CONSUMERS BANCORP INC /OH/ - Quarter Report: 2022 December (Form 10-Q)

cbkm20221231_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2022

☐	Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

Commission File No. 033-79130

CONSUMERS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Ohio	34-1771400
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

614 East Lincoln Way, P.O. Box 256, Minerva, Ohio	44657
(Address of principal executive offices)	(Zip Code)

(330) 868-7701

(Registrant’s telephone number)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None

There were 3,089,361 shares of Registrant’s common stock, no par value, outstanding as of February 9, 2023.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED December 31, 2022

Table of Contents

Page

Number (s)

Part I – Financial Information

Item 1 – Financial Statements
Consolidated Balance Sheets at December 31, 2022 and June 30, 2022	1

Consolidated Statements of Income for the three and six months ended December 31, 2022 and 2021 (unaudited)	2

Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2022 and 2021 (unaudited)	3

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended December 31, 2022 and 2021 (unaudited)	4-5

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2022 and 2021 (unaudited)	6

Notes to the Consolidated Financial Statements (unaudited)	7-23

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-32

Item 3 – Not Applicable for Smaller Reporting Companies

Item 4 – Controls and Procedures	33
Part II – Other Information
Item 1 – Legal Proceedings	34

Item 1A – Not Applicable for Smaller Reporting Companies	34

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3 – Defaults Upon Senior Securities	34

Item 4 – Mine Safety Disclosure	34

Item 5 – Other Information	34

Item 6 – Exhibits	34

Signatures	35

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)	December 31, 2022 (unaudited)			June 30, 2022
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	13,133		$	11,254
Federal funds sold and interest-bearing deposits in financial institutions		169			9,698
Total cash and cash equivalents		13,302			20,952
Certificates of deposit in other financial institutions		3,264			3,781
Securities, available-for-sale		287,142			296,347
Securities, held-to-maturity (fair value of $6,911 at December 31, 2022 and $7,831 at June 30, 2022)		7,338			7,874
Equity securities, at fair value		367			400
Federal bank and other restricted stocks, at cost		2,583			2,525
Loans held for sale		100			1,165
Total loans		664,969			611,843
Less allowance for loan losses		(7,675	)		(7,160	)
Net loans		657,294			604,683
Cash surrender value of life insurance		10,089			9,959
Premises and equipment, net		16,278			16,521
Goodwill		2,452			2,452
Core deposit intangible, net		442			470
Accrued interest receivable and other assets		12,505			10,184
Total assets	$	1,013,156		$	977,313

LIABILITIES
Deposits
Noninterest-bearing demand	$	254,646		$	257,665
Interest bearing demand		151,848			157,462
Savings		354,406			369,054
Time		145,252			102,381
Total deposits		906,152			886,562

Short-term borrowings		25,380			21,295
Federal Home Loan Bank advances		24,603			8,256
Accrued interest and other liabilities		6,624			7,230
Total liabilities		962,759			923,343
Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—
Common stock (no par value, 8,500,000 shares authorized; 3,138,000 and 3,132,056 shares issued as of December 31, 2022 and June 30, 2022, respectively)		20,557			20,287
Retained earnings		61,205			56,906
Treasury stock, at cost (48,639 and 75,382 common shares as of December 31, 2022 and June 30, 2022, respectively)		(809	)		(1,117	)
Accumulated other comprehensive loss		(30,556	)		(22,106	)
Total shareholders’ equity		50,397			53,970
Total liabilities and shareholders’ equity	$	1,013,156		$	977,313

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months ended December 31,					Six Months ended December 31,
(Dollars in thousands, except per share amounts)	2022			2021		2022			2021

Interest and dividend income
Loans, including fees	$	7,955		$	7,497	$	15,085		$	14,565
Securities, taxable		1,301			806		2,549			1,517
Securities, tax-exempt		598			508		1,183			986
Equity securities		9			9		17			17
Federal bank and other restricted stocks		47			20		70			40
Federal funds sold and other interest-bearing deposits		116			43		196			93
Total interest and dividend income		10,026			8,883		19,100			17,218
Interest expense
Deposits		1,127			274		1,724			570
Short-term borrowings		95			1		154			3
Federal Home Loan Bank advances		28			63		50			127
Total interest expense		1,250			338		1,928			700
Net interest income		8,776			8,545		17,172			16,518
Provision for loan losses		225			270		635			460
Net interest income after provision for loan losses		8,551			8,275		16,537			16,058

Noninterest income
Service charges on deposit accounts		392			366		789			724
Debit card interchange income		534			522		1,075			1,031
Mortgage banking activity		72			171		154			429
Bank owned life insurance income		65			65		130			130
Securities gains (losses), net		(4	)		2		(15	)		2
Net change in market value of equity securities		(9	)		—		(33	)		—
Other		105			95		186			178
Total noninterest income		1,155			1,221		2,286			2,494

Noninterest expenses
Salaries and employee benefits		3,591			3,269		7,030			6,516
Occupancy and equipment		793			728		1,581			1,436
Data processing expenses		192			192		384			406
Debit card processing expenses		275			259		549			527
Professional and director fees		352			158		587			502
FDIC assessments		87			186		239			270
Franchise taxes		141			133		282			266
Marketing and advertising		203			164		407			378
Telephone and network communications		95			88		182			202
Amortization of intangible		14			15		28			26
Other		577			457		1,129			952
Total noninterest expenses		6,320			5,649		12,398			11,481
Income before income taxes		3,386			3,847		6,425			7,071
Income tax expense		577			685		1,081			1,244
Net income	$	2,809		$	3,162	$	5,344		$	5,827

Basic and diluted earnings per share	$	0.91		$	1.04		1.74			1.92

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)	Three Months ended December 31,						Six Months ended December 31,
	2022			2021			2022			2021

Net income	$	2,809		$	3,162		$	5,344		$	5,827

Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on securities available-for-sale:
Unrealized gains (losses) arising during the period		5,429			(922	)		(10,711	)		(2,488	)
Reclassification adjustment for (gains) losses included in income		4			(2	)		15			(2	)
Net unrealized gains (losses)		5,433			(924	)		(10,696	)		(2,490	)
Income tax effect		(1,141	)		194			2,246			522
Other comprehensive income (loss)		4,292			(730	)		(8,450	)		(1,968	)

Total comprehensive income (loss)	$	7,101		$	2,432		$	(3,106	)	$	3,859

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, September 30, 2022	$	20,385	$	58,922		$	(1,001	)	$	(34,848	)	$	43,458
Net income		—		2,809			—			—			2,809
Other comprehensive income		—		—			—			4,292			4,292
26,743 shares associated with stock awards		—		—			192			—			192
Restricted stock expense		118		—						—			118
2,879 shares issued associated with dividend reinvestment plan and stock purchase plan		54		—			—			—			54
Cash dividends declared ($0.17 per share)		—		(526	)		—			—			(526	)
Balance, December 31, 2022	$	20,557	$	61,205		$	(809	)	$	(30,556	)	$	50,397

