UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]	Quarterly Report Pursuant to Section 13 or 15 (d) ofof the Securities Exchange Act of 1934

For the quarterly period ended ~~December~~March 31, ~~2017~~2019

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~~’sRegistrant’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 pe~~riod~~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 ~~and posted on its corporate Web~~ ~~site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “~~large~~“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 ☐ ~~(Do not check if smaller reporting company)~~	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 Securities 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
Common stock	CBKM	OTCQX

There were ~~2,729,644~~2,733,845 shares of ~~Registrant~~’sRegistrant’s common stock, no par value, outstanding as of ~~February 9, 2018.~~May 13, 2019.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED ~~December~~March 31, 2019~~, 2017~~

Table of Contents

Page

Number (s)

Part I – Financial Information

Item 1 – Financial Statements (Unaudited)
Consolidated Balance Sheets at ~~December~~March 31, ~~2017~~2019 and June 30, ~~2017~~2018	1

Consolidated Statements of Income for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2019 and ~~2016~~2018	2

Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2019 and ~~2016~~2018	3

Condensed Consolidated Statements of Changes in ~~Shareholders~~’Shareholders’ Equity for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2019 and ~~2016~~2018	4

Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2019 and ~~2016~~2018	5

Notes to the Consolidated Financial Statements	~~6-2~~66-23

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	2~~7-35~~24-31

Item 3 – Not Applicable for Smaller Reporting Companies

Item 4 – Controls and Procedures	3632
Part II – Other Information
Item 1 – Legal Proceedings	3733

Item 1A – Not Applicable for Smaller Reporting Companies	3733

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	3733

Item 3 – Defaults Upon Senior Securities	3733

Item 4 – Mine Safety Disclosure	3733

Item 5 – Other Information	3733

Item 6 – Exhibits	3733

Signatures	3834

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share data)	December 31, 2017			June 30, 2017			March 31, 2019			June 30, 2018
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	8,910		$	9,439		$	8,147		$	7,615
Federal funds sold and interest-bearing deposits in financial institutions		231			473			205			157
Total cash and cash equivalents		9,141			9,912			8,352			7,772
Certificates of deposit in other financial institutions		3,921			3,921			1,983			2,973
Securities, available-for-sale		135,738			142,086			141,652			144,028
Securities, held-to-maturity (fair value of $4,083 at December 31, 2017 and $4,329 at June 30, 2017)		4,061			4,259
Securities, held-to-maturity (fair value of $3,861 at March 31, 2019 and $4,048 at June 30, 2018)								3,824			4,024
Federal bank and other restricted stocks, at cost		1,425			1,425			1,459			1,459
Loans held for sale		814			1,252			844			1,448
Total loans		293,594			272,867			347,462			318,509
Less allowance for loan losses		(3,225	)		(3,086	)		(3,656	)		(3,422	)
Net loans		290,369			269,781			343,806			315,087
Cash surrender value of life insurance		9,201			9,065			9,538			9,335
Premises and equipment, net		13,137			13,398			14,260			13,315
Other real estate owned		57			71
Accrued interest receivable and other assets		2,418			2,713			2,715			3,178
Total assets	$	470,282		$	457,883		$	528,433		$	502,619

LIABILITIES
Deposits
Non-interest bearing demand	$	108,503		$	102,683
Noninterest-bearing demand							$	116,673		$	107,919
Interest bearing demand		55,056			54,123			79,773			81,299
Savings		152,659			151,154			160,713			162,204
Time		66,771			66,511			102,130			78,541
Total deposits		382,989			374,471			459,289			429,963

Short-term borrowings		22,507			23,986			4,025			13,367
Federal Home Loan Bank advances		17,188			12,320			12,106			11,756
Accrued interest and other liabilities		3,427			3,571			3,902			3,772
Total liabilities		426,111			414,348			479,322			458,858
Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—			—			—
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of December 31, 2017 and June 30, 2017)		14,630			14,630
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of March 31, 2019 and June 30, 2018)								14,628			14,630
Retained earnings		31,044			30,122			35,834			32,342
Treasury stock, at cost (124,489 and 130,606 common shares as of December 31, 2017 and June 30, 2017, respectively)		(1,576	)		(1,662	)
Accumulated other comprehensive income		73			445
Total shareholders’ equity		44,171			43,535
Total liabilities and shareholders’ equity	$	470,282		$	457,883
Treasury stock, at cost (120,288 and 124,489 common shares as of March 31, 2019 and June 30, 2018, respectively)								(1,515	)		(1,576	)
Accumulated other comprehensive income (loss)								164			(1,635	)
Total shareholders’ equity								49,111			43,761
Total liabilities and shareholders’ equity							$	528,433		$	502,619

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months ended December 31,					Six Months ended December 31,					Three Months ended March 31,					Nine Months ended March 31,
(Dollars in thousands, except per share amounts)	2017		2016			2017		2016			2019		2018			2019			2018

Interest income
Interest and dividend income
Loans, including fees	$	3,437	$	3,022		$	6,665	$	6,206		$	4,115	$	3,526		$	12,123		$	10,191
Securities, taxable		459		377			970		779			566		455			1,641			1,385
Securities, tax-exempt		367		357			734		708			403		365			1,177			1,099
Federal funds sold and other interest bearing deposits		28		30			65		60
Total interest income		4,291		3,786			8,434		7,753
Federal bank and other restricted stocks												19		20			63			60
Federal funds sold and other interest-bearing deposits												16		28			73			93
Total interest and dividend income												5,119		4,394			15,077			12,828
Interest expense
Deposits		253		183			501		353			749		300			1,881			801
Short-term borrowings		57		11			112		23			10		64			38			176
Federal Home Loan Bank advances		54		56			108		114			118		63			243			171
Total interest expense		364		250			721		490
Total interest expense												877		427			2,162			1,148
Net interest income		3,927		3,536			7,713		7,263			4,242		3,967			12,915			11,680
Provision for loan losses		60		140			150		276			105		100			(555	)		250
Net interest income after provision for loan losses		3,867		3,396			7,563		6,987			4,137		3,867			13,470			11,430

Non-interest income
Noninterest income
Service charges on deposit accounts		301		314			609		644			298		286			935			895
Debit card interchange income		325		285			648		536			338		327			1,065			975
Bank owned life insurance income		68		63			136		112			66		66			203			202
Securities gains, net		—		22			38		125
Loss on disposition of other real estate owned		—		(3	)		-		(3	)
Securities gains (losses), net												1		(5	)		561			33
Other		145		116			280		231			157		128			535			408
Total non-interest income		839		797			1,711		1,645
Total noninterest income												860		802			3,299			2,513

Non-interest expenses
Noninterest expenses
Salaries and employee benefits		1,966		1,790			3,776		3,528			2,129		1,950			6,203			5,726
Occupancy and equipment		465		478			920		930			543		481			1,546			1,401
Data processing expenses		147		145			295		290			154		153			461			448
Debit card processing expenses		188		149			368		282			182		186			565			554
Professional and director fees		122		146			239		278			140		131			481			370
FDIC assessments		46		46			92		101			38		42			114			134
Franchise taxes		84		84			168		168			89		84			266			252
Marketing and advertising		61		65			139		144			87		86			322			225
Telephone and network communications		75		76			157		157			65		76			201			233
Other		406		347			799		734			385		392			1,217			1,191
Total non-interest expenses		3,560		3,326			6,953		6,612
Income before income taxes		1,146		867			2,321		2,020
Total noninterest expenses												3,812		3,581			11,376			10,534
Income before income taxes												1,185		1,088			5,393			3,409
Income tax expense		489		145			735		397			150		175			836			910
Net income	$	657	$	722		$	1,586	$	1,623		$	1,035	$	913		$	4,557		$	2,499

Basic and diluted earnings per share	$	0.24	$	0.27		$	0.58	$	0.60		$	0.38	$	0.33		$	1.67		$	0.92

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

Consolidated statements of comprehensive income~~(Loss)~~

~~(Unaudited)~~

~~(Dollars in thousands)~~

Three Months ended
December 31

Six Months ended
December 31,

2017

2016

2017

2016

Net income
$ 657 $ 722 $ 1,586 $ 1,623

Other comprehensive income (loss), net of tax:

Net change in unrealized gains (losses) on securities available-for-sale:

Unrealized losses arising during the period
(631
)
(3,319
)
(527
)
(3,742
)
Reclassification adjustment for gains included in income
— (22
)
(38
)
(125
)
Net unrealized losses
(631
)
(3,341
)
(565
)
(3,867
)
Income tax effect
215 1,136 193 1,315
Other comprehensive loss
(416
)
(2,205
)
(372
)
(2,552
)

Total comprehensive income (loss)
$ 241 $ (1,483
)
$ 1,214 $ (929
)

~~See accompanying notes to consolidated financial statements.~~

~~CONSUMERS BANCORP, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~ (loss)

(Unaudited)

(Dollars in thousands, except per share data)

Three Months ended
December 31,

Six Months ended
December 31,

2017

2016

2017

2016

Balance at beginning of period
$ 44,271 $ 44,020 $ 43,535 $ 43,793

Net income
657 722 1,586 1,623
Other comprehensive loss
(416
)
(2,205
)
(372
)
(2,552
)
6,321 shares issued associated with stock awards during the six months ended December 31, 2017
— — 90 —
204 and 231 Dividend reinvestment plan shares associated with forfeited and expired restricted stock awards retired to treasury stock during the six months ended December 31, 2017 and 2016, respectively
— — — —
Common cash dividends
(341
)
(327
)
(668
)
(654
)

Balance at the end of the period
$ 44,171 $ 42,210 $ 44,171 $ 42,210

Common cash dividends per share
$ 0.125 $ 0.12 $ 0.245 $ 0.24

(Dollars in thousands)
	Three Months ended March 31,						Nine Months ended December 31,
	2019			2018			2019			2018

Net income	$	1,035		$	913		$	4,557		$	2,499

Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on securities available-for-sale:
Unrealized gains (losses) arising during the period		1,946			(1,821	)		2,840			(2,348	)
Reclassification adjustment for (gains) losses included in income		(1	)		5			(561	)		(33	)
Net unrealized gains (losses)		1,945			(1,816	)		2,279			(2,381	)
Income tax effect		(410	)		381			(480	)		574
Other comprehensive income (loss)		1,535			(1,435	)		1,799			(1,807	)

Total comprehensive income (loss)	$	2,570		$	(522	)	$	6,356		$	692

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

Six Months Ended
December 31,

2017

2016

Cash flows from operating activities

Net cash from operating activities
$ 3,484 $ 2,152

Cash flow from investing activities

Securities available-for-sale

Purchases
(5,101
)
(17,368
)
Maturities, calls and principal pay downs
8,848 11,753
Proceeds from sales
1,586 3,383
Securities held-to-maturity

Purchases
— (1,000
)
Principal pay downs
198 198
Net decrease in certificates of deposits in other financial institutions
— 990
Net increase in loans
(20,967
)
(9,255
)
Purchase of Bank owned life insurance
— (2,000
)
Acquisition of premises and equipment
(129
)
(252
)
Sale of other real estate owned
71 7
Net cash from investing activities
(15,494
)
(13,544
)

Cash flow from financing activities

Net increase in deposit accounts
8,518 8,797
Net change in short-term borrowings
(1,479
)
223
Proceeds from Federal Home Loan Bank advances
5,400 18,325
Repayments of Federal Home Loan Bank advances
(532
)
(14,630
)
Dividends paid
(668
)
(654
)
Net cash from financing activities
11,239 12,061

Increase (decrease) in cash or cash equivalents
(771
)
669

Cash and cash equivalents, beginning of period
9,912 10,181
Cash and cash equivalents, end of period
$ 9,141 $ 10,850

Supplemental disclosure of cash flow information:

Cash paid during the period:

Interest
$ 709 $ 484
Federal income taxes
405 150
Non-cash items:

Transfer from loans to other real estate owned
57 10
Transfer from loans held for sale to portfolio
172 —
Issuance of treasury stock for stock awards
90 —
Expired and forfeited dividend reinvestment plan shares associated with restricted stock awards that were retired to treasury stock
4 4

