Edgar Filing: CONSUMERS BANCORP INC /OH/

cbkm20181231_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2018

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, 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 Securities Act. ☐

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

There were 2,733,845 shares of Registrant’s common stock, no par value, outstanding as of February 12, 2019.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED December 31, 2018

Table of Contents

Page

Number (s)

Part I – Financial Information

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

Consolidated Statements of Income for the three and six months ended December 31, 2018 and 2017	2

Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2018 and 2017	3

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

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2018 and 2017	5

Notes to the Consolidated Financial Statements	6-23

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

Item 3 – Not Applicable for Smaller Reporting Companies

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

Item 1A – Not Applicable for Smaller Reporting Companies	33

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

Item 3 – Defaults Upon Senior Securities	33

Item 4 – Mine Safety Disclosure	33

Item 5 – Other Information	33

Item 6 – Exhibits	33

Signatures	34

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share data)	December 31, 2018			June 30, 2018
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	9,579		$	7,615
Federal funds sold and interest-bearing deposits in financial institutions		170			157
Total cash and cash equivalents		9,749			7,772
Certificates of deposit in other financial institutions		2,473			2,973
Securities, available-for-sale		143,833			144,028
Securities, held-to-maturity (fair value of $3,852 at December 31, 2018 and $4,048 at June 30, 2018)		3,824			4,024
Federal bank and other restricted stocks, at cost		1,459			1,459
Loans held for sale		1,068			1,448
Total loans		333,562			318,509
Less allowance for loan losses		(3,569	)		(3,422	)
Net loans		329,993			315,087
Cash surrender value of life insurance		9,472			9,335
Premises and equipment, net		13,473			13,315
Accrued interest receivable and other assets		2,611			3,178
Total assets	$	517,955		$	502,619

LIABILITIES
Deposits
Noninterest-bearing demand	$	111,888		$	107,919
Interest bearing demand		83,197			81,299
Savings		155,208			162,204
Time		92,237			78,541
Total deposits		442,530			429,963

Short-term borrowings		3,777			13,367
Federal Home Loan Bank advances		20,922			11,756
Accrued interest and other liabilities		3,830			3,772
Total liabilities		471,059			458,858
Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of December 31, 2018 and June 30, 2018)		14,628			14,630
Retained earnings		35,154			32,342
Treasury stock, at cost (120,288 and 124,489 common shares as of December 31, 2018 and June 30, 2018, respectively)		(1,515	)		(1,576	)
Accumulated other comprehensive loss		(1,371	)		(1,635	)
Total shareholders’ equity		46,896			43,761
Total liabilities and shareholders’ equity	$	517,955		$	502,619

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Three Months ended

December 31,

Six Months ended

December 31,

(Dollars in thousands, except per share amounts)

2018

2017

2018

2017

Interest and dividend income

Loans, including fees

4,059

3,437

8,008

6,665

Securities, taxable

549

441

1,075

931

Securities, tax-exempt

399

367

774

734

Federal bank and other restricted stocks

Federal funds sold and other interest bearing deposits

Total interest and dividend income

5,063

4,291

9,958

8,434

Interest expense

Deposits

618

253

1,132

501

Short-term borrowings

112

Federal Home Loan Bank advances

125

108

Total interest expense

689

364

1,285

721

Net interest income

4,374

3,927

8,673

7,713

Provision for loan losses

(775

)

(660

)

150

Net interest income after provision for loan losses

5,149

3,867

9,333

7,563

Noninterest income

Service charges on deposit accounts

321

301

637

609

Debit card interchange income

369

325

727

648

Bank owned life insurance income

137

136

Securities gains (losses), net

(27

)

—

560

Other

213

145

378

280

Total noninterest income

944

839

2,439

1,711

Noninterest expenses

Salaries and employee benefits

2,099

1,966

4,074

3,776

Occupancy and equipment

515

465

1,003

920

Data processing expenses

157

147

307

295

Debit card processing expenses

189

188

383

368

Professional and director fees

171

122

341

239

FDIC assessments

Franchise taxes

177

168

Marketing and advertising

131

235

139

Telephone and network communications

136

157

Other

428

406

832

799

Total noninterest expenses

3,880

3,560

7,564

6,953

Income before income taxes

2,213

1,146

4,208

2,321

Income tax expense

364

489

686

735

Net income

1,849

657

3,522

1,586

Basic and diluted earnings per share

0.68

0.24

1.29

0.58

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

Consolidated statements of comprehensive income

(Unaudited)

(Dollars in thousands)

Three Months ended

December 31,

Six Months ended

December 31,

2018

2017

2018

2017

Net income

1,849

657

3,522

1,586

Other comprehensive income (loss), net of tax:

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

Unrealized gains (losses) arising during the period

1,787

(631

)

894

(527

)

Reclassification adjustment for (gains) losses included in income

—

(560

)

(38

)

Net unrealized gains (losses)

1,814

(631

)

334

(565

)

Income tax effect

(382

)

215

(70

)

193

Other comprehensive income (loss)

1,432

(416

)

264

(372

)

Total comprehensive income

3,281

241

3,786

1,214

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)
	Three Months ended December 31,						Six Months ended December 31,
	2018			2017			2018			2017

