UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~December 31, 2017~~September 30, 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~~’sRegistrant’s telephone number)

Not applicable

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

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

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if smaller reporting company)	Smaller reporting company ☒
Emerging growth company ☐

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

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

There were ~~2,729,644~~2,733,845 shares of ~~Registrant~~’sRegistrant’s common stock, no par value, outstanding as of ~~February 9,~~November 12, 2018.

CONSUMERS BANCORP, INC.

FORM 10-Q

QUARTER ENDED ~~December 31~~September 30, ~~2017~~2018

Table of Contents

Page

Number (s)

Part I – Financial Information

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

Consolidated Statements of Income for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	2

Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	3

Condensed Consolidated Statements of Changes in ~~Shareholders~~’Shareholders’ Equity for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	4

Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	5

Notes to the Consolidated Financial Statements	~~6-2~~66-20

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	2~~7-35~~21-27

Item 3 – Not Applicable for Smaller Reporting Companies

Item 4 – Controls and Procedures	3628
Part II – Other Information
Item 1 – Legal Proceedings	3729

Item 1A – Not Applicable for Smaller Reporting Companies	3729

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	3729

Item 3 – Defaults Upon Senior Securities	3729

Item 4 – Mine Safety Disclosure	3729

Item 5 – Other Information	3729

Item 6 – Exhibits	3729

Signatures	3830

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share data)	December 31, 2017			June 30, 2017			September 30, 2018			June 30, 2018
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions	$	8,910		$	9,439		$	8,579		$	7,615
Federal funds sold and interest-bearing deposits in financial institutions		231			473			2,206			157
Total cash and cash equivalents		9,141			9,912			10,785			7,772
Certificates of deposit in other financial institutions		3,921			3,921			2,973			2,973
Securities, available-for-sale		135,738			142,086			137,668			144,028
Securities, held-to-maturity (fair value of $4,083 at December 31, 2017 and $4,329 at June 30, 2017)		4,061			4,259
Securities, held-to-maturity (fair value of $3,965 at September 30, 2018 and $4,048 at June 30, 2018)								3,929			4,024
Federal bank and other restricted stocks, at cost		1,425			1,425			1,459			1,459
Loans held for sale		814			1,252			2,663			1,448
Total loans		293,594			272,867			328,682			318,509
Less allowance for loan losses		(3,225	)		(3,086	)		(3,538	)		(3,422	)
Net loans		290,369			269,781			325,144			315,087
Cash surrender value of life insurance		9,201			9,065			9,404			9,335
Premises and equipment, net		13,137			13,398			13,474			13,315
Other real estate owned		57			71
Accrued interest receivable and other assets		2,418			2,713			3,290			3,178
Total assets	$	470,282		$	457,883		$	510,789		$	502,619

LIABILITIES
Deposits
Non-interest bearing demand	$	108,503		$	102,683
Noninterest-bearing demand							$	113,123		$	107,919
Interest bearing demand		55,056			54,123			85,618			81,299
Savings		152,659			151,154			162,749			162,204
Time		66,771			66,511			79,049			78,541
Total deposits		382,989			374,471			440,539			429,963

Short-term borrowings		22,507			23,986			2,902			13,367
Federal Home Loan Bank advances		17,188			12,320			19,739			11,756
Accrued interest and other liabilities		3,427			3,571			3,639			3,772
Total liabilities		426,111			414,348			466,819			458,858
Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)		—			—			—			—
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of December 31, 2017 and June 30, 2017)		14,630			14,630
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of September 30, 2018 and June 30, 2018)								14,628			14,630
Retained earnings		31,044			30,122			33,660			32,342
Treasury stock, at cost (124,489 and 130,606 common shares as of December 31, 2017 and June 30, 2017, respectively)		(1,576	)		(1,662	)
Accumulated other comprehensive income		73			445
Total shareholders’ equity		44,171			43,535
Total liabilities and shareholders’ equity	$	470,282		$	457,883
Treasury stock, at cost (120,288 and 124,489 common shares as of September 30, 2018 and June 30, 2018, respectively)								(1,515	)		(1,576	)
Accumulated other comprehensive loss								(2,803	)		(1,635	)
Total shareholders’ equity								43,970			43,761
Total liabilities and shareholders’ equity							$	510,789		$	502,619

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months ended December 31,					Six Months ended December 31,					Three Months ended September 30,
(Dollars in thousands, except per share amounts)	2017		2016			2017		2016			2018		2017

Interest income
Interest and dividend income
Loans, including fees	$	3,437	$	3,022		$	6,665	$	6,206		$	3,949	$	3,228
Securities, taxable		459		377			970		779			526		490
Securities, tax-exempt		367		357			734		708			375		367
Federal bank and other restricted stocks												22		21
Federal funds sold and other interest bearing deposits		28		30			65		60			23		37
Total interest income		4,291		3,786			8,434		7,753
Total interest and dividend income												4,895		4,143
Interest expense
Deposits		253		183			501		353			514		248
Short-term borrowings		57		11			112		23			14		55
Federal Home Loan Bank advances		54		56			108		114			68		54
Total interest expense		364		250			721		490
Total interest expense												596		357
Net interest income		3,927		3,536			7,713		7,263			4,299		3,786
Provision for loan losses		60		140			150		276			115		90
Net interest income after provision for loan losses		3,867		3,396			7,563		6,987			4,184		3,696

Non-interest income
Noninterest income
Service charges on deposit accounts		301		314			609		644			316		308
Debit card interchange income		325		285			648		536			358		323
Bank owned life insurance income		68		63			136		112			69		68
Securities gains, net		—		22			38		125			587		38
Loss on disposition of other real estate owned		—		(3	)		-		(3	)
Other		145		116			280		231			165		135
Total non-interest income		839		797			1,711		1,645
Total noninterest income												1,495		872

Non-interest expenses
Noninterest expenses
Salaries and employee benefits		1,966		1,790			3,776		3,528			1,975		1,810
Occupancy and equipment		465		478			920		930			488		455
Data processing expenses		147		145			295		290			150		148
Debit card processing expenses		188		149			368		282			194		180
Professional and director fees		122		146			239		278			170		117
FDIC assessments		46		46			92		101			38		46
Franchise taxes		84		84			168		168			89		84
Marketing and advertising		61		65			139		144			104		78
Telephone and network communications		75		76			157		157			72		82
Other		406		347			799		734			404		393
Total non-interest expenses		3,560		3,326			6,953		6,612
Income before income taxes		1,146		867			2,321		2,020
Total noninterest expenses												3,684		3,393
Income before income taxes												1,995		1,175
Income tax expense		489		145			735		397			322		246
Net income	$	657	$	722		$	1,586	$	1,623		$	1,673	$	929

Basic and diluted earnings per share	$	0.24	$	0.27		$	0.58	$	0.60		$	0.61	$	0.34

See accompanying notes to consolidated financial statements

CONSUMERS BANCORP, INC.

