Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

- Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following is management's analysis of the Company's results of operations for the three- and six-month periods ended December 31, 2025, compared to the same periods in fiscal year 2025, and the consolidated balance sheet at December 31, 2025, compared to June 30, 2025. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Overview

Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Company), owns all the issued and outstanding common shares of Consumers National Bank, a bank chartered under the laws of the United States of America (the Bank). The Company's activities have been limited primarily to holding the common shares of the Bank. 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 market area, consisting primarily of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and contiguous counties in Ohio, Pennsylvania, and West Virginia. The Bank also invests in securities consisting primarily of U.S. government sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.

Results of Operations

Three- and Six- Month Periods Ended December 31, 2025 and 2024

Net income for the second quarter of fiscal year 2026 was $2,755, or $0.87 per common share, compared with $2,287, or $0.73 per common share for the three months ended December 31, 2024. The following are key highlights of our results of operations for the three months ended December 31, 2025, compared with the prior fiscal year comparable period:

	●	tax-equivalent net interest income increased by $1,807, or 21.9%, to $10,045 in the second quarter of fiscal year 2026 from the same prior year period primarily because of a 30-basis point increase in the yield on interest-earning assets combined with a 18-basis point reduction in the cost of interest-bearing liabilities;
	●	a $175 provision for credit losses on loans and $145 increase to the provision for credit losses on unfunded commitments was recorded for the three-month period ended December 31, 2025, compared with a $85 provision for credit losses on loans and a $40 increase to the provision for credit losses on unfunded commitments for the same prior year period. The higher provision for credit losses on loans in the second quarter of fiscal year 2026 was recorded because of loan growth and the increase in unfunded loan commitments during the second quarter of fiscal year 2026;
	●	noninterest income increased by $221, or 16.2%, in the second quarter of fiscal year 2026 compared with the same prior year period primarily because of $88 of revenue recognized on interest rate swaps and an increase of $84, or 147.4%, in mortgage banking revenue; and
	●	noninterest expenses increased by $1,137, or 16.8%, in the second quarter of fiscal year 2026 from the same prior year period primarily because of increases in salaries and benefits and occupancy and equipment expenses as the Company continues to grow its branch network.

Net income for the first six months of fiscal year 2026 was $5,389, or $1.71 per common share, compared with $4,523, or $1.45 per common share for the six months ended December 31, 2024. The following are key highlights of our results of operations for the six months ended December 31, 2025, compared with the prior fiscal year comparable period:

	●	tax-equivalent net interest income increased by $3,548, or 21.9%, to $19,726 in the first six months of fiscal year 2026 from the same prior year period primarily because of a $74.4 million, or 7.1%, increase in average interest earning assets;
	●	a $495 provision for credit losses on loans and a $110 increase to the provision for credit losses on unfunded commitments was recorded for the six-month period ended December 31, 2025, compared with a $162 provision for credit losses on loans and a $5 reduction to the provision for credit losses on unfunded commitments for the same prior year period. The increase in the provision for credit losses recorded in the first six months of fiscal year 2026 was primarily the result of loan growth and the increase in unfunded loan commitments.;

	●	noninterest income increased by $297, or 10.8%, in the first six months of fiscal year 2026 compared with the same prior year period because of $88 of revenue recognized on interest rate swaps, an increase in mortgage banking revenue of $79, or 41.6%, an increase in debit card interchange income of $62, or 4.9%, and an increase in bank owned life insurance income of $40, or 20.8%, because of the purchase of an additional policy.
	●	noninterest expenses increased by $2,067, or 15.3%, in the first six months of fiscal year 2026 from the same prior year period primarily due to increases in salaries and benefits and occupancy and equipment expenses.

The annualized return on average equity and return on average assets were 12.90% and 0.91%, respectively, for the three months ended December 31, 2025, compared to 12.55% and 0.81%, respectively, for the same prior year period. The annualized return on average equity and return on average assets were 13.15% and 0.90%, respectively, for the six months ended December 31, 2025, compared to 12.81% and 0.81%, respectively, for the same prior year period.

Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Company's earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 2026 and 2025 fiscal years was 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances and average securities include unrealized gains and losses on securities available-for-sale, while yields are based on average amortized cost.

The Company's net interest margin was 3.43% for the three months ending December 31, 2025, compared with 3.02% for the same prior year period. FTE net interest income for the three months ended December 31, 2025, increased by $1,807, or 21.9%, to $10,045 from $8,238 for the same prior year period.

The yield on average interest-earning assets increased to 5.11% for the three months ended December 31, 2025, compared with 4.81% for the same period last year. Tax-equivalent interest income increased by $1,814, or 13.8%, for the three months ended December 31, 2025, from the same prior year period primarily because of 30-basis point increase in the yield on average interest-earning assets and a $84,215, or 8.0%, increase in average interest-earning assets. The tax-equivalent yield on tax-exempt securities was positively impacted in the second quarter of fiscal year 2026 by the Company's transfer of municipal bonds to CNB Investment Co. Also, the yield on taxable securities and loans was positively impacted by new and repricing assets being invested at higher current market rates. Interest expense for the three months ended December 31, 2025 increased by $7, or 0.1%, from the same prior year period primarily as a result of a $64,243, or 8.1%, increase in interest bearing liabilities that was mostly offset by lower time deposit costs because of recent declines in shorter-term market interest rates. The Company's cost of funds decreased to 2.27% for the three months ended December 31, 2025 compared with 2.45% for the same prior year period.

The Company's net interest margin was 3.40% for the six months ending December 31, 2025, compared with 2.97% for the same prior year period. FTE net interest income for the six months ended December 31, 2025, increased by $3,548, or 21.9%, to $19,726 from $16,178 for the same prior year period.

The yield on average interest-earning assets increased to 5.09% for the six months ended December 31, 2025, compared with 4.81% for the same period last year. Tax-equivalent interest income increased by $3,291, or 12.6%, for the six months ended December 31, 2025, from the same prior year period primarily because of 28-basis point increase in the yield on average interest-earning assets and a $74,440, or 7.1%, increase in average interest-earning assets. The tax-equivalent yield on tax-exempt securities was positively impacted in the first six months of fiscal year 2026 by the Company's transfer of municipal bonds to CNB Investment Co. Also, the yield on taxable securities and loans was positively impacted by new and repricing assets being invested at higher current market rates. Interest expense for the six months ended December 31, 2025 decreased by $257, or 2.6%, from the same prior year period primarily as a result of lower time deposit costs because of recent declines in shorter-term market interest rates. The Company's cost of funds decreased to 2.28% for the six months ended December 31, 2025 compared with 2.51% for the same prior year period.

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended December 31, (In thousands, except percentages)

		2025												2024
		Average Balance				Interest				Yield/ Rate				Average Balance				Interest				Yield/ Rate
Interest-earning assets:
Taxable securities		$	199,889			$	1,658				3.02	%		$	206,730			$	1,628				2.81	%
Tax-exempt securities (1)			71,414				629				3.27				68,506				360				1.93
Loans (1)			859,394				12,559				5.80				760,685				10,916				5.69
Other equity securities, at cost			2,064				49				9.42				2,072				43				8.23
Equity securities			383				8				8.29				381				9				9.37
Interest bearing deposits and federal funds sold			5,062				45				3.53				15,617				178				4.52
Total interest-earning assets			1,138,206				14,948				5.11	%			1,053,991				13,134				4.81	%
Noninterest-earning assets			63,976												61,976
Total Assets		$	1,202,182											$	1,115,967
Interest-bearing liabilities:
NOW		$	156,356			$	279				0.71	%		$	142,970			$	235				0.65	%
Savings			404,833				2,039				2.00				355,057				1,691				1.89
Time deposits			267,758				2,454				3.64				264,930				2,831				4.24
Short-term borrowings			20,782				100				1.91				20,350				118				2.30
FHLB advances			5,901				31				2.08				8,080				21				1.03
Total interest-bearing liabilities			855,630				4,903				2.27	%			791,387				4,896				2.45	%
Noninterest-bearing liabilities:
Noninterest-bearing checking accounts			248,413												236,154
Other liabilities			13,406												16,146
Total liabilities			1,117,449												1,043,687
Shareholders' equity			84,733												72,280
Total liabilities and shareholders' equity		$	1,202,182											$	1,115,967
Net interest income, interest rate spread (1)						$	10,045				2.84	%						$	8,238				2.36	%
Net interest margin (net interest as a percent of average interest-earning assets) (1)											3.43	%											3.02	%
Federal tax exemption on non-taxable securities and loans included in interest income						$	140											$	(81	)
Average interest-earning assets to interest-bearing liabilities			133.03	%											133.18	%

