PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CONSUMERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

(Unaudited)

See accompanying notes to consolidated financial statements.

CONSUMERS BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to consolidated financial statements.

Note 1 – Summary of Significant Accounting Policies:

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

Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’sCompany’s Form 10-K for the year ended June 30, 2022.2023. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.

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

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

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

Recently IssuedAdoption of New Accounting Pronouncements Not Yet Effective:Standards: In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 toreplaces the codificationincurred loss methodology for recognizing credit losses and removes the thresholds thatrequires companies apply to measure the current expected credit losses (CECL) on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. generally accepted accounting principles, companies generally recognizesecurities, and other receivables at the time the financial asset is originated or acquired and certain off-balance sheet credit exposures. The expected credit losses when itare adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognizeless than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

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

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

Allowance for Credit Losses (ACL)

Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The allowance for credit losses is evaluated on a financial instrumentregular basis and the amount of amortized cost that the corporation expectsestablished through charges to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as definedearnings in the guidance,form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted for a proposalsusceptible to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company.significant revision as more information becomes available.

The Corporation is evaluating how adopting this new guidance will impact the consolidated financial statements and the Corporation’s current systems and processes. Management has analyzed and finalized its pool segmentation, established the peer group that will be used as the source of loss experience data, and has started back testing in preparation for adoption of the new methodology. Management plans to use the Net Present Value of Discounted Cash Flow methodology for all loan pools and expects the implementation of ASU No.2016-13 to increase the balance of the allowance for loan losses by less than 10%. In addition, a reserve for unfunded commitments will need to be established and Management expects it to be in a range of 0.25% to 0.50% of the amount of unfunded commitments that are not unconditionally cancellable. Management continues to evaluate the modeling and its potential impact on the Corporation's results of consolidated operations and financial position and, once the new guidance is adopted, the allowance for loan losses and reserve for unfunded commitments will increase through a one-time adjustment to retained earnings. The Corporation is also developing disclosure documentation related to adoption of this standard. The Corporation is planning to adopt this new guidance within the time frame noted above.

NotePortfolio Segmentation

The allowance for credit losses consists of general and specific components. The general component covers loans within portfolio segments that are collectively evaluated for credit losses. Portfolio segmentation is the pooling of loans based upon similar risk characteristics so that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses can be applied to the pool of loans in each segment. The Company has identified 2six portfolio segments of loans including Commercial & Industrial, Commercial Real Estate, Farmland, Land Development, 1– Acquisition4 Family Residential Real Estate, and Consumer loans. Each segment has a distinct set of risk characteristics that are monitored by management. Below are the risk characteristics of the loan segments.

On July 16, 2021, the Corporation completed its acquisition (branch acquisition) of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the branch acquisition, the Corporation assumed $104,538 in branch deposits

Commercial & Industrial: Commercial loans are made for a deposit premiumwide variety of 1.75%. In addition,general business purposes, including financing for equipment, inventories and accounts receivable. The term of each commercial loan varies by its purpose. Commercial loans are underwritten after evaluating and understanding the Corporation acquired $15,602 of subordinated debt securities issued by unrelated financial institutionsborrower’s ability to operate profitably and $19,943 of loans. This transaction qualifies as a business combination.

The following table summarizesprudently expand its business. Current and projected cash flows are evaluated to determine the estimated fair valuesability of the assets acquiredborrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and liabilities assumedsecondarily made based on the underlying collateral provided by the Corporation at the dateborrower. The cash flows of the branch acquisition. The core deposit intangible will be amortized over ten years on a straight-line basis. Goodwill will borrowers, however, may not be amortized, but instead will as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be evaluatedmade on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for impairment.the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications primarily in the areas where the Bank operates.

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

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

Land Development: Land Development loans include loans to finance the construction of residential and commercial properties generally located within our primary market area. Land development loans are fixed-rate or adjustable-rate loans which may convert to permanent loans with maturities of up to 30 years. Our policies provide that construction loans may generally be made certain estimates and exercised judgement in accounting foramounts up to 80% of the branch acquisition. The fairappraised value of loans was estimated using discounted contractual cash flows. The book balancethe property, and an independent appraisal of the property is required. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction. In underwriting construction loans, atwe consider the timeproperty owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the branch acquisition was $20,325. The fairsubject property. Construction financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value disclosed above reflectsat completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, we may be confronted with a credit-related adjustmentproject, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on construction loans through inspections of $(388)construction progress on the property and an adjustment forby requiring personal guarantees and reviewing current personal financial statements and tax returns, as well as other factorsprojects of $6. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were immaterial. Acquisition costs of $144 pre-tax, or $118 after-tax, were recorded during the first quarter of fiscal year 2022.developer.

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

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

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

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

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

Individually Evaluated Loans

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

Reserve for Unfunded Commitments

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

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

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

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

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

Accrued Interest Receivable

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

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

Note 32 – Securities

Debt securities

The following tables summarize the Corporation’samortized cost, fair value, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss on the Company’s debt securities available-for-sale and gross unrecognized losses on the Company’s debt securities held-to-maturity as of December 31, 20222023 and June 30, 2022:2023:

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

The income tax benefit related to the net realized losslosses amounted to $16 for the six month period ended December 31, 2023 and $1 for the three-month and $3 for the six-month periods ended December 31, 2022.The income tax provision related to the net realized gain amounted to less than $1 for the three- and six-month periods ended December 31, 2021.

The amortized cost and fair values of debt securities as of December 31, 2022,2023, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.