(Dollars in thousands, except per share data)	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, September 30, 2021	$	20,113	$	49,844		$	(1,117	)	$	2,312		$	71,152
Net income		—		3,162			—			—			3,162
Other comprehensive loss		—		—			—			(730	)		(730	)
2,821 shares issued associated with dividend reinvestment plan and stock purchase plan		62		—			—			—			62
Cash dividends declared ($0.16 per share)		—		(488	)		—			—			(488	)
Balance, December 31, 2021	$	20,175	$	52,518		$	(1,117	)	$	1,582		$	73,158

(Dollars in thousands, except per share data)	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance, June 30, 2022	$	20,287	$	56,906		$	(1,117	)	$	(22,106	)	$	53,970
Net income		—		5,344			—			—			5,344
Other comprehensive loss		—		—			—			(8,450	)		(8,450	)
26,743 shares associated with vested stock awards		35		—			308			—			343
Restricted stock expense		118		—			—			—			118
5,944 shares issued associated with dividend reinvestment plan and stock purchase plan		117		—			—			—			117
Cash dividends declared ($0.34 per share)		—		(1,045	)		—			—			(1,045	)
Balance, December 31, 2022	$	20,557	$	61,205		$	(809	)	$	(30,556	)	$	50,397

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

(Unaudited)

(Dollars in thousands, except per share data)	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, June 30, 2021	$	20,011	$	47,663		$	(1,324	)	$	3,550		$	69,900
Net income		—		5,827			—			—			5,827
Other comprehensive loss		—		—			—			(1,968	)		(1,968	)
2,821 shares issued associated with dividend reinvestment plan and stock purchase plan		62		—			—			—			62
20,571 shares associated with vested stock awards		102		—			207			—			309
Cash dividends declared ($0.32 per share)		—		(972	)		—			—			(972	)
Balance, December 31, 2021	$	20,175	$	52,518		$	(1,117	)	$	1,582		$	73,158

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)	Six Months Ended December 31,
	2022			2021
Cash flows from operating activities
Net cash from operating activities	$	7,715		$	8,548
Cash flow from investing activities
Purchases of securities, available-for-sale		(17,091	)		(67,274	)
Maturities, calls and principal pay downs of securities, available-for-sale		11,405			16,520
Sale of securities, available-for-sale		3,708			1,000
Principal pay downs of securities, held-to-maturity		536			976
Net decrease in certificate of deposit in other financial institutions		517			1,277
Net change in Federal Home Loan Bank stock, at cost		(58	)		—
Net increase in loans		(53,257	)		(36,719	)
Acquisition, net cash received		—			66,552
Premises and equipment purchases		(298	)		(794	)
Sale of other repossessed assets		11			—
Net cash from investing activities		(54,527	)		(18,462	)
Cash flow from financing activities
Net increase in deposit accounts		19,590			16,833
Net change in short-term borrowings		4,085			(1,521	)
Proceeds from Federal Home Loan Bank advances		16,400			—
Repayments of Federal Home Loan Bank advances		(53	)		(1,764	)
Proceeds from dividend reinvestment and stock purchase plan		185			62
Dividends paid		(1,045	)		(972	)
Net cash from financing activities		39,162			12,638
Increase (decrease) in cash or cash equivalents		(7,650	)		2,724
Cash and cash equivalents, beginning of period		20,952			18,529
Cash and cash equivalents, end of period	$	13,302		$	21,253

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	1,815		$	699
Federal income taxes		1,515			805
Non-cash items:
Transfer from loans to repossessed assets		11			83
Issuance of treasury stock for vested stock awards		343			309
Branch acquisition:
Noncash assets acquired:
Securities, available-for-sale		—			15,602
Loans		—			19,943
Premises and equipment		—			413
Goodwill		—			1,616
Core deposit intangible		—			295
Accrued interest receivable and other assets		—			216
Total noncash assets acquired		—			38,085
Liabilities assumed:
Deposits		—			104,538
Other liabilities		—			99
Total liabilities assumed		—			104,637
Net noncash liabilities assumed		—			(66,552	)

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share data)

Note 1 – Summary of Significant Accounting Policies:

Nature of Operations: Consumers Bancorp, Inc. (the Corporation) 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, Wayne, 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 Form 10-Q and do not 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 Corporation’s Form 10-K for the year ended June 30, 2022. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.

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

Segment Information: The Corporation 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 Corporation’s operations are recorded in one segment, banking.

Reclassifications: Certain items in prior financial statements have been reclassified to conform to the current presentation. Any reclassifications had no impact on prior year net income or shareholders’ equity.

Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company.

The Corporation is evaluating how adopting this new guidance will impact the consolidated financial statements and the Corporation’s current systems and processes. Management has analyzed and finalized its pool segmentation, established the peer group that will be used as the source of loss experience data, and has started back testing in preparation for adoption of the new methodology. Management plans to use the Net Present Value of Discounted Cash Flow methodology for all loan pools and expects the implementation of ASU No. 2016-13 to increase the balance of the allowance for loan losses by less than 10%. In addition, a reserve for unfunded commitments will need to be established and Management expects it to be in a range of 0.25% to 0.50% of the amount of unfunded commitments that are not unconditionally cancellable. Management continues to evaluate the modeling and its potential impact on the Corporation's results of consolidated operations and financial position and, once the new guidance is adopted, the allowance for loan losses and reserve for unfunded commitments will increase through a one-time adjustment to retained earnings. The Corporation is also developing disclosure documentation related to adoption of this standard. The Corporation is planning to adopt this new guidance within the time frame noted above.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 2 – Acquisition

On July 16, 2021, the Corporation completed its acquisition (branch acquisition) of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the branch acquisition, the Corporation assumed $104,538 in branch deposits for a deposit premium of 1.75%. In addition, the Corporation acquired $15,602 of subordinated debt securities issued by unrelated financial institutions and $19,943 of loans. This transaction qualifies as a business combination.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by the Corporation at the date of the branch acquisition. The core deposit intangible will be amortized over ten years on a straight-line basis. Goodwill will not be amortized, but instead will be evaluated for impairment.