Balance at beginning of period	$	43,970		$	44,271		$	43,761		$	43,535

Net income		1,849			657			3,522			1,586
Other comprehensive income (loss)		1,432			(416	)		264			(372	)
4,201 and 6,321 shares issued associated with stock awards during the six months ended December 31, 2018 and 2017, respectively		—			—			61			90
204 Dividend reinvestment plan shares associated with forfeited and expired restricted stock awards retired to treasury stock during the six months ended December 31, 2017		—			—			(2	)		—
Common cash dividends		(355	)		(341	)		(710	)		(668	)

Balance at the end of the period	$	46,896		$	44,171		$	46,896		$	44,171

Common cash dividends per share	$	0.13		$	0.125		$	0.26		$	0.245

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)	Six Months Ended December 31,
	2018			2017
Cash flows from operating activities
Net cash from operating activities	$	4,043		$	3,484

Cash flow from investing activities
Securities available-for-sale
Purchases		(13,979	)		(5,101	)
Maturities, calls and principal pay downs		9,746			8,848
Proceeds from sales		4,898			1,586
Securities held-to-maturity
Principal pay downs		200			198
Net decrease in certificate of deposit in other financial institutions		500			—
Net increase in loans		(14,321	)		(20,967	)
Acquisition of premises and equipment		(543	)		(129	)
Sale of other real estate owned		—			71
Net cash from investing activities		(13,499	)		(15,494	)

Cash flow from financing activities
Net increase in deposit accounts		12,567			8,518
Net change in short-term borrowings		(9,590	)		(1,479	)
Proceeds from Federal Home Loan Bank advances		9,200			5,400
Repayments of Federal Home Loan Bank advances		(34	)		(532	)
Dividends paid		(710	)		(668	)
Net cash from financing activities		11,433			11,239

Increase (decrease) in cash or cash equivalents		1,977			(771	)

Cash and cash equivalents, beginning of period		7,772			9,912
Cash and cash equivalents, end of period	$	9,749		$	9,141

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	1,261		$	709
Federal income taxes		395			405
Non-cash items:
Transfer from loans to other real estate owned		—			57
Transfer from loans held for sale to portfolio		75			172
Issuance of treasury stock for stock awards		59			90
Expired and forfeited dividend reinvestment plan shares associated with restricted stock awards that were retired to treasury stock		—			4

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 1 – Summary of Significant Accounting Policies:

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

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-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, 2018. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.

The consolidated financial statements include the accounts of the Corporation and the 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 its operations are recorded in one segment, banking.

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

Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, 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. Management is currently evaluating the impact of the adoption of this guidance on the Corporation’s consolidated financial statements and is in the midst of gathering critical data to evaluate the impact. However, it is too early to estimate the impact.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). This ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Corporation has several lease agreements, such as branch locations, which are currently considered operating leases, and therefore, not recognized on the Corporation’s consolidated condensed statements of financial condition. The Corporation expects the new guidance to require these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease liability. Therefore, the Corporation’s preliminary evaluation indicates the provisions of ASU No. 2016-02 are expected to impact the Corporation’s consolidated condensed statements of financial condition, along with our regulatory capital ratios. The definition of a lease and the cash flows required to be evaluated will change. The Corporation continues to evaluate the extent of the potential impact the new guidance will have on the Corporation’s consolidated financial statements. At December 31, 2018, the Corporation had contractual operating lease commitments of approximately $500, before considering renewal options that are generally present.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 2 – Securities

Available –for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

December 31, 2018

Obligations of U.S. government-sponsored entities and agencies

18,431

(241

)

18,248

Obligations of state and political subdivisions

57,619

427

(544

)

57,502

U.S. Government-sponsored mortgage-backed securities–residential

61,239

(1,392

)

59,922

U.S. Government-sponsored mortgage-backed securities– commercial

1,418

—

(12

)

1,406

U.S. Government-sponsored collateralized mortgage obligations– residential

6,861

(150

)

6,755

Total available-for-sale securities

145,568

604

(2,339

)

143,833

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
December 31, 2018
Obligations of state and political subdivisions	$	3,824	$	28	$	—	$	3,852
Total held-to-maturity securities	$	3,824	$	28	$	—	$	3,852

Available–for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

June 30, 2018

Obligations of U.S. government-sponsored entities and agencies

16,488

(372

)

16,122

Obligations of state and political subdivisions

56,964

339

(713

)

56,590

U.S. Government-sponsored mortgage-backed securities – residential

65,062

(1,660

)

63,408

U.S. Government-sponsored mortgage-backed securities – commercial

1,432

—

(17

)

1,415

U.S. Government-sponsored collateralized mortgage obligations - residential

5,973

(216

)

5,766

Pooled trust preferred security

178

549

—

727

Total available-for-sale securities

146,097

909

(2,978

)

144,028

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2018		2017		2018		2017
Proceeds from sales	$	2,325	$	—	$	4,898	$	1,586
Gross realized gains		1		—		594		39
Gross realized losses		28		—		34		1

The income tax benefit related to net realized losses amounted to $6 for the three months ended December 31, 2018. The income tax provision related to the net realized gains amounted to $118 and $13 for the six-month periods ended December 31, 2018 and 2017, respectively.

