CONSUMERS BANCORP INC OH

PART I – FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’** EQUITY**

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Note1 – Summary of Significant Accounting Policies:

Nature of Operations: Consumers Bancorp, Inc. (the Company) is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, Consumers National Bank (the Bank), a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and contiguous counties in Ohio, Pennsylvania, and 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.

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form10-Q and donot include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form10-K for the year ended* June 30, 2023.The results of operations for the interim period disclosed herein arenot* necessarily indicative of the results that* may*be expected for a full year.

The consolidated financial statements include the accounts of the company and the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

**Segment Information:**The Company is a bank holding company engaged in the business of commercial and retail banking, which accounts for substantially all the revenues, operating income, and assets. Accordingly, all the Company’s operations are recorded inone segment, banking.

Reclassifications: Certain items in prior financial statements have been reclassified to conform to the current presentation. Any reclassifications hadno impact on prior year net income or shareholders’ equity.

Adoption of New Accounting Standards: In* June 2016,the Financial Accounting Standards Board (FASB) issued ASU2016*-13, Financial Instruments—Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss methodology for recognizing credit losses and requires companies to measure the current expected credit losses (CECL) on financial instruments measured at amortized cost, such as loans, held-to-maturity debt securities, and other receivables at the time the financial asset is originated or acquired and certain off-balance sheet credit exposures. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

This guidance became effective for the Company on* July 1, 2023and was adopted using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company’s results for periods beginning after July 1, 2023are presented under ASC326* while results for prior periods are presented in accordance with previously applicable accounting standards.

At adoption, the Company recognized an incremental allowance for credit losses on loans of $52 and a liability for off-balance sheet unfunded commitments of $308. Additionally, a $285 decrease to the retained earnings account associated with the increased estimated credit losses was recorded along with the $75 tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.

Allowance for Credit Losses (ACL)

Topic326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. 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. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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Portfolio Segmentation

The allowance for credit losses consists of general and specific components. The general component covers loans within portfolio segments that are collectively evaluated for credit losses. Portfolio segmentation is the pooling of loans based upon similar risk characteristics so that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses can be applied to the pool of loans in each segment. The Company has identifiedsix 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 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 secondarily made based 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* mayfluctuate 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 short-term loans maybe 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 primarily in the areas where the Bank operates.

Commercial Real Estate: Commercial real estate loans include mortgage loans to owners of multi-family investment properties and owners of commercial real estate. 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. Commercial real estate loans* maybe 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 in our immediate and surrounding market area. This diversity helps reduce the Company’s exposure to adverse economic events that mayaffect any single market or industry. Thethree* largest collateral concentrations within the commercial real estate non-owner occupied portfolio are retail rental, office rental, and nursing home/assisted living facilities. 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, loans with longer term leases or strong guarantors are typically obtained at time of origination and personal guarantees are typically obtained on commercial real estate loans. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.

Farmland: Farmland loans include loans for agriculture purposes, such as crop and livestock production. 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, rising farm production costs, and fluctuating land value.

Land Development: Land Development loans include loans to finance the construction of residential and commercial properties generally located within our primary market area. Land development loans are fixed-rate or adjustable-rate loans which* mayconvert to permanent loans with maturities of up to30* years. Our policies provide that construction loans* maygenerally be made in amounts up to80%* of the appraised value of the property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction. 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 subject property. 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 or development compared to the estimated cost (including interest) of construction. 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 construction loans through inspections of construction progress on the property and by requiring personal guarantees and reviewing current personal financial statements and tax returns, as well as other projects of the developer.

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1-4 Family Residential Real Estate: Residential real estate loans are secured byone tofour 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 beno more than85% of the purchase price or the appraised value of the real estate securing the loan unless the borrower purchases private mortgage insurance.

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 income sufficient 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 with higher yields as compared to real estate mortgage loans, but 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.

The allowance for credit losses for portfolio segments is evaluated based upon periodic quantitative review of the collectability of the loans that correlates historical loan 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 drivers 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 aone-year reasonable and supportable forecast period with aone-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 athird-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.

Adjustments* may*be made to the quantitative evaluation to account for differences in current or expected qualitative risk characteristics such as changes in underwriting standards, changes in the value of underlying collateral, the existence and effect of portfolio concentration, delinquency level, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.

Individually Evaluated Loans

Loans that donot share similar risk characteristics are evaluated on an individual basis and are excluded from the pooling approach discussed above for the forecasted allowance for credit losses. The Company establishes a specific reserve for individually evaluated loans which donot share similar risk characteristics. Individually evaluated loans include thethird-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.

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Reserve for Unfunded Commitments

The reserve for unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by the Company. Any reserve for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The reserve is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.

Available-for-Sale (AFS) and Held-to-Maturity (HTM) Debt Securities

For AFS securities in an unrealized loss position, management determines whether the Company intends to sell or if it is more likely thannot 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 with an allowance being established under CECL. For AFS securities with unrealized lossesnot meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies 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 under ASC326-30 are recorded as provisions for (or reversal of) credit loss expense. 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 hasnot been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.