Assets acquired:
Cash and cash equivalents	$	515
Securities, available-for-sale		15,602
Loans		19,943
Premises and equipment		413
Core deposit intangible		295
Accrued interest receivable		216
Total assets acquired		36,984
Liabilities assumed:
Noninterest-bearing deposits		10,535
Interest-bearing deposits		94,003
Other liabilities		99
Total liabilities assumed		104,637
Fair value of net liabilities assumed		(67,653	)
Cash received		66,037
Goodwill	$	1,616

The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgement in accounting for the branch acquisition. The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the branch acquisition was $20,325. The fair value disclosed above reflects a credit-related adjustment of $(388) and an adjustment for other factors of $6. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were immaterial. Acquisition costs of $144 pre-tax, or $118 after-tax, were recorded during the first quarter of fiscal year 2022.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 3 – Securities

Debt securities

The following tables summarize the Corporation’s debt securities as of December 31, 2022 and June 30, 2022:

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2022
Obligations of U.S. Treasury	$	8,925	$	—	$	(604	)	$	8,321
Obligations of U.S. government-sponsored entities and agencies		27,783		—		(3,751	)		24,032
Obligations of state and political subdivisions		106,075		119		(10,259	)		95,935
U.S. Government-sponsored mortgage-backed securities–residential		108,903		5		(15,670	)		93,238
U.S. Government-sponsored mortgage-backed securities– commercial		8,613		—		(1,860	)		6,753
U.S. Government-sponsored collateralized mortgage obligations– residential		48,249		22		(5,187	)		43,084
Other debt securities		17,272		—		(1,493	)		15,779
Total securities available-for-sale	$	325,820	$	146	$	(38,824	)	$	287,142

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
December 31, 2022
Obligations of state and political subdivisions	$	7,338	$	—	$	(427	)	$	6,911

Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2022
Obligation of U.S Treasury	$	8,909	$	—	$	(462	)	$	8,447
Obligations of U.S. government-sponsored entities and agencies		28,689		—		(2,424	)		26,265
Obligations of state and political subdivisions		105,977		129		(8,749	)		97,357
U.S. Government-sponsored mortgage-backed securities – residential		113,812		13		(11,642	)		102,183
U.S. Government-sponsored mortgage-backed securities – commercial		8,623		—		(1,322	)		7,301
U.S. Government-sponsored collateralized mortgage obligations – residential		40,952		1		(2,774	)		38,179
Other debt securities		17,367		—		(752	)		16,615
Total available-for-sale securities	$	324,329	$	143	$	(28,125	)	$	296,347

Held-to-maturity

Amortized
Cost

Gross
Unrecognized
Gains

Gross
Unrecognized

Losses

Fair
Value

June 30, 2022

Obligations of state and political subdivisions

7,874

(90

)

7,831

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Proceeds from sales	$	1,639	$	1,000	$	3,708	$	1,000
Gross realized gains		1		2		8		2
Gross realized losses		5		—		23		—

The income tax benefit related to the net realized loss amounted to $1 for the three-month and $3 for the six-month periods ended December 31, 2022. The income tax provision related to the net realized gain amounted to less than $1 for the three- and six-month periods ended December 31, 2021.

The amortized cost and fair values of debt securities as of December 31, 2022, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Available-for-Sale	Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,747	$	2,705
Due after one year through five years		31,708		30,013
Due after five years through ten years		52,323		46,902
Due after ten years		73,277		64,447
Total		160,055		144,067

U.S. Government-sponsored mortgage-backed and related securities		165,765		143,075
Total securities available-for-sale	$	325,820	$	287,142

Held-to-Maturity
Due after one year through five years	$	171	$	169
Due after five years through ten years		3,289		3,182
Due after ten years		3,878		3,560
Total securities held-to-maturity	$	7,338	$	6,911

Securities with a carrying value of approximately $131,731 and $126,679 were pledged at December 31, 2022 and June 30, 2022, respectively, to secure public deposits and commitments as required or permitted by law.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table summarizes the securities with unrealized losses as of December 31, 2022 and June 30, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2022
Obligation of U.S. Treasury	$	—	$	—		$	8,321	$	(604	)	$	8,321	$	(604	)
Obligations of U.S. government-sponsored entities and agencies		11,941		(1,392	)		12,091		(2,359	)		24,032		(3,751	)
Obligations of state and political subdivisions		73,469		(7,882	)		11,583		(2,377	)		85,052		(10,259	)
U.S. Government-sponsored mortgage-backed securities – residential		32,106		(2,959	)		59,845		(12,711	)		91,951		(15,670	)
U.S. Government-sponsored mortgage-backed securities – commercial		2,279		(610	)		4,474		(1,250	)		6,753		(1,860	)
Collateralized mortgage obligations - residential		27,929		(1,662	)		14,147		(3,525	)		42,076		(5,187	)
Other debt securities		6,569		(554	)		9,210		(939	)		15,779		(1,493	)
Total temporarily impaired	$	154,293	$	(15,059	)	$	119,671	$	(23,765	)	$	273,964	$	(38,824	)

	Less than 12 Months					12 Months or more					Total
Held to Maturity	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2022
Obligations of state and political subdivisions	$	3,729	$	(320	)	$	3,182	$	(107	)	$	6,911	$	(427	)
Total temporarily impaired	$	3,729	$	(320	)	$	3,182	$	(107	)	$	6,911	$	(427	)

	Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2022
Obligations of U.S. Treasury	$	8,447	$	(462	)	$	—	$	—		$	8,447	$	(462	)
Obligations of U.S. government-sponsored entities and agencies		26,265		(2,424	)		—		—			26,265		(2,424	)
Obligations of state and political subdivisions		80,445		(8,331	)		2,047		(418	)		82,492		(8,749	)
Mortgage-backed securities – residential		76,526		(7,586	)		24,569		(4,056	)		101,095		(11,642	)
Mortgage-backed securities – commercial		7,301		(1,322	)		—		—			7,301		(1,322	)
Collateralized mortgage obligations - residential		30,729		(2,308	)		2,713		(466	)		33,442		(2,774	)
Other debt securities		16,156		(711	)		459		(41	)		16,615		(752	)
Total temporarily impaired	$	245,869	$	(23,144	)	$	29,788	$	(4,981	)	$	275,657	$	(28,125	)

	Less than 12 Months					12 Months or more				Total
Held to Maturity	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 30, 2022
Obligations of state and political subdivisions	$	3,522	$	(90	)		—	$	—	$	3,522	$	(90	)
Total temporarily impaired	$	3,522	$	(90	)	$	—	$	—	$	3,522	$	(90	)

Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

At December 31 2022, there were a total of 399 available-for-sale and four held-to-maturity securities in the portfolio with unrealized losses due to an increase in market interest rates when compared to the time of purchase. The unrealized losses within the securities portfolio as of December 31, 2022 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The mortgage-backed securities and collateralized mortgage obligations were primarily issued by Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. The Corporation does not own any private label mortgage-backed securities.