(Dollars in thousands, except per share data)
	Three Months ended March 31,						Nine Months ended March 31,
	2019			2018			2019			2018

Balance at beginning of period	$	46,896		$	44,171		$	43,761		$	43,535

Net income		1,035			913			4,557			2,499
Other comprehensive income (loss)		1,535			(1,435	)		1,799			(1,807	)
4,201 and 6,321 shares issued associated with stock awards during the nine months ended March 31, 2019 and 2018, respectively		—			—			61			90
204 Dividend reinvestment plan shares associated with forfeited and expired restricted stock awards retired to treasury stock during the nine months ended March 31, 2018		—			—			(2	)		—
Common cash dividends		(355	)		(342	)		(1,065	)		(1,010	)

Balance at the end of the period	$	49,111		$	43,307		$	49,111		$	43,307

Common cash dividends per share	$	0.13		$	0.125		$	0.39		$	0.37

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,
	2019			2018
Cash flows from operating activities
Net cash from operating activities	$	5,275		$	4,970

Cash flow from investing activities
Securities available-for-sale
Purchases		(16,778	)		(12,356	)
Maturities, calls and principal pay downs		13,721			12,588
Proceeds from sales		7,670			2,644
Securities held-to-maturity
Principal pay downs		200			198
Net decrease in certificate of deposit in other financial institutions		990			948
Purchase of Federal Reserve Bank stock, at cost		—			(34	)
Net increase in loans		(28,239	)		(30,759	)
Acquisition of premises and equipment		(1,528	)		(223	)
Disposal of premises and equipment		—			6
Sale of other real estate owned		—			69
Net cash from investing activities		(23,964	)		(26,919	)

Cash flow from financing activities
Net increase in deposit accounts		29,326			29,585
Net change in short-term borrowings		(9,342	)		1,843
Proceeds from Federal Home Loan Bank advances		2,400			2,700
Repayments of Federal Home Loan Bank advances		(2,050	)		(3,248	)
Dividends paid		(1,065	)		(1,010	)
Net cash from financing activities		19,269			29,870

Increase in cash or cash equivalents		580			7,921

Cash and cash equivalents, beginning of period		7,772			9,912
Cash and cash equivalents, end of period	$	8,352		$	17,833

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	2,102		$	1,123
Federal income taxes		645			505
Non-cash items:
Transfer from loans held for sale to portfolio		75			172
Issuance of treasury stock for stock awards		59			90
Expired and forfeited dividend reinvestment plan shares associated with restricted stock awards that were retired to treasury stock		—			4

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. 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-Q10-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-K10-K for the year ended June 30, ~~2017.~~ 2018. 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 ~~Ban~~k.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 of the revenues, operating income, and assets. Accordingly, all of its 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 ~~May 2014,~~ ~~FASB issued Accounting Standards Update (ASU)~~ ~~2014~~-~~09,~~ ~~Revenue from Contracts with Customers (Topic~~ ~~606~~~~). The ASU creates a new topic, Topic~~ ~~606,~~ to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after ~~December 15, 2017.~~ ~~Most of the Corporation’s revenue is derived from loans and financial instruments, which is not part of the scope of this ASU.The adoption of ASU~~ ~~2014~~-09 ~~as it relates to non-interest income, such as service charges and debit card interchange income, is~~ ~~not~~ ~~expected to have a material effect on the Corporation’s financial statements.~~

In ~~January~~June 2016,~~the~~ FASB issued ASU ~~2016~~-~~01,~~ ~~Financial Instruments~~ ~~– Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The main provisions of ASU~~ ~~2016~~-01 address the valuation and impairment of certain equity investments along with simplified disclosures about those investments. Equity securities with readily determinable fair values will be treated in the same manner as other financial instruments. ASU ~~2016~~-01 ~~is effective for fiscal years beginning after~~ ~~December 15, 2017,~~ ~~including interim periods within those fiscal years. The adoption of ASU~~ ~~2016~~-01 is ~~not~~ ~~expected to have a material impact on the Corporation's financial statements.~~

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

~~(Dollars in thousands, except per share amounts)~~

In ~~June 2016,~~ ~~FASB Issued ASU~~ ~~2016~~-~~13,~~2016-13, Financial Instruments—Credit Losses (Topic ~~326~~)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. ~~GAAP,~~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~~-132016-13 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~~-132016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods ~~with~~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. Management is currently evaluating the impact of the adoption of this guidance on the Corporation’s consolidated financial statements and ~~are~~is in the midst of gathering critical data to evaluate the impact. However, it is too early to estimate the impact.

In February 2016,~~the~~ FASB issued ASU ~~2016~~-02 - 2016-02, Leases (Topic ~~842~~)842). ~~The~~This ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. ~~Management is~~The Corporation has several lease agreements, such as branch locations, which are currently ~~evaluating the impact of the adoption of this guidance~~considered operating leases, and therefore, not recognized on the Corporation’s consolidated condensed statements of financial ~~statements and~~condition. The Corporation expects the new guidance to recognize an increase in other assets and other liabilities for the rights and obligations created by leasing of branch offices. Management also expects minimal impact in the income statement with respect to occupancy expense related to leases.require

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease liability. Therefore, the Corporation’s preliminary evaluation indicates the provisions of ASU No. 2016-02 are expected to impact the Corporation’s consolidated condensed statements of financial condition, along with our regulatory capital ratios. The definition of a lease and the cash flows required to be evaluated will change. The Corporation continues to evaluate the extent of the potential impact the new guidance will have on the Corporation’s consolidated financial statements. At March 31, 2019, the Corporation had contractual operating lease commitments of approximately $470, before considering renewal options that are generally present.

Note 2– Securities

Available –for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

December 31, 2017

Obligations of U.S. government-sponsored entities and agencies
$ 13,752 $ 30 $ (146
)
$ 13,636
Obligations of state and political subdivisions
56,718 746 (283
)
57,181
Mortgage-backed securities – residential
58,051 98 (631
)
57,518
Mortgage-backed securities– commercial
1,446 — (10
)
1,436
Collateralized mortgage obligations– residential
5,483 — (137
)
5,346
Pooled trust preferred security
178 443 — 621
Total available-for-sale securities
$ 135,628 $ 1,317 $ (1,207
)
$ 135,738

Available –for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

March 31, 2019

Obligations of U.S. government-sponsored entities and agencies
$ 18,315 $ 124 $ (122
)
$ 18,317
Obligations of state and political subdivisions
56,583 988 (183
)
57,388
U.S. Government-sponsored mortgage-backed securities–residential
58,950 296 (867
)
58,379
U.S. Government-sponsored mortgage-backed securities– commercial
1,781 — (50
)
1,731
U.S. Government-sponsored collateralized mortgage obligations– residential
5,813 75 (51
)
5,837
Total available-for-sale securities
$ 141,442 $ 1,483 $ (1,273
)
$ 141,652

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
December 31, 2017
March 31, 2019
Obligations of state and political subdivisions	$	4,061	$	22	$	—	$	4,083	$	3,824	$	37	$	—	$	3,861
Total held-to-maturity securities									$	3,824	$	37	$	—	$	3,861

Available–for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2017
Available–for-Sale										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2018
Obligations of U.S. government-sponsored entities and agencies	$	12,571	$	90	$	(74	)	$	12,587	$	16,488	$	6	$	(372	)	$	16,122
Obligations of state and political subdivisions		56,824		890		(254	)	��	57,460		56,964		339		(713	)		56,590
Mortgage-backed securities – residential		64,092		184		(438	)		63,838
Mortgage-backed securities – commercial		1,459		—		(1	)		1,458
Collateralized mortgage obligations - residential		6,310		1		(100	)		6,211
U.S. Government-sponsored mortgage-backed securities – residential											65,062		6		(1,660	)		63,408
U.S. Government-sponsored mortgage-backed securities – commercial											1,432		—		(17	)		1,415
U.S. Government-sponsored collateralized mortgage obligations - residential											5,973		9		(216	)		5,766
Pooled trust preferred security		155		377		—			532		178		549		—			727
Total available-for-sale securities	$	141,411	$	1,542	$	(867	)	$	142,086	$	146,097	$	909	$	(2,978	)	$	144,028

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
June 30, 2017
June 30, 2018
Obligations of state and political subdivisions	$	4,259	$	73	$	(3	)	$	4,329	$	4,024	$	24	$	—	$	4,048
Total held-to-maturity securities										$	4,024	$	24	$	—	$	4,048

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	Three Months Ended December 31				Six Months Ended December 31,				Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016		2019		2018		2019		2018
Proceeds from sales	$	—	$	1,594	$	1,586	$	3,383	$	2,772	$	1,058	$	7,670	$	2,644
Gross realized gains		—		24		39		127		12		1		606		40
Gross realized losses		—		2		1		2
Gross realized losses										11		6		45		7

The i~~ncome~~income tax provision related to ~~these~~the net realized gains ~~and~~amounted to $118 for the nine months ended March 31, 2019. The income tax benefit related to the net realized losses amounted to ~~$13~~$1 for the ~~six~~three months ended ~~December~~March 31, ~~2017~~ 2018 and $8 ~~and~~ ~~$43~~the income tax provision related to the net realized gains amounted to $9 for the ~~three~~ ~~and~~ ~~six~~nine months ended ~~December~~March 31, ~~2016.~~2018.

The amortized cost and fair values of debt securities at ~~December~~March 31, ~~2017,~~ 2019, 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 ~~collateralized mortgage obligations and the pooled trust preferred security~~ are shown separately.

Available-for-Sale	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,170	$	2,192	$	3,591	$	3,597
Due after one year through five years		18,053		18,167		18,177		18,290
Due after five years through ten years		28,838		28,992		25,489		25,708
Due after ten years		21,409		21,466		27,641		28,110
Total		70,470		70,817		74,898		75,705

U.S. Government-sponsored mortgage-backed and related securities		64,980		64,300		66,544		65,947
Pooled trust preferred security		178		621
Total available-for-sale securities	$	135,628	$	135,738	$	141,442	$	141,652

Held-to-Maturity

Due after five years through ten years		564		579		489		501
Due after ten years		3,497		3,504		3,335		3,360
Total held-to-maturity securities	$	4,061	$	4,083	$	3,824	$	3,861

The following table summarizes the securities with unrealized losses at March 31, 2019 and June 30, 2018, 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, 2019

Obligations of US government-sponsored entities and agencies
$ — $ — $ 11,897 $ (122
)
$ 11,897 $ (122
)
Obligations of states and political subdivisions
— — 12,850 (183
)
12,850 (183
)
Mortgage-backed securities – residential
859 (3
)
40,422 (864
)
41,281 (867
)
Mortgage-backed securities – commercial
— — 1,731 (50
)
1,731 (50
)
Collateralized mortgage obligations – residential
— — 2,542 (51
)
2,542 (51
)
Total temporarily impaired
$ 859 $ (3
)
$ 69,442 $ (1,270
)
$ 70,301 $ (1,273
)

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

~~The following table summarizes the securities with unrealized losses at~~ ~~December 31, 2017~~ ~~and~~ ~~June~~ ~~30,~~~~2017,~~ ~~aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:~~

(Dollars in thousands, except per share amounts)

Less than 12 Months

12 Months or more

Total

Available-for-sale

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

December 31, 2017

Obligations of US government-sponsored entities and agencies
$ 9,901 $ (146
)
$ — $ — $ 9,901 $ (146
)
Obligations of states and political subdivisions
11,862 (93
)
8,179 (190
)
20,041 (283
)
Mortgage-backed securities - residential
27,316 (243
)
22,415 (388
)
49,731 (631
)
Mortgage-backed securities - commercial
1,435 (10
)
— — 1,435 (10
)
Collateralized mortgage obligations – residential
— — 5,346 (137
)
5,346 (137
)
Total temporarily impaired
$ 50,514 $ (492
)
$ 35,940 $ (715
)
$ 86,454 $ (1,207
)

