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

cbkm20220331_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 March 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 3,053,752 shares of Registrant’s common stock, no par value, outstanding as of May 10, 2022.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED March 31, 2022

Table of Contents

Page

Number (s)

Part I – Financial Information

Item 1 – Financial Statements
Consolidated Balance Sheets at March 31, 2022 and June 30, 2021	1

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

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

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2022 and 2021 (unaudited)	4

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021 (unaudited)	5

Notes to the Consolidated Financial Statements (unaudited)	6-22

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-32

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)	March 31, 2022 (unaudited)			June 30, 2021
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	13,524		$	8,902
Federal funds sold and interest-bearing deposits in financial institutions		37,804			9,627
Total cash and cash equivalents		51,328			18,529
Certificates of deposit in other financial institutions		4,041			5,825
Securities, available-for-sale		288,375			207,760
Securities, held-to-maturity (fair value of $6,877 at March 31, 2022 and $8,352 at June 30, 2021)		7,020			7,996
Equity securities, at fair value		428			424
Federal bank and other restricted stocks, at cost		2,525			2,472
Loans held for sale		429			1,457
Total loans		603,595			566,427
Less allowance for loan losses		(6,997	)		(6,471	)
Net loans		596,598			559,956
Cash surrender value of life insurance		9,895			9,702
Premises and equipment, net		16,491			15,793
Goodwill		2,452			836
Core deposit intangible, net		484			229
Accrued interest receivable and other assets		7,483			2,825
Total assets	$	987,549		$	833,804

LIABILITIES
Deposits
Noninterest-bearing demand	$	255,528		$	229,102
Interest bearing demand		153,432			127,447
Savings		375,104			282,761
Time		106,570			87,539
Total deposits		890,634			726,849

Short-term borrowings		11,834			12,203
Federal Home Loan Bank advances		16,271			18,050
Accrued interest and other liabilities		6,844			6,802
Total liabilities		925,583			763,904
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; 3,129,134 and 3,124,053 shares issued as of March 31, 2022 and June 30, 2021, respectively)		20,229			20,011
Retained earnings		54,615			47,663
Treasury stock, at cost (75,382 and 95,953 common shares as of March 31, 2022 and June 30, 2021, respectively)		(1,117	)		(1,324	)
Accumulated other comprehensive income (loss)		(11,761	)		3,550
Total shareholders’ equity		61,966			69,900
Total liabilities and shareholders’ equity	$	987,549		$	833,804

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

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

Interest and dividend income
Loans, including fees	$	6,775		$	5,840	$	21,340		$	18,912
Securities, taxable		903			368		2,420			1,084
Securities, tax-exempt		516			428		1,502			1,275
Equity securities		8			8		25			8
Federal bank and other restricted stocks		19			19		59			58
Federal funds sold and other interest-bearing deposits		31			41		124			130
Total interest and dividend income		8,252			6,704		25,470			21,467
Interest expense
Deposits		274			299		844			1,363
Short-term borrowings		1			2		4			8
Federal Home Loan Bank advances		62			67		189			208
Total interest expense		337			368		1,037			1,579
Net interest income		7,915			6,336		24,433			19,888
Provision for loan losses		85			185		545			445
Net interest income after provision for loan losses		7,830			6,151		23,888			19,443

Noninterest income
Service charges on deposit accounts		362			290		1,086			911
Debit card interchange income		492			467		1,523			1,368
Mortgage banking activity		122			149		551			631
Bank owned life insurance income		63			64		193			195
Securities gains, net		—			6		2			14
Loss on disposition or write-down of other real estate owned		(5	)		—		(5	)		—
Other		86			78		264			229
Total noninterest income		1,120			1,054		3,614			3,348

Noninterest expenses
Salaries and employee benefits		3,400			2,527		9,916			7,978
Occupancy and equipment		792			662		2,228			1,938
Data processing expenses		198			182		604			544
Debit card processing expenses		246			242		773			696
Professional and director fees		162			188		664			674
FDIC assessments		159			76		429			224
Franchise taxes		137			132		403			349
Marketing and advertising		142			114		520			364
Telephone and network communications		90			84		292			247
Amortization of intangible		14			6		40			20
Other		497			452		1,449			1,261
Total noninterest expenses		5,837			4,665		17,318			14,295
Income before income taxes		3,113			2,540		10,184			8,496
Income tax expense		528			424		1,772			1,472
Net income	$	2,585		$	2,116	$	8,412		$	7,024

Basic and diluted earnings per share	$	0.85		$	0.70	$	2.77		$	2.33

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)	Three Months ended March 31,						Nine Months ended March 31,
	2022			2021			2022			2021

Net income	$	2,585		$	2,116		$	8,412		$	7,024

Other comprehensive income, net of tax:
Net change in unrealized losses on securities available-for-sale:
Unrealized losses arising during the period		(16,891	)		(2,269	)		(19,379	)		(1,921	)
Reclassification adjustment for gains included in income		—			(6	)		(2	)		(14	)
Net unrealized losses		(16,891	)		(2,275	)		(19,381	)		(1,935	)
Income tax effect		3,548			478			4,070			407
Other comprehensive loss		(13,343	)		(1,797	)		(15,311	)		(1,528	)

Total comprehensive income (loss)	$	(10,758	)	$	319		$	(6,899	)	$	5,496

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, December 31, 2021	$	20,175	$	52,518		$	(1,117	)	$	1,582		$	73,158
Net income				2,585									2,585
Other comprehensive loss										(13,343	)		(13,343	)
2,260 shares issued associated with dividend reinvestment plan and stock purchase plan		54											54
Cash dividends declared ($0.16 per share)				(488	)								(488	)
Balance, March 31, 2022	$	20,229	$	54,615		$	(1,117	)	$	(11,761	)	$	61,966


