Quarterly Report (10-q)

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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, 2021

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

Commission File No. 033-79130

CONSUMERS BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

(330) 868-7701

(Registrant’s telephone number)

Not applicable

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

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

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

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

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

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

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

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

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

There were 3,051,492 shares of Registrant’s common stock, no par value, outstanding as of February 10, 2022.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED December 31, 2021

Table of Contents

Page

Number (s)

Part I – Financial Information

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

Consolidated Statements of Income for the three and six months ended December 31, 2021 and 2020 (unaudited)	2

Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2021 and 2020 (unaudited)	3

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended December 31, 2021 and 2020 (unaudited)	4

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2021 and 2020 (unaudited)	5

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

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-31

Item 3 – Not Applicable for Smaller Reporting Companies

Item 4 – Controls and Procedures	32
Part II – Other Information
Item 1 – Legal Proceedings	33

Item 1A – Not Applicable for Smaller Reporting Companies	33

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3 – Defaults Upon Senior Securities	33

Item 4 – Mine Safety Disclosure	33

Item 5 – Other Information	33

Item 6 – Exhibits	33

Signatures	34

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)	December 31, 2021 (unaudited)			June 30, 2021
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	11,574		$	8,902
Federal funds sold and interest-bearing deposits in financial institutions		9,679			9,627
Total cash and cash equivalents		21,253			18,529
Certificates of deposit in other financial institutions		4,548			5,825
Securities, available-for-sale		269,836			207,760
Securities, held-to-maturity (fair value of $7,264 at December 31, 2021 and $8,352 at June 30, 2021)		7,020			7,996
Equity securities, at fair value		432			424
Federal bank and other restricted stocks, at cost		2,472			2,472
Loans held for sale		838			1,457
Total loans		623,007			566,427
Less allowance for loan losses		(6,932	)		(6,471	)
Net loans		616,075			559,956
Cash surrender value of life insurance		9,832			9,702
Premises and equipment, net		16,457			15,793
Goodwill		2,452			836
Core deposit intangible, net		498			229
Other real estate owned and repossessed assets		83			—
Accrued interest receivable and other assets		3,107			2,825
Total assets	$	954,903		$	833,804

LIABILITIES
Deposits
Noninterest-bearing demand	$	239,412		$	229,102
Interest bearing demand		143,313			127,447
Savings		352,739			282,761
Time		112,756			87,539
Total deposits		848,220			726,849

Short-term borrowings		10,682			12,203
Federal Home Loan Bank advances		16,286			18,050
Accrued interest and other liabilities		6,557			6,802
Total liabilities		881,745			763,904
Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—
Common stock (no par value, 8,500,000 shares authorized; 3,126,874 and 3,124,053 shares issued as of December 31, 2021 and June 30, 2021, respectively)		20,175			20,011
Retained earnings		52,518			47,663
Treasury stock, at cost (75,382 and 95,953 common shares as of December 31, 2021 and June 30, 2021, respectively)		(1,117	)		(1,324	)
Accumulated other comprehensive income		1,582			3,550
Total shareholders’ equity		73,158			69,900
Total liabilities and shareholders’ equity	$	954,903		$	833,804

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months ended December 31,				Six Months ended December 31,
(Dollars in thousands, except per share amounts)	2021		2020		2021		2020

Interest and dividend income
Loans, including fees	$	7,497	$	6,583	$	14,565	$	13,072
Securities, taxable		806		344		1,517		716
Securities, tax-exempt		508		427		986		847
Equity securities		9		—		17		—
Federal bank and other restricted stocks		20		21		40		39
Federal funds sold and other interest-bearing deposits		43		42		93		89
Total interest and dividend income		8,883		7,417		17,218		14,763
Interest expense
Deposits		274		487		570		1,064
Short-term borrowings		1		2		3		6
Federal Home Loan Bank advances		63		70		127		141
Total interest expense		338		559		700		1,211
Net interest income		8,545		6,858		16,518		13,552
Provision for loan losses		270		130		460		260
Net interest income after provision for loan losses		8,275		6,728		16,058		13,292

Noninterest income
Service charges on deposit accounts		366		314		724		621
Debit card interchange income		522		445		1,031		901
Mortgage banking activity		171		246		429		482
Bank owned life insurance income		65		65		130		131
Securities gains, net		2		8		2		8
Other		95		75		178		151
Total noninterest income		1,221		1,153		2,494		2,294

Noninterest expenses
Salaries and employee benefits		3,269		2,760		6,516		5,451
Occupancy and equipment		728		636		1,436		1,276
Data processing expenses		192		176		406		362
Debit card processing expenses		259		216		527		454
Professional and director fees		158		249		502		486
FDIC assessments		186		87		270		148
Franchise taxes		133		108		266		217
Marketing and advertising		164		116		378		250
Telephone and network communications		88		79		202		163
Amortization of intangible		15		7		26		14
Other		457		397		952		809
Total noninterest expenses		5,649		4,831		11,481		9,630
Income before income taxes		3,847		3,050		7,071		5,956
Income tax expense		685		543		1,244		1,048
Net income	$	3,162	$	2,507	$	5,827	$	4,908

Basic and diluted earnings per share	$	1.04	$	0.83	$	1.92	$	1.63

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)	Three Months ended December 31,						Six Months ended December 31,
	2021			2020			2021			2020

Net income	$	3,162			2,507		$	5,827		$	4,908

Other comprehensive income, net of tax:
Net change in unrealized gains (losses) on securities available-for-sale:
Unrealized gains (losses) arising during the period		(922	)		278			(2,488	)		348
Reclassification adjustment for gains included in income		(2	)		(8	)		(2	)		(8	)
Net unrealized gains (losses)		(924	)		270			(2,490	)		340
Income tax effect		194			(57	)		522			(71	)
Other comprehensive income (loss)		(730	)		213			(1,968	)		269