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

~~(Unaudited)~~

~~(Dollars in thousands)~~

Three Months ended
December 31

Six Months ended
December 31,

2017

2016

2017

2016

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

Other comprehensive income (loss), net of tax:

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

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

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

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

~~CONSUMERS BANCORP, INC.~~

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

(Unaudited)

(Dollars in thousands, except per share data)

Three Months ended
December 31,

Six Months ended
December 31,

2017

2016

2017

2016

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

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

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

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

(Dollars in thousands)
	Three Months ended September 30,
	2018			2017

Net income	$	1,673		$	929

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		(893	)		104
Reclassification adjustment for gains included in income		(587	)		(38	)
Net unrealized gains (losses)		(1,480	)		66
Income tax effect		312			(22	)
Other comprehensive income (loss)		(1,168	)		44

Total comprehensive income	$	505		$	973

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

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

(Unaudited)

(Dollars in thousands)

Six Months Ended
December 31,

2017

2016

Cash flows from operating activities

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

Cash flow from investing activities

Securities available-for-sale

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

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

Cash flow from financing activities

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

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

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

Supplemental disclosure of cash flow information:

Cash paid during the period:

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

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

(Dollars in thousands, except per share data)
	Three Months ended September 30,
	2018			2017

Balance at beginning of period	$	43,761		$	43,535

Net income		1,673			929
Other comprehensive income (loss)		(1,168	)		44
4,201 and 6,321 shares issued associated with stock awards during the three months ended September 30, 2018 and 2017, respectively		59			90
204 Dividend reinvestment plan shares associated with forfeited and expired restricted stock awards retired to treasury stock during the three months ended September 30, 2017		—			—
Common cash dividends		(355	)		(327	)

Balance at the end of the period	$	43,970		$	44,271

Common cash dividends per share	$	0.13		$	0.12

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)	Three Months Ended September 30,
	2018			2017
Cash flows from operating activities
Net cash from operating activities	$	533		$	503

Cash flow from investing activities
Securities available-for-sale
Purchases		(2,060	)		(426	)
Maturities, calls and principal pay downs		4,730			4,412
Proceeds from sales		2,573			1,586
Securities held-to-maturity
Principal pay downs		95			95
Net increase in loans		(10,247	)		(14,833	)
Acquisition of premises and equipment		(350	)		(86	)
Sale of other real estate owned		—			71
Net cash from investing activities		(5,259	)		(9,181	)

Cash flow from financing activities
Net increase in deposit accounts		10,576			9,369
Net change in short-term borrowings		(10,465	)		3,919
Proceeds from Federal Home Loan Bank advances		8,000			—
Repayments of Federal Home Loan Bank advances		(17	)		(16	)
Dividends paid		(355	)		(327	)
Net cash from financing activities		7,739			12,945

Increase in cash or cash equivalents		3,013			4,267

Cash and cash equivalents, beginning of period		7,772			9,912
Cash and cash equivalents, end of period	$	10,785		$	14,179

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	576		$	347
Federal income taxes		—			—
Non-cash items:
Transfer from loans held for sale to portfolio		75			—
Issuance of treasury stock for stock awards		59			—
Expired and forfeited dividend reinvestment plan shares associated with restricted stock awards that were retired to treasury stock		—			4

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

(Dollars in thousands, except per share amounts)

Note 1– Summary of Significant Accounting Policies:

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

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Form 10-K10-K for the year ended June 30, ~~2017.~~ 2018. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.

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

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

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

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

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

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

In ~~June 2016,~~ ~~FASB Issued ASU~~ ~~2016~~-~~13,~~2016-13, Financial Instruments—Credit Losses (Topic ~~326~~)326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. ~~GAAP,~~generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU ~~2016~~-132016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU ~~2016~~-132016-13 is effective for “public business entities,” as defined in this guidance, that are SEC filers for fiscal years and for interim periods ~~with~~within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluating the impact of the adoption of this guidance on the Corporation’s consolidated financial statements and are in the midst of gathering critical data to evaluate the impact. However, it is too early to estimate the impact.

In February 2016,~~the~~ FASB issued ASU ~~2016~~-02 - 2016-02, Leases (Topic ~~842~~)842). ~~The~~This ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on the Corporation’s consolidated financial statements and expects to recognize an increase in other assets and other liabilities for the rights and obligations created by leasing of branch offices. Management also expects minimal impact in the income statement with respect to occupancy expense related to leases.

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, 2017

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

Available –for-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2018
Obligations of U.S. government-sponsored entities and agencies	$	16,320	$	—	$	(481	)	$	15,839
Obligations of state and political subdivisions		55,795		237		(974	)		55,058
U.S. Government-sponsored mortgage-backed securities–residential		62,011		—		(2,084	)		59,927
U.S. Government-sponsored mortgage-backed securities– commercial		1,425		—		(17	)		1,408
U.S. Government-sponsored collateralized mortgage obligations– residential		5,666		—		(230	)		5,436
Total available-for-sale securities	$	141,217	$	237	$	(3,786	)	$	137,668

Held-to-Maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
December 31, 2017
September 30, 2018
Obligations of state and political subdivisions	$	4,061	$	22	$	—	$	4,083	$	3,929	$	45	$	(9	)	$	3,965
Total held-to-maturity securities									$	3,929	$	45	$	(9	)	$	3,965

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	Three Months Ended December 31				Six Months Ended December 31,				Three Months Ended September 30,
	2017		2016		2017		2016		2018		2017
Proceeds from sales	$	—	$	1,594	$	1,586	$	3,383	$	2,573	$	1,586
Gross realized gains		—		24		39		127		593		39
Gross realized losses		—		2		1		2
Gross realized losses										6		1

The i~~ncome~~income tax provision related to ~~these~~the net realized gains ~~and losses~~ amounted to ~~$13~~$124 for the ~~six~~three months ended ~~December 31, 2017~~ ~~and~~ $8 ~~and~~ ~~$43~~September 30, 2018. The income tax provision related to the net realized gains amounted to $13 for the three ~~and~~ ~~six~~ months ended ~~December 31, 2016.~~September 30, 2017.

The amortized cost and fair values of debt securities at ~~December 31, 2017,~~ September 30, 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 ~~collateralized mortgage obligations and the pooled trust preferred security~~ are shown separately.

Available-for-Sale	Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,170	$	2,192		$	1,824	$	1,827
Due after one year through five years		18,053		18,167			19,435		19,201
Due after five years through ten years		28,838		28,992			27,499		27,112
Due after ten years		21,409		21,466			23,357		22,757
Total		70,470		70,817			72,115		70,897

U.S. Government-sponsored mortgage-backed and related securities		64,980		64,300			69,102		66,771
Pooled trust preferred security		178		621
Total available-for-sale securities	$	135,628	$	135,738		$	141,217	$	137,668

Held-to-Maturity					Held-to-Maturity

Due after five years through ten years		564		579			527		521
Due after ten years		3,497		3,504			3,402		3,444
Total held-to-maturity securities	$	4,061	$	4,083		$	3,929	$	3,965

The following table summarizes the securities with unrealized losses at September 30, 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
September 30, 2018
Obligations of US government-sponsored entities and agencies	$	12,248	$	(282	)	$	3,591	$	(199	)	$	15,839	$	(481	)
Obligations of states and political subdivisions		29,778		(467	)		9,744		(507	)		39,522		(974	)
Mortgage-backed securities – residential		23,084		(434	)		36,843		(1,650	)		59,927		(2,084	)
Mortgage-backed securities – commercial		—		—			1,408		(17	)		1,408		(17	)
Collateralized mortgage obligations – residential		900		(1	)		4,536		(229	)		5,436		(230	)
Total temporarily impaired	$	66,010	$	(1,184	)	$	56,122	$	(2,602	)	$	122,132	$	(3,786	)

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

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

(Dollars in thousands, except per share amounts)

Less than 12 Months

12 Months or more

Total

Available-for-sale

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

December 31, 2017

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

	Less than 12 Months					12 Months or more				Total
Held-to-maturity	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2018
Obligations of states and political subdivisions	$	3,053	$	(9	)	$	—	$	—	$	3,053	$	(9	)
Total temporarily impaired	$	3,053	$	(9	)	$	—	$	—	$	3,053	$	(9	)

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

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

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

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

The unrealized losses within the securities portfolio as of ~~December 31, 2017~~ September 30, 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.