Balance, December 31, 2020	$	20,011	$	44,492		$	(1,324	)	$	4,529		$	67,708
Net income				2,116									2,116
Other comprehensive loss										(1,797	)		(1,797	)
Cash dividends declared ($0.15 per share)				(454	)								(454	)
Balance, March 31, 2021	$	20,011	$	46,154		$	(1,324	)	$	2,732		$	67,573

(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				8,412									8,412
Other comprehensive loss										(15,311	)		(15,311	)
5,081 shares issued associated with dividend reinvestment plan and stock purchase plan		116											116
20,571 shares associated with vested stock awards		102					207						309
Cash dividends declared ($0.48 per share)				(1,460	)								(1,460	)
Balance, March 31, 2022	$	20,229	$	54,615		$	(1,117	)	$	(11,761	)	$	61,966

Balance, June 30, 2020	$	19,974	$	40,460		$	(1,454	)	$	4,260		$	63,240
Net income				7,024									7,024
Other comprehensive loss										(1,528	)		(1,528	)
12,522 shares associated with vested stock awards		37					130						167
Cash dividends declared ($0.44 per share)				(1,330	)								(1,330	)
Balance, March 31, 2021	$	20,011	$	46,154		$	(1,324	)	$	2,732		$	67,573

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Dollars in thousands)	Nine Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net cash from operating activities	$	11,723		$	11,421
Cash flow from investing activities
Purchases of securities, available-for-sale		(111,050	)		(63,825	)
Maturities, calls and principal pay downs of securities, available-for-sale		24,473			30,890
Sale of securities, available-for-sale		1,000			5,545
Purchase of securities, held-to-maturity		—			(4,700	)
Principal pay downs of securities, held-to-maturity		976			205
Purchase of equity securities		—			(400	)
Net decrease in certificate of deposit in other financial institutions		1,784			4,300
Purchase of Federal Reserve Bank stock, at cost		(53	)		—
Net increase in loans		(17,327	)		(10,332	)
Acquisition, net cash received		66,552			—
Premises and equipment purchases		(1,147	)		(433	)
Disposal of premises and equipment		30			—
Sale of Other Real Estate Owned		83			—
Sale of other repossessed assets		—			17
Net cash from investing activities		(34,679	)		(38,733	)
Cash flow from financing activities
Net increase in deposit accounts		59,247			70,633
Net change in short-term borrowings		(369	)		2,476
Proceeds from Federal Home Loan Bank advances		—			1,300
Repayments of Federal Home Loan Bank advances		(1,779	)		(14,394	)
Proceeds from dividend reinvestment and stock purchase plan		116			—
Dividends paid		(1,460	)		(1,330	)
Net cash from financing activities		55,755			58,685
Increase in cash or cash equivalents		32,799			31,373
Cash and cash equivalents, beginning of period		18,529			9,659
Cash and cash equivalents, end of period	$	51,328		$	41,032

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	1,025		$	1,627
Federal income taxes		1,380			1,930
Non-cash items:
Transfer from loans to repossessed assets		83			9
Issuance of treasury stock for stock awards		309			167
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 assets acquired		(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 amounts)

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, 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, 2021. 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. The Corporation is reviewing potential methodologies for estimating expected credit losses using reasonable and supportable forecast information and has identified certain data and system requirements. Once the new guidance is adopted, we expect our allowance for loan losses to increase through a one-time adjustment to retained earnings; however, until our evaluation is complete, the estimated increase in allowance will be unknown. 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 of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the 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 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 acquisition. The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the 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. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

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 March 31, 2022 and June 30, 2021:

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2022
Obligations of U.S. Treasury	$	8,901	$	—	$	(376	)	$	8,525
Obligations of U.S. government-sponsored entities and agencies		27,883		11		(1,348	)		26,546
Obligations of state and political subdivisions		97,144		783		(3,644	)		94,283
U.S. Government-sponsored mortgage-backed securities–residential		113,267		51		(7,291	)		106,027
U.S. Government-sponsored mortgage-backed securities– commercial		8,627		—		(840	)		7,787
U.S. Government-sponsored collateralized mortgage obligations– residential		30,025		8		(1,645	)		28,388
Other debt securities		17,414		6		(601	)		16,819
Total securities available-for-sale	$	303,261	$	859	$	(15,745	)	$	288,375

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
March 31, 2022
Obligations of state and political subdivisions	$	7,020	$	20	$	(163	)	$	6,877

Available–for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2021
Obligations of U.S. government-sponsored entities and agencies	$	14,746	$	301	$	(14	)	$	15,033
Obligations of state and political subdivisions		73,013		3,561		(75	)		76,499
U.S. Government-sponsored mortgage-backed securities – residential		90,065		1,136		(684	)		90,517
U.S. Government-sponsored mortgage-backed securities – commercial		8,641		204		—			8,845
U.S. Government-sponsored collateralized mortgage obligations – residential		16,302		129		(57	)		16,374
Other debt securities		500		—		(8	)		492
Total securities available-for-sale	$	203,267	$	5,331	$	(838	)	$	207,760

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
June 30, 2021
Obligations of state and political subdivisions	$	7,996	$	356	$	—	$	8,352

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	Three Months Ended March 31,					Nine Months Ended March 31,
	2022		2021		2022		2021
Proceeds from sales and calls	$	—	$	2,812		1,000		5,545
Gross realized gains		—		13		2		44
Gross realized losses		—		7		—		30

The income tax provision related to the net realized gain amounted to less than $1 for the nine-month period ended March 31, 2022. The income tax provision related to the net realized gains amounted to $1 and $3 for the three- and nine-month periods ended March 31, 2021.