Total comprehensive income	$	2,432			2,720		$	3,859		$	5,177

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

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


Balance, September 30, 2020	$	20,011	$	42,424		$	(1,324	)	$	4,316		$	65,427
Net income				2,507									2,507
Other comprehensive income										213			213
Cash dividends declared ($0.145 per share)				(439	)								(439	)
Balance, December 31, 2020	$	20,011	$	44,492		$	(1,324	)	$	4,529		$	67,708

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

Balance, June 30, 2020	$	19,974	$	40,460		$	(1,454	)	$	4,260		$	63,240
Net income				4,908									4,908
Other comprehensive income										269			269
12,522 shares associated with vested stock awards		37					130						167
Cash dividends declared ($0.29 per share)				(876	)								(876	)
Balance, December 31, 2020	$	20,011	$	44,492		$	(1,324	)	$	4,529		$	67,708

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)	Six Months Ended December 31,
	2021			2020
Cash flows from operating activities
Net cash from operating activities	$	8,548		$	5,706
Cash flow from investing activities
Purchases of securities, available-for-sale		(67,274	)		(24,975	)
Maturities, calls and principal pay downs of securities, available-for-sale		16,520			20,304
Sale of securities, available-for-sale		1,000			2,733
Principal pay downs of securities, held-to-maturity		976			205
Purchase of equity securities		—			(400	)
Net decrease in certificate of deposit in other financial institutions		1,277			3,036
Net increase in loans		(36,719	)		(14,431	)
Acquisition, net cash received		66,552			—
Premises and equipment purchases		(794	)		(194	)
Sale of other repossessed assets		—			17
Net cash from investing activities		(18,462	)		(13,705	)
Cash flow from financing activities
Net increase in deposit accounts		16,833			15,007
Net change in short-term borrowings		(1,521	)		6,332
Proceeds from Federal Home Loan Bank advances		—			1,300
Repayments of Federal Home Loan Bank advances		(1,764	)		(14,378	)
Proceeds from dividend reinvestment and stock purchase plan		62			—
Dividends paid		(972	)		(876	)
Net cash from financing activities		12,638			7,385
Increase (decrease) in cash or cash equivalents		2,724			(614	)
Cash and cash equivalents, beginning of period		18,529			9,659
Cash and cash equivalents, end of period	$	21,253		$	9,045

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	699		$	1,230
Federal income taxes		805			1,055
Non-cash items:
Transfer from loans to repossessed assets		83			9
Issuance of treasury stock for stock awards		309			167
Branch acquisition:
Noncash assets acquired:
Securities, available-for-sale		15,602
Loans		19,943
Premises and equipment		413
Goodwill		1,616
Core deposit intangible		295
Accrued interest receivable and other assets		216
Total noncash assets acquired		38,085
Liabilities assumed:
Deposits		104,538
Other liabilities		99
Total liabilities assumed		104,637
Net noncash assets acquired		(66,552	)

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 1 – Summary of Significant Accounting Policies:

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

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Form 10-K for the year ended June 30, 2021. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.

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

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

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

Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company. The Corporation is evaluating how adopting this new guidance will impact the consolidated financial statements and the Corporation’s current systems and processes. The Corporation is reviewing potential methodologies for estimating expected credit losses using reasonable and supportable forecast information and has identified certain data and system requirements. Once the new guidance is adopted, we expect our allowance for loan losses to increase through a one-time adjustment to retained earnings; however, until our evaluation is complete, the estimated increase in allowance will be unknown. The Corporation is planning to adopt this new guidance within the time frame noted above.

Note 2 – Acquisition

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

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

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

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

Note 3 – Securities

Debt securities

The following tables summarize the Corporation’s debt securities as of December 31, 2021 and June 30, 2021:

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2021
Obligations of U.S. Treasury	$	8,893	$	—	$	(34	)	$	8,859
Obligations of U.S. government-sponsored entities and agencies		19,882		99		(183	)		19,798
Obligations of state and political subdivisions		85,754		3,343		(132	)		88,965
U.S. Government-sponsored mortgage-backed securities–residential		104,522		772		(1,394	)		103,900
U.S. Government-sponsored mortgage-backed securities– commercial		8,631		15		(42	)		8,604
U.S. Government-sponsored collateralized mortgage obligations– residential		23,684		57		(427	)		23,314
Other debt securities		16,465		85		(154	)		16,396
Total securities available-for-sale	$	267,831	$	4,371	$	(2,366	)	$	269,836

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
December 31, 2021
Obligations of state and political subdivisions	$	7,020	$	244	$	—	$	7,264

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(

Dollars in thousands, except per share amounts)

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021		2020
Proceeds from sales and calls	$	1,000	$	2,733		1,000		2,733
Gross realized gains		2		31		2		31
Gross realized losses		—		23		—		23

The income tax provision related to the net realized gain amounted to less than $1 for the three- and six-month periods ended December 31, 2021. The income tax provision related to the net realized gains amounted to $2 for the three- and six-month periods ended December 31, 2020.

