UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934	
 
For the quarterly period ended March 31, 2020
 
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 3,015,578 shares of Registrant’s common stock, no par value, outstanding as of May 4, 2020.

 

 
 
CONSUMERS BANCORP, INC.
FORM 10-Q
QUARTER ENDED March 31, 2020	
 	
Table of Contents	
 
 	Page
Number (s)	
Part I – Financial Information	
 	 	
Item 1 – Financial Statements (Unaudited)	 	
Consolidated Balance Sheets at March 31, 2020 and June 30, 2019	1	
 	 	
Consolidated Statements of Income for the three and nine months ended March 31, 2020 and 2019	2	
 	 	
Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2020 and 2019	3	
 	 	
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2020 and 2019	4	
 	 	
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2020 and 2019	5	
 	 	
Notes to the Consolidated Financial Statements	6-20	
 	 	
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-29	
 	 	
Item 3 – Not Applicable for Smaller Reporting Companies	 	
 	 	
Item 4 – Controls and Procedures	30	
Part II – Other Information	
Item 1 – Legal Proceedings	31	
 	 	
Item 1A – Not Applicable for Smaller Reporting Companies	31	
 	 	
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	31	
 	 	
Item 3 – Defaults Upon Senior Securities	31	
 	 	
Item 4 – Mine Safety Disclosure	31	
 	 	
Item 5 – Other Information	31	
 	 	
Item 6 – Exhibits	31	
 	 	
Signatures	32	

 

 
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
 
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share data)	 	March 31,
2020	 	 	June 30,
2019	 	
ASSETS	 	 	 	 	 	 	 	 	
Cash on hand and noninterest-bearing deposits in financial institutions	 	$	12,452	 	 	$	9,322	 	
Federal funds sold and interest-bearing deposits in financial institutions	 	 	92	 	 	 	139	 	
Total cash and cash equivalents	 	 	12,544	 	 	 	9,461	 	
Certificates of deposit in other financial institutions	 	 	11,908	 	 	 	1,983	 	
Securities, available-for-sale	 	 	139,383	 	 	 	144,010	 	
Securities, held-to-maturity (fair value of $3,792 at March 31, 2020 and $3,821 at June 30, 2019)	 	 	3,580	 	 	 	3,786	 	
Federal bank and other restricted stocks, at cost	 	 	2,472	 	 	 	1,723	 	
Loans held for sale	 	 	1,830	 	 	 	1,657	 	
Total loans	 	 	467,804	 	 	 	369,175	 	
Less allowance for loan losses	 	 	(4,468	)	 	 	(3,788	)	
Net loans	 	 	463,336	 	 	 	365,387	 	
Cash surrender value of life insurance	 	 	9,376	 	 	 	9,606	 	
Premises and equipment, net	 	 	15,154	 	 	 	14,155	 	
Goodwill	 	 	836	 	 	 	—	 	
Core deposit intangible, net	 	 	263	 	 	 	—	 	
Accrued interest receivable and other assets	 	 	2,595	 	 	 	2,168	 	
Total assets	 	$	663,277	 	 	$	553,936	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Deposits	 	 	 	 	 	 	 	 	
Noninterest-bearing demand	 	$	137,554	 	 	$	116,239	 	
Interest bearing demand	 	 	84,273	 	 	 	81,469	 	
Savings	 	 	212,613	 	 	 	162,261	 	
Time	 	 	128,582	 	 	 	112,205	 	
Total deposits	 	 	563,022	 	 	 	472,174	 	
 	 	 	 	 	 	 	 	 	
Short-term borrowings	 	 	6,386	 	 	 	3,686	 	
Federal Home Loan Bank advances	 	 	27,079	 	 	 	22,700	 	
Accrued interest and other liabilities	 	 	5,462	 	 	 	4,210	 	
Total liabilities	 	 	601,949	 	 	 	502,770	 	
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; 3,124,053 shares issued as of March 31, 2020 and 2,854,133 as of June 30, 2019)	 	 	19,974	 	 	 	14,656	 	
Retained earnings	 	 	39,300	 	 	 	36,487	 	
Treasury stock, at cost (108,475 and 120,288 common shares as of March 31, 2020 and June 30, 2019, respectively)	 	 	(1,454	)	 	 	(1,543	)	
Accumulated other comprehensive income	 	 	3,508	 	 	 	1,566	 	
Total shareholders’ equity	 	 	61,328	 	 	 	51,166	 	
Total liabilities and shareholders’ equity	 	$	663,277	 	 	$	553,936	 	
 
See accompanying notes to consolidated financial statements
 
1

 
 
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
 	 	Three Months ended
March 31,	 	 	Nine Months ended
March 31,	 	
(Dollars in thousands, except per share amounts)	 	2020	 	 	2019	 	 	2020	 	 	2019	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and dividend income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans, including fees	 	$	5,654	 	 	$	4,115	 	 	$	15,277	 	 	$	12,123	 	
Securities, taxable	 	 	488	 	 	 	566	 	 	 	1,478	 	 	 	1,641	 	
Securities, tax-exempt	 	 	387	 	 	 	403	 	 	 	1,186	 	 	 	1,177	 	
Federal bank and other restricted stocks	 	 	16	 	 	 	19	 	 	 	56	 	 	 	63	 	
Federal funds sold and other interest-bearing deposits	 	 	61	 	 	 	16	 	 	 	103	 	 	 	73	 	
Total interest and dividend income	 	 	6,606	 	 	 	5,119	 	 	 	18,100	 	 	 	15,077	 	
Interest expense	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits	 	 	918	 	 	 	749	 	 	 	2,773	 	 	 	1,881	 	
Short-term borrowings	 	 	14	 	 	 	10	 	 	 	38	 	 	 	38	 	
Federal Home Loan Bank advances	 	 	80	 	 	 	118	 	 	 	218	 	 	 	243	 	
Total interest expense	 	 	1,012	 	 	 	877	 	 	 	3,029	 	 	 	2,162	 	
Net interest income	 	 	5,594	 	 	 	4,242	 	 	 	15,071	 	 	 	12,915	 	
Provision for loan losses	 	 	445	 	 	 	105	 	 	 	760	 	 	 	(555	)	
Net interest income after provision for loan losses	 	 	5,149	 	 	 	4,137	 	 	 	14,311	 	 	 	13,470	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service charges on deposit accounts	 	 	355	 	 	 	298	 	 	 	1,088	 	 	 	935	 	
Debit card interchange income	 	 	367	 	 	 	338	 	 	 	1,142	 	 	 	1,065	 	
Bank owned life insurance death benefit	 	 	—	 	 	 	—	 	 	 	324	 	 	 	—	 	
Bank owned life insurance income	 	 	65	 	 	 	66	 	 	 	199	 	 	 	203	 	
Securities gains (losses), net	 	 	121	 	 	 	1	 	 	 	231	 	 	 	561	 	
Other	 	 	199	 	 	 	157	 	 	 	617	 	 	 	535	 	
Total noninterest income	 	 	1,107	 	 	 	860	 	 	 	3,601	 	 	 	3,299	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and employee benefits	 	 	2,760	 	 	 	2,129	 	 	 	7,140	 	 	 	6,203	 	
Occupancy and equipment	 	 	655	 	 	 	543	 	 	 	1,782	 	 	 	1,546	 	
Data processing expenses	 	 	206	 	 	 	154	 	 	 	732	 	 	 	461	 	
Debit card processing expenses	 	 	204	 	 	 	182	 	 	 	599	 	 	 	565	 	
Professional and director fees	 	 	414	 	 	 	140	 	 	 	804	 	 	 	481	 	
FDIC assessments	 	 	54	 	 	 	38	 	 	 	52	 	 	 	114	 	
Franchise taxes	 	 	106	 	 	 	89	 	 	 	296	 	 	 	266	 	
Marketing and advertising	 	 	125	 	 	 	87	 	 	 	399	 	 	 	322	 	
Telephone and network communications	 	 	79	 	 	 	65	 	 	 	223	 	 	 	201	 	
Amortization of intangible	 	 	7	 	 	 	—	 	 	 	7	 	 	 	—	 	
Other	 	 	464	 	 	 	385	 	 	 	1,280	 	 	 	1,217	 	
Total noninterest expenses	 	 	5,074	 	 	 	3,812	 	 	 	13,314	 	 	 	11,376	 	
Income before income taxes	 	 	1,182	 	 	 	1,185	 	 	 	4,598	 	 	 	5,393	 	
Income tax expense	 	 	164	 	 	 	150	 	 	 	637	 	 	 	836	 	
Net income	 	$	1,018	 	 	$	1,035	 	 	$	3,961	 	 	$	4,557	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted earnings per share	 	$	0.34	 	 	$	0.38	 	 	$	1.40	 	 	$	1.67	 	
 
See accompanying notes to consolidated financial statements
 
2

 
 
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
(Dollars in thousands)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months ended
March 31,	 	 	Nine Months ended
March 31,	 	
 	 	2020	 	 	2019	 	 	2020	 	 	2019	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1,018	 	 	$	1,035	 	 	$	3,961	 	 	$	4,557	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive income, net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized gains (losses) on securities available-for-sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains arising during the period	 	 	1,900	 	 	 	1,946	 	 	 	2,690	 	 	 	2,840	 	
Reclassification adjustment for gains included in income	 	 	(121	)	 	 	(1	)	 	 	(231	)	 	 	(561	)	
Net unrealized gains	 	 	1,779	 	 	 	1,945	 	 	 	2,459	 	 	 	2,279	 	
Income tax effect	 	 	(373	)	 	 	(410	)	 	 	(517	)	 	 	(480	)	
Other comprehensive income	 	 	1,406	 	 	 	1,535	 	 	 	1,942	 	 	 	1,799	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	$	2,424	 	 	$	2,570	 	 	$	5,903	 	 	$	6,356	 	
 
See accompanying notes to consolidated financial statements.
 