The amortized cost and fair values of debt securities at March 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	$	2,953	$	2,959
Due after one year through five years		36,065		35,272
Due after five years through ten years		40,580		39,053
Due after ten years		71,744		68,889
Total		151,342		146,173

U.S. Government-sponsored mortgage-backed and related securities		151,919		142,202
Total securities available-for-sale	$	303,261	$	288,375

Held-to-Maturity
Due after one year through five years	$	253	$	254
Due after five years through ten years		4,532		3,869
Due after ten years		2,235		2,754
Total securities held-to-maturity	$	7,020	$	6,877

Securities with a carrying value of approximately $122,812 and $96,970 were pledged at March 31, 2022, and June 30, 2021, 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 at March 31, 2022 and June 30, 2021, 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
March 31, 2022
Obligation of U.S. Treasury	$	8,525	$	(376	)	$	—	$	—		$	8,525	$	(376	)
Obligations of U.S. government-sponsored entities and agencies		22,152		(1,348	)		—		—			22,152		(1,348	)
Obligations of state and political subdivisions		49,905		(3,368	)		2,194		(276	)		52,099		(3,644	)
U.S. Government-sponsored mortgage-backed securities – residential		74,063		(4,813	)		23,592		(2,478	)		97,655		(7,291	)
U.S. Government-sponsored mortgage-backed securities – commercial		7,787		(840	)		—		—			7,787		(840	)
Collateralized mortgage obligations - residential		20,906		(1,590	)		643		(55	)		21,549		(1,645	)
Other debt securities		15,334		(581	)		479		(20	)		15,813		(601	)
Total temporarily impaired	$	198,672	$	(12,916	)	$	26,908	$	(2,829	)	$	225,580	$	(15,745	)

	Less than 12 Months					12 Months or more				Total
Held to Maturity	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 31, 2022
Obligations of state and political subdivisions		6,004		(163	)		—		—		6,004		(163	)
Total temporarily impaired	$	6,004	$	(163	)	$	—	$	—	$	6,004	$	(163	)

	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, 2021
Obligations of U.S. government-sponsored entities and agencies	$	2,003	$	(14	)	$	—	$	—		$	2,003	$	(14	)
Obligations of state and political subdivisions		7,398		(75	)		—		—			7,398		(75	)
Mortgage-backed securities – residential		42,378		(684	)		—		—			42,378		(684	)
Collateralized mortgage obligations - residential		7,707		(56	)		552		(1	)		8,259		(57	)
Other debt securities		492		(8	)		—		—			492		(8	)
Total temporarily impaired	$	59,978	$	(837	)	$	552	$	(1	)	$	60,530	$	(838	)

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.

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.

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

At March 31, 2022, there were a total of 281 available-for-sale and two held-to-maturity securities in the portfolio with unrealized losses mainly due to an increase in market rates when compared to the time of purchase. The unrealized losses within the securities portfolio as of March 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 and a fair value of $428 and $424 as of March 31, 2022 and June 30, 2021, respectively. Changes in the fair value of these securities are included in noninterest income on the consolidated statements of income. There were no unrealized gains and losses on equity securities during the three- and nine-month periods ended March 31, 2022 and 2021. Also, there were no sales of equity securities during the three- and nine-month periods ended March 31, 2022 and 2021.

Note 4 – Loans

Major classifications of loans were as follows:

	March 31, 2022			June 30, 2021
Commercial	$	91,429		$	112,337
Commercial real estate:
Construction		13,436			10,525
Other		291,726			269,679
1 – 4 Family residential real estate:
Owner occupied		137,923			118,269
Non-owner occupied		21,879			19,151
Construction		6,431			9,073
Consumer		40,773			29,646
Subtotal		603,597			568,680
Net deferred loan fees and costs		(2	)		(2,253	)
Allowance for loan losses		(6,997	)		(6,471	)
Net Loans	$	596,598		$	559,956

The commercial loan category in the above table includes PPP loans of $5,238 as of March 31, 2022 and $50,686 as of June 30, 2021.

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

						1-4 Family
			Commercial			Residential
			Real			Real
	Commercial		Estate			Estate			Consumer			Total

Allowance for loan losses:
Beginning balance	$	976	$	4,049		$	1,490		$	417		$	6,932
Provision for loan losses		48		(58	)		(16	)		111			85
Loans charged-off		—		—			(1	)		(30	)		(31	)
Recoveries		2		—			—			9			11
Total ending allowance balance	$	1,026	$	3,991		$	1,473		$	507		$	6,997

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 nine months ended March 31, 2022:

					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		99		40		191			215			545
Loans charged-off		—		—		(41	)		(77	)		(118	)
Recoveries		23		2		16			58			99
Total ending allowance balance	$	1,026	$	3,991	$	1,473		$	507		$	6,997

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

						1-4 Family
			Commercial			Residential
			Real			Real
	Commercial		Estate			Estate			Consumer			Total

Allowance for loan losses:
Beginning balance	$	858	$	3,817		$	1,028		$	209		$	5,912
Provision for loan losses		79		(109	)		166			49			185
Loans charged-off		—		—			(4	)		(39	)		(43	)
Recoveries		—		1			1			20			22
Total ending allowance balance	$	937	$	3,709		$	1,191		$	239		$	6,076

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

						1-4 Family
				Commercial		Residential
				Real		Real
	Commercial			Estate		Estate			Consumer			Total

Allowance for loan losses:
Beginning balance	$	947		$	3,623	$	989		$	119		$	5,678
Provision for loan losses		12			83		205			145			445
Loans charged-off		(22	)		—		(4	)		(95	)		(121	)
Recoveries		—			3		1			70			74
Total ending allowance balance	$	937		$	3,709	$	1,191		$	239		$	6,076

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 March 31, 2022. Included in the recorded investment in loans is $1,241 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	$	1	$	—	$	—	$	—	$	1
Acquired loans collectively evaluated for impairment		1		63		87		—		151
Originated loans collectively evaluated for impairment		1,024		3,928		1,386		507		6,845
Total ending allowance balance	$	1,026	$	3,991	$	1,473	$	507	$	6,997

Recorded investment in loans:
Loans individually evaluated for impairment	$	405	$	250	$	50	$	—	$	705
Acquired loans collectively evaluated for impairment		434		11,202		27,828		3,786		43,250
Originated loans collectively evaluated for impairment		90,642		293,656		139,612		36,971		560,881
Total ending loans balance	$	91,481	$	305,108	$	167,490	$	40,757	$	604,836

