Consumers Bancorp (CBKM) 10-Q 2024 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2023

OR 

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

Commission File No. 033-79130

CONSUMERS BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

(330) 868-7701

(Registrant’s telephone number)

Not applicable

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

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

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

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

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

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

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

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

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

There were 3,112,564 shares of Registrant’s common stock, no par value, outstanding as of February 9, 2024.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED December 31, 2023

Table of Contents

Page

Number (s)

Part I – Financial Information
Item 1 – Financial Statements
Consolidated Balance Sheets at December 31, 2023 and June 30, 2023	1
Consolidated Statements of Income for the three and six months ended December 31, 2023 and 2022 (unaudited)	2
Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2023 and 2022 (unaudited)	3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended December 31, 2023 and 2022 (unaudited)	4-5
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023 and 2022 (unaudited)	6
Notes to the Consolidated Financial Statements (unaudited)	7-26
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	27-35
Item 3 – Not Applicable for Smaller Reporting Companies
Item 4 – Controls and Procedures	36
Part II – Other Information
Item 1 – Legal Proceedings	37
Item 1A – Not Applicable for Smaller Reporting Companies	37
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3 – Defaults Upon Senior Securities	37
Item 4 – Mine Safety Disclosure	37
Item 5 – Other Information	37
Item 6 – Exhibits	37
Signatures	38

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

��

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)	December 31, 2023 (unaudited)			June 30, 2023
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	12,526		$	11,734
Federal funds sold and interest-bearing deposits in financial institutions		259			21
Total cash and cash equivalents		12,785			11,755
Certificates of deposit in other financial institutions		2,237			2,501
Securities, available-for-sale		276,133			279,605
Securities, held-to-maturity (fair value of $5,900 at December 31, 2023 and $6,294 at June 30, 2023)		6,428			6,970
Equity securities, at fair value		386			386
Federal bank and other restricted stocks, at cost		2,724			2,168
Loans held for sale		997			764
Total loans		735,227			710,362
Less allowance for credit losses		(7,987	)		(7,724	)
Net loans		727,240			702,638
Cash surrender value of life insurance		10,360			10,222
Premises and equipment, net		17,093			17,182
Goodwill		2,452			2,452
Core deposit intangible, net		386			414
Other real estate owned and repossessed assets		124			124
Accrued interest receivable and other assets		21,999			22,843
Total assets	$	1,081,344		$	1,060,024
LIABILITIES
Deposits
Noninterest-bearing demand	$	222,671		$	250,906
Interest bearing demand		140,003			152,053
Savings		331,502			335,231
Time		254,372			214,343
Total deposits		948,548			952,533
Short-term borrowings		25,390			26,367
Federal Home Loan Bank advances		26,434			8,776
Accrued interest and other liabilities		17,462			16,864
Total liabilities		1,017,834			1,004,540
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—
Common stock (no par value, 8,500,000 shares authorized; 3,161,203 and 3,144,739 shares issued as of December 31, 2023 and June 30, 2023, respectively)		21,014			20,769
Retained earnings		68,504			65,485
Treasury stock, at cost (48,639 common shares as of December 31, 2023 and June 30, 2023)		(695	)		(809	)
Accumulated other comprehensive loss		(25,313	)		(29,961	)
Total shareholders’ equity		63,510			55,484
Total liabilities and shareholders’ equity	$	1,081,344		$	1,060,024

See accompanying notes to consolidated financial statements.

1

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months ended December 31,					Six Months ended December 31,
(Dollars in thousands, except per share amounts)	2023		2022			2023			2022
Interest and dividend income
Loans, including fees	$	10,165	$	7,955		$	19,862		$	15,085
Securities, taxable		1,490		1,301			2,939			2,549
Securities, tax-exempt		454		598			923			1,183
Equity securities		9		9			17			17
Federal bank and other restricted stocks		42		47			83			70
Federal funds sold and other interest-bearing deposits		28		116			99			196
Total interest and dividend income		12,188		10,026			23,923			19,100
Interest expense
Deposits		3,945		1,127			7,362			1,724
Short-term borrowings		136		95			262			154
Federal Home Loan Bank advances		143		28			181			50
Total interest expense		4,224		1,250			7,805			1,928
Net interest income		7,964		8,776			16,118			17,172
Provision for credit losses on loans		325		225			365			635
Provision for credit losses on unfunded commitments		—		—			79			—
Net interest income after provision for credit losses		7,639		8,551			15,674			16,537
Noninterest income
Service charges on deposit accounts		433		392			859			789
Debit card interchange income		577		534			1,129			1,075
Mortgage banking activity		70		72			168			154
Bank owned life insurance income		70		65			138			130
Securities losses, net		—		(4	)		(79	)		(15	)
Net change in market value of equity securities		—		(9	)		—			(33	)
Other		92		105			184			186
Total noninterest income		1,242		1,155			2,399			2,286
Noninterest expenses
Salaries and employee benefits		3,684		3,591			7,182			7,030
Occupancy and equipment		862		793			1,646			1,581
Data processing expenses		199		192			395			384
Debit card processing expenses		308		275			620			549
Professional and director fees		229		352			465			587
FDIC assessments		188		87			377			239
Franchise taxes		97		141			193			282
Marketing and advertising		156		203			384			407
Telephone and network communications		89		95			177			182
Amortization of intangible		14		14			28			28
Other		605		577			1,229			1,129
Total noninterest expenses		6,431		6,320			12,696			12,398
Income before income taxes		2,450		3,386			5,377			6,425
Income tax expense		435		577			952			1,081
Net income	$	2,015	$	2,809		$	4,425		$	5,344
Basic and diluted earnings per share	$	0.65	$	0.91		$	1.43		$	1.74

See accompanying notes to consolidated financial statements.

2

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)	Three Months ended December 31,						Six Months ended December 31,
	2023			2022			2023			2022
Net income	$	2,015		$	2,809		$	4,425		$	5,344
Other comprehensive income (loss), net of tax:
Net change in unrealized losses on securities available-for-sale:
Unrealized gains (losses) arising during the period		15,656			5,429			5,804			(10,711	)
Reclassification adjustment for losses included in income		—			4			79			15
Net unrealized gains (losses)		15,656			5,433			5,883			(10,696	)
Income tax effect		(3,288	)		(1,141	)		(1,235	)		2,246
Other comprehensive income (loss)		12,368			4,292			4,648			(8,450	)
Total comprehensive income (loss)	$	14,383		$	7,101			9,073			(3,106	)

See accompanying notes to consolidated financial statements.

3

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)	Common Stock			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, September 30, 2023	$	20,933		$	67,050		$	(747	)	$	(37,681	)	$	49,555
Net income		—			2,015			—			—			2,015
Other comprehensive income		—			—			—			12,368			12,368
Vested 4,607 shares associated with restricted stock awards		34			—			52			—			86
Restricted stock expense, net of reversal for units not expected to vest		(22	)		—			—			—			(22	)
Issuance of 4,159 shares associated with dividend reinvestment plan and stock purchase plan		69			—			—			—			69
Cash dividends declared ($0.18 per share)		—			(561	)		—			—			(561	)
Balance, December 31, 2023	$	21,014		$	68,504		$	(695	)	$	(25,313	)	$	63,510

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

4

(Dollars in thousands, except per share data)	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, June 30, 2023	$	20,769	$	65,485		$	(809	)	$	(29,961	)	$	55,484
Adoption of ASU 2016-13		—		(285	)		—			—			(285	)
Net income		—		4,425			—			—			4,425
Other comprehensive income		—		—			—			4,648			4,648
Vested 10,283 shares associated with restricted stock awards		81		—			114			—			195
Issuance of 8,519 stock-based incentive plan shares, net of forfeitures		2		—			—			—			2
Restricted stock expense		28		—			—			—			28
Issuance of 7,945 shares associated with dividend reinvestment plan and stock purchase plan		134		—			—			—			134
Cash dividends declared ($0.36 per share)		—		(1,121	)		—			—			(1,121	)
Balance, December 31, 2023	$	21,014	$	68,504		$	(695	)	$	(25,313	)	$	63,510

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

See accompanying notes to consolidated financial statements.