The amortized cost and fair values of debt securities at December 31, 2021, 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	$	4,097	$	4,118
Due after one year through five years		36,803		37,108
Due after five years through ten years		27,403		27,540
Due after ten years		62,691		65,252
Total		130,994		134,018

U.S. Government-sponsored mortgage-backed and related securities		136,837		135,818
Total securities available-for-sale	$	267,831	$	269,836

Held-to-Maturity
Due after one year through five years	$	253	$	260
Due after five years through ten years		4,532		4,045
Due after ten years		2,235		2,959
Total securities held-to-maturity	$	7,020	$	7,264

Securities with a carrying value of approximately $107,027 and $96,970 were pledged at December 31, 2021 and June 30, 2021, respectively, to secure public deposits and commitments as required or permitted by law.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table summarizes the securities with unrealized losses at December 31 2021 and June 30, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 Months					12 Months or more				Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2021
Obligation of U.S. Treasury	$	8,859	$	(34	)	$	—	$	—	$	8,859	$	(34	)
Obligations of U.S. government-sponsored entities and agencies		14,805		(183	)		—		—		14,805		(183	)
Obligations of state and political subdivisions		13,926		(132	)		—		—		13,926		(132	)
U.S. Government-sponsored mortgage-backed securities – residential		79,495		(1,394	)		—		—		79,495		(1,394	)
U.S. Government-sponsored mortgage-backed securities – commercial		5,706		(42	)		—		—		5,706		(42	)
Collateralized mortgage obligations - residential		20,121		(427	)		—		—		20,121		(427	)
Other debt securities		10,072		(154	)		—		—		10,072		(154	)
Total temporarily impaired	$	152,984	$	(2,366	)	$	—	$	—	$	152,984	$	(2,366	)

	Less than 12 Months					12 Months or more					Total
Available-for-sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2021
Obligations of U.S. government-sponsored entities and agencies	$	2,003	$	(14	)	$	—	$	—		$	2,003	$	(14	)
Obligations of state and political subdivisions		7,398		(75	)		—		—			7,398		(75	)
Mortgage-backed securities – residential		42,378		(684	)		—		—			42,378		(684	)
Collateralized mortgage obligations - residential		7,707		(56	)		552		(1	)		8,259		(57	)
Other debt securities		492		(8	)		—		—			492		(8	)
Total temporarily impaired	$	59,978	$	(837	)	$	552	$	(1	)	$	60,530	$	(838	)

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

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

At December 31, 2021, there were a total of 117 available-for-sale securities in the portfolio with unrealized losses mainly due to an increase in market rates when compared to the time of purchase. The unrealized losses within the securities portfolio as of December 31, 2021 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The mortgage-backed securities and collateralized mortgage obligations were primarily issued by Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. The Corporation does not own any private label mortgage-backed securities.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Equity Securities

The Corporation owned equity securities with an amortized cost of $400 and a fair value of $432 and $424 as of December 31, 2021 and June 30, 2021, respectively. Changes in the fair value of these securities are included in noninterest income on the consolidated statements of income. There were no unrealized gains and losses on equity securities during the three- and six-month periods ended December 31, 2021 and 2020. Also, there were no sales of equity securities during the three- and six-month periods ended December 31, 2021 and 2020.

Note 4 – Loans

Major classifications of loans were as follows:

	December 31, 2021			June 30, 2021
Commercial	$	116,940		$	112,337
Commercial real estate:
Construction		21,457			10,525
Other		282,601			269,679
1 – 4 Family residential real estate:
Owner occupied		137,288			118,269
Non-owner occupied		21,618			19,151
Construction		6,854			9,073
Consumer		36,628			29,646
Subtotal		623,386			568,680
Net deferred loan fees and costs		(379	)		(2,253	)
Allowance for loan losses		(6,932	)		(6,471	)
Net Loans	$	616,075		$	559,956

The commercial loan category in the above table includes PPP loans of $12,692 as of December 31, 2021 and $50,686 as of June 30, 2021 and a mortgage loan warehouse line of credit to another financial institution with an outstanding balance of $25,750 as of December 31, 2021 and $0 as of June 30, 2021. The outstanding balance of the warehouse line of credit can fluctuate significantly based on the other financial institution’s funding needs.

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

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

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

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2020:

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

Allowance for loan losses:
Beginning balance	$	940		$	3,694	$	997	$	136		$	5,767
Provision for loan losses		(82	)		122		31		59			130
Loans charged-off		—			—		—		(12	)		(12	)
Recoveries		—			1		—		26			27
Total ending allowance balance	$	858		$	3,817	$	1,028	$	209		$	5,912

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2020:

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

Allowance for loan losses:
Beginning balance	$	947		$	3,623	$	989	$	119		$	5,678
Provision for loan losses		(67	)		192		39		96			260
Loans charged-off		(22	)		—		—		(56	)		(78	)
Recoveries		—			2		—		50			52
Total ending allowance balance	$	858		$	3,817	$	1,028	$	209		$	5,912

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2021. Included in the recorded investment in loans is $1,173 of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Ending allowance for loan losses balance attributable to loans:
Individually evaluated for impairment	$	1	$	—	$	—	$	—	$	1
Acquired loans collectively evaluated for impairment		1		66		90		—		157
Originated loans collectively evaluated for impairment		974		3,983		1,400		417		6,774
Total ending allowance balance	$	976	$	4,049	$	1,490	$	417	$	6,932

Recorded investment in loans:
Loans individually evaluated for impairment	$	416	$	264	$	228	$	—	$	908
Acquired loans collectively evaluated for impairment		472		11,466		29,058		4,677		45,673
Originated loans collectively evaluated for impairment		115,781		292,214		137,658		31,946		577,599
Total ending loans balance	$	116,669	$	303,944	$	166,944	$	36,623	$	624,180

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2021. Included in the recorded investment in loans is $1,184 of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1	$	—	$	3	$	—	$	4
Acquired loans collectively evaluated for impairment		—		83		77		—		160
Originated loans collectively evaluated for impairment		903		3,866		1,227		311		6,307
Total ending allowance balance	$	904	$	3,949	$	1,307	$	311	$	6,471