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, 2021. Included in the recorded investment in loans is $1,184 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	$	1	$	—	$	3	$	—	$	4
Acquired loans collectively evaluated for impairment		—		83		77		—		160
Originated loans collectively evaluated for impairment		903		3,866		1,227		311		6,307
Total ending allowance balance	$	904	$	3,949	$	1,307	$	311	$	6,471

Recorded investment in loans:
Loans individually evaluated for impairment	$	437	$	921	$	596	$	—	$	1,954
Acquired loans collectively evaluated for impairment		834		6,542		21,363		6,488		35,227
Originated loans collectively evaluated for impairment		109,016		272,563		125,689		23,162		530,430
Total ending loans balance	$	110,287	$	280,026	$	147,648	$	29,650	$	567,611

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 March 31, 2022 and for the nine months ended March 31, 2022:

	As of March 31, 2022						Nine Months ended March 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	$	421	$	289	$	—	$	294	$	—	$	—
Commercial real estate:
Other		401		250		—		620		104		104
1-4 Family residential real estate:
Owner occupied		51		23		—		242		4		4
Non-owner occupied		27		27		—		114		75		75
With an allowance recorded:
Commercial		116		116		1		126		6		6
Total	$	1,016	$	705	$	1	$	1,396	$	189	$	189

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 March 31, 2022:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	289	$	—	$	—
Commercial real estate:
Other		255		2		2
1-4 Family residential real estate:
Owner occupied		91		1		1
Non-owner occupied		13		—		—
With an allowance recorded:
Commercial		120		2		2
Total	$	768	$	5	$	5

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, 2021 and for the nine months ended March 31, 2021:

	As of June 30, 2021						Nine Months ended March 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	$	421	$	303	$	—	$	77	$	—	$	—
Commercial real estate:
Other		1,062		921		—		893		6		6
1-4 Family residential real estate:
Owner occupied		409		367		—		577		11		11
Non-owner occupied		267		202		—		220		—		—
With an allowance recorded:
Commercial		133		134		1		154		6		6
Commercial real estate:
Other		—		—		—		160		7		7
1-4 Family residential real estate:
Owner occupied		28		27		3		13		—		—
Total	$	2,320	$	1,954	$	4	$	2,094	$	30	$	30

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	308	$	—	$	—
Commercial real estate:
Other		941		2		2
1-4 Family residential real estate:
Owner occupied		473		—		—
Non-owner occupied		211		—		—
With an allowance recorded:
Commercial		142		2		2
Commercial real estate:
Other		68		1		1
1-4 Family residential real estate:
Owner occupied		29		—		—
Total	$	2,172	$	5	$	5

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 March 31, 2022 and June 30, 2021:

	March 31, 2022				June 30, 2021
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing
Commercial	$	289	$	—	$	303	$	—
Commercial real estate:
Other		206		—		874		—
1 – 4 Family residential:
Owner occupied		22		—		392		—
Non-owner occupied		27		—		202		—
Consumer		—		—		—		—
Total	$	544	$	—	$	1,771	$	—

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 March 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	$	—	$	—	$	—	$	—	$	91,481	$	91,481
Commercial real estate:
Construction		—		—		—		—		13,396		13,396
Other		—		—		—		—		291,712		291,712
1-4 Family residential:
Owner occupied		53		—		—		53		139,040		139,093
Non-owner occupied		—		—		27		27		21,869		21,896
Construction		1		—		—		1		6,500		6,501
Consumer		308		31		—		339		40,418		40,757
Total	$	362	$	31	$	27	$	420	$	604,416	$	604,836

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 $517 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, 2021 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	$	—	$	—	$	—	$	—	$	110,287	$	110,287
Commercial real estate:
Construction		—		—		—		—		10,478		10,478
Other		—		175		629		804		268,744		269,548
1-4 Family residential:
Owner occupied		29		—		365		394		118,937		119,331
Non-owner occupied		—		—		—		—		19,148		19,148
Construction		—		—		—		—		9,169		9,169
Consumer		95		11		—		106		29,544		29,650
Total	$	124	$	186	$	994	$	1,304	$	566,307	$	567,611

The above table of past due loans includes the recorded investment in non-accrual loans of $994 in the 90 days or greater category and $777 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. In response to COVID-19, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by the virus. The program was available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers were eligible for an additional 90 days of payment deferrals if situations warranted a need for an extension. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 were not classified as TDRs. As of March 31, 2022, two borrowers with an aggregate outstanding balance of $38 were in payment deferral status under this loan modification program. This modification program was ended effective April 26, 2022.

As of March 31, 2022 and June 30, 2021, the Corporation had $448 and $688, respectively, of loans classified as TDRs which are included in impaired loans above. As of March 31, 2022 and June 30, 2021, the Corporation had not committed to lend any additional funds to customers with outstanding loans that were classified as troubled debt restructurings. As of March 31, 2022 and June 30, 2021, the Corporation had $1 and $4, respectively, of specific reserve allocated to these loans.

During the three- and nine-month periods ended March 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 nine-month periods ended March 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 nine-month periods ended March 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 March 31, 2022
			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	90,101	$	781	$	116	$	289	$	194
Commercial real estate:
Construction		13,396		—		—		—		—
Other		283,308		2,077		5,458		206		663
1-4 Family residential real estate:
Owner occupied		1,167		—		—		22		137,904
Non-owner occupied		21,345		146		75		27		303
Construction		1,789		—		—		—		4,712
Consumer		690		—		—		—		40,067
Total	$	411,796	$	3,004	$	5,649	$	544	$	183,843

As of June 30, 2021, 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, 2021
			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	109,118	$	280	$	309	$	303	$	277
Commercial real estate:
Construction		10,478		—		—		—		—
Other		259,327		3,700		4,718		874		929
1-4 Family residential real estate:
Owner occupied		1,715		—		6		392		117,218
Non-owner occupied		18,312		163		197		202		274
Construction		1,849		—		—		—		7,320
Consumer		694		—		—		—		28,956
Total	$	401,493	$	4,143	$	5,230	$	1,771	$	154,974

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.