5

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)	Six Months Ended December 31,
	2023			2022
Cash flows from operating activities
Net cash from operating activities	$	5,833		$	7,783
Cash flow from investing activities
Purchases of securities, available-for-sale		(7,049	)		(17,091	)
Maturities, calls and principal pay downs of securities, available-for-sale		11,850			11,405
Sale of securities, available-for-sale		4,002			3,708
Principal pay downs of securities, held-to-maturity		542			536
Net decrease in certificates of deposit in other financial institutions		264			517
Net change in Federal Home Loan Bank stock, at cost		(556	)		(58	)
Net increase in loans		(25,019	)		(53,257	)
Premises and equipment purchases		(546	)		(298	)
Sale of other repossessed assets		—			11
Net cash used in investing activities		(16,512	)		(54,527	)
Cash flow from financing activities
Net (decrease) increase in deposit accounts		(3,985	)		19,590
Net change in short-term borrowings		(977	)		4,085
Proceeds from Federal Home Loan Bank advances		18,300			16,400
Repayments of Federal Home Loan Bank advances		(642	)		(53	)
Proceeds from dividend reinvestment and stock purchase plan		134			117
Dividends paid		(1,121	)		(1,045	)
Net cash from financing activities		11,709			39,094
Increase (decrease) in cash or cash equivalents		1,030			(7,650	)
Cash and cash equivalents, beginning of period		11,755			20,952
Cash and cash equivalents, end of period	$	12,785		$	13,302
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	7,409		$	1,815
Federal income taxes		1,125			1,515
Non-cash items:
Transfer from loans to repossessed assets		—			11
Issuance of treasury stock for vested restricted stock awards		195			343

See accompanying notes to consolidated financial statements.

6

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 Company) is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, Consumers National Bank (the Bank), a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and contiguous counties in Ohio, Pennsylvania, and West Virginia. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended June 30, 2023. 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 company and the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

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

Adoption of New Accounting Standards: In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss methodology for recognizing credit losses and requires companies to measure the current expected credit losses (CECL) on financial instruments measured at amortized cost, such as loans, held-to-maturity debt securities, and other receivables at the time the financial asset is originated or acquired and certain off-balance sheet credit exposures. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

This guidance became effective for the Company on July 1, 2023 and was adopted using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company’s results for periods beginning after July 1, 2023 are presented under ASC 326 while results for prior periods are presented in accordance with previously applicable accounting standards.

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

Allowance for Credit Losses (ACL)

Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The allowance for credit losses is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

7

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Portfolio Segmentation

The allowance for credit losses consists of general and specific components. The general component covers loans within portfolio segments that are collectively evaluated for credit losses. Portfolio segmentation is the pooling of loans based upon similar risk characteristics so that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses can be applied to the pool of loans in each segment. The Company has identified six portfolio segments of loans including Commercial & Industrial, Commercial Real Estate, Farmland, Land Development, 1 – 4 Family Residential Real Estate, and Consumer loans. Each segment has a distinct set of risk characteristics that are monitored by management. Below are the risk characteristics of the loan segments.

Commercial & Industrial: Commercial loans are made for a wide variety of general business purposes, including financing for equipment, inventories and accounts receivable. The term of each commercial loan varies by its purpose. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily made based on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications primarily in the areas where the Bank operates.

Commercial Real Estate: Commercial real estate loans include mortgage loans to owners of multi-family investment properties and owners of commercial real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and are primarily in our immediate and surrounding market area. This diversity helps reduce the Company’s exposure to adverse economic events that may affect any single market or industry. The three largest collateral concentrations within the commercial real estate non-owner occupied portfolio are retail rental, office rental, and nursing home/assisted living facilities. The office rental segment includes a high percentage of medical facilities that require special build outs that would make it more costly for a tenant to change locations. Also, loans with longer term leases or strong guarantors are typically obtained at time of origination and personal guarantees are typically obtained on commercial real estate loans. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.

Farmland: Farmland loans include loans for agriculture purposes, such as crop and livestock production. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Agriculture lending is largely dependent on the successful management and operation of the farm and may be adversely affected by volatile commodity prices, rising farm production costs, and fluctuating land value.

Land Development: Land Development loans include loans to finance the construction of residential and commercial properties generally located within our primary market area. Land development loans are fixed-rate or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. Our policies provide that construction loans may generally be made in amounts up to 80% of the appraised value of the property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction. In underwriting construction loans, we consider the property owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the subject property. Construction financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on construction loans through inspections of construction progress on the property and by requiring personal guarantees and reviewing current personal financial statements and tax returns, as well as other projects of the developer.

8

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

1-4 Family Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include owner occupied, non-owner occupied, construction, and home equity loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and an appropriately appraised value of the real estate securing the loan that generally requires that the residential real estate loan amount be no more than 85% of the purchase price or the appraised value of the real estate securing the loan unless the borrower purchases private mortgage insurance.

Consumer: The Company originates direct and indirect consumer loans, primarily automobile loans, personal lines of credit, and unsecured consumer loans in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances and economic conditions.

The allowance for credit losses for portfolio segments is evaluated based upon periodic quantitative review of the collectability of the loans that correlates historical loan experience with reasonable and supportable forecasts using forward looking information. The Company utilizes a discounted cash flow (loss rate, expected loss) method to estimate the quantitative portion of the allowance for credit losses for all portfolio segments.

For each portfolio segment, a loss driver analysis (LDA) is performed to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilizes peer data from the Federal Financial Institutions Examination Council’s (FFIEC) Call Report data for all segments. The Company has established a one-year reasonable and supportable forecast period with a one-year straight-line reversion to the long-term historical average. Key inputs into the discounted cash flow model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and forecasted loss drivers. Since the Company has had very limited loss experience, management elected to utilize benchmark peer loss history data to estimate historical loss rates. Management worked with a third-party advisory firm to identify an appropriate peer group for each loan segment that shares similar characteristics. The Company uses the central tendency seasonally adjusted civilian unemployment rate forecast from the FOMC for all portfolio segments. Other key assumptions include a maturity assumption for loans without maturity dates and prepayment / curtailment rates specific to each loan segment. Prepayment and curtailment rates are calculated based on the Company’s own data.

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

Individually Evaluated Loans

Loans that do not share similar risk characteristics are evaluated on an individual basis and are excluded from the pooling approach discussed above for the forecasted allowance for credit losses. The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics. Individually evaluated loans include the third-party residential mortgage warehouse line-of-credit, nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and other loans deemed appropriate by management. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.

9

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Reserve for Unfunded Commitments

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

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

For AFS securities in an unrealized loss position, management determines whether the Company intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis. If either of the criteria is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL. For AFS securities with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the allowance for credit losses under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the allowance when the collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.

Since the adoption of CECL, the Company monitors the credit quality of HTM debt securities primarily through the financial condition of the issuer. Any allowance for credit losses on HTM securities would be a contra asset valuation account that would be deducted from the carrying amount of HTM securities to present the net amount expected to be collected and would be charged off against the allowance for credit losses when deemed uncollectible. Adjustments to the allowance for credit losses would be reported in the Company’s Consolidated Statements of Income in the provision for credit losses. Since all the HTM securities are non-rated municipal securities to local customers, management considers the financial condition of the issuer and whether issuers continue to make timely principal and interest payments under the contractual terms of the securities.