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of December 31, 2021 and for the six months ended December 31, 2021:

	As of December 31, 2021						Six Months ended December 31, 2021
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	421	$	294	$	—	$	297	$	—	$	—
Commercial real estate:
Other		411		264		—		802		102		102
1-4 Family residential real estate:
Owner occupied		276		228		—		317		3		3
Non-owner occupied		—		—		—		167		75		75
With an allowance recorded:
Commercial		122		122		1		128		4		4
Total	$	1,230	$	908	$	1	$	1,711	$	184	$	184

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, 2021:

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, 2021 and for the six months ended December 31, 2020:

	As of June 30, 2021						Six Months ended December 31, 2020
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	421	$	303	$	—	$	—	$	—	$	—
Commercial real estate:
Other		1,062		921		—		867		4		4
1-4 Family residential real estate:
Owner occupied		409		367		—		629		11		11
Non-owner occupied		267		202		—		225		—		—
With an allowance recorded:
Commercial		133		134		1		160		4		4
Commercial real estate:
Other		—		—		—		205		6		6
1-4 Family residential real estate:
Owner occupied		28		27		3		5		—		—
Total	$	2,320	$	1,954	$	4	$	2,091	$	25	$	25

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial real estate:
Other	$	907	$	3	$	3
1-4 Family residential real estate:
Owner occupied		720		5		5
Non-owner occupied		220		—		—
With an allowance recorded:
Commercial		150		2		2
Commercial real estate:
Other		204		3		3
1-4 Family residential real estate:
Owner occupied		10		—		—
Total	$	2,211	$	13	$	13

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2021 and June 30, 2021:

	December 31, 2021				June 30, 2021
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing
Commercial	$	294	$	—	$	303	$	—
Commercial real estate:
Other		219		—		874		—
1 – 4 Family residential:
Owner occupied		227		—		392		29
Non-owner occupied		—		—		202		—
Consumer		—		4		—		12
Total	$	740	$	4	$	1,771	$	41

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

The following table presents the aging of the recorded investment in past due loans as of December 31, 2021 by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	—	$	—	$	116,669	$	116,669
Commercial real estate:
Construction		—		—		—		—		21,443		21,443
Other		—		—		—		—		282,501		282,501
1-4 Family residential:
Owner occupied		236		—		—		236		138,169		138,405
Non-owner occupied		—		—		—		—		21,626		21,626
Construction		—		—		—		—		6,913		6,913
Consumer		153		15		4		172		36,451		36,623
Total	$	389	$	15	$	4	$	408	$	623,772	$	624,180

The above table of past due loans includes the recorded investment in non-accrual loans of $203 in the 30 to 89 days category and $537 in the loans not past due category.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2021 by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	—	$	—	$	110,287	$	110,287
Commercial real estate:
Construction		—		—		—		—		10,478		10,478
Other		—		175		629		804		268,744		269,548
1-4 Family residential:
Owner occupied		29		—		365		394		118,937		119,331
Non-owner occupied		—		—		—		—		19,148		19,148
Construction		—		—		—		—		9,169		9,169
Consumer		95		11		—		106		29,544		29,650
Total	$	124	$	186	$	994	$	1,304	$	566,307	$	567,611

The above table of past due loans includes the recorded investment in non-accrual loans of $994 in the 90 days or greater category and $777 in the loans not past due category.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Troubled Debt Restructurings (TDR):

The Corporation has certain loans that have been modified in order to maximize collection of loan balances that are classified as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered. In response to COVID-19, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by the virus. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as TDRs. As of December 31, 2021, three borrowers with an aggregate outstanding balance of $68 are in payment deferral status under this loan modification program.

As of December 31, 2021 and June 30, 2021, the Corporation had $461 and $688, respectively, of loans classified as TDRs which are included in impaired loans above. As of December 31, 2021 and June 30, 2021, the Corporation had not committed to lend any additional funds to customers with outstanding loans that were classified as troubled debt restructurings. As of December 31, 2021 and June 30, 2021, the Corporation had $1 and $4, respectively, of specific reserve allocated to these loans.

During the three- and six-month periods ended December 31, 2021 and 2020, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge-offs from troubled debt restructurings that were completed during the three- and six-month periods ended December 31, 2021 and 2020.

There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the three- and six-month periods ended December 31, 2021 and 2020. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, current economic trends and other relevant information. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. Management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirms the risk ratings for the loans and leases in their respective portfolio on an annual basis. The Corporation uses the following definitions for risk ratings:

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

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	As of December 31, 2021
			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	115,183	$	687	$	271	$	294	$	234
Commercial real estate:
Construction		21,443		—		—		—		—
Other		274,500		2,123		4,555		219		1,104
1-4 Family residential real estate:
Owner occupied		1,232		—		—		227		136,946
Non-owner occupied		21,128		152		77		—		269
Construction		3,138		—		—		—		3,775
Consumer		657		—		—		—		35,966
Total	$	437,281	$	2,962	$	4,903	$	740	$	178,294

As of June 30, 2021, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:

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

Note 5 - Fair Value

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

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

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

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

	Balance at		Fair Value Measurements at December 31, 2021
	December 31, 2021		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. Treasury	$	8,859	$	—	$	8,859	$	—
Obligations of U.S. government-sponsored entities and agencies		19,798		—		19,798		—
Obligations of state and political subdivisions		88,965		—		88,965		—
U.S. Government-sponsored mortgage-backed securities – residential		103,900		—		103,900		—
U.S. Government-sponsored mortgage-backed securities – commercial		8,604		—		8,604		—
U.S. Government-sponsored collateralized mortgage obligations - residential		23,314		—		23,314		—
Other debt securities		16,396		—		16,396		—
Equity securities		432		—		432		—

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

There were no transfers between Level 1 and Level 2 during the three-month and six-month periods ended December 31, 2021.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. There were no impaired loans measured at fair value on a non-recurring basis at December 31, 2021 or June 30, 2021 and there was no impact to the provision for loan losses for the three- or six-month periods ended December 31, 2021 or 2020.

Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was $83 in other real estate owned as of December 31, 2021, and there was no other real estate owned or other repossessed assets being carried at fair value as of June 30, 2021.

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

	December 31, 2021				June 30, 2021
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	21,253	$	21,253	$	18,529	$	18,529
Level 2 inputs:
Certificates of deposit in other financial institutions		4,548		4,670		5,825		5,955
Loans held for sale		838		852		1,457		1,488
Accrued interest receivable		2,403		2,403		2,077		2,077
Level 3 inputs:
Securities held-to-maturity		7,020		7,264		7,996		8,352
Loans, net		616,075		621,931		559,956		560,208
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		735,464		735,464		639,310		639,310
Time deposits		112,756		113,302		87,539		88,147
Short-term borrowings		10,682		10,682		12,203		12,203
Federal Home Loan Bank advances		16,286		16,165		18,050		18,247
Accrued interest payable		52		52		51		51

Note 6 – Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were no anti-dilutive shares of restricted stock for the three-month period ended December 31, 2021, and 9,766 shares of restricted stock that were anti-dilutive for the six-month period ended December 31, 2021. There were 4,352 and 569 shares of restricted stock that were anti-dilutive for the three- and six-month periods ended December 31, 2020, respectively. The following table details the calculation of basic and diluted earnings per share:

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2021		2020		2021		2020
Basic:
Net income available to common shareholders	$	3,162	$	2,507	$	5,827	$	4,908
Weighted average common shares outstanding		3,034,362		3,017,268		3,032,416		3,015,741
Basic income per share	$	1.04	$	0.83	$	1.92	$	1.63

Diluted:
Net income available to common shareholders	$	3,162	$	2,507	$	5,827	$	4,908
Weighted average common shares outstanding		3,034,362		3,017,268		3,032,416		3,015,741
Dilutive effect of restricted stock		438		21		233		—
Total common shares and dilutive potential common shares		3,034,800		3,017,289		3,032,649		3,015,741
Dilutive income per share	$	1.04	$	0.83	$	1.92	$	1.63

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, 2021 and 2020, were as follows:

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

Balance as of September 30, 2020	$	5,463		$	(1,147	)	$	4,316
Unrealized holding gain on available-for-sale securities arising during the period		278			(59	)		219
Amounts reclassified from accumulated other comprehensive income		(8	)		2			(6	)	(a)(b)
Net current period other comprehensive gain		270			(57	)		213
Balance as of December 31, 2020	$	5,733		$	(1,204	)	$	4,529

(a) Securities (gains) losses, net

(b) Income tax expense

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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


Balance as of June 30, 2020	$	5,393		$	(1,133	)	$	4,260
Unrealized holding gain on available-for-sale securities arising during the period		348			(73	)		275
Amounts reclassified from accumulated other comprehensive income		(8	)		2			(6	)	(a)(b)
Net current period other comprehensive income		340			(71	)		269
Balance after reclassification as of December 31, 2020	$	5,733		$	(1,204	)	$	4,529

Note 8 – COVID-19

In December 2019, a novel strain of coronavirus surfaced in Wuhan, China, and has spread around the world, resulting in business and social disruption. The coronavirus was declared a Pandemic by the World Health Organization on March 11, 2020. The operations and business results of the Corporation could be materially adversely affected. The extent to which the coronavirus may impact business activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain the coronavirus or treat its impact, among others. As a result of the economic shutdown engineered to slow down the spread of COVID-19, the ability of our customers to make payments on loans could be adversely impacted, resulting in elevated loan losses and an increase in the Corporation’s allowance for loan losses.

CONSUMERS BANCORP, INC.

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

(Dollars in thousands, except per share data)

General

The following is management’s analysis of the Corporation’s results of operations for the three- and six-month periods ended December 31, 2021, compared to the same periods in 2020, and the consolidated balance sheet at December 31, 2021, compared to June 30, 2021. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Overview

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

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

COVID-19 Pandemic

In response to COVID-19, management actively pursued multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes key SBA initiatives to assist small businesses. The Paycheck Protection Program (PPP) was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program if the borrower meets payroll and other requirements. The Bank originated a total of $113,367 of PPP loans during the first and second rounds of assistance. As of December 31, 2021, there were $12,692 of PPP loans outstanding.

Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as troubled debt restructurings. As of December 31, 2021, three borrowers with an outstanding balance of $68 in the aggregate are in payment deferral status under this loan modification program.

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

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

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Results of Operations

Three-and Six-Month Periods Ended December 31, 2021 and 2020

Net income for the second quarter of fiscal year 2022 was $3,162, or $1.04 per common share, compared to $2,507, or $0.83 per common share for the three months ended December 31, 2020. The following are key highlights of our results of operations for the three months ended December 31, 2021, compared to the prior fiscal year comparable period:

	●	net interest income increased by $1,687 to $8,545, or 24.6%, in the second quarter of fiscal year 2022 from the same prior year period primarily as a result of the growth in average interest-earning assets along with a reduction in the cost of funds;
	●	a $270 provision for loans loss expense was recorded for the second quarter of fiscal year 2022 compared with $130 for the same prior year period;
	●	noninterest income increased by $68, or 5.9%, in the second quarter of fiscal year 2022 from the same prior year period primarily due to a $77, or 17.3%, increase in debit card interchange income and a $52, or 16.6%, increase in service charges on deposit accounts which were partially offset by a $75 decline in mortgage banking activity; and
	●	noninterest expenses increased by $818 in the second quarter of fiscal year 2022 from the same prior year period primarily due to increases in salaries and employee benefits; occupancy and equipment expenses; and Federal Deposit Insurance Corporation (FDIC) assessments.