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).

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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		Fair Value Measurements at March 31, 2022
	March 31, 2022		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. Treasury	$	8,525	$	8,525	$	—	$	—
Obligations of U.S. government-sponsored entities and agencies		26,546		—		26,546		—
Obligations of state and political subdivisions		94,283		—		94,283		—
U.S. Government-sponsored mortgage-backed securities – residential		106,027		—		106,027		—
U.S. Government-sponsored mortgage-backed securities – commercial		7,787		—		7,787		—
U.S. Government-sponsored collateralized mortgage obligations - residential		28,388		—		28,388		—
Other debt securities		16,819		—		16,819		—
Equity securities		428		—		428		—

	Balance at		Fair Value Measurements at June 30, 2021
	June 30, 2021		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	15,033	$	—	$	15,033	$	—
Obligations of state and political subdivisions		76,499		—		76,499		—
U.S. government-sponsored mortgage-backed securities - residential		90,517		—		90,517		—
U.S. government-sponsored mortgage-backed securities - commercial		8,845		—		8,845		—
U.S. government-sponsored collateralized mortgage obligations - residential		16,374		—		16,374		—
Other debt securities		492		—		492		—
Equity securities		424		—		424		—

There were no transfers between Level 1 and Level 2 during the three-month and nine-month periods ended March 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:

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 March 31, 2022 or June 30, 2021 and there was no impact to the provision for loan losses for the three- or nine-month periods ended March 31, 2022 or 2021.

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 March 31, 2022 or June 30, 2021.

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:

	March 31, 2022				June 30, 2021
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	51,328	$	51,328	$	18,529	$	18,529
Level 2 inputs:
Certificates of deposit in other financial institutions		4,041		4,114		5,825		5,955
Loans held for sale		428		437		1,457		1,488
Accrued interest receivable		2,650		2,650		2,077		2,077
Level 3 inputs:
Securities held-to-maturity		7,020		6,877		7,996		8,352
Loans, net		596,598		572,637		559,956		560,208
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		784,064		784,064		639,310		639,310
Time deposits		106,570		106,933		87,539		88,147
Short-term borrowings		11,834		11,834		12,203		12,203
Federal Home Loan Bank advances		16,271		15,565		18,050		18,247
Accrued interest payable		63		63		51		51

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 no shares of restricted stock that were anti-dilutive for the three-month periods ended March 31, 2022 and 2021. There were 8,878 and 3,622 shares of restricted stock that were anti-dilutive for the nine-month periods ended March 31, 2022 and 2021, respectively. The following table details the calculation of basic and diluted earnings per share:

	For the Three Months Ended March 31,				For the Nine Months Ended March 31,
	2022		2021		2022		2021
Basic:
Net income available to common shareholders	$	2,585	$	2,116	$	8,412	$	7,024
Weighted average common shares outstanding		3,039,049		3,018,529		3,036,473		3,017,773
Basic income per share	$	0.85	$	0.70	$	2.77	$	2.33

Diluted:
Net income available to common shareholders	$	2,585	$	2,116	$	8,412	$	7,024
Weighted average common shares outstanding		3,039,049		3,018,529		3,036,473		3,017,773
Dilutive effect of restricted stock		503		320		275		—
Total common shares and dilutive potential common shares		3,039,552		3,018,849		3,036,748		3,017,773
Dilutive income per share	$	0.85	$	0.70	$	2.77	$	2.33

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 and nine-month periods ended March 31, 2022 and 2021, were as follows:

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of December 31, 2021	$	2,003		$	(421	)	$	1,582
Net current period other comprehensive loss		(16,891	)		3,548			(13,343	)
Balance as of March 31, 2022	$	(14,888	)	$	3,127		$	(11,761	)

Balance as of December 31, 2020	$	5,733		$	(1,204	)	$	4,529
Unrealized holding losses on available-for-sale securities arising during the period		(2,269	)		477			(1,792	)
Amounts reclassified from accumulated other comprehensive income		(6	)		1			(5	)	(a)(b)
Net current period other comprehensive loss		(2,275	)		478			(1,797	)
Balance as of March 31, 2021	$	3,458		$	(726	)	$	2,732

	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		(19,379	)		4,070			(15,309	)
Amounts reclassified from accumulated other comprehensive income		(2	)		—			(2	)	(a)(b)
Net current period other comprehensive loss		(19,381	)		4,070			(15,311	)
Balance as of March 31, 2022	$	(14,888	)	$	3,127		$	(11,761	)

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Balance as of June 30, 2020	$	5,393		$	(1,133	)	$	4,260
Unrealized holding losses on available-for-sale securities arising during the period		(1,921	)		404			(1,517	)
Amounts reclassified from accumulated other comprehensive income		(14	)		3			(11	)	(a)(b)
Net current period other comprehensive loss		(1,935	)		407			(1,528	)
Balance after reclassification as of March 31, 2021	$	3,458		$	(726	)	$	2,732

(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 operations and business results of the Corporation could be materially adversely affected. The extent to which the coronavirus may impact business activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain the coronavirus or treat its impact, among others. As a result of the economic shutdown engineered to slow down the spread of COVID-19, the ability of our customers to make payments on loans could be adversely impacted, resulting in elevated loan losses and an increase in the Corporation’s allowance for loan losses. Additional information regarding COVID-19 procedures and policies are contained in the COVID-19 Pandemic section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CONSUMERS BANCORP, INC.

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 nine-month periods ended March 31, 2022, compared to the same periods in 2021, and the consolidated balance sheet at March 31, 2022, compared to June 30, 2021. 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, 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.