3

 
 
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
(Dollars in thousands, except per share data)	 	Common Stock 	 	 	Retained
Earnings	 	 	Treasury
Stock	 	 	Accumulated
Other
Comprehensive
Income (Loss)	 	 	Total
Shareholders’
Equity	 	
Balance, December 31, 2018	 	$	14,628	 	 	$	35,154	 	 	$	(1,515	)	 	$	(1,371	)	 	$	46,896	 	
Net income	 	 	 	 	 	 	1,035	 	 	 	 	 	 	 	 	 	 	 	1,035	 	
Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,535	 	 	 	1,535	 	
Cash dividends declared ($0.13 per share)	 	 	 	 	 	 	(355	)	 	 	 	 	 	 	 	 	 	 	(355	)	
Balance, March 31, 2019	 	$	14,628	 	 	$	35,834	 	 	$	(1,515	)	 	$	164	 	 	$	49,111	 	

Balance, December 31, 2019	 	$	14,697	 	 	$	38,691	 	 	$	(1,454	)	 	$	2,102	 	 	$	54,036	 	
Net income	 	 	 	 	 	 	1,018	 	 	 	 	 	 	 	 	 	 	 	1,018	 	
Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,406	 	 	 	1,406	 	
269,920 shares issued for the Peoples acquisition	 	 	5,277	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,277	 	
Cash dividends declared ($0.135 per share)	 	 	 	 	 	 	(409	)	 	 	 	 	 	 	 	 	 	 	(409	)	
Balance, March 31, 2020	 	$	19,974	 	 	$	39,300	 	 	$	(1,454	)	 	$	3,508	 	 	$	61,328	 	
 
(Dollars in thousands, except per share data)	 	Common
Stock 	 	 	Retained
Earnings	 	 	Treasury
Stock	 	 	Accumulated
Other
Comprehensive
Income (Loss)	 	 	Total
Shareholders’
Equity	 	
Balance, June 30, 2018	 	$	14,630	 	 	$	32,342	 	 	$	(1,576	)	 	$	(1,635	)	 	$	43,761	 	
Net income	 	 	 	 	 	 	4,557	 	 	 	 	 	 	 	 	 	 	 	4,557	 	
Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,799	 	 	 	1,799	 	
3,997 shares associated with vested and expired stock awards	 	 	(2	)	 	 	 	 	 	 	61	 	 	 	 	 	 	 	59	 	
Cash dividends declared ($0.39 per share)	 	 	 	 	 	 	(1,065	)	 	 	 	 	 	 	 	 	 	 	(1,065	)	
Balance, March 31, 2019	 	$	14,628	 	 	$	35,834	 	 	$	(1,515	)	 	$	164	 	 	$	49,111	 	

Balance, June 30, 2019	 	$	14,656	 	 	$	36,487	 	 	$	(1,543	)	 	$	1,566	 	 	$	51,166	 	
Net income	 	 	 	 	 	 	3,961	 	 	 	 	 	 	 	 	 	 	 	3,961	 	
Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,942	 	 	 	1,942	 	
269,920 shares issued for the Peoples acquisition	 	 	5,277	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,277	 	
11,813 shares associated with vested stock awards	 	 	41	 	 	 	 	 	 	 	89	 	 	 	 	 	 	 	130	 	
Cash dividends declared ($0.405 per share)	 	 	 	 	 	 	(1,148	)	 	 	 	 	 	 	 	 	 	 	(1,148	)	
Balance, March 31, 2020	 	$	19,974	 	 	$	39,300	 	 	$	(1,454	)	 	$	3,508	 	 	$	61,328	 	
 
See accompanying notes to consolidated financial statements.
 
4

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

(Dollars in thousands)	 	Nine Months Ended
March 31,	 	
 	 	2020	 	 	2019	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	
Net cash from operating activities	 	$	5,024	 	 	$	5,275	 	
Cash flow from investing activities	 	 	 	 	 	 	 	 	
Purchases of securities, available-for-sale	 	 	(18,610	)	 	 	(16,778	)	
Maturities, calls and principal pay downs of securities, available-for-sale	 	 	17,575	 	 	 	13,721	 	
Sale of securities, available-for-sale	 	 	11,841	 	 	 	7,670	 	
Principal pay downs of securities, held-to-maturity	 	 	206	 	 	 	200	 	
Net decrease in certificate of deposit in other financial institutions	 	 	1,914	 	 	 	990	 	
Purchase of Federal Reserve Bank stock, at cost	 	 	(595	)	 	 	—	 	
Net increase in loans	 	 	(43,405	)	 	 	(28,239	)	
Acquisition, net of cash acquired	 	 	(4,295	)	 	 	—	 	
Proceeds from BOLI death benefit	 	 	753	 	 	 	—	 	
Premises and equipment purchases	 	 	(453	)	 	 	(1,528	)	
Sale of other repossessed assets	 	 	39	 	 	 	—	 	
Net cash from investing activities	 	 	(35,030	)	 	 	(23,964	)	
Cash flow from financing activities	 	 	 	 	 	 	 	 	
Net increase in deposit accounts	 	 	29,997	 	 	 	29,326	 	
Net change in short-term borrowings	 	 	352	 	 	 	(9,342	)	
Proceeds from Federal Home Loan Bank advances	 	 	17,500	 	 	 	2,400	 	
Repayments of Federal Home Loan Bank advances	 	 	(13,612	)	 	 	(2,050	)	
Dividends paid	 	 	(1,148	)	 	 	(1,065	)	
Net cash from financing activities	 	 	33,089	 	 	 	19,269	 	
Increase in cash or cash equivalents	 	 	3,083	 	 	 	580	 	
Cash and cash equivalents, beginning of period	 	 	9,461	 	 	 	7,772	 	
Cash and cash equivalents, end of period	 	$	12,544	 	 	$	8,352	 	
Supplemental disclosure of cash flow information:	 	 	 	 	 	 	 	 	
Cash paid during the period:	 	 	 	 	 	 	 	 	
Interest	 	$	3,048	 	 	$	2,102	 	
Federal income taxes	 	 	675	 	 	 	645	 	
Non-cash items:	 	 	 	 	 	 	 	 	
Transfer from loans held for sale to portfolio	 	 	—	 	 	 	75	 	
Issuance of treasury stock for stock awards	 	 	89	 	 	 	59	 	
Right of use assets obtained in exchange for lease liabilities	 	 	582	 	 	 	—	 	
Acquisition of Peoples:	 	 	 	 	 	 	 	 	
Consideration paid	 	$	10,405	 	 	 	 	 	
Noncash assets acquired:	 	 	 	 	 	 	 	 	
Certificates of deposit in other financial institutions	 	 	11,839	 	 	 	 	 	
Securities, available-for-sale	 	 	4,051	 	 	 	 	 	
Federal bank and other restricted stocks, at cost	 	 	154	 	 	 	 	 	
Loans, net	 	 	55,320	 	 	 	 	 	
Premises and equipment	 	 	818	 	 	 	 	 	
Goodwill	 	 	836	 	 	 	 	 	
Core deposit intangible	 	 	270	 	 	 	 	 	
Accrued interest receivable and other assets	 	 	140	 	 	 	 	 	
Total noncash assets acquired	 	 	73,428	 	 	 	 	 	
Liabilities assumed:	 	 	 	 	 	 	 	 	
Deposits	 	 	60,851	 	 	 	 	 	
Federal funds purchased	 	 	2,348	 	 	 	 	 	
Federal Home Loan Bank advances	 	 	491	 	 	 	 	 	
Other liabilities	 	 	166	 	 	 	 	 	
Total liabilities assumed	 	 	63,856	 	 	 	 	 	
Net noncash assets acquired	 	 	9,572	 	 	 	 	 	
Cash acquired	 	 	833	 	 	 	 	 	
 
See accompanying notes to consolidated financial statements.

5

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
 
(Dollars in thousands, except per share amounts)

Note 1 – Summary of Significant Accounting Policies:
 
Nature of Operations: Consumers Bancorp, Inc. (the Corporation) is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, Consumers National Bank (the Bank), a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and contiguous counties in Ohio. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.
 
Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-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, 2019. 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 of the Corporation’s operations are recorded in one segment, banking.
 
Acquisition: At the date of acquisition the Corporation records the assets and liabilities of acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Corporation’s Consolidated Statements of Income beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Income during the periods incurred.
 
Reclassifications: Certain items in prior financial statements have been reclassified to conform to the current presentation. Any reclassifications had no impact on prior year net income or shareholders’ equity.
 
Adoption of New Accounting Standards: In February 2016, FASB issued accounting standards update (ASU) 2016-02, Leases (Topic 842). This ASU requires all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures are required so users can understand more about the nature of an entity’s leasing activities. The new guidance was effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. The Corporation has several lease agreements, such as branch locations, which were previously considered operating leases, and therefore, not recognized on the Corporation’s consolidated condensed statements of financial condition. The new guidance requires these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease liability. As of July 1, 2019, the Corporation adopted ASU 2016-02 using the modified retrospective method. There was no cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. As of March 31, 2020, the Corporation had contractual operating lease commitments of $500.
 
Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, 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.
 
6

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 2 – Acquisition
 
On June 14, 2019, the Corporation entered into an Agreement and Plan of Merger with Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) and its wholly owned subsidiary, The Peoples National Bank of Mount Pleasant (Peoples Bank). On January 1, 2020, Consumers completed the acquisition by merger of Peoples in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. Immediately following the merger, Peoples Bank, was merged into the Corporation’s banking subsidiary, Consumers National Bank.
 
On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The assets and liabilities of Peoples were recorded on the Corporation’s Balance Sheet at their estimated fair values as of January 1, 2020, the acquisition date, and Peoples’ results of operations are included in the Corporation’s Consolidated Statements of Income beginning on that date.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of Peoples. 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.
 
Consideration Paid	 	 	 	 	 	$	10,405	 	
Net assets acquired:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	833	 	 	 	 	 	
Certificates of deposit in other financial institutions	 	 	11,839	 	 	 	 	 	
Securities, available-for-sale	 	 	4,051	 	 	 	 	 	
Federal bank and other restricted stocks, at cost	 	 	154	 	 	 	 	 	
Loans, net	 	 	55,320	 	 	 	 	 	
Premises and equipment	 	 	818	 	 	 	 	 	
Core deposit intangible	 	 	270	 	 	 	 	 	
Accrued interest receivable and other assets	 	 	140	 	 	 	 	 	
Noninterest-bearing deposits	 	 	(11,979	)	 	 	 	 	
Interest-bearing deposits	 	 	(48,872	)	 	 	 	 	
Federal funds purchased	 	 	(2,348	)	 	 	 	 	
Federal Home Loan Bank advances	 	 	(491	)	 	 	 	 	
Other liabilities	 	 	(166	)	 	 	 	 	
Total net assets acquired	 	 	 	 	 	 	9,569	 	
Goodwill	 	 	 	 	 	$	836	 	
 
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 $55,273 before considering Peoples’ allowance for loan losses, which was not carried over. The fair value disclosed above reflects a credit-related adjustment of $(890) and an adjustment for other factors of $937. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were immaterial. Acquisition costs of $433 were recorded during the third quarter of fiscal year 2020 and $755 for the nine-month period ended March 31, 2020. 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.
 