In the first six months of fiscal year 2022, net income was $5,827, or $1.92 per common share, compared to $4,908, or $1.63 per common share, for the six months ended December 31, 2020. The following are key highlights of our results of operations for the six months ended December 31, 2021, compared to the prior fiscal year-to-date comparable period:

	●	net interest income increased by $2,966 to $16,518, or by 21.9%, in the first six months of fiscal year 2022 from the same prior year period;
	●	a provision for loan loss expense of $460 was recorded in the first six months of fiscal year 2022 compared with $260 during the same prior year period;
	●	noninterest income increased by $200, or 8.7%, in the first six months of fiscal year 2022 primarily due to a $130, or 14.4%, increase in debit card interchange income and a $103, or 16.6%, increase in service charges on deposit accounts which were partially offset by a $53 decline in gains from the sale of mortgage loans; and
	●	noninterest expenses increased by $1,851, or 19.2%, in the first six months of fiscal year 2022 from the same prior year period primarily due to an increase in salaries and employee benefit expenses.

The annualized return on average equity and return on average assets were 16.03% and 1.23%, respectively, for the six months ended December 31, 2021 compared to 14.83% and 1.31%, respectively, for the same prior year period.

Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income. As a result of the Federal Open Market Committee establishing a near-zero target range for the federal funds rate, earnings could be negatively affected if the interest we receive on loans and securities falls more quickly than interest we pay on deposits and borrowings. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 2022 and 2021 fiscal years was 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

The Corporation’s net interest margin was 3.77% for the three months ended December 31, 2021, compared with 3.87% for the same period in 2020. FTE net interest income for the three months ended December 31, 2021 increased by $1,708, or 24.5%, to $8,672 from $6,964 for the same prior year period.

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Tax-equivalent interest income for the three months ended December 31, 2021 increased by $1,487, or 19.8%, from the same prior year period. Interest income was positively impacted by the recognition of origination fees on PPP loans that were forgiven during the quarter. The PPP loans had an average balance of $17,803 in the second quarter of fiscal year 2022 and, during this same period, $1,055 of interest and fee income was recognized on the PPP loans. This compares with an average balance of $61,633 for the three-month period ended December 31, 2020 and the recognition of $912 of interest and fee income on the PPP loans during the three-month period ended December 31, 2020. Interest income was also positively impacted by a $195,418, or 27.2%, increase in average interest-earning assets from the same prior year period due to the additional assets acquired as part of the acquisition of the two branches from CFBank. The yield on average interest-earning assets declined to 3.92% for the three months ended December 31, 2021 compared with 4.18% for the same period last year. We believe a reduction in the accretion of origination fees from PPP loans as these loans are forgiven combined with the continued low level of interest rates, will continue to impact the yield on interest-earning assets and could ultimately result in a decline in interest income.

Interest expense for the three months ended December 31, 2021 decreased by $221, or 39.5%, from the same prior year period primarily due to a reduction in deposit and borrowing costs as a result of lower market interest rates. The Corporation’s cost of funds was 0.21% for the three months ended December 31, 2021 compared with 0.46% for the same prior year period.

The Corporation’s net interest margin was 3.70% for the six months ended December 31, 2021, compared with 3.86% for the same period in 2020. FTE net interest income for the six months ended December 31, 2021 increased by $3,008, or 21.9%, to $16,764 from $13,756 for the same prior year period.

Tax-equivalent interest income for the six months ended December 31, 2021 increased by $2,497, or 16.7%, from the same prior year period. Interest income was positively impacted by a $190,434, or 26.7%, increase in average interest-earning assets from the same prior year period primarily due to the assets acquired from the CFBank branch acquisition as well as organic growth. Additionally, interest income was positively impacted by the accretion of origination fees from the PPP loans. The PPP loans had an average balance of $30,269 for the six-month period ended December 31, 2021 and, during this same period, $2,052 of interest and fee income was recognized on the PPP loans. This compares with an average balance of $64,932 for the six-month period ended December 31, 2020 and the recognition of $1,769 of interest and fee income on the PPP loans during the six-month period ended December 31, 2020. A reduction in the accretion of origination fees from PPP loans as these loans are forgiven could ultimately result in a decline in interest income. The Corporation’s yield on average interest-earning assets was 3.85% for the six months ended December 31, 2021 compared with 4.20% for the same period last year.

Interest expense for the six months ended December 31, 2021 decreased by $511 from the same prior year period. The Corporation’s cost of funds was 0.22% for the six months ended December 31, 2021 compared with 0.50% for the same prior year period. The decline in short term market interest rates had an impact on the rates paid on all interest-bearing deposit products and short-term borrowings.