On July 16, 2021, the Corporation completed its acquisition of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association (CFBank). As part of the acquisition, the Corporation assumed $104,538 of branch deposits for a 1.75% deposit premium and purchased $15,602 in subordinated debt securities issued by unrelated financial institutions and $19,943 in loans. In relation to the acquisition, the Corporation recorded goodwill of $1,616.

COVID-19 Pandemic

In response to COVID-19, management actively pursued multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes key SBA initiatives to assist small businesses. The Paycheck Protection Program (PPP) was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program if the borrower meets payroll and other requirements. The Bank originated a total of $113,367 of PPP loans during the first and second rounds of assistance. As of March 31, 2022, there were $5,238 of PPP loans outstanding.

Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program was available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers were eligible for an additional 90 days of payment deferrals if situations warranted a need for an extension. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 were not classified as troubled debt restructurings. As of March 31, 2022, two borrowers with an outstanding balance of $38 in the aggregate were in payment deferral status under this loan modification program. This modification program was ended effective April 26, 2022.

We have assisted, and may continue to assist, customers who are experiencing financial hardship due to COVID-19 by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties. In addition, the consumer reserve personal line of credit, an unsecured line of credit that is linked to a personal checking account, was redesigned to provide easier access to credit and a lower initial rate.

Given the dynamic nature of the circumstances surrounding the pandemic, it is difficult to ascertain the full impact that the ongoing economic disruption will have on the Corporation. The Corporation has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. The branch lobbies were closed at various times throughout the pandemic but are now open for normal business. The Corporation is encouraging virtual meetings and conference calls in place of in-person meetings. The Corporation is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. The Corporation will continue to closely monitor situations arising from the pandemic and adjust operations accordingly.

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

(Dollars in thousands, except per share data)

Results of Operations

Three-and Nine-Month Periods Ended March 31, 2022 and 2021

Net income for the third quarter of fiscal year 2022 was $2,585, or $0.85 per common share, compared to $2,116, or $0.70 per common share for the three months ended March 31, 2021. The following are key highlights of our results of operations for the three months ended March 31, 2022, compared to the prior fiscal year comparable period:

	●	net interest income increased by $1,579 to $7,915, or 24.9%, in the third quarter of fiscal year 2022 from the same prior year period primarily as a result of the growth in average interest-earning assets along with a reduction in the cost of funds;
	●	an $85 provision for loans loss expense was recorded for the third quarter of fiscal year 2022 compared with $185 for the same prior year period;
	●	noninterest income increased by $66, or 6.3%, in the third quarter of fiscal year 2022 from the same prior year period primarily due to a $72, or 24.8%, increase in service charges on deposit accounts and a $25, or 5.4%, increase in debit card interchange income which were partially offset by a $27, or 18.1%, decline in mortgage banking activity; and
	●	noninterest expenses increased by $1,172, or 25.1%, in the third quarter of fiscal year 2022 from the same prior year period primarily due to increases in salaries and employee benefits; occupancy and equipment expenses; and Federal Deposit Insurance Corporation (FDIC) assessments that was primarily driven by the growth in the organization from the branch acquisition.

In the first nine months of fiscal year 2022, net income was $8,412, or $2.77 per common share, compared to $7,024, or $2.33 per common share, for the nine months ended March 31, 2021. The following are key highlights of our results of operations for the nine months ended March 31, 2022, compared to the prior fiscal year-to-date comparable period:

	●	net interest income increased by $4,545 to $24,433, or by 22.9%, in the first nine months of fiscal year 2022 from the same prior year period;
	●	a $545 provision for loan loss expense was recorded in the first nine months of fiscal year 2022 compared with $445 during the same prior year period;
	●	noninterest income increased by $266, or 7.9%, in the first nine months of fiscal year 2022 primarily due to a $175, or 19.2%, increase in service charges on deposit accounts and a $155, or 11.3%, increase in debit card interchange income which were partially offset by an $80, or 12.7%, decline in income from mortgage banking activity; and
	●	noninterest expenses increased by $3,023, or 21.1%, in the first nine months of fiscal year 2022 from the same prior year period primarily due to an increase in salaries and employee benefit expenses.

The annualized return on average equity and return on average assets were 15.63% and 1.18%, respectively, for the nine months ended March 31, 2022 compared to 14.05% and 1.24%, 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 2022 and 2021 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 3.50% for the three months ended March 31, 2022, compared with 3.56% for the same period in 2021. FTE net interest income for the three months ended March 31, 2022 increased by $1,608, or 25.0%, to $8,043 from $6,435 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 data)

Tax-equivalent interest income for the three months ended March 31, 2022 increased by $1,577, or 23.2%, from the same prior year period. Interest income was positively impacted by a $190,390, or 25.8%, increase in average interest-earning assets from the same prior year period due to the additional assets acquired as part of the acquisition of the two branches from CFBank and as well as organic growth. The yield on average interest-earning assets declined to 3.65% for the three months ended March 31, 2022 compared with 3.76% for the same period last year.

Interest expense for the three months ended March 31, 2022 decreased by $31, or 8.4%, from the same prior year period primarily due to a reduction in deposit and borrowing costs as a result of lower market interest rates. The Corporation’s cost of funds was 0.21% for the three months ended March 31, 2022 compared with 0.30% for the same prior year period.

The Corporation’s net interest margin was 3.63% for the nine months ended March 31, 2022, compared with 3.76% for the same period in 2021. FTE net interest income for the nine months ended March 31, 2022 increased by $4,616, or 22.9%, to $24,807 from $20,191 for the same prior year period.

Tax-equivalent interest income for the nine months ended March 31, 2022 increased by $4,074, or 18.7%, from the same prior year period. Interest income was positively impacted by a $190,421, or 26.4%, increase in average interest-earning assets from the same prior year period primarily due to the assets acquired from the CFBank branch acquisition as well as organic growth. Additionally, interest income was positively impacted by the accretion of origination fees from the PPP loans. The PPP loans had an average balance of $22,968 for the nine-month period ended March 31, 2022 and, during this same period, $2,419 of interest and fee income was recognized on the PPP loans. This compares with an average balance of $64,761 for the nine-month period ended March 31, 2021 and the recognition of $2,205 of interest and fee income on the PPP loans during the nine-month period ended March 31, 2021. A reduction in the accretion of origination fees from PPP loans as these loans are forgiven could ultimately result in a decline in interest income. The Corporation’s yield on average interest-earning assets was 3.78% for the nine months ended March 31, 2022 compared with 4.05% for the same period last year.