Equity Securities

The Corporation owned equity securities with an amortized cost of $400 as of December 31, 2022, and June 30, 2022. 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 the three and six-month periods ended December 31, 2022 and 2021. There were no sales of equity securities during the three and six-month periods ended December 31, 2022 and 2021.

Three Months Ended

December 31,

Six Months Ended

December 31,

2022

2021

2022

2021

Unrealized loss recognized on equity securities held at the end of the period

)

—

(33

)

—

Note 4 – Loans

Major classifications of loans were as follows:

	December 31, 2022			June 30, 2022
Commercial	$	103,513		$	87,008
Commercial real estate:
Construction		16,656			15,158
Other		301,646			291,847
1 – 4 Family residential real estate:
Owner occupied		149,177			142,244
Non-owner occupied		23,513			26,029
Construction		7,707			4,317
Consumer		62,470			44,964
Subtotal		664,682			611,567
Net deferred loan fees and costs		287			276
Allowance for loan losses		(7,675	)		(7,160	)
Net Loans	$	657,294		$	604,683

The commercial loan category in the above table includes a mortgage loan warehouse line of credit to another financial institution with an outstanding balance of $9,998 as of December 31, 2022 and it was zero as of June 30, 2022.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

						1-4 Family
				Commercial		Residential
				Real		Real
	Commercial			Estate		Estate		Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,021		$	4,072	$	1,676	$	777		$	7,546
Provision for loan losses		(15	)		11		1		228			225
Loans charged-off		—			—		—		(119	)		(119	)
Recoveries		—			1		—		22			23
Total ending allowance balance	$	1,006		$	4,084	$	1,677	$	908		$	7,675

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

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	960	$	3,927	$	1,645		$	628		$	7,160
Provision for loan losses		46		156		36			397			635
Loans charged-off		—		—		(6	)		(191	)		(197	)
Recoveries		—		1		2			74			77
Total ending allowance balance	$	1,006	$	4,084	$	1,677		$	908		$	7,675

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2021:

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	906	$	3,985	$	1,430		$	356		$	6,677
Provision for loan losses		49		62		97			62			270
Loans charged-off		—		—		(40	)		(13	)		(53	)
Recoveries		21		2		3			12			38
Total ending allowance balance	$	976	$	4,049	$	1,490		$	417		$	6,932

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2021:

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	904	$	3,949	$	1,307		$	311		$	6,471
Provision for loan losses		51		98		207			104			460
Loans charged-off		—		—		(40	)		(47	)		(87	)
Recoveries		21		2		16			49			88
Total ending allowance balance	$	976	$	4,049	$	1,490		$	417		$	6,932

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 December 31, 2022. Included in the recorded investment in loans is $1,494 of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Ending allowance for loan losses balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Acquired loans collectively evaluated for impairment		—		51		77		—		128
Originated loans collectively evaluated for impairment		1,006		4,033		1,600		908		7,547
Total ending allowance balance	$	1,006	$	4,084	$	1,677	$	908	$	7,675

Recorded investment in loans:
Loans individually evaluated for impairment	$	315	$	40	$	47	$	—	$	402
Acquired loans collectively evaluated for impairment		674		7,706		25,052		2,029		35,461
Originated loans collectively evaluated for impairment		102,804		310,578		156,784		60,434		630,600
Total ending loans balance	$	103,793	$	318,324	$	181,883	$	62,463	$	666,463

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, 2022. Included in the recorded investment in loans is $1,214 of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Acquired loans collectively evaluated for impairment		1		62		85		—		148
Originated loans collectively evaluated for impairment		959		3,865		1,560		628		7,012
Total ending allowance balance	$	960	$	3,927	$	1,645	$	628	$	7,160

Recorded investment in loans:
Loans individually evaluated for impairment	$	276	$	42	$	155	$	—	$	473
Acquired loans collectively evaluated for impairment		665		10,095		27,731		3,051		41,542
Originated loans collectively evaluated for impairment		86,310		296,776		146,058		41,898		571,042
Total ending loans balance	$	87,251	$	306,913	$	173,944	$	44,949	$	613,057

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 December 31, 2022 and for the six months ended December 31, 2022:

	As of December 31, 2022						Six Months ended December 31, 2022
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	408	$	315	$	—	$	297	$	18	$	18
Commercial real estate:
Other		79		40		—		40		4		4
1-4 Family residential real estate:
Owner occupied		45		20		—		20		2		2
Non-owner occupied		27		27		—		53		—		—
Total	$	559	$	402	$	—	$	410	$	24	$	24

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 the three months ended December 31, 2022:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	308	$	8	$	8
Commercial real estate:
Other		40		1		1
1-4 Family residential real estate:
Owner occupied		20		1		1
Non-owner occupied		27		—		—
Total	$	395	$	10	$	10

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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, 2022 and for the six months ended December 31, 2021:

	As of June 30, 2022						Six Months ended December 31, 2021
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	414	$	276	$	—	$	297	$	—	$	—
Commercial real estate:
Other		83		42		—		802		102		102
1-4 Family residential real estate:
Owner occupied		48		22		—		317		3		3
Non-owner occupied		193		133		—		167		75		75
With an allowance recorded:
Commercial		—		—		—		128		4		4
Total	$	738	$	473	$	—	$	1,711	$	184	$	184

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	295	$	—	$	—
Commercial real estate:
Other		691		99		99
1-4 Family residential real estate:
Owner occupied		272		1		1
Non-owner occupied		132		75		75
With an allowance recorded:
Commercial		126		2		2
Total	$	1,516	$	177	$	177

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2022 and June 30, 2022:

	December 31, 2022				June 30, 2022
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing
Commercial	$	—	$	—	$	276	$	9
1 – 4 Family residential:
Owner occupied		20		—		22		—
Non-owner occupied		27		—		133		—
Total	$	47	$	—	$	431	$	9

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2022 by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	—	$	—	$	103,793	$	103,793
Commercial real estate:
Construction		—		—		—		—		16,655		16,655
Other		52		—		—		52		301,617		301,669
1-4 Family residential:
Owner occupied		532		6		—		538		150,033		150,571
Non-owner occupied		—		4		27		31		23,497		23,528
Construction		—		—		—		—		7,784		7,784
Consumer		499		131		—		630		61,833		62,463
Total	$	1,083	$	141	$	27	$	1,251	$	665,212	$	666,463

The above table of past due loans includes the recorded investment in non-accrual loans of $27 in the 90 days or greater category and $20 in the loans not past due category.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2022 by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	9	$	9	$	87,242	$	87,251
Commercial real estate:
Construction		—		—		—		—		15,138		15,138
Other		52		—		—		52		291,723		291,775
1-4 Family residential:
Owner occupied		125		—		—		125		143,381		143,506
Non-owner occupied		—		—		27		27		26,036		26,063
Construction		—		—		—		—		4,375		4,375
Consumer		381		79		—		460		44,489		44,949
Total	$	558	$	79	$	36	$	673	$	612,384	$	613,057

The above table of past due loans includes the recorded investment in non-accrual loans of $27 in the 90 days or greater category and $404 in the loans not past due category.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Troubled Debt Restructurings (TDR):

The Corporation has certain loans that have been modified in order to maximize collection of loan balances that are classified as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered.