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%

Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31, (In thousands, except percentages)

		2025												2024
		Average Balance				Interest				Yield/ Rate				Average Balance				Interest				Yield/ Rate
Interest-earning assets:
Taxable securities		$	203,649			$	3,380				3.01	%		$	206,903			$	3,199				2.74	%
Tax-exempt securities (1)			69,955				1,245				3.23				68,232				699				1.87
Loans (1)			843,151				24,649				5.80				758,819				21,854				5.71
Other equity securities, at cost			2,174				84				7.66				2,098				83				7.85
Equity securities			388				17				8.69				381				17				8.85
Interest bearing deposits and federal funds sold			5,008				101				4.00				13,452				333				4.91
Total interest-earning assets			1,124,325				29,476				5.09	%			1,049,885				26,185				4.81	%
Noninterest-earning assets			63,831												61,127
Total Assets		$	1,188,156											$	1,111,012
Interest-bearing liabilities:
NOW		$	156,979			$	604				0.76	%		$	142,882			$	511				0.71	%
Savings			397,004				3,981				1.99				353,377				3,400				1.91
Time deposits			267,015				4,897				3.64				262,800				5,724				4.32
Short-term borrowings			19,000				177				1.85				24,311				318				2.59
FHLB advances			6,892				91				2.62				8,485				54				1.26
Total interest-bearing liabilities			846,890				9,750				2.28	%			791,855				10,007				2.51	%
Noninterest-bearing liabilities:
Noninterest-bearing checking accounts			246,256												232,562
Other liabilities			13,722												16,549
Total liabilities			1,106,868												1,040,966
Shareholders' equity			81,288												70,046
Total liabilities and shareholders' equity		$	1,188,156											$	1,111,012
Net interest income, interest rate spread (1)						$	19,726				2.81	%						$	16,178				2.30	%
Net interest margin (net interest as a percent of average interest-earning assets) (1)											3.40	%											2.97	%
Federal tax exemption on non-taxable securities and loans included in interest income						$	276											$	(184	)
Average interest-earning assets to interest-bearing liabilities			132.76	%											132.59	%

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%

Provision for Credit Losses

The allowance for credit losses on loans consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. 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. Since the Company has had very limited loss experience, management elected to utilize benchmark peer loss history data to estimate historical loss rates. 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. The Company uses the central tendency seasonally adjusted civilian unemployment rate forecast from the Federal Open Market Committee 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.

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.

The specific component includes loans that do not share similar risk characteristics that are evaluated on an individual basis and are excluded from the pooling approach. As of December 31, 2025, individually evaluated loans totaled $20,255 and included a $19,360 third-party residential mortgage warehouse line-of-credit and $895 of nonaccrual loans. The warehouse line-of-credit is included in individually evaluated loans because of the unique structure of the loan given the short-term nature of the advances, curtailment features provided by the financial institution that the line-of-credit is issued to, as well as being secured by individual residential properties. As of June 30, 2025, individually evaluated loans totaled $930 of nonaccrual loans. There was no specific allocation of the allowance for credit losses to individually evaluated loans as of December 31, 2025, and there was a $52 specific allocation of the allowance for credit losses to individually evaluated loans as of June 30, 2025.