	Less than 12 Months					12 Months or more					Total					Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2017
June 30, 2018
Obligations of US government-sponsored entities and agencies	$	4,336	$	(74	)	$	—	$	—		$	4,336	$	(74	)	$	12,400	$	(224	)	$	2,747	$	(148	)	$	15,147	$	(372	)
Obligations of states and political subdivisions		13,881		(241	)		834		(13	)		14,715		(254	)		26,775		(369	)		7,975		(344	)		34,750		(713	)
Mortgage-backed securities - residential		42,071		(391	)		2,805		(47	)		44,876		(438	)
Mortgage-backed securities - commercial		1,458		(1	)		—		—			1,458		(1	)
Collateral mortgage obligation - residential		5,417		(88	)		654		(12	)		6,071		(100	)
Mortgage-backed securities – residential																	31,038		(581	)		29,716		(1,079	)		60,754		(1,660	)
Mortgage-backed securities – commercial																	1,415		(17	)		—		—			1,415		(17	)
Collateralized mortgage obligation – residential																	—		—			4,821		(216	)		4,821		(216	)
Total temporarily impaired	$	67,163	$	(795	)	$	4,293	$	(72	)	$	71,456	$	(867	)	$	71,628	$	(1,191	)	$	45,259	$	(1,787	)	$	116,887	$	(2,978	)

Management evaluates securities for other-than-temporary ~~impairme~~ntimpairment (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)(1) the length of time and the extent to which the fair value has been less than cost, (2)(2) the financial condition and near-term prospects of the issuer, (3)(3) whether the market decline was affected by macroeconomic conditions, and (4)(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)~~

The unrealized losses within the securities portfolio as of ~~December~~March 31, ~~2017~~ 2019 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 decline in fair value within the securities portfolio is largely due to changes in interest rates and the fair value is expected to recover as the securities approach maturity. 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.

~~Note~~ 3 ~~– Loans~~

~~Major classifications of loans were as follows:~~

December 31,
2017

June 30,
2017

Commercial
$ 49,561 $ 46,336
Commercial real estate:

Construction
5,936 5,588
Other
169,692 157,861
1 – 4 Family residential real estate:

Owner occupied
45,351 41,581
Non-owner occupied
16,163 14,377
Construction
1,931 1,993
Consumer
4,960 5,131
Subtotal
293,594 272,867
Allowance for loan losses
(3,225
)
(3,086
)
Net Loans
$ 290,369 $ 269,781

~~Loans presented above are net of deferred loan fees and costs of $~~~~313~~ ~~and~~ ~~$294~~ ~~for~~ ~~December 31, 2017~~ ~~and~~ ~~June 30, 2017,~~ ~~respectively.~~

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 3 – Loans

~~The following table presents the activity in the allowance for loan losses by portfolio segment for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017:~~Major classifications of loans were as follows:

1-4 Family

Commercial

Residential

Real

Real

Commercial

Estate

Estate

Consumer

Total

Allowance for loan losses:

Beginning balance
$ 572 $ 2,081 $ 473 $ 68 $ 3,194
Provision for loan losses
(17
)
57 20 — 60
Loans charged-off
— — (33
)
(5
)
(38
)
Recoveries
— 6 1 2 9
Total ending allowance balance
$ 555 $ 2,144 $ 461 $ 65 $ 3,225

March 31,
2019

June 30,
2018

Commercial
$ 69,706 $ 60,995
Commercial real estate:

Construction
11,250 5,394
Other
192,899 183,383
1 – 4 Family residential real estate:

Owner occupied
52,844 47,433
Non-owner occupied
15,044 15,516
Construction
1,950 1,171
Consumer
3,995 4,873
Subtotal
347,688 318,765
Net Deferred loan fees and costs
(226
)
(256
)
Allowance for loan losses
(3,656
)
(3,422
)
Net Loans
$ 343,806 $ 315,087

The following table presents the activity in the allowance for loan losses by portfolio segment for the ~~six~~three months ended ~~December~~March 31, ~~2017:~~2019:

																			1-4 Family
					1-4 Family											Commercial			Residential
			Commercial		Residential											Real			Real
			Real		Real									Commercial		Estate			Estate		Consumer			Total
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	518	$	2,038	$	473		$	57		$	3,086		$	622	$	2,397		$	496	$	54		$	3,569
Provision for loan losses		35		82		20			13			150			—		102			5		(2	)		105
Loans charged-off		—		—		(33	)		(8	)		(41	)		—		(25	)		—		(9	)		(34	)
Recoveries		2		24		1			3			30			—		7			2		7			16
Total ending allowance balance	$	555	$	2,144	$	461		$	65		$	3,225		$	622	$	2,481		$	503	$	50		$	3,656

The following table presents the activity in the allowance for loan losses by portfolio segment for the ~~three~~nine months ended ~~December~~March 31, ~~2016:~~2019:

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

Allowance for loan losses:
Beginning balance	$	510		$	2,643		$	411		$	120		$	3,684		$	586	$	2,277		$	499		$	60		$	3,422
Provision for loan losses		(14	)		157			51			(54	)		140			36		(591	)		(2	)		2			(555	)
Loans charged-off		—			(700	)		(23	)		(8	)		(731	)		—		(80	)		—			(30	)		(110	)
Recoveries		1			—			26			3			30			—		875			6			18			899
Total ending allowance balance	$	497		$	2,100		$	465		$	61		$	3,123		$	622	$	2,481		$	503		$	50		$	3,656

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 ~~six~~three months ended ~~December~~March 31, ~~2016:~~2018:

																					1-4 Family
							1-4 Family											Commercial			Residential
				Commercial			Residential											Real			Real
				Real			Real									Commercial		Estate			Estate		Consumer			Total
	Commercial			Estate			Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	505		$	2,518		$	402		$	141		$	3,566		$	555	$	2,144		$	461	$	65		$	3,225
Provision for loan losses		(9	)		282			78			(75	)		276			4		96			15		(15	)		100
Loans charged-off		—			(700	)		(44	)		(12	)		(756	)		—		(4	)		—		(11	)		(15	)
Recoveries		1			—			29			7			37			—		1			2		10			13
Total ending allowance balance	$	497		$	2,100		$	465		$	61		$	3,123		$	559	$	2,237		$	478	$	49		$	3,323

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2018:

1-4 Family

Commercial

Residential

Real

Real

Commercial

Estate

Estate

Consumer

Total

Allowance for loan losses:

Beginning balance
$ 518 $ 2,038 $ 473 $ 57 $ 3,086
Provision for loan losses
39 178 35 (2
)
250
Loans charged-off
— (4
)
(33
)
(19
)
(56
)
Recoveries
2 25 3 13 43
Total ending allowance balance
$ 559 $ 2,237 $ 478 $ 49 $ 3,323

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~December~~March 31, ~~2017.~~ 2019. Included in the recorded investment in loans is ~~$695~~$872 of accrued interest receivable.

					1-4 Family										1-4 Family
			Commercial		Residential								Commercial		Residential
			Real		Real								Real		Real
	Commercial		Estate		Estate		Consumer		Total		Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	30	$	—	$	—	$	30	$	—	$	7	$	—	$	—	$	7
Collectively evaluated for impairment		555		2,114		461		65		3,195		622		2,474		503		50		3,649
Total ending allowance balance	$	555	$	2,144	$	461	$	65	$	3,225	$	622	$	2,481	$	503	$	50	$	3,656

Recorded investment in loans:
Loans individually evaluated for impairment	$	122	$	1,303	$	340	$	—	$	1,765	$	112	$	1,320	$	367	$	—	$	1,799
Loans collectively evaluated for impairment		49,553		174,707		63,293		4,971		292,524		69,694		202,868		69,977		3,996		346,535
Total ending loans balance	$	49,675	$	176,010	$	63,633	$	4,971	$	294,289	$	69,806	$	204,188	$	70,344	$	3,996	$	348,334

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 June 30, ~~2017.~~ 2018. Included in the recorded investment in loans is ~~$581~~$732 of accrued ~~intere~~stinterest receivable.

					1-4 Family										1-4 Family
			Commercial		Residential								Commercial		Residential
			Real		Real								Real		Real
	Commercial		Estate		Estate		Consumer		Total		Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	42	$	2	$	—	$	44	$	—	$	29	$	—	$	—	$	29
Collectively evaluated for impairment		518		1,996		471		57		3,042		586		2,248		499		60		3,393
Total ending allowance balance	$	518	$	2,038	$	473	$	57	$	3,086	$	586	$	2,277	$	499	$	60	$	3,422

Recorded investment in loans:
Loans individually evaluated for impairment	$	444	$	1,587	$	203	$	—	$	2,234	$	100	$	1,562	$	398	$	—	$	2,060
Loans collectively evaluated for impairment		45,993		162,176		57,901		5,144		271,214		60,979		187,191		64,135		4,876		317,181
Total ending loans balance	$	46,437	$	163,763	$	58,104	$	5,144	$	273,448	$	61,079	$	188,753	$	64,533	$	4,876	$	319,241

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of ~~December~~March 31, ~~2017~~ 2019 and for the ~~six~~nine months ended ~~December~~March 31, ~~2017:~~2019:

	As of December 31, 2017						Six Months ended December 31, 2017						As of March 31, 2019						Nine Months ended March 31, 2019
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis		Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest		Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized		Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	122	$	122	$	—	$	117	$	3	$	3	$	112	$	112	$	—	$	100	$	5	$	5
Commercial real estate:
Other		973		976		—		1,057		16		16		1,315		1,097		—		1,176		28		28
1-4 Family residential real estate:
Owner occupied		25		25		—		80		—		—		126		95		—		98		—		—
Non-owner occupied		315		315		—		322		—		—		302		272		—		283		—		—
With an allowance recorded:
Commercial real estate:
Other		327		327		30		337		5		5		222		223		7		227		10		10
Total	$	1,762	$	1,765	$	30	$	1,913	$	24	$	24	$	2,077	$	1,799	$	7	$	1,884	$	43	$	43

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 average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended ~~December~~March 31,~~2017:~~ 2019:

	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	120	$	1	$	1	$	116	$	2	$	2
Commercial real estate:
Other		1,061		6		6		1,019		9		9
1-4 Family residential real estate:
Owner occupied		318		—		—		96		—		—
Non-owner occupied		58		—		—		275		—		—
With an allowance recorded:
Commercial real estate:
Other		330		5		5		224		3		3
Total	$	1,887	$	12	$	12	$	1,730	$	14	$	14

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, ~~2017~~ 2018 and for the ~~six~~nine months ended ~~December~~March 31, ~~2016:~~2018:

	As of June 30, 2017						Six Months ended December 31, 2016						As of June 30, 2018						Nine Months ended March 31, 2018
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis		Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest		Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized		Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	482	$	444	$	—	$	330	$	80	$	80	$	100	$	100	$	—	$	119	$	5	$	5
Commercial real estate:
Construction		—		—		—		170		6		6
Other		1,928		1,039		—		1,081		105		105		1,330		1,330		—		1,082		24		24
1-4 Family residential real estate:
Owner occupied		104		103		—		127		—		—		101		101		—		61		—		—
Non-owner occupied		—		—		—		205		—		—		297		297		—		318		—		—
With an allowance recorded:
Commercial		—		—		—		7		—		—
Commercial real estate:
Other		548		548		42		2,030		15		15		231		232		29		302		8		8
1-4 Family residential real estate:
Owner occupied		99		100		2		139		3		3
Total	$	3,161	$	2,234	$	44	$	4,089	$	209	$	209	$	2,059	$	2,060	$	29	$	1,882	$	37	$	37

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial							$	122	$	2	$	2
Commercial real estate:
Construction	$	10	$	—	$	—
Other		607		—		—		1,131		8		8
1-4 Family residential real estate:
Owner occupied		127		—		—		23		—		—
Non-owner occupied		202		—		—		309		—		—
With an allowance recorded:
Commercial		14		—		—
Commercial real estate:
Other		1,612		7		7		234		3		3
1-4 Family residential real estate:
Owner occupied		101		1		1
Total	$	2,673	$	8	$	8	$	1,819	$	13	$	13