As of December 31, 2022 and June 30, 2022, the Corporation had $354 and $318, respectively, of loans classified as TDRs which are included in impaired loans above. As of December 31, 2022 and June 30, 2022, the Corporation had not committed to lend any additional funds to customers with outstanding loans that were classified as troubled debt restructurings. As of December 31, 2022 and June 30, 2022 there were no specific reserves allocated to these loans.

During the three- and six-month periods ended December 31, 2022 and 2021, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge-offs from troubled debt restructurings that were completed during the three- and six-month periods ended December 31, 2022 and 2021.

There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the three- and six-month periods ended December 31, 2022 and 2021. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Corporation 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. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. Management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirms the risk ratings for the loans and leases in their respective portfolio on an annual basis. The Corporation 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 are not 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.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Generally, 1-4 Family Residential and Consumer loans are not risk rated, except when collateral is used for a business purpose. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:

	As of December 31, 2022
			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	102,974	$	206	$	471	$	—	$	142
Commercial real estate:
Construction		16,655		—		—		—		—
Other		294,165		2,233		4,653		—		618
1-4 Family residential real estate:
Owner occupied		1,326		—		19		20		149,206
Non-owner occupied		23,075		55		110		27		261
Construction		2,858		—		—		—		4,926
Consumer		1,648		—		—		—		60,815
Total	$	442,701	$	2,494	$	5,253	$	47	$	215,968

As of June 30, 2022, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:

	As of June 30, 2022
			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	86,265	$	350	$	178	$	276	$	182
Commercial real estate:
Construction		15,138		—		—		—		—
Other		283,877		2,500		4,711		—		687
1-4 Family residential real estate:
Owner occupied		1,321		—		—		22		142,163
Non-owner occupied		25,606		59		—		133		265
Construction		1,234		—		—		—		3,141
Consumer		605		—		—		—		44,344
Total	$	414,046	$	2,909	$	4,889	$	431	$	190,782

Note 5 - 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 are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).

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:

	Balance at December 31,		Fair Value Measurements at December 31, 2022
	2022		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. Treasury	$	8,321	$	—	$	8,321	$	—
Obligations of U.S. government-sponsored entities and agencies		24,032		—		24,032		—
Obligations of state and political subdivisions		95,935		—		95,935		—
U.S. Government-sponsored mortgage-backed securities – residential		93,238		—		93,238		—
U.S. Government-sponsored mortgage-backed securities – commercial		6,753		—		6,753		—
U.S. Government-sponsored collateralized mortgage obligations - residential		43,084		—		43,084		—
Other debt securities		15,779		—		15,779		—
Equity securities		367		—		367		—

	Balance at June 30,		Fair Value Measurements at June 30, 2022
	2022		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. treasury	$	8,447	$	—	$	8,447	$	—
Obligations of U.S. government-sponsored entities and agencies		26,265		—		26,265		—
Obligations of state and political subdivisions		97,357		—		97,357		—
U.S. government-sponsored mortgage-backed securities - residential		102,183		—		102,183		—
U.S. government-sponsored mortgage-backed securities - commercial		7,301		—		7,301		—
U.S. government-sponsored collateralized mortgage obligations - residential		38,179		—		38,179		—
Other debt securities		16,615		—		16,615		—
Equity securities		400		—		400		—

There were no transfers between Level 1 and Level 2 during the three-month and six-month periods ended December 31, 2022.

Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets and liabilities measured at fair value on a non-recurring basis include the following:

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize 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 Level 3 classification of the inputs for determining fair value. There were no impaired loans measured at fair value on a non-recurring basis at December 31, 2022 or June 30, 2022 and there was no impact to the provision for loan losses for the three-month or six- month periods ended December 31, 2022 or 2021.

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. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. 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 was no other real estate owned or other repossessed assets being carried at fair value as of December 31, 2022 or June 30, 2022.

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

	December 31, 2022				June 30, 2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	13,302	$	13,302	$	20,952	$	20,952
Level 2 inputs:
Certificates of deposit in other financial institutions		3,264		3,146		3,781		3,847
Loans held for sale		100		101		1,165		1,188
Accrued interest receivable		3,017		3,017		2,703		2,703
Level 3 inputs:
Securities held-to-maturity		7,338		6,911		7,874		7,831
Loans, net		657,294		600,039		604,683		577,708
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		760,900		760,900		784,181		784,181
Time deposits		145,252		145,027		102,381		102,622
Short-term borrowings		25,380		25,380		21,295		21,295
Federal Home Loan Bank advances		24,603		23,341		8,256		7,215
Accrued interest payable		162		162		49		49

Note 6 – 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 may be issued upon the vesting of restricted stock awards. There were 6,216 shares of restricted stock that were anti-dilutive for the three-month and six-month periods ended December 31, 2022. There were no shares of restricted stock that were anti-dilutive for the three-month period ended December 31, 2021 and 9,766 shares of restricted stock that were anti-dilutive for the six month period ended December 31, 2021. The following table details the calculation of basic and diluted earnings per share:

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2022		2021		2022		2021
Basic:
Net income available to common shareholders	$	2,809	$	3,162	$	5,344	$	5,827
Weighted average common shares outstanding		3,076,207		3,034,362		3,065,719		3,032,416
Basic income per share	$	0.91	$	1.04	$	1.74	$	1.92

Diluted:
Net income available to common shareholders	$	2,809	$	3,162	$	5,344	$	5,827
Weighted average common shares outstanding		3,076,207		3,034,362		3,065,719		3,032,416
Dilutive effect of restricted stock		814		438		—		233
Total common shares and dilutive potential common shares		3,077,021		3,034,800		3,065,719		3,032,649
Dilutive income per share	$	0.91	$	1.04	$	1.74	$	1.92

Note 7 –Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three-month periods ended December 31, 2022 and 2021, were as follows:

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of September 30, 2022	$	(44,111	)	$	9,263		$	(34,848	)
Unrealized holding gains on available-for-sale securities arising during the period		5,429			(1,140	)		4,289
Amounts reclassified from accumulated other comprehensive income		4			(1	)		3		(a)(b)
Net current period other comprehensive gain		5,433			(1,141	)		4,292
Balance as of December 31, 2022	$	(38,678	)	$	8,122		$	(30,556	)