The amortized cost and fair values of debt securities at December 31, 2018, 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	$	620	$	623
Due after one year through five years		22,265		22,225
Due after five years through ten years		26,715		26,644
Due after ten years		26,450		26,258
Total		76,050		75,750

U.S. Government-sponsored mortgage-backed and related securities		69,518		68,083
Total available-for-sale securities	$	145,568	$	143,833

Held-to-Maturity

Due after five years through ten years		489		497
Due after ten years		3,335		3,355
Total held-to-maturity securities	$	3,824	$	3,852

The following table summarizes the securities with unrealized losses at December 31, 2018 and June 30, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

Less than 12 Months

12 Months or more

Total

Available-for-sale

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

December 31, 2018

Obligations of US government-sponsored entities and agencies

3,485

(18

)

9,658

(223

)

13,143

(241

)

Obligations of states and political subdivisions

14,081

(105

)

16,076

(439

)

30,157

(544

)

Mortgage-backed securities – residential

13,348

(72

)

40,944

(1,320

)

54,292

(1,392

)

Mortgage-backed securities – commercial

—

1,406

(12

)

1,406

(12

)

Collateralized mortgage obligations – residential

—

4,535

(150

)

4,535

(150

)

Total temporarily impaired

30,914

(195

)

72,619

(2,144

)

103,533

(2,339

)

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Less than 12 Months

12 Months or more

Total

Available-for-sale

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

June 30, 2018

Obligations of US government-sponsored entities and agencies

12,400

(224

)

2,747

(148

)

15,147

(372

)

Obligations of states and political subdivisions

26,775

(369

)

7,975

(344

)

34,750

(713

)

Mortgage-backed securities – residential

31,038

(581

)

29,716

(1,079

)

60,754

(1,660

)

Mortgage-backed securities – commercial

1,415

(17

)

—

1,415

(17

)

Collateralized mortgage obligation – residential

—

4,821

(216

)

4,821

(216

)

Total temporarily impaired

71,628

(1,191

)

45,259

(1,787

)

116,887

(2,978

)

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 December 31, 2018 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The decline in fair value within the securities portfolio is largely due to changes in interest rates and the fair value is expected to recover as the securities approach maturity. The mortgage-backed securities and collateralized mortgage obligations were primarily issued by Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. The Corporation does not own any private label mortgage-backed securities.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 3 – Loans

Major classifications of loans were as follows:

	December 31, 2018			June 30, 2018
Commercial	$	64,162		$	60,995
Commercial real estate:
Construction		6,303			5,394
Other		189,635			183,383
1 – 4 Family residential real estate:
Owner occupied		51,641			47,433
Non-owner occupied		14,613			15,516
Construction		2,426			1,171
Consumer		5,019			4,873
Subtotal		333,799			318,765
Net Deferred loan fees and costs		(237	)		(256	)
Allowance for loan losses		(3,569	)		(3,422	)
Net Loans	$	329,993		$	315,087

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

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

Allowance for loan losses:
Beginning balance	$	602	$	2,378		$	507		$	51		$	3,538
Provision for loan losses		20		(793	)		(12	)		10			(775	)
Loans charged-off		—		(55	)		—			(14	)		(69	)
Recoveries		—		867			1			7			875
Total ending allowance balance	$	622	$	2,397		$	496		$	54		$	3,569

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

						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		(693	)		(7	)		4			(660	)
Loans charged-off		—		(55	)		—			(21	)		(76	)
Recoveries		—		868			4			11			883
Total ending allowance balance	$	622	$	2,397		$	496		$	54		$	3,569

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 three months ended December 31, 2017:

						1-4 Family
				Commercial		Residential
				Real		Real
	Commercial			Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	572		$	2,081	$	473		$	68		$	3,194
Provision for loan losses		(17	)		57		20			—			60
Loans charged-off		—			—		(33	)		(5	)		(38	)
Recoveries		—			6		1			2			9
Total ending allowance balance	$	555		$	2,144	$	461		$	65		$	3,225

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

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	518	$	2,038	$	473		$	57		$	3,086
Provision for loan losses		35		82		20			13			150
Loans charged-off		—		—		(33	)		(8	)		(41	)
Recoveries		2		24		1			3			30
Total ending allowance balance	$	555	$	2,144	$	461		$	65		$	3,225

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2018. Included in the recorded investment in loans is $784 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	$	—	$	7	$	—	$	—	$	7
Collectively evaluated for impairment		622		2,390		496		54		3,562
Total ending allowance balance	$	622	$	2,397	$	496	$	54	$	3,569

Recorded investment in loans:
Loans individually evaluated for impairment	$	114	$	1,379	$	377	$	—	$	1,870
Loans collectively evaluated for impairment		64,120		194,547		68,785		5,024		332,476
Total ending loans balance	$	64,234	$	195,926	$	69,162	$	5,024	$	334,346

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2018. Included in the recorded investment in loans is $732 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	$	—	$	29	$	—	$	—	$	29
Collectively evaluated for impairment		586		2,248		499		60		3,393
Total ending allowance balance	$	586	$	2,277	$	499	$	60	$	3,422

Recorded investment in loans:
Loans individually evaluated for impairment	$	100	$	1,562	$	398	$	—	$	2,060
Loans collectively evaluated for impairment		60,979		187,191		64,135		4,876		317,181
Total ending loans balance	$	61,079	$	188,753	$	64,533	$	4,876	$	319,241

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of December 31, 2018 and for the six months ended December 31, 2018:

	As of December 31, 2018						Six Months ended December 31, 2018
	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	$	112	$	114	$	—	$	92	$	3	$	3
Commercial real estate:
Other		1,340		1,153		—		1,255		19		19
1-4 Family residential real estate:
Owner occupied		127		97		—		98		—		—
Non-owner occupied		304		280		—		287		—		—
With an allowance recorded:
Commercial real estate:
Other		225		226		7		229		7		7
Total	$	2,108	$	1,870	$	7	$	1,961	$	29	$	29

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended December 31, 2018:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	113	$	2	$	2
Commercial real estate:
Other		1,140		8		8
1-4 Family residential real estate:
Owner occupied		97		—		—
Non-owner occupied		283		—		—
With an allowance recorded:
Commercial real estate:
Other		227		4		4
Total	$	1,860	$	14	$	14

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, 2018 and for the six months ended December 31, 2017:

As of June 30, 2018

Six Months ended December 31, 2017

Unpaid

Allowance for Loan

Average

Interest

Cash Basis

Principal

Recorded

Losses

Recorded

Income

Interest

Balance

Investment

Allocated

Investment

Recognized

With no related allowance recorded:

Commercial

100

—

117

Commercial real estate:

Other

1,330

—

1,057

1-4 Family residential real estate:

Owner occupied

101

—

Non-owner occupied

297

—

322

—

With an allowance recorded:

Commercial real estate:

Other

231

232

337

Total

2,059

2,060

1,913

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

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

	December 31, 2018				June 30, 2018
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing
Commercial real estate:
Other	$	531	$	—	$	702	$	—
1 – 4 Family residential:
Owner occupied		88		—		90		—
Non-owner occupied		280		—		298		—
Total	$	899	$	—	$	1,090	$	—

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

The following table presents the aging of the recorded investment in past due loans as of December 31, 2018 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	$	—	$	—	$	—	$	—	$	64,234	$	64,234
Commercial real estate:
Construction		—		—		—		—		6,281		6,281
Other		—		26		104		130		189,515		189,645
1-4 Family residential:
Owner occupied		180		—		80		260		51,843		52,103
Non-owner occupied		—		—		—		—		14,611		14,611
Construction		—		—		—		—		2,448		2,448
Consumer		—		—		—		—		5,024		5,024
Total	$	180	$	26	$	184	$	390	$	333,956	$	334,346

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The above table of past due loans includes the recorded investment in non-accrual loans of $184 in the 90 days or greater category and $715 in the loans not past due category.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2018 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	$	—	$	—	$	—	$	—	$	61,079	$	61,079
Commercial real estate:
Construction		—		—		—		—		5,386		5,386
Other		238		—		—		238		183,129		183,367
1-4 Family residential:
Owner occupied		11		—		80		91		47,738		47,829
Non-owner occupied		—		—		—		—		15,514		15,514
Construction		—		—		—		—		1,190		1,190
Consumer		7		—		—		7		4,869		4,876
Total	$	256	$	—	$	80	$	336	$	318,905	$	319,241

The above table of past due loans includes the recorded investment in non-accrual loans of $249 in the 30-59 days, $80 in the 90 days or greater category and $761 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. A modified loan is classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered.

At December 31, 2018 and June 30, 2018, the Corporation had $1,251 and $1,269, respectively, of loans classified as TDRs which are included in impaired loans above. As of December 31, 2018 and June 30, 2018, the Corporation had committed to lend an additional $112 and $174, respectively, to customers with outstanding loans that were classified as troubled debt restructurings. At December 31, 2018 and June 30, 2018, the Corporation had $7 and $29, respectively, of specific reserves allocated to these loans.

During the three and six-month periods ended December 31, 2018 and 2017, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge offs from troubled debt restructurings that were completed during the three and six-month periods ended December 31, 2018 and 2017.

There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the three and six-month periods ended December 31, 2018 and 2017. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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 to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:

As of December 31, 2018

Special

Not

Pass

Mention

Substandard

Doubtful

Rated

Commercial

62,251

525

1,054

—

404

Commercial real estate:

Construction

6,281

—

Other

174,444

11,507

2,048

531

1,115

1-4 Family residential real estate:

Owner occupied

2,490

49,488

Non-owner occupied

13,369

188

332

280

442

Construction

693

—

1,755

Consumer

—

4,981

Total

259,571

12,312

3,459

819

58,185

As of June 30, 2018

Special

Not

Pass

Mention

Substandard

Doubtful

Rated

Commercial

59,214

288

1,162

—

415

Commercial real estate:

Construction

5,386

—

Other

172,471

7,061

1,878

702

1,255

1-4 Family residential real estate:

Owner occupied

2,577

—

45,214

Non-owner occupied

14,025

195

417

298

579

Construction

—

1,182

Consumer

—

4,783

Total

253,774

7,544

3,484

1,011

53,428

Note 4 - Fair Value

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

December 31, 2018 Using

Balance at

December 31,

2018

Level 1

Level 2

Level 3

Assets:

Obligations of U.S. government-sponsored entities and agencies

18,248

—

18,248

—

Obligations of states and political subdivisions

57,502

—

57,502

—

Mortgage-backed securities – residential

59,922

—

59,922

—

Mortgage-backed securities – commercial

1,406

—

1,406

—

Collateralized mortgage obligations - residential

6,755

—

6,755

—

Fair Value Measurements at

June 30, 2018 Using

Balance at

June 30,

2018

Level 1

Level 2

Level 3

Assets:

Obligations of U.S. government-sponsored entities and agencies

16,122

—

16,122

—

Obligations of states and political subdivisions

56,590

—

56,590

—

Mortgage-backed securities - residential

63,408

—

63,408

—

Mortgage-backed securities - commercial

1,415

—

1,415

—

Collateralized mortgage obligations - residential

5,766

—

5,766

—

Pooled trust preferred security

727

—

727

—

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

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:

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned being carried at fair value as of December 31, 2018 or June 30, 2018.