The ~~following~~following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of ~~December~~March 31, ~~2017~~ 2019 and June 30, ~~2017:~~2018:

	December 31, 2017				June 30, 2017				March 31, 2019				June 30, 2018
			Loans Past Due				Loans Past Due				Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days				Over 90 Days				Over 90 Days
			Still				Still				Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing		Non-accrual		Accruing		Non-accrual		Accruing
Commercial	$	—	$	—	$	368	$	—
Commercial real estate:
Other		537		—		729		—	$	458	$	—	$	702	$	—
1 – 4 Family residential:
Owner occupied		13		—		90		—		87		—		90		—
Non-owner occupied		315		—		—		—		272		—		298		—
Total	$	865	$	—	$	1,187	$	—	$	817	$	—	$	1,090	$	—

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, 2019 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
$ 27 $ — $ — $ 27 $ 69,779 $ 69,806
Commercial real estate:

Construction
— — — — 11,236 11,236
Other
654 22 — 676 192,276 192,952
1-4 Family residential:

Owner occupied
15 — 80 95 53,228 53,323
Non-owner occupied
— — — — 15,047 15,047
Construction
— — — — 1,974 1,974
Consumer
1 — — 1 3,995 3,996
Total
$ 697 $ 22 $ 80 $ 799 $ 347,535 $ 348,334

The above table of past due loans includes the recorded investment in non-accrual loans of $18 in the 30-59 days category, $80 in the 90 days or greater category and $719 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)

The following table presents the aging of the recorded investment in past due loans as of ~~December 31, 2017~~ June 30, 2018 by class of loans:

	Days Past Due												Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not				30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total		Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	—	$	—	$	49,675	$	49,675	$	—	$	—	$	—	$	—	$	61,079	$	61,079
Commercial real estate:
Construction		—		—		—		—		5,943		5,943		—		—		—		—		5,386		5,386
Other		230		—		—		230		169,837		170,067		238		—		—		238		183,129		183,367
1-4 Family residential:
Owner occupied		12		—		—		12		45,477		45,489		11		—		80		91		47,738		47,829
Non-owner occupied		—		—		—		—		16,210		16,210		—		—		—		—		15,514		15,514
Construction		—		—		—		—		1,934		1,934		—		—		—		—		1,190		1,190
Consumer		4		2		—		6		4,965		4,971		7		—		—		7		4,869		4,876
Total	$	246	$	2	$	—	$	248	$	294,041	$	294,289	$	256	$	—	$	80	$	336	$	318,905	$	319,241

The above table of past due loans includes the recorded investment in non-accrual loans of~~$865~~ $249 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, 2017~~ ~~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
$ — $ — $ 35 $ 35 $ 46,402 $ 46,437
Commercial real estate:

Construction
— — — — 5,596 5,596
Other
— — 130 130 158,037 158,167
1-4 Family residential:

Owner occupied
13 — 74 87 41,605 41,692
Non-owner occupied
— — — — 14,416 14,416
Construction
— — — — 1,996 1,996
Consumer
22 — — 22 5,122 5,144
Total
$ 35 $ — $ 239 $ 274 $ 273,174 $ 273,448

~~The above table of past due loans includes the recorded investment in non-accrual loans of~~~~$239~~30-59 days, $80 in the 90 days or greater category and ~~$948~~$761 in the loans not past due category.

Troubled Debt ~~Restructurings:~~Restructurings (TDR):

AsThe Corporation has certain loans that have been modified in order to maximize collection of ~~December~~loan balances. A modified loan is 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.

At March 31, ~~2017,~~ 2019 and June 30, 2018, the ~~recorded investment~~Corporation had $1,314 and $1,269, respectively, of loans classified as ~~troubled debt restructurings was~~ ~~$1,582~~ ~~with~~ ~~$30~~ ~~of specific reserves allocated to these loans.~~TDRs which are included in impaired loans above. As of ~~December~~March 31, ~~2017,~~ 2019 and June 30, 2018, the Corporation had committed to lend an additional ~~$192~~$73 and $174, respectively, to customers with outstanding loans that were classified as troubled debt restructurings. ~~As of~~ At March 31, 2019 and June 30, ~~2017,~~ 2018, the ~~recorded investment~~Corporation had $7 and $29, respectively, of specific reserves allocated to these loans.

During the three-month period ended March 31, 2019, the terms of a loan to one borrower were modified as a troubled debt restructuring. The modification of the terms of the loan included a combination of forgiveness of a portion of the principal amount owed, which resulted in a reduction in the monthly payment amount. The following table presents loans by class modified as troubled debt restructurings that occurred during the period ended March 31, 2019:

Number of
Loans
Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial real estate:
Other 1 $ 161 $ 59
Total 1 $ 161 $ 59

The troubled debt restructuring described above increased the allowance for loan losses and resulted in a charge-off of $80 during the period ended March 31, 2019. During the three and nine-month periods ended March 31, 2018, 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, 2018.

There were no loans classified as troubled debt restructurings for which there was ~~$1,740~~ ~~with~~ ~~$33~~ ~~of specific reserves allocated to these loans. As of~~ ~~June 30, 2017,~~ a payment default within 12 months following the ~~Corporation had committed to lend an additional~~ ~~$175~~ ~~to customers with outstanding loans that were classified as troubled debt restructurings.~~modification during the three and nine-month periods ended March 31, 2019 and 2018. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

~~During the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~~~, there were~~ no ~~loan modifications completed that were classified as troubled debt restructurings. There were~~ no ~~charge offs from troubled debt restructurings that were completed during the~~ ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016.~~

~~There were~~ no ~~loans classified as troubled debt restructurings for which there was a payment default within~~ 12 ~~months following the modification during the~~ ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016.~~ ~~A loan is considered to be 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: ~~curren~~tcurrent 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~~$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 ~~affirm~~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 to be pass rated loans. Loans listed as not rated are ~~either~~either less than ~~$100~~$100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:

	As of December 31, 2017										As of March 31, 2019
			Special						Not				Special						Not
	Pass		Mention		Substandard		Doubtful		Rated		Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	48,091	$	883	$	339	$	—	$	362	$	63,208	$	5,215	$	1,037	$	—	$	346
Commercial real estate:
Construction		5,941		—		2		—		—		11,171		65		—		—		—
Other		156,415		10,365		1,772		537		978		177,340		7,132		6,232		458		1,790
1-4 Family residential real estate:
Owner occupied		2,661		58		14		13		42,743		2,248		89		25		7		50,954
Non-owner occupied		14,669		203		433		315		590		13,834		184		325		272		432
Construction		765		—		—		—		1,169		—		—		—		—		1,974
Consumer		119		—		—		—		4,852		27		—		—		—		3,969
Total	$	228,661	$	11,509	$	2,560	$	865	$	50,694	$	267,828	$	12,685	$	7,619	$	737	$	59,465

	As of June 30, 2017										As of June 30, 2018
			Special						Not				Special						Not
	Pass		Mention		Substandard		Doubtful		Rated		Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	44,435	$	907	$	642	$	—	$	453	$	59,214	$	288	$	1,162	$	—	$	415
Commercial real estate:
Construction		4,514		1,035		—		4		43
Construction												5,386		—		—		—		—
Other		150,460		5,110		1,566		470		561		172,471		7,061		1,878		702		1,255
1-4 Family residential real estate:
Owner occupied		2,668		—		11		30		38,983
Owner occupied												2,577		—		27		11		45,214
Non-owner occupied		13,633		210		261		187		125		14,025		195		417		298		579
Construction		1,223		—		—		—		773		8		—		—		—		1,182
Consumer		145		—		—		—		4,999		93		—		—		—		4,783
Total	$	217,078	$	7,262	$	2,480	$	691	$	45,937	$	253,774	$	7,544	$	3,484	$	1,011	$	53,428

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 4 - 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~~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.

~~Leve~~l 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~~’scompany’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 ~~recurrin~~grecurring basis include the following:

Securities available-for-sale: When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).

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

			Fair Value Measurements at December 31, 2017 Using								Fair Value Measurements at March 31, 2019 Using
	Balance at December 31, 2017		Level 1		Level 2		Level 3		Balance at March 31, 2019		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	13,636	$	—	$	13,636	$	—	$	18,317	$	—	$	18,317	$	—
Obligations of states and political subdivisions		57,181		—		57,181		—		57,388		—		57,388		—
Mortgage-backed securities – residential		57,518		—		57,518		—		58,379		—		58,379		—
Mortgage-backed securities – commercial		1,436		—		1,436		—		1,731		—		1,731		—
Collateralized mortgage obligations - residential		5,346		—		5,346		—		5,837		—		5,837		—
Pooled trust preferred security		621		—		621		—

Fair Value Measurements at
June 30, 2018 Using

Balance at
June 30,
2018

Level 1

Level 2

Level 3

Assets:

Obligations of U.S. government-sponsored entities and agencies
$ 16,122 $ — $ 16,122 $ —
Obligations of states and political subdivisions
56,590 — 56,590 —
Mortgage-backed securities - residential
63,408 — 63,408 —
Mortgage-backed securities - commercial
1,415 — 1,415 —
Collateralized mortgage obligations - residential
5,766 — 5,766 —
Pooled trust preferred security
727 — 727 —

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Fair Value Measurements at
June 30, 2017 Using

Balance at
June 30,
2017

Level 1

Level 2

Level 3

Assets:

Obligations of U.S. government-sponsored entities and agencies
$ 12,587 $ — $ 12,587 $ —
Obligations of states and political subdivisions
57,460 — 57,460 —
Mortgage-backed securities - residential
63,838 — 63,838 —
Mortgage-backed securities - commercial
1,458 — 1,458 —
Collateralized mortgage obligations - residential
6,211 — 6,211 —
Pooled trust preferred security
532 — 532 —

There were no transfers between Level 1 and Level 2 during the ~~three~~three- or ~~six~~ ~~month~~nine-month periods ended ~~December~~March 31, ~~2017~~ 2019 or ~~2016.~~2018.

Certain financial assets and financial 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. Financial assets and financial 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.

Other Real Estate 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 are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

~~(Dollars in thousands, except per~~ ~~share amounts)~~ There was no other real estate owned being carried at fair value as of March 31, 2019 or June 30, 2018.

There were no financial assets measured at fair value on a non-recurring basis at ~~December 31, 2017.~~ June 30, 2018. Financial assets measured at fair value on a non-recurring basis at ~~June 30, 2017~~ March 31, 2019 are summarized below:

			Fair Value Measurements at June 30, 2017 Using								Fair Value Measurements at March 31, 2019 Using
	Balance at June 30, 2017		Level 1		Level 2		Level 3		Balance at March 31, 2019		Level 1		Level 2		Level 3
Impaired loans:
Commercial Real Estate - Other	$	130	$	—	$	—	$	130	$	59	$	—	$	—	$	59
Other Real Estate Owned:
1-4 Family residential real estate		71		—		—		71

The resulting impact to the provision for loan losses was an increase of $25 being recorded for the three months ended March 31, 2019 and $80 for the nine months ended March 31, 2019. There ~~were~~ no ~~impaired loans measured at fair value on a non-recurring basis at~~ ~~December 31, 2017~~ ~~and there~~ was no impact to the provision for loan losses for the three months ended ~~December~~March 31, ~~2017.~~ 2018. The resulting impact to the provision for loan losses was a decrease of ~~$17~~$17 being recorded for the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~ ~~Impaired loans, measured for impairment using the fair value of the collateral, had a recorded investment of~~ ~~$130,~~ ~~with~~ no ~~valuation allowance at~~ ~~June 30, 2017.~~ ~~The resulting impact to the provision for loan losses was a decrease of~~ ~~$87~~ ~~and~~ ~~$47~~ ~~being recorded for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2016,~~ ~~respectively.~~2018.

