NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Consumers Bancorp, Inc. (Company) and its wholly owned subsidiary, Consumers National Bank (Bank), together referred to as the Company. CNB Investment Co. is a wholly-owned subsidiary of the Bank that was formed in November 2024 for the primary purpose of investing in municipal securities and is disclosed as part of the Bank. All significant intercompany transactions have been eliminated in the consolidation.

Nature of Operations: Consumers Bancorp, Inc. is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, and Summit counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage, and consumer loans in its primary market area.

Business Segment Information: The Company adopted Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures” (ASU 2023-07) as of January 1, 2025. The Company's operations have been evaluated for segment reporting and management has determined operations are managed along one operating segment, banking. While the Company’s chief operating decision maker (CODM) monitors the revenue streams of the Company’s various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. The Company has determined that all of its financial service operations meet the aggregation criteria of Accounting Standards Codification (ASC) 280, Segment Reporting, as its current operating model is structured whereby financial service operations serve a similar base of retail and commercial customers utilizing a company-wide offering of similar products and services managed through similar processes that are collectively reviewed by the Company's Chief Executive Officer, who has been identified as the CODM. Therefore, all the Company’s financial service operations are considered by the CODM to be aggregated in one reportable operating segment.

Our CODM evaluates interest and noninterest income streams and credit losses from our various products and services, while expense activities, including interest expense and noninterest expense, are managed, and financial performance is evaluated, on a Company-wide basis. As a result, detailed profitability information for each interest and noninterest income stream is not used to allocate resources or in assessing performance. Rather, the CODM uses consolidated net income to assess performance by comparing it to and monitoring it against budgeted and prior year results. This information is used to manage resources to drive business and net income growth, including investment in key strategic priorities, as well as to determine our ability to return capital to shareholders. Segment assets represent total assets on our Consolidated Balance Sheets and segment net income represents net income on our Consolidated Statements of Income. All the Company's earnings relate to its operations within the United States.

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities of less than 90 days and federal funds sold.  Cash flows are reported on a net basis for customer loan and deposit transactions, interest bearing deposits in other financial institutions and short-term borrowings.  

Interest–Bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Securities: Debt securities are generally classified into either held-to-maturity or available-for-sale categories. Held-to-maturity securities are carried at amortized cost and are those management has the positive intent and ability to hold to maturity. Available-for-sale securities are those management may decide to sell before maturity if needed for liquidity, asset-liability management, or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included in other comprehensive income or loss as a separate component of equity, net of tax.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities and collateralized mortgage obligations where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest for a security placed on nonaccrual is reversed against interest income.

Allowance for Credit Losses – Held-to-Maturity (HTM) Debt Securities: The Company measures expected credit losses on HTM debt securities on a collective basis by major security type. Any allowance for credit losses on HTM securities would be a contra asset valuation account that would be deducted from the carrying amount of HTM securities to present the net amount expected to be collected and would be charged off against the allowance for credit losses when deemed uncollectible. Adjustments to the allowance for credit losses would be reported in the Company’s Consolidated Statements of Income in the provision for credit losses. Since all the HTM securities are non-rated municipal securities to local customers, management considers the financial condition of the issuer and whether the issuers continue to make timely principal and interest payments under the contractual terms of the securities.

Allowance for Credit Losses – Available-for-Sale (AFS) Debt Securities: For AFS securities in an unrealized loss position, management determines whether the Company intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis. If either of the criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS securities with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when the collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.

The Company has made a policy election to exclude accrued interest income from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable and other assets in the Consolidated Balance Sheets.