7

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 3 – Securities

Available –for-Sale
 	 	Amortized
Cost	 	 	Gross
Unrealized
Gains	 	 	Gross
Unrealized
Losses	 	 	Fair
Value	 	
March 31, 2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury	 	$	1,747	 	 	$	14	 	 	$	—	 	 	$	1,761	 	
Obligations of U.S. government-sponsored entities and agencies	 	 	10,574	 	 	 	290	 	 	 	—	 	 	 	10,864	 	
Obligations of state and political subdivisions	 	 	56,969	 	 	 	1,969	 	 	 	(5	)	 	 	58,933	 	
U.S. Government-sponsored mortgage-backed securities–residential	 	 	55,248	 	 	 	1,822	 	 	 	(1	)	 	 	57,069	 	
U.S. Government-sponsored mortgage-backed securities– commercial	 	 	1,397	 	 	 	6	 	 	——	 	 	 	1,403	 	
U.S. Government-sponsored collateralized mortgage obligations– residential	 	 	9,007	 	 	 	346	 	 	 	—	 	 	 	9,353	 	
Total available-for-sale securities	 	$	134,942	 	 	$	4,447	 	 	$	(6	)	 	$	139,383	 	
 
Held-to-Maturity
 	 	Amortized
Cost	 	 	Gross
Unrecognized
Gains	 	 	Gross
Unrecognized Losses	 	 	Fair
Value 	 	
March 31, 2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of state and political subdivisions	 	$	3,580	 	 	$	212	 	 	$	—	 	 	$	3,792	 	
Total held-to-maturity securities	 	$	3,580	 	 	$	212	 	 	$	—	 	 	$	3,792	 	
 
Available–for-Sale	 	Amortized
Cost	 	 	Gross
Unrealized
Gains	 	 	Gross
Unrealized
Losses	 	 	Fair
Value	 	
June 30, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of U.S. government-sponsored entities and agencies	 	$	19,227	 	 	$	287	 	 	$	(1	)	 	$	19,513	 	
Obligations of state and political subdivisions	 	 	56,405	 	 	 	1,557	 	 	 	(33	)	 	 	57,929	 	
U.S. Government-sponsored mortgage-backed securities – residential	 	 	56,309	 	 	 	450	 	 	 	(448	)	 	 	56,311	 	
U.S. Government-sponsored collateralized mortgage obligations – residential	 	 	10,087	 	 	 	198	 	 	 	(28	)	 	 	10,257	 	
Total available-for-sale securities	 	$	142,028	 	 	$	2,492	 	 	$	(510	)	 	$	144,010	 	
 
Held-to-Maturity
 	 	Amortized
Cost	 	 	Gross
Unrecognized
Gains	 	 	Gross
Unrecognized
Losses	 	 	Fair
Value	 	
June 30, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of state and political subdivisions	 	$	3,786	 	 	$	35	 	 	$	—	 	 	$	3,821	 	
Total held-to-maturity securities	 	$	3,786	 	 	$	35	 	 	$	—	 	 	$	3,821	 	
 
Proceeds from the sale and call of available-for-sale securities were as follows:
 
 	 	Three Months Ended
March 31,	 	 	Nine Months Ended
March 31,	 	
 	 	2020	 	 	2019	 	 	2020	 	 	2019	 	
Proceeds from sales	 	$	5,731	 	 	$	2,772	 	 	$	11,841	 	 	$	7,670	 	
Gross realized gains	 	 	121	 	 	 	12	 	 	 	231	 	 	 	606	 	
Gross realized losses	 	 	—	 	 	 	11	 	 	 	—	 	 	 	45	 	
 
The income tax provision related to the net realized gains amounted to $26 and $49 for the three and nine months ended March 31, 2020. The income tax provision related to net realized gains amounted to $118 for the nine months ended March 31, 2019.
 
8

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The amortized cost and fair values of debt securities at March 31, 2020, 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	 	$	8,341	 	 	$	8,401	 	
Due after one year through five years	 	 	15,554	 	 	 	15,963	 	
Due after five years through ten years	 	 	13,703	 	 	 	14,023	 	
Due after ten years	 	 	31,692	 	 	 	33,171	 	
Total	 	 	69,290	 	 	 	71,558	 	
 	 	 	 	 	 	 	 	 	
U.S. Government-sponsored mortgage-backed and related securities	 	 	65,652	 	 	 	67,825	 	
Total available-for-sale securities	 	$	134,942	 	 	$	139,383	 	
 	 	 	 	 	 	 	 	 	
Held-to-Maturity	 	 	 	 	 	 	 	 	
Due after five years through ten years	 	$	412	 	 	$	430	 	
Due after ten years	 	 	3,168	 	 	 	3,362	 	
Total held-to-maturity securities	 	$	3,580	 	 	$	3,792	 	
 
The following table summarizes the securities with unrealized losses at March 31, 2020 and June 30, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
 	 	Less than 12 Months	 	 	12 Months or more	 	 	Total	 	
Available-for-sale	 	Fair
Value	 	 	Unrealized
Loss	 	 	Fair
Value	 	 	Unrealized
Loss	 	 	Fair
Value	 	 	Unrealized
Loss	 	
March 31, 2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of states and political subdivisions	 	$	1,357	 	 	$	(5	)	 	$	—	 	 	$	—	 	 	$	1,357	 	 	$	(5	)	
U.S. Government-sponsored mortgage-backed securities – residential	 	 	—	 	 	 	—	 	 	 	648	 	 	 	(1	)	 	 	648	 	 	 	(1	)	
Total temporarily impaired	 	$	1,357	 	 	$	(5	)	 	$	648	 	 	$	(1	)	 	$	2,005	 	 	$	(6	)	
 
 	 	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, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of U.S. government-sponsored entities and agencies	 	$	—	 	 	$	—	 	 	$	998	 	 	$	(1	)	 	$	998	 	 	$	(1	)	
Obligations of states and political subdivisions	 	 	—	 	 	 	—	 	 	 	5,201	 	 	 	(33	)	 	 	5,201	 	 	 	(33	)	
U.S. Government-sponsored mortgage-backed securities – residential	 	 	—	 	 	 	—	 	 	 	36,362	 	 	 	(448	)	 	 	36,362	 	 	 	(448	)	
U.S. Government-sponsored collateralized mortgage obligations - residential	 	 	—	 	 	 	—	 	 	 	3,277	 	 	 	(28	)	 	 	3,277	 	 	 	(28	)	
Total temporarily impaired	 	$	—	 	 	$	—	 	 	$	45,838	 	 	$	(510	)	 	$	45,838	 	 	$	(510	)	
 
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.
 
The unrealized losses within the securities portfolio as of March 31, 2020 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The decline in fair value within the securities portfolio is largely due to changes in municipal and mortgage backed security spreads and the fair value is expected to recover. 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.
 
9

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 4 – Loans
 
Major classifications of loans were as follows:
 	 	March 31,
2020	 	 	June 30,
2019	 	
Commercial	 	$	85,848	 	 	$	80,453	 	
Commercial real estate:	 	 	 	 	 	 	 	 	
Construction	 	 	16,673	 	 	 	16,120	 	
Other	 	 	229,329	 	 	 	195,269	 	
1 – 4 Family residential real estate:	 	 	 	 	 	 	 	 	
Owner occupied	 	 	87,631	 	 	 	55,941	 	
Non-owner occupied	 	 	19,391	 	 	 	14,517	 	
Construction	 	 	7,417	 	 	 	1,931	 	
Consumer	 	 	21,563	 	 	 	5,150	 	
Subtotal	 	 	467,852	 	 	 	369,381	 	
Net Deferred loan fees and costs	 	 	(48	)	 	 	(206	)	
Allowance for loan losses	 	 	(4,468	)	 	 	(3,788	)	
Net Loans	 	$	463,336	 	 	$	365,387	 	
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020:
 
 	 	 	 	 	 	 	 	 	 	1-4 Family	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Commercial	 	 	Residential	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Real	 	 	Real	 	 	 	 	 	 	 	 	 	
 	 	Commercial	 	 	Estate	 	 	Estate	 	 	Consumer	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning balance	 	$	766	 	 	$	2,652	 	 	$	615	 	 	$	62	 	 	$	4,095	 	
Provision for loan losses	 	 	25	 	 	 	203	 	 	 	116	 	 	 	101	 	 	 	445	 	
Loans charged-off	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(91	)	 	 	(91	)	
Recoveries	 	 	—	 	 	 	1	 	 	 	1	 	 	 	17	 	 	 	19	 	
Total ending allowance balance	 	$	791	 	 	$	2,856	 	 	$	732	 	 	$	89	 	 	$	4,468	 	
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2020:
 
 	 	 	 	 	 	 	 	 	 	1-4 Family	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Commercial	 	 	Residential	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Real	 	 	Real	 	 	 	 	 	 	 	 	 	
 	 	Commercial	 	 	Estate	 	 	Estate	 	 	Consumer	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning balance	 	$	660	 	 	$	2,575	 	 	$	494	 	 	$	59	 	 	$	3,788	 	
Provision for loan losses	 	 	131	 	 	 	278	 	 	 	236	 	 	 	115	 	 	 	760	 	
Loans charged-off	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(114	)	 	 	(114	)	
Recoveries	 	 	—	 	 	 	3	 	 	 	2	 	 	 	29	 	 	 	34	 	
Total ending allowance balance	 	$	791	 	 	$	2,856	 	 	$	732	 	 	$	89	 	 	$	4,468	 	
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2019:
 
 	 	 	 	 	 	 	 	 	 	1-4 Family	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Commercial	 	 	Residential	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Real	 	 	Real	 	 	 	 	 	 	 	 	 	
 	 	Commercial	 	 	Estate	 	 	Estate	 	 	Consumer	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning balance	 	$	622	 	 	$	2,397	 	 	$	496	 	 	$	54	 	 	$	3,569	 	
Provision for loan losses	 	 	—	 	 	 	102	 	 	 	5	 	 	 	(2	)	 	 	105	 	
Loans charged-off	 	 	—	 	 	 	(25	)	 	 	—	 	 	 	(9	)	 	 	(34	)	
Recoveries	 	 	—	 	 	 	7	 	 	 	2	 	 	 	7	 	 	 	16	 	
Total ending allowance balance	 	$	622	 	 	$	2,481	 	 	$	503	 	 	$	50	 	 	$	3,656	 	
 
10

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2019:
 