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

Fair Value Measurements at

December 31, 2018 Using

Balance at

December 31, 2018

Level 1

Level 2

Level 3

Impaired loans:

Commercial Real Estate - Other

105

—

105

The resulting impact to the provision for loan losses was an increase of $55 being recorded for the three- and six-month periods ended December 31, 2018. There was no impact to the provision for loan losses for the three months ended December 31, 2017. The resulting impact to the provision for loan losses was a decrease of $17 being recorded for the six months ended December 31, 2017.

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

December 31, 2018

June 30, 2018

Carrying
Amount

Estimated
Fair
Value

Carrying
Amount

Estimated
Fair
Value

Financial Assets:

Level 1 inputs:

Cash and cash equivalents

9,749

7,772

Level 2 inputs:

Certificates of deposits in other financial institutions

2,473

2,466

2,973

2,976

Loans held for sale

1,068

1,094

1,448

1,474

Accrued interest receivable

1,485

1,404

Level 3 inputs:

Securities held-to-maturity

3,824

3,852

4,024

4,048

Loans, net

329,993

326,602

315,087

311,642

Financial Liabilities:

Level 2 inputs:

Demand and savings deposits

350,293

351,422

Time deposits

92,237

93,059

78,541

78,332

Short-term borrowings

3,777

13,367

Federal Home Loan Bank advances

20,922

20,538

11,756

11,146

Accrued interest payable

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

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

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

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

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

Loans: Effective for the period ended September 30, 2018, the fair value of loans were determined using an exit price methodology as prescribed by ASU 2016-01. The exit price estimation of fair value is based on the future value of expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a current market rate based on the relative credit risk of the loan. In addition, an incremental liquidity discount is applied resulting in a Level 3 classification. In comparison, loan fair values as of June 30, 2018 were estimated based on an entrance price methodology. As a result, the fair value adjustments as of December 31, 2018 and June 30, 2018 are not comparable.

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

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

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 5 – Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were 2,178 and 1,042 shares of restricted stock that were anti-dilutive for the three and six month periods ended December 31, 2018. There were 2,062 shares of restricted stock that were anti-dilutive for the three and six months ended December 31, 2017. The following table details the calculation of basic and diluted earnings per share:

For the Three Months Ended

December 31,

For the Six Months Ended

December 31,

2018

2017

2018

2017

Basic:

Net income available to common shareholders

1,849

657

3,522

1,586

Weighted average common shares outstanding

2,730,375

2,727,666

2,730,355

2,725,859

Basic income per share

0.68

0.24

1.29

0.58

Diluted:

Net income available to common shareholders

1,849

657

3,522

1,586

Weighted average common shares outstanding

2,730,375

2,727,666

2,730,355

2,725,859

Dilutive effect of restricted stock

—

Total common shares and dilutive potential common shares

2,730,375

2,727,666

2,730,378

2,725,859

Dilutive income per share

0.68

0.24

1.29

0.58

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 6 –Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three- and six-month periods ended December 31, 2018 and 2017, were as follows:

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of September 30, 2018	$	(3,549	)	$	746		$	(2,803	)
Unrealized holding gain on available-for-sale securities arising during the period		1,787			(376	)		1,411
Amounts reclassified from accumulated other comprehensive income		27			(6	)		21		(a)(b)
Net current period other comprehensive income		1,814			(382	)		1,432
Balance after reclassification as of December 31, 2018	$	(1,735	)	$	364		$	(1,371	)

Balance as of September 30, 2017	$	741		$	(252	)	$	489
Unrealized holding loss on available-for-sale securities arising during the period		(631	)		215			(416	)
Balance as of December 31, 2017	$	110		$	(37	)	$	73

(a) Securities (gains) losses, net

(b) Income tax expense

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of June 30, 2018	$	(2,069	)	$	434		$	(1,635	)
Unrealized holding gain on available-for-sale securities arising during the period		894			(188	)		706
Amounts reclassified from accumulated other comprehensive income		(560	)		118			(442	)	(a)(b)
Net current period other comprehensive income		334			(70	)		264
Balance after reclassification as of December 31, 2018	$	(1,735	)	$	364		$	(1,371	)

Balance as of June 30, 2017	$	675		$	(230	)	$	445
Unrealized holding losses on available-for-sale securities arising during the period		(527	)		180			(347	)
Amounts reclassified from accumulated other comprehensive income		(38	)		13			(25	)	(a)(b)
Net current period other comprehensive loss		(565	)		193			(372	)
Balance as of December 31, 2017	$	110		$	(37	)	$	73

(a) Securities (gains) losses, net

(b) Income tax expense

Note 7 – 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.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the Corporation's sources of noninterest income for the three and six months ended December 31, 2018 and 2017.