Equity Securities: Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Federal Bank and Other Restricted Stocks: The Bank is a member of its regional Federal Reserve Bank and the FHLB system. FHLB members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. Federal Reserve Bank and FHLB stock, included with Federal bank and other restricted stocks on the Consolidated Balance Sheet, is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Since these stocks are viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights released. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Mortgage Banking Derivatives: Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Changes in the fair values of these derivatives are included in mortgage banking activity income.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Accrued interest receivable on loans totaled $2,729 at June 30, 2026 and $2,319 at June 30, 2025, was reported in accrued interest receivable and other assets on the consolidated balance sheets and is excluded from the estimate of expected credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in the process of collection. Commercial and mortgage loans are charged off to the extent principal is deemed uncollectible. Consumer and credit card loans continue to accrue interest until they are charged off typically no later than 120 days past due unless the loan is in the process of collection. Past due status is determined by the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received on loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when the customer has exhibited the ability to repay and demonstrated this ability over at least a consecutive six-month period and future payments are reasonably assured.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when funded.

Concentrations of Credit Risk: The Bank grants consumer, real estate, and commercial loans primarily to borrowers in Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and contiguous counties in Ohio. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in these counties. Automobiles and other consumer assets, business assets and residential and commercial real estate secure most loans.

Allowance for Credit Losses on Loans: The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The allowance for credit losses is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

The allowance balance is estimated using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience of our peer group provides the basis for the estimation of expected credit losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments.

The allowance for credit losses consists of general and specific components. The general component includes loans with similar risk characteristics that are collectively evaluated for credit losses. The allowance for credit losses for the general portfolio segments is evaluated based upon periodic quantitative review of the collectability of the loans that correlates historical loss experience with reasonable and supportable forecasts using forward looking information. The Company utilizes a discounted cash flow (loss rate, expected loss) method to estimate the quantitative portion of the allowance for credit losses for all portfolio segments.

For each portfolio segment, a loss driver analysis (LDA) is performed to identify appropriate loss indicators and create a regression model for use in forecasting cash flows. The LDA analysis utilizes peer data from the Federal Financial Institutions Examination Council’s (FFIEC) Call Report data for all segments. The Company has established a one-year reasonable and supportable forecast period with a one-year straight-line reversion to the long-term historical average. Key inputs into the discounted cash flow model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and forecasted loss drivers. Since the Company has had very limited loss experience, management elected to utilize benchmark peer loss history data to estimate historical loss rates. Management worked with a third-party advisory firm to identify an appropriate peer group for each loan segment that shares similar characteristics. The Company uses the central tendency seasonally adjusted civilian unemployment rate forecast from the FOMC for all portfolio segments. Other key assumptions include a maturity assumption for loans without maturity dates and prepayment / curtailment rates specific to each loan segment. Prepayment and curtailment rates are calculated based on the Company’s own data.

The Company has identified six portfolio segments of loans including Commercial & Industrial, Commercial Real Estate, Farmland, Land Development, 1 – 4 Family Residential Real Estate, and Consumer loans. Each segment has a distinct set of risk characteristics that are monitored by management. Below are the risk characteristics of the loan segments.

Commercial & Industrial: Commercial & Industrial loans are made for a wide variety of general business purposes, including financing for equipment, inventories, and accounts receivable. The term of each commercial loan varies by its purpose. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications, including agriculture, primarily in the areas where the Bank operates.

Commercial Real Estate: Commercial real estate loans include mortgage loans to owners of owner-occupied commercial properties, commercial investment properties, and multi-family investment properties as well as loans originated to finance the construction of owner occupied and investment properties. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Loans secured by existing commercial real estate have fixed or variable rates with amortization periods of up to 25 years.

Commercial construction loans generally adjust with the prime rate during the construction period and may convert to amortizing loans with maturities up to 25 years. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction through completion. The property owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the property are considered during underwriting of construction loans. Construction financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, there may not be sufficient funds to complete the project, or a completed project with an insufficient value to assure full repayment. We attempt to reduce such risks on construction loans by including a contingency amount in the financing package, through inspections of construction progress on the property, by reviewing the owner’s financial strength, the success of the owners’ and / or contractor’s past projects, and by requiring personal guarantees from the owners.

Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and are primarily located in our immediate and surrounding market area. This diversity helps reduce the Company’s exposure to adverse economic events that may affect any single market or industry. The three largest collateral concentrations within the commercial real estate non-owner-occupied portfolio are retail rental, office rental, and industrial rental. The office rental segment includes a high percentage of medical facilities that require special build outs that would make it more costly for a tenant to change locations. Also, personal guarantees are typically obtained on commercial real estate loans. Commercial real estate loans are primarily originated in the area in which the bank operates. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria.

Farmland: Farmland loans include loans to finance or refinance the acquisition or improvement of land used for agricultural purposes. The loans are secured by mortgages on the land and buildings, contain fixed and variable rates, and amortize over periods up to 30 years. The portfolio is concentrated within the bank’s primary market area and is diversified across a number of agricultural segments with grain, dairy, and beef cattle operations comprising the largest segments. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Agriculture lending is largely dependent on the successful management and operation of the farm and may be adversely affected by volatile commodity prices, weather, rising farm production costs, and fluctuating land value.

Land Development: Land Development loans include loans to finance the land acquisition and the infrastructure improvements necessary to develop saleable residential lots located within our primary market area. Land development loans are adjustable-rate loans with interest only periods generally up to three years. Principal payments are tied to the sale of the developed lots to related or third-party residential builders, or individual borrowers. Loan proceeds are disbursed in increments as development progresses and as inspections warrant, and regular inspections are required to monitor the progress of development through completion. In underwriting construction loans, we consider the property owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the saleable lots.

Land development financing is considered to involve a higher degree of credit risk than long-term financing on improved real estate. Risk of loss on a development loan is dependent largely upon the accuracy of the initial estimate of development costs and of the respective values of the completed lots. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on development loans by including a contingency amount in the financing package, through inspections of construction progress on the property, by reviewing the developer’s financial strength and past projects, and requiring personal guarantees.

1-4 Family Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include owner occupied, non-owner occupied, construction, and home equity loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and an appropriately appraised value of the real estate securing the loan that generally requires that the residential real estate loan amount be no more than 85% of the purchase price or the appraised value of the real estate securing the loan unless the borrower purchases private mortgage insurance. Residential mortgage loans to purchase or refinance existing homes are fixed or at a variable rate and contain amortization periods of up to thirty years. Residential construction loans are secured by mortgages on the subdivided lot, have a fixed rate interest only for a period of up to 18-months, and then convert to a fixed or variable rate loan with amortization periods of up to thirty years.

Consumer: The Company originates direct and indirect consumer loans, primarily automobile loans, personal lines of credit, and unsecured consumer loans in its primary market areas. Credit approval for consumer loans requires sufficient income to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances compared to real estate mortgage loans and generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be affected by adverse personal circumstances and economic conditions. Consumer loans generally have fixed rates and amortization periods up to 84 months.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the general component. Specific reserves in the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of collateral supporting collateral dependent loans is evaluated on a quarterly basis.

Individually evaluated loans include the third-party residential mortgage warehouse line-of-credit, nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and other loans deemed appropriate by management. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.

The Company qualitatively adjusts model results for risk factors that are not inherently captured in the general component but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. Management's adjustments to the quantitative evaluation may be for trends in delinquencies, trends in the volume of loans, changes in underwriting standards, changes in the value of underlying collateral, the existence and effect of portfolio concentration, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures: The allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur, and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. The allowance for off-balance sheet credit exposures is adjusted through the income statement as a component of provision for credit losses.

Low Income Housing Tax Credits (LIHTC): The Company has invested in LIHTCs through funds that assist corporations in investing in limited partnerships and limited liability companies that own, develop, and operate low-income residential rental properties for purposes of qualifying for the LIHTCs. These investments are accounted for under the proportional amortization method which recognizes the amortization of the investment in proportion to the tax credit and other tax benefits received.