The allowance for credit losses as a percentage of loans was 1.01% as of December 31, 2025 and 1.04% as of June 30, 2025. The provision for credit losses recorded in the first six months of fiscal year 2026 was higher than the prior year because of the significant growth in the loan portfolio. Net charge-offs of $188, or an annualized 0.04% of total loans, were recorded during the six month period ended December 31, 2025, compared with net charge offs of $248, or an annualized 0.07% of total loans, for the same period last year.

Non-performing loans were $902 as of December 31, 2025, compared with $1,031 as of June 30, 2025. As of December 31, 2025 and June 30, 2025, non-performing loans included $332 that is guaranteed by the Small Business Administration. Excluding the guaranteed portion, non-performing loans to total loans were 0.07% as of December 31, 2025 and 0.09% as of June 30, 2025. As of December 31, 2025, loans classified as special mention were $5,484 and substandard were $8,325. The balances of loans classified as special mention and substandard are primarily related to one commercial customer because of a combination of a delay in a construction project and reduced revenue in the industry. The construction project for this commercial relationship is now complete, and operations have commenced in the new building, a portion of the property is being leased out, and the customer implemented operational changes which have improved their financial performance. The commercial real estate securing these loans has recently been appraised for an amount that exceeds the outstanding loan balance, and the customer has a signed letter of intent for the purchase of the real estate that, if executed, will pay off a substantial portion of this loan relationship. Uncertainty remains regarding future levels of criticized and classified loans, non-performing loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and will work with borrowers as needed to mitigate losses to the Company.

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. The reserve for unfunded commitments is primarily related to 1 - 4 family home equity lines of credit and commercial construction loans. For the six-month period ended December 31, 2025, an increase of $110 was recorded to the reserve for unfunded commitments compared with a reduction of $5 for the same period last year. The balance of the reserve for unfunded commitments was $490 and $380 as of December 31, 2025 and June 30, 2025, respectively.

Noninterest Income

Noninterest income increased by $221, or 16.2%, for the second quarter of fiscal year 2026 from the same period last year primarily because of $88 of revenue recognized on interest rate swaps, an increase of $84, or 147.4%, in mortgage banking activity, and an increase of $24, or 24.0%, in bank owned life insurance income because of the purchase of additional life insurance policies. For the six-month period ended December 31, 2025, noninterest income increased $297, of 10.8% from the same period last year. The increase in noninterest income was primarily due to $88 of revenue recognized on interest rate swaps, an increase of $62, or 4.9%, in debit card interchange income due to increased customer usage, and an increase of $79 or 41.6% in mortgage banking activity.

Noninterest Expenses

Total noninterest expenses increased by $1,137, or 16.8%, for the second quarter of fiscal year 2026 and $2,067 or 15.3% for the six-month period ended December 31, 2025 compared with the same periods last year. Salaries and employee benefits increased by $1,247, or 16.4%, for the six-month period ended December 31, 2025, compared with the same prior year period primarily because of the addition of lending sales and support staff, hiring of staff for the new branch locations, and annual merit and cost of living adjustments. Occupancy and equipment expenses increased by $314, or 17.7%, for the first six months of the fiscal year 2026 compared with the same period last year primarily because of increases in software license expense, additional investments in security monitoring software, and increases in occupancy and premise expenses as a result of the new branch locations. Other non-interest expenses increased by $215, or 17.8%, primarily because of higher loan expenses related to the increased volume in loan originations and expenses associated with the 60^th anniversary celebration.

Income Taxes

Income tax expenses were $495 and $972 for the three- and six-month periods ended December 31, 2025, compared to $488 and $968 for the three- and six-month periods ended December 31, 2024. The effective tax rates were 15.2% and 15.3% for the three- and six-month periods ended December 31, 2025, respectively, and 17.6% for the three- and six-month periods ended December 31, 2024. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, bank owned life insurance income, and the low-income housing tax credits.