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of September 30, 2021	$	2,927		$	(615	)	$	2,312
Unrealized holding losses on available-for-sale securities arising during the period		(922	)		194			(728	)
Amounts reclassified from accumulated other comprehensive income		(2	)		—			(2	)	(a)(b)
Net current period other comprehensive loss		(924	)		194			(730	)
Balance as of December 31, 2021	$	2,003		$	(421	)	$	1,582

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2022	$	(27,982	)	$	5,876		$	(22,106	)
Unrealized holding losses on available-for-sale securities arising during the period		(10,711	)		2,249			(8,462	)
Amounts reclassified from accumulated other comprehensive income		15			(3	)		12		(a)(b)
Net current period other comprehensive loss		(10,696	)		2,246			(8,450	)
Balance as of December 31, 2022	$	(38,678	)	$	8,122		$	(30,556	)

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2021	$	4,493		$	(943	)	$	3,550
Unrealized holding losses on available-for-sale securities arising during the period		(2,488	)		522			(1,966	)
Amounts reclassified from accumulated other comprehensive income		(2	)		—			(2	)	(a)(b)
Net current period other comprehensive loss		(2,490	)		522			(1,968	)
Balance as of December 31, 2021	$	2,003		$	(421	)	$	1,582

(a) Securities (gains) losses, net

(b) Income tax expense

Note 8 – COVID-19

In December 2019, a novel strain of coronavirus surfaced in Wuhan, China, and has spread around the world, resulting in business and social disruption. The coronavirus was declared a Pandemic by the World Health Organization on March 11, 2020. The economic impacts related to the COVID-19 pandemic continue to linger due to supply chain disruptions, additional employee costs, rising inflationary pressures and the prospects of recession, all which may impact the ability of our customers to make payments on loans, resulting in elevated loan losses and an increase in the Corporation’s allowance for loan losses.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except per share data)

General

The following is management’s analysis of the Corporation’s results of operations for the three-and six-month periods ended December 31, 2022, compared to the same period in 2021, and the consolidated balance sheet at December 31, 2022, compared to June 30, 2022. 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 Corporation), 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 Corporation’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, Wayne 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, 2022 and 2021

Net income for the second quarter of fiscal year 2023 was $2,809, or $0.91 per common share, compared to $3,162, or $1.04 per common share for the three months ended December 31, 2021. The following are key highlights of our results of operations for the three months ended December 31, 2022, compared to the prior fiscal year comparable period:

	●	net interest income increased by $231, or 2.7%, to $8,776 in the second quarter of fiscal year 2023 from the same prior year period primarily as a result of the growth in average interest-earning assets;
	●	a $225 provision for loans loss expense was recorded for the three-month period ended December 31, 2022 compared with $270 for the same prior year period primarily as a result of the organic growth within the loan portfolio in the second quarter of fiscal year 2023;
	●	noninterest income decreased by $66, or 5.4%, in the second quarter of fiscal year 2023 from the same prior year period primarily as a result of a $99, or 57.9%, decline in mortgage banking activity which was partially offset by a $26, or 7.1%, increase in service charges on deposit accounts and a $12, or 2.3%, increase in debit card interchange income; and
	●	noninterest expenses increased by $671, or 11.9%, in the second quarter of fiscal year 2023 from the same prior year period primarily due to increases in salaries and employee benefits, director fees, advertising, and loan related expenses.

In the first six months of fiscal year 2023, net income was $5,344, or $1.74 per common share, compared to $5,827, or $1.92 per common share for the six months ended December 31, 2021. The following are key highlights of our results of operations for the six months ended December 31, 2022, compared to the prior fiscal year comparable period:

	●	net interest income increased by $654, or 4.0%, to $17,172 in the first six months of fiscal year 2023 from the same prior year period primarily as a result of the growth in average interest-earning assets;
	●	a $635 provision for loans loss expense was recorded for the six-month period ended December 31, 2022 compared with $460 for the same prior year period primarily as a result of the organic growth within the loan portfolio;
	●	noninterest income decreased by $208, or 8.3%, in the first six months of fiscal year 2023 from the same prior year period primarily as a result of a $275, or 64.1%, decline in mortgage banking activity which was partially offset by a $65, or 9.0%, increase in service charges on deposit accounts and a $44, or 4.3%, increase in debit card interchange income; and
	●	noninterest expenses increased by $917, or 8.0%, in the first six months of fiscal year 2023 from the same prior year period primarily due to increases in salaries and employee benefits and occupancy and equipment expenses.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

The annualized return on average equity and return on average assets were 21.01% and 1.06%, respectively, for the six months ended December 31, 2022 compared to 16.03% and 1.23%, 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 Corporation’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 2023 and 2022 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 Corporation’s net interest margin was 3.53% for the three months ended December 31, 2022, compared with 3.77% for the same period in 2021. FTE net interest income for the three months ended December 31, 2022 increased by $195, or 2.2%, to $8,867 from $8,672 for the same prior year period.

The yield on average interest-earning assets increased to 4.03% for the three months ended December 31, 2022, compared with 3.92% for the same period last year. Tax-equivalent interest income increased by $1,107, or 12.3%, for the three months ended December 31, 2022, from the same prior year period because of a $37,354, or 4.1%, increase in average interest-earning assets as well as the increase in current market rates. Interest expense for the three months ended December 31, 2022 increased by $912 from the same prior year period primarily due to an increase in deposit and short-term borrowing costs as a result of higher market interest rates. The Corporation’s cost of funds increased to 0.72% for the three months ended December 31, 2022 compared with 0.21% for the same prior year period.

The Corporation’s net interest margin was 3.51% for the six months ended December 31, 2022, compared with 3.70% for the same period in 2021. FTE net interest income for the six months ended December 31, 2022 increased by $620, or 3.7%, to $17,384 from $16,764 for the same prior year period.

Tax-equivalent interest income increased by $1,848, or 10.6%, for the six months ended December 31, 2022 from the same prior year period. Interest income was positively impacted by a $44,668, or 4.9%, increase in average interest-earning assets from the same prior year period as well by the impact of higher current market rates, which more than offset the loss of the $2,040 of interest and fee income that was recognized on the Paycheck Protection Program loans during the six-month period ended December 31, 2021 since these loans are now fully forgiven. The yield on average interest-earning assets increased to 3.90% for the six months ended December 31, 2022, compared with 3.85% for the same period last year.