At December 31, 2023 and at adoption of CECL on July 1, 2023, there was no allowance for credit losses related to AFS or HTM debt securities. Accrued interest receivable on debt securities was excluded from the estimate of credit losses.

Accrued Interest Receivable

Upon adoption of ASU 2016-13 and its related amendments on July 1, 2023, the Company elected to do the following regarding accrued interest receivable:

• Exclude accrued interest receivable that is included in the amortized cost of financing receivables and debt securities from related disclosure requirements.

• Continue its policy to write off accrued interest receivable by reversing it from interest income. For commercial and real estate loans, accruing interest is typically discontinued and any balance is written off when the loan becomes 90 days past due. For consumer loans, accrued interest is typically written off no later than when the loan becomes 120 days past due. Due to the composition of the securities portfolio, uncollectible accrued interest receivable on the securities portfolio is rare. Any accrued interest receivable would be written off by reversing interest income if the Company does not reasonably expect to receive payments. Due to the timely manner in which accrued interest receivables are written off, the amounts of such write offs are immaterial.

• Not measure an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above.

10

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

On July 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. The ASU requires enhanced disclosures related to certain modifications of receivables made to borrowers experiencing financial difficulty and require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures. The adoption of the ASU did not have a significant impact on the Company’s financial statements.

Note 2 – Securities

Debt securities

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

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2023
Obligations of U.S. Treasury	$	8,957	$	—	$	(321	)	$	8,636
Obligations of U.S. government-sponsored entities and agencies		28,686		45		(3,273	)		25,458
Obligations of state and political subdivisions		87,136		150		(6,821	)		80,465
U.S. Government-sponsored mortgage-backed securities–residential		100,308		57		(13,452	)		86,913
U.S. Government-sponsored mortgage-backed securities– commercial		8,594		—		(1,678	)		6,916
U.S. Government-sponsored collateralized mortgage obligations– residential		57,406		162		(5,338	)		52,230
Other debt securities		17,088		—		(1,573	)		15,515
Total securities available-for-sale	$	308,175	$	414	$	(32,456	)	$	276,133

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
December 31, 2023
Obligations of state and political subdivisions	$	6,428	$	—	$	(528	)	$	5,900

Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2023
Obligation of U.S Treasury	$	8,941	$	—	$	(533	)	$	8,408
Obligations of U.S. government-sponsored entities and agencies		29,430		7		(3,745	)		25,692
Obligations of state and political subdivisions		92,891		63		(8,982	)		83,972
U.S. Government-sponsored mortgage-backed securities - residential		104,689		12		(15,066	)		89,635
U.S. Government-sponsored mortgage-backed securities - commercial		8,604		—		(1,809	)		6,795
U.S. Government-sponsored collateralized mortgage obligations – residential		55,800		8		(5,738	)		50,070
Other debt securities		17,175		—		(2,142	)		15,033
Total available-for-sale securities	$	317,530	$	90	$	(38,015	)	$	279,605

11

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Held-to-maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
June 30, 2023
Obligations of state and political subdivisions	$	6,970	$	—	$	(676	)	$	6,294

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Proceeds from sales	$	—	$	1,639	$	4,002	$	3,708
Gross realized gains		—		1		—		8
Gross realized losses		—		5		79		23

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

The amortized cost and fair values of debt securities as of December 31, 2023, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. 

Available-for-Sale	Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,378	$	11,143
Due after one year through five years		25,096		24,096
Due after five years through ten years		51,843		46,760
Due after ten years		53,550		48,075
Total		141,867		130,074
U.S. Government-sponsored mortgage-backed and related securities		166,308		146,059
Total securities available-for-sale	$	308,175	$	276,133
Held-to-Maturity
Due in one year or less	$	2,720	$	2,658
Due after one year through five years		467		457
Due after five years through ten years		3,241		2,785
Total securities held-to-maturity	$	6,428	$	5,900

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

12

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

	Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2023
Obligation of U.S. Treasury	$	—	$	—		$	8,636	$	(321	)	$	8,636	$	(321	)
Obligations of U.S. government-sponsored entities and agencies		1,091		(31	)		22,629		(3,242	)		23,720		(3,273	)
Obligations of state and political subdivisions		4,916		(74	)		61,833		(6,747	)		66,749		(6,821	)
U.S. Government-sponsored mortgage-backed securities – residential		2,494		(24	)		82,234		(13,428	)		84,728		(13,452	)
U.S. Government-sponsored mortgage-backed securities – commercial		—		—			6,916		(1,678	)		6,916		(1,678	)
Collateralized mortgage obligations - residential		11,934		(180	)		31,532		(5,158	)		43,466		(5,338	)
Other debt securities		—		—			15,515		(1,573	)		15,515		(1,573	)
Total temporarily impaired	$	20,435	$	(309	)	$	229,295	$	(32,147	)	$	249,730	$	(32,456	)

	Less than 12 Months				12 Months or more					Total
Held to Maturity	Fair Value		Unrecognized Loss		Fair Value		Unrecognized Loss			Fair Value		Unrecognized Loss
December 31, 2023
Obligations of state and political subdivisions	$	—	$	—	$	5,900	$	(528	)	$	5,900	$	(528	)
Total temporarily impaired	$	—	$	—	$	5,900	$	(528	)	$	5,900	$	(528	)

	Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2023
Obligations of U.S. Treasury	$	—	$	—		$	8,408	$	(533	)	$	8,408	$	(533	)
Obligations of U.S. government-sponsored entities and agencies		1,008		(10	)		23,551		(3,735	)		24,559		(3,745	)
Obligations of state and political subdivisions		16,009		(344	)		62,492		(8,638	)		78,501		(8,982	)
Mortgage-backed securities – residential		3,334		(84	)		85,096		(14,982	)		88,430		(15,066	)
Mortgage-backed securities – commercial		—		—			6,795		(1,809	)		6,795		(1,809	)
Collateralized mortgage obligations - residential		22,039		(638	)		27,023		(5,100	)		49,062		(5,738	)
Other debt securities		—		—			15,033		(2,142	)		15,033		(2,142	)
Total temporarily impaired	$	42,390	$	(1,076	)	$	228,398	$	(36,939	)	$	270,788	$	(38,015	)

	Less than 12 Months				12 Months or more					Total
Held to Maturity	Fair Value		Unrecognized Loss		Fair Value		Unrecognized Loss			Fair Value		Unrecognized Loss
June 30, 2023
Obligations of state and political subdivisions	$	—	$	—	$	6,294	$	(676	)	$	6,294	$	(676	)
Total temporarily impaired	$	—	$	—	$	6,294	$	(676	)	$	6,294	$	(676	)

13

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

At December 31, 2023, the Company’s portfolio consisted of 413 securities, 365 of which were available-for-sale and 4 of which were held-to-maturity securities in unrealized or unrecognized loss positions. As of December 31, 2023, no allowance for credit losses has been recognized on securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available-for-sale securities.