For the three months ended

December 31,

For the six months ended

December 31,

2018

2017

2018

2017

Noninterest income

In scope of Topic 606:

Service charges on deposit accounts

321

301

637

609

Debit card interchange income

369

325

727

648

Other income

213

145

378

280

Noninterest income (in scope of Topic 606)

903

771

1,742

1,537

Noninterest income (out-of-scope of Topic 606)

697

174

Total noninterest income

944

839

2,439

1,711

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

(Dollars in thousands, except per share data)

General

The following is management’s analysis of the Corporation’s results of operations for the three- and six-month periods ended December 31, 2018, compared to the same periods in 2017, and the consolidated balance sheet at December 31, 2018, compared to June 30, 2018. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Overview

Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Corporation), owns all of 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.

Results of Operations

Three- and Six-Month Periods Ended December 31, 2018 and 2017

In the second quarter of fiscal year 2019, net income increased by $1,192, or 181.4% from the same period last year. Net income for the second quarter of fiscal year 2019 was $1,849, or $0.68 per common share, compared to $657, or $0.24 per common share for the three months ended December 31, 2017. The following are key highlights of our results of operations for the three months ended December 31, 2018:

	●	a negative provision for loan loss expense of $775 was recorded in the second quarter of fiscal year 2019 primarily as a result of net recoveries of $806 that were collected during the quarter;
	●	net interest income increased by $447 to $4,374, or by 11.4%, in the second quarter of fiscal year 2019 from the same prior year period;
	●	noninterest income increased by $105, or 12.5%, in the second quarter of fiscal year 2019 from the same prior year period; and
	●	noninterest expenses increased by $320, or 9.0%, in the second quarter of fiscal year 2019 from the same prior year period.

In the first six months of fiscal year 2019, net income increased by $1,936, or 122.1% from the same period last year. Net income for the six months ended December 31, 2018 was $3,522, or $1.29 per common share, compared to $1,586, or $0.58 per common share for the six months ended December 31, 2017. The following are key highlights of our results of operations for the six months ended December 31, 2018:

	●	net interest income increased by $960 to $8,673, or by 12.4%, in the first six months of fiscal year 2019 from the same prior year period;
	●	a negative provision for loan loss expense of $660 was recorded in the first six months of fiscal year 2019 compared with a $150 provision for loan loss expense during the same prior year period;
	●	noninterest income increased by $728, or 42.5%, in the first six months of fiscal year 2019 from the same prior year period, which includes net securities gains of $560 in fiscal year 2019 compared to $38 in the same prior year period; and
	●	noninterest expenses increased by $611, or 8.8%, in the first six months of fiscal year 2019 from the same prior year period.

Return on average equity and return on average assets were 15.71% and 1.38%, respectively, for the first six months of fiscal year 2019 compared to 7.09% and 0.67%, respectively, for the same prior year period.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’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 2019 fiscal year was 21.0% compared with 27.55% for the same prior year period. A 21.0% federal tax rate went into effect on January 1, 2018 with the enactment of the Tax Cuts and Jobs Act. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

The Corporation’s net interest margin was 3.63% for the three months ended December 31,2018, compared with 3.61% for the same period in 2017. FTE net interest income for the three months ended December 31, 2018 increased by $424, or 10.6%, to $4,435 from $4,011 for the same year ago period.

Tax-equivalent interest income for the three months ended December 31, 2018 increased by $749, or 17.1%, from the same year ago period. Interest income was positively impacted by a $39,286, or 8.9%, increase in average interest-earning assets from the same prior year period. Additionally, the Corporation’s yield on average interest-earning assets increased to 4.20% for the three months ended December 31, 2018 from 3.94% for the same period last year. The increase in the yield on average interest-earning assets was primarily a result of an increase in interest rates as well as a positive change in the earning asset mix with higher yielding loans increasing faster than lower yielding securities.

Interest expense for the three months ended December 31, 2018 increased by $325 from the same year ago period. The Corporation’s cost of funds was 0.79% for the three months ended December 31, 2018 compared with 0.46% for the same year ago period. The increase in short term market interest rates has impacted the rates paid on all interest-bearing deposit products and borrowings.

The Corporation’s net interest margin was 3.67% for the six months ended December 31, 2018, compared with 3.62% for the same period in 2017. FTE net interest income for the six months ended December 31, 2018 increased by $884, or 11.1%, to $8,869 from $7,985 for the same year ago period.

Tax-equivalent interest income for the six months ended December 31, 2018 increased by $1,448, or 16.6%, from the same year ago period. Interest income was positively impacted by a $38,904, or 8.9%, increase in average interest-earning assets from the same prior year period. Additionally, the Corporation’s yield on average interest-earning assets increased to 4.20% for the six months ended December 31, 2018 from 3.95% for the same period last year. The yield on average interest-earning assets increased despite a decline in the tax-equivalent yield on nontaxable securities which occurred as a result of the decline in the statutory federal tax rate. The increase in the yield on average interest-earning assets was primarily a result of an increase in interest rates as well as a positive change in the earning asset mix with higher yielding loans increasing faster than lower yielding securities.

