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2023 ReportPeers and competitors of Consumers Bancorp, Inc.:
National Australia BankReaching $1 Billion Together 2 0 2 3 A N N U A L R E P O R T Making a Difference Since 1965 Financial Highlights Dollar amounts in thousands, except per share data. $ $ $ Selected Items at Year End FINANCIAL CONDITION: Total assets Securities, available-for-sale Loans, net Deposits Shareholders’ equity SHARE INFORMATION: Book value Cash dividends paid per share Basic and diluted earnings per share OPERATIONS: Net interest income Provision for loan losses Noninterest income Noninterest expenses Net income ASSET QUALITY: Net charge-offs to total loans Nonperforming assets to total assets Allowance for loan losses to total loans PERFORMANCE RATIOS: Return on average assets Return on average equity Net interest margin (fully tax equivalent) June 30, 2023 June 30, 2022 1,060,024 $ 279,605 702,638 952,533 55,484 17.92 $ 0.68 3.45 33,715 $ 855 4,747 24,685 10,674 0.04% 0.06% 1.09% 1.05% 20.27% 3.37% 977,313 296,347 604,683 886,562 53,970 17.66 0.64 3.68 32,746 735 4,735 23,215 11,192 0.01% 0.05% 1.17% 1.17% 16.43% 3.60% Please refer to the annual report on Form 10-K for additional financial information. Reaching $1 Billion Together President’s Letter Dear Fellow Shareholders: When Romain Fry and his fellow visionaries founded what was then Minerva National Bank in 1965, they started with $300,000 in capital, five employees, and a modern bank building on Route 30, just east of downtown Minerva, a village 25 miles southeast of Canton. The founders were responding to bank consolidations that they believed were restricting access to the capital needed to grow businesses and farms in their local communities. Ultimately, they were investing in their town because, as entrepreneurs, they believed that they could make a difference. Over the past 58 years, a unique mix of Original Minerva National Bank building opened in 1965. In fiscal year 2023, the bank reached an industry milestone, as it crossed the $1 billion in assets threshold. shareholders, directors, employees, and customers embraced the original vision and contributed to the bank’s growth and success. In fiscal year 2023, the bank reached an industry milestone, as it crossed the $1 billion in assets threshold. Current Consumers Bank building opened on the original site in 2016, Consumers Bancorp, Inc. | 1 2019, net income has increased at a 17.7% compounded annual growth rate. We expect the competitive deposit market and higher interest rates to continue into fiscal year Focusing on the needs of one customer at a time, we have built diversified deposit and loan portfolios. 2024. To counter the continued margin pressure, we have prioritized efforts to gain lower-cost transactional deposit accounts and increase noninterest income. The company also realized record core earnings (net of PPP-related earnings) in fiscal year 2023. In a period marked by unprecedented market rate increases, inflationary pressures, an increasingly competitive deposit environment, and a stalled residential mortgage market, core 2023 earnings increased by $1.63 million, or 18% to $10.67 million. During this period, higher yields on new loans, slower loan runoff, and the bank’s legacy transaction and savings account balances all reduced the impact of rising rates on our net interest margin. 2023 continued a trend in which asset growth has resulted in operating efficiencies. At 2.27, the bank’s total operating expense to asset ratio declined eight basis points from quarter-end June 2022 and is 11 basis points lower than our regulatory peer group. Since Since 1965, the cumulative trust and support of our customers has made Consumers a $1 billion community bank. Focusing on the needs of one customer at a time, we have built diversified deposit and loan portfolios. 56% of deposit balances are held in personal accounts, and 42% are held in non-personal account types. 60% of deposits are checking or traditional savings products. Developed Earnings Trend (Millions) $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 2019 2020 2021 2022 2023 After-Tax PPP-Related Earnings After-Tax Core Earnings Total Earnings 2 | Consumers Bancorp, Inc. over a large, diverse territory, our stable core deposit base showed its collective confidence in the bank as deposit and repurchase balances increased to $48 million, or 5% during the six- month period ending June 30, 2023 — a period when the industry absorbed the fallout from the March 2023 banking crisis. During the same period, the bank’s uninsured deposit ratio, a measure of reliance on large, non-core deposits, decreased to approximately 28%, which includes fully collateralized public funds. Net of public funds, the ratio is approximately 18%. The bank strives for a stable loan portfolio that represents the diversity of our markets and customer base. While total loan production, including residential mortgage loans originated for sale, decreased by 20% to $255 million, the bank’s portfolio growth of $99 million was dispersed across these main portfolios. Over the last 10 years, outstanding loan balances have increased at a 12.5% compounded annual growth rate, without sacrificing credit quality or underwriting standards. Over the last 10 years, outstanding loan balances have increased at a 12.5% compounded annual growth rate, without sacrificing credit quality or underwriting standards. Through fiscal year 2023, net charge-off and delinquency ratios continued to trend downward and were consistently lower than that of our peers throughout the growth period. Since 2018, Consumers’ total past-due loan ratio has averaged 72 basis points below the average of our regulatory peer group. Consumers Bank has evolved into a full-service commercial lender with growing residential and consumer loan departments. With this growth, the bank has maintained a fundamental commitment to credit quality across all business lines. At June 30, nonaccrual loans were 0.01% of total loans, and net charge-offs in 2023 totaled 0.04% of average loans outstanding. We will 7% 9% 37% Loan Portfolio Composition 15% 32% 21% 32% Portion of Total 2023 Loan Portfolio Growth Agriculture-Related – No Change 26% 21% Commercial Real Estate 1-4 Family & Multifamily Real Estate Commercial & Industrial Consumer & Installment Agriculture-Related Consumers Bancorp, Inc. | 3 Commitments # Average Commitment % of Commercial Commitments % of Total Loan Commitments Real Estate Rental & Leasing Manufacturing Healthcare Agriculture Construction Total – Top Five Industries $191.7 466 $0.411 $57.1 $50.3 $50.1 $49.3 175 156 337 185 $0.326 $0.322 $0.149 $0.266 $398.5 1,319 $0.302 34% 10% 9% 9% 9% 71% 23% 7% 6% 6% 6% 48% continue to monitor the impact of inflation and higher interest rates on our consumer and commercial borrowers. to value in 2023) will allow the portfolio to weather economic pressures. The commercial portfolio, which comprises 67% of total bank commitments, is diversified in both industry segments and in number of individual credit concentrations. The five largest industry segments represent 1,319 individual credits and only account for 48% of total loan balances. While our residential mortgage business was down close to 50% in fiscal year 2023, the purchase mortgage market has shown signs of life, and our pipeline has once again started to grow as borrowers get used to higher market interest rates and take advantage of our robust secondary market and portfolio product lines. We also believe that there are opportunities to help consumers manage their credit card debt load by taking advantage of the substantial gains in equity that homeowners have experienced over the past few years. We realized a 33% increase in personal installment lending in 2023 and expect continued growth as we add to our in-market dealer network and increase cross-selling efforts in the branches. We believe our focus on credit quality (763 weighted average credit score in 2023) and loan structure (86% weighted average loan Market interest rates, which rose rapidly and have stayed higher for longer, continue to impact the fair value of the bank’s securities portfolio. The $38 million valuation adjustment at June 30 and the related $30 million accumulated comprehensive loss are temporary and pertain to the market rates. This unrealized loss in securities is temporary and is adjusted monthly for additional market interest rate fluctuations, principal paydowns, calls, and maturities. Consumers has significant sources of liquidity and, therefore, does not expect to have to sell securities to fund growth. Along the journey to $1 billion, the bank has methodically expanded its market area, which now encompasses a unique mix of rural, urban, and suburban communities. With more than half of our locations developed or acquired since 2011, Consumers now has 22 offices across six Ohio counties. Our 11 business bankers, six mortgage loan officers, and three commercial deposit specialists work together to develop business in these and the 14 surrounding counties, a 9,000-square- mile territory that includes seven separate MSAs in three states. There are 1.5 million households 4 | Consumers Bancorp, Inc. Consumers’ growth has been fueled by and has proved sustainable because we have been able to recruit exceptional and experienced bankers, sales, and support staff over the years. Currently, 194 employees (184 FTE) support our customers. Assets and income per employee have reached $5.76 million and $58,000, respectively. Average tenure is over nine years, and 35% of the bank’s employees have more than 10 years’ tenure. In January 2023, Theresa Linder (Minerva Office Relationship Manager) and Betty Laubacher (Commercial Credit) retired from Consumers with 90 years of combined service at Consumers. I thank them for their service and acknowledge the rest of the bankers who have served our customers and communities along the road to $1 billion. The 50 men and women who have served as bank directors since 1965 have supported investments in technology, people, and expansions that have proved vital to sustained growth. They represent the shareholders through their thoughtful vision and reflect the founders in their entrepreneurial independent spirit. In January 2023, we welcomed Ann Gano to the Board. A resident of New Philadelphia, Ms. Gano owns Keeping Tabs, Inc., a certified public accounting $9.3 $2.0 $1.2 $0.454 $17.2 $7.0* $30.2 4.25% 12.36% 8.47% 24.93% 0.14% 0.00% 2.93% Rank 7/16 4/10 6/9 2/5 21/24 NA 7/31 Consumers Bancorp, Inc. | 5 Site of a new full-service branch in Massillon, Ohio. New full-service branch in Wellsville opened in May 2023. and 96,000 businesses and organizations in the $168.5 billion 20-county market. We expect that the current economic climate, corporate realignments, and continued developments in technology will provide opportunities to both add talent to our sales team and develop new relationships throughout the region. We continue to expand. In 2023, we relocated our Wellsville drive-up location to a full-service bank building. We have taken steps to increase our Stark County Ohio presence with a new full-service branch in Massillon. Situated in the western part of the county, Massillon has a population of 32,000 and is a $1 billion deposit market. Consumers currently holds 4.25% of the $9.3 billion Stark County market. Ohio County Stark Columbiana Jefferson Carroll Summit 8 5 4 2 2 Mahoning 0 (Lending Center) Total 21 *Mahoning County has no deposit facility – not included in deposit or market share totals. Number of Depository Offices Deposit Market (June 2022) in Billions Market Share (June 2022) ...the current annualized dividend, which has increased over 40% since 2017, equates to a 4% dividend yield. The 2023 Annual Meeting of Shareholders will be held solely online via live webcast at 10:00 a.m. on Thursday, October 19, 2023. Website and password information for joining the meeting virtually are provided in the accompanying proxy statement. In the meantime, I ask for your continued support, your business, and your referrals. Shareholder support, an engaged Board, committed employees, loyal customers, expansive dynamic markets, and diversified portfolios all contributed to Consumers National Bank’s journey to $1 billion. Each will be vital along the path to future milestones. firm that specializes in providing accounting and consulting services to the agricultural community. Her commitment to agriculture and her approach to community service reflect the spirit of our current and past leaders. This growth would not be possible without your support. We are fortunate to have over 1,500 shareholders who believe that Consumers is resilient enough to weather periods of economic volatility and who believe in a business model that emphasizes credit quality, loan structure, moderation, and strategic initiative. Over the years, you have supported critical investments that have fueled more recent growth. We are pleased to reward you with our stable quarterly dividend that the Board recently increased to $0.18 per share, a 6% increase. Based on a market price of $18.00, the current annualized dividend, which has increased over 40% since 2017, equates to a 4% dividend yield. Sincerely, Ralph J. Lober II President & CEO Chairman’s Letter Dear Shareholders, It has been my privilege to serve on the Board of Directors of Consumers Bancorp, Inc., for over 36 years, and it is with great pride and gratitude that I share my thoughts on what it means to reach $1 billion in assets. When I reflect on the bank’s significant growth since 1965, I credit the investment of our local shareholders, the tenacity of the Board of Directors, the focus of local management and staff, and the support of our local businesses, organizations, and individuals who enabled Consumers to reach this benchmark and to make a difference in 22 local communities. When the founders came together to raise the required capital to open this bank, they were relentless in their pursuit. We hear many stories from original shareholders who were asked to invest in the new local bank, many of whom and whose family members continue to hold those shares today. They have seen their investment grow with the bank through stock splits, increased share price, and consistent dividends. We are grateful to those of you who took a chance on the new local bank and to all of our shareholders who have supported Consumers throughout the past 58 years. You can see that same tenacity our founding directors possessed in the Board members today. They are invested, committed, and diligent in their support of the bank, and they 6 | Consumers Bancorp, Inc. step up to meet any challenges we face. The Board is made up of diverse individuals with a broad spectrum of expertise that live and work in the various communities served by Consumers. Diversity is valued as it brings options, open discussion, and thought-provoking concepts and ideas, yet the Board of Directors has remained united from day one in the mission to make a difference in the communities served by Consumers National Bank. Our staff is made up of local, experienced bankers who are capable and dedicated to serving you. They keep their eye on the ball and are focused on meeting the bank’s goals. They make a significant impact in expanding and growing the bank and in making Consumers “the community bank.” We hear from our customers, our partners, and our community the stories of how their community banker has gone above and beyond to help a customer and how our staff is cooperative, prepared, and equipped with the necessary expertise to respond to our auditors and banking partners. We are proud of our leaders and associates who have propelled this bank forward. We understand that the success of our customers is the success of Consumers. Providing our customers with the community bank experience is what sets us apart. When we provide a small business the funding to purchase equipment or expand their operation, or when we make a personal loan to a customer for their first car, or guide a family through the process of buying their first home, it is a rewarding experience for both the customer and the banker. It is why they want to refer their family and friends. It is why we are thankful they chose Consumers as their lender of choice. It is why as of June 30, 2023, Consumers loan balances were at $710.4 million. Although deposits are not a bank asset,they are leveraged to fund loans, which make up the majority of Consumers’ assets. The expansion of our branch network to 21 branches and the increase in our deposit base provide a good way to measure overall growth. The following deposits as of June 30, 2023, show the expansion and growth of Consumers. Minerva, our first office founded in 1965, had deposits of $130.2 million, and Salem, our second office, opened in 1975, had $76.2 million. Carrollton, opened in 1994, and Lisbon, in 2000, had $83.0 million and $73.3 million in deposits, respectively. The Board is made up of diverse individuals with a broad spectrum of expertise that live and work in the various communities served by Consumers. Branches with over $50 million in deposits include Alliance (1999), Calcutta (2021), and Jackson-Belden (2012), totaling over $163 million, and those with over $30 million are Bergholz (2017), East Canton (2000), Louisville (2000), Hartville (2011), Malvern 2006), Waynesburg (1986), and Wellsville (2021), totaling over $269 million. The remaining branches, Adena (2020), Brewster (2019),Dillonvale (2020), Fairlawn (2018), Green (2021), Hanoverton (1989), and Mt. Pleasant (2020), contributed over $157 million in deposits. Thank you to our shareholders, customers, directors, management, and associates. Together, we grew to $1.0 billion in assets, and together, we will move forward. Sincerely, Laurie McClellan Chairman of the Board Consumers Bancorp, Inc. | 7 Board of Directors Laurie L. McClellan Chairman of the Board Frank Paden Vice Chairman of the Board John P. Furey Retired President Furey’s Wheel World, Inc. Ann Gano Owner Keeping Tabs, Inc. Bradley Goris Managing Partner Goris Properties Richard T. Kiko, Jr. President & Chairman Coletta Holdings, Inc. Shawna L’Italien Partner Harrington, Hoppe, and Mitchell, Ltd. Ralph J. Lober II John W. Parkinson Harry W. Schmuck, Jr. Michael A. Wheeler President & Chief Executive Officer President & Founder Appalachian Capital Management, Ltd. Operations Manager Schmuck Partnership President & Chief Legal Officer Patriot Software Executive Management Ralph J. Lober II Scott E. Dodds Renee K. Wood Kim Chuckalovchak President & Chief Executive Officer EVP, Senior Loan Officer EVP, Chief Financial Officer SVP, Chief Information Officer Hillary Hudak Suzanne Mikes Derek Williams SVP, Chief People Officer SVP, Chief Credit Officer SVP, Retail Sales & Operations 8 | Consumers Bancorp, Inc. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 2023 Commission File No. 033-79130 CONSUMERS BANCORP, INC. (Exact name of registrant as specified in its charter) OHIO (State or other jurisdiction of incorporation or organization) 34-1771400 (I.R.S. Employer Identification No.) 614 East Lincoln Way, P.O. Box 256, Minerva, Ohio 44657 (330) 868-7701 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Shares, no par value (Title of each class) (Trading Symbol(s)) (Name of each exchange on which registered) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes ☒ No ☐ and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that Yes ☒ No ☐ the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Non-accelerated filer ☒ Accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by ☐ the registered public accounting firm that prepared or issued its audit report. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the ☐ registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D- ☐ 1(b). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ Based on the closing sales price on December 31, 2022, the aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was approximately $53,283,395. The number of shares outstanding of the Registrant’s common stock, no par value, was 3,096,100 at September 7, 2023. Certain specifically designated portions of Consumers Bancorp, Inc.’s definitive Proxy Statement, dated September 7, 2023, for its 2023 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS PART I. Item 1—Business Item 1A—Risk Factors Item 1B—Unresolved Staff Comments Item 2—Properties Item 3—Legal Proceedings Item 4—Mine Safety Disclosures PART II. Item 5—Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Item 6—[Reserved] Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A—Quantitative and Qualitative Disclosures About Market Risk Item 8—Financial Statements and Supplementary Data Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A—Controls and Procedures Item 9B—Other Information Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III. Item 10—Directors, Executive Officers and Corporate Governance Item 11—Executive Compensation Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13—Certain Relationships and Related Transactions, and Director Independence Item 14—Principal Accounting Fees and Services PART IV. Item 15—Exhibit and Financial Statement Schedules Item 16—Form 10-K Summary Signatures 3 8 8 9 9 9 10 11 23 24 59 59 59 59 60 60 60 60 60 61 61 PART I Item 1—Business (Dollars in thousands, except per share data) General Consumers Bancorp, Inc. (Corporation) is a bank holding company as defined under the Bank Holding Company Act of 1956, as amended (BHCA), and is a registered bank holding company under that act and was incorporated under the laws of the State of Ohio in 1994. In February 1995, the Corporation acquired all the issued and outstanding capital stock of Consumers National Bank (Bank), a bank chartered under the laws of the United States of America. The Corporation’s activities have been limited primarily to holding the common stock of the Bank. Consumers National Bank is a community-oriented financial institution that offers a wide range of commercial and consumer loan and deposit products, as well as mortgage, financial planning and investment services to individuals, farmers and small and medium sized businesses in our markets. Since 1965, the Bank’s main office has been serving Minerva, Ohio, and surrounding areas from its location at 614 East Lincoln Way, Minerva, Ohio. The Bank seeks to be the provider of choice for financial solutions to customers who value exceptional personalized service, local decision making, and modern banking technology. 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, Mahoning, Stark, Summit and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. As of June 30, 2023, the Bank had 21 full-service branch locations and one loan production office. The Bank also invests in securities consisting primarily of obligations of U.S. government-sponsored entities, municipal obligations and mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. 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 for a deposit premium of 1.75%. In addition, the Corporation acquired $15,602 of subordinated debt securities issued by unrelated financial institutions, $19,943 of loans, and recorded goodwill of $1,616. This transaction qualified as a business combination. Supervision and Regulation The Corporation and the Bank are subject to regulation by the Securities and Exchange Commission (SEC), the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Office of the Comptroller of the Currency (OCC) and other federal and state regulators. The regulatory framework is intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole and not for the protection of shareholders and creditors. Earnings and dividends of the Corporation are affected by state and federal laws and regulations and by policies of various regulatory authorities. Changes in applicable law or in the policies of various regulatory authorities could affect materially the business and prospects of the Corporation and the Bank. The following describes selected federal and state statutory and regulatory provisions that have, or could have, a material impact on the Corporation. The following discussion of supervision and regulation is qualified in its entirety by reference to the statutory and regulatory provisions discussed. Regulation of the Corporation The Bank Holding Company Act: As a bank holding company, the Corporation is subject to regulation under the BHCA, and the examination and reporting requirements of the Federal Reserve Board. Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve Board may require. The BHCA generally limits the activities of a bank holding company to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries and engaging in any other activities that the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident to those activities. In addition, subject to certain exceptions, the BHCA requires every bank holding company to obtain the approval of the Federal Reserve Board prior to acquiring substantially all the assets of any bank, acquiring direct or indirect ownership or control of more than 5% of the voting shares of a bank or merging or consolidating with another bank holding company. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may 4 require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice. The Federal Reserve Board has extensive enforcement authority over bank holding companies for violations of laws and regulations and unsafe or unsound practices. Privacy Provisions of Gramm-Leach-Bliley Act: The Gramm-Leach-Bliley Act of 1999 contains extensive provisions on a customer’s right to privacy of non-public personal information. Under these provisions, a financial institution must provide its customers with the institution’s policies and procedures regarding the handling of customers’ non-public personal information. Except in certain cases, an institution may not provide personal information to unaffiliated third parties unless the institution discloses that such information may be disclosed, and the customer is given the opportunity to opt out of such disclosure. The Corporation and the Bank are also subject to certain state laws that deal with the use and distribution of non-public personal information. Sarbanes-Oxley Act: The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the areas of financial disclosure and corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written certifications by the Corporation’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest that the Corporation’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact or omit to state a material fact. Regulation of the Bank As a national bank, the Bank is subject to regulation, supervision, and examination by the OCC and by the Federal Deposit Insurance Corporation (FDIC). These examinations are designed primarily for the protection of the depositors of the Bank. Dividend Restrictions: Dividends from the Bank are the primary source of funds for payment of dividends to the Corporation’s shareholders. There are statutory limits, however, on the amount of dividends the Bank can pay without regulatory approval. Under regulations promulgated by the OCC, the Bank may not declare a dividend in excess of its undivided profits. Additionally, the Bank may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the Bank in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the OCC. The Bank may not declare or pay any dividend if, after making the dividend, the Bank would be “undercapitalized,” as defined in the federal regulations. FDIC: The FDIC is an independent federal agency, which insures the deposits of federally insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The deposits of the Bank are subject to the deposit insurance assessments of the Deposit Insurance Fund of the FDIC. Under the FDIC’s deposit insurance assessment system, the assessment rate for any insured institution varies according to regulatory capital levels of the institution and other factors such as supervisory evaluations. The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against banks, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC. Current Expected Credit Loss Model: In December 2018, the OCC, the Federal Reserve Board, and the FDIC issued a final rule to address regulatory treatment of credit loss allowances under the current expected credit loss (CECL) model. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day one adverse effects on regulatory capital that may result from the adoption of the CECL model. The Bank adopted the CECL model on July 1, 2023 since it’s a smaller reporting company and expects to elect to phase in the day-one effect of adopting CECL for regulatory capital purposes. Risk-Based Capital Requirements: The Federal Reserve Board and the OCC employ similar risk-based capital guidelines in their examination and regulation of bank holding companies and national banks, respectively. The Corporation meets the definition of a Small Bank Holding Company and, therefore, was exempt from maintaining consolidated regulatory capital ratios. Instead, regulatory capital ratios only apply at the subsidiary bank level. The guidelines involve a process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the capital base. If capital falls below the minimum levels established by the guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities. In addition, failure to satisfy capital guidelines could subject a banking institution to a variety of enforcement actions by federal bank regulatory authorities, including the termination of deposit insurance by the FDIC and a prohibition on the acceptance of “brokered deposits.” 5 Effective January 1, 2020, qualifying community banking organizations may elect to comply with a greater than 9% community bank leverage ratio (CBLR) requirement in lieu of the currently applicable requirements for calculating and reporting risk-based capital ratios. The CBLR is equal to Tier 1 capital divided by average total consolidated assets. In order to qualify for the CBLR election, a community bank must (i) have a leverage capital ratio greater than 9 percent, (ii) have less than $10 billion in average total consolidated assets, (iii) not exceed certain levels of off-balance sheet exposure and trading assets plus trading liabilities and (iv) not be an advanced approaches banking organization. A community bank that meets the above qualifications and elects to utilize the CBLR is considered to have satisfied the risk-based and leverage capital requirements in the generally applicable capital rules and is also considered to be "well capitalized" under the prompt corrective action rules. The Bank has not elected to be subject to the CBLR. Unless a community bank qualifies for, and elects to comply with the CBLR beginning on January 1, 2020, national banks are required to maintain the Basel III minimum levels of regulatory capital. The Basel III capital requirements for U.S. banking organizations became effective on January 1, 2015 and were fully phased in by January 1, 2019. Under Basel III, the Bank is required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8%, and a Tier 1 leverage ratio of 4%. Basel III also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which effectively resulted in a minimum common equity Tier 1 capital ratio of 7%, a Tier 1 capital ratio of 8.5%, a total capital ratio of 10.5% and a Tier 1 leverage ratio of 6.5%. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a common equity Tier 1 ratio to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The OCC and the FDIC may take various corrective actions against any undercapitalized bank and any bank that fails to submit an acceptable capital restoration plan or fails to implement a plan accepted by the OCC or the FDIC. These powers include, but are not limited to, requiring the institution to be recapitalized, prohibiting asset growth, restricting interest rates paid, requiring prior approval of capital distributions by any bank holding company that controls the institution, requiring divestiture by the institution of its subsidiaries or by the holding company of the institution itself, requiring new election of directors, and requiring the dismissal of directors and officers. The OCC’s final supervisory judgment concerning an institution’s capital adequacy could differ significantly from the conclusions that might be derived from the absolute level of an institution’s risk-based capital ratios. Therefore, institutions generally are expected to maintain risk-based capital ratios that exceed the minimum ratios. As of June 30, 2023, the Bank exceeded minimum regulatory capital requirements to be considered well-capitalized. Dodd-Frank Wall Street Reform and Consumer Protection Act: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established the Consumer Financial Protection Bureau (CFPB), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive and abusive acts or practices and seeks to ensure consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since it was established the CFPB has exercised extensive rulemaking and interpretive authority. Interstate Banking and Branching: The Interstate Banking and Branch Efficiency Act of 1995 has eased restrictions on interstate expansion and consolidation of banking operations by, among other things: (i) permitting interstate bank acquisitions regardless of host state laws, (ii) permitting interstate merger of banks unless specific states have opted out of this provision, and (iii) permitting banks to establish new branches outside the state provided the law of the host state specifically allows interstate bank branching. Community Reinvestment Act: The Community Reinvestment Act (CRA) requires depository institutions to assist in meeting the credit needs of their market areas, including low- and moderate-income areas, consistent with safe and sound banking practices. Under this Act, each institution is required to adopt a statement for each of its market areas describing the depository institution’s efforts to assist in its community’s credit needs. Depository institutions are periodically examined for compliance and assigned ratings. Banking regulators consider these ratings when considering approval of a proposed transaction by an institution. The Bank’s most recent CRA rating is satisfactory. USA PATRIOT Act: In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act). The Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The Patriot Act mandates that financial services companies implement additional policies and procedures with respect to additional measures designed to address any or all the following matters: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes. 6 The Anit-Money Laundering Act: In 2021, Congress enacted the Anti-Money Laundering Act of 2020 (AMLA), which amended the Bank Secrecy Act of 1970 (BSA). The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections. Office of Foreign Assets Control Regulation: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including applicable bank regulatory authorities not approving merger or acquisition transactions when regulatory approval is required or prohibiting such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. Cybersecurity: In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyberattack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyberattack. In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In addition, in July 2023, the SEC adopted rules that require disclosure of material cybersecurity incidents, processes, if any, for assessing, identifying and managing material cybersecurity risk as well as whether any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Corporation. In November 2021, the OCC, the FRB and the FDIC issued a final rule, which became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity, or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident that rises to the level of a notification event has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation. Furthermore, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require, once administrative rules are adopted, certain covered entities, including those in the financial services industry, to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (CISA) within 72 hours after it reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack. State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and many states have also recently implemented or modified their data breach notification, information security and data privacy requirements. We expect this trend of state-level activity in those areas to continue and we are monitoring developments in the states in which our customers are located. In the ordinary course of business, electronic communications and information systems are relied upon to conduct operations, to deliver services to customers and to store sensitive data. The Corporation employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving 7 nature and sophistication of these threats, increasing volume of attacks, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Corporation and its customers. Government Monetary Policy: The earnings of the Corporation are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member and nonmember bank deposits. Federal Reserve Board monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including the Bank, and are expected to continue to do so in the future. Executive and Incentive Compensation: Under the Dodd-Frank Act and rules adopted by the SEC in October 2022, public companies will be required, once stock exchanges adopt additional listing requirements, to adopt and implement “clawback” policies for incentive compensation payments and to disclose the details of the procedures for recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements. Such clawback policies are intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives (including former executives) who received incentive awards. Employees As of June 30, 2023, the Bank employed 173 full-time and 21 part-time employees. None of the employees are represented by a collective bargaining group. Management considers its relations with employees to be good. Available Information The Corporation files annual, quarterly, and current reports, proxy statements, and other information with the SEC. These filings are available to the public over the Internet at the SEC’s website at www.sec.gov. Shareholders may also read and copy any document that the Corporation files at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Shareholders may call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Corporation’s reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available, free of charge, on our website (www.consumers.bank) as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the Investor Relations section under Corporate Governance of the Corporation’s website. The Corporation intends to post amendments to or waivers from either of its Code of Ethics Policies on its website. A printed copy of any of these documents will be provided to any requesting shareholder. Item 1A—Risk Factors Not applicable for Smaller Reporting Companies. Item 1B—Unresolved Staff Comments None. 8 Item 2—Properties The Bank operates 21 full-service banking facilities and one loan production office (LPO) as noted below: Location Address Owned Leased 4086 Massillon Road, Green, Ohio 44685 440 W. Noble, East Canton, Ohio 44730 3680 Embassy Parkway Suite B, Fairlawn, Ohio 44333 9 East Main Street, Adena, Ohio 43901 610 West State Street, Alliance, Ohio 44601 256 2nd Street, Bergholz, Ohio 43908 210 Wabash Ave S, Brewster, Ohio 44613 49028 Foulks Drive, Calcutta, Ohio 43920 1017 Canton Road NW, Carrollton, Ohio 44615 44 Smithfield Street, Dillonvale, Ohio 43917 Adena Alliance Bergholz Brewster Calcutta Carrollton Dillonvale East Canton Fairlawn Green 30034 Canal Street, P.O. Box 178, Hanoverton, Ohio 44423 Hanoverton 1215 W. Maple Street, Hartville, Ohio 44632 Hartville Jackson-Belden 4026 Dressler Road NW, Canton, Ohio 44718 Lisbon Louisville Malvern Minerva Mount Pleasant Salem Waynesburg Wellsville Boardman LPO 725 Boardman-Canfield Road, Building 1, Boardman, Ohio 44512 7985 Dickey Drive, Lisbon, Ohio 44432 1111 N. Chapel Street, Louisville, Ohio 44641 4070 Alliance Road, Malvern, Ohio 44644 614 E. Lincoln Way, P.O. Box 256, Minerva, Ohio 44657 141 S. Ellsworth Avenue, P.O. Box 798, Salem, Ohio 44460 8607 Waynesburg Drive SE, P.O. Box 746, Waynesburg, Ohio 44688 298 Union Street, Mount Pleasant, Ohio 43939 565 Main Street, Wellsville, Ohio 43968 X X X X X X X X X X X X X X X X X X X X X X The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. In management’s opinion, all properties owned and operated by the Bank are adequately insured. Item 3—Legal Proceedings The Corporation is not a party to any pending material legal or administrative proceedings, other than ordinary routine litigation incidental to the business of the Corporation. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or affiliate of the Corporation is a party or has a material interest therein that is adverse to the Corporation. No routine litigation in which the Corporation is involved is expected to have a material adverse impact on the financial position or results of operations of the Corporation. Item 4—Mine Safety Disclosures None. 9 PART II Item 5—Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Corporation had 3,096,100 common shares outstanding on June 30, 2023, with 730 shareholders of record and an estimated 816 additional beneficial holders whose stock was held in nominee name. Attention is directed to Item 12 in this Form 10- K for information regarding the Corporation’s equity incentive plans, which information is incorporated herein by reference. The common shares of Consumers Bancorp, Inc. are quoted on the OTCQX® Best Market under the symbol CBKM. The following quoted market prices reflect inter-dealer prices, without adjustments for retail markups, markdowns, or commissions and may not represent actual transactions. The market prices represent highs and lows reported during the applicable quarterly period. Quarter Ended High Low Cash dividends paid per share September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 $ 21.00 $ 18.20 0.17 21.00 $ 17.90 0.17 20.45 $ 17.21 0.17 18.50 15.83 0.17 Quarter Ended High Low Cash dividends paid per share September 30, 2021 December 31, 2021 March 31, 2022 June 30, 2022 $ 23.75 $ 19.21 0.16 23.20 $ 21.47 0.16 24.50 $ 21.86 0.16 23.40 19.00 0.16 Management does not have knowledge of the prices paid in all transactions and has not verified the accuracy of those prices that have been reported. Because of the lack of an established market for the Corporation’s common shares, these prices may not reflect the prices at which the common shares would trade in an active market. The Corporation’s management is currently committed to continuing to pay regular cash dividends; however, there can be no assurance as to future dividends because they are dependent on the Corporation’s future earnings, capital requirements and financial condition. The Corporation’s principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. See Note 1 and Note 13 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for dividend restrictions. There were no repurchases of the Corporation’s securities during fiscal year 2023. 10 Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except per share data) General The following is management’s analysis of the Corporation’s financial condition and results of operations as of and for the years ended June 30, 2023 and 2022. This discussion is designed to provide a more comprehensive review of the operating results and financial position 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. Forward-Looking Statements Certain statements contained in this Annual Report on Form 10-K, which are not statements of historical fact, constitute forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “continue,” “estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. Risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to: ● ● ● ● ● ● ● ● ● ● ● ● ● changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in asset credit quality or debtors being unable to meet their obligations because of high unemployment rates and inflationary pressures; rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income; changes in the level of non-performing assets and charge-offs; unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources; the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; changes in consumer spending, borrowing and savings habits; declining asset values impacting the underlying value of collateral; changes in accounting policies, rules and interpretations; our ability to attract and retain qualified employees; competitive pressures on product pricing and services; and changes in the reliability of our vendors, internal control systems or information systems. The risks and uncertainties identified above are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect us. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition, and results of operations. Overview Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio, owns all the issued and outstanding capital stock of Consumers National Bank, a bank chartered under the laws of the United States of America. The Corporation’s activities have been limited primarily to holding the common stock 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, Mahoning, Stark, Summit, and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. The Bank also invests in securities consisting primarily of U.S. government-sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae. On July 16, 2021, the Corporation completed the branch acquisition and assumed $104,538 of branch deposits for a 1.75% deposit premium and purchased $15,602 in subordinated debt securities issued by unrelated financial institutions and $19,943 in 11 loans. In relation to the branch acquisition, the Corporation recorded goodwill of $1,616. This transaction qualified as a business combination. Comparison of Results of Operations for the Years Ended June 30, 2023 and June 30, 2022 Net Income. Net income was $10,674 for fiscal year 2023 compared with $11,192 for fiscal year 2022. The following key factors summarize our results of operations for the year ended June 30, 2023 compared with the same prior year period: ● ● ● net interest income increased by $969, or 3.0%, in fiscal year 2023, primarily because of a $51,065, or 5.6%, increase in average interest-earning assets; a $855 provision for loan loss expense was recorded during fiscal year 2023 compared with $735 during fiscal year 2022; and total other expenses increased by $1,470, or 6.3%, in fiscal year 2023 due to increases in salaries and employee benefits; occupancy and equipment expenses; and professional and director fees. Return on average equity and return on average assets were 20.27% and 1.05%, respectively, for fiscal year 2023 compared with 16.43% and 1.17%, respectively, for the same period last year. Net Interest Income. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies, and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate of 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances and average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost. Net Interest Income Year ended June 30, Net interest income Taxable equivalent adjustments to net interest Net interest income, fully taxable equivalent Net interest margin Taxable equivalent adjustment Net interest margin, fully taxable equivalent $ $ 2023 2022 33,715 $ 204 33,919 $ 3.35 % 0.02 3.37 % 32,746 513 33,259 3.54 % 0.06 3.60 % FTE net interest income for fiscal year 2023 was $33,919, an increase of $660 or 2.0%, from $33,259 in fiscal year 2022. The Corporation’s tax equivalent net interest margin was 3.37% for fiscal year 2023 and 3.60% for fiscal year 2022. FTE interest income for fiscal year 2023 was $41,143, an increase of $6,470, or 18.70%, from fiscal year 2022, primarily due to a $51,065, or 5.6%, increase in average interest-earning assets from fiscal year 2022. The growth in average interest-earning assets was primarily a result of a $65,313, or 10.9%, increase in average loans. In fiscal year 2022, interest income was positively impacted by $2,612 in interest and fee income that was recognized on Paycheck Protection Program loans. The Corporation’s yield on average interest-earning assets was 4.09% for the 2023 fiscal year compared with 3.75% for the same period last year. Interest expense for fiscal year 2023 was $7,224, an increase of $5,810 from fiscal year 2022 primarily because of the rapid increase in current market interest rates and the increased competition for deposits. The Corporation’s average cost of funds was 1.03% for fiscal year 2023 compared with 0.22% for the same prior year period. 12 Average Balance Sheet and Net Interest Margin 2023 2022 Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Interest earning assets: Taxable securities Nontaxable securities (1) Loan receivables (1) Federal bank and other restricted stocks Equity securities Interest bearing deposits and federal funds sold Total interest earning assets Noninterest earning assets Total assets Interest bearing liabilities: Interest bearing demand Savings Time deposits Short-term borrowings FHLB advances Total interest-bearing liabilities Noninterest-bearing liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest income, interest rate spread (1) Net interest margin (net interest as a percent of $ 209,906 $ 5,338 84,023 2,459 662,163 32,757 149 33 407 970,954 41,143 2,360 384 12,118 48,917 $ 1,019,871 22,603 10,019 $ 157,508 $ 1,128 352,897 2,513 156,357 3,019 397 167 699,384 7,224 267,837 967,221 52,650 $ 1,019,871 average interest earning assets) (1) Federal tax exemption on non-taxable securities and loans included in interest income Average interest earning assets to interest bearing liabilities 2.24 % $ 185,741 $ 2.67 86,710 4.95 6.31 8.59 3.36 4.09 % 3,572 2,580 596,850 28,216 82 33 190 919,889 34,673 2,489 427 47,672 39,059 $ 958,948 0.72 % $ 147,312 $ 349,380 0.71 113,143 1.93 12,960 1.76 14,639 1.67 637,434 1.03 % 253,407 890,841 68,107 $ 958,948 166 388 568 47 245 1,414 1.87 % 3.00 4.73 3.29 7.73 0.40 3.75 % 0.11 % 0.11 0.50 0.36 1.67 0.22 % $ 33,919 3.06 % $ 33,259 3.53 % 3.37 % 3.60 % $ 204 $ 513 138.83 % 144.31 % ____________ (1) Calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%. 13 The following table presents the changes in the Corporation’s interest income and interest expense resulting from changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities. Changes attributable to both rate and volume that cannot be segregated have been allocated in proportion to the changes due to rate and volume. INTEREST RATES AND INTEREST DIFFERENTIAL 2023 Compared to 2022 Increase / (Decrease) Change due to Volume Change due to Rate Total Change 2022 Compared to 2021 Increase / (Decrease) Change due to Volume Change due to Rate Total Change (In thousands) $ 1,766 $ (121 ) 4,541 67 975 $ 177 3,188 (4 ) 1,932 $ 558 2,188 1 791 $ (298 ) 1,353 71 1,978 $ 432 3,315 6 Interest earning assets: Taxable securities Nontaxable securities (1) Loan receivables (2) Federal bank and other restricted stocks Interest bearing deposits and federal funds sold Equity securities Total interest and dividend income Interest bearing liabilities: Interest bearing demand Savings deposits Time deposits Short-term borrowings FHLB advances Total interest expense Net interest income ____________ (1) Nontaxable income is adjusted to a fully tax equivalent basis utilizing a statutory federal income tax rate of 21.0%. (2) Non-accrual loan balances are included for purposes of computing the rate and volume effects although interest on these 950 2,121 2,161 293 (1 ) 5,524 (3,149 ) $ 17 55 (565 ) 38 (31 ) (486 ) 6,257 $ 41 115 107 6 (84 ) 185 4,603 $ 12 4 290 57 (77 ) 286 3,809 $ 962 2,125 2,451 350 (78 ) 5,810 660 $ 24 16 5,771 455 3 2,375 92 17 4,788 (238 ) (3 ) 4,095 217 — 6,470 $ (68 ) (1 ) 983 (24 ) (60 ) (672 ) 32 53 (671 ) 1,654 46 (126 ) 1,127 5 balances has been excluded. Provision for Loan Losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses in the Corporation’s loan portfolio that have been incurred at each balance sheet date. The amount of the provision is affected by loan charge-offs, recoveries and changes in specific and general allocations required for the allowance for loan losses. Management considers a number of factors that impact the provision for loan losses, such as historical loss experience, the present and prospective financial condition of borrowers, the current conditions within the markets where the Corporation originates loans, the status of nonperforming assets, the estimated underlying value of the collateral and other factors related to the ultimate collectability of the loan portfolio. A provision for loan loss expense of $855 was recorded in fiscal year 2023 compared with $735 in fiscal year 2022. The loan loss provision expense recorded in fiscal year 2023 was primarily due to the organic growth within the loan portfolio. For fiscal year 2023, net charge offs of $291, or 0.04% of total loans, were recorded compared with $46, or 0.01% of total loans, for the same period last year. The allowance for loan losses as a percentage of loans was 1.09% at June 30, 2023 and 1.17% at June 30, 2022. The decline in the allowance for loan losses as a percentage of total loans was due to the improvement in economic conditions as the economy has remained resilient following the pandemic and through the rapid rise in short-term interest rates. Also, substandard and non- accrual loans are at very low levels. Non-performing loans were $104, or 0.01% of total loans, as of June 30, 2023. This compared with $440, or 0.07% of total loans, as of June 30, 2022. Non-performing loans declined primarily because two loans that had a balance of $382 as of June 30, 2022 were returned to accrual status during fiscal year 2023. 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 closely monitor these loans and believe the prospect for recovery of principal, less identified specific reserves, are favorable. Other Income. Total other income increased by $12, or 0.3%, to $4,747 for fiscal year 2023. Service charges on deposit accounts increased by $138, or 9.5%, in fiscal year 2023 primarily as a result of increases in personal and business service charges on demand deposit accounts. Debit card interchange income increased by $112, or 5.4% in fiscal year 2023 because of increased debit card usage and an increase in the number of cards issued. These increases were partially offset by mortgage banking activity 14 income decreasing by $287 in fiscal year 2023 because of the increase in mortgage rates impacting refinancing and new home sales volume. Other Expenses. Total other expenses were $24,685 for the year ended June 30, 2023; an increase of $1,470, or 6.3%, from $23,215 for the year ended June 30, 2022. Salaries and employee benefit expenses increased by $760, or 5.7%, during fiscal year 2023 primarily due to merit and cost of living increases and lower deferred loan costs. These increases were partially offset by lower salary continuation plan expenses because of an increase in the discount rate and lower incentive expenses. Professional and director fees increased by $187, or 21.3%, during fiscal year 2023 from the same period last year primarily because of an increase in director fees and consulting expenses. Director fees increased mainly due to the issuance of restricted stock awards and units in fiscal year 2023 as the Corporation started issuing restricted stock units in fiscal year 2023 to better align the expense recognition with the performance criteria. In addition, consulting fees were higher in fiscal year 2023 as the Corporation prepared for the additional documentation and audit requirements of the FDIC Improvement Act of 1991 since the Corporation now has over $1 billion in total assets and as it prepared for the adoption of the current expected credit loss model accounting standard. Financial institutions tax expenses decreased by $64, or 11.8%, in fiscal year 2023 since this is a capital-based tax and total capital was lower as of the measurement date in fiscal year 2023 because of the accumulated other comprehensive loss. Other expenses increased by $256, or 12.7%, because of increases primarily in insurance, postage, and loan expenses as a result of the growth in the organization. Income Tax Expense. Income tax expense totaled $2,248 and $2,339 and the effective tax rates were 17.4% and 17.3% for the fiscal years ended June 30, 2023 and 2022, respectively. Income tax expense was calculated utilizing a statutory federal income tax rate of 21.0% in fiscal years 2023 and 2022. The effective tax rate differs from the federal statutory rate as a result of tax-exempt income from obligations of states and political subdivisions, loans and bank owned life insurance earnings. Financial Condition Total assets as of June 30, 2023 were $1,060,024 compared with $977,313 at June 30, 2022, an increase of $82,711, or 8.5%. The growth in total assets is mainly attributable to an increase of $98,519, or 16.1%, in total loans and was primarily funded by a $65,971, or 7.4%, increase in total deposits. Securities. Total securities were $286,575 at June 30, 2023, of which $279,605 were classified as available-for-sale and $6,970 were classified as held-to-maturity. The securities portfolio is mainly comprised of mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae, state and political subdivisions and government- sponsored enterprises. The following tables summarize the amortized cost and fair value of available-for-sale securities at June 30, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income or loss: June 30, 2023 Available-for-sale Obligation of U.S Treasury Obligations of U.S. government-sponsored entities and agencies Obligations of state and political subdivisions U.S. Government-sponsored mortgage-backed securities - residential U.S. Government-sponsored mortgage-backed securities – commercial U.S. Government-sponsored collateralized mortgage obligations – residential Other debt securities Total available-for-sale securities $ $ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 8,941 $ 29,430 92,891 104,689 — $ 7 63 12 (533 ) $ (3,745 ) (8,982 ) (15,066 ) 8,408 25,692 83,972 89,635 8,604 — (1,809 ) 6,795 55,800 17,175 317,530 $ 8 — 90 $ (5,738 ) (2,142 ) (38,015 ) $ 50,070 15,033 279,605 15 June 30, 2022 Available-for-sale U.S. Treasury Obligations of U.S. government-sponsored entities and agencies Obligations of state and political subdivisions U.S. government-sponsored mortgage-backed securities - residential U.S. government-sponsored mortgage-backed securities - commercial U.S. government-sponsored collateralized mortgage obligations – residential Other debt securities Total available-for-sale securities $ $ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 8,909 $ 28,689 105,977 113,812 8,623 40,952 17,367 324,329 $ — $ — 129 13 — 1 — 143 $ (462 ) $ (2,424 ) (8,749 ) (11,642 ) (1,322 ) 8,447 26,265 97,357 102,183 7,301 (2,774 ) (752 ) (28,125 ) $ 38,179 16,615 296,347 The following tables summarize the amortized cost and fair value of held-to-maturity securities at June 30, 2023 and 2022 and the corresponding gross unrecognized gains and losses: June 30, 2023 Held-to-maturity Obligations of state and political subdivisions June 30, 2022 Held-to-maturity Obligations of state and political subdivisions Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value $ 6,970 $ — $ (676 ) $ 6,294 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value $ 7,874 $ 47 $ (90 ) $ 7,831 The following tables summarize the amounts and distribution of the Corporation’s securities held and the weighted average yields as of June 30, 2023: Available-for-sale Obligations of U.S. Treasury Over 3 months through 1 year Over 1 year through 5 years Total obligations of U.S. Treasury Obligations of government-sponsored entities: Over 3 months through 1 year Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total obligations of government-sponsored entities Obligations of state and political subdivisions: 3 months or less Over 3 months through 1 year Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total obligations of state and political subdivisions Mortgage-backed securities - residential: Over 3 months through 1 year Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total mortgage-backed securities - residential $ Amortized Cost Fair Value Average Yield 2,494 $ 6,447 8,941 1,001 5,767 20,181 2,481 29,430 1,000 502 16,891 13,777 60,721 92,891 94 18,834 76,352 9,409 104,689 2,412 5,996 8,408 987 5,476 17,134 2,095 25,692 996 504 16,168 12,650 53,654 83,972 91 17,492 64,444 7,608 89,635 0.60 % 0.91 0.82 2.22 2.79 2.03 2.04 2.48 0.50 5.43 2.94 2.76 3.00 2.94 2.09 2.62 1.94 1.92 2.06 16 Collateralized mortgage obligations: Mortgage-backed securities – commercial: Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total mortgage-backed securities - commercial Collateralized mortgage obligations: 3 months or less Over 3 months through 1 year Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total collateralized mortgage obligations Other debt securities Over 5 years through ten years Total other debt securities Total available-for-sale securities Held-to-maturity Obligations of state and political subdivisions: Over 1 year through 5 years Over 5 years through 10 years Over 10 years Total held-to-maturity securities Amortized Cost Fair Value Average Yield $ $ $ $ 1,321 $ 2,920 4,363 8,604 110 812 19,508 32,513 2,857 55,800 17,175 17,175 317,530 $ 1,071 2,379 3,345 6,795 109 810 18,723 28,190 2,238 50,070 15,033 15,033 279,605 3,092 $ 533 3,345 6,970 $ 2,988 533 2,818 6,294 1.69 % 1.90 2.12 1.98 1.47 5.41 4.33 2.75 1.67 3.28 3.52 3.52 2.61 % 2.14 % 4.23 3.01 2.72 % The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective yields considering amortization or accretion if the securities were purchased at a premium or discount. The weighted average yield on tax- exempt obligations has been calculated on a tax equivalent basis. Average yields are based on amortized cost balances. Loans. Loan receivables increased by $98,519, or 16.1%, to $710,362 at June 30, 2023 compared to $611,843 at June 30, 2022. Commercial loans increased by $25,547, or 29.3%, primarily because of a third-party residential mortgage warehouse line-of- credit that had a balance of $10,000 as of June 30, 2023 and had a zero balance as of June 30, 2022. Consumer loans increased by $20,588, or 45.9%, primarily as a result of the expansion of indirect auto lending and an increase in direct auto loans due to successful marketing campaigns. Major classifications of loans, net of deferred loan fees and costs, were as follows as of June 30: Commercial Commercial real estate: Construction Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer loans Total loans 2023 2022 $ 112,627 $ 87,080 23,905 318,054 158,037 23,840 8,490 65,409 710,362 $ 15,095 291,310 143,180 25,988 4,369 44,821 611,843 $ 17 The following table shows the major classifications of loans, net of deferred fees and costs, which are based on the contractual terms for repayment of principal, that are due in the periods indicated as of June 30, 2023: Commercial Commercial real estate: Construction Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer loans Total loans After one year After five years Maturing Within one year but within five years But within Fifteen years After Fifteen years $ 25,056 $ 39,994 $ 47,450 $ 127 $ Total 112,627 1 10,626 985 696 — 1,839 39,203 $ 12,718 12,959 2,396 1,264 3,215 33,369 105,915 $ 2,878 123,828 35,547 14,649 — 30,018 254,370 $ 8,308 170,641 23,905 318,054 119,109 7,231 5,275 183 310,874 $ 158,037 23,840 8,490 65,409 710,362 $ The following is a schedule of fixed and variable rate 1-4 family residential real estate construction, commercial and commercial real estate loans due after one year (variable rate loans are those loans with floating or adjustable interest rates) as of June 30, 2023: Total due after one year: Commercial Commercial real estate: Construction Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer loans Fixed Interest Rates $ 76,299 $ Variable Interest Rates 11,272 3,128 154,356 126,204 15,300 4,904 63,543 20,776 153,072 30,848 7,844 3,586 27 Allowance for Loan Losses. The allowance for loan losses balance and the provision charged to expense are judgmentally determined by management based upon a periodic review of the loan portfolio for valuation purposes and to determine the adequacy of the allowance for loan losses. Management establishes allowances for estimated losses on loans based upon its evaluation of the pertinent factors underlying the types and quality of loans; historical loss experience based on volume and types of loans; trend in portfolio volume and composition; level and trend of nonperforming assets; detailed analysis of individual loans for which full collectability may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such loans and the current economic conditions affecting the collectability of loans in the portfolio. Failure to receive principal and interest payments when due on any loan results in efforts to restore such loan to a current status. Loans are classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest is not expected. The loans must be brought and kept current for six sustained payments before being considered for removal from non- accrual status. 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. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected from the collateral. Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when it is probable that not all principal and interest amounts will be collected according to the original terms of the loan. As of June 30, 2023, impaired loans totaled $405, of which $54 are included in non-accrual loans. Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings. 18 The following table summarizes non-accrual loans, non-performing assets, impaired and restructured loans, and associated ratios for the years ended June 30: Non-accrual loans Accruing loans past due 90 days or more Total non-performing loans Other real estate and repossessed assets owned Total non-performing assets Impaired loans Accruing restructured loans Non-accrual to total loans ALLL to non-accrual loans *Not meaningful $ $ $ $ $ 2023 2022 54 $ 50 104 $ 124 228 $ 405 $ 351 $ 0.01 % N/M * 431 9 440 — 440 473 42 0.07 % N/M * The non-performing loans are either in the process of foreclosure or efforts are being made to work with the borrower to bring the loan current. Properties and vehicles acquired by the Corporation as a result of foreclosure or repossession, or by deed in lieu of foreclosure, are classified as “other real estate and repossessed assets owned” until they are sold or otherwise disposed of. The following table summarizes the Corporation’s loan loss experience, and provides a breakdown of the charge-off, recovery and other activity for the years ended June 30: Allowance for loan losses at beginning of year Loans charged off: 1-4 Family residential real estate Consumer loans Total charge offs Recoveries: Commercial Commercial real estate 1-4 Family residential real estate Consumer loans Total recoveries Net charge offs Provision for loan losses charged to operations Allowance for loan losses at end of year $ 2023 2022 $ 7,160 $ 6,471 6 441 447 — 1 4 151 156 291 855 7,724 $ 41 132 173 23 2 20 82 127 46 735 7,160 Ratio of net charge offs to average loans outstanding ALLL to total loans 0.04 % 1.09 % 0.01 % 1.17 % The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios: Allocation of the Allowance for Loan Losses Allowance Amount % of Loan Type to Total Loans Allowance Amount % of Loan Type to Total Loans $ $ June 30, 2023 1,308 3,943 1,571 902 7,724 June 30, 2022 15.9 % $ 48.1 26.8 9.2 100.0 % $ 960 3,927 1,645 628 7,160 14.2 % 50.1 28.4 7.3 100.0 % Commercial Commercial real estate loans 1-4 Family residential real estate Consumer loans Total While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-off that may occur. While the Corporation has historically experienced strong trends in asset quality, due to the current economic concerns with high inflation and rising interest rates, uncertainty remains regarding future levels of criticized and classified loans, nonperforming loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and adjust the provision accordingly. 19 Other Assets: As of June 30, 2023, the total accrued interest receivable and other assets were $22,967 compared with $10,184 as of June 30, 2022. As of June 30, 2023, a $10,250 investment in a limited partnership that invests in qualified affordable housing projects that will generate tax benefits for the investors is included in other assets. See Note 16—Affordable Tax Credit Partnership to the Consolidated Financial Statements, for information concerning the low-income housing tax credit investment. Deposits. Total deposits increased by $65,971, or 7.4%, from $886,562 at June 30, 2022 to $952,533 at June 30, 2023. As market rates have risen, customers have chosen to move funds from savings and money market deposit products to higher yielding certificates of deposits. As of June 30, 2023, the Corporation maintained a favorable funding mix with 26.3% of total deposits in noninterest-bearing demand deposits, 16.0% in interest-bearing demand deposits, 35.2% in savings and money market deposits, and 22.5% in certificates and other time deposits. The following is a schedule of average deposit amounts and average rates paid on each category for the periods included: Years Ended June 30, 2023 2022 Rate Amount Rate Noninterest-bearing demand deposit Interest-bearing demand deposit Savings Certificates and other time deposits Total Amount $ 258,463 157,508 352,897 156,357 925,225 $ — $ 0.72 % 0.71 1.93 0.72 % $ 246,089 147,312 349,380 113,143 855,924 — 0.11 % 0.11 0.50 0.13 % Uninsured deposits as of June 30, 2023 were $267,449, or 28.1% of total deposits, and includes $95,445 of uninsured public fund deposits that are fully collateralized. Uninsured deposits as of June 30, 2022 were $264,350, or 29.8% of total deposits, and includes $95,075 of uninsured public fund deposits that are fully collateralized. Uninsured deposits as of June 30, 2023 and 2022 are based on estimates and include portions of FDIC-insured deposit accounts that exceed the insurance limit of $250 thousand per separately insured depositor. The following table summarizes time deposits issued in amounts of more than $250 thousand as of June 30, 2023 by time remaining until maturity: Maturing in: Under 3 months Over 3 to 6 months Over 6 to 12 months Over 12 months Total $ $ 16,270 6,384 19,796 3,122 45,572 Short-term Borrowings: Short-term borrowings increased by $5,072, or 23.8%, to $26,367 at June 30, 2023 from $21,295 at June 30, 2022. This increase was primarily associated with large new deposits from existing local commercial customers into the sweep repurchase agreement product that is fully collateralized. See Note 8—Short-Term Borrowings to the Consolidated Financial Statements, for information concerning short-term borrowings. Other Liabilities: As of June 30, 2023, the total accrued interest payable and other liabilities was $16,864 compared with $7,230 as of June 30, 2022. As of June 30, 2023, an unfunded commitment of $9,668 associated with an affordable housing tax credit investment was included in other liabilities. See Note 16—Affordable Tax Credit Partnership to the Consolidated Financial Statements, for information concerning the low-income housing tax credit investment. Capital Resources Total shareholders’ equity increased by $1,514 from $53,970 as of June 30, 2022 to $55,484 at June 30, 2023. The primary reason for the increase in shareholders’ equity was because of net income of $10,674 for the 2023 fiscal year which was partially offset by an increase of $7,855 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from cash dividends paid of $2,095. The total accumulated other comprehensive loss was $29,961 as of June 30, 2023. Available- for-sale securities and shareholders’ equity were impacted by rapidly rising interest rates during 2022 and 2023 causing the accumulated other comprehensive loss to increase as available-for-sale securities are marked to fair market value. As market interest rates rise, the fair value of fixed-rate securities decline with a corresponding net of tax decline recorded in the accumulated other comprehensive loss portion of equity. This unrealized loss in securities is temporary and is adjusted monthly for additional market interest rate fluctuations, principal paydowns, calls, and maturities. The Corporation has significant sources of liquidity and therefore does not expect to have to sell securities to fund growth. 20 For fiscal year 2023, the average equity to average total assets ratio was 5.16% and the dividend payout ratio was 19.6%. For fiscal year 2022, the average equity to average total assets ratio was 7.10% and the dividend payout ratio was 17.4%. At June 30, 2023, management believes the Bank complied with all regulatory capital requirements. Based on the Bank’s computed regulatory capital ratios, the OCC has determined the Bank to be well capitalized under the Federal Deposit Insurance Act as of its latest exam date. The Bank’s actual and required capital amounts are disclosed in Note 13-Regulatory Matters to the Consolidated Financial Statements. Management is not aware of any matters occurring subsequent to that exam that would cause the Bank’s capital category to change. At June 30, 2023, the Corporation had no unconsolidated, related special purpose entities, nor did the Corporation engage in hedging contracts, such as interest rate swaps, which may expose the Corporation to liabilities greater than the amounts recorded on the consolidated balance sheet. The Corporation’s investment policy prohibits engaging in derivative contracts for speculative trading purposes; however, in the future, the Corporation may pursue certain contracts, such as interest rate swaps, to execute a sound and defensive interest rate risk management policy. Liquidity Management considers the asset position of the Bank to be sufficiently liquid to meet normal operating needs and conditions. The Bank’s earning assets are divided primarily between loans and available-for-sale securities, with any excess funds placed in federal funds sold or interest-bearing deposit accounts with other financial institutions. For fiscal year 2023, net cash inflows from operating activities were $13,316, net cash inflows from financing activities were $69,706 and net cash outflows from investing activities were $92,219. Major sources of cash were a $65,971 net increase in deposits and $37,794 in cash received from sales, maturities, or principal pay downs of available-for-sale securities. Major uses of cash were a $98,945 net increase in loans and $31,799 of purchases of available-for-sale securities. Total cash and cash equivalents were $20,952 as of June 30, 2023 compared to $18,529 at June 30, 2022. The Bank groups its loan portfolio into four major categories: commercial loans; commercial real estate loans; 1-4 family residential real estate loans; and consumer loans. The Bank’s 1-4 family residential real estate loan portfolio primarily consists of fixed and variable rate mortgage loans for terms generally not longer than thirty years and variable rate home equity lines of credit. Commercial and commercial real estate loans are comprised of both variable rate notes subject to interest rate changes based on the prime rate or Treasury index, and fixed rate notes having maturities of generally not greater than twenty years. Consumer loans offered by the Bank are generally written for periods of up to seven years, based on the nature of the collateral. These may be either installment loans having regular monthly payments or demand type loans for short periods of time. Funds not allocated to the Bank’s loan portfolio are invested in various securities having diverse maturity schedules. A majority of the Bank’s securities are held in obligations of U.S. Government-sponsored entities, mortgage-backed securities, and investments in tax-exempt municipal bonds. The Bank offers several forms of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with others currently available in the market area. While the Bank continues to be under competitive pressures in the Bank’s market area as financial institutions attempt to attract and keep new deposits, we believe many commercial and retail customers are turning to community banks. Compared to our peers, the Corporation’s core deposits consist of a larger percentage of noninterest-bearing demand deposits resulting in a lower cost of funds of 1.03% for fiscal year 2023. Jumbo time deposits (those with balances of $250 and over) were $46,822 and $18,164 at June 30, 2023 and 2022, respectively. These deposits are monitored closely by the Bank and typically 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. However, these deposits are not relied upon as a primary source of funding and there were no brokered deposits as of June 30, 2023 or 2022. To provide additional sources of liquidity, the Corporation has lines of credit with other financial institutions and has entered into agreements with the Federal Home Loan Bank of Cincinnati (FHLB) and the Federal Reserve Discount Window. As of June 30, 2023, advances from the FHLB of Cincinnati totaled $8,776 compared with $8,256 as of June 30, 2022. As of June 30, 2023, the Bank had the ability to borrow an additional $109,442 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. 21 Dividends from the Bank are the primary source of funds for payment of dividends to our shareholders. However, there are statutory limits on the amount of dividends the Bank can pay without regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. Additionally, the Bank may not declare or pay any dividend if, after making the dividend, the Bank would be “undercapitalized,” as defined in the federal regulations. As of June 30, 2023, the Bank could, without prior approval, declare a dividend of approximately $21,811. Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and results of operations primarily in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of the Corporation are monetary in nature. Therefore, as a financial institution, interest rates have a more significant impact on the Corporation’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. The liquidity, maturity structure and quality of the Corporation’s assets and liabilities are critical to the maintenance of acceptable performance levels. Critical Accounting Policies and Use of Significant Estimates The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and management’s discussion and analysis 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 most significant accounting policies followed by the Corporation are presented in Note 1-Summary of Significant Accounting Policies to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. Management has identified the following as critical accounting policies: Allowance for Loan Losses. The determination of the allowance for loan losses involves considerable subjective judgment and estimation by management. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries, and losses. All these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods. Goodwill. The Corporation accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. The carrying value of goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The evaluation for impairment involves comparing the current estimated fair value of a reporting unit to its carrying value. If the current estimated fair value of a reporting unit exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. If the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of goodwill being recorded. Further valuation procedures would include allocating the estimated fair value to all assets and liabilities of the reporting unit to determine an implied goodwill value. If the implied value of goodwill of a reporting unit is less than the carrying amount of that goodwill, an impairment loss is recognized in an amount equal to that excess. Management evaluated goodwill as of April 30, 2023, the measurement date, utilizing an income approach that incorporated a discounted cash flow model that involved management assumptions based upon future growth and earnings projections. The estimated fair value of the reporting unit was then compared to the current carrying value to determine if impairment had occurred. It is our opinion that, as of the measurement date, the aggregate fair value of the reporting unit exceeded the carrying value of the 22 reporting unit. Therefore, management concluded that goodwill was not impaired. Although we believe our assumptions are reasonable, actual results may vary significantly and it is impossible to know the future impact of evolving economic conditions. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk based capital ratios. Contractual Obligations, Commitments and Contingent Liabilities The following table presents, as of June 30, 2023, the Corporation’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements. Certificates of deposit Short-term borrowings Federal Home Loan advances Salary continuation plan Operating leases Deposits without maturity Note Reference 7 8 2024 2025 2026 2027 2028 Thereafter Total $ 193,381 $ 16,089 $ — 26,367 2,890 $ — 1,373 $ — 434 $ — 176 $ 214,343 26,367 — 9 10 5 671 142 177 — 4,056 141 145 — 46 141 125 — 3 141 115 — — 253 115 — 4,000 2,869 342 8,776 3,687 1,019 — 738,190 Note 14-Commitments with Off-Balance Sheet Risk to the Consolidated Financial Statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements. These commitments and contingencies consist primarily of commitments to extend credit to borrowers under lines of credit. Item 7A— Quantitative and Qualitative Disclosures About Market Risk Not applicable for Smaller Reporting Companies. 