 	 	 	 	 	 	 	 	 	 	1-4 Family	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Commercial	 	 	Residential	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Real	 	 	Real	 	 	 	 	 	 	 	 	 	
 	 	Commercial	 	 	Estate	 	 	Estate	 	 	Consumer	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning balance	 	$	586	 	 	$	2,277	 	 	$	499	 	 	$	60	 	 	$	3,422	 	
Provision for loan losses	 	 	36	 	 	 	(591	)	 	 	(2	)	 	 	2	 	 	 	(555	)	
Loans charged-off	 	 	—	 	 	 	(80	)	 	 	—	 	 	 	(30	)	 	 	(110	)	
Recoveries	 	 	—	 	 	 	875	 	 	 	6	 	 	 	18	 	 	 	899	 	
Total ending allowance balance	 	$	622	 	 	$	2,481	 	 	$	503	 	 	$	50	 	 	$	3,656	 	
 
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020. Included in the recorded investment in loans is $1,045 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	 	 	$	8	 	 	$	—	 	 	$	—	 	 	$	9	 	
Acquired loans collectively evaluated for impairment	 	 	—	 	 	 	13	 	 	 	37	 	 	 	—	 	 	 	50	 	
Originated loans collectively evaluated for impairment	 	 	790	 	 	 	2,835	 	 	 	695	 	 	 	89	 	 	 	4,409	 	
Total ending allowance balance	 	$	791	 	 	$	2,856	 	 	$	732	 	 	$	89	 	 	$	4,468	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Recorded investment in loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans individually evaluated for impairment	 	$	177	 	 	$	1,063	 	 	$	284	 	 	$	—	 	 	$	1,524	 	
Acquired loans collectively evaluated for impairment	 	 	1,527	 	 	 	9,462	 	 	 	27,562	 	 	 	13,519	 	 	 	52,070	 	
Originated loans collectively evaluated for impairment	 	 	84,275	 	 	 	235,513	 	 	 	87,363	 	 	 	8,104	 	 	 	415,255	 	
Total ending loans balance	 	$	85,979	 	 	$	246,038	 	 	$	115,209	 	 	$	21,623	 	 	$	468,849	 	
 
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, 2019. Included in the recorded investment in loans is $891 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	 	$	2	 	 	$	7	 	 	$	—	 	 	$	—	 	 	$	9	 	
Collectively evaluated for impairment	 	 	658	 	 	 	2,568	 	 	 	494	 	 	 	59	 	 	 	3,779	 	
Total ending allowance balance	 	$	660	 	 	$	2,575	 	 	$	494	 	 	$	59	 	 	$	3,788	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Recorded investment in loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans individually evaluated for impairment	 	$	174	 	 	$	658	 	 	$	357	 	 	$	—	 	 	$	1,189	 	
Loans collectively evaluated for impairment	 	 	80,413	 	 	 	210,709	 	 	 	72,591	 	 	 	5,164	 	 	 	368,877	 	
Total ending loans balance	 	$	80,587	 	 	$	211,367	 	 	$	72,948	 	 	$	5,164	 	 	$	370,066	 	
 
11

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of March 31, 2020 and for the nine months ended March 31, 2020:
 
 	 	As of March 31, 2020	 	 	Nine Months ended March 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	 	$	21	 	 	$	21	 	 	$	—	 	 	$	5	 	 	$	—	 	 	$	—	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	933	 	 	 	846	 	 	 	—	 	 	 	415	 	 	 	88	 	 	 	88	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	79	 	 	 	42	 	 	 	—	 	 	 	27	 	 	 	7	 	 	 	7	 	
Non-owner occupied	 	 	288	 	 	 	242	 	 	 	—	 	 	 	251	 	 	 	—	 	 	 	—	 	
With an allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	155	 	 	 	156	 	 	 	1	 	 	 	164	 	 	 	7	 	 	 	7	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	214	 	 	 	217	 	 	 	8	 	 	 	218	 	 	 	10	 	 	 	10	 	
Total	 	$	1,690	 	 	$	1,524	 	 	$	9	 	 	$	1,080	 	 	$	112	 	 	$	112	 	
 
The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended March 31, 2020:
 
 	 	Average	 	 	Interest	 	 	Cash Basis	 	 	
 	 	Recorded	 	 	Income	 	 	Interest	 	 	
 	 	Investment	 	 	Recognized	 	 	Recognized	 	 	
With no related allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	$	14	 	 	$	—	 	 	$	—	 	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	641	 	 	 	1	 	 	 	1	 	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	31	 	 	 	—	 	 	 	—	 	 	
Non-owner occupied	 	 	244	 	 	 	—	 	 	 	—	 	 	
With an allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	158	 	 	 	2	 	 	 	2	 	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	216	 	 	 	4	 	 	 	4	 	 	
Total	 	$	1,304	 	 	$	7	 	 	$	7	 	 	
 
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, 2019 and for the nine months ended March 31, 2019:
 
 	 	As of June 30, 2019	 	 	Nine Months ended March 31, 2019	 	
 	 	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	 	$	—	 	 	$	—	 	 	$	—	 	 	$	100	 	 	$	5	 	 	$	5	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	580	 	 	 	436	 	 	 	—	 	 	 	1,176	 	 	 	28	 	 	 	28	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	124	 	 	 	93	 	 	 	—	 	 	 	98	 	 	 	—	 	 	 	—	 	
Non-owner occupied	 	 	297	 	 	 	264	 	 	 	—	 	 	 	283	 	 	 	—	 	 	 	—	 	
With an allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	221	 	 	 	222	 	 	 	7	 	 	 	227	 	 	 	10	 	 	 	10	 	
Commercial	 	 	173	 	 	 	174	 	 	 	2	 	 	 	—	 	 	 	—	 	 	 	—	 	
Total	 	$	1,395	 	 	$	1,189	 	 	$	9	 	 	$	1,884	 	 	$	43	 	 	$	43	 	
 
12

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended March 31, 2019:
 
 	 	Average	 	 	Interest	 	 	Cash Basis	 	 	
 	 	Recorded	 	 	Income	 	 	Interest	 	 	
 	 	Investment	 	 	Recognized	 	 	Recognized	 	 	
With no related allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	$	116	 	 	$	2	 	 	$	2	 	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	1,019	 	 	 	9	 	 	 	9	 	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	96	 	 	 	—	 	 	 	—	 	 	
Non-owner occupied	 	 	275	 	 	 	—	 	 	 	—	 	 	
With an allowance recorded:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	224	 	 	 	3	 	 	 	3	 	 	
Total	 	$	1,730	 	 	$	14	 	 	$	14	 	 	
 
The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2020 and June 30, 2019:
 
 	 	March 31, 2020	 	 	June 30, 2019	 	
 	 	 	 	 	 	Loans Past Due	 	 	 	 	 	 	Loans Past Due	 	
 	 	 	 	 	 	Over 90 Days	 	 	 	 	 	 	Over 90 Days	 	
 	 	 	 	 	 	Still	 	 	 	 	 	 	Still	 	
 	 	Non-accrual	 	 	Accruing	 	 	Non-accrual	 	 	Accruing	 	
Commercial	 	$	22	 	 	$	—	 	 	$	—	 	 	$	—	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	797	 	 	 	—	 	 	 	436	 	 	 	—	 	
1 – 4 Family residential:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	36	 	 	 	—	 	 	 	85	 	 	 	—	 	
Non-owner occupied	 	 	242	 	 	 	—	 	 	 	264	 	 	 	—	 	
Consumer	 	 	—	 	 	 	13	 	 	 	—	 	 	 	—	 	
Total	 	$	1,097	 	 	$	13	 	 	$	785	 	 	$	—	 	
 
Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
 
The following table presents the aging of the recorded investment in past due loans as of March 31, 2020 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	 	$	—	 	 	$	21	 	 	$	—	 	 	$	21	 	 	$	85,958	 	 	$	85,979	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16,656	 	 	 	16,656	 	
Other	 	 	1,126	 	 	 	4	 	 	 	628	 	 	 	1,758	 	 	 	227,624	 	 	 	229,382	 	
1-4 Family residential:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	722	 	 	 	15	 	 	 	35	 	 	 	772	 	 	 	87,538	 	 	 	88,310	 	
Non-owner occupied	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	19,402	 	 	 	19,402	 	
Construction	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,497	 	 	 	7,497	 	
Consumer	 	 	248	 	 	 	62	 	 	 	13	 	 	 	323	 	 	 	21,300	 	 	 	21,623	 	
Total	 	$	2,096	 	 	$	102	 	 	$	676	 	 	$	2,874	 	 	$	465,975	 	 	$	468,849	 	
 
The above table of past due loans includes the recorded investment in non-accrual loans of $27 in the 60-89 days category, $663 in the 90 days or greater category and $407 in the loans not past due category.
 
13

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The following table presents the aging of the recorded investment in past due loans as of June 30, 2019 by class of loans:
 
 	 	Days Past Due	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	30 - 59	 	 	60 - 89	 	 	90 Days or	 	 	Total	 	 	Loans Not	 	 	 	 	 	
 	 	Days	 	 	Days	 	 	Greater	 	 	Past Due	 	 	Past Due	 	 	Total	 	
Commercial	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	80,587	 	 	$	80,587	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16,075	 	 	 	16,075	 	
Other	 	 	199	 	 	 	—	 	 	 	—	 	 	 	199	 	 	 	195,093	 	 	 	195,292	 	
1-4 Family residential:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	40	 	 	 	—	 	 	 	80	 	 	 	120	 	 	 	56,347	 	 	 	56,467	 	
Non-owner occupied	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14,518	 	 	 	14,518	 	
Construction	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,963	 	 	 	1,963	 	
Consumer	 	 	1	 	 	 	—	 	 	 	—	 	 	 	1	 	 	 	5,163	 	 	 	5,164	 	
Total	 	$	240	 	 	$	—	 	 	$	80	 	 	$	320	 	 	$	369,746	 	 	$	370,066	 	
 
The above table of past due loans includes the recorded investment in non-accrual loans of $198 in the 30-59 days, $80 in the 90 days or greater category and $507 in the loans not past due category.
 
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. 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 March 31, 2020, there were 32 commercial loans with an outstanding balance of $16,116, five mortgage loans with an outstanding balance of $307 and 16 consumer loans with an outstanding balance of $252 that were granted 90 days of payment deferrals under the loan modification program that was adopted in response to COVID-19 that are not classified as TDRs.
 
As of March 31, 2020 and June 30, 2019, the Corporation had $673 and $725, respectively, of loans classified as TDRs which are included in impaired loans above. As of March 31, 2020, the Corporation had not committed to lend any additional funds to customers with outstanding loans that were classified as troubled debt restructurings. As of June 30, 2019, the Corporation had committed to lend an additional $9 to customers with outstanding loans that were classified as troubled debt restructurings. As of March 31, 2020 and June 30, 2019, the Corporation had $9 of specific reserves allocated to these loans.
 