The Company’s mortgage-backed securities and collateralized mortgage obligations were issued by U.S. government-sponsored entities and agencies. The Company does not own any private label mortgage-backed securities. The Company’s municipal bond portfolio consists of tax-exempt and taxable general obligation and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of December 31, 2023, 98.5% of the municipal bonds held in the available-for-sale portfolio had a S&P or Moody’s investment grade rating, and 1.5% were non-rated issues. The municipal bonds in the held-to-maturity portfolio are all non-rated issues to local entities that are also deposit customers. The other debt securities consist of subordinated notes issued by other bank holding companies. Within the other debt securities portfolio, the Company owns $2 million for one issuer who’s rating was downgraded by Moody’s to Ba2 in February 2024. The issuers of all securities owned by the Company continue to make timely principal and interest payments under the securities’ contractual terms. The unrealized losses related to these securities have not been recognized into income because the decline in fair value is not attributed to credit quality, management does not intend to sell the securities, and it is not likely that management will be required to sell the securities prior to their anticipated recovery. The unrealized losses on these securities are primarily due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The securities’ fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Equity Securities

The Company owned equity securities with an amortized cost of $400 as of December 31, 2023, and June 30, 2023. Changes in the fair value of these securities are included in noninterest income on the consolidated statements of income. The following table presents the net unrealized losses on equity securities recognized in earnings for the three month and six month periods ended December 31, 2023 and 2022. There were no sales of equity securities during the three- and six-month periods ended December 31, 2023 and 2022.

	Three Months Ended December 31,					Six Months Ended December 31,
	2023		2022			2023		2022
Unrealized loss recognized on equity securities held at the end of the period	$	—	$	(33	)	$	—	$	(9	)

Note 3 – Loans and Allowance for Credit Losses

The following table presents loans by major category.

	December 31, 2023			June 30, 2023
Commercial & Industrial	$	112,012		$	112,558
Commercial real estate:
Owner occupied		157,553			151,005
Non-owner occupied		148,922			140,002
Farmland		40,670			40,606
Land Development		11,555			11,004
1 – 4 family residential real estate		192,117			189,312
Consumer		72,233			65,617
Subtotal		735,062			710,104
Unamortized deferred loan costs, net		165			258
Allowance for credit losses		(7,987	)		(7,724	)
Net Loans	$	727,240		$	702,638

14

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

												1-4 Family
	Commercial			Commercial								Residential
	&			Real					Land			Real
	Industrial			Estate		Farmland			Development			Estate		Consumer			Total
ACL beginning balance	$	974		$	3,951	$	91		$	266		$	1,638	$	862		$	7,782
Provision for expected credit losses		(19	)		180		(2	)		(20	)		56		130			325
Charge-offs		—			—		—			—			—		(137	)		(137	)
Recoveries		—			—		—			—			2		15			17
ACL ending balance	$	955		$	4,131	$	89		$	246		$	1,696	$	870		$	7,987

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

													1-4 Family
	Commercial			Commercial									Residential
	&			Real						Land			Real
	Industrial			Estate			Farmland			Development			Estate			Consumer			Total
ACL beginning balance	$	1,308		$	3,943		$	—		$	—		$	1,571		$	902		$	7,724
Cumulative effect of change in accounting principle		(455	)		(53	)		93			398			166			(97	)		52
Provision for expected credit losses		102			241			(4	)		(152	)		(43	)		221			365
Charge-offs		—			—			—			—			—			(243	)		(243	)
Recoveries		—			—			—			—			2			87			89
ACL ending balance	$	955		$	4,131		$	89		$	246		$	1,696		$	870		$	7,987

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

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

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

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

15

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

	December 31, 2023
					Interest Income
	Non-accrual		Total		Recognized during
	loans with		Non-accrual		the period on
	no ACL		loans		non-accrual loans
Commercial & Industrial	$	350	$	350	$	—
Commercial real estate:
Owner occupied		428		428	$	—
1 – 4 family residential real estate		137		336		—
Total	$	915	$	1,114	$	—

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

	June 30, 2023 Non-accrual
Commercial Real Estate:
Other	$	51
1 – 4 family residential:
Non-owner occupied		3
Total	$	54

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

													Loans 90
	Days Past Due												Days Past
	30 – 59		60 - 89		90 Days or		Total		Loans Not				Due and
	Days		Days		Greater		Past Due		Past Due		Total		Accruing
Commercial & Industrial	$	—	$	25	$	—	$	25	$	112,048	$	112,073	$	—
Commercial real estate:
Owner occupied		—		—		51		51		157,235		157,286		—
Non-owner occupied		—		—		—		—		148,598		148,598		—
Farmland										40,564		40,564		—
Land development		—		—		—		—		11,515		11,515		—
1 – 4 family residential real estate		241		40		314		595		192,601		193,196		—
Consumer		764		151		20		935		71,060		71,995		20
Total	$	1,005	$	216	$	385	$	1,606	$	733,621	$	735,227	$	20

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

													Loans 90
	Days Past Due												Days Past
	30 – 59		60 - 89		90 Days or		Total		Loans Not				Due and
	Days		Days		Greater		Past Due		Past Due		Total		Accruing
Commercial & Industrial	$	—	$	—	$	—	$	—	$	112,826	$	112,826	$	—
Commercial real estate:
Construction		—		—		—		—		23,996		23,996		—
Other		—		—		51		51		318,654		318,705		—
1-4 family residential:
Owner occupied		17		124		—		141		158,296		158,437		—
Non-owner occupied		—		—		3		3		23,885		23,888		—
Construction		—		—		—		—		8,514		8,514		—
Consumer		438		120		50		608		64,986		65,594		50
Total	$	455	$	244	$	104	$	803	$	711,157	$	711,960	$	50

16

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Credit Quality Indicators:

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

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

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

17

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

													Revolving		Revolving
													Loans		Loans
	Term Loans by Origination Year												Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		To Term		Total
Commercial & Industrial
Pass	$	19,225	$	27,884	$	30,632	$	8,505	$	4,148	$	4,934	$	14,770	$	—	$	110,098
Special Mention		—		—		402		137		15		93		933		—		1,580
Substandard		—		—		—		—		—		—		308		—		308
Doubtful		—		—		—		—		—		—		87		—		87
Total Commercial & Industrial	$	19,225	$	27,884	$	31,034	$	8,642	$	4,163	$	5,027	$	16,098	$	—	$	112,073
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Owner occupied:
Pass	$	9,116	$	19,895	$	35,153	$	23,167	$	15,518	$	43,194	$	7,649	$	—	$	153,692
Special Mention		—		—		—		—		900		2,189		150		—		3,239
Substandard		—		—		—		—		—		266		—		—		266
Doubtful		—		—		—		38		—		51		—		—		89
Total owner occupied	$	9,116	$	19,895	$	35,153	$	23,205	$	16,418	$	45,700	$	7,799	$	—	$	157,286
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-owner occupied:
Pass	$	8,422	$	38,944	$	22,752	$	25,431	$	13,085	$	35,748	$	781	$	—	$	145,163
Special Mention		—		—		—		3,435		—		—		—		—		3,435
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total non-owner occupied	$	8,422	$	38,944	$	22,752	$	28,866	$	13,085	$	35,748	$	781	$	—	$	148,598
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland:
Pass	$	1,351	$	6,354	$	5,958	$	5,403	$	2,338	$	17,114	$	1,226	$	—	$	39,744
Special Mention		—		—		—		—		—		820		—		—		820
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	1,351	$	6,354	$	5,958	$	5,403	$	2,338	$	17,934	$	1,226	$	—	$	40,564
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Land Development:
Pass	$	2,279	$	2,015	$	604	$	529	$	303	$	590	$	5,195	$	—	$	11,515
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Land Development	$	2,279	$	2,015	$	604	$	529	$	303	$	590	$	5,195	$	—	$	11,515
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total:
Pass	$	40,393	$	95,092	$	95,099	$	63,035	$	35,392	$	101,580	$	29,621	$	—	$	460,212
Special Mention		—		—		402		3,572		915		3,102		1,083		—		9,074
Substandard		—		—		—		—		—		266		308		—		574
Doubtful		—		—		—		38		—		51		87		—		176
Total	$	40,393	$	95,092	$	95,501	$	66,645	$	36,307	$	104,999	$	31,099	$	—	$	470,036