Since the adoption of CECL, the Company monitors the credit quality of HTM debt securities primarily through the financial condition of the issuer. 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 issuers continue to make timely principal and interest payments under the contractual terms of the securities.

At* December 31, 2023and at adoption of CECL on July 1, 2023,there wasno* allowance for credit losses related to AFS or HTM debt securities. Accrued interest receivable on debt securities was excluded from the estimate of credit losses.

Accrued Interest Receivable

Upon adoption of ASU2016-13 and its related amendments on* July 1, 2023,*the Company elected to do the following regarding accrued interest receivable:

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On* July 1, 2023,the Company adopted ASU2022*-02, Financial Instruments – Credit Losses (ASC326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. The ASU requires enhanced disclosures related to certain modifications of receivables made to borrowers experiencing financial difficulty and require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures. The adoption of the ASU didnot have a significant impact on the Company’s financial statements.

Note2 – Securities

Debt securities

The following tables summarize the amortized cost, fair value, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss on the Company’s debt securities available-for-sale and gross unrecognized losses on the Company’s debt securities held-to-maturity as of* December 31, 2023and June 30, 2023:*

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Proceeds from the sale of available-for-sale securities were as follows:

The income tax benefit related to the net realized losses amounted to $16 for thesix month period ended* December 31, 2023and $1 for thethree*-month and $3 for thesix-month periods ended* December 31, 2022.*

The amortized cost and fair values of debt securities as of* December 31, 2023,by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers mayhave the right to call or prepay obligations with or without call or prepayment penalties. Securitiesnot* due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Securities with a carrying value of approximately $140,998 and $137,896 were pledged at* December 31, 2023and June 30, 2023,*respectively, to secure public deposits and commitments as required or permitted by law.

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The following table summarizes the debt securities with unrealized and unrecognized losses as of* December 31, 2023and June 30, 2023,*aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

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At* December 31, 2023,the Company’s portfolio consisted of 413 securities,365 of which were available-for-sale and 4 of which were held-to-maturity securities in unrealized or unrecognized loss positions. As of December 31, 2023,*no allowance for credit losses has been recognized on securities in an unrealized loss position as management doesnot believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available-for-sale securities.

The Company’s mortgage-backed securities and collateralized mortgage obligations were issued by U.S. government-sponsored entities and agencies. The Company doesnot own any private label mortgage-backed securities. The Company’s municipal bond portfolio consists of tax-exempt and taxable general obligation and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of* December 31, 2023,98.5% of the municipal bonds held in the available-for-sale portfolio had a S&P or Moody’s investment grade rating, and 1.5% were non-rated issues. The municipal bonds in the held-to-maturity portfolio are all non-rated issues to local entities that are also deposit customers. The other debt securities consist of subordinated notes issued by other bank holding companies. Within the other debt securities portfolio, the Company owns $2 million forone* issuer who’s rating was downgraded by Moody’s toBa2 in* February 2024.The issuers of all securities owned by the Company continue to make timely principal and interest payments under the securities’ contractual terms. The unrealized losses related to these securities havenot* been recognized into income because the decline in fair value isnot attributed to credit quality, management doesnot intend to sell the securities, and it isnot likely that management will be required to sell the securities prior to their anticipated recovery. The unrealized losses on these securities are primarily due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The securities’ fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Equity Securities

The Company owned equity securities with an amortized cost of $400 as of* December 31, 2023,and June 30, 2023.Changes in the fair value of these securities are included in noninterest income on the consolidated statements of income. The following table presents the net unrealized losses on equity securities recognized in earnings for thethree* month andsix month periods ended* December 31, 2023and2022.* There wereno sales of equity securities during thethree- andsix-month periods ended* December 31, 2023and2022.*

Note3 – Loans and Allowance for Credit Losses

The following table presents loans by major category.

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The following table presents the activity in the allowance for credit losses by portfolio segment for thethree months ended* December 31, 2023.*

The following table presents the activity in the allowance for credit losses by portfolio segment for thesix months ended* December 31, 2023.*

The following table presents the activity in the allowance for loan losses by portfolio segment for thethree months ended* December 31, 2022:*

The following table presents the activity in the allowance for loan losses by portfolio segment for thesix months ended* December 31, 2022:*

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The following table presents the amortized cost of non-accrual loans by class as of* December 31, 2023:*

The following table presents the recorded investment of non-accrual loans by class as of* June 30, 2023:*

The following table presents the aging of the amortized cost of past due loans as of* December 31, 2023*by class of loans:

The following table presents the aging of the recorded investment in past due loans as of* June 30, 2023*by class of loans:

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Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, current economic trends and other relevant information. At the time of origination, the Company analyzes all commercial loans individually and classifies the loans by credit risk. Management regularly monitors commercial loans for any changes in the borrowers’ ability to service their debt and completes an annual review to confirm the risk rating for those loans with total outstanding loan relationships greater than*$500.* The Company uses the following definitions for risk ratings:

**Special Mention.*Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may*result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

**Substandard.**Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies arenot corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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Based on the most recent analysis performed, the following tables present the amortized cost by internal risk category and class of loans as of* December 31, 2023:*

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Management monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due90 days or more and loans on nonaccrual are considered nonperforming. The following table presents the amortized cost of residential real estate and consumer loans based on payment status as of* December 31, 2023:*

Based on the most recent analysis performed, the following table presents the recorded investment by risk category and by class of loans as of* June 30, 2023:*

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty to maximize collection of loan balances by providing principal forgiveness, term extension, an other-than insignificant payment delay, or an interest rate reduction. In some cases, the Company* mayprovide multiple types of concessions onone* loan. If principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

There wereno modifications of loans to borrowers in financial distress completed during thesix-month period ended* December 31, 2023.*

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Impaired Loans

The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of* June 30, 2023.*Included in the recorded investment in loans is $1,598 of accrued interest receivable.

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of* June 30, 2023and for thesix* months ended* December 31, 2022:*

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The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for thethree months ended* December 31, 2022:*

Note4 - Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There arethree levels of inputs that* may*be used to measure fair values:

Level1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level2: Significant other observable inputs other than Level1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot active; or other inputs that are observable or can be corroborated by observable market data.

Level3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities available-for-sale: When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level1 inputs). For securities where quoted market prices arenot available, fair values are calculated based on market prices of similar securities (Level2 inputs). For securities where quoted prices or market prices of similar securities arenot available, fair values are calculated using discounted cash flows or other unobservable inputs (Level3 inputs).

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Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

There wereno transfers between Level1 and Level2 during thethree-month andsix month periods ended* December 31, 2023.*

Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments arenot measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets that* maybe recorded at fair value on a nonrecurring basis include individually evaluated collateral dependent loans (or impaired loans prior to the adoption of ASC326*), other real estate owned, and other repossessed assets.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. These appraisals* mayutilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level3* classification of the inputs for determining fair value. As of* December 31, 2023,there was a total of $199 of collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans of$12.There wereno* impaired loans measured at fair value on a non-recurring basis at* June 30, 2023.*

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Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Subsequent to their initial recognition, these assets are remeasured at fair value, which is the lower of cost or fair value less estimated costs to sell, through a write-down included in other non-interest expense. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There wereno such fair value measurement adjustments recorded during* December 31, 2023or June 30, 2023.As of December 31, 2023and June 30, 2023*the balance of other real estate owned was $124.

The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

The assumptions used to estimate fair value are described as follows:

Cash and cash equivalents: The carrying value of cash and deposits in other financial institutions were considered to approximate fair value resulting in a Level1 classification.

Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level2 classification.

Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level2 classification.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes fromthird party investors resulting in a Level2 classification.

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Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and withno significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value of loans donot necessarily represent an exit price.

Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated using a spread to the applicable municipal fair market curve resulting in a Level3 classification.

Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at* December 31, 2023and2022* for deposits of similar remaining maturities, resulting in Level2 classification. Estimated fair value doesnot include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at* December 31, 2023and2022* for similar financing resulting in a Level2 classification.

Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability, and, therefore, arenot subject to the fair value disclosure requirements.

**Off-balance sheet commitments:**The Company’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items arenot significant and arenot included in the above table.

NOTE5—AFFORDABLE TAX CREDIT PARTNERSHIP

In* April 2023,the Company invested in a limited partnership that will in turn invest in qualified affordable housing projects that will generate tax benefits for the limited partner investors, including federal low-income housing tax credits pursuant to Section42* of the Internal Revenue Code. This partnership investment is an unconsolidated Variable Interest Entity (VIE) for which the Company holds an interest in but isnot the primary beneficiary of the VIE. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company uses the proportional amortization method to account for its investment. The investment is included in other assets and the unfunded commitment is included in other liabilities. As a limited partner, there isno recourse to the Company by the creditors of the limited partnership, however, the tax credits are generally subject to recapture should the partnership fail to comply with the applicable government regulations.

The following table summarizes the balances of the affordable housing tax credit investment and related unfunded commitment at* December 31, 2023and June 30, 2023.*

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The following summarizes other information relating to the affordable housing tax credit investment for thethree-month andsix month periods ended* December 31, 2023and2022.*

Note6 – Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that* maybe issued upon the vesting of restricted stock awards. There were 18,286 shares of restricted stock that were anti-dilutive for thethree*-month andsix month periods ended* December 31, 2023.There were 6,216 shares of restricted stock that were anti-dilutive for thethree*-month andsix month periods ended* December 31, 2022.*The following table details the calculation of basic and diluted earnings per share:

**Note7 **–Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for thethree- andsix- month periods ended* December 31, 2023and2022,* were as follows:

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(a) Securities (gains) losses, net

(b) Income tax expense

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Management's Discussion and Analysis of Financial Condition

and Results of Operations

(Dollars in thousands, except per share data)