During the three and nine-month periods ended March 31, 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 nine-month periods ended March 31, 2020.
 
During the three-month period ended March 31, 2019, the terms of a loan to one borrower were modified as a troubled debt restructuring. The modification of the terms of the loan included a combination of forgiveness of a portion of the principal amount owed, which resulted in a reduction in the monthly payment amount. The following table presents loans by class modified as troubled debt restructurings that occurred during the period ended March 31, 2019:
 
 	 	 	 	 	 	Pre-Modification	 	 	Post-Modification	 	
 	 	Number of	 	 	Outstanding Recorded	 	 	Outstanding Recorded	 	
 	 	Loans	 	 	Investment	 	 	Investment	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	1	 	 	$	161	 	 	$	59	 	
Total	 	 	1	 	 	$	161	 	 	$	59	 	
 
The troubled debt restructuring described above increased the allowance for loan losses and resulted in a charge-off of $80 during the period ended March 31, 2019.
 
There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the three and nine-month periods ended March 31, 2020 and 2019. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.
 
14

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
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.
 
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Generally, 1-4 Family Residential and Consumer loans are not risk rated, except when collateral is used for a business purpose. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:
 
 	 	As of March 31, 2020	 	
 	 	 	 	 	 	Special	 	 	 	 	 	 	 	 	 	 	Not	 	
 	 	Pass	 	 	Mention	 	 	Substandard	 	 	Doubtful	 	 	Rated	 	
Commercial	 	$	81,123	 	 	$	186	 	 	$	4,348	 	 	$	21	 	 	$	301	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	 	 	16,656	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other	 	 	219,075	 	 	 	2,573	 	 	 	5,205	 	 	 	797	 	 	 	1,732	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	1,971	 	 	 	—	 	 	 	334	 	 	 	2	 	 	 	86,003	 	
Non-owner occupied	 	 	18,444	 	 	 	190	 	 	 	229	 	 	 	242	 	 	 	297	 	
Construction	 	 	1,683	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,814	 	
Consumer	 	 	76	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,547	 	
Total	 	$	339,028	 	 	$	2,949	 	 	$	10,116	 	 	$	1,062	 	 	$	115,694	 	
 
As of June 30, 2019, 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, 2019	 	
 	 	 	 	 	 	Special	 	 	 	 	 	 	 	 	 	 	Not	 	
 	 	Pass	 	 	Mention	 	 	Substandard	 	 	Doubtful	 	 	Rated	 	
Commercial	 	$	74,393	 	 	$	4,942	 	 	$	1,012	 	 	$	—	 	 	$	240	 	
Commercial real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	 	 	16,075	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other	 	 	179,952	 	 	 	8,071	 	 	 	5,337	 	 	 	436	 	 	 	1,496	 	
1-4 Family residential real estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Owner occupied	 	 	2,245	 	 	 	—	 	 	 	24	 	 	 	5	 	 	 	54,193	 	
Non-owner occupied	 	 	13,413	 	 	 	205	 	 	 	318	 	 	 	263	 	 	 	319	 	
Construction	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,963	 	
Consumer	 	 	32	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,132	 	
Total	 	$	286,110	 	 	$	13,218	 	 	$	6,691	 	 	$	704	 	 	$	63,343	 	
 
15

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 5 - Fair Value
 
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
 
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
Financial assets and financial liabilities measured at fair value on a recurring basis include the following: 
 
Securities available-for-sale: When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).
 
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:
 
 	 	 	 	 	 	Fair Value Measurements at
March 31, 2020 Using	 	
 	 	Balance at
March 31,
2020	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury	 	$	1,761	 	 	$	—	 	 	$	1,761	 	 	$	—	 	
Obligations of U.S. government-sponsored entities and agencies	 	 	10,864	 	 	 	—	 	 	 	10,864	 	 	 	—	 	
Obligations of states and political subdivisions	 	 	58,933	 	 	 	—	 	 	 	58,933	 	 	 	—	 	
U.S. Government-sponsored mortgage-backed securities – residential	 	 	57,069	 	 	 	—	 	 	 	57,069	 	 	 	—	 	
U.S. Government-sponsored mortgage-backed securities – commercial	 	 	1,403	 	 	 	—	 	 	 	1,403	 	 	 	—	 	
U.S. Government-sponsored collateralized mortgage obligations - residential	 	 	9,353	 	 	 	—	 	 	 	9,353	 	 	 	—	 	
 
 	 	 	 	 	 	Fair Value Measurements at
June 30, 2019 Using	 	
 	 	Balance at
June 30,
2019	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities available-for-sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Obligations of government-sponsored entities	 	$	19,513	 	 	$	—	 	 	$	19,513	 	 	$	—	 	
Obligations of states and political subdivisions	 	 	57,929	 	 	 	—	 	 	 	57,929	 	 	 	—	 	
U.S. Government-sponsored mortgage-backed securities - residential	 	 	56,311	 	 	 	—	 	 	 	56,311	 	 	 	—	 	
U.S. Government-sponsored collateralized mortgage obligations	 	 	10,257	 	 	 	—	 	 	 	10,257	 	 	 	—	 	
 
16

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
There were no transfers between Level 1 and Level 2 during the three or nine-month periods ended March 31, 2020 or 2019.
 
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following:
 
Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
 
Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned or other repossessed assets being carried at fair value as of March 31, 2020 or June 30, 2019.
 
There were no financial assets measured at fair value on a non-recurring basis at March 31, 2020. Financial assets measured at fair value on a non-recurring basis at June 30, 2019 are summarized below: 
 
 	 	 	 	 	 	Fair Value Measurements at
June 30, 2019 Using	 	
 	 	Balance at
June 30, 2019	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Impaired loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial Real Estate – Other	 	$	59	 	 	$	—	 	 	$	—	 	 	$	59	 	
 
Impaired loans, measured for impairment using the fair value of the collateral, had a recorded investment of $59, with no valuation allowance at June 30, 2019. There was no impact to the provision for loan losses for the three and nine-month periods ended March 31, 2020. The resulting impact to the provision for loan losses was an increase of $25 being recorded for the three months ended March 31, 2019 and $80 for the nine months ended March 31, 2019.
 
The following tables presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2019: 
 
June 30, 2019	 	Fair Value	 	Valuation
Technique	 	Unobservable
Inputs	 	 	Range	 	 	Weighted
Average	 	
Impaired loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial Real Estate – Other	 	$	59	 	Settlement Agreement	 	 	N/A	 	 	 	0.0	%	 	 	0.0	%	
 
17

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)
 
The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 
 	 	March 31, 2020	 	 	June 30, 2019	 	
 	 	Carrying
Amount	 	 	Estimated
Fair
Value	 	 	Carrying
Amount	 	 	Estimated
Fair
Value	 	
Financial Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 1 inputs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	12,544	 	 	$	12,544	 	 	$	9,461	 	 	$	9,461	 	
Level 2 inputs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Certificates of deposits in other financial institutions	 	 	11,908	 	 	 	11,964	 	 	 	1,983	 	 	 	1,983	 	
Loans held for sale	 	 	1,830	 	 	 	1,869	 	 	 	1,657	 	 	 	1,687	 	
Accrued interest receivable	 	 	1,861	 	 	 	1,861	 	 	 	1,607	 	 	 	1,607	 	
Level 3 inputs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities held-to-maturity	 	 	3,580	 	 	 	3,792	 	 	 	3,786	 	 	 	3,821	 	
Loans, net	 	 	463,336	 	 	 	471,410	 	 	 	365,387	 	 	 	366,911	 	
Financial Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 2 inputs:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand and savings deposits	 	 	434,440	 	 	 	434,440	 	 	 	359,969	 	 	 	359,969	 	
Time deposits	 	 	128,582	 	 	 	129,502	 	 	 	112,205	 	 	 	112,841	 	
Short-term borrowings	 	 	6,386	 	 	 	6,386	 	 	 	3,686	 	 	 	3,686	 	
Federal Home Loan Bank advances	 	 	27,079	 	 	 	27,130	 	 	 	22,700	 	 	 	22,596	 	
Accrued interest payable	 	 	157	 	 	 	157	 	 	 	132	 	 	 	132	 	

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 1,786 and 2,863 shares of restricted stock that were anti-dilutive for the three- and nine-month periods ended March 31, 2020. There were 7,121 and 999 shares of restricted stock that were anti-dilutive for the three and nine-month periods ended March 31, 2019. The following table details the calculation of basic and diluted earnings per share:
 
 	 	For the Three Months Ended
March 31,	 	 	For the Nine Months Ended
March 31,	 	
 	 	2020	 	 	2019	 	 	2020	 	 	2019	 	
Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common shareholders	 	$	1,018	 	 	$	1,035	 	 	$	3,961	 	 	$	4,557	 	
Weighted average common shares outstanding	 	 	3,003,205	 	 	 	2,730,376	 	 	 	2,828,427	 	 	 	2,730,887	 	
Basic income per share	 	$	0.34	 	 	$	0.38	 	 	$	1.40	 	 	$	1.67	 	
Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common shareholders	 	$	1,018	 	 	$	1,035	 	 	$	3,961	 	 	$	4,557	 	
Weighted average common shares outstanding	 	 	3,003,205	 	 	 	2,730,376	 	 	 	2,828,427	 	 	 	2,730,887	 	
Dilutive effect of restricted stock	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Total common shares and dilutive potential common shares	 	 	3,003,205	 	 	 	2,730,376	 	 	 	2,828,427	 	 	 	2,730,887	 	
Dilutive income per share	 	$	0.34	 	 	$	0.38	 	 	$	1.40	 	 	$	1.67	 	
 
18

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 7 –Accumulated Other Comprehensive Income (Loss)
 
The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three and nine-month periods ended March 31, 2020 and 2019, were as follows:
 
 	 	Pretax	 	 	Tax Effect	 	 	After-tax	 	Affected Line
Item in
Consolidated
Statements of
Income	
Balance as of December 31, 2019	 	$	2,662	 	 	$	(560	)	 	$	2,102	 	 	
Unrealized holding loss on available-for-sale securities arising during the period	 	 	1,900	 	 	 	(399	)	 	 	1,501	 	 	
Amounts reclassified from accumulated other comprehensive income	 	 	(121	)	 	 	26	 	 	 	(95	)	(a)(b)	
Net current period other comprehensive loss	 	 	1,779	 	 	 	(373	)	 	 	1,406	 	 	
Balance as of March 31, 2020	 	$	4,441	 	 	$	(933	)	 	$	3,508	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2018	 	$	(1,735	)	 	$	364	 	 	$	(1,371	)	 	
Unrealized holding gain on available-for-sale securities arising during the period	 	 	1,946	 	 	 	(410	)	 	 	1,536	 	 	
Amounts reclassified from accumulated other comprehensive income	 	 	(1	)	 	 	—	 	 	 	(1	)	(a)(b)	
Net current period other comprehensive income	 	 	1,945	 	 	 	(410	)	 	 	1,535	 	 	
Balance as of March 31,2019	 	$	210	 	 	$	(46	)	 	$	164	 	 	
 