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

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

(In thousands, except percentages)

	2021								2020
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	182,705		$	806		1.75	%	$	74,051		$	344		1.90	%
Nontaxable securities (1)		86,093			633		3.02			67,892			529		3.24
Loans receivable (1)		592,633			7,499		5.02			552,897			6,587		4.73
Federal bank and other restricted stocks		2,472			20		3.21			2,472			21		3.37
Equity securities		424			9		8.42			—			—		—
Interest bearing deposits and federal funds sold		50,145			43		0.34			21,742			42		0.77
Total interest-earning assets		914,472			9,010		3.92	%		719,054			7,523		4.18	%

Noninterest-earning assets		37,425								30,865

Total Assets	$	951,897							$	749,919

Interest-bearing liabilities:
NOW	$	143,318		$	35		0.10	%	$	107,191		$	38		0.14	%
Savings		343,763			92		0.11			235,414			84		0.14
Time deposits		116,664			147		0.50			112,543			365		1.29
Short-term borrowings		8,910			1		0.04			8,596			2		0.09
FHLB advances		16,291			63		1.53			20,006			70		1.39
Total interest-bearing liabilities		628,946			338		0.21	%		483,750			559		0.46	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		243,465								193,587
Other liabilities		6,998								5,907
Total liabilities		879,409								683,244
Shareholders’ equity		72,488								66,675

Total liabilities and shareholders’ equity	$	951,897							$	749,919

Net interest income, interest rate spread (1)				$	8,672		3.71	%				$	6,964		3.72	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.77	%							3.87	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	127							$	106

Average interest-earning assets to interest-bearing liabilities		145.40	%							148.64	%

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

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

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

(In thousands, except percentages)

	2021								2020
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	168,323		$	1,517		1.79	%	$	76,240		$	716		1.92	%
Nontaxable securities (1)		84,159			1,228		3.01			67,183			1,043		3.24
Loans receivable (1)		585,497			14,569		4.94			548,530			13,080		4.73
Federal bank and other restricted stocks		2,472			40		3.21			2,472			39		3.13
Equity securities		424			17		7.95			—			—		—
Interest bearing deposits and federal funds sold		62,393			93		0.30			18,409			89		0.96
Total interest-earning assets		903,268			17,464		3.85	%		712,834			14,967		4.20	%

Noninterest-earning assets		36,269								30,600

Total Assets	$	939,537							$	743,434

Interest-bearing liabilities:
NOW	$	140,608		$	68		0.10	%	$	104,646		$	83		0.16	%
Savings		334,222			181		0.11			231,954			189		0.16
Time deposits		118,888			321		0.54			113,680			792		1.38
Short-term borrowings		10,239			3		0.06			8,238			6		0.14
FHLB advances		16,444			127		1.53			22,059			141		1.27
Total interest-bearing liabilities		620,401			700		0.22	%		480,577			1,211		0.50	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		239,965								191,360
Other liabilities		7,081								5,851
Total liabilities		867,447								677,788
Shareholders’ equity		72,090								65,646

Total liabilities and shareholders’ equity	$	939,537							$	743,434

Net interest income, interest rate spread (1)				$	16,764		3.63	%				$	13,756		3.70	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.70	%							3.86	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	246							$	204

Average interest-earning assets to interest-bearing liabilities		145.59	%							148.33	%

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

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Provision for Loan Losses

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the six-month period ended December 31, 2021, the provision for loan losses was $460 compared with $260 for the same prior year period. Net recoveries of $1 were recorded during the six-month period ended December 31, 2021, compared with net charge-offs of $26 during the six-month period ended December 31, 2020. The loan loss provision expense recorded in fiscal year 2022 was primarily due to the organic growth within the loan portfolio.

Non-performing loans were $744 as of December 31, 2021, compared with $1,771 as of June 30, 2021 and $1,940 as of December 31, 2020. Non-performing loans to total loans were 0.12% at December 31, 2021 and 0.31% at June 30, 2021. Non-performing loans declined primarily due to the full payoff of two loans that had a balance of $831 as of June 30, 2021 that were on non-accrual for an extended period. The allowance for loan losses as a percentage of loans was 1.11% at December 31, 2021 and 1.14% at June 30, 2021.

Noninterest Income

Noninterest income increased by $68, or 5.9%, for the second quarter of fiscal year 2022 from the same period last year. For the six-month perioded ended December 31, 2021, noninterest income increased by $200, or 8.7%, from the same period last year primarily due to a $130, or 14.4%, increase in debit card interchange income and a $103, or 16.6% increase in service charges on deposit accounts. Service charges on deposit accounts may be negatively impacted by an industry wide trend of reducing overdraft fees as large banks have announced a reduction in these types of fees in response to regulatory pressure. These increases were partially offset by mortgage banking activity decreasing by $53, or 11.0%, from the same prior year period. Gains from the sale of mortgage loans to the secondary market declined as refinancing of mortgages slowed as a result of the increase in mortgage rates from the record lows in the previous year.

Noninterest Expenses

Total noninterest expenses increased by $818, or 16.9%, for the second quarter of fiscal year 2022 compared with the same period last year. Increases in salaries and employee benefits; FDIC assessments; and occupancy and equipment expenses contributed to the increase in noninterest expenses for the three-month period ended December 31, 2021.

Total noninterest expenses increased by $1,851, or 19.2%, for the six-month period ended December 31, 2021 compared with the same period last year. Salaries and employee benefit expenses increased by $1,065, or 19.5%, due to the addition of staff at three new office locations, the addition of lending staff, and increases in health care costs. FDIC assessments increased by $122, or 82.4%, for the current fiscal year-to-date period ended December 31, 2021 primarily due to the growth within the organization.

Income Taxes

Income tax expense was $685 and $1,244 for the three- and six-month periods ended December 31, 2021, respectively, compared to $543 and $1,048 for the three- and six-month periods ended December 31, 2020, respectively. The effective tax rates were 17.8% and 17.6% for the three- and six-month periods ended December 31, 2021 and 2020, respectively. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, and bank owned life insurance income.