~~Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of~~ ~~$71,~~ ~~which was made up of the outstanding balance of~~ ~~$103,~~ ~~net of a valuation allowance of~~ ~~$32~~ at ~~June 30, 2017.~~ ~~There were~~ no ~~other real estate owned being carried at fair value as of~~ ~~December 31, 2017.~~

~~The following tables present quantitative information about Level~~ 3 ~~fair value measurements for financial instruments measured at fair value on a non-recurring basis at~~ ~~June 30, 2017:~~

June 30, 2017

Fair
Value

Valuation
Technique

Unobservable
Inputs

Range

Weighted
Average

Impaired loans:

Commercial Real Estate – Other
$ 130
Bid Indications
N/A 0.0
%
0.0
%
Other Real Estate Owned:

1-4 Family residential real estate
$ 71
Bid Indications
N/A 0.0
%
0.0
%

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	December 31, 2017				June 30, 2017				March 31, 2019				June 30, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	9,141	$	9,141	$	9,912	$	9,912	$	8,352	$	8,352	$	7,772	$	7,772
Level 2 inputs:
Certificates of deposits in other financial institutions		3,921		3,924		3,921		3,927		1,983		1,981		2,973		2,976
Loans held for sale		814		833		1,252		1,286		844		862		1,448		1,474
Accrued interest receivable		1,310		1,310		1,212		1,212		1,707		1,707		1,404		1,404
Level 3 inputs:
Securities held-to-maturity		4,061		4,083		4,259		4,329		3,824		3,861		4,024		4,048
Loans, net		290,369		284,618		269,781		266,041		343,806		342,195		315,087		311,642
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		316,218		316,218		307,960		307,960		357,159		357,159		351,422		351,422
Time deposits		66,771		66,676		66,511		66,535		102,130		102,458		78,541		78,332
Short-term borrowings		22,507		22,507		23,986		23,986		4,025		4,025		13,367		13,367
Federal Home Loan Bank advances		17,188		16,796		12,320		12,054		12,106		11,860		11,756		11,146
Accrued interest payable		74		74		40		40		128		128		68		68

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

Cash and cash equivalents: The carrying value of cash, deposits in other financial institutions and federal funds sold were considered to approximate fair value resulting in a Level 1 classification.

Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification.

Accrued interest receivable and payable, demand and savings deposits and short-term ~~borrowings~~borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Loans: ~~Fair value~~Effective for ~~loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans that reprice at least annually and for fixed rate commercial loans with maturities of~~ ~~six~~ months or less which possess normal risk characteristics, carrying value was determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the ~~current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities resulting in a Level~~ 3 ~~classification. The methods utilized to estimate~~period ended September 30, 2018, the fair value of loans do ~~not~~ ~~necessarily represent~~were determined using an exit ~~price.~~

~~CONSUMERS BANCORP, INC.~~

~~Notes to~~price methodology as prescribed by ASU 2016-01. The exit price estimation of fair value is based on the ~~Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

~~(Dollars~~future value of expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a current market rate based on the relative credit risk of the loan. In addition, an incremental liquidity discount is applied resulting in ~~thousands, except per share amounts)~~a Level 3 classification. In comparison, loan fair values as of June 30, 2018 were estimated based on an entrance price methodology. As a result, the fair value adjustments as of March 31, 2019 and June 30, 2018 are not comparable.

Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds made to local municipalities. The fair values of these securities are estimated using a spread to the applicable municipal fair market curve resulting in a Level 3 classification.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at ~~December~~March 31, ~~2017~~ 2019 and June 30, ~~2017,~~ 2018, for deposits of similar remaining maturities, resulting in a Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at ~~December~~March 31, ~~2017~~ 2019 and June 30, ~~2017~~ 2018 for similar financing resulting in a Level 2 classification.

Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability; and therefore, are not subject to the fair value disclosure requirements.

Off-balance sheet commitments: The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.

Note 5– 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 ~~2,062~~7,121 and 999 shares of restricted stock that were anti-dilutive for the ~~three~~ ~~and~~ ~~six~~ ~~months~~three-and nine-month periods ended ~~December~~March 31, ~~2017.~~ 2019, respectively. There were no ~~equity instruments~~1,805 and 1,976 shares of restricted stock that were anti-dilutive for the ~~three~~ ~~and~~ ~~six~~ ~~months~~three-and nine-month periods ended ~~December~~March 31, ~~2016.~~ 2018, respectively. The following table details the calculation of basic and diluted earnings per share:

	For the Three Months Ended December 31,				For the Six Months Ended December 31,				For the Three Months Ended March 31,				For the Nine Months Ended March 31,
	2017		2016		2017		2016		2019		2018		2019		2018
Basic:
Net income available to common shareholders	$	657	$	722	$	1,586	$	1,623	$	1,035	$	913	$	4,557	$	2,499
Weighted average common shares outstanding		2,727,666		2,724,061		2,725,859		2,723,988		2,730,376		2,727,837		2,730,887		2,726,538
Basic income per share	$	0.24	$	0.27	$	0.58	$	0.60	$	0.38	$	0.33	$	1.67	$	0.92

Diluted:
Net income available to common shareholders	$	657	$	722	$	1,586	$	1,623	$	1,035	$	913	$	4,557	$	2,499
Weighted average common shares outstanding		2,727,666		2,724,061		2,725,859		2,723,988		2,730,429		2,727,837		2,730,850		2,726,538
Dilutive effect of restricted stock		—		19		—		13		—		—		—		—
Total common shares and dilutive potential common shares		2,727,666		2,724,080		2,725,859		2,724,001		2,730,429		2,727,837		2,730,850		2,726,538
Dilutive income per share	$	0.24	$	0.27	$	0.58	$	0.60	$	0.38	$	0.33	$	1.67	$	0.92

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 6~~–Accumulated~~ –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~~three- and ~~six~~ ~~month period~~nine-month periods ended ~~December~~March 31, ~~2017~~ 2019 and ~~2016,~~2018, were as follows:

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of September 30, 2017	$	741		$	(252	)	$	489
Balance as of December 31, 2018											$	(1,735	)	$	364		$	(1,371	)
Unrealized holding gain on available-for-sale securities arising during the period												1,946			(410	)		1,536
Amounts reclassified from accumulated other comprehensive income												(1	)		—			(1	)	(a)(b)
Net current period other comprehensive income												1,945			(410	)		1,535
Balance as of March 31,2019											$	210		$	(46	)	$	164

Balance as of December 31, 2017											$	110		$	(37	)	$	73
Reclassification of disproportional tax effect												—			14			14
Sub-total												110		$	(23	)	$	87
Unrealized holding loss on available-for-sale securities arising during the period		(631	)		215			(416	)			(1,821	)		382			(1,439	)
Balance as of December 31, 2017	$	110		$	(37	)	$	73

Balance as of September 30, 2016	$	3,095		$	(1,053	)	$	2,042
Unrealized holding loss on available-for-sale securities arising during the period		(3,319	)		1,128			(2,191	)
Amounts reclassified from accumulated other comprehensive income		(22	)		8			(14	)	(a)(b)
Net current period other comprehensive loss		(3,341	)		1,136			(2,205	)
Balance as of December 31, 2016	$	(246	)	$	83		$	(163	)
Amount reclassified from accumulated other comprehensive income												5			(1	)		4
Net current period other comprehensive income												(1,816	)		381			(1,435	)
Balance as of March 31, 2018											$	(1,706	)	$	358		$	(1,348	)

(a)(a) Securities ~~gains,~~(gains) losses, net

(b) Income tax expense

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

											Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2018											$	(2,069	)	$	434		$	(1,635	)
Unrealized holding gain on available-for-sale securities arising during the period												2,840			(598	)		2,242
Amounts reclassified from accumulated other comprehensive income												(561	)		118			(443	)	(a)(b)
Net current period other comprehensive income												2,279			(480	)		1,799
Balance as of March 31, 2019											$	210		$	(46	)	$	164
	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2017	$	675		$	(230	)	$	445			$	675		$	(230	)	$	445
Unrealized holding loss on available-for-sale securities arising during the period		(527	)		180			(347	)			(2,348	)	$	562		$	(1,786	)
Amounts reclassified from accumulated other comprehensive income		(38	)		13			(25	)	(a)(b)
Net current period other comprehensive loss		(565	)		193			(372	)
Balance as of December 31, 2017	$	110		$	(37	)	$	73

Balance as of June 30, 2016	$	3,621		$	(1,232	)	$	2,389
Unrealized holding loss on available-for-sale securities arising during the period		(3,742	)		1,272			(2,470	)
Amounts reclassified from accumulated other comprehensive income		(125	)		43			(82	)	(a)(b)
Net current period other comprehensive loss		(3,867	)		1,315			(2,552	)
Balance as of December 31, 2016	$	(246	)	$	83		$	(163	)
Amount reclassified from accumulated other comprehensive income												(33	)		12			(21	)
Net current period other comprehensive income												(2,381	)		574			(1,807	)
Balance as of March 31, 2018											$	(1,706	)		344			(1,362	)
Reclassification of disproportional tax effect												—		$	14		$	14
Balance as of March 31, 2018											$	(1,706	)	$	358		$	(1,348	)

(a) ~~Securities gains,~~Securities (gains) losses, net

(b) Income tax expense

Note 7– Revenue Recognition~~Income Taxes~~

On ~~December 22, 2017,~~ ~~the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, decreasing U.S. corporate income tax rates to~~ ~~21.0%~~ ~~from~~ ~~35.0%.~~ AsJuly 1, 2018, the Corporation ~~has a~~ ~~June 30~~ ~~fiscal year-end,~~adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) and all subsequent ASUs that modified Topic 606. Interest income, net securities gains (losses), gains from the ~~lower corporate income tax rate will be phased~~sale of mortgage loans and bank-owned life insurance are not included within the scope of Topic 606. For the revenue streams in ~~resulting in a blended U.S. statutory federal rate~~the scope of ~~approximately~~ ~~27.55%~~ ~~for~~Topic 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Corporation's ~~fiscal year ending~~ ~~June 30, 2018,~~ revenue from contracts with customers is recognized within noninterest income.

Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance and ~~21.0%~~ ~~for subsequent fiscal years. In addition,~~overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and other fees, are recognized at the ~~reduction~~time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange income: The Corporation earns interchange income from cardholder transactions conducted through the various payment networks. Interchange income from cardholder transactions represent a percentage of the ~~corporate tax rate required~~underlying transaction value and are recognized daily, concurrently with the ~~Corporation to revalue its deferred tax assets and liabilities based on the lower federal tax rate of~~ ~~21.0%.~~

~~As a result of the new legislation, during the quarter ended~~ ~~December 31, 2017,~~ ~~the Corporation recorded a~~ ~~one~~~~-time income tax expense of $~~~~348~~ ~~in conjunction with writing down its net deferred tax assets. The impact of using the~~ ~~27.55%~~ ~~blended federal tax rate for the quarter ended~~ ~~December 31, 2017~~ ~~versus a~~ ~~34.0%~~ ~~rate reduced the income tax expense by approximately~~ ~~$95.~~ ~~Therefore, the effective tax rate was~~ ~~42.7%~~ ~~and~~ ~~31.7%~~ ~~for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2017,~~ ~~respectively, compared to~~ ~~16.7%~~ ~~and~~ ~~19.7%~~ ~~for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2016,~~ ~~respectively.~~

~~The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act~~ ~~may~~ differ from the above estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and any changes in accounting standards for income taxes or related interpretations in responsetransaction processing services provided to the ~~Tax Act~~.cardholder. The gross amount of these fees is processed through noninterest income.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the Corporation's sources of noninterest income for the three and nine months ended March 31, 2019 and 2018.

For the three months ended
March 31,

For the nine months ended
March 31,

2019

2018

2019

2018

Noninterest income

In scope of Topic 606:

Service charges on deposit accounts
$ 298 $ 286 $ 935 $ 895
Debit card interchange income
338 327 1,065 975
Other income
66 46 196 139

Noninterest income (in scope of Topic 606)
702 659 2,196 2,009
Noninterest income (out-of-scope of Topic 606)
158 143 1,103 504

Total noninterest income
$ 860 $ 802 $ 3,299 $ 2,513

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~~’smanagement’s analysis of the Corporation’s results of operations for the ~~three~~three- and ~~six months~~nine-month periods ended ~~December~~March 31, ~~2017,~~2019, compared to the same ~~period~~periods in ~~2016,~~2018, and the consolidated balance sheet at ~~December~~March 31, ~~2017,~~2019, compared to June 30, ~~2017.~~2018. 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 of thethe 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. The Bank also invests in securities consisting primarily of U.S. government sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.