Other Real Estate and Repossessed Assets Owned: Real estate properties and other repossessed assets, which are primarily vehicles, acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less costs to sell at the date of acquisition, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. If the fair value declines after acquisition, a valuation allowance is recorded as a charge to income. Operating costs after acquisition are expensed as incurred. Gains and losses on disposition are reported as a charge to income.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvements, generally over the lesser of the remaining term of the lease facility or the estimated economic life of the improvement. Useful lives range from three years for software to thirty-nine and one-half years for buildings.

Cash Surrender Value of Life Insurance: The Bank has purchased single-premium life insurance policies to insure the lives of current and former participants in the salary continuation plan. As of June 30, 2026, the Bank had policies with total death benefits of $27,918 and total cash surrender values of $15,663. As of June 30, 2025, the Bank had policies with total death benefits of $23,474 and total cash surrender values of $13,266. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Tax-exempt income is recognized from the periodic increases in cash surrender value of these policies.

Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired assets and liabilities. Core deposit intangible assets arise from whole bank or branch acquisitions and are measured at fair value and then are amortized over their estimated useful lives. Goodwill is not amortized but is assessed at least annually for impairment. Any such impairment will be recognized in the period identified. The Company has selected April 30 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet.

Long-Term Assets: Premises, equipment, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Repurchase Agreements: Substantially all repurchase agreement liabilities, which are classified as short-term borrowings, represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.

Retirement Plans: The Bank maintains a 401(k) savings and retirement plan covering all eligible employees and matching contributions are expensed as made. The expense for the salary continuation plan benefit is allocated over the years of service of the executives the benefit is associated with.

Income Taxes: The Company files a consolidated federal income tax return. Income tax expense is the sum of the current-year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. The Company applies a more likely than not recognition threshold for all tax uncertainties in accordance with U.S. generally accepted accounting principles. A tax position is recognized as a benefit only if it is more likely than not that the position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit greater than 50% likely of being realized on examination. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. 

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require that public business entities on an annual basis (a) disclose specific categories in the rate reconciliation and (b) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The amendments in this ASU also require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments require that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The Company adopted ASU 2023-09 on a retrospective basis effective July 1, 2025, and the adoption of the ASU did not have a material impact on the Company's Consolidated Financial Statements.

Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable upon the vesting of restricted stock awards.

Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees over the required service period, generally defined as the vesting period. The fair value of restricted stock awards is estimated by using the market price of the Company’s common stock at the date of grant. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as incurred.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, which are also recognized as a separate component of equity, net of tax.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the Company’s financial statements.

Fair Value of Financial Instruments: Fair value of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 14 of the Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, discounted cash flows, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the holding company or by the holding company to shareholders.

Derivative Instruments: The Company offers interest rate swap products to certain commercial borrowers as accommodation to meet their financing needs. Under this program, a borrower may obtain financing on a variable-rate basis from the Bank and simultaneously enter into an interest rate swap agreement with the Bank to effectively convert the borrower's variable-rate obligation to a fixed-rate obligation.

To economically offset its exposure under such agreements with borrowers, the Company enters into substantially matching offsetting interest rate swap agreements with institutional counterparties. The Company is exposed to credit risk to the extent that an institutional counterparty fails to perform under the terms of an interest rate swap contract and to the extent that a commercial borrower fails to perform under an interest rate swap contract with the Company.

The interest rate swap agreements are not designated as hedging instruments for accounting purposes. Accordingly, all interest rate swap agreements are recognized on the Consolidated Balance Sheets at fair value. The Company does not use derivative instruments for speculative purposes. As of June 30, 2026, the Company had customer and offsetting dealer swap contracts with aggregate notional amounts of $12.8 million. The fair value of derivative assets and derivative liabilities were $103.

Recently Issued Accounting Pronouncements Not Yet Effective: In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06 Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (ASU 2023-06). The amendments in this ASU are the result of FASB’s decision to incorporate into the Accounting Standards Codification certain disclosure requirements, referred by the SEC, for incremental information to US GAAP. Topics in the ASU that have applicability to the Company are (1) Statement of Cash Flows which requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows, (2) Debt which requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings, and (3) Derivatives and Hedging which adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.