Interest expense for the six months ended December 31, 2018 increased by $564 from the same year ago period. The Corporation’s cost of funds was 0.74% for the six months ended December 31, 2018 compared with 0.46% for the same year ago period.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended December 31, (In thousands, except percentages)
	2018								2017
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	85,035		$	549		2.47	%	$	80,517		$	441		2.17	%
Nontaxable securities (1)		60,213			458		2.97			60,556			448		2.97
Loans receivable (1)		327,661			4,061		4.92			292,149			3,440		4.67
Federal bank and other restricted stocks		1,459			22		5.98			1,424			18		5.01
Interest bearing deposits and federal funds sold		6,097			34		2.21			6,533			28		1.70
Total interest-earning assets		480,465			5,124		4.20	%		441,179			4,375		3.94	%

Noninterest-earning assets		31,156								31,646

Total Assets	$	511,621							$	472,825

Interest-bearing liabilities:
NOW	$	83,946		$	138		0.65	%	$	53,913		$	20		0.15	%
Savings		162,418			176		0.43			152,502			78		0.20
Time deposits		81,896			304		1.47			66,770			155		0.92
Short-term borrowings		3,599			14		1.54			26,249			57		0.86
FHLB advances		15,462			57		1.46			12,829			54		1.67
Total interest-bearing liabilities		347,321			689		0.79	%		312,263			364		0.46	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		115,435								112,039
Other liabilities		4,413								3,956
Total liabilities		467,169								428,258
Shareholders’ equity		44,452								44,567

Total liabilities and shareholders’ equity	$	511,621							$	472,825

Net interest income, interest rate spread (1)				$	4,435		3.41	%				$	4,011		3.48	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.63	%							3.61	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	61							$	84

Average interest-earning assets to interest-bearing liabilities		138.33	%							141.28	%

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31, (In thousands, except percentages)
	2018								2017
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	85,554		$	1,075		2.42	%	$	82,154		$	931		2.25	%
Nontaxable securities (1)		59,738			964		3.17			60,635			997		3.30
Loans receivable (1)		324,927			8,014		4.89			286,273			6,674		4.62
Federal bank and other restricted stocks		1,459			44		5.98			1,424			39		5.43
Interest bearing deposits and federal funds sold		5,258			57		2.15			7,546			65		1.71
Total interest-earning assets		476,936			10,154		4.20	%		438,032			8,706		3.95	%

Noninterest-earning assets		30,984								31,699

Total Assets	$	507,920							$	469,731

Interest-bearing liabilities:
NOW	$	83,157		$	263		0.63	%	$	53,556		$	40		0.15	%
Savings		162,840			313		0.38			152,080			158		0.21
Time deposits		80,219			556		1.37			66,595			303		0.90
Short-term borrowings		3,822			28		1.45			26,197			112		0.85
FHLB advances		15,559			125		1.59			12,915			108		1.66
Total interest-bearing liabilities		345,597			1,285		0.74	%		311,343			721		0.46	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		113,556								110,111
Other liabilities		4,300								3,920
Total liabilities		463,453								425,374
Shareholders’ equity		44,467								44,357

Total liabilities and shareholders’ equity	$	507,920							$	469,731

Net interest income, interest rate spread (1)				$	8,869		3.46	%				$	7,985		3.49	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.67	%							3.62	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	196							$	272

Average interest-earning assets to interest-bearing liabilities		138.00	%							140.69	%

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Provision for Loan Losses

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the three months ended December 31, 2018, a negative provision for loan loss expense of $775 was recorded compared to a provision for loan loss expense of $60 for the same prior year period. For the six-month period ended December 31, 2018, a negative provision for loan loss expense of $660 was recognized compared to a provision for loan loss expense of $150 for the same prior year period. Net recoveries of $806 and $807 were collected during the three- and six-month periods ended December 31, 2018, respectively.

Non-performing loans were $899 as of December 31, 2018 compared with $1,090 as of June 30, 2018 and $865 as of December 31, 2017. For the six months ended December 31, 2018, net recoveries totaled $807 compared with net charge-offs of $11 for the same prior year period. A full principal recovery of a prior period commercial real estate loan charge-off was collected during the three-month period ended December 31, 2018. The allowance for loan losses as a percentage of loans was 1.07% at December 31, 2018 and June 30, 2018. The provision for loan losses for the period ended December 31, 2018 was considered sufficient by management for maintaining an appropriate allowance for probable incurred credit losses.

Noninterest Income

Noninterest income increased by $105, or 12.5%, for the second quarter of fiscal year 2019 from the same period last year and $728, or 42.5%, for the first six months of fiscal year 2019 from the same period last year. Net securities gains in the first six months of fiscal year 2019 totaled $560 compared to $38 in the same prior year period. During the first six month of the 2019 fiscal year, the pooled trust preferred security was sold because of the significant increase in the value of this security resulting in a gain of $593. Excluding net securities gains, noninterest income increased by $206, or 12.3%, in the first six months of the 2019 fiscal year from the same period last year. Noninterest income was positively impacted by increases in debit card interchange income and gains from the sale of mortgage loans.

Noninterest Expenses

Total noninterest expenses increased to $3,880, or by 9.0%, during the second quarter of fiscal year 2019, compared with $3,560 during the same year ago period. Total non-interest expenses increased to $7,564, or by 8.8%, during the first six months of fiscal 2019, compared with $6,953 during the same year ago period. Total noninterest expenses were impacted by increases in salary, incentive, legal and consulting expenses.