Financial Condition

Total assets as of December 31, 2025 were $1,212,530 compared to $1,165,008 at June 30, 2025, an increase of $47,522, or an annualized 8.2%. From June 30, 2025 to December 31, 2025, total loans increased by $58,934, or an annualized 14.5%, and total deposits increased by $52,236 or an annualized 10.1%.

Available-for-sale securities decreased by $11,528 from $273,875 as of June 30, 2025, to $262,347 as of December 31, 2025 primarily because of $24,358 of cash received from maturities, calls and principal pay downs. In addition, the unrealized loss on the portfolio was $21,525 as of December 31, 2025, an improvement of $7,024 from June 30, 2025. The unrealized loss is a result of the increase in market interest rates compared with the yields within the portfolio that were available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity or repricing dates or if market yields for such securities decline. The portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, other government agencies' debt, corporate debt, and U.S. Treasury notes. The municipal bond portfolio consists of tax-exempt and taxable general obligations and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of December 31, 2025, 97.5% of the municipal bonds held in the available-for-sale portfolio had an S&P or Moody's investment grade rating, and 2.5% were non-rated issues. The other debt securities consist of subordinated notes issued by other bank holding companies. As of December 31, 2025, the projected cash flow from the portfolio over the next 12 months was approximately $30,072, which may be available to reinvest into loans or securities at the then current market rates.

Asset Quality

The following table presents the aggregate amounts of non-performing assets and select ratios as of the dates indicated.

		December 31, 2025				June 30, 2025				December 31, 2024
Non-accrual loans		$	895			$	930			$	813
Loans past due over 90 days and still accruing			74				101				17
Total non-performing loans			969				1,031				830
Other real estate and repossessed assets			-				-				-
Total non-performing assets		$	969			$	1,031			$	830
Non-performing loans to total loans			0.11	%			0.11	%			0.11	%

As of December 31, 2025, non-accrual loans include loans that are guaranteed by the Small Business Administration. Excluding the guaranteed portion, non-performing loans were $637, or 0.07% of total loans as of December 31, 2025.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

Liquidity

The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of our customers and provide adequate flexibility for the Company to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and, at times, to fund deposit outflows and operating activities. The Company's principal sources of funds are deposits; amortization and prepayments of loans; maturities, calls and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Company to be sufficiently liquid to meet normal operating needs and conditions. The Company's earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and ensure the soundness of the portfolio, as well as to provide funding for loan demand as needed.

For the six months ended December 31, 2025, net cash inflows from operating activities were $6,011, net cash outflows for investing activities was $41,668 and net cash inflows from financing activities was $37,262. A major source of cash was $52,236 from the increase in deposits and $24,358 from maturity, calls, and principal pay downs of available-for-sale securities. A major use of cash was $59,122 for loan originations. Total cash and cash equivalents were $21,513 as of December 31, 2025, compared to $19,908 at June 30, 2025 and $20,382 at December 31, 2024.

The Bank offers several types of deposit products to a diverse base of business, public fund, and personal customers. We believe the rates offered by the Bank and the fees charged for them are competitive with the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $1,089,054 at December 31, 2025, an increase of $52,236, or an annualized 10.1%, compared with $1,036,818 at June 30, 2025. As of December 31, 2025, the estimated percentage of uninsured deposits, excluding collateralized public fund deposits, was 23.2%.

Jumbo time deposits (those with balances of $250 and over) totaled $101,696 as of December 31, 2025 and $74,683 as of June 30, 2025 and are from local customers, businesses, and public entities. These deposits are monitored closely by the Company and are mainly priced on an individual basis. The Company has the option to use a fee-paid broker or CD listing service to obtain deposits from outside its normal service area as an additional source of funding. The Company, however, does not rely upon these types of deposits as a primary source of funding. There were $4,038 and $1,420 deposits classified as brokered deposits as of December 31, 2025 and June 30, 2025, respectively. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored monthly.