Results of Operations

~~Three~~Three- and ~~and Six~~ Nine~~Months~~-Month Periods Ended ~~December~~March 31, 2019~~, 2017~~ and ~~December 31~~201~~, 2016~~8

InFor the ~~second~~third quarter of fiscal year ~~2018, pre-tax~~2019, net income increased by ~~$279,~~$122, or ~~32.2%~~13.4% from the same period last year. Net income for the ~~second~~third quarter of fiscal year ~~2018~~2019 was ~~$657,~~$1,035, or ~~$0.24~~$0.38 per common share, compared to ~~$722,~~$913, or ~~$0.27~~$0.33 per common share for the three months ended ~~December~~March 31, ~~2016.~~2018. The following are key highlights of our results of operations for the three months ended ~~December~~March 31, ~~2017:~~2019:

	●	~~the estimated impact of the enactment of the Tax Act resulted in a net increase of $253 in income tax expense;~~
	●	net interest income increased by ~~$391~~$275 to ~~$3,927,~~$4,242, or by ~~11.1%~~6.9%, in the ~~second~~third quarter of fiscal year ~~2018~~2019 from the same prior year period;
	●	noninterest income increased by $58, or 7.2%, in the third quarter of fiscal year 2019 from the same prior year period; and
	●	noninterest expenses increased by $231, or 6.5%, in the third quarter of fiscal year 2019 from the same prior year period.

For the nine months of fiscal year 2019, net income increased by $2,058, or 82.4% from the same period last year. Net income for the nine months ended March 31, 2019 was $4,557, or $1.67 per common share, compared to $2,499, or $0.92 per common share for the nine months ended March 31, 2018. The following are key highlights of our results of operations for the nine months ended March 31, 2019:

	●	net interest income increased by $1,235 to $12,915, or by 10.6%, in the nine months of fiscal year 2019 from the same prior year period;
	●	~~the~~ a negative provision for loan ~~losses in~~loss expense of $555 was recorded during the ~~second quarter~~nine months of fiscal year ~~2018 totaled $60~~2019 compared with a $250 provision for loan loss expense during the same prior year period;
	●	noninterest income increased by $786, or 31.3%, during the nine months of fiscal year 2019 from the same prior year period, which includes net securities gains of $561 in fiscal year 2019 compared to ~~$140~~$33 in the same prior year period; and
	●	~~non-interest income~~noninterest expenses increased by $~~42,~~$842, or ~~5.3%~~8.0%, induring the ~~second quarter~~nine months of fiscal year ~~2018~~2019 from the same prior year ~~period; and~~
	●	~~non-interest expenses increased by $234, or 7.0%, in the second quarter of fiscal year 2018 from the same prior year~~ period.

~~In the first six months of fiscal year 2018,~~ pre-tax income increased by $301, or 14.9% from the same period last year. Net income for the six months ended December 31, 2017 was $1,586, or $0.58 per common share, compared to $1,623, or $0.60 per common share for the six months ended December 31, 2016. The following are key highlights of our results of operations for the six months ended December 31, 2017:

	●	~~net interest income increased by $450, or 6.2%, in fiscal year 2018 from the same prior year period;~~
	●	~~the provision for loan losses~~ ~~totaled $150 in fiscal year 2018 compared to $276 in the same prior year period;~~
	●	~~non-interest income increased by $66, or 4.0% in fiscal year 2018 from the same prior year period;~~
	●	~~non-interest expenses increased by $341, or 5.2% in fiscal year 2018 from the same prior year period; and~~
	●	~~the estimated impact of the enactment of the~~ ~~Tax Act resulted in a net increase of $253 in income tax expense in fiscal year 2018.~~

Return on average equity and return on average assets were ~~7.09%~~13.34% and ~~0.67%~~1.19%, respectively, for the ~~first six~~nine months of fiscal year ~~2018~~2019 compared to ~~7.34%~~7.54% and ~~0.74%~~0.70%, respectively, 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)

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~~’sCorporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. 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 ~~2018~~2019 fiscal year was 21.0% compared with 27.55% ~~and~~ for the ~~2017 fiscal~~same prior year ~~was 34.0%. With the enactment of the Tax Act, the statutory tax rate was changed in the second quarter of fiscal year 2018 to 27.55% by using a blended rate of the new~~period. A 21.0% federal tax rate ~~that~~ went into effect on January 1, 2018 with the enactment of the Tax Cuts and ~~the previous federal rate of 34.0%.~~Jobs Act. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

The ~~Corporation~~’sCorporation’s net interest margin was ~~3.61%~~3.57% for the three months ended ~~December~~March 31, ~~2017,~~2019, compared with ~~3.62%~~3.72% for the same period in ~~2016.~~2018. FTE net interest income for the three months ended ~~December~~March 31, ~~2017~~2019 increased by ~~$290,~~$210, or ~~7.8%~~5.10%, to ~~$4,011~~$4,312 from ~~$3,721~~$4,102 for the same year ago period.

Tax-equivalent interest income for the three months ended ~~December~~March 31, ~~2017~~2019 increased by ~~$404,~~$660, or ~~10.2%~~14.6%, from the same year ago period. Interest income was positively impacted by a ~~$31,513,~~$41,554, or ~~7.7%~~9.3%, increase in average interest-earning assets from the same prior year period. ~~The~~Additionally, the Corporation’s yield on average interest-earning assets increased to ~~3.94%~~4.30% for the three months ended ~~December~~March 31, ~~2017~~2019 from ~~3.86%~~4.11% for the same period last year. The increase in the yield on average interest-earning assets was primarily the result of an increase in the yield on loans and taxable securities as a result of higher interest rates. Additionally, the yield on average interest-earning assets was positively impacted by a change in the earning asset mix with higher yielding loans increasing faster than lower yielding securities.

Interest expense for the three months ended March 31, 2019 increased by $450 from the same year ago period. The Corporation’s cost of funds was 1.00% for the three months ended March 31, 2019 compared with 0.54% for the same year ago period. The increase in short term market interest rates has impacted the rates paid on all interest-bearing deposit products and borrowings.

The Corporation’s net interest margin was 3.63% for the nine months ended March 31, 2019, compared with 3.65% for the same period in 2018. FTE net interest income for the nine months ended March 31, 2019 increased by $1.094, or 9.1%, to $13,181 from $12,087 for the same year ago period.

Tax-equivalent interest income for the nine months ended March 31, 2019 increased by $2,108, or 15.9%, from the same year ago period. Interest income was positively impacted by a $39,774, or 9.0%, increase in average interest-earning assets from the same prior year period. Additionally, the Corporation’s yield on average interest-earning assets increased to 4.23% for the nine months ended March 31, 2018 from 4.00% for the same period last year. The yield on average interest-earning assets increased despite a decline in the tax-equivalent yield on nontaxable securities which occurred as a result of the decline in the statutory federal tax rate. The increase in the yield on average interest-earning assets was primarily a result of an increase in interest rates as well as a positive change in the earning asset mix with higher yielding loans increasing faster than lower yielding ~~securities as well as an increase in interest rates.~~securities.

Interest expense for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2019 increased by ~~$114~~$1,014 from the same year ago period. The Corporation’s cost of funds was ~~0.46%~~0.83% for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2019 compared with ~~0.34%~~0.49% for the same year ago period. ~~The increase in short term market interest rates has impacted the rates paid on money market accounts, short-term borrowings and time deposits.~~

~~The Corporation~~’s net interest margin was 3.62% for the six months ended December 31, 2017 compared with 3.74% for the same period in 2016. FTE net interest income for the six months ended December 31, 2017 increased by $356, or 4.7%, to $7,985 from $7,629 for the same year ago period.

~~Tax-equivalent~~ interest income for the six months ended December 31, 2017 increased by $587, or 7.2%, from the same year ago period. The Corporation’s yield on average interest-earning assets declined to 3.95% for the six months ended December 31, 2017 from 3.98% for the same period last year. For the six months ended December 31, 2017, the tax-equivalent yield on nontaxable securities was negatively impacted by 0.36% due to the enactment of the Tax Act and the resulting decline in the statutory federal tax rate. Interest expense for the six months ended December 31, 2017 increased by $231 from the same year ago period. The Corporation’s cost of funds was 0.46% for the six months ended December 31, 2017 compared with 0.34% for the same year ago period.

~~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 December 31,
(In thousands, except percentages)

2017

2016

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Interest-earning assets:

Taxable securities
$ 81,941 $ 459 2.22
%
$ 75,524 $ 377 2.01
%
Nontaxable securities (1)
60,556 448 2.97 60,326 535 3.58
Loans receivable (1)
292,149 3,440 4.67 263,909 3,029 4.55
Interest bearing deposits and federal funds sold
6,533 28 1.70 9,907 30 1.20
Total interest-earning assets
441,179 4,375 3.94
%
409,666 3,971 3.86
%

Noninterest-earning assets
31,646 29,148

Total Assets
$ 472,825 $ 438,814

Interest-bearing liabilities:

NOW
$ 53,913 $ 20 0.15
%
$ 48,960 $ 19 0.15
%
Savings
152,502 78 0.20 138,402 36 0.10
Time deposits
66,770 155 0.92 66,425 128 0.76
Short-term borrowings
26,249 57 0.86 20,481 11 0.21
FHLB advances
12,829 54 1.67 14,042 56 1.58
Total interest-bearing liabilities
312,263 364 0.46
%
288,310 250 0.34
%

Noninterest-bearing liabilities:

Noninterest-bearing checking accounts
112,039 103,143
Other liabilities
3,956 3,695
Total liabilities
428,258 395,148
Shareholders’ equity
44,567 43,666

Total liabilities and shareholders’ equity
$ 472,825 $ 438,814

Net interest income, interest rate spread (1)
$ 4,011 3.48
%
$ 3,721 3.52
%

Net interest margin (net interest as a percent of average interest-earning assets) (1)
3.61
%
3.62
%

Federal tax exemption on non-taxable securities and loans included in interest income
$ 84 $ 185

Average interest-earning assets to interest-bearing liabilities
141.28
%
142.09
%

~~(1) calculated on a fully taxable equivalent basis~~ ~~utilizing a statutory federal income tax rate of 27.55% in the 2018 fiscal year and 34.0% in the 2017 fiscal year~~

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 Six Months Ended December 31,
(In thousands, except percentages)

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

2017

2016

2019

2018

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Interest-earning assets:

Taxable securities
$ 83,578 $ 970 2.30
%
$ 75,745 $ 779 2.07
%
$ 85,932 $ 566 2.63
%
$ 78,900 $ 454 2.30
%
Nontaxable securities (1)
60,635 997 3.30 59,710 1,061 3.61 60,207 470 3.17 59,492 495 3.38
Loans receivable (1)
286,273 6,674 4.62 262,296 6,219 4.70 337,350 4,118 4.95 300,286 3,531 4.77
Federal bank and other restricted stocks
1,459 19 5.28 1,429 21 5.96
Interest bearing deposits and federal funds sold
7,546 65 1.71 9,225 60 1.29 3,085 16 2.10 6,372 28 1.78
Total interest-earning assets
438,032 8,706 3.95
%
406,976 8,119 3.98
%
488,033 5,189 4.30
%
446,479 4,529 4.11
%

Noninterest-earning assets
31,699 28,008 30,751 30,807

Total Assets
$ 469,731 $ 434,984 $ 518,784 $ 477,286

Interest-bearing liabilities:

NOW
$ 53,556 $ 40 0.15
%
$ 48,770 $ 36 0.15
%
$ 77,328 $ 124 0.65
%
$ 55,126 $ 21 0.15
%
Savings
152,080 158 0.21 135,957 67 0.10 158,476 188 0.48 154,234 85 0.22
Time deposits
66,595 303 0.90 66,216 250 0.75 97,123 437 1.82 73,514 194 1.07
Short-term borrowings
26,197 112 0.85 19,965 23 0.23 2,731 10 1.49 23,436 64 1.11
FHLB advances
12,915 108 1.66 14,583 114 1.55 19,588 118 2.44 15,753 63 1.62
Total interest-bearing liabilities
311,343 721 0.46
%
285,491 490 0.34
%
355,246 877 1.00
%
322,063 427 0.54
%

Noninterest-bearing liabilities:

Noninterest-bearing checking accounts
110,111 102,144 111,616 107,642
Other liabilities
3,920 3,507 4,331 3,802
Total liabilities
425,374 391,142 471,193 433,507
Shareholders’ equity
44,357 43,842
Shareholders’ equity
47,591 43,779

Total liabilities and shareholders’ equity
$ 469,731 $ 434,984
Total liabilities and shareholders’ equity
$ 518,784 $ 477,286

Net interest income, interest rate spread (1)
$ 7,985 3.49
%
$ 7,629 3.64
%
$ 4,312 3.30
%
$ 4,102 3.57
%

Net interest margin (net interest as a percent of average interest-earning assets) (1)
3.62
%
3.74
%
3.57
%
3.72
%

Federal tax exemption on non-taxable securities and loans included in interest income
$ 272 $ 366 $ 70 $ 135

Average interest-earning assets to interest-bearing liabilities
140.69
%
142.55
%
137.38
%
138.63
%

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0% in the 2019 fiscal year and 27.55% in the 2018 fiscal year ~~and 34.0% in the 2017 fiscal year~~

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)

2019

2018

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Interest-earning assets:

Taxable securities
$ 85,679 $ 1,641 2.49
%
$ 81,085 $ 1,385 2.27
%
Nontaxable securities (1)
59,891 1,434 3.17 60,260 1,492 3.33
Loans receivable (1)
329,008 12,132 4.91 290,876 10,205 4.67
Federal bank and other restricted stocks
1,459 63 5.75 1,426 60 5.60
Interest bearing deposits and federal funds sold
4,544 73 2.14 7,160 93 1.73
Total interest-earning assets
480,581 15,343 4.23
%
440,807 13,235 4.00
%

Noninterest-earning assets
30,905 31,406

Total Assets
$ 511,486 $ 472,213

Interest-bearing liabilities:

NOW
$ 81,242 $ 387 0.63
%
$ 54,071 $ 61 0.15
%
Savings
161,406 501 0.41 152,788 243 0.21
Time deposits
85,771 993 1.54 68,868 497 0.96
Short-term borrowings
3,463 38 1.46 25,290 176 0.93
FHLB advances
16,883 243 1.92 13,847 171 1.65
Total interest-bearing liabilities
348,765 2,162 0.83
%
314,864 1,148 0.49
%

Noninterest-bearing liabilities:

Noninterest-bearing checking accounts
112,918 109,300
Other liabilities
4,310 3,881
Total liabilities
465,993 428,045
Shareholders’ equity
45,493 44,168

Total liabilities and shareholders’ equity
$ 511,486 $ 472,213

Net interest income, interest rate spread (1)
$ 13,181 3.40
%
$ 12,087 3.51
%

Net interest margin (net interest as a percent of average interest-earning assets) (1)
3.63
%
3.65
%

Federal tax exemption on non-taxable securities and loans included in interest income
$ 266 $ 407

Average interest-earning assets to interest-bearing liabilities
137.80
%
140.00
%

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0% in the 2019 fiscal year and 27.55% in the 2018 fiscal year

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~~’smanagement’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 ~~three months~~nine-month period ended ~~December~~March 31, ~~2017, the~~2019, a negative provision for loan ~~losses~~loss expense of $555 was ~~$60~~recognized compared to ~~$140~~a provision for loan loss expense of $250 for the same prior year period.
Non-performing loans were $817 as of March 31, 2019 compared with $1,090 as of June 30, 2018 and $825 as of March 31, 2018. For the ~~six-month period~~nine months ended ~~December~~March 31, ~~2017, the provision for loan losses was $150~~2019, net recoveries totaled $789 compared ~~to $276~~with net charge-offs of $13 for the same prior year period.
~~Non-performing loans were $865 as~~ A full principal recovery of ~~December 31, 2017 compared with $1,187 as of June 30, 2017 and $1,589 as of December 31, 2016. For~~a prior period commercial real estate loan charge-off was collected during the ~~six months~~three-month period ended December 31, ~~2017 net charge-offs totaled $11 compared with net charge-offs of $719 for the same prior year period.~~2018. The allowance for loan losses as a percentage of loans was ~~1.10%~~1.05% at ~~December~~March 31, ~~2017~~2019 and ~~1.13%~~1.07% at June 30, ~~2017.~~2018. The provision for loan losses for the period ended ~~December~~March 31, ~~2017~~2019 was considered sufficient by management for maintaining an appropriate allowance for probable incurred credit losses.

~~Non-Interest~~Noninterest Income
~~Non-interest~~Noninterest income increased by ~~$42~~,$58, or ~~5.3%~~7.2%, for the ~~second~~third quarter of fiscal year ~~2018~~2019 from the same period last year and ~~by $66,~~$786, or ~~4.0%~~31.3%, for the first ~~six~~nine months of fiscal year ~~2018~~2019 from the same period last year. ~~Non-interest~~Net securities gains in the first nine months of fiscal year 2019 totaled $561 compared to $33 in the same prior year period. During the 2019 fiscal year, the pooled trust preferred security was sold because of the significant increase in the value of this security resulting in a gain of $593. In addition, noninterest income was positively impacted by increases in debit card interchange income, gains from the sale of mortgage loans and ~~earnings~~service charges on ~~bank owned life insurance. These increases were partially offset by a decline in gains from the sale of securities.~~deposit accounts.

~~Non-Interest~~Noninterest Expenses
Total ~~non-interest~~noninterest expenses increased to ~~$3,560,~~$3,812, or by ~~7.0%~~6.5%, during the ~~second~~third quarter of fiscal year ~~2018,~~2019, compared with ~~$3,326~~$3,581 during the same year ago period. Total non-interest expenses increased to ~~$6,953,~~$11,376, or by ~~5.2%~~8.0%, during the ~~first six~~nine months of fiscal year ~~2018,~~2019, compared with ~~$6,612~~$10,534 during the same year ago period. Total ~~non-interest~~noninterest expenses were impacted by increases in salary, incentive, legal and ~~debit card processing~~consulting expenses.

Income Taxes
Income tax expense was ~~$489~~$150 and ~~$735~~$836 for the ~~three~~three- and ~~six months~~nine-month periods ended ~~December~~March 31, ~~2017,~~2019, respectively, compared to ~~$145~~$175 and ~~$397~~$910 for the ~~three~~three- and ~~six months~~nine-month periods ended ~~December~~March 31, ~~2016,~~2018, respectively. The effective tax rate was ~~42.7%~~12.7% and ~~31.7%~~15.5% for the ~~three~~three- and ~~six months~~nine-month periods ended ~~December~~March 31, ~~2017, respectively,~~2019 compared to ~~16.7%~~16.1% and ~~19.7%~~26.7% for the ~~three~~three- and ~~six months~~nine-month periods ended ~~December~~March 31, ~~2016, respectively.~~2018. Income tax expense and the effective tax rate ~~was~~were higher in the 2018 fiscal ~~year compared to the same prior~~ year periods primarily due to the enactment of the Tax ~~Act~~Cuts and ~~increased income before income taxes.~~Jobs Act. As a result of the enactment of the Tax ~~Act, a one-time income tax expense of $253 was recorded in conjunction with revaluing the Company's net deferred tax assets~~Cuts and ~~utilization of a blended tax rate. The enactment of the Tax~~Jobs Act, required the Corporation to revalue its deferred tax assets and liabilities based upon the lower enacted federal corporate income tax rate at which the Corporation expects to recognize the benefit. During the three months ended December 31, 2017 a one-time income tax expense of $348 was recorded in conjunction with writing down its net deferred tax assets. ~~In addition, the Company will utilize a blended~~The effective tax rate ~~for its~~was lower in the 2019 fiscal year ~~ending June 30, 2018 given~~as a result of the enactment of the Tax Cuts and Jobs Act, which lowered the federal corporate tax rate beginning on January 1, 2018. ~~As a result of utilizing a blended~~The federal corporate tax rate ~~for its~~was 21.0% in the 2019 fiscal year ~~ending June 30,~~compared to 27.55% in the 2018 ~~the Company recognized a $95 benefit to income tax expense for both the three and six months ended December 31, 2017.~~ fiscal year.

Financial Condition
Total assets at ~~December~~March 31, ~~2017~~2019 were ~~$470,282~~$528,433 compared to ~~$457,883~~$502,619 at June 30, ~~2017,~~2018, an increase of ~~$12,399,~~$25,814, or an annualized ~~5.4%~~6.8%.

~~CONSUMERS BANCORP, INC.~~
~~Management's Discussion and Analysis of Financial Condition~~
~~and Results of Operations (continued)~~
~~(Dollars in thousands, except per share data)~~

Total loans increased by $~~20,727,~~$28,953, or an annualized ~~15.2%~~12.1%, from ~~$272,867~~$318,509 at June 30, ~~2017~~2018 to ~~$293,594~~$347,462 at ~~December~~March 31, ~~2017.~~2019. The growth in the loan portfolio was primarily related to growth within the commercial real estate and 1-4 family residential real estate segments to borrowers within the Bank’s primary market area. The loan growth was primarily funded by an increase of ~~$8,518,~~$29,326, or an annualized ~~4.5%~~9.1%, in total ~~deposits~~deposits.

CONSUMERS BANCORP, INC.
Management's Discussion and ~~a decline~~Analysis of ~~$6,348~~Financial Condition
and Results of Operations (continued)
(Dollars in ~~available-for-sale securities.~~thousands, except per share data)

Non-Performing Assets
The following table presents the aggregate amounts of non-performing assets and respective ratios as of the dates indicated.

December 31,
2017

June 30,
2017

December 31,
2016

March 31,
2019

June 30,
2018

March 31,
2018

Non-accrual loans
$ 865 $ 1,187 $ 1,589 $ 817 $ 1,090 $ 825
Loans past due over 90 days and still accruing
— — — — — —
Total non-performing loans
865 1,187 1,589
Total non-performing loans
817 1,090 825
Other real estate owned
57 71 — — — —
Total non-performing assets
$ 922 $ 1,258 $ 1,589
Total non-performing assets
$ 817 $ 1,090 $ 825

Non-performing loans to total loans
0.29
%
0.44
%
0.60
%
0.24
%
0.34
%
0.27
%
Allowance for loan losses to total non-performing loans
372.83
%
259.98
%
196.54
%
447.49
%
313.94
%
402.79
%

As of ~~December~~March 31, ~~2017,~~2019, impaired loans totaled ~~$1,765,~~$1,799, of which ~~$865~~$817 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 insure the soundness of the portfolio, as well as to provide funding for loan demand as needed.

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

~~(Dollars in thousands, except per share data)~~
ForFor the ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2019, net cash inflow from operating activities was ~~$3,484,~~$5,275, net cash outflows from investing activities was ~~$15,494~~$23,964 and net cash inflows from financing activities was ~~$11,239.~~$19,269. A major source of cash was ~~$10,434~~a $29,326 increase in deposits and $21,391 from sales, maturities, calls or principal pay downs on available-for-sale ~~securities, $8,518 increase in deposits and $5,400 proceeds from FHLB advances. The~~securities. A major use of cash was a ~~$20,967~~$28,239 increase in loans. Total cash and cash equivalents ~~was $9,141~~were $8,352 as of ~~December~~March 31, ~~2017,~~2019, compared to ~~$9,912~~$7,772 at June 30, ~~2017~~2018 and ~~$10,850~~$17,833 at ~~December~~March 31, ~~2016.~~2018.