The effective date for each amendment is dependent upon the SEC’s removal of the related disclosure requirements from Regulation S-X or Regulation S-K, with early adoption prohibited. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Accounting Standards Codification and will not become effective for any entity. Management is reviewing the provisions of ASU 2023-06 but does not expect the adoption of the ASU to have a material effect on the Company’s financial statements.

In November 2024, FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period (1) the Company disclose the amounts of (a) employee compensation, (b) depreciation, and (c) intangible asset amortization included in each relevant expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed; (2) include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as the other disaggregation requirements; (3) disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; (4) disclose the total amount of selling expenses and, in annual reporting periods, the Company’s definition of selling expenses. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this update should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this update or (2) retrospectively to any or all prior periods presented in the financial statements. Management is currently evaluating the update and does not expect adoption of the update to have a material effect on the Company’s financial position or results of operations.

In November 2025, the FASB issued ASU No. 2025‑08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. This update amends the guidance in ASC Topic 326 to improve the accounting for acquired loans. The amendments expand the population of acquired financial assets subject to the “gross-up” approach to include certain loans acquired without evidence of significant credit deterioration that meet the definition of “purchased seasoned loans.” Under this approach, an allowance for expected credit losses is recognized at the acquisition date as an adjustment to the amortized cost basis of the asset, rather than through credit loss expense. The amendments are intended to improve comparability and better reflect the economics of acquired loans by eliminating the recognition of a Day 1 credit loss expense for such assets. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, and should be applied prospectively to loans acquired after the adoption date. Early adoption is permitted. Management is reviewing the provisions of ASU 2025-08 but does not expect the adoption of the ASU to have a material effect on the Company’s financial statements.

In November 2025, the FASB issued ASU 2025-09 Derivatives and Hedging (Topic 815) — Hedge Accounting Improvements. The amendments in this update are intended to more closely align hedge accounting with the economics of an entity’s risk management activities. The amendments included in five issues addressed in this update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions. The issues addressed in the ASU include:

For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of this update. The FASB requires entities to apply the amendments in this ASU on a prospective basis for all hedging relationships. An entity may elect to adopt the amendments in this ASU for hedging relationships that exist as of the date of adoption. Upon adoption of the amendments in this ASU, entities are permitted to modify certain critical terms of certain existing hedging relationships without de-designating the hedge. Management is currently evaluating the ASU and does not expect adoption of this ASU to have a material effect on the Company’s financial position or results of operations.

In December 2025, the FASB issued ASU No. 2025‑11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This update amends the guidance in ASC Topic 270 to improve the clarity and usability of interim reporting requirements. The amendments are intended to enhance the navigability of interim disclosure requirements and clarify the applicability of Topic 270. The ASU provides a comprehensive list of disclosures required in interim periods under US GAAP and introduces a disclosure principle requiring entities to disclose events and changes that occur after the end of the most recent annual reporting period that have a material impact on the entity. The amendments also clarify the form and content of interim financial statements. The guidance is not intended to change the fundamental nature of interim reporting or significantly expand or reduce existing disclosure requirements. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, for public business entities, and for interim reporting periods within annual reporting periods beginning after December 15, 2028, for all other entities. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2025‑11 on its consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025‑12, Codification Improvements. This update is part of the FASB’s ongoing project to make incremental improvements to US GAAP and includes amendments to correct errors, clarify guidance, and improve consistency across various topics within the ASC. The amendments in ASU 2025‑12 affect multiple areas of US GAAP, including, but not limited to, earnings per share, lease accounting, transfers and servicing, and equity method investments. The changes are generally intended to enhance the clarity and operability of existing guidance and are not expected to have a significant impact on accounting practice for most entities. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2025‑12 on its consolidated financial statements.