Interest expense for the six months ended December 31, 2022 increased by $1,228 from the same prior year period primarily due to an increase in deposit and borrowing costs as a result of higher market interest rates. The Corporation’s cost of funds increased to 0.57% for the six months ended December 31, 2022 compared with 0.22% for the same prior year period.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended December 31, (In thousands, except percentages)
	2022								2021
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	203,006		$	1,301		2.19	%	$	182,705		$	806		1.75	%
Nontaxable securities (1)		85,446			687		2.83			86,093			633		3.02
Loans receivable (1)		646,941			7,957		4.88			592,633			7,499		5.02
Federal bank and other restricted stocks		2,276			47		8.19			2,472			20		3.21
Equity securities		376			9		9.50			424			9		8.42
Interest bearing deposits and federal funds sold		13,781			116		3.34			50,145			43		0.34
Total interest-earning assets		951,826			10,117		4.03	%		914,472			9,010		3.92	%

Noninterest-earning assets		48,769								37,425

Total Assets	$	1,000,595							$	951,897

Interest-bearing liabilities:
NOW	$	158,998		$	244		0.61	%	$	143,318		$	35		0.10	%
Savings		354,480			454		0.51			343,763			92		0.11
Time deposits		140,192			429		1.21			116,664			147		0.50
Short-term borrowings		21,878			95		1.72			8,910			1		0.04
FHLB advances		8,973			28		1.24			16,291			63		1.53
Total interest-bearing liabilities		684,521			1,250		0.72	%		628,946			338		0.21	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		263,866								243,465
Other liabilities		7,060								6,998
Total liabilities		955,447								879,409
Shareholders’ equity		45,148								72,488

Total liabilities and shareholders’ equity	$	1,000,595							$	951,897

Net interest income, interest rate spread (1)				$	8,867		3.31	%				$	8,672		3.71	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.53	%							3.77	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	91							$	127

Average interest-earning assets to interest-bearing liabilities		139.05	%							145.40	%

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31, (In thousands, except percentages)
	2022								2021
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	208,514		$	2,549		2.15	%	$	168,323		$	1,517		1.79	%
Nontaxable securities (1)		87,462			1,391		2.86			84,159			1,228		3.01
Loans receivable (1)		635,391			15,089		4.71			585,497			14,569		4.94
Federal bank and other restricted stocks		2,306			70		6.02			2,472			40		3.21
Equity securities		388			17		8.69			424			17		7.95
Interest bearing deposits and federal funds sold		13,875			196		2.80			62,393			93		0.30
Total interest-earning assets		947,936			19,312		3.90	%		903,268			17,464		3.85	%

Noninterest-earning assets		47,588								36,269

Total Assets	$	995,524							$	939,537

Interest-bearing liabilities:
NOW	$	159,745		$	419		0.52	%	$	140,608		$	68		0.10	%
Savings		361,384			714		0.39			334,222			181		0.11
Time deposits		124,436			591		0.94			118,888			321		0.54
Short-term borrowings		21,414			154		1.43			10,239			3		0.06
FHLB advances		8,602			50		1.15			16,444			127		1.53
Total interest-bearing liabilities		675,581			1,928		0.57	%		620,401			700		0.22	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		261,941								239,965
Other liabilities		7,540								7,081
Total liabilities		945,062								867,447
Shareholders’ equity		50,462								72,090

Total liabilities and shareholders’ equity	$	995,524							$	939,537

Net interest income, interest rate spread (1)				$	17,384		3.33	%				$	16,764		3.63	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.51	%							3.70	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	212							$	246

Average interest-earning assets to interest-bearing liabilities		140.31	%							145.59	%

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Provision for Loan Losses

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the six-month period ended December 31, 2022, the provision for loan losses was $635 compared with $460 for the same period last year. Net charge-offs of $120 were recorded during the six-month period ended December 31, 2022 compared with net recoveries of $1 for the same period last year. The loan loss provision expense recorded in fiscal year 2023 was primarily due to the organic growth within the loan portfolio.

Non-performing loans were $47 as of December 31, 2022, compared with $440 as of June 30, 2022 and $744 as of December 31, 2021. Non-performing loans to total loans were 0.01% at December 31, 2022 and 0.07% at June 30, 2022. Non-performing loans declined from June 30, 2022 since two loans were upgraded and returned to accrual status during the first quarter of fiscal year 2023. The allowance for loan losses as a percentage of loans was 1.15% at December 31, 2022 and 1.17% at June 30, 2022. 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 adjust the provision accordingly.

Noninterest Income

Noninterest income decreased by $66, or 5.4%, for the second quarter of fiscal year 2023 from the same period last year. For the six-month period ended December 31, 2022, noninterest income decreased by $208, or 8.3%, from the same period last year. The decrease in noninterest income was primarily the result of a reduction in mortgage banking activity from the same prior year period. Gains from the sale of mortgage loans to the secondary market declined as refinancing of mortgages slowed because of the increase in mortgage rates from the previous record lows. The decline in mortgage banking revenue was partially offset by increases in service charges on deposit accounts of $65, or 9.0%, and debit card interchange income of $44, or 4.3% for the six-month period ended December 31, 2022 compared with the same period last year. Effective March 1, 2022, the Bank made a small reduction to the non-sufficient funds/overdraft fee and eliminated many internal account transfer fees. The Bank may make future reductions to the non-sufficient funds/overdraft fee in response to the industry wide trend of reducing overdraft fees as large banks have announced a reduction in these types of fees in response to regulatory pressure. As a result, service charges on deposit accounts may be negatively impacted in future periods.

Noninterest Expenses

Total noninterest expenses increased by $671, or 11.9%, for the second quarter of fiscal year 2023 and by $917, or 8.0%, for the six-month period ended December 31, 2022 compared with the same periods last year. Salaries and employee benefit expenses increased by $514 thousand, or 7.9%, for the six-month period ended December 31, 2022 compared to the same prior year period primarily due to merit and cost of living increases, the addition of lending staff, and increases in health care costs. Occupancy and equipment expenses increased by $145, or 10.1%, for the six-month period ended December 31, 2022 compared to the same prior year period primarily because of investments in new security equipment and technology.

The FDIC assessments decreased by $31, or 11.5%, for the six-month period ended December 31, 2022 primarily due to a reduction in the assessment multiplier for the Bank since there is lower one-year asset growth rate. On October 18, 2022, the FDIC issued a final rule that will increase the initial base deposit insurance assessment rate paid by insured depository institutions by two basis points, beginning with the first quarterly assessment period of calendar year 2023. According to the FDIC, the proposal increases the likelihood that its designated reserve ratio will reach the required minimum level of 1.35% by the statutory deadline of September 30, 2028 and will support progress toward achieving the long-term goal of a 2% ratio. The proposed increase would remain in effect until the long-term goal of a 2% FDIC designated reserve ratio is achieved. Progressively lower assessment rates will take effect when the reserve ratio reaches 2% and again when the reserve ratio reaches 2.5%.