To provide additional sources of liquidity, the Company has lines of credit with other financial institutions and entered into agreements with the FHLB of Cincinnati and the Federal Reserve discount window. At December 31, 2025, advances from the FHLB of Cincinnati totaled $4,028 compared with $22,551 as of June 30, 2025. As of December 31, 2025, the Bank had the ability to borrow an additional $98,349 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Company considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base. In addition, as of December 31, 2025, the Company had approximately $92,903 in securities unencumbered by a pledge that could be used to support additional borrowings, as needed, through the Federal Reserve discount window.

Repurchase agreements are classified as borrowings and totaled $17,827 as of December 31, 2025 and $15,511 as of June 30, 2025. Repurchase agreements are financing arrangements with local customers that mature daily and the Bank pledges securities as collateral for these borrowings. The company has access to a line of credit from another financial institution since the holding company does not conduct operations and its primary sources of liquidity are dividends upstreamed from the Bank and borrowings from outside sources. As of December 31, 2025, the outstanding balance on the holding company's line of credit was $225 and the availability on the line of credit was $4,775.

To meet the financial needs of our customers, we have issued commitments to originate mortgage, commercial, construction, and consumer loans and commitments for commercial, home equity, and consumer lines of credit. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The same credit policies are used in making commitments and financial standby letters of credit as are used for on-balance sheet instruments. Total unused commitments were $221,219 as of December 31, 2025, and $212,550 as of June 30, 2025.

Capital Resources

Total shareholders' equity increased by $9,855 to $86,126 as of December 31, 2025, from $76,271 as of June 30, 2025 because of an improvement of $5,549 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from net income of $5,389 for the first six months of fiscal year 2026 which was partially offset by cash dividends paid of $1,322. As market interest rates rise, the fair value of fixed-rate available-for-sale securities decline with a corresponding net of tax decline recorded in the accumulated other comprehensive loss portion of equity. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such securities decline.

The Bank is subject to various regulatory capital requirements administered by federal regulatory agencies. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Company's financial statements.

As of December 31, 2025, the Bank's common equity tier 1 capital and tier 1 capital ratios were 10.94% and the leverage and total risk-based capital ratios were 8.28% and 11.94%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 10.99% and leverage and total risk-based capital ratios of 8.23% and 12.00%, respectively, as of June 30, 2025. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring after December 31, 2025 that would cause the Bank's capital category to change.

Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported.

Critical accounting policies are those policies that are highly dependent on subjective or complex judgments, estimates and assumptions and where changes in those estimates and assumptions could have a significant impact on the financial statements. The Company has identified the appropriateness of the allowance for credit losses and the evaluation of goodwill for impairment as critical accounting policies and an understanding of these policies is necessary to understand the financial statements. Note 1 (Summary of Significant Accounting Policies - Allowance for Credit Losses), Note 3 (Loans and Allowance for Credit Losses), Note 5 (Goodwill and Acquired Intangible Assets), and Management's Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2025 Form 10-K provide detail regarding the Company's accounting for the allowance for credit losses and Goodwill.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "may," "continue," "estimate," "intend," "plan," "seek," "will," "believe," "project," "expect," "anticipate" and similar expressions are intended to identify forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. Risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:

	●	changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in asset credit quality or debtors being unable to meet their obligations because of high unemployment rates and inflationary pressures;
	●	rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income;
	●	the effects of, and changes in, trade, tariff policies, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
	●	changes in the level of non-performing assets and charge-offs;
	●	unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity, our ability to find alternative funding sources, and potential market reactions to the default or risk of default by other financial institutions;
	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply;
	●	competitive pressures on product pricing and services;
	●	breaches of security or failures of our or our vendor's technology systems due to technological or other factors and cybersecurity threats;
	●	changes in consumer spending, borrowing and savings habits;
	●	declining asset values impacting the underlying value of collateral;
	●	changes in accounting policies, rules and interpretations;
	●	our ability to attract and retain qualified employees; and
	●	changes in the reliability of our vendors, internal control systems or information systems.