VWF 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 is intended to assist in understanding VWF Bancorp, Inc.'s ("the
Company") consolidated financial condition at September 30, 2022 and
consolidated results of operations for the three months ended September 30, 2022
and 2021. It should be read in conjunction with the unaudited consolidated
financial statements and the related notes appearing in Part I, Item 1, of this
Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements


This quarterly report contains forward-looking statements, which can be
identified by the use of words such as "estimate," "project," "believe,"
"intend," "anticipate," "assume," "plan," "seek," "expect," "will," "may,"
"should," "indicate," "would," "believe," "contemplate," "continue," "target"
and words of similar meaning. 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 asset quality of our loan and investment portfolios;

and

? estimates of our risks and future costs and benefits.



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

The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements:

conditions relating to the COVID-19 pandemic, including the severity and

? duration of the associated economic slowdown either nationally or in our market

area, which are worse than expected;

? inflation and general economic conditions, either nationally or in our market

area, which are worse than expected;

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

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

? our ability to access cost-effective funding;

? fluctuations in real estate values and in the conditions of the residential

real estate, commercial real estate, and agricultural real estate markets;

? our ability to control cost and expenses, particularly those associated with

operating a publicly traded company;

? demand for loans and deposits in our market area;

? our ability to implement and change our business strategies;

? competition among depository and other financial institutions;


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

? and yields, the fair value of our financial instruments, or our level of loan

originations, or increase the level of defaults, losses and prepayments within

our loan portfolio;

? adverse changes in the securities markets;

changes in laws or government regulations or policies affecting financial

? institutions, including changes in regulatory fees, capital requirements and

insurance premiums;

? changes in the quality or composition of our loan or investment portfolios;

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

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

? a failure or breach of our operational or information security systems or

infrastructure, including cyberattacks;

? our ability to manage market risk, credit risk and operational risk;

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

opportunities;

? 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 Securities

and Exchange Commission or the Public Company Accounting Oversight Board;

? our ability to retain key employees;

? our ability to control costs when hiring employees in a highly competitive

environment;

? changes in the financial condition, results of operations or future prospects

of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future
results may be materially different from the results indicated by these
forward-looking statements.

Search for New President and Chief Executive Officer


As previously reported, the Company has announced that Michael D. Cahill, CPA
has become a consultant to the Bank effective October 1, 2022. He will serve as
a consultant for the remainder of the calendar year and the Company and Bank
expect to appoint him to serve as President and Chief Executive Officer
effective January 1, 2023. He is also expected to be appointed as a director of
the Company and Bank effective January 1, 2023.

Critical Accounting Policies and Use of Critical Accounting Estimates


The discussion and analysis of the financial condition and results of operations
are based on our financial statements, which are prepared in conformity with
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 critical 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.

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The Jumpstart Our Business Startups Act (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 have opted 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.

The following are our critical accounting policies:


Allowance for Loan Losses. The allowance for loan losses is the estimated amount
considered necessary to cover inherent, but unconfirmed, credit losses in the
loan portfolio at the balance sheet date. The allowance is established through
the provision for losses on loans which is charged against income. In
determining the allowance for loan losses, management makes significant
estimates and has identified this policy as one of our most critical accounting
policies.

Management performs a quarterly evaluation of the allowance for loan losses.
Consideration is given to a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that may be susceptible to
significant change.

The analysis has two components, specific and general allowances. The
specific percentage allowance is for unconfirmed losses related to loans that
are determined to be impaired. Impairment is measured by determining the present
value of expected future cash flows or, for collateral-dependent loans, the fair
value of the collateral adjusted for market conditions and selling expenses. If
the fair value of the loan is less than the loan's carrying value, a charge is
recorded for the difference. The general allowance, which is for loans reviewed
collectively, is determined by segregating the remaining loans by type of loan,
risk weighting (if applicable) and payment history. We also analyze historical
loss experience, delinquency trends, general economic conditions and geographic
and industry concentrations. This analysis establishes historical
loss percentages and qualitative factors that are applied to the loan groups to
determine the amount of the allowance for loan losses necessary for loans that
are reviewed collectively. The qualitative component is critical in determining
the allowance for loan losses as certain trends may indicate the need for
changes to the allowance for loan losses based on factors beyond the historical
loss history. Not incorporating a qualitative component could misstate the
allowance for loan losses. Actual loan losses may be significantly more than the
allowances we have established which could result in a material negative effect
on our financial results.

