U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 1999

Commission file number
033-79130

CONSUMERS BANCORP, INC.
————————————————————————————————————————
(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code 330-868-7701

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 report), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X      No      

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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CONSUMERS BANCORP, INC.
FORM 10-QSB
QUARTER ENDED DECEMER 31, 1999

Part I-Financial Information

Item 1-Financial Statements

Interim financial information required by Rule 10-01 of Regulation S-X (17 CFR Part 210) is included in this Form 10-QSB as referenced below:

Part II — Other Information

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CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands of dollars, except per share amounts)

See the Notes to the Consolidated Financial Statements

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CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands of dollars, except per share amounts)

See the Notes to the Consolidated Financial Statements

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CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(In thousands of dollars)

See the Notes to the Consolidated Financial Statements

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CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands of dollars, except per share amounts)

See the Notes to the Consolidated Financial Statements

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CONSUMERS BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands of dollars)

See the Notes to the Consolidated Financial Statements

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CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

(In thousands of dollars, except per share amounts)

Note 1 — Principles of Consolidation: The consolidated financial statements include the account of Consumers Bancorp, Inc. (Corporation) and its wholly-owned subsidiary, Consumers National Bank (Bank). All significant intercompany transactions have been eliminated in the consolidation.

These interim financial statements are prepared without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated balance sheets of the Corporation at December 31, 1999, and its income and cash flows for the periods presented. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances. The Annual Report for the Corporation for the year ended June 30, 1999, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements.

Industry Segment Information: Consumers Bancorp, Inc. is a bank holding company engaged in the business of commercial and retail banking, which accounts for substantially all of the revenues, operating income, and assets. All commercial and retail banking operations are considered by management to be aggregated into one reportable operating segment of banking.

Use of Estimates: To prepare financial statements in conformity with 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 future results could differ. The allowance for loan losses, fair values of financial instruments, and status of contingencies are particularly subject to change.

Cash Reserves: Consumers National Bank is required by the Federal Reserve to maintain reserves consisting of cash on hand and noninterest-bearing balances on deposit with the Federal Reserve Bank. The required reserve balance at December 31, 1999 was $934 and at June 30, 1999 was $841.

Securities: Securities are classified into held-to-maturity and available for sale categories. Held-to-maturity securities are those that the Bank has the positive intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those that the Bank may decide to sell 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 as a separate component of equity, net of tax.

Realized gains or losses on sales are determined based on the amortized cost of the specific security sold. Amortization of premiums and accretion of discount are computed under a system materially consistent with the level yield method and are recognized as adjustments to interest income. Prepayment activity on mortgage-backed securities is affected primarily by changes in interest rates. Yields on mortgage-backed securities are adjusted as prepayments occur through changes to premium amortized or discount accreted.

Loans: Loans are reported at the principal balance outstanding, net of deferred loan fees. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.

Interest income is not reported when full loan repayment is in doubt, typically when payments are past due over 90 days. Payments received on such loans are reported as principal reductions.

Concentrations of Credit Risk: The Bank grants consumer, real estate and commercial loans primarily to borrowers in Stark, Columbiana and Carroll counties. Automobiles and other consumer assets, business assets and residential and commercial real estate secure most loans.

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CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements (Unaudited)(continued)

(In thousands of dollars, except per share amounts)

Note 1 — continued

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance maybe made for specific loans, but the entire allowance is available for any loan that, in management’s judgement, should be charged off.

Loan impairment is reported when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card 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. No loans were determined to be impaired, as of and for the periods ended December 31, 1999 and June 30, 1999.

Cash Surrender Value of Life Insurance: The Bank has purchased single-premium life insurance policies to insure the lives of the participants in the salary continuation plan. As of December 31, 1999, the Bank has total purchased policies of $1,795 (total death benefit $5,415) with a cash surrender value of $2,056. As of June 30, 1999, the Bank had total purchased policies of $1,795 (total death benefit $5,415 with a cash surrender value of $2,007. The amount included in income (net of policy commissions and mortality costs) was approximately $55 and $48 for the six month periods ended, $27 and $26 for the three month periods ended December 31, 1999 and 1998.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the assets’ useful lives on an accelerated basis, except for building for which the straight-line basis is used.