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 ~~others~~the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled ~~$382,989~~$459,289 at ~~December~~March 31, ~~2017~~2019 compared with ~~$374,471~~$429,963 at June 30, ~~2017.~~2018.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At ~~December~~March 31, ~~2017,~~2019, advances from the FHLB of Cincinnati totaled ~~$17,188~~$12,106 compared with ~~$12,320~~$11,756 at June 30, ~~2017.~~2018. As of ~~December~~March 31, ~~2017,~~2019, the Bank had the ability to borrow an additional ~~$17,032~~$32,169 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 federal funds purchased from correspondent banks. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled ~~$22,507~~$4,025 at ~~December~~March 31, ~~2017~~2019 and ~~$23,986~~$13,367 at June 30, ~~2017.~~2018.

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)

Jumbo time deposits (those with balances of $250 and over) totaled ~~$13,7~~54$35,137 at ~~December~~March 31, ~~2017~~2019 and ~~$14,252~~$23,018 at June 30, ~~2017.~~2018. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. 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.

~~CONSUMERS BANCORP, INC.~~
~~Management's Discussion and Analysis of Financial Condition~~
~~and Results of Operations (continued)~~
~~(Dollars in thousands, except per share data)~~

~~Off-Balance~~Off-Balance Sheet Arrangements~~Arrangements~~
In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer l~~oans,~~loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. 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. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were ~~$62,158~~$87,597 at ~~December~~March 31, ~~2017~~2019 and ~~$53,742~~$63,854 at June 30, ~~2017.~~2018.

Capital Resources
Total ~~shareholders~~’shareholders’ equity increased to ~~$44,171~~$49,111 as of ~~December~~March 31, ~~2017~~2019 from ~~$43,535~~$43,761 as of June 30, ~~2017.~~2018. The increase was primarily the result of $4,557 of net income ~~of $1,586~~ for the ~~2018~~first nine months of fiscal year ~~which~~2019 and was partially offset by ~~$668 in~~ cash dividends paid ~~and a $372 other comprehensive loss from a decline in unrealized gains on available-for-sale securities.~~of $1,065.

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

As of ~~December~~March 31, ~~2017,~~2019, the Bank’s common equity tier 1 capital and tier 1 capital ratios were ~~12.64%~~12.14% and the leverage and total capital ratios were ~~9.00%~~9.11% and ~~13.60%~~13.08%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of ~~13.21%~~12.20% and leverage and total risk-based capital ratios of ~~9.06%~~8.74% and ~~14.20%~~13.15%, respectively, as of June 30, ~~2017.~~2018. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to December 31, ~~2017~~2018 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 financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and ~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations are, to a large degree, dependent upon the Corporation’s accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change.

The Corporation has identified the appropriateness of the allowance for loan losses as a critical accounting policy and an understanding of this policy is necessary to understand the financial statements. Critical accounting policies are those policies thatthat require management’s most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses), note three (Loans) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the ~~2017~~2018 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since June 30, ~~2017.~~2018.

Forward-Looking Statements
~~When used~~Certain statements contained in this ~~report (including information incorporated~~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. In addition, all statements set forth in future filings by ~~reference~~the Corporation with the SEC, or other public or shareholder communications, or in ~~this report~~),oral statements made with the approval of an authorized executive officer, that are not historical in nature, including words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond ~~the Corporation’s~~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, ~~the Corporation undertakes~~we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. Factors that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:
●
~~material unforeseen changes in the financial condition or results of Consumers National Bank’s customers;~~
●
local, regional and national economic conditions becoming less favorable than ~~expected,~~we expect, resulting in ~~among other things,~~ a deterioration in credit quality of our loan assets, ~~and the underlying value of collateral could prove to be less valuable than otherwise assumed or debtors being unable to meet their obligations;~~among other things;
●
~~rapid fluctuations in market interest rates could result in~~the effects of, and changes in, ~~fair market valuations~~trade, monetary and ~~net~~fiscal policies and laws, including interest ~~income;~~rate policies of the Federal Reserve Board;

●
~~pricing~~inflation, interest rate, securities market and ~~liquidity pressures that may result~~monetary fluctuations;
●
changes in ~~a rising market rate environment;~~the level of non-performing assets and charge-offs;
●
declining asset values impacting the underlying value of collateral;
●
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;

●
competitive pressures on product pricing and services;

●
~~the economic impact from the oil~~breaches of security or failures of our technology systems due to technological or other factors and ~~gas activity~~cybersecurity threats;
●
changes in the ~~region could be less than expected~~reliability of our vendors, internal control systems or information systems;
●
our ability to attract and retain qualified employees;
●
changes in accounting policies, rules and interpretations;
●
unanticipated changes in our liquidity position, including, but not limited to, changes in the ~~timeline for development could be longer than anticipated;~~cost of liquidity and our ability to find alternative funding sources; and

●
~~the nature, extent,~~changes in consumer spending, borrowing and ~~timing of government and regulatory actions.~~savings habits.

The risks and uncertainties identified above are not the only risks ~~the Corporation faces.~~we face. Additional risks and uncertainties not presently known to ~~the Corporation~~us or that ~~the~~ ~~Corporation~~we currently ~~believes~~believe to be immaterial also may adversely affect ~~the Corporation.~~us. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on ~~the Corporation’s~~our business, financial condition and results of operations.

CONSUMERS BANCORP, INC.
~~Management's Discussion and Analysis of Financial Condition~~
~~and Results of Operations (continued)~~
~~(Dollars in thousands, except per share data)~~

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~~’sCorporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of ~~December~~March 31, ~~2017.~~2019.

Changes in Internal Controls Over Financial Reporting
There have not been any changes in the ~~Corporation~~’sCorporation’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 11
Statement regarding Computation of Per Share Earnings (included in Note 5 to the Consolidated Financial Statements).
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.
Exhibit 101
The following materials from Consumers Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended ~~December~~March 31, ~~2017,~~2019, formatted in XBRL (Extensible Business Reporting Language) include: (1) Unaudited Consolidated Balance Sheets, (2) Unaudited Consolidated Statements of Income, (3) Unaudited Consolidated Statements of Comprehensive Income, (4) Unaudited Consolidated Statement of Changes in Shareholders’ Equity, (5) Unaudited Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements.

SIGNATURES

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

CONSUMERS BANCORP, INC.
                  (Registrant)

Date: ~~February 14~~May15, 20189
/s/ Ralph J. Lober
Ralph J. Lober, II
President & Chief Executive Officer
(principal executive officer)

Date: ~~February 14~~May 15, 20189
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer & Treasurer
(principal financial officer)

3834

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2019
Obligations of U.S. government-sponsored entities and agencies	$	18,315	$	124	$	(122	)	$	18,317
Obligations of state and political subdivisions		56,583		988		(183	)		57,388
U.S. Government-sponsored mortgage-backed securities–residential		58,950		296		(867	)		58,379
U.S. Government-sponsored mortgage-backed securities– commercial		1,781		—		(50	)		1,731
U.S. Government-sponsored collateralized mortgage obligations– residential		5,813		75		(51	)		5,837
Total available-for-sale securities	$	141,442	$	1,483	$	(1,273	)	$	141,652

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial real estate:
Other		1	$	161	$	59
Total		1	$	161	$	59

			Fair Value Measurements at June 30, 2018 Using
	Balance at June 30, 2018		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	16,122	$	—	$	16,122	$	—
Obligations of states and political subdivisions		56,590		—		56,590		—
Mortgage-backed securities - residential		63,408		—		63,408		—
Mortgage-backed securities - commercial		1,415		—		1,415		—
Collateralized mortgage obligations - residential		5,766		—		5,766		—
Pooled trust preferred security		727		—		727		—

	For the three months ended March 31,				For the nine months ended March 31,
	2019		2018		2019		2018
Noninterest income
In scope of Topic 606:
Service charges on deposit accounts	$	298	$	286	$	935	$	895
Debit card interchange income		338		327		1,065		975
Other income		66		46		196		139

Noninterest income (in scope of Topic 606)		702		659		2,196		2,009
Noninterest income (out-of-scope of Topic 606)		158		143		1,103		504

Total noninterest income	$	860	$	802	$	3,299	$	2,513

Average Balance Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31,
(In thousands, except percentages)
	2019								2018
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	85,679		$	1,641		2.49	%	$	81,085		$	1,385		2.27	%
Nontaxable securities (1)		59,891			1,434		3.17			60,260			1,492		3.33
Loans receivable (1)		329,008			12,132		4.91			290,876			10,205		4.67
Federal bank and other restricted stocks		1,459			63		5.75			1,426			60		5.60
Interest bearing deposits and federal funds sold		4,544			73		2.14			7,160			93		1.73
Total interest-earning assets		480,581			15,343		4.23	%		440,807			13,235		4.00	%

Noninterest-earning assets		30,905								31,406

Total Assets	$	511,486							$	472,213

Interest-bearing liabilities:
NOW	$	81,242		$	387		0.63	%	$	54,071		$	61		0.15	%
Savings		161,406			501		0.41			152,788			243		0.21
Time deposits		85,771			993		1.54			68,868			497		0.96
Short-term borrowings		3,463			38		1.46			25,290			176		0.93
FHLB advances		16,883			243		1.92			13,847			171		1.65
Total interest-bearing liabilities		348,765			2,162		0.83	%		314,864			1,148		0.49	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		112,918								109,300
Other liabilities		4,310								3,881
Total liabilities		465,993								428,045
Shareholders’ equity		45,493								44,168

Total liabilities and shareholders’ equity	$	511,486							$	472,213

Net interest income, interest rate spread (1)				$	13,181		3.40	%				$	12,087		3.51	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.63	%							3.65	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	266							$	407

Average interest-earning assets to interest-bearing liabilities		137.80	%							140.00	%

	December 31, 2017			June 30, 2017			December 31, 2016			March 31, 2019			June 30, 2018			March 31, 2018
Non-accrual loans	$	865		$	1,187		$	1,589		$	817		$	1,090		$	825
Loans past due over 90 days and still accruing		—			—			—			—			—			—
Total non-performing loans		865			1,187			1,589
Total non-performing loans											817			1,090			825
Other real estate owned		57			71			—			—			—			—
Total non-performing assets	$	922		$	1,258		$	1,589
Total non-performing assets										$	817		$	1,090		$	825

Non-performing loans to total loans		0.29	%		0.44	%		0.60	%		0.24	%		0.34	%		0.27	%
Allowance for loan losses to total non-performing loans		372.83	%		259.98	%		196.54	%		447.49	%		313.94	%		402.79	%

	●	~~rapid fluctuations in market interest rates could result in~~the effects of, and changes in, ~~fair market valuations~~trade, monetary and ~~net~~fiscal policies and laws, including interest ~~income;~~rate policies of the Federal Reserve Board;
	●	~~pricing~~inflation, interest rate, securities market and ~~liquidity pressures that may result~~monetary fluctuations;
	●	changes in ~~a rising market rate environment;~~the level of non-performing assets and charge-offs;

	●	declining asset values impacting the underlying value of collateral;
	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;
	●	competitive pressures on product pricing and services;

	●	~~the economic impact from the oil~~breaches of security or failures of our technology systems due to technological or other factors and ~~gas activity~~cybersecurity threats;
	●	changes in the ~~region could be less than expected~~reliability of our vendors, internal control systems or information systems;
	●	our ability to attract and retain qualified employees;
	●	changes in accounting policies, rules and interpretations;
	●	unanticipated changes in our liquidity position, including, but not limited to, changes in the ~~timeline for development could be longer than anticipated;~~cost of liquidity and our ability to find alternative funding sources; and
	●	~~the nature, extent,~~changes in consumer spending, borrowing and ~~timing of government and regulatory actions.~~savings habits.

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.

	CONSUMERS BANCORP, INC. (Registrant)

Date: ~~February 14~~May15, 20189	/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: ~~February 14~~May 15, 20189	/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)