Deferred Tax Assets. We use the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance when it is more likely
than not that some portion of the deferred tax asset will not be realized.

We exercise significant judgment in evaluating the amount and timing of
recognition of the resulting tax liabilities and assets. These judgments require
us to make projections of future taxable income. The judgments and estimates we
make in determining our deferred tax assets, which are inherently subjective,
are reviewed on a continual basis as regulatory and business factors change.
Determining the proper valuation allowance for deferred taxes is critical in
properly valuing the deferred tax asset and the related recognition of income
tax expense or benefit. Any reduction in estimated future taxable income may
require us to record a valuation allowance against our deferred tax assets.

Fair Value Measurements. The fair value of a financial instrument is defined as
the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Van Wert
Federal estimates the fair value of a financial instrument and any related asset
impairment using a variety of valuation methods. Where financial instruments are
actively traded and have quoted market prices, quoted market prices are used for
fair value. When the financial instruments are not actively traded, other
observable market inputs, such as quoted prices of securities with similar
characteristics, may be used, if available, to determine fair value. When
observable market prices do not exist, we estimate fair value. These estimates
are subjective in nature and imprecision in estimating these factors can impact
the amount of gain or loss recorded.

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Comparison of Financial Condition at September 30, 2022 and June 30, 2022


Total Assets. Total assets were $145.8 million at September 30, 2022, a decrease
of $3.8 million, or 2.5%, from $149.6 million at June 30, 2022. The decrease was
primarily comprised of a decrease in cash and due from banks of $19.3 million, a
decrease in interest-bearing time deposits of $500,000, a decrease in Federal
Home Loan Bank Stock of $300,000, and a decrease in other assets of $700,000,
which were partially offset by an increase in loans of $1.4 million and an
increase in available-for-sale debt securities of $15.6 million.

Cash and Due from Banks. Cash and due from banks decreased by $19.3 million, or
52.5%, to $17.4 million at September 30, 2022 from $36.7 million at June 30,
2022. The decrease was due primarily to funding purchases of investment
securities and loan growth.

Interest Bearing Time Deposits. Interest-bearing time deposits decreased by
$500,000, or 33.3%, to $1.0 million at September 30, 2022 from $1.5 million at
June 30, 2022. Certificates of deposit maturing during the three months ended
September 30, 2022 were not renewed as management invested the proceeds from
these securities into higher yielding instruments.

Investment Securities. Investment securities increased $15.6 million, or 63.6%,
to $40.1 million at September 30, 2022, from $24.5 million at June 30, 2022.
Aggregate securities purchases of $17.3 million during the period ended
September 30, 2022, were offset by $570,000 of calls, maturities and repayments
as well as $1.1 million decline in fair value of the securities over the period.
The yield on investment securities was 2.30% for the three months ended
September 30, 2022, compared to 1.08% for the three months ended September 30,
2021, reflecting the increase in market interest rates during the period.

The $1.1 million decline in the fair value of the investment securities was
primarily attributable to the increases in market interest rates. As market
interest rates increased, the fair value of the securities declined. The
unrealized losses are recorded to equity, net of tax, as management has
determined that there are no credit quality concerns with the issuers of the
securities and there is no intent to sell the securities and, as a result, the
fair value is expected to recover as the securities approach their maturity
dates.