 	 	Pretax	 	 	Tax Effect	 	 	After-tax	 	Affected Line
Item in
Consolidated Statements of Income	
Balance as of June 30, 2019	 	$	1,982	 	 	$	(416	)	 	$	1,566	 	 	
Unrealized holding gain on available-for-sale securities arising during the period	 	 	2,690	 	 	 	(566	)	 	 	2,124	 	 	
Amounts reclassified from accumulated other comprehensive income	 	 	(231	)	 	 	49	 	 	 	(182	)	(a)(b)	
Net current period other comprehensive income	 	 	2,459	 	 	 	(517	)	 	 	1,942	 	 	
Balance as of March 31, 2020	 	$	4,441	 	 	$	(933	)	 	$	3,508	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of June 30, 2018	 	$	(2,069	)	 	$	434	 	 	$	(1,635	)	 	
Unrealized holding gain on available-for-sale securities arising during the period	 	 	2,840	 	 	 	(598	)	 	 	2,242	 	 	
Amounts reclassified from accumulated other comprehensive income	 	 	(561	)	 	 	118	 	 	 	(443	)	(a)(b)	
Net current period other comprehensive income	 	 	2,279	 	 	 	(480	)	 	 	1,799	 	 	
Balance after reclassification as of March 31, 2019	 	$	210	 	 	$	(46	)	 	$	164	 	 	
 
(a) Securities (gains) losses, net
(b) Income tax expense
 
19

CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
 
(Dollars in thousands, except per share amounts)

Note 8 – Revenue Recognition
 
On July 1, 2018, the Corporation adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) and all subsequent ASUs that modified Topic 606. Interest income, net securities gains (losses), gains from the sale of mortgage loans and bank-owned life insurance are not included within the scope of Topic 606. For the revenue streams in the scope of Topic 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Corporation's revenue from contracts with customers is recognized within noninterest income.
 
Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and other fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
 
Interchange income: The Corporation earns interchange income from cardholder transactions conducted through the various payment networks. Interchange income from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees is processed through noninterest income.
 
The following table presents the Corporation's sources of noninterest income for the three and nine months ended March 31, 2020 and 2019.
 
 	 	For the three months ended
March 31,	 	 	For the nine months ended
March 31,	 	
 	 	2020	 	 	2019	 	 	2020	 	 	2019	 	
Noninterest income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In scope of Topic 606:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service charges on deposit accounts	 	$	355	 	 	$	298	 	 	$	1,088	 	 	$	935	 	
Debit card interchange income	 	 	367	 	 	 	338	 	 	 	1,142	 	 	 	1,065	 	
Other income	 	 	78	 	 	 	66	 	 	 	543	 	 	 	196	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest income (in scope of Topic 606)	 	 	800	 	 	 	702	 	 	 	2,773	 	 	 	2,196	 	
Noninterest income (out-of-scope of Topic 606)	 	 	307	 	 	 	158	 	 	 	828	 	 	 	1,103	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total noninterest income	 	$	1,107	 	 	$	860	 	 	$	3,601	 	 	$	3,299	 	

Note 9 – Leases
 
Effective July 1, 2019, the Corporation adopted ASU 2016-02, Leases (Topic 842). As of March 31, 2020, the Corporation leases real estate for six office locations and various equipment under operating lease agreements. The lease agreements have maturity dates ranging from one year or less to September 1, 2028, including extension periods. Lease agreements for four locations have a lease term of 12 months or less and are therefore considered short-term leases and are exempt from Topic 842. The weighted average remaining life of the lease term for the leases with a term over 12 months was 54.92 months as of March 31,2020.
 
Costs associated with operating leases accounted for under Topic 842 were $27 and $82 for the three- and nine-month periods ended March 31, 2020, respectively. The costs of short-term leases were $22 and $66 for the three- and nine-month periods ended March 31, 2020, respectively. The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, were $500 as of March 31, 2020.
 
Total estimated rental commitments for the operating leases within the scope of Topic 842 were as follows as of March 31, 2020:
 
Period Ending June 30	 	 	 	 	
2020	 	$	27	 	
2021	 	 	105	 	
2022	 	 	95	 	
2023	 	 	76	 	
2024	 	 	51	 	
Thereafter	 	 	146	 	
Total	 	$	500	 	

Note 10 – 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. Additionally, it is reasonably possible future evaluations of the carrying amount of goodwill could result in a conclusion that goodwill is impaired.

20

CONSUMERS BANCORP, INC.

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
(Dollars in thousands, except per share data)
 
General
The following is management’s analysis of the Corporation’s results of operations for the three and nine-month periods ended March 31, 2020, compared to the same period in 2019, and the consolidated balance sheet at March 31, 2020, compared to June 30, 2019. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.
 
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Corporation), owns all of 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. 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 January 1, 2020, the Corporation completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio.
 
COVID-19 Pandemic
In response to COVID-19, management is actively pursuing multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes two key SBA initiatives to assist small businesses. The first SBA program is the Paycheck Protection Program (PPP) that 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 keeps all employees on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. PPP loan commitments of approximately $63,450 for 492 customers were obtained through April 30, 2020. The second SBA program is the Subsidy for Certain Loan Payments in which the SBA will pay the principal, interest, and any associated fees the borrower owes on certain SBA loans for a six-month period. As of March 31, 2020, the Corporation had $17,513 of SBA loans which are eligible for payment assistance from the SBA. Management has been working with these borrowers to secure the principal and interest payments from the SBA.
 
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. 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 March 31, 2020, 32 commercial loans with an outstanding balance of $16,116, five mortgage loans with an outstanding balance of $307 and 16 consumer loans with an outstanding balance of $252 were granted 90 days of payment deferrals. As of April 30, 2020, 258 commercial loans with an outstanding balance of $74,167, 42 mortgage loans with an outstanding balance of $4,080, three home equity lines of credit with an outstanding balance of $194, and 71 consumer loans with an outstanding balance of $788 were granted 90 days of payment deferrals.

We are also assisting customers by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties for customers experiencing financial hardship due to COVID-19. The consumer reserve personal line of credit has been redesigned to provide easier access and a lower initial rate on this unsecured line of credit that is linked to a personal checking account. Commercial customers are encouraged to access available funds on their lines of credit and we expect to provide emergency commercial lines of credit to qualified borrowers in order to assist borrowers in meeting payroll and other recurring fixed expenses.
 
21

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Results of Operations
Three- and Nine-Month Periods Ended March 31, 2020 and 2019
 
Net income for the third quarter of fiscal year 2020 was $1,018, or $0.34 per common share, compared to $1,035, or $0.38 per common share for the three months ended March 31, 2019. The following are key highlights of our results of operations for the three months ended March 31, 2020 compared to the prior fiscal year comparable period:
 
 	●	net interest income increased by $1,352 to $5,594, or by 31.9%, in the third quarter of fiscal year 2020 from the same prior year period primarily as a result of an increase in average interest earning assets acquired as a result of the Peoples acquisition as well as organic growth;	
 	●	a $445 provision for loans loss expense was recorded in the third quarter of fiscal year 2020, or an increase of $340 from the prior year, primarily due to the deterioration in the economic environment as a result of the impact of COVID-19 and higher loan balances as a result of organic loan growth;	
 	●	noninterest income increased by $247, or 28.7%, in the third quarter of fiscal year 2020 from the same prior year period as a result of increases in service charges on deposit accounts, gains from the sale of mortgage loans and debit card interchange income. Also, a $121 gain from the sale or call of securities was recognized during the third quarter of fiscal year 2020; and	
 	●	noninterest expenses increased by $1,262, or 33.1%, in the third quarter of fiscal year 2020 from the same prior year period and included $433 of expenses associated with the Peoples merger and a full quarter of expenses associated with the three new office locations and additional staff gained as a result of the merger with Peoples.	
 
In the first nine months of fiscal year 2020, net income was $3,961, or $1.40 per common share, compared to $4,557, or $1.67 per common share for the nine months ended March 31, 2019. The following are key highlights of our results of operations for the nine months ended March 31, 2020:
 
 	●	net interest income increased by $2,156 to $15,071, or by 16.7%, in the first nine months of fiscal year 2020 from the same prior year period;	
 	●	a provision for loan loss expense of $760 was recorded in the first nine months of fiscal year 2020 compared with a negative provision for loan loss expense of $555 during the same prior year period;	
 	●	noninterest income increased by $302, or 9.2%, in the first nine months of fiscal year 2020 from the same prior year period and included $324 of income recognized as a result of proceeds received from a bank owned life insurance policy claim. Additionally, a $231 gain from the sale or call of securities was recognized during the first nine months of fiscal year 2020 compared with a $561 gain for the same prior year period; and	
 	●	noninterest expenses increased by $1,938, or 17.0%, in the first nine months of fiscal year 2020 from the same prior year period and included $755 of expenses associated with the Peoples merger and a full quarter of expenses associated with the three new office locations and additional staff gained as a result of the merger with Peoples.	
 
Return on average equity and return on average assets were 9.53% and 0.90%, respectively, for the first nine months of fiscal year 2020 compared to 13.34% and 1.19%, 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. 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 2020 and 2019 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 3.76% for the three months ended March 31, 2020, compared with 3.57% for the same period in 2019. FTE net interest income for the three months ended March 31, 2020 increased by $1,360, or 31.5%, to $5,672 from $4,312 for the same prior year period.
 
Tax-equivalent interest income for the three months ended March 31, 2020 increased by $1,495, or 28.8%, from the same prior year period. Interest income was positively impacted by a $121,331, or 24.9%, increase in average interest-earning assets from the same prior year period due to the assets acquired as a result of the Peoples acquisition as well as organic growth.
 
Interest expense for the three months ended March 31, 2020 increased by $135, or 15.4%, from the same prior year period primarily as a result of interest-bearing liabilities assumed as a result of the Peoples acquisition that was partially offset by a reduction in deposit and borrowing costs. The Corporation’s cost of funds was 0.92% for the three months ended March 31, 2020 compared with 1.00% for the same prior year period.
 
The Corporation’s net interest margin was 3.68% for the nine months ended March 31, 2020, compared with 3.63% for the same period in 2019. FTE net interest income for the nine months ended March 31,2020 increased by $2,123, or 16.1%, to $15,304 from $13,181 for the same prior year period.
 