Interest expense for the nine months ended March 31, 2022 decreased by $542 from the same prior year period. The Corporation’s cost of funds was 0.22% for the nine months ended March 31, 2022 compared with 0.43% for the same prior year period. The lower short-term market interest rates in fiscal year 2022 as compared with the fiscal year 2021 had an impact on the rates paid on all interest-bearing deposit products and short-term borrowings. Recent increases in short-term market rates are not expected to have a rapid increase in funding costs due to our current liquidity levels that have been impacted by significant deposit growth.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended March 31,

(In thousands, except percentages)

	2022								2021
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	195,650		$	903		1.83	%	$	87,488		$	368		1.74	%
Nontaxable securities (1)		88,734			642		3.00			70,195			523		3.18
Loans receivable (1)		606,363			6,777		4.53			544,669			5,844		4.35
Federal bank and other restricted stocks		2,489			19		3.10			2,472			19		3.12
Equity securities		432			8		7.51			400			8		8.11
Interest bearing deposits and federal funds sold		36,037			31		0.35			34,091			41		0.49
Total interest-earning assets		929,705			8,380		3.65	%		739,315			6,803		3.76	%

Noninterest-earning assets		39,501								31,129

Total Assets	$	969,206							$	770,444

Interest-bearing liabilities:
NOW	$	146,651		$	33		0.09	%	$	109,758		$	33		0.12	%
Savings		361,569			94		0.11			260,416			73		0.11
Time deposits		109,876			130		0.48			94,338			193		0.83
Short-term borrowings		10,521			18		0.69			8,426			2		0.10
FHLB advances		16,276			62		1.54			18,072			67		1.50
Total interest-bearing liabilities		644,893			337		0.21	%		491,010			368		0.30	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		246,005								204,716
Other liabilities		7,390								6,136
Total liabilities		898,288								701,862
Shareholders’ equity		70,918								68,582

Total liabilities and shareholders’ equity	$	969,206							$	770,444

Net interest income, interest rate spread (1)				$	8,043		3.44	%				$	6,435		3.46	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.50	%							3.56	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	128							$	99

Average interest-earning assets to interest-bearing liabilities		144.16	%							150.57	%

(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 data)

Average Balance Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31,

(In thousands, except percentages)

	2022								2021
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	177,284		$	2,420		1.81	%	$	79,934		$	1,084		1.86	%
Nontaxable securities (1)		85,677			1,870		3.01			68,173			1,566		3.22
Loans receivable (1)		592,351			21,346		4.80			547,262			18,924		4.61
Federal bank and other restricted stocks		2,478			59		3.17			2,472			58		3.13
Equity securities		427			25		7.80			136			8		7.84
Interest bearing deposits and federal funds sold		53,736			124		0.31			23,555			130		0.74
Total interest-earning assets		911,953			25,844		3.78	%		721,532			21,770		4.05	%

Noninterest-earning assets		37,393								30,774

Total Assets	$	949,346							$	752,306

Interest-bearing liabilities:
NOW	$	142,593		$	101		0.09	%	$	106,365		$	116		0.15	%
Savings		343,204			275		0.11			241,302			262		0.14
Time deposits		115,928			451		0.52			107,326			985		1.22
Short-term borrowings		10,332			21		0.27			8,301			8		0.13
FHLB advances		16,389			189		1.54			20,750			208		1.34
Total interest-bearing liabilities		628,446			1,037		0.22	%		484,044			1,579		0.43	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		242,012								195,707
Other liabilities		7,183								5,945
Total liabilities		877,641								685,696
Shareholders’ equity		71,705								66,610

Total liabilities and shareholders’ equity	$	949,346							$	752,306

Net interest income, interest rate spread (1)				$	24,807		3.56	%				$	20,191		3.62	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.63	%							3.76	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	374							$	303

Average interest-earning assets to interest-bearing liabilities		145.11	%							149.06	%

(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 data)

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 nine-month period ended March 31, 2022, the provision for loan losses was $545 compared with $445 for the same prior year period. Net charge-offs of $19 and $47 were recorded during the nine-month periods ended March 31, 2022 and 2021, respectively. The loan loss provision expense recorded in fiscal year 2022 was primarily due to the organic growth within the loan portfolio.

Non-performing loans were $544 as of March 31, 2022, compared with $1,771 as of June 30, 2021 and $1,883 as of March 31, 2021. Non-performing loans to total loans were 0.09% at March 31, 2022 and 0.31% at June 30, 2021. Non-performing loans declined primarily due to the full payoff of two loans that had a balance of $831 as of June 30, 2021 that were on non-accrual for an extended period. The allowance for loan losses as a percentage of loans was 1.16% at March 31, 2022 and 1.14% at June 30, 2021. 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 increased by $66, or 6.3%, for the third quarter of fiscal year 2022 from the same period last year. For the nine-month period ended March 31, 2022, noninterest income increased by $266, or 7.9%, from the same period last year primarily due to a $175, or 19.2% increase in service charges on deposit accounts and a $155, or 11.3%, increase in debit card interchange income. Service charges on deposit accounts may be negatively impacted by an industry wide trend of reducing overdraft fees as large banks have announced a reduction in these types of fees in response to regulatory pressure. These increases were partially offset by income from mortgage banking activity decreasing by $80, or 12.7%, from the same prior year period. Gains from the sale of mortgage loans to the secondary market declined as refinancing of mortgages slowed as a result of the increase in mortgage rates from the record lows in the previous year.