18

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Management monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual are considered nonperforming. The following table presents the amortized cost of residential real estate and consumer loans based on payment status as of December 31, 2023:

													Revolving		Revolving
													Loans		Loans
	Term Loans by Origination Year												Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		To Term		Total
1 – 4 family residential real estate:
Performing	$	11,025	$	22,294	$	31,112	$	52,338	$	20,212	$	30,961	$	24,918	$	—	$	192,860
Nonperforming		—		—		197		—		—		139		—		—		336
Total 1-4 family residential real estate	$	11,025	$	22,294	$	31,309	$	52,338	$	20,212	$	31,100	$	24,918	$	—	$	193,196
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Performing	$	18,120	$	30,599	$	15,931	$	5,698	$	979	$	532	$	116	$	—	$	71,975
Nonperforming		—		—		7		3		8		2		—		—		20
Total consumer	$	18,120	$	30,599	$	15,938	$	5,701	$	987	$	534	$	116	$	—	$	71,995
Current year-to-date gross write-offs	$	20	$	78	$	97	$	33	$	15	$	—	$	—	$	—	$	243
Total:
Performing	$	29,145	$	52,893	$	47,043	$	58,036	$	21,191	$	31,493	$	25,034	$	—	$	264,835
Nonperforming		—		—		204		3		8		141		—		—		356
Total	$	29,145	$	52,893	$	47,247	$	58,039	$	21,199	$	31,634	$	25,034	$	—	$	265,191

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

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial & Industrial	$	110,928	$	1,174	$	573	$	—	$	151
Commercial real estate:
Construction		23,996		—		—		—		—
Other		310,427		7,097		468		51		662
1-4 Family residential real estate:
Owner occupied		2,013		—		17		—		156,407
Non-owner occupied		23,474		50		105		3		256
Construction		3,227		—		—		—		5,287
Consumer		597		—		—		—		64,997
Total	$	474,662	$	8,321	$	1,163	$	54	$	227,760

Modifications to Borrowers Experiencing Financial Difficulty

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

There were no modifications of loans to borrowers in financial distress completed during the six-month period ended December 31, 2023.

19

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Impaired Loans

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

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

					1-4 Family
	Commercial		Commercial		Residential
	&		Real		Real
	Industrial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Acquired loans collectively evaluated for impairment		—		40		74		—		114
Originated loans collectively evaluated for impairment		1,308		3,903		1,497		902		7,610
Total ending allowance balance	$	1,308	$	3,943	$	1,571	$	902	$	7,724
Recorded investment in loans:
Loans individually evaluated for impairment	$	314	$	88	$	3	$	—	$	405
Acquired loans collectively evaluated for impairment		622		6,953		23,038		1,230		31,843
Originated loans collectively evaluated for impairment		111,890		335,660		167,798		64,364		679,712
Total ending loans balance	$	112,826	$	342,701	$	190,839	$	65,594	$	711,960

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, 2023 and for the six months ended December 31, 2022:

	As of June 30, 2023						Six Months ended December 31, 2022
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial & Industrial	$	404	$	314	$	—	$	297	$	18	$	18
Commercial real estate:
Other		127		88		—		40		4		4
1-4 Family residential real estate:
Owner occupied		24		—		—		20		2		2
Non-owner occupied		3		3		—		53		—		—
Total	$	558	$	405	$	—	$	410	$	24	$	24

20

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(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 31, 2022:

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

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 date. There are three levels of inputs that may be used to measure fair values:

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

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

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

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

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

21

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

	Balance at December 31,		Fair Value Measurements at December 31, 2023
	2023		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. Treasury	$	8,636	$	—	$	8,636	$	—
Obligations of U.S. government-sponsored entities and agencies		25,458		—		25,458		—
Obligations of state and political subdivisions		80,465		—		80,465		—
U.S. Government-sponsored mortgage-backed securities – residential		86,913		—		86,913		—
U.S. Government-sponsored mortgage-backed securities – commercial		6,916		—		6,916		—
U.S. Government-sponsored collateralized mortgage obligations - residential		52,230		—		52,230		—
Other debt securities		15,515		—		15,515		—
Equity securities		386		—		386		—

	Balance at June 30,		Fair Value Measurements at June 30, 2023
	2023		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. treasury	$	8,408	$	—	$	8,408	$	—
Obligations of U.S. government-sponsored entities and agencies		25,692		—		25,692		—
Obligations of state and political subdivisions		83,972		—		83,972		—
U.S. government-sponsored mortgage-backed securities - residential		89,635		—		89,635		—
U.S. government-sponsored mortgage-backed securities - commercial		6,795		—		6,795		—
U.S. government-sponsored collateralized mortgage obligations - residential		50,070		—		50,070		—
Other debt securities		15,033		—		15,033		—
Equity securities		386		—		386		—

There were no transfers between Level 1 and Level 2 during the three-month and six month periods ended December 31, 2023.

Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets that may be recorded at fair value on a nonrecurring basis include individually evaluated collateral dependent loans (or impaired loans prior to the adoption of ASC 326), other real estate owned, and other repossessed assets.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. These appraisals 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. As of December 31, 2023, there was a total of $199 of collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans of $12.There were no impaired loans measured at fair value on a non-recurring basis at June 30, 2023.

22

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Subsequent to their initial recognition, these assets are remeasured at fair value, which is the lower of cost or fair value less estimated costs to sell, through a write-down included in other non-interest expense. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There were no such fair value measurement adjustments recorded during December 31, 2023 or June 30, 2023. As of December 31, 2023 and June 30, 2023 the balance of other real estate owned was $124.

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

	December 31, 2023				June 30, 2023
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	12,785	$	12,785	$	11,755	$	11,755
Level 2 inputs:
Certificates of deposit in other financial institutions		2,237		2,225		2,501		2,450
Loans held for sale		997		1,017		764		774
Accrued interest receivable		3,301		3,301		3,024		3,024
Level 3 inputs:
Securities held-to-maturity		6,428		5,900		6,970		6,294
Loans, net		727,240		686,282		702,638		656,737
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		694,176		694,116		738,190		738,190
Time deposits		254,372		253,604		214,343		211,856
Short-term borrowings		25,390		25,390		26,367		26,367
Federal Home Loan Bank advances		26,434		25,391		8,776		7,678
Accrued interest payable		740		740		344		344

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

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

23

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level 3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

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

Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at December 31, 2023 and 2022 for deposits of similar remaining maturities, resulting in 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 31, 2023 and 2022 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 Company’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.

NOTE 5—AFFORDABLE TAX CREDIT PARTNERSHIP

In April 2023, the Company invested in a limited partnership that will in turn invest in qualified affordable housing projects that will generate tax benefits for the limited partner investors, including federal low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code. This partnership investment is an unconsolidated Variable Interest Entity (VIE) for which the Company holds an interest in but is not the primary beneficiary of the VIE. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company uses the proportional amortization method to account for its investment. The investment is included in other assets and the unfunded commitment is included in other liabilities. As a limited partner, there is no recourse to the Company by the creditors of the limited partnership, however, the tax credits are generally subject to recapture should the partnership fail to comply with the applicable government regulations.

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

	December 31, 2023			June 30, 2023
Affordable housing tax credit investment	$	10,250		$	10,250
Less: amortization		(2	)		—
Net affordable housing tax credit investment	$	10,248		$	10,250
Unfunded commitments	$	9,305		$	9,668

24

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

The following summarizes other information relating to the affordable housing tax credit investment for the three-month and six month periods ended December 31, 2023 and 2022.