Tax-equivalent interest income for the nine months ended March 31, 2020 increased by $2,990, or 19.5%, from the same prior year period. Interest income was positively impacted by a $76,032, or 15.8%, increase in average interest-earning assets from the same prior year period. Additionally, the Corporation’s yield on average interest-earning assets increased to 4.41% for the nine months ended March 31, 2020 from 4.23% for the same period last year. The yield on average interest-earning assets was positively impacted by a 0.10% increase in the yield on loans. Additionally, the yield on average interest-earning assets was positively impacted by a change in the earning asset mix with higher yielding loans increasing and lower yielding securities decreasing.
 
Interest expense for the nine months ended March 31, 2020 increased by $867 from the same prior year period. The Corporation’s cost of funds was 1.00% for the nine months ended March 31, 2020 compared with 0.83% for the same prior year period. The higher short-term market interest and deposit rates throughout the first two quarters of fiscal year 2020 had an impact on the rates paid on interest-bearing deposit products and Federal Home Loan Bank (FHLB) advances.
 
22

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended March 31,
(In thousands, except percentages) 	
 	 	2020	 	 	2019	 	
 	 	Average
Balance	 	 	 
Interest	 	 	Yield/
Rate	 	 	Average
Balance	 	 	 
Interest	 	 	Yield/
Rate	 	
Interest-earning assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable securities	 	$	81,069	 	 	$	488	 	 	 	2.45	%	 	$	85,932	 	 	$	566	 	 	 	2.63	%	
Nontaxable securities (1)	 	 	58,979	 	 	 	464	 	 	 	3.28	 	 	 	60,207	 	 	 	470	 	 	 	3.17	 	
Loans receivable (1)	 	 	453,887	 	 	 	5,655	 	 	 	5.01	 	 	 	337,350	 	 	 	4,118	 	 	 	4.95	 	
Federal bank and other restricted stocks	 	 	1,926	 	 	 	16	 	 	 	3.34	 	 	 	1,459	 	 	 	19	 	 	 	5.28	 	
Interest bearing deposits and federal funds sold	 	 	13,503	 	 	 	61	 	 	 	1.82	 	 	 	3,085	 	 	 	16	 	 	 	2.10	 	
Total interest-earning assets	 	 	609,364	 	 	 	6,684	 	 	 	4.43	%	 	 	488,033	 	 	 	5,189	 	 	 	4.30	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-earning assets	 	 	33,412	 	 	 	 	 	 	 	 	 	 	 	30,751	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets	 	$	642,776	 	 	 	 	 	 	 	 	 	 	$	518,784	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-bearing liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOW	 	$	81,093	 	 	$	90	 	 	 	0.45	%	 	$	77,328	 	 	$	124	 	 	 	0.65	%	
Savings	 	 	207,490	 	 	 	221	 	 	 	0.43	 	 	 	158,476	 	 	 	188	 	 	 	0.48	 	
Time deposits	 	 	129,300	 	 	 	607	 	 	 	1.89	 	 	 	97,123	 	 	 	437	 	 	 	1.82	 	
Short-term borrowings	 	 	4,707	 	 	 	14	 	 	 	1.20	 	 	 	2,731	 	 	 	10	 	 	 	1.49	 	
FHLB advances	 	 	19,424	 	 	 	80	 	 	 	1.66	 	 	 	19,588	 	 	 	118	 	 	 	2.44	 	
Total interest-bearing liabilities	 	 	442,014	 	 	 	1,012	 	 	 	0.92	%	 	 	355,246	 	 	 	877	 	 	 	1.00	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-bearing liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-bearing checking accounts	 	 	135,822	 	 	 	 	 	 	 	 	 	 	 	111,616	 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	4,780	 	 	 	 	 	 	 	 	 	 	 	4,331	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	582,616	 	 	 	 	 	 	 	 	 	 	 	471,193	 	 	 	 	 	 	 	 	 	
Shareholders’ equity	 	 	60,160	 	 	 	 	 	 	 	 	 	 	 	47,591	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	642,776	 	 	 	 	 	 	 	 	 	 	$	518,784	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income, interest rate spread (1)	 	 	 	 	 	$	5,672	 	 	 	3.51	%	 	 	 	 	 	$	4,312	 	 	 	3.30	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest margin (net interest as a percent of average interest-earning assets) (1)	 	 	 	 	 	 	 	 	 	 	3.76	%	 	 	 	 	 	 	 	 	 	 	3.57	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal tax exemption on non-taxable securities and loans included in interest income	 	 	 	 	 	$	78	 	 	 	 	 	 	 	 	 	 	$	70	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average interest-earning assets to interest-bearing liabilities	 	 	137.86	%	 	 	 	 	 	 	 	 	 	 	137.38	%	 	 	 	 	 	 	 	 	
 
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%
 
23

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Average Balance Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31,
(In thousands, except percentages) 	
 	 	2020	 	 	2019	 	
 	 	Average
Balance	 	 	 
Interest	 	 	Yield/
Rate	 	 	Average
Balance	 	 	 
Interest	 	 	Yield/
Rate	 	
Interest-earning assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable securities	 	$	81,285	 	 	$	1,478	 	 	 	2.44	%	 	$	85,679	 	 	$	1,641	 	 	 	2.49	%	
Nontaxable securities (1)	 	 	60,355	 	 	 	1,413	 	 	 	3.22	 	 	 	59,891	 	 	 	1,434	 	 	 	3.17	 	
Loans receivable (1)	 	 	405,812	 	 	 	15,283	 	 	 	5.01	 	 	 	329,008	 	 	 	12,132	 	 	 	4.91	 	
Federal bank and other restricted stocks	 	 	1,791	 	 	 	56	 	 	 	4.16	 	 	 	1,459	 	 	 	63	 	 	 	5.75	 	
Interest bearing deposits and federal funds sold	 	 	7,370	 	 	 	103	 	 	 	1.86	 	 	 	4,544	 	 	 	73	 	 	 	2.14	 	
Total interest-earning assets	 	 	556,613	 	 	 	18,333	 	 	 	4.41	%	 	 	480,581	 	 	 	15,343	 	 	 	4.23	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-earning assets	 	 	31,870	 	 	 	 	 	 	 	 	 	 	 	30,905	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets	 	$	588,483	 	 	 	 	 	 	 	 	 	 	$	511,486	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-bearing liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NOW	 	$	82,580	 	 	$	366	 	 	 	0.59	%	 	$	81,242	 	 	$	387	 	 	 	0.63	%	
Savings	 	 	181,224	 	 	 	653	 	 	 	0.48	 	 	 	161,406	 	 	 	501	 	 	 	0.41	 	
Time deposits	 	 	117,875	 	 	 	1,754	 	 	 	1.98	 	 	 	85,771	 	 	 	993	 	 	 	1.54	 	
Short-term borrowings	 	 	4,367	 	 	 	38	 	 	 	1.16	 	 	 	3,463	 	 	 	38	 	 	 	1.46	 	
FHLB advances	 	 	15,797	 	 	 	218	 	 	 	1.84	 	 	 	16,883	 	 	 	243	 	 	 	1.92	 	
Total interest-bearing liabilities	 	 	401,843	 	 	 	3,029	 	 	 	1.00	%	 	 	348,765	 	 	 	2,162	 	 	 	0.83	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-bearing liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-bearing checking accounts	 	 	126,750	 	 	 	 	 	 	 	 	 	 	 	112,918	 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	4,587	 	 	 	 	 	 	 	 	 	 	 	4,310	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	533,180	 	 	 	 	 	 	 	 	 	 	 	465,993	 	 	 	 	 	 	 	 	 	
Shareholders’ equity	 	 	55,303	 	 	 	 	 	 	 	 	 	 	 	45,493	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	588,483	 	 	 	 	 	 	 	 	 	 	$	511,486	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income, interest rate spread (1)	 	 	 	 	 	$	15,304	 	 	 	3.41	%	 	 	 	 	 	$	13,181	 	 	 	3.40	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest margin (net interest as a percent of average interest-earning assets) (1)	 	 	 	 	 	 	 	 	 	 	3.68	%	 	 	 	 	 	 	 	 	 	 	3.63	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal tax exemption on non-taxable securities and loans included in interest income	 	 	 	 	 	$	233	 	 	 	 	 	 	 	 	 	 	$	266	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average interest-earning assets to interest-bearing liabilities	 	 	138.52	%	 	 	 	 	 	 	 	 	 	 	137.80	%	 	 	 	 	 	 	 	 	
 
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%
 
24

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Provision for Loan Losses
The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the three-month period ended March 31, 2020, the provision for loan losses was $445 compared with $105 for the same prior year period. Net charge-offs of $72 were recorded during the three-month period ended March 31, 2020 compared with $18 during the three-month period ended March 31, 2019. The provision for loan loss expense increased in the third quarter of fiscal year 2020 primarily due to the deterioration in the economic environment as a result of the impact of COVID-19 and higher loan balances as a result of organic loan growth.
 
For the nine-month period ended March 31, 2020, the provision for loan losses was $760 compared with a negative provision for loan loss expense of $555 for the same prior year period. Net charge-offs of $80 were recorded during the nine-month period ended March 31, 2020 compared with recoveries of $789 collected during the nine-month period ended March 31, 2019.
 
Non-performing loans were $1,110 as of March 31, 2020 compared with $785 as of June 30, 2019 and $817 as of March 31, 2019. The allowance for loan losses as a percentage of loans was 0.95% at March 31, 2020 and 1.03% at June 30, 2019. The ALLL as a percent of total loans on March 31, 2020 declined from the prior year since the acquired loans were recorded at fair value without a related allowance for loan losses. As of March 31, 2020, the ALLL as a percentage of total loans, excluding the loans acquired in the Peoples acquisition, was 1.07%. The provision for loan losses for the period ended March 31, 2020 was considered sufficient by management for maintaining an appropriate allowance for probable incurred credit losses.
 
Noninterest Income
Noninterest income increased by $247, or 28.7%, for the third quarter of fiscal year 2020 from the same period last year. Noninterest income for the three months ended March 31, 2020 included a $121 gain on sale of securities compared with a $1 gain for the three months ended March 31, 2019. In addition, service charges on deposit accounts increased by $57, or 19.1%, gains from the sale of mortgage loans increased by $30, or 33.0%, and debit card interchange income increased by $29, or 8.6%, for the three months ended March 31, 2020 compared with the same prior year period.
 