~~Note~~ 3 ~~– Loans~~

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

December 31,
2017

June 30,
2017

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

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

~~The following table presents the activity in the allowance for loan losses by portfolio segment for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017:~~Note 3 – Loans

Major classifications of loans were as follows:

1-4 Family

Commercial

Residential

Real

Real

Commercial

Estate

Estate

Consumer

Total

Allowance for loan losses:

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

	September 30, 2018			June 30, 2018
Commercial	$	62,242		$	60,995
Commercial real estate:
Construction		4,568			5,394
Other		191,096			183,383
1 – 4 Family residential real estate:
Owner occupied		49,573			47,433
Non-owner occupied		14,775			15,516
Construction		1,825			1,171
Consumer		4,856			4,873
Subtotal		328,935			318,765
Net Deferred loan fees and costs		(253	)		(256	)
Allowance for loan losses		(3,538	)		(3,422	)
Net Loans	$	325,144		$	315,087

The following table presents the activity in the allowance for loan losses by portfolio segment for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2018:

																		1-4 Family
					1-4 Family											Commercial		Residential
			Commercial		Residential											Real		Real
			Real		Real									Commercial		Estate		Estate		Consumer			Total
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	518	$	2,038	$	473		$	57		$	3,086		$	586	$	2,277	$	499	$	60		$	3,422
Provision for loan losses		35		82		20			13			150			16		100		5		(6	)		115
Loans charged-off		—		—		(33	)		(8	)		(41	)		—		—		—		(7	)		(7	)
Recoveries		2		24		1			3			30			—		1		3		4			8
Total ending allowance balance	$	555	$	2,144	$	461		$	65		$	3,225		$	602	$	2,378	$	507	$	51		$	3,538

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended ~~December 31, 2016:~~September 30, 2017:

1-4 Family

Commercial

Residential

Real

Real

Commercial

Estate

Estate

Consumer

Total

Allowance for loan losses:

Beginning balance
$ 510 $ 2,643 $ 411 $ 120 $ 3,684
Provision for loan losses
(14
)
157 51 (54
)
140
Loans charged-off
— (700
)
(23
)
(8
)
(731
)
Recoveries
1 — 26 3 30
Total ending allowance balance
$ 497 $ 2,100 $ 465 $ 61 $ 3,123

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

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

1-4 Family

Commercial

Residential

Real

Real

Commercial

Estate

Estate

Consumer

Total

Allowance for loan losses:

Beginning balance
$ 505 $ 2,518 $ 402 $ 141 $ 3,566
Provision for loan losses
(9
)
282 78 (75
)
276
Loans charged-off
— (700
)
(44
)
(12
)
(756
)
Recoveries
1 — 29 7 37
Total ending allowance balance
$ 497 $ 2,100 $ 465 $ 61 $ 3,123

~~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, 2017.~~ ~~Included in the recorded investment in loans is~~ ~~$695~~ ~~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
$ — $ 30 $ — $ — $ 30
Collectively evaluated for impairment
555 2,114 461 65 3,195
Total ending allowance balance
$ 555 $ 2,144 $ 461 $ 65 $ 3,225

Recorded investment in loans:

Loans individually evaluated for impairment
$ 122 $ 1,303 $ 340 $ — $ 1,765
Loans collectively evaluated for impairment
49,553 174,707 63,293 4,971 292,524
Total ending loans balance
$ 49,675 $ 176,010 $ 63,633 $ 4,971 $ 294,289

					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		52		25		—		13			90
Loans charged-off		—		—		—		(3	)		(3	)
Recoveries		2		18		—		1			21
Total ending allowance balance	$	572	$	2,081	$	473	$	68		$	3,194

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~~September 30, ~~2017.~~ 2018. Included in the recorded investment in loans is ~~$581~~$859 of accrued ~~intere~~stinterest receivable.

					1-4 Family										1-4 Family
			Commercial		Residential								Commercial		Residential
			Real		Real								Real		Real
	Commercial		Estate		Estate		Consumer		Total		Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	42	$	2	$	—	$	44	$	—	$	29	$	—	$	—	$	29
Collectively evaluated for impairment		518		1,996		471		57		3,042		602		2,349		507		51		3,509
Total ending allowance balance	$	518	$	2,038	$	473	$	57	$	3,086	$	602	$	2,378	$	507	$	51	$	3,538

Recorded investment in loans:
Loans individually evaluated for impairment	$	444	$	1,587	$	203	$	—	$	2,234	$	87	$	1,606	$	388	$	—	$	2,081
Loans collectively evaluated for impairment		45,993		162,176		57,901		5,144		271,214		62,238		194,132		66,229		4,861		327,460
Total ending loans balance	$	46,437	$	163,763	$	58,104	$	5,144	$	273,448	$	62,325	$	195,738	$	66,617	$	4,861	$	329,541

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

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, 2017~~ September 30, 2018 and for the ~~six~~three months ended ~~December 31, 2017:~~

As of December 31, 2017

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

Recognized

With no related allowance recorded:

Commercial
$ 122 $ 122 $ — $ 117 $ 3 $ 3
Commercial real estate:

Other
973 976 — 1,057 16 16
1-4 Family residential real estate:

Owner occupied
25 25 — 80 — —
Non-owner occupied
315 315 — 322 — —
With an allowance recorded:

Commercial real estate:

Other
327 327 30 337 5 5
Total
$ 1,762 $ 1,765 $ 30 $ 1,913 $ 24 $ 24

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~September 30, 2018:

(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,~~~~2017:~~

							As of September 30, 2018						Three Months ended September 30, 2018
	Average		Interest		Cash Basis		Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Recorded		Income		Interest		Principal		Recorded		Losses		Recorded		Income		Interest
	Investment		Recognized		Recognized		Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	120	$	1	$	1	$	87	$	87	$	—	$	71	$	1	$	1
Commercial real estate:
Other		1,061		6		6		1,499		1,376		—		1,369		11		11
1-4 Family residential real estate:
Owner occupied		318		—		—		129		99		—		99		—		—
Non-owner occupied		58		—		—		309		289		—		292		—		—
With an allowance recorded:
Commercial real estate:
Other		330		5		5		228		230		29		231		3		3
Total	$	1,887	$	12	$	12	$	2,252	$	2,081	$	29	$	2,062	$	15	$	15

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, ~~2017~~ 2018 and for the ~~six~~three months ended ~~December 31, 2016:~~September 30, 2017:

	As of June 30, 2017						Six Months ended December 31, 2016						As of June 30, 2018						Three Months ended September 30, 2017
	Unpaid				Allowance for Loan		Average		Interest		Cash Basis		Unpaid				Allowance for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest		Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized		Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	482	$	444	$	—	$	330	$	80	$	80	$	100	$	100	$	—	$	114	$	2	$	2
Commercial real estate:
Construction		—		—		—		170		6		6
Other		1,928		1,039		—		1,081		105		105		1,330		1,330		—		1,053		10		10
1-4 Family residential real estate:
Owner occupied		104		103		—		127		—		—		101		101		—		102		—		—
Non-owner occupied		—		—		—		205		—		—		297		297		—		327		—		—
With an allowance recorded:
Commercial		—		—		—		7		—		—
Commercial real estate:
Other		548		548		42		2,030		15		15		231		232		29		343		—		—
1-4 Family residential real estate:
Owner occupied		99		100		2		139		3		3
Total	$	3,161	$	2,234	$	44	$	4,089	$	209	$	209	$	2,059	$	2,060	$	29	$	1,939	$	12	$	12

~~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 real estate:

Construction
$ 10 $ — $ —
Other
607 — —
1-4 Family residential real estate:

Owner occupied
127 — —
Non-owner occupied
202 — —
With an allowance recorded:

Commercial
14 — —
Commercial real estate:

Other
1,612 7 7
1-4 Family residential real estate:

Owner occupied
101 1 1
Total
$ 2,673 $ 8 $ 8

~~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, 2017~~ ~~and~~ ~~June 30, 2017:~~

December 31, 2017

June 30, 2017

Loans Past Due

Loans Past Due

Over 90 Days

Over 90 Days

Still

Still

Non-accrual

Accruing

Non-accrual

Accruing

Commercial
$ — $ — $ 368 $ —
Commercial real estate:

Other
537 — 729 —
1 – 4 Family residential:

Owner occupied
13 — 90 —
Non-owner occupied
315 — — —
Total
$ 865 $ — $ 1,187 $ —

~~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.~~

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

The following table presents the ~~aging of the recorded investment in past due loans as of~~ ~~December 31, 2017~~ ~~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
$ — $ — $ — $ — $ 49,675 $ 49,675
Commercial real estate:

Construction
— — — — 5,943 5,943
Other
230 — — 230 169,837 170,067
1-4 Family residential:

Owner occupied
12 — — 12 45,477 45,489
Non-owner occupied
— — — — 16,210 16,210
Construction
— — — — 1,934 1,934
Consumer
4 2 — 6 4,965 4,971
Total
$ 246 $ 2 $ — $ 248 $ 294,041 $ 294,289

~~The above table of past due loans includes the~~ recorded investment in non-accrual and loans of~~$865~~ ~~in the loans~~ ~~not~~ past due ~~category.~~over 90 days still on accrual by class of loans as of September 30, 2018 and June 30, 2018:

	September 30, 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	$	—	$	—	$	—	$	—
Commercial real estate:
Other		675		—		702		—
1 – 4 Family residential:
Owner occupied		89		1		90		—
Non-owner occupied		289		—		298		—
Total	$	1,053	$	1	$	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 ~~June~~September 30, ~~2017~~ 2018 by class of loans:

	Days Past Due												Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not				30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total		Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	35	$	35	$	46,402	$	46,437	$	—	$	—	$	—	$	—	$	62,325	$	62,325
Commercial real estate:
Construction		—		—		—		—		5,596		5,596		—		—		—		—		4,555		4,555
Other		—		—		130		130		158,037		158,167		15		—		219		234		190,949		191,183
1-4 Family residential:
Owner occupied		13		—		74		87		41,605		41,692		49		—		81		130		49,875		50,005
Non-owner occupied		—		—		—		—		14,416		14,416		—		—		—		—		14,775		14,775
Construction		—		—		—		—		1,996		1,996		—		—		—		—		1,837		1,837
Consumer		22		—		—		22		5,122		5,144		11		3		—		14		4,847		4,861
Total	$	35	$	—	$	239	$	274	$	273,174	$	273,448	$	75	$	3	$	300	$	378	$	329,163	$	329,541

The above table of past due loans includes the recorded investment in non-accrual loans of~~$239~~ $24 in the 30 – 59 days category, $299 in the 90 days or greater category and ~~$948~~$730 in the loans not past due category.

~~Troubled Debt Restructurings:~~

AsThe following table presents the aging of ~~December 31, 2017,~~ the recorded investment in past due loans as of ~~loans classified as troubled debt restructurings was~~ ~~$1,582~~ ~~with~~ ~~$30~~ ~~of specific reserves allocated to these loans. As of~~ ~~December 31, 2017,~~ ~~the Corporation had committed to lend an additional~~ ~~$192~~ ~~to customers with outstanding loans that were classified as troubled debt restructurings. As of~~ June 30, ~~2017,~~ 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 ~~classified as troubled debt restructurings was~~ ~~$1,740~~ ~~with~~ ~~$33~~ ~~of specific reserves allocated to these loans. As of~~ ~~June 30, 2017,~~ ~~the Corporation had committed to lend an additional~~ ~~$175~~ ~~to customers with outstanding loans that were classified as troubled debt restructurings.~~not past due category.

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Troubled Debt Restructurings (TDR):

The Corporation has certain loans that have been modified in order to maximize collection of loan balances. 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 September 30, 2018 and June 30, 2018, the Corporation had $1,318 and $1,269, respectively, of loans classified as TDRs which are included in impaired loans above. As of September 30, 2018 and June 30, 2018, the Corporation had committed to lend an additional $38 and $174, respectively, to customers with outstanding loans that were classified as troubled debt restructurings. At September 30, 2018 and June 30, 2018, the Corporation had $29 of specific reserves allocated to these loans.

During the ~~three~~three-month periods ended September 30, 2018 and ~~six~~ ~~months ended~~ ~~December 31,~~ 2017,~~and~~ ~~2016~~, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge offs from troubled debt restructurings that were completed during the ~~three~~ ~~and~~ ~~six~~ ~~month~~three-month periods ended ~~December 31, 2017~~ September 30, 2018 and ~~2016.~~2017.

~~The~~reThere 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~~three-month periods ended ~~December 31, 2017~~ September 30, 2018 and ~~2016.~~2017. A loan is considered ~~to be~~ in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

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

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

	As of December 31, 2017										As of September 30, 2018
			Special						Not				Special						Not
	Pass		Mention		Substandard		Doubtful		Rated		Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	48,091	$	883	$	339	$	—	$	362	$	60,364	$	428	$	1,080	$	—	$	453
Commercial real estate:
Construction		5,941		—		2		—		—		4,555		—		—		—		—
Other		156,415		10,365		1,772		537		978		180,579		6,793		2,177		675		959
1-4 Family residential real estate:
Owner occupied		2,661		58		14		13		42,743		2,375		95		27		9		47,499
Non-owner occupied		14,669		203		433		315		590		13,438		192		410		289		446
Construction		765		—		—		—		1,169		695		—		—		—		1,142
Consumer		119		—		—		—		4,852		80		—		—		—		4,781
Total	$	228,661	$	11,509	$	2,560	$	865	$	50,694	$	262,086	$	7,508	$	3,694	$	973	$	55,280

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

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

Note 4 - Fair Value

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

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

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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

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

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

			Fair Value Measurements at December 31, 2017 Using								Fair Value Measurements at September 30, 2018 Using
	Balance at December 31, 2017		Level 1		Level 2		Level 3		Balance at September 30, 2018		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	13,636	$	—	$	13,636	$	—	$	15,839	$	—	$	15,839	$	—
Obligations of states and political subdivisions		57,181		—		57,181		—		55,058		—		55,058		—
Mortgage-backed securities – residential		57,518		—		57,518		—		59,927		—		59,927		—
Mortgage-backed securities – commercial		1,436		—		1,436		—		1,408		—		1,408		—
Collateralized mortgage obligations - residential		5,346		—		5,346		—		5,436		—		5,436		—
Pooled trust preferred security		621		—		621		—