Net Loans. Net loans increased by $1.4 million, or 1.8%, to $79.1 million at
September 30, 2022 from $77.7 million at June 30, 2022. During the three months
ended September 30, 2022, loan originations totaled $3.6 million, comprised of
$2.8 million of loans secured by one-to-four family residential real estate,
$589,000 secured by agricultural real estate, $143,000 of consumer loans and
$100,000 of construction and land. Increases in loan balances reflect our
strategy to grow our loan portfolio, continuing to focus primarily on
owner-occupied one-to-four family residential real estate loans, while
increasing our emphasis on commercial real estate loans and commercial and
industrial loans. Management intends to continue to pursue growth in these loan
segments in future periods.

Deposits. Deposits decreased by $4.0 million, or 3.7%, to $106.0 million at
September 30, 2022 from $110.0 million at June 30, 2022. Core deposits (defined
as all deposits other than certificates of deposit) decreased $2.3 million, or
3.2%, to $72.4 million at September 30, 2022 from $74.7 million at June 30,
2022. Certificates of deposit decreased $1.6 million, or 4.6%, to $33.6 million
at September 30, 2022 from $35.2 million at June 30, 2022. Management intends to
continue its efforts to increase core deposits, with an emphasis on growth in
consumer and business demand deposits.

Shareholders' Equity. Shareholders' equity increased $15.6 million, or 66.8%, to
$39.0 million at September 30, 2022 from $23.4 million at June 30, 2022. The
increase resulted from the $16.3 million net proceeds of the capital raised
through the conversion, which was partially offset by a $900,000 increase in
accumulated other comprehensive loss primarily due to net unrealized losses on
available-for-sale securities caused by the increase in market interest rates
during the period.

Average Balances and Yields. The following table sets forth average balance
sheets, average yields and costs, and certain other information for the periods
indicated. No tax-equivalent yield adjustments have been made, as the effects
are immaterial. Average balances are calculated using month-end average
balances, rather than daily average balances. We believe the use of month-end
average balances is representative of our operations. Non-accrual loans are
included in average balances only. Average yields include the effect of deferred
fees, discounts, and premiums that are amortized or accreted to interest income
or interest expense. Deferred loan fees are immaterial.

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                                                                 For the

Three Months Ended September 30,

                                                             2022                                        2021

                                               Average                                    Average
                                             Outstanding                    Yield/      Outstanding                   Yield/
                                               Balance         Interest      Rate         Balance        Interest      Rate

Interest-earning assets:
Loans                                       $       82,209    $      687       3.34 %  $       77,723    $     681       3.50 %
Investment securities                               33,691           194       2.30            28,775           78       1.08
Interest-bearing deposits and other                 30,041           140       1.86            15,906           29       0.73
Total interest-earning assets                      145,941         1,021   
   2.80           122,404          788       2.58
Non-interest-earning assets                          5,098                                      7,348
Allowance for loan losses                            (223)                                      (223)
Total assets                                $      150,816                             $      129,529

Interest-bearing liabilities:
Interest-bearing demand                     $       46,614    $        1       0.01 %  $       43,291    $       1       0.01 %
Savings accounts                                    34,384             2       0.02            38,315            2       0.02
Certificates of deposit                             23,348            68       1.16            17,673           92       2.08
Total deposits                                     104,346            71       0.27            99,279           95       0.38
Borrowings                                               -             -       0.00                 -            -       0.00
Total interest-bearing liabilities                 104,346            71       0.27            99,279           95       0.38
Non-interest-bearing liabilities                    23,420                 
                    4,845
Total liabilities                                  127,766                                    104,124
Shareholders' Equity                                23,050                                     25,405
Total liabilities and shareholders'
equity                                      $      150,816                             $      129,529

Net interest income                                           $      950                                 $     693
Net interest rate spread (1)                                                   2.53 %                                    2.20 %
Net interest-earning assets (2)             $       41,595                             $       23,125
Net interest margin (3)                                                        2.60 %                                    2.26 %
Average interest-earning assets to
interest-bearing liabilities                        139.86 %                                   123.29 %


Net interest rate spread represents the difference between the weighted
(1) average yield on interest-earning assets and the weighted average rate of

interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less

total interest-bearing liabilities.