Noninterest Expenses

Total noninterest expenses increased by $1,172, or 25.1%, for the third quarter of fiscal year 2022 compared with the same period last year. Increases in salaries and employee benefits; FDIC assessments; and occupancy and equipment expenses contributed to the increase in noninterest expenses for the three-month period ended March 31, 2022.

Total noninterest expenses increased by $3,023, or 21.1%, for the nine-month period ended March 31, 2022 compared with the same period last year. Salaries and employee benefit expenses increased by $1,938, or 24.3%, due to the addition of staff at three new office locations, the addition of lending staff, and increases in health care costs. FDIC assessments increased by $205, or 91.5%, for the current fiscal year-to-date period ended March 31, 2022 primarily due to the growth within the organization.

Income Taxes

Income tax expense was $528 and $1,772 for the three- and nine-month periods ended March 31, 2022, respectively, compared to $424 and $1,472 for the three- and nine-month periods ended March 31, 2021, respectively. The effective tax rates were 17.4% and 17.3% for the nine-month periods ended March 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.

Financial Condition

Total assets as of March 31, 2022 were $987,549 compared to $833,804 at June 30, 2021, an increase of $153,745, or an annualized 24.6%. Since June 30, 2021, total deposits increased by $163,785, or an annualized 30.0% and includes $104,538 of deposits acquired as part of the acquisition of the branches from CFBank. The Corporation has maintained a favorable deposit mix, with 28.7% in noninterest-bearing deposits, 17.2% in interest bearing demand deposits, 42.1% in savings and money market deposits, and 12.0% in time deposits as of March 31, 2022.

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

(Dollars in thousands, except per share data)

Available-for-sale securities increased from $207,760 as of June 30, 2021, to $288,375 as of March 31, 2022 as excess liquidity was deployed from lower yielding interest-bearing deposits into the securities portfolio. The portfolio had an unrealized loss of $14,886 as of March 31, 2022 due to 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 date or repricing date or if market yields for such securities decline. As of March 31, 2022, the projected cash flow from the portfolio over the next 12 months was approximately $25,700 that will be available to reinvest into loans or securities at the then current market rates.

Total loans increased by $37,168, or an annualized 8.7%, from June 30, 2021. The increase in loans included organic loan growth of $67,741 and loans acquired as part of the acquisition of the branches from CFBank with an outstanding balance of $14,875 as of March 31, 2022. These increases were partially offset by a $45,448 decline in PPP loans from June 30, 2021, to $5,238 as of March 31, 2022, as the pace of PPP loan forgiveness remained high.

Non-Performing Assets

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

	March 31, 2022			June 30, 2021			March 31, 2021
Non-accrual loans	$	544		$	1,771		$	1,883
Loans past due over 90 days and still accruing		—			—			—
Total non-performing loans		544			1,771			1,883
Other real estate and repossessed assets		—			—			—
Total non-performing assets	$	544		$	1,771		$	1,883

Non-performing loans to total loans		0.09	%		0.31	%		0.34	%
Allowance for loan losses to total non-performing loans		1,286.21	%		365.39	%		322.68	%

As of March 31, 2022, impaired loans totaled $705, of which $544 are included in non-accrual loans. As of June 30, 2021, impaired loans totaled $1,954, of which $1,771 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.

For the nine months ended March 31, 2022, net cash inflow from operating activities was $11,723, net cash outflows from investing activities was $34,679 and net cash inflows from financing activities was $55,755. A major source of cash was $66,552 from the acquisition of the branches from CFBank, a $59,247 increase in organic deposits and $25,473 from maturity, calls, principal pay downs and sales of available-for-sale securities. A major use of cash included $111,050 purchases of available-for-sale securities and a $17,327 increase in loans. Total cash and cash equivalents were $51,328 as of March 31, 2022, compared to $18,529 at June 30, 2021 and $41,032 at March 31, 2021.

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

(Dollars in thousands, except per share data)

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 $890,634 at March 31, 2022 compared with $726,849 at June 30, 2021.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati. At March 31, 2022, advances from the FHLB of Cincinnati totaled $16,271 compared with $18,050 at June 30, 2021. As of March 31, 2022, the Bank had the ability to borrow an additional $86,892 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 $11,834 at March 31, 2022 and $12,203 at June 30, 2021.

Jumbo time deposits (those with balances of $250 and over) totaled $19,827 as of March 31, 2022 and $18,488 as of June 30, 2021. 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 $182,286 as of March 31, 2022 and $119,299 as of June 30, 2021.

Capital Resources

Total shareholders’ equity declined to $61,966 as of March 31, 2022, from $69,900 as of June 30, 2021. The primary reason for the decline in shareholders’ equity was a net reduction of $15,311 in accumulated other comprehensive income due to a shift in unrealized gains on the mark-to-market of available-for-sale securities to a net unrealized loss and by cash dividends paid of $1,460. These declines were partially offset by net income of $8,412 for the first nine months of fiscal year 2022. During the second quarter of fiscal year 2022, the Corporation acquired an unsecured $5,000 line of credit to provide capital support to the Bank and for other general corporate purposes. As of March 31, 2022, the outstanding balance on the line of credit was $1,720.

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 March 31, 2022, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.27% and the leverage and total risk-based capital ratios were 7.45% and 12.36%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.87% and leverage and total risk-based capital ratios of 7.83% and 13.06%, respectively, as of June 30, 2021. 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 March 31, 2022 that would cause the Bank’s capital category to change.

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

(Dollars in thousands, except per share data)

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 2021 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, 2021.

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, 2021, 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 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 data)

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. The COVID-19 pandemic is affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other 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, among other things, high unemployment rates, a deterioration in credit quality of our assets or debtors being unable to meet their obligations;
	●	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;
	●	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;
	●	breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; 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 March 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: May 13, 2022	/s/ Ralph J. Lober, II
	Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: May 13, 2022

/s/ Renee K. Wood

Renee K. Wood

Chief Financial Officer & Treasurer

(principal financial officer)