the average yield earned on total interest-earning assets in an amount
which more than offset the reduction in the average cost of our interest-bearing
liabilities.

Provision for Loan Losses.  During the six months ended June 30, 2022 and 2021,
the Company recorded reversals to the allowance for loan losses of $260,000 and
$286,000, respectively. The amounts recorded during both periods primarily
reflect the release of reserve builds recorded during 2020 for the anticipated
effects of the COVID-19 pandemic on credit quality.

Non-interest Income.  Non-interest income increased $199,000, or 52.8%, to
$576,000 for the six months ended June 30, 2022 from $377,000 for the six months
ended June 30, 2021. The Company received and recognized into income a $171,000
BEA Program grant from the CDFI Fund during the six months ended June 30, 2022.
In addition, BOLI income increased by $74,000 to $119,000 for the six months
ended June 30, 2022, compared to the same period in 2021 largely due to an
aggregate of $10.0 million in additional BOLI policies purchased in March and
April of 2022.

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  Table of Contents
The increases in non-interest income due to the BEA Program grant and BOLI were
partially offset by losses on the disposal of fixed assets with a total net book
value of $77,000 during the six months ended June 30, 2022. Of the assets
disposed, $55,000 was attributable to branch signage that was replaced due to
our rebranding.

Non-interest Expense.  Non-interest expense increased $877,000, or 23.8%, to
$4.6 million for the six months ended June 30, 2022, compared to $3.7 million
for the six months ended June 30, 2021. Total non-interest expense for the six
months ended June 30, 2022 included $187,000 of rebranding-related expenses. The
increase in non-interest expense also reflects additional costs associated with
operating as a public company and additional resources needed to expand our
business.

Salaries and employee benefits expense totaled $2.5 million for the six months
ended June 30, 2022, an increase of $232,000, or 10.3%, over the comparable
period in 2021 primarily due to ESOP compensation expense and new personnel in
the 2022 period. Allocations under the Company's ESOP commenced during the
fourth quarter of 2021.

Professional fees totaled $315,000 for the six months ended June 30, 2022, an
increase of $148,000, or 88.6%, over the comparable period in 2021 primarily due
to public company consulting and legal services and professional fees of $26,000
incurred for assistance with the BEA Program grant application during the six
months ended June 30, 2022.

Advertising and marketing expense totaled $151,000 for the six months ended June
30, 2022, an increase of $130,000 over the comparable period in 2021 primarily
due to rebranding-related expenses of $121,000 incurred during the six months
ended June 30, 2022.

Franchise and shares tax expense totaled $116,000 for the six months ended June
30, 2022. As a result of the mutual-to-stock conversion of the Bank and the
establishment of Catalyst Bancorp as its holding company, the Company became
subject to franchise tax and the Bank became subject to Louisiana shares tax for
2022.

Income Tax Expense.  The Company reported an income tax benefit of $59,000 for
the six months ended June 30, 2022, compared to income tax expense of $93,000
for the six months ended June 30, 2021. The change in income tax expense over
the comparable six-month periods was primarily due to the change in taxable
earnings.

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  Table of Contents

Liquidity and Capital Resources


The Company maintains levels of liquid assets deemed adequate by management. We
adjust our liquidity levels to fund deposit outflows, repay our borrowings, and
to fund loan commitments. We also adjust liquidity, as appropriate, to meet
asset and liability management objectives.

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, and proceeds from
maturities of securities. We also have the ability to borrow from the FHLB. At
June 30, 2022, we had outstanding advances from the FHLB with a carrying value
of $9.1 million, and had the capacity to borrow approximately an additional
$45.0 million from the FHLB and an additional $17.8 million on a line of credit
with First National Bankers Bank at such date.

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. 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 $51,000 for the six months ended June 30,
2022. Net cash used in investing activities, which consists primarily of net
changes in loans receivable, investment securities and other assets, such as
bank-owned life insurance, was $13.7 million for the six months ended June 30,
2022. Net cash provided by financing activities, consisting of the net change in
deposits, was $1.9 million for the six months ended June 30, 2022.