	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Tax credits and other tax benefits recognized	$	8	$	—	$	23	$	—
Proportional amortization expense included in provision for income taxes		1		—		2		—

Note 6 – Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were 18,286 shares of restricted stock that were anti-dilutive for the three-month and six month periods ended December 31, 2023. There were 6,216 shares of restricted stock that were anti-dilutive for the three-month and six month periods ended December 31, 2022.  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,
	2023		2022		2023		2022
Basic:
Net income available to common shareholders	$	2,015	$	2,809		4,425		5,344
Weighted average common shares outstanding		3,107,496		3,076,207		3,099,804		3,065,719
Basic income per share	$	0.65	$	0.91		1.43		1.74
Diluted:
Net income available to common shareholders	$	2,015	$	2,809		4,425		5,344
Weighted average common shares outstanding		3,107,496		3,076,207		3,099,804		3,065,719
Dilutive effect of restricted stock		—		814		—		—
Total common shares and dilutive potential common shares		3,107,496		3,077,021		3,099,804		3,065,719
Dilutive income per share	$	0.65	$	0.91		1.43		1.74

Note 7 –Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three- and six- month periods ended December 31, 2023 and 2022, were as follows:

	Pretax			Tax Effect			After-tax
Balance as of September 30, 2023	$	(47,698	)	$	10,017		$	(37,681	)
Unrealized holding gains on available-for-sale securities arising during the period		15,656			(3,288	)		12,368
Balance as of December 31, 2023	$	(32,042	)	$	6,729		$	(25,313	)

25

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

 

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

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2023	$	(37,925	)	$	7,964		$	(29,961	)
Unrealized holding gains on available-for-sale securities arising during the period		5,804			(1,219	)		4,585
Amounts reclassified from accumulated other comprehensive loss		79			(16	)		63		(a)(b)
Net current period other comprehensive income		5,883			(1,235	)		4,648
Balance as of December 31, 2023	$	(32,042	)	$	6,729		$	(25,313	)

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

(a) Securities (gains) losses, net

(b) Income tax expense

26

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

 

(Dollars in thousands, except per share data)

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

(Dollars in thousands, except per share data)

General

The following is management’s analysis of the Company’s results of operations for the three-and six month periods ended December 31, 2023, compared to the same period in 2022, and the consolidated balance sheet at December 31, 2023, compared to June 30, 2023. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Overview

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

Results of Operations

Three-and Six Month Periods Ended December 31, 2023 and 2022

Net income for the second quarter of fiscal year 2024 was $2,015, or $0.65 per common share, compared to $2,809, or $0.91 per common share for the three months ended December 31, 2022. The following are key highlights of our results of operations for the three months ended December 31, 2023, compared with the prior fiscal year comparable period:

● net interest income declined by $812, or 9.3%, to $7,964 in the second quarter of fiscal year 2024 from the same prior year period mainly because of the rapid increase in short-term market rates in 2022 and 2023 causing interest bearing liabilities to reprice faster than interest earning assets;

● a $325 provision for credit losses on loans was recorded for the three-month period ended December 31, 2023 compared with a $225 provision for loan loss expense for the same prior year period;

● noninterest income increased by $87, or 7.5%, in the second quarter of fiscal year 2024 from the same prior year period primarily as a result of an increase in service charges on deposit accounts of $41, or 10.5% and an increase in debit card interechange income of $43, or 8.1%; and

● noninterest expenses increased by $111, or 1.8%, in the second quarter of fiscal year 2024 from the same prior year period primarily due to increases in FDIC insurance assessments, salaries and employee benefits, debit card processing, equipment, and software maintenance expenses which were partially offset by a decline in professional expenses.

In the first six months of fiscal year 2024, net income was $4,425, or $1.43 per common share, compared to $5,344, or $1.74 per common share for the six months ended December 31, 2022. The following are key highlights of our results of operations for the six months ended December 31, 2023, compared to the prior fiscal year comparable period:

● net interest income declined by $1,054, or 6.1%, to $16,118 in the first six months of fiscal year 2024 from the same prior year period primarily as a result of the rapid increase in short-term market rates in 2022 and 2023 causing interest bearing liabilities to reprice faster than interest earning assets;

● a $365 provision for credit losses on loans and a $79 provision for credit losses on unfunded commitments was recorded for the six-month period ended December 31, 2023 compared with a $635 provision for loan losses for the same prior year period primarily as a result of the organic growth within the loan portfolio and as a result of adopting ASC 326;

● noninterest income increased by $113, or 4.9%, in the first six months of fiscal year 2024 from the same prior year period primarily as a result of an increase in service charges on deposit accounts of $70, or 8.9%, an increase in debit card interechange income of $54, or 5.0%, which were partially offset by a $79 loss on the sale of available-for-sale securities so the proceeds could be reinvested at higher market rates; and

● noninterest expenses increased by $298, or 2.4%, in the first six months of fiscal year 2024 from the same prior year period primarily due to increases in salaries and employee benefits and FDIC insurance assessments.

27

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

The annualized return on average equity and return on average assets were 16.50% and 0.83%, respectively, for the six months ended December 31, 2023 compared to 21.01% and 1.06%, respectively, for the same prior year period.

Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Company’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 2024 and 2023 fiscal years was 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances and average securities include unrealized gains and losses on securities available-for-sale, while yields are based on average amortized cost.

The Company’s net interest margin was 2.95% for the three months ended December 31, 2023, compared with 3.53% for the same period in 2022. FTE net interest income for the three months ended December 31, 2023, decreased by $974, or 11.0%, to $7,893 from $8,867 for the same prior year period.

The yield on average interest-earning assets increased to 4.54% for the three months ended December 31, 2023, compared with 4.03% for the same period last year. Tax-equivalent interest income increased by $2,000, or 19.8%, for the three months ended December 31, 2023, from the same prior year period because of a $66,313, or 7.0%, increase in average interest-earning assets as well as the affect of the increase in market interest rates on new and repricing earning assets. Interest expense for the three months ended December 31, 2023 increased by $2,974 from the same prior year period primarily due to an increase in deposit and short-term borrowing costs as a result of higher market interest rates and increased competition for deposits. The Company’s cost of funds increased to 2.17% for the three months ended December 31, 2023 compared with 0.72% for the same prior year period.

The Company’s net interest margin was 3.03% for the six months ended December 31, 2023, compared with 3.51% for the same period in 2022. FTE net interest income for the six months ended December 31, 2023, decreased by $1,380, or 7.9%, to $16,004 from $17,384 for the same prior year period. The net interest margin is expected to continue to be impacted by the rapid increase in the cost of funds because of the competition for deposits and other borrowing costs as well as the inverted yield curve.

The yield on average interest-earning assets increased to 4.51% for the six months ended December 31, 2023, compared with 3.90% for the same period last year. Tax-equivalent interest income increased by $4,497, or 23.3%, for the six months ended December 31, 2023, from the same prior year period because of a $57,277, or 6.0%, increase in average interest-earning assets as well as the affect of the increase in market interest rates on new and repricing earning assets. Interest expense for the six months ended December 31, 2023 increased by $5,877 from the same prior year period primarily due to an increase in deposit and short-term borrowing costs as a result of higher market interest rates and increased competition for deposits. The Company’s cost of funds increased to 2.05% for the six months ended December 31, 2023 compared with 0.57% for the same prior year period.