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

			Fair Value Measurements at June 30, 2017 Using								Fair Value Measurements at June 30, 2018 Using
	Balance at June 30, 2017		Level 1		Level 2		Level 3		Balance at June 30, 2018		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. government-sponsored entities and agencies	$	12,587	$	—	$	12,587	$	—	$	16,122	$	—	$	16,122	$	—
Obligations of states and political subdivisions		57,460		—		57,460		—		56,590		—		56,590		—
Mortgage-backed securities - residential		63,838		—		63,838		—		63,408		—		63,408		—
Mortgage-backed securities - commercial		1,458		—		1,458		—		1,415		—		1,415		—
Collateralized mortgage obligations - residential		6,211		—		6,211		—		5,766		—		5,766		—
Pooled trust preferred security		532		—		532		—		727		—		727		—

There were no transfers between Level 1 and Level 2 during the ~~three~~ or ~~six~~ ~~month~~three-month periods ended ~~December 31, 2017~~ September 30, 2018 or ~~2016.~~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:

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

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

~~CONSUMERS BANCORP, INC.~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited) (continued)~~

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

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

Fair Value Measurements at
June 30, 2017 Using

Balance at
June 30, 2017

Level 1

Level 2

Level 3

Impaired loans:

Commercial Real Estate - Other
$ 130 $ — $ — $ 130
Other Real Estate Owned:

1-4 Family residential real estate
71 — — 71

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

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

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

June 30, 2017

Fair
Value

Valuation
Technique

Unobservable
Inputs

Range

Weighted
Average

Impaired loans:

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

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

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

There were no financial assets measured at fair value on a non-recurring basis at September 30, 2018 and June 30, 2018. There was no impact to the provision for loan losses for the three months ended September 30, 2018. The resulting impact to the provision for loan losses was a decrease of $17 being recorded for the three months ended September 30, 2017.

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

	December 31, 2017				June 30, 2017				September 30, 2018				June 30, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	9,141	$	9,141	$	9,912	$	9,912	$	10,785	$	10,785	$	7,772	$	7,772
Level 2 inputs:
Certificates of deposits in other financial institutions		3,921		3,924		3,921		3,927		2,973		2,966		2,973		2,976
Loans held for sale		814		833		1,252		1,286		2,663		2,718		1,448		1,474
Accrued interest receivable		1,310		1,310		1,212		1,212		1,648		1,648		1,404		1,404
Level 3 inputs:
Securities held-to-maturity		4,061		4,083		4,259		4,329		3,929		3,965		4,024		4,048
Loans, net		290,369		284,618		269,781		266,041		325,144		319,824		315,087		311,642
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		316,218		316,218		307,960		307,960		361,490		361,490		351,422		351,422
Time deposits		66,771		66,676		66,511		66,535		79,049		78,665		78,541		78,332
Short-term borrowings		22,507		22,507		23,986		23,986		2,902		2,902		13,367		13,367
Federal Home Loan Bank advances		17,188		16,796		12,320		12,054		19,739		19,274		11,756		11,146
Accrued interest payable		74		74		40		40		88		88		68		68

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

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

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

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

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

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

~~CONSUMER~~SCONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

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, 2017~~ September 30, 2018 and June 30, ~~2017,~~ 2018, for deposits of similar remaining maturities, resulting in a Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

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

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

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

Note 5– Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were no equity instruments that were anti-dilutive for the three-months ended September 30, 2018. There were 2,062 shares of restricted stock that were anti-dilutive for the ~~three~~ ~~and~~ ~~six~~ ~~months~~three-months ended ~~December 31,~~September 30, 2017. ~~There were~~ no ~~equity instruments that were anti-dilutive for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2016.~~ The following table details the calculation of basic and diluted earnings per share:

	For the Three Months Ended December 31,				For the Six Months Ended December 31,				For the Three Months Ended September 30,
	2017		2016		2017		2016		2018		2017
Basic:
Net income available to common shareholders	$	657	$	722	$	1,586	$	1,623	$	1,673	$	929
Weighted average common shares outstanding		2,727,666		2,724,061		2,725,859		2,723,988		2,729,103		2,724,997
Basic income per share	$	0.24	$	0.27	$	0.58	$	0.60	$	0.61	$	0.34

Diluted:
Net income available to common shareholders	$	657	$	722	$	1,586	$	1,623	$	1,673	$	929
Weighted average common shares outstanding		2,727,666		2,724,061		2,725,859		2,723,988		2,729,103		2,724,997
Dilutive effect of restricted stock		—		19		—		13		68		—
Total common shares and dilutive potential common shares		2,727,666		2,724,080		2,725,859		2,724,001		2,729,171		2,724,997
Dilutive income per share	$	0.24	$	0.27	$	0.58	$	0.60	$	0.61	$	0.34

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

(Dollars in thousands, except per share amounts)

Note 6~~–Accumulated~~ –Accumulated Other Comprehensive Income (Loss)

The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the ~~three~~three-month periods ended September 30, 2018 and ~~six~~ ~~month period ended~~ ~~December 31,~~ 2017,~~and~~ ~~2016,~~ were as follows:

	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income	Pretax			Tax Effect			After-tax			Affected Line Item in Consolidated Statements of Income
Balance as of September 30, 2017	$	741		$	(252	)	$	489
Unrealized holding loss on available-for-sale securities arising during the period		(631	)		215			(416	)
Balance as of December 31, 2017	$	110		$	(37	)	$	73

Balance as of September 30, 2016	$	3,095		$	(1,053	)	$	2,042
Balance as of June 30, 2018											$	(2,069	)	$	434		$	(1,635	)
Unrealized holding loss on available-for-sale securities arising during the period		(3,319	)		1,128			(2,191	)			(893	)		188			(705	)
Amounts reclassified from accumulated other comprehensive income		(22	)		8			(14	)	(a)(b)		(587	)		124			(463	)	(a)(b)
Net current period other comprehensive loss		(3,341	)		1,136			(2,205	)			(1,480	)		312			(1,168	)
Balance as of December 31, 2016	$	(246	)	$	83		$	(163	)
Balance after reclassification as of September 30, 2018											$	(3,549	)	$	746		$	(2,803	)

Balance as of June 30, 2017											$	675		$	(230	)	$	445
Unrealized holding gains on available-for-sale securities arising during the period												104			(35	)		69
Amounts reclassified from accumulated other comprehensive income												(38	)		13			(25	)	(a)(b)
Net current period other comprehensive income												66			(22	)		44
Balance as of September 30, 2017											$	741		$	(252	)	$	489

(a)(a) Securities ~~gains,~~(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)

Pretax

Tax Effect

After-tax

Affected Line
Item in
Consolidated
Statements of
Income
Balance as of June 30, 2017
$ 675 $ (230
)
$ 445
Unrealized holding loss 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

Balance as of June 30, 2016
$ 3,621 $ (1,232
)
$ 2,389
Unrealized holding loss on available-for-sale securities arising during the period
(3,742
)
1,272 (2,470
)