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

interest-earning assets.

Comparison of Operating Results for the Three Months Ended September 30, 2022
and 2021


General. Net income totaled $155,000 for the three months ended September 30,
2022, an increase of $91,000, or 142.1%, compared to $64,000 for the
three months ended September 30, 2021. The increase in net income was primarily
due to a $257,000 increase in net interest income, which was partially offset by
a $147,000 increase in noninterest expense and a $19,000 increase in federal
income tax expense.

Interest Income. Interest income increased $234,000, or 29.7%, to $1.0 million
for the three months ended September 30, 2022, compared to $788,000 for the
three months ended September 30, 2021. This increase was attributable to a
$116,000, or 148.7%, increase in interest on investment securities, a $111,000,
or 387.4%, increase in interest-bearing deposits and other, and a $6,000, or
0.9% increase in loans.

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The average balance of loans during the three months ended September 30, 2022,
increased by $4.5 million, or 5.8%, from the average balance for the
three months ended September 30, 2021, while the average yield on loans
decreased by 16 basis points to 3.34% for the three months ended September 30,
2022, from 3.50% for the three months ended September 30, 2021.

The decrease in average yield on loans was due to the declining interest rates
in the early part of the year-to-year period, while the recent increases in
rates in the economy have not yet had a significant impact on the overall loan
portfolio.

The average balance of investment securities increased $4.9 million, or 17.1%,
to $33.7 million for the three months ended September 30, 2022, from $28.8
million for the three months ended September 30, 2021, while the average yield
on investment securities increased by 122 basis points to 2.30% for the
three months ended September 30, 2022, from 1.08% for the three months ended
September 30, 2021. This increase in yields resulted from the effects of
management's sale of lower yielding investments in December 2021 and purchases
of higher yielding securities during the quarter ended September 30, 2022.

The average balance of other interest-bearing deposits, comprised of
certificates of deposit in other financial institutions, overnight deposits and
stock in the Federal Home Loan Bank, increased $14.1 million, or 88.9%, for the
three months ended September 30, 2022, and the average yield increased 113 basis
points to 1.86% for the three months ended September 30, 2022, from 0.73% for
the three months ended September 30, 2021 reflecting the rise in the interest
rate environment.

Interest Expense. Total interest expense decreased $23,000, or 24.7%, to $71,000
for the three months ended September 30, 2022, compared to the three months
ended September 30, 2021. The decrease was primarily due to a decrease in the
average cost of deposits to 0.27% for the three months ended September 30, 2022,
from 0.38% for the three months ended September 30, 2021, reflecting how
management has worked to manage the cost of deposits over the period as interest
rates in the economy have been increasing in recent months, which was partially
offset by an increase of $5.1 million, or 5.1%, in the average balance of
deposits, to $104.3 million for the three months ended September 30, 2022,
compared to the three months ended September 30, 2021.

Net Interest Income. Net interest income increased $257,000, or 37.1%, to
$950,000 for the three months ended September 30, 2022, compared to $693,000 for
the three months ended September 30, 2021. The increase reflected an increase in
the interest rate spread to 2.53% for the three months ended September 30, 2022,
from 2.20% for the three months ended September 30, 2021. The net interest
margin increased to 2.60% for the three months ended September 30, 2022, from
2.26% for the three months ended September 30, 2021.

Provision for Loan Losses. Based on an analysis of the factors described in
"Critical Accounting Policies and Use of Critical Accounting Estimates -
Allowance for Loan Losses," management concluded that a provision for loan
losses was not required for each of the three months ended September 30, 2022
and 2021. The allowance for loan losses was $223,000 at both September 30, 2022
and 2021 and represented 0.28% of total loans at September 30, 2022, and 0.29%
of total loans at September 30, 2021. The determination over the adequacy of the
allowance for loan losses was due primarily to the low balances of nonperforming
loans, delinquent loans and no net charge-offs in both periods.