We are committed to maintaining a strong liquidity position. We monitor our
liquidity position daily. We anticipate that we will have sufficient funds to
meet our current funding commitments. Based on our deposit retention experience
and current pricing strategy, we anticipate that a significant portion of
maturing time deposits will be retained. We also anticipate continued use of
FHLB advances.

The Bank exceeded all regulatory capital requirements and was categorized as
well-capitalized at June 30, 2022 and December 31, 2021. Management is not aware
of any conditions or events since the most recent notification that would change
our category. The following table presents actual and required capital.

                                                                    To be Well Capitalized
                                                                  under the Prompt Corrective
                                                Actual                 Action Provision
(Dollars in thousands)                    Amount        Ratio         Amount          Ratio
As of June 30, 2022
Common Equity Tier 1 Capital            $   77,779     58.51 %    $       
8,641      >6.5 %
Tier 1 Risk-Based Capital                   77,779     58.51              10,635      >8.0
Total Risk-Based Capital                    79,445     59.76              13,293     >10.0
Tier 1 Leverage Capital                     77,779     28.43              13,681      >5.0

As of December 31, 2021
Common Equity Tier 1 Capital            $   77,819     63.51 %    $       
7,965      >6.5 %
Tier 1 Risk-Based Capital                   77,819     63.51               9,803      >8.0
Total Risk-Based Capital                    79,360     64.77              12,253     >10.0
Tier 1 Leverage Capital                     77,819     27.38              14,210      >5.0


                                       41

  Table of Contents

At June 30, 2022, we had $6.7 million of outstanding commitments to originate
loans and $2.1 million of remaining funds to be disbursed on construction loans
in process. Our total unused lines of credit, unused overdraft privilege amounts
and letters of credit totaled $5.7 million at June 30, 2022. Certificates of
deposit that are scheduled to mature in less than one year from June 30, 2022,
totaled $50.5 million. Management expects that a substantial portion of the
maturing certificates of deposit will be retained. However, if a substantial
portion of these deposits is not retained, we may utilize FHLB advances or raise
interest rates on deposits to attract new accounts, which may result in higher
levels of interest expense.

The following table summarizes our outstanding commitments to originate loans
and to advance additional amounts pursuant to outstanding letters of credit,
lines of credit and undisbursed construction loans at June 30, 2022.

                                                                            

Amount of Commitment Expiration – Per Period

                                    Total Amounts
                                     Committed at
(Dollars in thousands)              June 30, 2022          To 1 Year                              1 - 3 Years     3 - 5 Years     After 5 Years
Commitments to originate loans   $              6,744   $         6,744                          $           -   $           -   $             -
Undisbursed portion of
construction loans in process                   2,056             1,758    
                               298               -                 -
Unused lines of credit                          4,534             1,173                                  2,046               -             1,315
Unused overdraft privilege
amounts                                         1,116                 -                                      -               -             1,116
Letters of credit                                   4                 4                                      -               -                 -
Total commitments                $             14,454   $         9,679                          $       2,344   $           -   $         2,431


The following table summarizes our contractual cash obligations at June 30,
2022.

                                                                     Payments Due By Period
                                     Total at                                                       After 5
(Dollars in thousands)             June 30, 2022      To 1 Year     1 - 3 Years     3 - 5 Years      Years
Certificates of deposit          $          61,968   $    50,530   $      10,587   $         851   $       -
FHLB advances                               10,000             -               -           3,000       7,000
Total long-term debt                        71,968        50,530          10,587           3,851       7,000
Operating lease obligations                      -             -               -               -           -

Total contractual obligations $ 71,968 $ 50,530 $ 10,587 $ 3,851 $ 7,000

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note
3 of the notes to our financial statements.


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