Financial Condition

Total assets as of December 31, 2021 were $954,903 compared to $833,804 at June 30, 2021, an increase of $121,099, or an annualized 29.0%. Since June 30, 2021, total deposits increased by $121,371, or an annualized 33.4% and includes $104,538 of deposits acquired as part of the acquisition of the branches from CFBank. The Corporation has maintained a favorable deposit mix, with 28.2% in noninterest-bearing deposits, 16.9% in interest bearing demand deposits, 41.6% in savings and money market deposits, and 13.3% in time deposits as of December 31, 2021.

Total loans increased by $56,580, or an annualized 20.0%, from June 30, 2021. The increase in loans included organic loan growth of $53,626 and loans acquired as part of the acquisition of the branches from CFBank with an outstanding balance of $15,198 as of December 31, 2021. In addition, the mortgage loan warehouse line of credit to another financial institution had an outstanding balance of $25,750 as of December 31, 2021 and was zero as of June 30, 2021. These increases were partially offset by a $37,994 decline in PPP loans from June 30, 2021, to $12,692 as of December 31, 2021, as the pace of PPP loan forgiveness remained high.

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Non-Performing Assets

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

	December 31, 2021			June 30, 2021			December 31, 2020
Non-accrual loans	$	740		$	1,771		$	1,940
Loans past due over 90 days and still accruing		4			—			—
Total non-performing loans		744			1,771			1,940
Other real estate and repossessed assets		83			—			—
Total non-performing assets	$	827		$	1,771		$	1,940

Non-performing loans to total loans		0.12	%		0.31	%		0.35	%
Allowance for loan losses to total non-performing loans		931.72	%		365.39	%		304.74	%

As of December 31, 2021, impaired loans totaled $908, of which $740 are included in non-accrual loans. As of June 30, 2021, impaired loans totaled $1,954, of which $1,771 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.

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

Liquidity

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

For the six months ended December 31, 2021, net cash inflow from operating activities was $8,548, net cash outflows from investing activities was $18,462 and net cash inflows from financing activities was $12,638. A major source of cash was $66,552 from the acquisition of the branches from CFBank, a $16,833 increase in organic deposits and $17,520 from maturity, calls, principal pay downs and sales of available-for-sale securities. A major use of cash included a $67,274 purchases of available-for-sale securities and a $36,719 increase in loans. Total cash and cash equivalents were $21,253 as of December 31, 2021, compared to $18,529 at June 30, 2021 and $9,045 at December 31, 2020.

The Bank offers several types of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $848,220 at December 31, 2021 compared with $726,849 at June 30, 2021.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati. At December 31, 2021, advances from the FHLB of Cincinnati totaled $16,286 compared with $18,050 at June 30, 2021. As of December 31, 2021, the Bank had the ability to borrow an additional $91,341 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and a line of credit for the Corporation. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $10,682 at December 31, 2021 and $13,275 at June 30, 2021.

Jumbo time deposits (those with balances of $250 and over) totaled $19,715 as of December 31, 2021 and $18,488 as of June 30, 2021. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.

Off-Balance Sheet Arrangements

In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $131,397 as of December 31, 2021 and $119,299 as of June 30, 2021.

Capital Resources

Total shareholders’ equity increased to $73,158 as of December 31, 2021, from $69,900 as of June 30, 2021. The primary reason for the increase in shareholders’ equity was from net income of $5,827 for the first six months of fiscal year 2022 which was partially offset by a decrease of $1,968 in accumulated other comprehensive income due to a decline in the unrealized gain in the mark-to-market of available-for-sale securities and by cash dividends paid of $972. During the second quarter of fiscal year 2022, the Corporation took out an unsecured $5,000 line of credit to provide capital support to the Bank and for other general corporate purposes. As of December 31, 2021, the outstanding balance on the line of credit was $2,500.

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

As of December 31, 2021, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 10.92% and the leverage and total risk-based capital ratios were 7.45% and 11.99%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.87% and leverage and total risk-based capital ratios of 7.83% and 13.06%, respectively, as of June 30, 2021. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to December 31, 2021 that would cause the Bank’s capital category to change.

Critical Accounting Policies

The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations are, to a large degree, dependent upon the Corporation’s accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change.

CONSUMERS BANCORP, INC.

Managements's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

The Corporation has identified the appropriateness of the allowance for loan losses and the evaluation of goodwill for impairment as critical accounting policies and an understanding of these policies is necessary to understand the financial statements. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses and Goodwill and Other Intangible Assets), Note four (Loans), Note six (Goodwill and Intangible Assets) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2021 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since June 30, 2021.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “continue,” “estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. The COVID-19 pandemic is affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:

	●	changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in, among other things, high unemployment rates, a deterioration in credit quality of our assets or debtors being unable to meet their obligations;
	●	fluctuations in market interest rates could result in changes in fair market valuations and a decline in the net interest margin and net interest income;
	●	changes in the level of non-performing assets and charge-offs;
	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply;
	●	declining asset values impacting the underlying value of collateral;
	●	unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources;
	●	the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
	●	changes in consumer spending, borrowing and savings habits;
	●	changes in accounting policies, rules and interpretations that may come as a result of COVID-19 or otherwise;
	●	our ability to attract and retain qualified employees;
	●	competitive pressures on product pricing and services;
	●	breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; and
	●	changes in the reliability of our vendors, internal control systems or information systems.

CONSUMERS BANCORP, INC.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2021.

Changes in Internal Controls Over Financial Reporting

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

CONSUMERS BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

None

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

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit

Number

Description

Exhibit 31.1

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

Exhibit 31.2

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

Exhibit 32.1

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

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

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

SIGNATURES

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

	CONSUMERS BANCORP, INC. (Registrant)

Date: February 11, 2022	/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: February 11, 2022	/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)