Income Taxes

Income tax expense was $364 and $686 for the three- and six-month periods ended December 31, 2018 compared to $489 and $735 for the three- and six-month periods ended December 31, 2017, respectively. The effective tax rate was 16.4% and 16.3% for the three- and six-month periods ended December 31, 2018 compared to 42.7% and 31.7% for the three- and six-month periods ended December 31, 2017. Income tax expense and the effective tax rate were higher in the 2018 fiscal year periods primarily due to the enactment of the Tax Cuts and Jobs Act. As a result of the enactment of the Tax Act, a one-time income tax expense of $348 was recorded in conjunction with writing down its net deferred tax assets. The effective tax rate was lower in the 2019 fiscal year as a result of the enactment of the Tax Cuts and Jobs Act which lowered the federal corporate tax rate beginning on January 1, 2018. The federal corporate tax rate was 21.0% in the 2019 fiscal year compared to 27.55% in the 2018 fiscal year.

Financial Condition

Total assets at December 31, 2018 were $517,955 compared to $502,619 at June 30, 2018, an increase of $15,336, or an annualized 6.1%.

Total loans increased by $15,053, or an annualized 9.5%, from $318,509 at June 30, 2018 to $333,562 at December 31, 2018. The growth in the loan portfolio was primarily related to growth within the commercial real estate and 1-4 family residential real estate segments to borrowers within the Bank’s primary market area. The loan growth was primarily funded by an increase of $12,567, or an annualized 5.8%, in total deposits.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Non-Performing Assets

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

	December 31, 2018			June 30, 2018			December 31, 2017
Non-accrual loans	$	899		$	1,090		$	865
Loans past due over 90 days and still accruing		—			—			—
Total non-performing loans		899			1,090			865
Other real estate owned		—			—			57
Total non-performing assets	$	899		$	1,090		$	922

Non-performing loans to total loans		0.27	%		0.34	%		0.29	%
Allowance for loan losses to total non-performing loans		397.00	%		313.94	%		372.83	%

As of December 31, 2018, impaired loans totaled $1,870, of which $899 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.

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

Liquidity

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

For the six months ended December 31, 2018, net cash inflow from operating activities was $4,043, net cash outflows from investing activities was $13,499 and net cash inflows from financing activities was $11,433. A major source of cash was a $12,567 increase in deposits and $14,644 from sales, maturities, calls or principal pay downs on available-for-sale securities. A major use of cash was a $14,321 increase in loans. Total cash and cash equivalents were $9,749 as of December 31, 2018, compared to $7,772 at June 30, 2018 and $9,141 at December 31, 2017.

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 $442,530 at December 31, 2018 compared with $429,963 at June 30, 2018.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At December 31, 2018, advances from the FHLB of Cincinnati totaled $20,922 compared with $11,756 at June 30, 2018. As of December 31, 2018, the Bank had the ability to borrow an additional $21,975 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 $3,777 at December 31, 2018 and $13,367 at June 30, 2018.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Jumbo time deposits (those with balances of $250 and over) totaled $32,420 at December 31, 2018 and $23,018 at June 30, 2018. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.

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 $71,205 at December 31, 2018 and $63,854 at June 30, 2018.

Capital Resources

Total shareholders’ equity increased to $46,896 as of December 31, 2018 from $43,761 as of June 30, 2018. The increase was primarily the result of $3,522 of net income for the first six months of fiscal year 2019. This increase was partially offset by cash dividends paid of $710.

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

As of December 31, 2018, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 12.69% and the leverage and total capital ratios were 9.08% and 13.67%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 12.20% and leverage and total risk-based capital ratios of 8.74% and 13.15%, respectively, as of June 30, 2018. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to December 31, 2018 that would cause the Bank’s capital category to change.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Critical Accounting Policies

The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and Management’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 three (Loans) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2018 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since June 30, 2018.

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. In addition, all statements set forth in future filings by the Corporation with the SEC, or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, that are not historical in nature, including words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond 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. Factors that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:

	●	local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in credit quality of our loan assets, among other things;
	●	the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
	●	inflation, interest rate, securities market and monetary fluctuations;
	●	changes in the level of non-performing assets and charge-offs;
	●	declining asset values impacting the underlying value of collateral;
	●	the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;
	●	competitive pressures on product pricing and services;
	●	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;
	●	our ability to attract and retain qualified employees;
	●	changes in accounting policies, rules and interpretations;
	●	unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources; and
	●	changes in consumer spending, borrowing and savings habits.

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

CONSUMERS BANCORP, INC.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2018.

Changes in Internal Controls Over Financial Reporting

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

CONSUMERS BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

None

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

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit

Number

Description

Exhibit 11

Statement regarding Computation of Per Share Earnings (included in Note 5 to the Consolidated Financial Statements).

Exhibit 31.1

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

Exhibit 31.2

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

Exhibit 32.1

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

Exhibit 101

The following materials from Consumers Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended December 31, 2018, formatted in XBRL (Extensible Business Reporting Language) include: (1) Unaudited Consolidated Balance Sheets, (2) Unaudited Consolidated Statements of Income, (3) Unaudited Consolidated Statements of Comprehensive Income, (4) Unaudited Consolidated Statement of Changes in Shareholders’ Equity, (5) Unaudited Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements.

SIGNATURES

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

	CONSUMERS BANCORP, INC. (Registrant)

Date: February 14, 2019	/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: February 14, 2019	/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)