Amounts reclassified from accumulated other comprehensive income
(125
)
43 (82
)
(a)(b)
Net current period other comprehensive loss
(3,867
)
1,315 (2,552
)

Balance as of December 31, 2016
$ (246
)
$ 83 $ (163
)

~~(a) Securities gains, net~~

~~(b) Income tax expense~~

~~Note~~ 7–~~Income Taxes~~

On ~~December 22, 2017,~~ ~~the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act~~ (~~Tax Act). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, decreasing U.S. corporate income tax rates to~~ ~~21.0%~~ ~~from~~ ~~35.0%.~~ ~~As the Corporation has a~~ ~~June 30~~ ~~fiscal year-end, the lower corporate income tax rate will be phased~~Dollars in ~~resulting in a blended U.S. statutory federal rate of approximately~~ ~~27.55%~~ ~~for the Corporation's fiscal year ending~~ ~~June 30, 2018,~~ ~~and~~ ~~21.0%~~ ~~for subsequent fiscal years. In addition, the reduction of the corporate tax rate required the Corporation to revalue its deferred tax assets and liabilities based on the lower federal tax rate of~~ ~~21.0%.~~

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

The ~~changes included in~~following table presents the T~~ax Act are broad~~Corporation's sources of noninterest income for the three months ended September 30, 2018 and ~~complex. The final transition impacts of the Tax Act~~ ~~may~~ differ from the above estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act.2017.

	For the three months ended September 30,
	2018		2017
Noninterest income
In scope of Topic 606:
Service charges on deposit accounts	$	316	$	308
Debit card interchange income		358		323
Other income		165		135

Noninterest income (in scope of Topic 606)		839		766
Noninterest income (out-of-scope of Topic 606)		656		106

Total noninterest income	$	1,495	$	872

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

(Dollars in thousands, except per share data)

General

The following is ~~management~~’smanagement’s analysis of the Corporation’s results of operations for the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2018, compared to the same period in ~~2016,~~2017, and the consolidated balance sheet at ~~December 31, 2017,~~September 30, 2018, compared to June 30, ~~2017.~~2018. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Overview

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

Results of Operations

Three ~~and Six~~ Months Ended ~~December 31~~September 30, ~~2017~~2018 and ~~December 31~~2017~~, 2016~~

In the ~~second~~first quarter of fiscal year ~~2018, pre-tax~~2019, net income increased by ~~$279,~~$744, or ~~32.2%~~80.1% from the same period last year. Net income for the ~~second~~first quarter of fiscal year ~~2018~~2019 was ~~$657,~~$1,673, or ~~$0.24~~$0.61 per common share, compared to ~~$722,~~$929, or ~~$0.27~~$0.34 per common share for the three months ended ~~December 31, 2016.~~September 30, 2017. The following are key highlights of our results of operations for the three months ended ~~December 31, 2017:~~September 30, 2018:

	●	~~the estimated impact of the enactment of the Tax Act resulted in a net increase of $253 in income tax expense;~~
	●	net interest income increased by ~~$391~~$513 to ~~$3,927,~~$4,299, or by ~~11.1%~~13.5%, in the ~~second~~first quarter of fiscal year ~~2018~~2019 from the same prior year period;
	●	~~the~~ ~~provision for loan losses~~net securities gains in the ~~second~~first quarter of fiscal year ~~2018~~2019 totaled ~~$60~~$587 compared to ~~$140~~$38 in the same prior year period;
	●	~~non-interest~~noninterest income, excluding net securities gains, increased by $~~42,~~$74, or ~~5.3%~~8.9%, in the ~~second~~first quarter of fiscal year ~~2018~~2019 from the same prior year period; and
	●	~~non-interest~~noninterest expenses increased by $~~234,~~$291, or ~~7.0%~~8.6%, in the ~~second~~first quarter of fiscal year ~~2018~~2019 from the same prior year period.

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

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

Return on average equity and return on average assets were ~~7.09%~~14.92% and ~~0.67%~~1.32%, respectively, for the first ~~six months~~quarter of fiscal year ~~2018~~2019 compared to ~~7.34%~~8.35% and ~~0.74%~~0.79%, respectively, for the same prior year period.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the ~~Corporation~~’sCorporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the ~~2018 fiscal year was 27.55% and for the 2017 fiscal year was 34.0%. With the enactment of the Tax Act, the statutory tax rate was changed in the second~~first quarter of fiscal year 2019 was 21.0% compared with 34.0% for the same period in the 2018 ~~to 27.55% by using a blended rate of the new~~fiscal year. A 21.0% federal tax rate ~~that~~ went into effect on January 1, 2018 with the enactment of the Tax Cuts and ~~the previous federal rate of 34.0%.~~Jobs Act. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

The ~~Corporation~~’sCorporation’s net interest margin was ~~3.61%~~3.70% for the three months ended ~~December 31, 2017,~~September 30, 2018, compared with ~~3.62%~~3.63% for the same period in ~~2016.~~2017. FTE net interest income for the three months ended ~~December 31, 2017~~September 30, 2018 increased by ~~$290,~~$460, or ~~7.8%~~11.6%, to ~~$4,011~~$4,434 from ~~$3,721~~$3,974 for the same year ago period.

Tax-equivalent interest income for the three months ended ~~December 31, 2017~~September 30, 2018 increased by ~~$404,~~$699, or ~~10.2%~~16.1%, from the same year ago period. Interest income was positively impacted by a ~~$31,513,~~$38,523, or ~~7.7%~~8.9%, increase in average interest-earning assets from the same prior year period. ~~The~~Additionally, the Corporation’s yield on average interest-earning assets increased to ~~3.94%~~4.20% for the three months ended ~~December 31, 2017~~September 30, 2018 from ~~3.86%~~3.96% for the same period last year. The yield on average interest-earning assets increased despite a decline in the tax-equivalent yield on nontaxable securities which occurred as a result of the decline in the statutory federal tax rate. The increase in the yield on average interest-earning assets was primarily a result of an increase in interest rates as well as a positive change in the earning asset mix with higher yielding loans increasing faster than lower yielding ~~securities as well as an increase in interest rates.~~securities.

Interest expense for the three months ended ~~December 31, 2017~~September 30, 2018 increased by ~~$114~~$239 from the same year ago period. The Corporation’s cost of funds was ~~0.46%~~0.69% for the three months ended ~~December 31, 2017~~September 30, 2018 compared with ~~0.34%~~0.46% for the same year ago period. The increase in short term market interest rates has impacted the rates paid on ~~money market accounts, short-term borrowings~~all interest-bearing deposit products and ~~time deposits.~~

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

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

~~CONSUMERS BANCORP, INC.~~

~~Management's Discussion and Analysis of Financial Condition~~

~~and Results of Operations (continued)~~

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

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

2017

2016

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Interest-earning assets:

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

Noninterest-earning assets
31,646 29,148

Total Assets
$ 472,825 $ 438,814

Interest-bearing liabilities:

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

Noninterest-bearing liabilities:

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

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

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

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

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

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

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

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

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended September 30, (In thousands, except percentages)																	Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended September 30, (In thousands, except percentages)
	2017								2016									2018								2017
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate				Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
Interest-earning assets:
Taxable securities	$	83,578		$	970		2.30	%	$	75,745		$	779		2.07	%		$	86,075		$	526		2.37	%	$	83,792		$	490		2.33	%
Nontaxable securities (1)		60,635			997		3.30			59,710			1,061		3.61				59,260			506		3.37			60,714			549		3.63
Loans receivable (1)		286,273			6,674		4.62			262,296			6,219		4.70				322,193			3,953		4.87			280,396			3,234		4.58
Federal bank and other restricted stocks																			1,459			22		5.98			1,424			21		5.85
Interest bearing deposits and federal funds sold		7,546			65		1.71			9,225			60		1.29				4,421			23		2.06			8,559			37		1.72
Total interest-earning assets		438,032			8,706		3.95	%		406,976			8,119		3.98	%			473,408			5,030		4.20	%		434,885			4,331		3.96	%

Noninterest-earning assets		31,699								28,008									30,809								31,752

Total Assets	$	469,731							$	434,984								$	504,217							$	466,637

Interest-bearing liabilities:
NOW	$	53,556		$	40		0.15	%	$	48,770		$	36		0.15	%		$	82,368		$	125		0.60	%	$	53,199		$	20		0.15	%
Savings		152,080			158		0.21			135,957			67		0.10				163,262			137		0.33			151,658			80		0.21
Time deposits		66,595			303		0.90			66,216			250		0.75				78,542			252		1.27			66,420			148		0.88
Short-term borrowings		26,197			112		0.85			19,965			23		0.23				4,045			14		1.37			26,281			55		0.83
FHLB advances		12,915			108		1.66			14,583			114		1.55				15,656			68		1.72			12,865			54		1.67
Total interest-bearing liabilities		311,343			721		0.46	%		285,491			490		0.34	%			343,873			596		0.69	%		310,423			357		0.46	%

Noninterest-bearing liabilities:
Noninterest-bearing checking accounts		110,111								102,144									111,677								108,185
Other liabilities		3,920								3,507									4,185								3,881
Total liabilities		425,374								391,142									459,735								422,489
Shareholders’ equity		44,357								43,842
Shareholders’ equity																			44,482								44,148

Total liabilities and shareholders’ equity	$	469,731							$	434,984
Total liabilities and shareholders’ equity																		$	504,217							$	466,637

Net interest income, interest rate spread (1)				$	7,985		3.49	%				$	7,629		3.64	%					$	4,434		3.51	%				$	3,974		3.50	%

Net interest margin (net interest as a percent of average interest-earning assets) (1)							3.62	%							3.74	%								3.70	%							3.63	%

Federal tax exemption on non-taxable securities and loans included in interest income				$	272							$	366								$	135							$	188

Average interest-earning assets to interest-bearing liabilities		140.69	%							142.55	%								137.67	%							140.09	%

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Provision for Loan Losses

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents ~~management~~’smanagement’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the three months ended ~~December 31, 2017,~~September 30, 2018, the provision for loan losses was ~~$60~~$115 compared to ~~$140~~$90 for the same prior year period. ~~For the six-month period ended December 31, 2017, the provision for loan losses was $150 compared to $276 for the same prior year period.~~

Non-performing loans were $~~865~~$1,054 as of ~~December 31, 2017~~September 30, 2018 compared with ~~$1,187~~$1,090 as of June 30, ~~2017~~2018 and ~~$1,589~~$978 as of ~~December 31, 2016.~~September 30, 2017. For the ~~six~~three months ended ~~December 31, 2017~~September 30, 2018, net charge-offs totaled ~~$11~~$1 compared with net ~~charge-offs~~recoveries of ~~$719~~$18 for the same prior year period. The allowance for loan losses as a percentage of loans was ~~1.10%~~1.08% at ~~December 31, 2017~~September 30, 2018 and ~~1.13%~~1.07% at June 30, ~~2017.~~2018. The provision for loan losses for the period ended ~~December 31, 2017~~September 30, 2018 was considered sufficient by management for maintaining an appropriate allowance for probable incurred credit losses.

~~Non-Interest~~Noninterest Income

~~Non-interest~~Noninterest income increased by ~~$42~~,$623, or ~~5.3%~~71.4%, for the ~~second~~first quarter of fiscal year ~~2018 from the same period last year and by $66, or 4.0%, for the first six months of fiscal year 2018~~2019 from the same period last year. ~~Non-interest~~Net securities gains in the first quarter of fiscal year 2019 totaled $587 compared to $38 in the same prior year period. During the first quarter of fiscal year 2019, 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 $74, or 8.9%, for the first quarter of fiscal year 2019 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 and earnings on bank owned life insurance. These increases were partially offset by a decline in gains from the sale of securities.~~loans.

~~Non-Interest~~ Noninterest Expenses

Total ~~non-interest~~noninterest expenses increased to ~~$3,560,~~$3,684, or by ~~7.0%~~8.6%, during the ~~second~~first quarter of fiscal year ~~2018,~~2019, compared with ~~$3,326~~$3,393 during the same year ago period. Total ~~non-interest expenses increased to $6,953, or by 5.2%, during the first six months of fiscal year 2018, compared with $6,612 during the same year ago period. Total non-interest~~noninterest expenses were impacted by increases in salary, incentive, legal and ~~debit card processing~~consulting expenses.

Income Taxes

Income tax expense was ~~$489 and $735~~$322 for the three ~~and six~~ months ended ~~December 31, 2017, respectively,~~September 30, 2018 compared to ~~$145 and $397~~$246 for the three ~~and six~~ months ended ~~December 31, 2016, respectively.~~September 30, 2017. The effective tax rate was ~~42.7% and 31.7%~~16.1% for the three ~~and six~~ months ended ~~December 31, 2017, respectively,~~September 30, 2018 compared to ~~16.7% and 19.7%~~20.9% for the three ~~and six~~ months ended ~~December 31, 2016, respectively.~~September 30, 2017. Income tax expense ~~and the effective tax rate~~ was higher in the ~~2018~~2019 fiscal year compared to the same prior year ~~periods~~period primarily due to ~~the enactment of the Tax Act and increased~~an $820 increase in income before income taxes. AsThe effective tax rate was lower in the 2019 fiscal year as a result of the enactment of the Tax Cuts and Jobs Act a one-time income tax expense of $253 was recorded in conjunction with revaluing the Company's net deferred tax assets and utilization of a blended tax rate. The enactment of the Tax Act required the Corporation to revalue its deferred tax assets and liabilities based upon the lower enacted federal corporate income tax rate at which the Corporation expects to recognize the benefit. During the three months ended December 31, 2017 a one-time income tax expense of $348 was recorded in conjunction with writing down its net deferred tax assets. In addition, the Company will utilize a blended tax rate for its fiscal year ending June 30, 2018 given the Tax Act lowered the federal corporate tax rate beginning on January 1, 2018. ~~As a result of utilizing a blended~~The federal corporate tax rate ~~for its~~was 21.0% in the first quarter of fiscal year ~~ending June 30, 2018,~~2019 compared to 34.0% in the ~~Company recognized a $95 benefit to income tax expense for both the three and six months ended December 31, 2017.~~ first quarter of fiscal year 2018.

Financial Condition

Total assets at ~~December 31, 2017~~September 30, 2018 were ~~$470,282~~$510,789 compared to ~~$457,883~~$502,619 at June 30, ~~2017,~~2018, an increase of ~~$12,399,~~$8,170, or an annualized ~~5.4%~~6.5%.