28

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

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

(In thousands, except percentages) 

	2023									2022
	Average Balance			Interest			Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	206,223		$	1,378			2.28	%	$	203,006		$	1,301		2.19	%
Nontaxable securities (1)		67,694			496			2.58			85,446			687		2.83
Loans receivable (1)		738,502			10,164			5.46			646,941			7,957		4.88
Federal bank and other restricted stocks		2,700			42			6.17			2,276			47		8.19
Equity securities		386			9			9.25			376			9		9.50
Interest bearing deposits and federal funds sold		2,634			28			4.22			13,781			116		3.34
Total interest-earning assets		1,018,139			12,117			4.54	%		951,826			10,117		4.03	%
Noninterest-earning assets		57,606									48,769
Total Assets	$	1,075,745								$	1,000,595
Interest-bearing liabilities:
NOW	$	138,698		$	317			0.91	%	$	158,998		$	244		0.61	%
Savings		333,549			1,274			1.52			354,480			454		0.51
Time deposits		249,402			2,354			3.74			140,192			429		1.21
Short-term borrowings		23,807			136			2.27			21,878			95		1.72
FHLB advances		25,615			143			2.21			8,973			28		1.24
Total interest-bearing liabilities		771,071			4,224			2.17	%		684,521			1,250		0.72	%
Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		231,576									263,866
Other liabilities		17,364									7,060
Total liabilities		1,020,011									955,447
Shareholders’ equity		55,734									45,148
Total liabilities and shareholders’ equity	$	1,075,745								$	1,000,595
Net interest income, interest rate spread (1)				$	7,893			2.37	%				$	8,867		3.31	%
Net interest margin (net interest as a percent of average interest-earning assets) (1)								2.95	%							3.53	%
Federal tax exemption on non-taxable securities and loans included in interest income				$	(71	)							$	91
Average interest-earning assets to interest-bearing liabilities		132.04	%								139.05	%

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

29

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31,

(In thousands, except percentages) 

	2023									2022
	Average Balance			Interest			Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	205,774		$	2,827			2.34	%	$	208,514		$	2,549		2.15	%
Nontaxable securities (1)		69,030			923			2.34			87,462			1,391		2.86
Loans receivable (1)		722,796			19,860			5.45			635,391			15,089		4.71
Federal bank and other restricted stocks		2,212			83			7.44			2,306			70		6.02
Equity securities		386			17			8.74			388			17		8.69
Interest bearing deposits and federal funds sold		5,015			99			3.92			13,875			196		2.80
Total interest-earning assets		1,005,213			23,809			4.51	%		947,936			19,312		3.90	%
Noninterest-earning assets		58,426									47,588
Total Assets	$	1,063,639								$	995,524
Interest-bearing liabilities:
NOW	$	148,308		$	690			0.92	%	$	159,745		$	419		0.52	%
Savings		336,220			2,411			1.42			361,384			714		0.39
Time deposits		232,060			4,261			3.64			124,436			591		0.94
Short-term borrowings		23,909			262			2.17			21,414			154		1.43
FHLB advances		13,182			181			2.72			8,602			50		1.15
Total interest-bearing liabilities		753,679			7,805			2.05	%		675,581			1,928		0.57	%
Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		239,223									261,941
Other liabilities		17,528									7,540
Total liabilities		1,010,430									945,062
Shareholders’ equity		53,209									50,462
Total liabilities and shareholders’ equity	$	1,063,639								$	995,524
Net interest income, interest rate spread (1)				$	16,004			2.46	%				$	17,384		3.33	%
Net interest margin (net interest as a percent of average interest-earning assets) (1)								3.03	%				��			3.51	%
Federal tax exemption on non-taxable securities and loans included in interest income				$	(114	)							$	212
Average interest-earning assets to interest-bearing liabilities		133.37	%								140.31	%

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

30

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Provision for Credit Losses

On July 1, 2023, the Company adopted ASU 2016-13 CECL which caused an increase in the allowance for credit losses of $52 and the recording of a liability for expected credit losses on unfunded loans and other commitments of $308. The reserve for unfunded commitments is primarily related to 1 - 4 family home equity lines of credit, commercial construction loans, and 1 - 4 family construction loans. The increase in the allowance and the recording of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes on our Consolidated Balance Sheet in accordance with FASB guidance.

The allowance for credit losses consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustments to the quantitative evaluation may be for trends in delinquencies, trends in the volume of loans, changes in underwriting standards, changes in the value of underlying collateral, the existence and effect of portfolio concentration, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.

The specific component includes loans that do not share similar risk characteristics that are evaluated on an individual basis and are excluded from the pooling approach. As of December 31, 2023, individually evaluated loans totaled $11,123 and included the $10,002 third-party residential mortgage warehouse line-of-credit and $1,114 of nonaccrual loans. The warehouse line-of-credit is included in individually evaluated loans because of the unique structure of the loan given the short-term nature of the advances, curtailment features provided by the financial institution that the line-of-credit is issued to, as well as being secured by individual residential properties. As of June 30, 2023, under the incurred loan loss methodology, individually evaluated loans totaled $405 and included $351 of performing loans classified as troubled debt restructurings and $54 of nonaccrual loans. As of December 31, 2023, there was $12 of specific reserves allocated to individually evaluated loans. There was no allowance for credit losses allocated to the individually evaluated loans as of June 30, 2023.

For the six-month period ended December 31, 2023, the provision for credit losses was $444 and included a $365 provision for credit losses on loans and a $79 provision for credit losses on unfunded commitments. This compared with a provision for loan losses of $635 for the same period last year. The allowance for credit losses as a percentage of loans was 1.09% at December 31, 2023 and June 30, 2023. Net charge-offs of $154, or 0.04% of total loans, were recorded during the six-month period ended December 31, 2023 compared with net charge offs of $120, or 0.04% of total loans, for the same period last year.

Non-performing loans were $1,134 as of December 31, 2023, compared with $104 as of June 30, 2023. As of December 31, 2023, non-performing loans includes $602 that is guaranteed by the Small Business Administration. Non-performing loans to total loans were 0.15%, or 0.07% excluding the guaranteed portion, at December 31, 2023 and 0.01% at June 30, 2023. Due to the recent rapid increase in market interest rates uncertainty remains regarding future levels of criticized and classified loans, non-performing loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and will work with borrowers as needed to mitigate losses to the Company.

Noninterest Income

Noninterest income increased by $87, or 7.5%, for the second quarter of fiscal year 2024 from the same period last year. For the six month period ended December 31, 2023, noninterest income increased by $113, or 4.9%, for the same period last year. The increase in noninterest income for the six month period ended December 31, 2023 was primarily the result of an increase in service charges on deposit accounts of $70, or 8.9% and an increase in debit card interchange income of $54, or 5.0%. These increases were partially offset by a $79 loss on the sale of available-for-sale securities as lower yielding securities were sold in order to reinvest the proceeds into higher yielding loans.

Noninterest Expenses

Total noninterest expenses increased by $111, or 1.8%, for the second quarter of fiscal year 2024 and by $298, or 2.4% for the six month period end December 31, 2023 compared with the same periods last year. Salaries and employee benefits expenses increased by $152, or 2.2%, for the six-month period ended December 31, 2023 compared to the same prior year period primarily due to merit and cost of living increases which were partially offset by a reduction in incentive expense accruals. FDIC assessments increased by $138, or 57.7%, for the six-month period ended December 31, 2023 primarily because of an increase in the initial base deposit insurance assessment rate paid by all insured depository institutions. Debit card processing expenses increased by $71, or 12.9%, for the six-month period ended December 31, 2023 compared to the same prior year period primarily due to an increase in customer card usage and an increase in the number of cards issued.

31

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Income Taxes

Income tax expenses were $435 and $952 for the three- and six- month periods ended December 31, 2023, respectively, compared to $577 and $1,081 for the three- and six- month periods ended December 31, 2022. The effective tax rates were 17.7% and 16.8% for the six-month periods ended December 31, 2023 and 2022, respectively. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, bank owned life insurance income, and the low-income housing tax credits.

Financial Condition

Total assets as of December 31, 2023 were $1,081,344 compared to $1,060,024 at June 30, 2023, an increase of $21,320, or an annualized 4.0%. From June 30, 2023, total loans increased by $24,865 or an annualized 7.0% and total deposits decreased by $3,985, or an annualized 0.8%.