23 Item 8— Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors Consumers Bancorp, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Consumers Bancorp, Inc and subsidiaries (the “Company”) as of June 30, 2023 and 2022; the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the years then ended; and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Loan Losses - Significant Assumptions in General Reserves - Refer to Notes 1 and 4 to the Financial Statements Critical Audit Matter Description The allowance for loan losses (allowance) represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers nonimpaired loans and is based on historical loss experience adjusted for current factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels of and trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; volume and severity of past-due loans and other similar conditions; quality of the loan review system; value of underlying collateral for collateral dependent loans; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. 24 We identified the Company’s significant assumptions in general reserves in the allowance for loan losses as a critical audit matter. Given the significant estimates and assumptions management makes to estimate the current factor adjustments of the allowance for loan losses, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the qualitative factors within the allowance included the following, among others: • We obtained an understanding of management’s process for determining the need for qualitative factor adjustments, identifying appropriate factors, and measuring the direction and magnitude of the adjustments. • We evaluated the reasonableness of management’s judgments and tests of accuracy of underlying support related to the qualitative factors. • We evaluated the design of controls over the application of management’s qualitative factor methodology in the estimate of general reserves. • We evaluated management's rationale for determining qualitative adjustments were relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management. • Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources. • We assessed changes in qualitative factors year over year against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments. /s/ Plante & Moran, PLLC We have served as the Company’s auditor since 2020. Auburn Hills, Michigan September 7, 2023 25 CONSOLIDATED BALANCE SHEETS As of June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) ASSETS: Cash on hand and noninterest-bearing deposits in financial institutions Federal funds sold and interest-bearing deposits in financial institutions Total cash and cash equivalents Certificates of deposit in financial institutions Securities, available-for-sale Securities, held-to-maturity (fair value 2023 $6,294 and 2022 $7,831) Equity securities, at fair value Federal bank and other restricted stocks, at cost Loans held for sale Total loans Less allowance for loan losses Net loans Cash surrender value of life insurance Premises and equipment, net Goodwill Core deposit intangible, net Accrued interest receivable and other assets Total assets LIABILITIES: Deposits: Noninterest-bearing demand Interest bearing demand Savings Time Total deposits Short-term borrowings Federal Home Loan Bank advances Accrued interest payable and other liabilities Total liabilities Commitments and contingent liabilities (Note 14) SHAREHOLDERS’ EQUITY: Preferred stock, no par value; 350,000 shares authorized Common shares, no par value; 8,500,000 shares authorized; 3,144,739 and 3,132,056 shares issued as of June 30, 2023 and June 30, 2022, respectively Retained earnings Treasury stock, at cost (48,639 and 75,382 common shares at June 30, 2023 and 2022, respectively) Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2023 2022 11,734 $ 21 11,755 2,501 279,605 6,970 386 2,168 764 710,362 (7,724 ) 702,638 10,222 17,182 2,452 414 22,967 1,060,024 $ 250,906 $ 152,053 335,231 214,343 952,533 26,367 8,776 16,864 1,004,540 11,254 9,698 20,952 3,781 296,347 7,874 400 2,525 1,165 611,843 (7,160 ) 604,683 9,959 16,521 2,452 470 10,184 977,313 257,665 157,462 369,054 102,381 886,562 21,295 8,256 7,230 923,343 — — 20,769 65,485 (809 ) (29,961 ) 55,484 1,060,024 $ 20,287 56,906 (1,117 ) (22,106 ) 53,970 977,313 $ $ $ $ See accompanying notes to consolidated financial statements. 26 CONSOLIDATED STATEMENTS OF INCOME Years Ended June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) 2023 2022 Interest and dividend income: Loans, including fees Securities, taxable Securities, tax-exempt Equity securities Federal bank and other restricted stocks Federal funds sold and interest-bearing deposits Total interest and dividend income Interest expense: Deposits Short-term borrowings Federal Home Loan Bank advances Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Other income: Service charges on deposit accounts Debit card interchange income Bank owned life insurance income Mortgage banking activity Securities gains, net Net change in market value of equity securities Other Total other income Other expenses: Salaries and employee benefits Occupancy and equipment Data processing expenses Debit card processing expenses Professional and director fees Federal Deposit Insurance Corporation assessments Financial institutions tax Marketing and advertising Loan and collection expenses Telephone and communications Amortization of intangible Other Total other expenses Income before income taxes Income tax expense Net income Basic and diluted earnings per share $ $ $ 32,754 $ 5,338 2,258 33 149 407 40,939 6,660 397 167 7,224 33,715 855 32,860 1,598 2,181 263 345 14 (14 ) 360 4,747 14,020 3,186 775 1,124 1,065 608 478 740 211 362 56 2,060 24,685 12,922 2,248 10,674 $ 3.45 $ 28,207 3,572 2,076 33 82 190 34,160 1,122 47 245 1,414 32,746 735 32,011 1,460 2,069 257 632 6 (24 ) 335 4,735 13,260 3,028 795 1,025 878 580 542 663 174 375 54 1,841 23,215 13,531 2,339 11,192 3.68 See accompanying notes to consolidated financial statements. 27 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) Net income Other comprehensive income (loss), net of tax: Net change in unrealized gains: Unrealized losses arising during the period Reclassification adjustment for gains included in income Net unrealized loss Income tax effect Other comprehensive loss Total comprehensive income (loss) 2023 2022 $ 10,674 $ 11,192 (9,929 ) (14 ) (9,943 ) 2,088 (7,855 ) 2,819 $ (32,469 ) (6 ) (32,475 ) 6,819 (25,656 ) (14,464 ) $ See accompanying notes to consolidated financial statements. 28 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) Common Shares Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance, June 30, 2021 Net income Other comprehensive loss 8,003 shares issued associated with dividend reinvestment plan and stock purchase plan 20,571 shares associated with vested stock awards Cash dividends declared ($0.64 per share) Balance, June 30, 2022 Net income Other comprehensive loss 12,683 shares issued associated with dividend reinvestment plan and stock purchase plan 26,743 shares associated with vested stock awards Restricted stock expense Cash dividends declared ($0.68 per share) Balance, June 30, 2023 $ $ $ 20,011 $ — — 47,663 $ 11,192 — 174 102 — 20,287 $ — — 238 85 159 — 20,769 $ — — (1,949 ) 56,906 $ 10,674 — — — — (2,095 ) 65,485 $ (1,324 ) $ — — — 207 — (1,117 ) $ — — — 308 — — (809 ) $ 3,550 $ — (25,656 ) — — — (22,106 ) $ — (7,855 ) — — — — (29,961 ) $ 69,900 11,192 (25,656 ) 174 309 (1,949 ) 53,970 10,674 (7,855 ) 238 393 159 (2,095 ) 55,484 See accompanying notes to consolidated financial statements. 29 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation Securities amortization and accretion, net Provision for loan losses Loss on disposal of fixed assets Loss on disposition of other real estate and repossessed assets owned Mortgage banking activity Deferred income tax (benefit) expense Gain on sale of securities Net change in market value of equity securities Amortization of intangibles Origination of loans held for sale Proceeds from loans held for sale Increase in cash surrender value of life insurance Change in other assets and other liabilities Net cash flows from operating activities Cash flows from investing activities: Securities available-for-sale: Purchases Maturities, calls and principal pay downs Proceeds from sales of available-for-sale securities Securities held-to-maturity: Purchases Principal pay downs Net decrease in certificates of deposit with other financial institutions Purchase of Federal Reserve Bank stock, at cost Net increase in loans Acquisition, net of cash received Acquisition of premises and equipment Disposal of premises and equipment Proceeds from sale of other real estate and repossessed assets owned Net cash flows from investing activities Cash flows from financing activities: Net increase in deposit accounts Proceeds from Federal Home Loan Bank advances Repayments of Federal Home Loan Bank advances Change in short-term borrowings Proceeds from dividend reinvestment and stock purchase plan Dividends paid Net cash flows from financing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information: Cash paid during the period: Interest Federal income taxes Non-cash items: Transfer from loans to other repossessed assets Transfer from loans to other real estate owned 30 2023 2022 $ 10,674 $ 11,192 1,051 818 855 — — (345 ) (96 ) (14 ) 14 56 (20,762 ) 21,508 (263 ) (180 ) 13,316 (31,799 ) 21,322 16,472 — 904 1,280 357 (98,945 ) — (1,821 ) — 11 (92,219 ) 65,971 17,000 (16,480 ) 5,072 238 (2,095 ) 69,706 (9,197 ) 20,952 11,755 $ 6,929 $ 2,495 11 124 991 1,449 735 6 5 (632 ) 146 (6 ) 24 54 (45,758 ) 46,682 (257 ) 316 14,947 (141,210 ) 31,584 2,722 (3,450 ) 3,572 2,044 (53 ) (25,602 ) 66,552 (1,477 ) 18 78 (65,222 ) 55,175 — (9,794 ) 9,092 174 (1,949 ) 52,698 2,423 18,529 20,952 1,416 1,850 83 — $ $ Issuance of treasury stock for stock awards Branch acquisition: Noncash assets acquired: Securities, available-for-sale Loans Premises and equipment Goodwill Core deposit intangible Accrued interest receivable and other assets Total noncash assets acquired Liabilities assumed: Deposits Other liabilities Total liabilities assumed Net noncash liabilities assumed 393 309 — — — — — — — — — — — 15,602 19,943 413 1,616 295 216 38,085 104,538 99 104,637 (66,552 ) See accompanying notes to consolidated financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2023 and 2022 (Dollar amounts in thousands, except per share data) NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Consumers Bancorp, Inc. (Corporation) and its wholly owned subsidiary, Consumers National Bank (Bank), together referred to as the Corporation. All significant intercompany transactions have been eliminated in the consolidation. Nature of Operations: Consumers Bancorp, Inc. is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern 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. Business Segment Information: The Corporation is engaged in the business of commercial and retail banking, which accounts for substantially all its revenues, operating income, and assets. Accordingly, all its operations are reported in one segment, banking. Acquisition: At the date of acquisition the Corporation records the assets and liabilities of acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Corporation’s Consolidated Statements of Income beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Income during the periods incurred. Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities of less than 90 days and federal funds sold. Cash flows are reported on a net basis for customer loan and deposit transactions, interest bearing deposits in other financial institutions and short-term borrowings. Interest–Bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and are carried at cost. Certificates of Deposit in Financial Institutions: Certificates of deposit in other financial institutions are carried at cost. Cash Reserves: The Bank is required to maintain cash on hand and noninterest-bearing balances on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements. The required reserve balance was zero at June 30, 2023 and 2022. Securities: Securities are generally classified into either held-to-maturity or available-for-sale categories. Held-to-maturity securities are carried at amortized cost and are those the Corporation has the positive intent and ability to hold to maturity. Available- for-sale securities are those the Corporation may decide to sell before maturity if needed for liquidity, asset-liability management, or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains or losses included in other comprehensive income (loss) as a separate component of equity, net of tax. Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities and collateralized mortgage obligations where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The evaluation of securities includes consideration given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Corporation has the intent to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. In analyzing an issuer's financial condition, management may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS issuer's financial condition. 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. When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether the Corporation intends to sell the security, or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI will be recognized in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the security. If a security is determined to be other-than-temporarily impaired, but the Corporation does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income. Equity Securities: Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Federal Bank and Other Restricted Stocks: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock, included with Federal bank and other restricted stocks on the Consolidated Balance Sheet, is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Federal Reserve Bank stock is also carried at cost. Since these stocks are viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights released. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold. Mortgage Banking Derivatives: Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Changes in the fair values of these derivatives are included in net gains on sales of loans. Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable. Interest income on commercial, commercial real estate and 1-4 family residential loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in the process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is determined by the contractual terms of the loan. In all cases, loans are placed on non- accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received on loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when the customer has exhibited the ability to repay and demonstrated this ability over at least a consecutive six- month period and future payments are reasonably assured. Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when funded. Concentrations of Credit Risk: The Bank grants consumer, real estate, and commercial loans primarily to borrowers in Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, Wayne, and contiguous counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in these counties. Automobiles and other consumer assets, business assets and residential and commercial real estate secure most loans. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings, and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is evaluated collectively for smaller-balance loans of similar nature such as residential mortgage, consumer loans and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected from the collateral. Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when it is probable that not all principal and interest amounts will be collected according to the original terms of the loan. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors based on the risks present for each portfolio segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the most recent three-year period, depending on loan segment. This actual loss experience is supplemented with economic and other factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels of and trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of lending management and other relevant staff; volume and severity of past due loans and other similar conditions; quality of the loan review system; value of underlying collateral for collateral dependent loans; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: Commercial: Commercial loans are made for a wide variety of 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 borrower’s ability to operate profitably and prudently expand its business. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily made based on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be 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 made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for 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 in the areas where the Bank operates. Commercial Real Estate: Commercial real estate loans include mortgage loans to farmers, owners of multi-family investment properties, developers 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, the business conducted on the property securing the loan or, in the case of loans to farmers, management and operation of the 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS farm. 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 Corporation’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus nonowner-occupied loans. 1-4 Family Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include both owner occupied, non-owner occupied 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 provides private mortgage insurance. Consumer: The Corporation 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. Low Income Housing Tax Credits (LIHTC): The Corporation has invested in LIHTCs through funds that assist corporations in investing in limited partnerships and limited liability companies that own, develop and operate low income residential rental properties for purposes of qualifying for the LIHTCs. These investments are accounted for under the proportional amortization method which recognizes the amortization of the investment in proportion to the tax credit and other tax benefits received. Other Real Estate and Repossessed Assets Owned: Real estate properties and other repossessed assets, which are primarily vehicles, acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less costs to sell at the date of acquisition, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If the fair value declines after acquisition, a valuation allowance is recorded as a charge to income. Operating costs after acquisition are expensed. Gains and losses on disposition are reported as a charge to income. Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvements, generally over the lesser of the remaining term of the lease facility or the estimated economic life of the improvement. Useful lives range from three years for software to thirty-nine and one-half years for buildings. Cash Surrender Value of Life Insurance: The Bank has purchased single-premium life insurance policies to insure the lives of current and former participants in the salary continuation plan. As of June 30, 2023, the Bank had policies with total death benefits of $19,167 and total cash surrender values of $10,222. As of June 30, 2022, the Bank had policies with total death benefits of $19,128 and total cash surrender values of $9,959. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Tax-exempt income is recognized from the periodic increases in cash surrender value of these policies. Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired assets and liabilities. Core deposit intangible assets arise from whole bank or branch acquisitions and are measured at fair value and then are amortized over their estimated useful lives. Goodwill is not amortized but is assessed at least annually for impairment. Any such impairment will be recognized in the period identified. The Corporation has selected April 30 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Corporation’s balance sheet. Long-Term Assets: Premises, equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Repurchase Agreements: Substantially all repurchase agreement liabilities, which are classified as short-term borrowings, represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. Retirement Plans: The Bank maintains a 401(k) savings and retirement plan covering all eligible employees and matching contributions are expensed as made. Salary continuation plan expense allocates the benefits over years of service. Income Taxes: The Corporation files a consolidated federal income tax return. Income tax expense is the sum of the current- year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. The Corporation applies a more likely than not recognition threshold for all tax uncertainties in accordance with U.S. generally accepted accounting principles. A tax position is recognized as a benefit only if it is more likely than not that the position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit greater than 50% likely of being realized on examination. The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense. Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable upon the vesting of restricted stock awards. Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees over the required service period, generally defined as the vesting period. The fair value of restricted stock awards is estimated by using the market price of the Corporation’s common stock at the date of grant. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as incurred. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, which are also recognized as a separate component of equity, net of tax. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the Corporation’s financial statements. Fair Value of Financial Instruments: Fair value of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15 of the Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, discounted cash flows, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the holding company or by the holding company to shareholders. Reclassifications: Certain reclassifications have been made to the June 30, 2022 financial statements to be comparable to the June 30, 2023 presentation. The reclassifications had no impact on prior year net income or shareholders’ equity. Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU added a new Topic 326 to the codification and removed 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 U.S. generally accepted accounting principles, companies generally recognized credit losses when it is probable that the loss had been incurred. ASU 2016-13 removes all current loss recognition thresholds and requires 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. The new guidance also amended the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 was effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance was permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company. The Corporation adopted this new guidance on July 1, 2023. Management analyzed and finalized its pool segmentation, established the peer group that will be used as the source of loss experience data, and completed parallel calculations in preparation for adoption of the new methodology. The Net Present Value of Discounted Cash Flow methodology is being used for all loan pools and the implementation of ASU No. 2016-13 is expected to increase the balance of the allowance for loan losses by less than $250. In addition, a reserve for unfunded commitments that are not unconditionally cancellable will be established and is expected to be between $275 and $350. Upon adoption of the new guidance, a one-time adjustment to the allowance for loan losses and reserve for unfunded commitments will be made with an offsetting decrease to retained earnings, net of tax. The Corporation is also developing disclosure documentation related to adoption of this standard. In March 2022, FASB issued 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. Specifically, rather than applying TDR recognition and measurement guidance, creditors will be required to determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments in ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which require that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This update is not expected to have a significant impact on the Corporation’s financial statements. NOTE 2—ACQUISITION On July 16, 2021, the Corporation completed its acquisition of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the branch acquisition, the Corporation assumed $104,538 in branch deposits for a deposit premium of 1.75%. In addition, the Corporation acquired $15,602 of subordinated debt securities issued by unrelated financial institutions and $19,943 of loans. This transaction qualifies as a business combination. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by the Corporation at the date of acquisition. The core deposit intangible will be amortized over ten years on a straight-line basis. Goodwill will not be amortized, but instead will be evaluated for impairment. Assets acquired: Cash and cash equivalents Securities, available-for-sale Loans Premises and equipment Core deposit intangible Accrued interest receivable Total assets acquired Liabilities assumed: Noninterest-bearing deposits Interest-bearing deposits Other liabilities Total liabilities assumed Fair value of net liabilities assumed Cash received Goodwill $ $ 515 15,602 19,943 413 295 216 36,984 10,535 94,003 99 104,637 (67,653 ) 66,037 1,616 The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgement in accounting for the acquisition. The fair value of loans was estimated using discounted contractual cash flows. The 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS book balance of the loans at the time of the acquisition was $20,325. The fair value disclosed above reflects a credit-related adjustment of $(388) and an adjustment for other factors of $6. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were immaterial. Acquisition costs of $144 pre-tax, or $118 after-tax, were recorded during fiscal year 2022. NOTE 3—SECURITIES The following table summarizes the amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses: Available-for-sale June 30, 2023 Obligation of U.S Treasury Obligations of U.S. government-sponsored entities and agencies Obligations of state and political subdivisions U.S. Government-sponsored mortgage-backed securities - residential U.S. Government-sponsored mortgage-backed securities - commercial U.S. Government-sponsored collateralized mortgage obligations – residential Other debt securities Total available-for-sale securities $ $ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 8,941 $ 29,430 92,891 104,689 8,604 55,800 17,175 317,530 $ — $ 7 63 12 — 8 — 90 $ (533 ) $ (3,745 ) (8,982 ) (15,066 ) (1,809 ) 8,408 25,692 83,972 89,635 6,795 (5,738 ) (2,142 ) (38,015 ) $ 50,070 15,033 279,605 Held-to-maturity June 30, 2023 Obligations of state and political subdivisions Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value $ 6,970 $ — $ (676 ) $ 6,294 Available-for-sale June 30, 2022 Obligation of U.S Treasury Obligations of U.S. government-sponsored entities and agencies Obligations of state and political subdivisions U.S. Government-sponsored mortgage-backed securities - residential U.S. Government-sponsored mortgage-backed securities - commercial U.S. Government-sponsored collateralized mortgage obligations – residential Other debt securities Total available-for-sale securities $ $ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 8,909 $ 28,689 105,977 113,812 8,623 40,952 17,367 324,329 $ — $ — 129 13 — 1 — 143 $ (462 ) $ (2,424 ) (8,749 ) (11,642 ) (1,322 ) 8,447 26,265 97,357 102,183 7,301 (2,774 ) (752 ) (28,125 ) $ 38,179 16,615 296,347 Held-to-maturity June 30, 2022 Obligations of state and political subdivisions Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value $ 7,874 $ 47 $ (90 ) $ 7,831 Proceeds from sales of available-for-sale securities during fiscal year 2023 and fiscal year 2022 were as follows: Proceeds from sales Gross realized gains Gross realized losses 2023 2022 16,472 $ 87 (73 ) 2,722 8 (2 ) $ 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The income tax provision related to the net realized gains amounted to $3 in fiscal year 2023 and $1 in fiscal year 2022. The amortized cost and fair values of debt securities at June 30, 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 and collateralized mortgage obligations are shown separately. Available-for-sale Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total U.S. Government-sponsored mortgage-backed and related securities Total Held-to-maturity Due after one year through five years Due after five years through ten years Due after ten years Total Amortized Cost Fair Value 4,997 $ 29,105 51,133 63,202 148,437 169,093 317,530 $ 4,899 27,640 44,817 55,749 133,105 146,500 279,605 Amortized Cost Fair Value 3,092 $ 533 3,345 6,970 $ 2,988 488 2,818 6,294 $ $ $ $ Securities with a carrying value of approximately $137,896 and $126,679 were pledged at June 30, 2023 and 2022, respectively, to secure public deposits and commitments as required or permitted by law. At June 30, 2023 and 2022, there were no holdings of securities of any one issuer, other than obligations of U.S. government-sponsored entities and agencies, with an aggregate book value greater than 10% of shareholders’ equity. The following table summarizes the securities with unrealized and unrecognized losses at June 30, 2023 and 2022, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position: June 30, 2023 Available-for-sale Obligations of U.S Treasury Obligations of U.S. government- Less than 12 Months Fair Value Unrealized Loss 12 Months or more Fair Value Unrealized Loss Total Fair Value Unrealized Loss $ — $ — $ 8,408 $ (533 ) $ 8,408 $ (533 ) sponsored entities and agencies 1,008 (10 ) 23,551 (3,735 ) 24,559 Obligations of state and political subdivisions Mortgage-backed securities – residential Mortgage-backed securities – commercial Collateralized mortgage obligations - residential Other debt securities Total temporarily impaired June 30, 2023 Held-to-maturity Obligations of state and political (3,745 ) (8,982 ) 16,009 (344 ) 62,492 (8,638 ) 78,501 3,334 (84 ) 85,096 (14,982 ) 88,430 (15,066 ) — — 6,795 (1,809 ) 6,795 (1,809 ) 22,039 — $ 42,390 $ (638 ) — 27,023 15,033 (1,076 ) $ 228,398 $ (5,100 ) (2,142 ) 49,062 15,033 (36,939 ) $ 270,788 $ (5,738 ) (2,142 ) (38,015 ) Less than 12 Months Fair Value Unrecognized Loss 12 Months or more Total Fair Value Unrecognized Loss Fair Value Unrecognized Loss subdivisions $ — $ 6,294 $ (676 ) $ 6,294 $ (676 ) — $ 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2022 Available-for-sale Obligations of U.S Treasury Obligations of U.S. government- sponsored entities and agencies Obligations of state and political subdivisions Mortgage-backed securities – residential Mortgage-backed securities – commercial Collateralized mortgage obligations – Less than 12 Months Fair Value Unrealized Loss 12 Months or more Fair Value Unrealized Loss Total Fair Value Unrealized Loss $ 8,447 $ (462 ) $ — $ — $ 8,447 $ (462 ) 26,265 (2,424 ) — — 26,265 (2,424 ) 80,445 (8,331 ) 2,047 (418 ) 82,492 (8,749 ) 76,526 (7,586 ) 24,569 (4,056 ) 101,095 (11,642 ) 7,301 (1,322 ) — — 7,301 (1,322 ) residential Other debt securities Total temporarily impaired 30,729 16,156 245,869 $ (2,308 ) (711 ) (23,144 ) $ 2,713 459 29,788 $ $ (466 ) (41 ) (4,981 ) $ 33,442 16,615 275,657 $ (2,774 ) (752 ) (28,125 ) June 30, 2022 Held-to-maturity Obligations of state and political Less than 12 Months Fair Value Unrecognized Loss 12 Months or more Total Fair Value Unrecognized Loss Fair Value Unrecognized Loss subdivisions $ 3,522 $ (90 ) $ — $ — $ 3,522 $ (90 ) Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities. In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. As of June 30, 2023, the Corporation’s securities portfolio consisted of 414 available-for-sale and four held-to-maturity securities. There were 400 available-for-sale securities in an unrealized loss position at June 30, 2023, 333 of which were in a continuous loss position for twelve or more months. There were four held-to-maturity securities in an unrealized loss position at June 30, 2023. The unrealized losses within the available-for-sale and held-to-maturity security portfolios in fiscal year 2023 was primarily attributed to a change in rates. 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. Also, management monitors the financial condition of the individual municipal securities to ensure they meet minimum credit standards, all are paying as agreed, and there have been no missed payments. Since the Corporation does not intend to sell these securities and it is not likely the Corporation will be required to sell these securities at an unrealized loss position prior to any anticipated recovery in fair value, which may be maturity, management does not believe there is any OTTI related to these securities at June 30, 2023. Also, there was no OTTI recognized at June 30, 2022. As of June 30, 2023, the Corporation owned equity securities with an amortized cost of $400. The following table presents the net unrealized gains and losses on equity securities recognized in earnings for the twelve months ended June 30, 2023 and 2022. There were no realized gains or losses on the sale of equity securities during the periods presented. Unrealized loss recognized on equity securities held at the end of the period $ (14 ) $ (24 ) 2023 2022 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4—LOANS Major classifications of loans were as follows as of June 30: Commercial Commercial real estate: Construction Other 1 – 4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer Subtotal Net deferred loan fees and costs Allowance for loan losses Net loans 2023 2022 $ 112,558 $ 87,008 23,981 318,636 156,989 23,880 8,443 65,617 710,104 258 (7,724 ) 702,638 $ 15,158 291,847 142,244 26,029 4,317 44,964 611,567 276 (7,160 ) 604,683 $ The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2023: Allowance for loan losses: Beginning balance Provision for loan losses Loans charged-off Recoveries Total ending allowance balance 1-4 Family Commercial Residential Commercial Real Estate Real Estate Consumer Total $ $ 960 $ 348 — — 1,308 $ 3,927 $ 15 — 1 3,943 $ 1,645 $ (72 ) (6 ) 4 1,571 $ 628 $ 564 (441 ) 151 902 $ 7,160 855 (447 ) 156 7,724 The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2022: Allowance for loan losses: Beginning balance Provision for loan losses Loans charged-off Recoveries Total ending allowance balance 1-4 Family Commercial Residential Commercial Real Estate Real Estate Consumer Total $ $ 904 $ 33 — 23 960 $ 3,949 $ (24 ) — 2 3,927 $ 1,307 $ 359 (41 ) 20 1,645 $ 311 $ 367 (132 ) 82 628 $ 6,471 735 (173 ) 127 7,160 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2023. Included in the recorded investment in loans is $1,598 of accrued interest receivable. 1-4 Family Commercial Residential Commercial Real Estate Real Estate Consumer Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment Acquired loans collectively evaluated for impairment $ — $ — $ — $ — $ — 40 74 — — 114 Originated loans collectively evaluated for impairment Total ending allowance balance $ Recorded investment in loans: Loans individually evaluated for 1,308 1,308 $ 3,903 3,943 $ 1,497 1,571 $ 902 902 $ 7,610 7,724 impairment $ 314 $ 88 $ 3 $ — $ 405 Acquired loans collectively evaluated for impairment Originated loans collectively evaluated for impairment Total ending loans balance $ 622 6,953 23,038 1,230 31,843 111,890 112,826 $ 335,660 342,701 $ 167,798 190,839 $ 64,364 65,594 $ 679,712 711,960 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, 2022. Included in the recorded investment in loans is $1,214 of accrued interest receivable. 1-4 Family Commercial Residential Commercial Real Estate Real Estate Consumer Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment Acquired loans collectively evaluated for impairment $ — $ — $ — $ — $ 1 62 85 — — 148 Originated loans collectively evaluated for impairment Total ending allowance balance $ Recorded investment in loans: Loans individually evaluated for 959 960 $ 3,865 3,927 $ 1,560 1,645 $ 628 628 $ 7,012 7,160 impairment $ 276 $ 42 $ 155 $ — $ 473 Acquired loans collectively evaluated for impairment Originated loans collectively evaluated for impairment Total ending loans balance $ 665 10,095 27,731 3,051 41,542 86,310 87,251 $ 296,776 306,913 $ 146,058 173,944 $ 41,898 44,949 $ 571,042 613,057 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2023: Unpaid Principal Balance Allowance for Recorded Investment Allocated Average Loan Losses Recorded Interest Income Investment Recognized Recognized Cash Basis Interest With no related allowance recorded: $ Commercial Commercial real estate: Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Total 404 $ 314 $ — $ 306 $ 37 $ 127 88 — 52 6 24 3 558 $ — 3 405 $ — — — $ 38 29 425 $ 2 — 45 $ $ 37 6 2 — 45 The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2022: Unpaid Principal Balance With no related allowance recorded: Allowance for Average Loan Losses Recorded Recorded Investment Allocated Investment Recognized Recognized Interest Income Cash Basis Interest Commercial Commercial real estate: Other 1-4 Family residential real estate: Owner occupied Non-owner occupied With an allowance recorded: Commercial Total $ 414 $ 276 $ — $ 291 $ — $ 83 42 — 518 193 48 193 — 738 $ 22 133 — 473 $ — — — — $ 187 93 113 1,202 $ 8 75 6 282 $ $ — 193 8 75 6 282 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 June 30, 2023 and 2022: June 30, 2023 June 30, 2022 Loans Past Due Over 90 Days Still Loans Past Due Over 90 Days Still Commercial Commercial real estate: Other 1 – 4 Family residential: Owner occupied Non-owner occupied Consumer Total Non-accrual Accruing $ — $ — $ Non-accrual Accruing 51 — 3 — 54 $ — — — 50 50 $ $ 276 $ — 22 133 — 431 $ 9 — — — — 9 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 30, 2023 by class of loans: 30 – 59 Days Days Past Due 60 - 89 Days 90 Days or Greater Total Past Due Loans Not Past Due Total Commercial Commercial real estate: Construction Other 1-4 Family residential: Owner occupied Non-owner occupied Construction Consumer Total $ — $ — $ — $ — $ 112,826 $ 112,826 — — 17 — — 438 455 $ — — 124 — — 120 244 $ — 51 — 3 — 50 104 $ — 51 23,996 318,654 23,996 318,705 141 3 — 608 803 $ 158,296 23,885 8,514 64,986 711,157 $ 158,437 23,888 8,514 65,594 711,960 $ The above table of past due loans includes the recorded investment in non-accrual loans of $54 in the 90 days or greater category. The following table presents the aging of the recorded investment in past due loans as of June 30, 2022 by class of loans: 30 – 59 Days Days Past Due 60 - 89 Days 90 Days or Greater Total Past Due Loans Not Past Due Total Commercial Commercial real estate: Construction Other 1-4 Family residential: Owner occupied Non-owner occupied Construction Consumer Total $ — $ — $ — 52 125 — — 381 558 $ — — — — — 79 79 $ $ 9 $ — — — 27 — — 36 $ 9 $ 87,242 $ 87,251 — 52 15,138 291,723 15,138 291,775 125 27 — 460 673 $ 143,381 26,036 4,375 44,489 612,384 $ 143,506 26,063 4,375 44,949 613,057 The above table of past due loans includes the recorded investment in non-accrual loans of $27 in the 90 days or greater category and $404 in the loans not past due category. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Troubled Debt Restructurings (TDR): The Corporation has certain loans that have been modified in order to maximize collection of loan balances that are classified as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered. The Corporation had $351 and $318 of loans classified as TDRs as of June 30, 2023 and 2022, respectively. There were no specific reserves allocated to these loans and TDRs are also included as impaired loans that are listed above. For the years ended June 30, 2023 and 2022, there were no loans modified that were classified as a troubled debt restructuring. There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the twelve-month periods ended June 30, 2023 and 2022. A loan is considered in payment default once it is 90 days contractually past due under the modified terms. Credit Quality Indicators: The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed monthly. 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, based on currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which was discussed previously. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of June 30, 2023, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows: Pass Special Mention Substandard Doubtful Commercial Commercial real estate: Construction Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer Total $ 110,928 $ 1,174 $ 573 $ 23,996 310,427 2,013 23,474 3,227 597 474,662 $ — 7,097 — 50 — — 8,321 $ — 468 17 105 — — 1,163 $ $ — $ — 51 — 3 — — 54 $ Not Rated 151 — 662 156,407 256 5,287 64,997 227,760 As of June 30, 2022, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows: Commercial Commercial real estate: Construction Other 1-4 Family residential real estate: Owner occupied Non-owner occupied Construction Consumer Total Pass Special Mention Substandard Doubtful $ 86,265 $ 350 $ 178 $ 276 $ 15,138 283,877 1,321 25,606 1,234 605 414,046 $ — 2,500 — 59 — — 2,909 $ — 4,711 — — — — 4,889 $ $ — — 22 133 — — 431 $ Not Rated 182 — 687 142,163 265 3,141 44,344 190,782 NOTE 5—PREMISES AND EQUIPMENT Major classifications of premises and equipment were as follows as of June 30: Land Land improvements Building and leasehold improvements Furniture, fixture and equipment Total premises and equipment Accumulated depreciation and amortization Premises and equipment, net 2023 2022 2,417 $ 414 15,973 7,600 26,404 (9,222 ) 17,182 $ 1,685 318 15,608 7,206 24,816 (8,296 ) 16,521 $ $ Depreciation expenses were $1,051 and $991 for the years ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the Corporation leased real estate for seven office locations and various equipment under operating lease agreements. The lease agreements have maturity dates ranging from one year or less to May 31, 2035, including extension periods. Lease agreements for two locations have a lease term of 12 months or less and are therefore considered short-term leases. Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. The majority of renewals to extend the lease terms are included in our right-of-use assets and lease liabilities as they are reasonably certain of exercise. As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments. The weighted average remaining life of the lease term for the leases with a term over 12 months was 7.87 years as of June 30, 2023 and the weighted-average discount rate was 1.95%. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Rent expense for all the operating leases was $254 and $228 for the twelve-month periods ended June 30, 2023 and 2022, respectively. The right-of-use asset, included in premises and equipment, and the lease liability, included in other liabilities, were $921 and $951 as of June 30, 2023. Total estimated rental commitments for the operating leases with a term over 12 months were as follows as of June 30, 2023: Period Ending June 30 2024 2025 2026 2027 2028 Thereafter Total undiscounted cash flows Less: present value discount Total lease liabilities $ 177 145 125 115 115 342 $ 1,019 (68 ) $ 951 $ NOTE 6 – GOODWILL AND ACQUIRED INTANGIBLE ASSETS The change in goodwill was as follows: Beginning of year Acquired goodwill Ending balance as of June 30, 2023 2022 $ $ 2,452 $ — 2,452 $ 836 1,616 2,452 The following table summarizes the Corporation’s acquired intangible assets as of June 30, 2023 and 2022. June 30, 2023 June 30, 2022 Core deposit intangible Gross Carrying Amount 565 $ Accumulated Amortization 151 Gross Carrying Amount 565 $ $ Accumulated Amortization 95 $ Goodwill and the core deposit intangible assets resulted from the acquisition of Peoples Bancorp of Mt. Pleasant, Inc. that was completed on January 1, 2020, and the branch acquisition that was completed on July 16, 2021. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset might be impaired. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. For the goodwill impairment analysis, the Corporation is the only reporting unit. Management performed a quantitative impairment assessment at April 30, 2023. The assessment estimated fair value on an income approach that incorporated a discounted cash flow model that involved management assumptions based upon future growth and earnings projections. The results of the assessment indicated no impairment as of the measurement date. Goodwill is the only intangible asset on the Corporation’s balance sheet with an indefinite life. Management will continue to monitor its goodwill for possible impairment. The core deposit intangible asset is amortized on a straight-line basis over ten years. The Corporation recorded intangible amortization expense of $56 in 2023 and $54 in 2022. The intangible amortization expense is expected to be $57 per year for each of the next four fiscal years and $186 thereafter. NOTE 7—DEPOSITS Interest-bearing deposits as of June 30, 2023 and 2022 were as follows: Demand Savings and money market Time: $250 and over Other Total 2023 2022 152,053 $ 335,231 46,822 167,521 701,627 $ 157,462 369,054 18,164 84,217 628,897 $ $ 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Scheduled maturities of time deposits at June 30, 2023 were as follows: Twelve Months Ending June 30 2024 2025 2026 2027 2028 Thereafter NOTE 8—SHORT-TERM BORROWINGS $ $ 193,381 16,089 2,890 1,373 434 176 214,343 Short-term borrowings consisted of federal funds purchased, repurchase agreements, and a line of credit for the Corporation. Information concerning all short-term borrowings at June 30, 2023 and 2022, maturing in less than one year is summarized as follows: Balance at June 30 Average balance during the year Maximum month-end balance Average interest rate during the year Weighted average rate, June 30 $ 2023 2022 26,367 $ 22,603 26,367 1.76 % 2.20 % 21,295 12,960 21,878 0.36 % 0.61 % In fiscal year 2022, the Corporation obtained an unsecured $5,000 line of credit to provide capital support to the Bank and for other general corporate purposes. The outstanding balance on the line of credit was $1,200 and $1,270 as of June 30, 2023 and 2022, respectively. Repurchase agreements are financing arrangements that mature daily and are used to facilitate the needs of our customers. Physical control of all the securities is maintained for all securities pledged to secure repurchase agreements. Available- for-sale securities pledged for repurchase agreements as of June 30, 2023 and 2022 are presented in the following table: U.S. government-sponsored entities and agencies pledged Residential mortgage-backed securities pledged Commercial mortgage-backed securities Total pledged Repurchase agreements $ $ $ 3,730 $ 19,648 3,641 27,019 $ 23,783 $ 3,331 11,954 6,682 21,967 20,025 Overnight and Continuous 2023 2022 Total interest expense on short-term borrowings was $397 and $47 for the years ended June 30, 2023 and 2022, respectively. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9—FEDERAL HOME LOAN BANK ADVANCES A summary of Federal Home Loan Bank (FHLB) advances were as follows: Stated Interest Rate Range Advance Type From To Amount Weighted Average Rate Amount Weighted Average Rate June 30, 2023 June 30, 2022 Fixed rate, amortizing Fixed rate Variable rate 1.37 % 0.90 5.19 1.37 % $ 1.18 5.19 176 8,000 600 1.37 % $ 1.04 5.19 256 8,000 — 1.37 % 1.04 — Each fixed rate advance has a prepayment penalty equal to the present value of 100% of the lost cash flow based upon the difference between the contract rate on the advance and the current rate on a comparable new advance. The following table is a summary of the scheduled principal payments for all advances as of June 30, 2023: Twelve Months Ending June 30 2024 2025 2026 2027 2028 Thereafter Total Principal Payments 671 4,056 46 3 — 4,000 8,776 $ $ Pursuant to collateral agreements with the FHLB, advances are secured by all the stock invested in the FHLB and certain qualifying first mortgage and multi-family loans. The advances were collateralized by $169,993 and $152,868 of first mortgage and multi-family loans under a blanket lien arrangement at June 30, 2023 and 2022, respectively. Based on this collateral, the Bank was eligible to borrow up to a total of $109,442 in additional advances at June 30, 2023. NOTE 10—EMPLOYEE BENEFIT PLANS The Bank maintains a 401(k) savings and retirement plan that permits eligible employees to make before- or after-tax contributions to the plan, subject to the dollar limits from Internal Revenue Service regulations. The Bank matches 100% of the employee’s voluntary contributions to the plan based on the amount of each participant’s contributions up to a maximum of 4% of eligible compensation. All regular full-time and part-time employees who complete six months of service and are at least 21 years of age are eligible to participate. Amounts charged to operations were $390 and $364 for the years ended June 30, 2023 and 2022, respectively. The Bank maintains a nonqualified Salary Continuation Plan (SCP) to reward and encourage certain Bank executives to remain employees of the Bank. The SCP is considered an unfunded plan for tax and Employee Retirement Income Security Act (ERISA) purposes and all obligations arising under the SCP are payable from the general assets of the Corporation. The estimated present value of future benefits to be paid to certain current and former executives totaled $3,687 as of June 30, 2023 and $3,564 as of June 30, 2022 and is included in other liabilities. For purposes of calculating the present value of future benefits, a discount rate of 5.75% was used to project the liability through June 30, 2023 and 3.0% was used at June 30, 2022. For the years ended June 30, 2023 and 2022, $256 and $534, respectively, have been charged to expense in connection with the SCP. Distributions to participants were $133 for the fiscal year ended June 30, 2023 and $110 for the fiscal year ended June 30, 2022. The Amended and Restated 2010 Omnibus Incentive Plan (2010 Plan) is a nonqualified share-based compensation plan. The 2010 Plan was established to promote alignment between key employees’ performance and the Corporation’s shareholder interests by motivating performance through the award of stock-based compensation. The purpose of the 2010 Plan was to attract, retain, and motivate talented employees and compensate outside directors for their service to the Corporation. The 2010 Plan was approved by the Corporation’s shareholders. The Compensation Committee of the Corporation’s Board of Directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award contract. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the 2010 Plan, the Corporation could grant, among other things, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, or any combination thereof to any employee and outside director. Each award was evidenced by an award agreement that specifies the number of shares awarded, the vesting period, the performance requirements, and such other provisions as the Compensation Committee determines. Upon a change-in-control of the Corporation, as defined in the 2010 Plan, all outstanding awards immediately vest. The Corporation has granted restricted stock awards and restricted stock units to certain employees and directors. Restricted stock units and awards are issued at no cost to the recipient and can be settled in shares or cash at the end of the vesting period depending on the type of award. Restricted stock awards are made at the end of the measurement period once certain specified performance targets as established by the Compensation Committee are achieved with some awards fully vesting on the date of grant and others vesting 25% on the grant date, with the remaining vesting 25% per year over a three-year period. Restricted stock awards provide the holder with dividends during the vesting period. Cash dividends are reinvested into shares of stock and are subject to the same restrictions and vesting as the initial award. Restricted stock units begin to vest at the end of the measurement period once certain specified performance targets as established by the Compensation Committee are achieved. Some units, primarily the awards made to directors and senior management, are 100% vested at the end of the measurement period. For other unit awards, primarily the awards made to executive management, 25% vest at the end of the performance period, with the remaining vesting 25% per year over a three-year period. The fair value of the restricted stock units and awards, which is used to measure compensation expense, is the closing market price of the Corporation’s common stock on the date of the grant and compensation expense is recognized over the vesting period. All dividends are forfeitable in the event the shares do not vest. The following table summarizes the status of the restricted stock awards and restricted stock units: Outstanding at June 30, 2022 Granted Vested Non-vested at June 30, 2023 Weighted- Average Grant Date Fair Value Per Share Weighted- Average Grant Date Fair Value Per Share Restricted Stock Units Restricted Stock Awards 17,069 $ 26,743 (20,768 ) 23,044 $ 19.95 18.74 18.93 19.46 — $ 17,578 (8,500 ) 9,078 $ — 18.74 18.74 18.74 There was $579 in expense recognized in fiscal year 2023 and $361 in expense recognized in fiscal year 2022 in connection with the restricted stock units and awards. As of June 30, 2023, there was $473 of total unrecognized compensation expense related to non-vested shares and a weighted-average expense recognition period of 1.7 years. NOTE 11—INCOME TAXES The provision for income taxes consisted of the following for the years ended June 30, calculated utilizing a statutory federal income tax rate of 21.0%: Current income taxes Deferred income tax expense (benefit) Total income tax expense 2023 2022 $ $ 2,344 $ (96 ) 2,248 $ 2,193 146 2,339 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The net deferred income tax asset (liability) consisted of the following components at June 30: Deferred tax assets: Allowance for loan losses Deferred compensation Deferred income Non-accrual loan interest income Net unrealized securities loss Other Gross deferred tax asset Deferred tax liabilities: Depreciation Loan fees FHLB stock dividends Prepaid expenses Intangible assets Gross deferred tax liabilities Net deferred asset 2023 2022 $ $ 1,622 $ 986 31 20 7,964 3 10,626 (783 ) (640 ) (102 ) (150 ) (199 ) (1,874 ) 8,752 $ 1,504 999 18 29 5,876 6 8,432 (821 ) (582 ) (102 ) (150 ) (209 ) (1,864 ) 6,568 The difference between the provision for income taxes and amounts computed by applying the statutory income tax rate of 21.0% to income before taxes consisted of the following for the years ended June 30: Income taxes computed at the statutory rate on pretax income Tax exempt income Cash surrender value income Tax credit Other non-deductible expenses Total income tax expense $ $ 2,714 $ (400 ) (55 ) (17 ) 6 2,248 $ 2,842 (431 ) (54 ) (22 ) 4 2,339 2023 2022 The effective tax rate was 17.4% for the year ended June 30, 2023 compared to 17.3% for the year ended June 30, 2022. At June 30, 2023 and June 30, 2022, the Corporation had no unrecognized tax benefits recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. There were no interest or penalties recorded for the years ended June 30, 2023 and 2022 and there were no amounts accrued for interest and penalties at June 30, 2023 and 2022. The Corporation and the Bank are subject to U.S. federal income tax as an income-based tax and a capital-based financial institutions tax in the State of Ohio. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before 2019. NOTE 12—RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank has granted loans to certain executive officers, directors, and their affiliates. A summary of activity during the year ended June 30, 2023 of related party loans were as follows: Principal balance, July 1 New loans, net of refinancing Repayments Principal balance, June 30 $ $ 2,546 210 (99 ) 2,657 Deposits from executive officers, directors and their affiliates totaled $6,100 at June 30, 2023 and $6,781 at June 30, 2022. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13—REGULATORY MATTERS Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking 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. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. As of fiscal year-end 2023 and 2022, the Corporation met the definition of a Small Bank Holding Company and, therefore, was exempt from maintaining consolidated regulatory capital ratios. Instead, regulatory capital ratios only apply at the subsidiary bank level. The Basel III Capital Rules include a capital conservation buffer of 2.5% that is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of June 30, 2023, the Bank met all capital adequacy requirements to which it was subject. The following table presents actual and required capital ratios as of June 30, 2023 and June 30, 2022 for the Bank: Actual Minimum Capital Required – Basel III (1) Minimum Required To Be Considered Well Capitalized Amount Ratio Amount Ratio Amount Ratio June 30, 2023 Common equity Tier 1 to risk-weighted assets $ 83.5 83.5 Tier 1 capital to risk weighted assets 91.2 Total capital to risk weighted assets 83.5 Tier 1 capital to average assets 11.05 % $ 11.05 12.07 7.72 34.0 45.4 60.5 43.3 4.50 % $ 6.00 8.00 4.00 49.1 60.5 75.6 54.1 6.50 % 8.00 10.00 5.00 Actual Minimum Capital Required - Basel III (1) Minimum Required To Be Considered Well Capitalized Amount Ratio Amount Ratio Amount Ratio June 30, 2022 Common equity Tier 1 to risk-weighted assets $ Tier 1 capital to risk weighted assets Total capital to risk weighted assets Tier 1 capital to average assets 74.1 74.1 81.3 74.1 11.39 % $ 11.39 12.49 7.39 29.3 39.0 52.1 40.1 4.50 % $ 6.00 8.00 4.00 42.3 52.1 65.1 50.1 6.50 % 8.00 10.00 5.00 (1) These amounts exclude the capital conservation buffer. As of the latest regulatory examination, the Bank was categorized as well capitalized. There are no conditions or events since that examination that management believes may have changed the Bank’s category. The Corporation’s principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. As of June 30, 2023 the Bank could, without prior approval, declare a dividend of approximately $21,811. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14—COMMITMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to commitments to extend credit in the normal course of business to meet the financing needs of its customers. Commitments are agreements to lend to customers providing that there are no violations of any condition established in the contract. Commitments to extend credit have a fixed expiration date or other termination clause. These instruments involve elements of credit and interest rate risk more than the amount recognized in the statements of financial position. The Bank uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments. The Bank evaluates each customer’s credit on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. The amount of commitments to extend credit and the exposure to credit loss for non-performance by the customer (before considering collateral) was $142,767 and $148,390 as of June 30, 2023 and 2022, respectively. As of June 30, 2023, $126,698 of the commitments carried variable rates and $16,069 carried fixed rates with interest rates ranging from 3.05% to 11.00% with maturity dates from July 2023 to August 2060. As of June 30, 2022, $119,637 of the commitments carried variable rates and $28,753 carried fixed rates with interest rates ranging from 2.62% to 8.25% with maturity dates from July 2022 to December 2053. Financial standby letters of credit were $1,178 and $1,110 as of June 30, 2023 and 2022, respectively. In addition, commitments to extend credit of $11,834 and $11,621 as of June 30, 2023 and 2022, respectively, were available to checking account customers related to the overdraft protection program. Since some loan commitments expire without being used, the amount does not necessarily represent future cash commitments. NOTE 15—FAIR VALUE Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Financial assets and financial liabilities measured at fair value on a recurring basis include the following: Securities available-for-sale and equity securities: When available, the fair values of available-for-sale and equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs). Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Fair Value Measurements at June 30, 2023 Using Balance at Assets: Obligations of U.S. treasury Obligations of U.S. government-sponsored entities and agencies Obligations of states and political subdivisions U.S. government-sponsored mortgage-backed securities - residential U.S. government-sponsored mortgage-backed securities - commercial U.S. government-sponsored collateralized mortgage obligations Other debt securities Equity securities June 30, 2023 Level 1 Level 2 8,408 $ 25,692 83,972 89,635 6,795 50,070 15,033 386 8,408 25,692 83,972 89,635 6,795 50,070 15,033 386 — — — — — — — $ Level 3 — — — — — — — 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Balance at Assets: Obligations of U.S. treasury Obligations of U.S. government-sponsored entities and agencies Obligations of states and political subdivisions U.S. government-sponsored mortgage-backed securities - residential U.S. government-sponsored mortgage-backed securities – commercial U.S. government-sponsored collateralized mortgage obligations Other debt securities Equity securities 8,447 26,265 97,357 102,183 7,301 38,179 16,615 400 Level 2 8,447 26,265 97,357 102,183 7,301 38,179 16,615 400 Level 3 — — — — — — — — — — — — — June 30, 2022 Level 1 $ — $ There were no transfers between Level 1 and Level 2 during the 2023 or the 2022 fiscal year. Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets and liabilities measured at fair value on a non-recurring basis include the following: Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned or other repossessed assets being carried at fair value as of June 30, 2023 or June 30, 2022. As of June 30, 2023, the balance of other real estate owned was $124. There were no assets measured at fair value on a non-recurring basis at June 30, 2023 or 2022 and there was no impact to the provision for loan losses for the twelve months ended June 30, 2023 or 2022. The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Financial Assets: Level 1 inputs: Cash and cash equivalents Level 2 inputs: 2023 2022 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value $ 11,755 $ 11,755 $ 20,952 $ 20,952 Certificates of deposit in other financial institutions Loans held for sale Accrued interest receivable 2,501 764 3,024 2,450 774 3,024 3,781 1,165 2,703 3,847 1,188 2,703 Level 3 inputs: Securities held-to-maturity Loans, net Financial Liabilities: Level 2 inputs: Demand and savings deposits Time deposits Short-term borrowings Federal Home Loan Bank advances Accrued interest payable 6,970 702,638 6,294 656,737 7,874 604,683 7,831 577,708 738,190 214,343 26,367 8,776 344 54 738,190 211,856 26,367 7,678 344 784,181 102,381 21,295 8,256 49 784,181 102,622 21,295 7,215 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The assumptions used to estimate fair value are described as follows: Cash and cash equivalents: The carrying value of cash and deposits in other financial institutions were considered to approximate fair value resulting in a Level 1 classification. Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification. Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification. Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level 3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated 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 June 30, 2023 and 2022 for deposits of similar remaining maturities, resulting in 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 June 30, 2023 and 2022 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 16—AFFORDABLE TAX CREDIT PARTNERSHIP In April 2023, the Corporation invested in a limited partnership that will in turn invest in qualified affordable housing projects that will generate tax benefits for the limited partner investors, including federal low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code. This partnership investment is an unconsolidated Variable Interest Entity (VIE) for which the Corporation holds an interest in but is not the primary beneficiary of the VIE. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity. The Corporation uses the proportional amortization method to account for its investment. The investment is included in other assets and the unfunded commitment is included in other liabilities. As of June 30, 2023, the balance of the affordable housing tax credit investment was $10,250 and the balance of the associated unfunded commitment was $9,668. As a limited partner, there is no recourse to the Corporation by the creditors of the limited partnership, however, the tax credits are generally subject to recapture should the partnership fail to comply with the applicable government regulations. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17—PARENT COMPANY FINANCIAL STATEMENTS The condensed financial information of Consumers Bancorp. Inc. (parent company only) follows: Condensed Balance Sheets Assets: Cash Equity securities, at fair value Other assets Investment in subsidiary Total assets Liabilities and Shareholders’ Equity: Short-term borrowings Other liabilities Shareholders’ equity Total liabilities & shareholders’ equity Condensed Statements of Income and Comprehensive Income Cash dividends from Bank subsidiary Dividend income Net change in market value of equity securities Other income Interest expense Other expense Income (loss) before income taxes and equity in undistributed net income of subsidiary Income tax benefit Income (loss) before equity in undistributed net income of Bank subsidiary Equity in undistributed net income of subsidiary Net income Comprehensive income (loss) Condensed Statements of Cash Flows Cash flows from operating activities: Net income Equity in undistributed net income of Bank subsidiary Net change in market value of equity securities Change in other assets and liabilities Net cash flows from operating activities Cash flows from investing activities: Disposal of premises and equipment Net cash flows from investing activities Cash flows from financing activities: Dividend paid Restricted stock units Net change in short-term borrowings Proceeds from dividend reinvestment and stock purchase plan Issuance of treasury stock for stock awards Net cash flows from financing activities Change in cash and cash equivalents Beginning cash and cash equivalents Ending cash and cash equivalents 56 June 30, 2023 June 30, 2022 $ $ $ $ 26 386 22 56,328 56,762 1,200 78 55,484 56,762 $ $ $ $ 76 400 17 54,823 55,316 1,270 76 53,970 55,316 Year Ended June 30, 2023 1,575 $ 33 (14 ) 14 (75 ) (295 ) Year Ended June 30, 2022 195 $ 33 (24 ) 2 (31 ) (258 ) 1,238 (76 ) 1,314 9,360 10,674 2,819 $ $ (83 ) (63 ) (20 ) 11,212 11,192 (14,464 ) $ $ Year Ended June 30, 2023 Year Ended June 30, 2022 $ $ 10,674 $ (9,360 ) 14 (3 ) 1,325 — — (2,095 ) 159 (70 ) 238 393 (1,375 ) (50 ) 76 26 $ 11,192 (11,212 ) 24 24 28 18 18 (1,949 ) — 1,270 174 309 (196 ) (150 ) 226 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18—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 and restricted stock units. There were 14,800 shares of restricted stock and 9,078 restricted stock units that were anti-dilutive for the year ending June 30, 2023. There were 7,911 shares of restricted stock that were anti-dilutive for the year ending June 30, 2022. The following table details the calculation of basic and diluted earnings per share: Basic: Net income available to common shareholders Weighted average common shares outstanding Basic income per share For the year Ended June 30, 2023 2022 $ $ 10,674 $ 3,090,187 3.45 $ 11,192 3,039,607 3.68 Diluted: Net income available to common shareholders Weighted average common shares outstanding Dilutive effect of restricted stock Total common shares and dilutive potential common shares $ 10,674 $ 3,090,187 — 3,090,187 Dilutive income per share $ 3.45 $ 11,192 3,039,607 246 3,039,853 3.68 NOTE 19–ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income related to unrealized gains (losses) on available-for-sale securities for the periods ended June 30, 2023 and June 30, 2022, were as follows: Pretax Tax Effect After-tax $ 4,493 $ (943 ) $ 3,550 (32,469 ) 6,818 (25,651 ) Affected Line Item in Consolidated Statements of Income (6 ) (32,475 ) (27,982 ) $ 1 6,819 5,876 $ (5 ) (a)(b) (25,656 ) (22,106 ) (9,929 ) $ 2,085 $ (7,844 ) (14 ) (9,943 ) (37,925 ) $ 3 2,088 7,964 $ (11 ) (7,855 ) (29,961 ) (a)(b) $ $ $ Balance as of June 30, 2021 Unrealized holding loss on available-for-sale securities arising during the period Amounts reclassified from accumulated other comprehensive income Net current period other comprehensive loss Balance as of June 30, 2022 Unrealized holding loss on available-for-sale securities arising during the period Amounts reclassified from accumulated other comprehensive income Net current period other comprehensive loss Balance as of June 30, 2023 (a) Securities gain, net (b) Income tax expense 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – REVENUE RECOGNITION The Corporation accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. 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 ASC 606. For the revenue streams in the scope of ASC 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All 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 are processed through noninterest income. Other income: Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. The following table presents the Corporation's sources of noninterest income for the years ended June 30, 2023 and 2022. Noninterest income In scope of Topic 606: Service charges on deposit accounts Debit card interchange income Other income Noninterest income (in scope of Topic 606) Noninterest income (out-of-scope of Topic 606) For the year Ended June 30, 2023 2022 $ 1,598 $ 2,181 360 4,139 608 1,460 2,069 335 3,864 871 Total noninterest income $ 4,747 $ 4,735 58 Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A—Controls and Procedures Evaluation of Disclosure Controls and Procedures With the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Corporation’s disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective. Management’s Report on Internal Control Over Financial Reporting The management of Consumers Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by the board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023 based on the criteria for effective internal control over financial reporting established in “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in 2013. Based on that assessment, we have concluded that, as of June 30, 2023, our internal control over financial reporting is effective based on those criteria. This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to rules of the SEC that permit the Corporation to provide only management’s report in this annual report. Changes In Internal Control Over Financial Reporting There were no changes in the Corporation’s internal controls over financial reporting that occurred during the fourth quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting. Item 9B—Other Information None. Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 59 Item 10— Directors, Executive Officers and Corporate Governance PART III The information required by this item is set forth in the Corporation’s Proxy Statement dated September 7, 2023, under the captions “Election of Directors,” “Directors and Executive Officers,” “The Board of Directors and its Committees,” “Delinquent Section 16(a) Reports,” and “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference. The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the Investor Relations section under Governance Documents of the Corporation’s website (www.consumers.bank). Copies of either of the Code of Ethics Policies are also available in print to shareholders upon request, addressed to the Corporate Secretary at Consumers Bancorp, Inc., 614 East Lincoln Way, Minerva, Ohio 44657. The Corporation intends to post amendments to or waivers from either of its Code of Ethics Policies on its website. Item 11—Executive Compensation The information required by this item is set forth in the Corporation’s Proxy Statement dated September 7, 2023 under the captions “Director Compensation,” “Executive Compensation,” “Defined Contribution Plan,” “Outstanding Equity Awards at Fiscal Year-End,” and “Salary Continuation Program,” and is incorporated herein by reference. Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity Compensation Plan Information The following table sets forth information about common stock authorized for issuance, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders, as of June 30, 2023. Additional information regarding stock-based compensation plans is presented in Note 10 - Employee Benefit Plans to the Consolidated Financial Statements located elsewhere in this report. Number of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants and rights — — — — — — Number of securities remaining available for future issuance under equity compensation plans (excluding securities issuable under outstanding options, warrants and rights) 199,560 — 199,560 Plan Category Plans approved by shareholders Plans not approved by shareholders Total The remaining information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Security Ownership of Certain Beneficial Owners,” and is incorporated herein by reference. Item 13—Certain Relationships and Related Transactions, and Director Independence The information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference. Item 14— Principal Accounting Fees and Services Our independent registered public accounting firm is Plante & Moran, PLLC, Auburn Hills, MI (PCAOB ID: 00166). The information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Principal Accounting Fees and Services,” and is incorporated herein by reference. 60 Item 15— Exhibit and Financial Statement Schedules (a) The following documents are filed as part of this report: PART IV (1) The report of independent registered accounting firm and the consolidated financial statements appearing in Item 8. (2) Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements. (3) The exhibits required by this item are listed in the Exhibit Index of this Form 10-K. (b) The exhibits to this Form 10-K begin on page 62 of this report. (c) See Item 15(a)(2) above. Item 16—Form 10-K Summary Not applicable. 61 EXHIBIT INDEX Number Description of Document 2.1 Agreement and Plan of Merger by and among Consumers Bancorp, Inc., Consumers National Bank, Peoples Bancorp of Mt. Pleasant, Inc., and The Peoples National Bank of Mount Pleasant, dated June 14, 2019. Reference is made to the Registration Statement on S-4 (File No. 333-233306) filed on August 15, 2019. 3.1 Amended and Restated Articles of Incorporation of the Corporation. Reference is made to Form 10-Q (File No. 033- 79130) of the Corporation filed November 8, 2019, which is incorporated herein by reference. 3.2 Amended and Restated Code of Regulations of the Corporation. Reference is made to Form 10-K (File No. 033-79130) of the Corporation filed September 15, 2008, which is incorporated herein by reference. 4 Form of Certificate of Common Shares. Reference is made to Form 10-KSB (File No. 033-79130) of the Corporation filed September 30, 2002, which is incorporated herein by reference. 4.1 Description of Securities of Consumers Bancorp, Inc. Reference is made to Form 10-K of the Corporation filed September 23, 2020, which is incorporated herein by reference. 10.3 Lease Agreement entered into between Furey Holdings, LLC and Consumers National Bank on December 23, 2005. Reference is made to Form 10-Q (File No. 033-79130) of the Corporation filed February 14, 2006, which is incorporated herein by reference. 10.8 Consumers Bancorp 2010 Omnibus Incentive Plan Form of Restricted Stock Award Agreement. Reference is made to Form 8-K (File No. 033-79130) of the Corporation filed September 16, 2011, which is incorporated herein by reference. 10.10 10.11 First Amendment dated June 13, 2018, to Lease Agreement entered into between Furey Holdings, LLC and Consumers National Bank on December 23, 2005. Reference is made to Form 8-K (File No. 033-79130) of the Corporation filed June 15, 2018, which is incorporated herein by reference. Form of Salary Continuation Agreement. Reference is made to Form 8-K (File No. 033-79130) of the Corporation filed December 29, 2020, which is incorporated herein by reference. 10.12 Branch Purchase and Assumption Agreement entered into with CFBank National Association on December 29, 2020. Reference is made to Form 10-Q (File No. 033-79130) of the Corporation filed February 12, 2021, which is incorporated herein by reference. 10.13 Consumers Bancorp Amended and Restated 2010 Omnibus Incentive Plan. Reference is made to the Definitive Proxy Statement for the 2022 Annual Meeting of Shareholders (File No. 033-79130) of the Corporation filed September 15, 2022, which is incorporated herein by reference. 19 21 23 Consumers Bancorp, Inc. Insider Trading and Section 16 Reporting Policy Subsidiaries of Consumers Bancorp, Inc. Filed with this Annual Report on Form 10-K. Consent of Plante & Moran, PLLC 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) (1) 101.SCH Inline XBRL Taxonomy Extension Schema Document (1) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) 101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document (1) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (1) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) (1) These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. 62 Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES Date: September 7, 2023 CONSUMERS BANCORP, INC. By: By: /s/ Ralph J. Lober, II President and Chief Executive Officer (principal executive officer) /s/ Renee K. Wood Chief Financial Officer and Treasurer (principal financial officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 7, 2023. Signatures Signatures /s/ Laurie L. McClellan Laurie L. McClellan Chairman of the Board of Directors /s/ Ralph J. Lober, II Ralph J. Lober, II President, Chief Executive Officer and Director (principal executive officer) /s/ Renee K. Wood Renee K. Wood Chief Financial Officer and Treasurer (principal financial officer) /s/ Ann Gano Ann Gano Director /s/ Richard T. Kiko, Jr. Richard T. Kiko, Jr. Director /s/ Frank L. Paden Frank L. Paden Director /s/ Harry W. Schmuck, Jr. Harry W. Schmuck, Jr. Director /s/ John P. Furey John P. Furey Director /s/ Bradley Goris Bradley Goris Director /s/ Shawna L’Italien Shawna L’Italien Director /s/ John W. Parkinson John W. Parkinson Director /s/ Michael A. Wheeler Michael A. Wheeler Director 63 General Information Independent Registered Public Accounting Firm Plante & Moran, PLLC 2601 Cambridge Court, Ste. 500 Auburn Hills, Michigan 48236 Dividend Payments Subject to the approval of the Board of Directors, quarterly cash dividends are typically paid on or about the 15th day of September, December, March, and June. Direct Deposit of Cash Dividends Shareholders may elect to have their cash dividends deposited directly into their savings or checking account. Shareholders should contact Computershare Shareholder Services at www-us.computershare.com or (800) 368-5948 or a participating broker. Shareholder Relations shareholderrelations@consumers.bank Website www.consumersbancorp.com Annual Meeting The 2023 Annual Meeting of shareholders will be held at 10:00 a.m. on Thursday, October 19, 2023. This year’s Annual Meeting will be a virtual meeting of Stockholders conducted solely online via live webcast. Shareholders will be able to attend and participate in the Annual Meeting online, vote your shares electronically and submit questions prior to and during the meeting. Website and password information for joining the meeting online are provided in the accompanying proxy statement. Annual Report on Form 10-K A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the Securities and Exchange Commission, will be furnished without charge to shareholders upon written request to Renee Wood, Corporate Secretary, at 614 East Lincoln Way, P.O. Box 256, Minerva, Ohio 44657. An electronic version is also available on our website at www.consumersbancorp.com. Directors Emeriti James V. Hanna James R. Kiko, Sr Thomas M. Kishman John E. Tonti Legal Counsel Squire Patton Boggs (US) LLP 1000 Key Tower 127 Public Square Cleveland, Ohio 44114 (216) 479-8500 Stock Transfer Agent and Registrar Computershare Shareholder Services PO Box 505005 Louisville, KY 40233-5005 (800) 522-6645 Market Makers D.A. Davidson & Co. Thomas L. Dooley Nick Bicking Powell: (614) 710-7061 (800) 394-9230 Raymond James Financial, Inc. The Wealth Advisory Group of DiLauro Wracher & Thomas Akron: (330) 564-1700 Boardman: (330) 965-0980 Common Stock Listing Consumers Bancorp, Inc. common stock trades on the OTCQX Bulletin Board under the symbol CBKM. The CUSIP is 210509105. As of June 30, 2023, there were 3,096,100 shares outstanding with 730 shareholders of record and an estimated 816 additional beneficial holders whose stock was held in nominee name. Dividend Reinvestment and Stock Purchase Plan Existing holders of common stock may elect to have all or a portion of cash dividends automatically invested in additional shares of common stock without payment of any brokerage or service charge. Additionally, shareholders may elect to purchase shares of common stock with optional cash payments of $100 to $5,000 per quarter without payment of any brokerage commission or service charge. Shareholders should contact Computershare to execute these convenient options at www-us.computershare.com or (800) 368-5948 or a participating broker. Branch Locations Adena 9 E. Main St. Alliance 610 W. State St. Bergholz 256 Second St. Brewster 210 Wabash Ave. S. Calcutta 49028 Foulks Dr. Hartville 1215 W. Maple St. Jackson-Belden 4026 Dressler Rd. NW Lisbon 7985 Dickey Dr. Louisville 1111 N. Chapel St. Malvern 4070 Alliance Rd. NW Carrollton 1017 Canton Rd. NW Minerva 614 E. Lincoln Way Dillonvale 44 Smithfield St. East Canton 440 W. Noble St. Mount Pleasant 298 Union St. Salem 141 S. Ellsworth Ave. Fairlawn 3680 Embassy Pkwy. Waynesburg 8607 Waynesburg Dr. SE Green 4086 Massillon Rd. Hanoverton 30034 Canal St. Wellsville 200 Lisbon St. Boardman Loan Center 725 Boardman Canfield Rd. www.Consumers.Bank | 330-868-7701
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