On September 2, 2022, the OCC announced reduced assessment rates for OCC-chartered community banks. Effective with the March 2023 assessment, the OCC will make a 40% reduction in assessments based on the first $200 million in bank assets and a 20% reduction for assets between $200 million and $20 billion.

Income Taxes

Income tax expense was $577 and $1,081 for the three- and six-month periods ended December 31, 2022, compared to $685 and $1,244 for the three-and six-month periods ended December 31, 2021. The effective tax rates were 16.8% and 17.6% for the six-month periods ended December 31, 2022 and 2021, respectively. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, and bank owned life insurance income.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Financial Condition

Total assets as of December 31, 2022 were $1,013,156 compared to $977,313 at June 30, 2022, an increase of $35,843, or an annualized 7.3%. From June 30, 2022, total loans increased by $53,126, or an annualized 17.4% and total deposits increased by $19,590, or an annualized 4.4%.

Available-for-sale securities decreased from $296,347 as of June 30, 2022, to $287,142 as of December 31, 2022. The portfolio had an unrealized loss of $38,711 as of December 31, 2022 as a result of recent increases 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. As of December 31, 2022, the projected cash flow from the portfolio over the next 12 months was approximately $25,431 which will be available to reinvest into loans or securities at the then current market rates.

Total loans increased by $53,126, or an annualized 17.4%, from June 30, 2022. The growth in loans was primarily within the consumer, commercial, and commercial real estate loan portfolios. Consumer loan growth was primarily from indirect loans due to the expansion of consumer loan sales staff and an expanded dealer network. Commercial loans included a mortgage loan warehouse line of credit to another financial institution with an outstanding balance of $9,998 as of December 31, 2022 and it was zero as of June 30, 2022. The outstanding balance of the warehouse line of credit is expected to be at or near zero by March 31, 2023.

Non-Performing Assets

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

	December 31, 2022			June 30, 2022			December 31, 2021
Non-accrual loans	$	47		$	431		$	740
Loans past due over 90 days and still accruing		—			9			4
Total non-performing loans		47			440			744
Other real estate and repossessed assets		—			—			83
Total non-performing assets	$	47		$	440		$	827

Non-performing loans to total loans		0.01	%		0.07	%		0.12	%
Allowance for loan losses to total non-performing loans		16,329.79	%		1,661.25	%		931.72	%

As of December 31, 2022, impaired loans totaled $354, of which $47 are included in non-accrual loans. As of June 30, 2022, impaired loans totaled $473, of which $431 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.

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 Corporation 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 Corporation’s principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’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.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

For the six months ended December 31, 2022, net cash inflow from operating activities was $7,715, net cash outflows from investing activities was $53,527 and net cash inflows from financing activities was $39,162. A major source of cash was an increase of $16,400 in short term Federal Home Loan Bank (FHLB) advances, a $19,590 increase in deposits, and $15,113 from maturity, calls, principal pay downs and sales of available-for-sale securities. A major use of cash was a $53,257 increase in loans and the purchase of $17,091 of available-for-sale securities. Total cash and cash equivalents were $13,302 as of December 31, 2022, compared to $20,952 at June 30, 2022 and $21,253 at December 31, 2021.

The Bank offers several types of deposit products to its 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 $906,152 at December 31, 2022 compared with $886,562 at June 30, 2022.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At December 31, 2022, advances from the FHLB of Cincinnati totaled $24,603 compared with $8,256 at June 30, 2022. As of December 31, 2022, the Bank had the ability to borrow an additional $86,995 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.

Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and a line of credit for the Corporation. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $25,380 at December 31, 2022 and $21,295 at June 30, 2022.

Jumbo time deposits (those with balances of $250 and over) totaled $41,884 as of December 31, 2022 and $18,164 as of June 30, 2022. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. 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 quarterly.

To meet the financial needs of our customers, commitments to originate mortgage, commercial, construction, and consumer loans and commitments for commercial, home equity, and consumer lines of credit have been issued. 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 $171,578 as of December 31, 2022 and $149,500 as of June 30, 2022.

Capital Resources

Total shareholders’ equity declined to $50,397 as of December 31, 2022, from $53,970 as of June 30, 2022. The primary reason for the decline in shareholders’ equity was an increase of $8,450 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from cash dividends paid of $1,045. 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. These declines were partially offset by net income of $5,344 for the six-month period ended December 31, 2022.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

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 Corporation’s financial statements.

As of December 31, 2022, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.06% and the leverage and total risk-based capital ratios were 7.61% and 12.14%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.39% and leverage and total risk-based capital ratios of 7.39% and 12.49%, respectively, as of June 30, 2022. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to December 31, 2022 that would cause the Bank’s capital category to change.

Critical Accounting Policies

The Corporation’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 Corporation has identified the appropriateness of the allowance for loan 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 one (Summary of Significant Accounting Policies - Allowance for Loan Losses and Goodwill and Other Intangible Assets), Note four (Loans), Note six (Goodwill and 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 2022 Form 10-K provide detail regarding the Corporation’s accounting for the critical accounting policies. There have been no significant changes in the application of accounting policies since June 30, 2022.

Allowance for Loan Losses. The determination of the allowance for loan losses involves considerable subjective judgment and estimation by management. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries, and losses. All these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods.

Goodwill. The Company accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. The Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The evaluation for impairment involves comparing the current estimated fair value of the Company to its carrying value. If the current estimated fair value exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. If the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of goodwill being recorded. As of April 30, 2022, the measurement date, a qualitative assessment was performed to determine whether there is a more likely than not (greater than 50% likelihood) that the fair value of the Corporation was less than its carrying amount. The qualitative impairment test of goodwill indicated no impairment existed as of the measurement date. However, it is impossible to know the future impact of the evolving economic conditions. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk-based capital ratios.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

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;
	●	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 and our ability to find alternative funding sources;
	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply;
	●	the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
	●	breaches of security or failures of our 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 that may come as a result of COVID-19 or otherwise;
	●	our ability to attract and retain qualified employees;
	●	competitive pressures on product pricing and services; and
	●	changes in the reliability of our vendors, internal control systems or information systems.

CONSUMERS BANCORP, INC.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2022.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Corporation’s internal control over financial reporting that occurred during the Corporation’s last quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

CONSUMERS BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

None

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit

Number

Description

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS	Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) (1)
101.SCH	Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document (1)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)

(1)	These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CONSUMERS BANCORP, INC. (Registrant)

Date: February 10, 2023	/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: February 10, 2023	/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)