Total nonperforming loans were $278,000 at September 30, 2022, compared to
$166,000 at September 30, 2021. Total loans past due greater than 30 days were
$175,000 and $455,000 at those respective dates. As a percentage of
nonperforming loans, the allowance for loan losses was 80.1% at September 30,
2022, compared to 134.5% at September 30, 2021.

The allowance for loan losses reflects the estimate management believes to be
appropriate to cover incurred probable losses which were inherent in the loan
portfolio at September 30, 2022 and 2021. While management believes the
estimates and assumptions used in the determination of the adequacy of the
allowance are reasonable, such estimates and assumptions could be proven
incorrect in the future, and the actual amount of future provisions may exceed
the amount of past provisions. Furthermore, as an integral part of its
examination process, the OCC will periodically review our allowance for loan
losses. The OCC may have judgments different than those of management, and we
may determine to increase our allowance as a result of these regulatory reviews.
Any material increase in the allowance for loan losses may adversely affect our
financial condition and results of operations.

Non-Interest Income. Non-interest income was consistent between the three months
ended September 30, 2022 and 2021, totaling $54,000 for the three months ended
September 30, 2022, a zero net change, from $54,000 for the three months ended
September 30, 2021.

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Noninterest Expense. Noninterest expense increased $147,000, or 21.7%, to
$823,000 for the three months ended September 30, 2022, compared to $676,000 for
the three months ended September 30, 2021. The increase was due primarily to a
$117,000, or 300.3%, increase in professional services and a $29,000, or 8.2%,
increase in salaries and employee benefits. The increase in professional
services was due primarily to costs related to expanded internal audit services.
The increase in salaries and employee benefits was due primarily to accruing for
employee paid time off.

Federal Income Taxes. Federal income taxes increased by $19,000, or 256.8%, to
$26,000 for the three months ended September 30, 2022, compared to $7,000 for
the three months ended September 30, 2021. The increase in the federal income
tax provision was due primarily to a $110,000, or 154.0%, increase in pretax net
income.

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, and proceeds from
maturities of securities. We also have the ability to borrow from the Federal
Home Loan Bank of Cincinnati. At September 30, 2022, we had no outstanding
borrowings from the Federal Home Loan Bank of Cincinnati. At September 30, 2022,
we had the capacity to borrow $45.7 million from the Federal Home Loan Bank of
Cincinnati.

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, cash flows from investing activities, and cash flows from
financing activities. For further information, see the statements of cash flows
contained in the financial statements appearing elsewhere in this prospectus.

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 and current pricing strategy, we anticipate that a significant
portion of maturing time deposits will be retained.

VWF Bancorp, Inc. is a separate legal entity from Van Wert Federal and must
provide for its own liquidity to pay its operating expenses and other financial
obligations. Its primary source of income is dividends received from Van Wert
Federal. The amount of dividends that Van Wert Federal may declare and pay is
governed by applicable bank regulations. At September 30, 2022, VWF Bancorp,
Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $7.4 million.

At September 30, 2022, Van Wert Federal's Tier 1 leverage capital was $34.6
million, or 22.4% of adjusted assets. Accordingly, it was categorized as
well-capitalized at September 30, 2022 under the "community bank leverage ratio"
framework. Management is not aware of any conditions or events since the most
recent notification that would change our category.

Off-Balance Sheet Arrangements. At September 30, 2022, we had $6.3 million of
outstanding commitments to originate loans, $3.6 million of which represents the
balance of remaining funds to be disbursed on construction loans in process.
Certificates of deposit that are scheduled to mature in less than one year from
September 30, 2022 totaled $15.3 million at September 30, 2022. Management
expects that a substantial portion of the maturing certificates of deposit will
be renewed. However, if a substantial portion of these deposits is not retained,
we may utilize Federal Home Loan Bank of Cincinnati advances or raise interest
rates on deposits to attract new accounts, which may result in higher levels of
interest expense.

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