~~CONSUMERS BANCORP, INC.~~

~~Management's Discussion and Analysis of Financial Condition~~

~~and Results of Operations (continued)~~

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

Total loans increased by $~~20,727,~~$10,173, or an annualized ~~15.2%~~12.8%, from ~~$272,867~~$318,509 at June 30, ~~2017~~2018 to ~~$293,594~~$328,682 at ~~December 31, 2017.~~September 30, 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 ~~$8,518,~~$10,576, or an annualized ~~4.5%~~9.8%, in total ~~deposits~~deposits.

CONSUMERS BANCORP, INC.

Management's Discussion and ~~a decline~~Analysis of ~~$6,348~~Financial Condition

and Results of Operations (continued)

(Dollars in ~~available-for-sale securities.~~thousands, except per share data)

Non-Performing Assets

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

	December 31, 2017			June 30, 2017			December 31, 2016			September 30, 2018			June 30, 2018			September 30, 2017
Non-accrual loans	$	865		$	1,187		$	1,589		$	1,053		$	1,090		$	978
Loans past due over 90 days and still accruing		—			—			—			1			—			—
Total non-performing loans		865			1,187			1,589
Total non-performing loans											1,054			1,090			978
Other real estate owned		57			71			—			—			—			—
Total non-performing assets	$	922		$	1,258		$	1,589
Total non-performing assets										$	1,054		$	1,090		$	978

Non-performing loans to total loans		0.29	%		0.44	%		0.60	%		0.32	%		0.34	%		0.34	%
Allowance for loan losses to total non-performing loans		372.83	%		259.98	%		196.54	%		335.67	%		313.94	%		326.58	%

As of ~~December 31, 2017,~~September 30, 2018, impaired loans totaled ~~$1,765,~~$2,081, of which ~~$865~~$1,053 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.

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

Liquidity

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

~~CONSUMERS~~ ~~BANCORP, INC.~~

~~Management's Discussion and Analysis of Financial Condition~~

~~and Results of Operations (continued)~~

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

ForFor the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2018, net cash inflow from operating activities was ~~$3,484,~~$533, net cash outflows from investing activities was ~~$15,494~~$5,259 and net cash inflows from financing activities was ~~$11,239.~~$7,739. A major source of cash was ~~$10,434~~a $10,576 increase in deposits and $7,303 from sales, maturities, calls or principal pay downs on available-for-sale ~~securities, $8,518 increase in deposits and $5,400 proceeds from FHLB advances. The~~securities. A major use of cash was a ~~$20,967~~$10,247 increase in loans. Total cash and cash equivalents ~~was $9,141~~were $10,785 as of ~~December 31, 2017,~~September 30, 2018, compared to ~~$9,912~~$7,772 at June 30, ~~2017~~2018 and ~~$10,850~~$14,179 at ~~December 31, 2016.~~September 30, 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 ~~others~~the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled ~~$382,989~~$440,539 at ~~December 31, 2017~~September 30, 2018 compared with ~~$374,471~~$429,963 at June 30, ~~2017.~~2018.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At ~~December 31, 2017,~~September 30, 2018, advances from the FHLB of Cincinnati totaled ~~$17,188~~$19,739 compared with ~~$12,320~~$11,756 at June 30, ~~2017.~~2018. As of ~~December 31, 2017,~~September 30, 2018, the Bank had the ability to borrow an additional ~~$17,032~~$17,355 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.

Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and federal funds purchased from correspondent banks. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled ~~$22,507~~$2,902 at ~~December 31, 2017~~September 30, 2018 and ~~$23,986~~$13,367 at June 30, ~~2017.~~2018.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Jumbo time deposits (those with balances of $250 and over) totaled ~~$13,7~~54$23,430 at ~~December 31, 2017~~September 30, 2018 and ~~$14,252~~$23,018 at June 30, ~~2017.~~2018. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.

~~CONSUMERS BANCORP, INC.~~

~~Management's Discussion and Analysis of Financial Condition~~

~~and Results of Operations (continued)~~

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

Off-Balance 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 l~~oans,~~loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were ~~$62,158~~$67,113 at ~~December 31, 2017~~September 30, 2018 and ~~$53,742~~$63,854 at June 30, ~~2017.~~2018.

Capital Resources

Total ~~shareholders~~’shareholders’ equity increased to ~~$44,171~~$43,970 as of ~~December 31, 2017~~September 30, 2018 from ~~$43,535~~$43,761 as of June 30, ~~2017.~~2018. The increase was primarily the result of $1,673 of net income ~~of $1,586~~ for the ~~2018~~first quarter of fiscal year ~~which~~2019. This increase was partially offset by ~~$668~~a net increase of $1,168 in ~~cash dividends paid and a $372~~the accumulated other comprehensive loss from ~~a decline in~~the unrealized ~~gains~~losses on the mark-to-market of available-for-sale ~~securities.~~securities and cash dividends paid of $355.

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, 2017,~~September 30, 2018, the Bank’s common equity tier 1 capital and tier 1 capital ratios were ~~12.64%~~12.41% and the leverage and total capital ratios were ~~9.00%~~8.94% and ~~13.60%~~13.39%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of ~~13.21%~~12.20% and leverage and total risk-based capital ratios of ~~9.06%~~8.74% and ~~14.20%~~13.15%, respectively, as of June 30, ~~2017.~~2018. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to ~~December 31, 2017~~September 30, 2018 that would cause the Bank’s capital category to change.

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Critical Accounting Policies

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

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

Forward-Looking Statements

~~When used~~Certain statements contained in this ~~report (including information incorporated~~Quarterly Report on Form 10-Q, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, all statements set forth in future filings by ~~reference~~the Corporation with the SEC, or other public or shareholder communications, or in ~~this report~~),oral statements made with the approval of an authorized executive officer, that are not historical in nature, including words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe” or similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond ~~the Corporation’s~~our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, ~~the Corporation undertakes~~we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. Factors that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:

●

~~material unforeseen~~ changes in ~~the financial condition or results of Consumers National Bank’s customers;~~

●

local, regional and national economic conditions becoming less favorable than ~~expected,~~we expect, resulting in ~~among other things,~~ a deterioration in credit quality of our loan assets, ~~and the underlying value of collateral could prove to be less valuable than otherwise assumed or debtors being unable to meet their obligations;~~

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

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

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

CONSUMERS BANCORP, INC.

Management's Discussion and Analysis of Financial Condition

and Results of Operations (continued)

(Dollars in thousands, except per share data)

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the ~~Corporation~~’sCorporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of ~~December 31, 2017.~~September 30, 2018.

Changes in Internal Controls Over Financial Reporting

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

CONSUMERS BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

None

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

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit

Number

Description

Exhibit 11

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

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

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

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

Exhibit 101

The following materials from Consumers Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended ~~December 31, 2017,~~September 30, 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~~November 14, 2018	/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer)

Date: ~~February 14~~November 14, 2018	/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer)

3830

	As of December 31, 2017						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		Recognized
With no related allowance recorded:
Commercial	$	122	$	122	$	—	$	117	$	3	$	3
Commercial real estate:
Other		973		976		—		1,057		16		16
1-4 Family residential real estate:
Owner occupied		25		25		—		80		—		—
Non-owner occupied		315		315		—		322		—		—
With an allowance recorded:
Commercial real estate:
Other		327		327		30		337		5		5
Total	$	1,762	$	1,765	$	30	$	1,913	$	24	$	24

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