Available-for-sale securities decreased from $279,605 as of June 30, 2023, to $276,133 as of December 31, 2023. As of December 31, 2023, the portfolio had an unrealized loss of $32,056 as a result of the increase in market interest rates compared with the yields within the portfolio that were available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity or repricing dates or if market yields for such securities decline. The portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, other government agencies’ debt, corporate debt, and U.S. Treasury notes. The municipal bond portfolio consists of tax-exempt and taxable general obligations and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of December 31, 2023, 98.5 % of the municipal bonds held in the available-for-sale portfolio had an S&P or Moody’s investment grade rating, and 1.5% were non-rated issues. As of December 31, 2023, the projected cash flow from the portfolio over the next 12 months was approximately $39,638 which may be available to reinvest into loans or securities at the then current market rates.

Total loans increased by $24,865, or an annualized 7.0%, from June 30, 2023. The growth in loans was primarily within the commercial real estate and consumer loan portfolios. Consumer loan growth was primarily from indirect loans due to the expansion of consumer loan sales staff and an expanded dealer network.

Asset Quality

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

	December 31, 2023			June 30, 2023			December 31, 2022
Non-accrual loans	$	1,114		$	54		$	47
Loans past due over 90 days and still accruing		20			50			—
Total non-performing loans		1,134			104			47
Other real estate and repossessed assets		124			124			—
Total non-performing assets	$	1,258		$	228		$	47
Non-performing loans to total loans		0.15	%		0.01	%		0.01	%

As of December 31, 2023, non-accrual loans include $602 that is guaranteed by the Small Business Administration. Excluding the guaranteed portion, non-performing loans were $532, or 0.07% of total loans as of December 31, 2023.

32

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

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

Liquidity

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

For the six months ended December 31, 2023, net cash inflow from operating activities was $5,833, net cash inflows from investing activities was $16,512 and net cash inflows from financing activities was $11,709. A major source of cash was $11,850 from maturity, calls, and principal pay downs of available-for-sale securities and $4,002 proceeds from the sales of available-for-sale securities. A major use of cash was a $25,019 increase in loans. Total cash and cash equivalents were $12,785 as of December 31, 2023, compared to $11,755 at June 30, 2023 and $13,302 at December 31, 2022.

The Bank offers several types of deposit products to a diverse base of business, public fund, and personal customers. We believe the rates offered by the Bank and the fees charged for them are competitive with the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $948,548 at December 31, 2023, an decrease of $3,985, or 0.4%, compared with $952,533 at June 30, 2023. As of December 31, 2023, the estimated percentage of uninsured deposits, excluding collateralized public fund deposits, was 17.0%.

Jumbo time deposits (those with balances of $250 and over) totaled $65,575 as of December 31, 2023 and $46,822 as of June 30, 2023 and are from local customers and businesses. These deposits are monitored closely by the Company and are mainly priced on an individual basis. The Company has the option to use a fee-paid broker or CD listing service to obtain deposits from outside its normal service area as an additional source of funding. The Company, however, does not rely upon these types of deposits as a primary source of funding. There were no brokered deposits or CDs that were obtained from a listing service as of December 31, 2023 or June 30, 2023. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored monthly.

To provide additional sources of liquidity, the Company has lines of credit with other financial institutions and entered into agreements with the FHLB of Cincinnati and the Federal Reserve discount window. At December 31, 2023, advances from the FHLB of Cincinnati totaled $26,434 compared with $8,776 at June 30, 2023. As of December 31, 2023, the Bank had the ability to borrow an additional $81,645 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Company considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base. In addition, at December 31, 2023, the Company had approximately $119,000 in securities unencumbered by a pledge that could be used to support additional borrowings, as needed, through the Federal Reseve discount window or the Federal Reserve's Bank Term Funding Program (“BTFP”). The BTFP is a facility established in 2023 in response to liquidity concerns within the banking industry and advances can be requested under the program until March 11, 2024. The BTFP was designed to provide additional funding to eligible depository institutions in order to help assure that banks have the ability to meet the needs of all their depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging certain U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.

Short-term borrowings consisted of repurchase agreements with local customers, which are financing arrangements that mature daily, and a line of credit from another financial institution . The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $25,390 at December 31, 2023 and $26,367 at June 30, 2023. Since the Company is a holding company and does not conduct operations, its primary sources of liquidity are dividends upstreamed from the Bank and borrowings from outside sources. As of December 31, 2023, the available credit on the holding company’s line of credit was $4,500.

33

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

To meet the financial needs of our customers, we have issued commitments to originate mortgage, commercial, construction, and consumer loans and commitments for commercial, home equity, and consumer lines of credit. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The same credit policies are used in making commitments and financial standby letters of credit as are used for on-balance sheet instruments. Total unused commitments were $161,868 as of December 31, 2023, and $143,945 as of June 30, 2023.

Capital Resources

Total shareholders’ equity increased by $8,026 to $63,510 as of December 31, 2023, from $55,484 as of June 30, 2023 because of a reduction of $4,648 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from net income of $4,425 for the first six months of fiscal year 2024 which was partially offset by cash dividends paid of $1,121. As market interest rates rise, the fair value of fixed-rate available-for-sale securities decline with a corresponding net of tax decline recorded in the accumulated other comprehensive loss portion of equity. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such securities decline.

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

As of December 31, 2023, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.04% and the leverage and total risk-based capital ratios were 7.85% and 12.08%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.05% and leverage and total risk-based capital ratios of 7.72% and 12.07%, respectively, as of June 30, 2023. 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, 2023 that would cause the Bank’s capital category to change.

Critical Accounting Policies

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

Critical accounting policies are those policies that are highly dependent on subjective or complex judgments, estimates and assumptions and where changes in those estimates and assumptions could have a significant impact on the financial statements. The Company has identified the appropriateness of the allowance for credit losses and the evaluation of goodwill for impairment as critical accounting policies and an understanding of these policies is necessary to understand the financial statements. Note one (Summary of Significant Accounting Policies – Adoption of New Accounting Standards) and Note three (Loans and Allowance for Credit Losses) of the Company’s Consolidated Financial Statements provide detail regarding the Company’s accounting for the allowance for credit losses. Note six (Goodwill and Acquired Intangible Assets) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2023 Form 10-K provide detail regarding the Company’s accounting for Goodwill.

34

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share amounts)

Forward-Looking Statements

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

● changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in asset credit quality or debtors being unable to meet their obligations because of high unemployment rates and inflationary pressures;

● rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income;

● changes in the level of non-performing assets and charge-offs;

● unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity, our ability to find alternative funding sources, and potential market reactions to the default or risk of default by other financial institutions;

● the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply;

● the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

● breaches of security or failures of our or our vendor’s technology systems due to technological or other factors and cybersecurity threats;

● changes in consumer spending, borrowing and savings habits;

● declining asset values impacting the underlying value of collateral;

● changes in accounting policies, rules and interpretations;

● our ability to attract and retain qualified employees;

● competitive pressures on product pricing and services; and

● changes in the reliability of our vendors, internal control systems or information systems.

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CONSUMERS BANCORP, INC.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’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 Company’s disclosure controls and procedures were effective as of December 31, 2023.

Changes in Internal Controls Over Financial Reporting

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

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CONSUMERS BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

None

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

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None 

Item 6 – Exhibits

Exhibit Number  Description

Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS	Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) (1)
101.SCH	Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document (1)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)
(1)	These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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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 12, 2024	/s/ Ralph J. Lober                       Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)
Date: February 12, 2024	/s/ Renee K. Wood                     Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)

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