Noninterest income increased by $302, or 9.2%, for the first nine months of fiscal year 2020 from the same period last year. Noninterest income for the nine months ended March 31, 2020 included $324 of income recognized as a result of proceeds received from a bank owned life insurance policy claim. Also, noninterest income included a $231 gain on sale of securities compared with a $561 gain for the nine months ended March 31, 2019. During the 2019 fiscal year, a pooled trust preferred security was sold due to the significant increase in the value of this security. The Corporation does not own any other securities of this type. In addition, service charges on deposit accounts increased by $153, or 16.4%, gains from the sale of mortgage loans increased by $59, or 17.4%, and debit card interchange income increased by $77, or 7.2%, for the nine-month period ended March 31, 2020 compared with the same prior year period. It is anticipated that deposit service charges and debit card interchange income will be lower in the fourth quarter of fiscal year 2020. Deposit service charges are expected to be impacted by refunds of NSF and overdraft charges that are being provided to customers impacted by COVID-19. Also, debit card interchange income and ATM usage fees are expected to be lower due to reduced activity since many customers are staying at home.
 
25

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Noninterest Expenses
Total noninterest expenses increased by $1,262, or by 33.1%, for the third quarter of fiscal year 2020 compared with the same period last year. Included in noninterest expenses for the three-month period ended March 31, 2020 are $433 of expenses associated with the merger between Consumers and Peoples. The expenses in the third quarter of fiscal year 2020 associated with the merger were primarily consulting fees that were charged to professional and director fees and severance and retention bonuses that were charged to salaries and employee benefits. Also, salaries and employee benefits increased as a result of additional staff gained as a result of the merger with Peoples and increased incentive expenses. Other noninterest expense categories were impacted by a full quarter of expenses associated with the merger with Peoples from the three new office locations and the increased size of the organization.
 
Total noninterest expenses increased by $1,938, or 17.0%, for the first nine months of fiscal year 2020 from the same period last year. Included in noninterest expenses for the nine-month period ended March 31, 2020 are $755 of expenses associated with the merger between Consumers and Peoples. The expenses associated with the merger were primarily legal and consulting fees that were charged to professional and director fees, system deconversion files that were charged to data processing expenses and severance and retention bonuses that were charged to salaries and employee benefits. In addition, salaries and employee benefits increased as a result of additional staff gained as a result of the merger with Peoples and increased incentive expenses. Other noninterest expense categories were impacted by a full quarter of expenses associated with the merger with Peoples from the three new office locations and the increased size of the organization. FDIC assessments were positively impacted since the Small Bank Assessment Credits were applied to the current FDIC insurance invoices since the Deposit Insurance Fund reserve ratio was above 1.38%.
 
Income Taxes
Income tax expense was $164 and $637 for the three- and nine-month periods ended March 31, 2020, respectively compared to $150 and $836 for the three- and nine-month periods ended March 31, 2019, respectively. The effective tax rates were 13.9% for both the three- and nine-month periods ended March 31, 2020 compared with 12.7% and 15.5% for the three- and nine-month periods ended March 31, 2019, respectively. The effective tax rate was lower during the nine-month period ended March 31, 2020 primarily due to tax-free income representing a higher percentage of overall pre-tax income.
 
Financial Condition
Total assets as of March 31, 2020 were $663,277 compared to $553,936 at June 30, 2019, an increase of $109,341, or an annualized 26.3%. From June 30, 2019, total assets increased by $74,261 due to the acquisition of Peoples and $35,080 due to organic growth.
 
Total loans increased by $98,629, or an annualized 35.6%, from $369,175 as of June 30, 2019 to $467,804 as of March 31, 2020, of which $43,309, or an annualized 8.8%, was related to organic loan growth. It is anticipated that total loans will increase significantly during the fourth quarter of fiscal year 2020 due to participation in PPP. When the program was initially made available, SBA commitments for approximately $63,450 in PPP loans for 492 customers were obtained through April 30, 2020. It is expected that many of these PPP loans will be forgiven during the June 2020 through September 2020 time period.
 
As of March 31, 2020, total deposits increased by $90,848, or an annualized 25.6%, from June 30, 2019 of which $29,997, or an annualized 4.8%, was related to organic deposit growth. The Corporation has been able to maintain a favorable deposit mix, with 24.4% in noninterest-bearing deposits, 15.0% in interest bearing demand deposits, 37.8% in savings and money market deposits, and 22.8% in time deposits.
 
Non-Performing Assets
The following table presents the aggregate amounts of non-performing assets and respective ratios as of the dates indicated.
 
 	 	March 31,
2020	 	 	June 30,
2019	 	 	March 31,
2019	 	
Non-accrual loans	 	$	1,097	 	 	$	785	 	 	$	817	 	
Loans past due over 90 days and still accruing	 	 	13	 	 	 	—	 	 	 	—	 	
Total non-performing loans	 	 	1,110	 	 	 	785	 	 	 	817	 	
Other real estate owned	 	 	—	 	 	 	—	 	 	 	—	 	
Other repossessed assets	 	 	39	 	 	 	—	 	 	 	—	 	
Total non-performing assets	 	$	1,149	 	 	$	785	 	 	$	817	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-performing loans to total loans	 	 	0.24	%	 	 	0.21	%	 	 	0.24	%	
Allowance for loan losses to total non-performing loans	 	 	402.52	%	 	 	482.55	%	 	 	447.49	%	
 
As of March 31, 2020, impaired loans totaled $1,524, of which $1,097 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.
 
26

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements
 
Liquidity
The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of our customers and provide adequate flexibility for the Corporation to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and, at times, to fund deposit outflows and operating activities. The Corporation’s principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’s earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and insure the soundness of the portfolio, as well as to provide funding for loan demand as needed.
 
For the nine months ended March 31, 2020, net cash inflow from operating activities was $5,024, net cash outflows from investing activities was $35,030 and net cash inflows from financing activities was $33,089. A major source of cash was a $29,997 increase in deposits and $29,416 from sales, maturities, calls or principal pay downs on available-for-sale securities. A major use of cash was a $43,405 increase in loans, $18,610 for the purchases of available for-sale securities and $4,295 for the acquisition of Peoples. Total cash and cash equivalents were $12,544 as of March 31, 2020, compared to $9,461 at June 30, 2019 and $8,352 at March 31, 2019.
 
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 $563,022 at March 31, 2020 compared with $472,174 at June 30, 2019.
 
To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At March 31, 2020, advances from the FHLB of Cincinnati totaled $27,079 compared with $22,700 at June 30, 2019. As of March 31, 2020, the Bank had the ability to borrow an additional $14,565 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.
 
Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and federal funds purchased from correspondent banks. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $6,386 at March 31, 2020 and $3,686 at June 30, 2019.
 
Jumbo time deposits (those with balances of $250 and over) totaled $42,165 as of March 31, 2020 and $39,034 as of June 30, 2019. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.
 
27

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
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 $85,554 as of March 31, 2020 and $86,265 as of June 30, 2019.
 
Capital Resources
Total shareholders’ equity increased to $61,328 as of March 31, 2020 from $51,166 as of June 30, 2019. The primary reason for the increase was the issuance of common shares as part of the consideration in the acquisition of Peoples, which added $5,277 to shareholders’ equity. In addition, the increase in shareholders’ equity included net income of $3,961 for the first nine months of fiscal year 2020 and $1,942 in accumulated other comprehensive income from an increase in the unrealized gains in the mark-to-market of available-for-sale securities. These increases were partially offset by cash dividends paid of $1,148.
 
The Bank is subject to various regulatory capital requirements administered by federal regulatory agencies. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Corporation’s financial statements.
 
As of March 31, 2020, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.58% and the leverage and total risk-based capital ratios were 8.82% and 12.50%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.68% and leverage and total risk-based capital ratios of 8.88% and 12.60%, respectively, as of June 30, 2019. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to March 31, 2020 that would cause the Bank’s capital category to change.
 
28

CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
(Dollars in thousands, except per share amounts)
 
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.
 
The Corporation has identified the appropriateness of the allowance for loan losses as a critical accounting policy and an understanding of this policy is necessary to understand the financial statements. Critical accounting policies are those policies 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), note four (Loans) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2019 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, 2019.
 
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 adversely 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;	
 	●	changes in the level of non-performing assets and charge-offs;	
 	●	declining asset values impacting the underlying value of collateral;	
 	●	rapid fluctuations in market interest rates could result in changes in fair market valuations and net interest income; pricing and liquidity pressures may result;	
 	●	unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources;	
 	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;	
 	●	unanticipated difficulties or expenditures related to the acquisition of Peoples;	
 	●	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;	
 	●	the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;	
 	●	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;	
 	●	changes in the reliability of our vendors, internal control systems or information systems; and	
 	●	our ability to attract and retain qualified employees.	
 
While the list of factors presented here is, and the Risk Factors starting on page 16 of the registration statement on Form S-4/A filed with the SEC on September 4, 2019 related to the merger of the Corporation/Peoples are, considered representative no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
 
29

CONSUMERS BANCORP, INC.
 
Item 4 – Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2020.
 
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.
 
30

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.	
 
Exhibit 101	The following materials from Consumers Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language) include: (1) Unaudited Consolidated Balance Sheets, (2) Unaudited Consolidated Statements of Income, (3) Unaudited Consolidated Statements of Comprehensive Income, (4) Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity, (5) Unaudited Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements.	
 
31

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

CONSUMERS BANCORP, INC.
                  (Registrant)	
 	 	
Date: May 8, 2020	/s/ Ralph J. Lober                      
Ralph J. Lober, II
President & Chief Executive Officer
(principal executive officer)	
 	 	
Date: May 8, 2020	/s/ Renee K. Wood                    
Renee K. Wood
Chief Financial Officer & Treasurer
(principal financial officer)	

32

EXHIBIT 31.1
 
I, Ralph J. Lober, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Consumers Bancorp, Inc.;	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
 	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:	
 
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
May 8, 2020	By:	/s/ Ralph J. Lober	
Date	 	Ralph J. Lober, II
President & Chief Executive Officer	

 

EXHIBIT 31.2
 
I, Renee K. Wood, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Consumers Bancorp, Inc.;	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
 	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:	
 
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
May 8, 2020	By:	/s/ Renee K. Wood	
Date	 	Renee K. Wood
Chief Financial Officer & Treasurer	

 

Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Consumers Bancorp, Inc. (the “Corporation”) on Form 10-Q for the period ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each undersigned officer of the Corporation does hereby certify that:
 
 	a)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.	

 
 	Date: May 8, 2020	 	
 	 	 	
 	 /s/ Ralph J. Lober                  	 	
 	Ralph J. Lober, II
President & Chief Executive Officer	 	

 	/s/ Renee K. Wood                 	 	
 	Renee K. Wood	 	
 	Chief Financial Officer & Treasurer