Other Real Estate Owned: Real estate properties, other than Company premises, acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of acquisition. 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. After acquisition, a valuation allowance reduces the reported amount to the lower of the initial amount or fair value less costs to sell. Expenses, gains and losses on disposition, and changes in the valuation allowance are reported in other expenses. Other real estate owned at December 31, 1999 was $32 and $0 at June 30, 1999.

Profit Sharing Plan: The company maintains a 401(k) profit sharing plan covering substantially all employees. Contributions are made and expensed annually.

Income Taxes: The Company 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 bases 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.

Earnings and Dividends Declared per Share: Earnings per common share are computed based on the weighted average common shares outstanding. The number of outstanding shares used was 716,070 and 714,745 respectively, for the quarters ending December 31, 1999 and December 31, 1998 and 715,976 and 714,892 for the six month periods ended December 31, 1999 and December 31, 1998, respectively.

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CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)(continued)

(In thousands of dollars, except per share amounts)

Note 1- continued

Company’s capital structure contains no dilutive securities. All prior per share information has been restated for the effect of the stock split.

The company declared a three-for-one stock split during the year ended June 30, 1998. In conjunction with the stock split, the Company changed the stated value of common stock from $10.00 to $3.33 and issued 480,000 shares of common stock. As of December 31, 1999 the Company has 720,000 shares of common stock authorized and issued.

Statement of Cash Flows: For purpose of reporting cash flows, cash and cash equivalents include the Company’s cash on hand and due from banks. The company reports net cash flows for customer loan transactions and deposit transactions. For the six month period ended December 31, 1999 and 1998, the Corporation paid $2,210 and $2,494 in interest and $439 and $470 in income taxes.

Note 2 – Securities available for sale

The amortized cost and estimated fair value of the securities available for sale, as presented on the consolidated balance sheet at December 31, 1999 and June 30, 1999 are as follows:

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CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)(continued)

(In thousands of dollars, except per share amounts)

Note 2 – Securities available for sale — continued

During the six month period ended December 31, 1999 gross gains of $6 and gross losses of $1 were recognized on the sale of securities. There were no sales or transfer of securities classified as available for sale for the three and six month period ended December 31, 1998.

The amortized cost and estimated fair value of debit securities at December 31, 1999, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 1999, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies and corporations, with an aggregate book value which exceeds 10% of shareholders’ equity.

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CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)(continued)

(In thousands of dollars)

Note 3 — Loans

Total loans as presented on the balance sheets are comprised of the following classifications:

No loans were determined to be impaired at either December 31, 1999, or June 30, 1999, nor were there any such loans during the period then ended. At December 31, 1999, loans in non-accrual status totaled $26 and at June 30, 1999, totaled $135.

Note 4 — Allowance for Loan Losses

A summary of activity in the allowance for loan losses for the six months ended December 31, 1999, and December 31, 1998, are as follows:

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

General

The following is management’s analysis of the Corporation’s results of operations as of and for the three month and six month periods ended December 31, 1999, compared to the same period in 1998, and the consolidated balance sheets at December 31, 1999 compared to June 30, 1999. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in the is report.

Results of Operations

Net Income. The Corporation earned net income of $477 for the three months ended December 31, 1999 compared to $411 for the three months ended December 31, 1998. This increase was primarily due to an increase in net interest income which is offset by an increase in other expenses. Net income increased $94 or 10.7% for the six months ended December 31, 1999 as compared to the comparable period in 1998. The increase is due to an increases in net interest income and all other income partially offset by increases in other expense.

Net Interest Income. Net interest income totaled $1,908 for the three months ended December 30, 1999 compared to $1,640 for the three months ended December 31, 1998, an increase of $268 or 16.3%. Net interest income totaled $3,766 for the six months ended December 31, 1999, an increase of $520 or16.0%. The additional net interest income was primarily due to the increase in interest and fees on loans, and decreases in interest expense.

Interest and fees on loans increased $223, or 9.7%, to $2,525 for the three months ended December 31, 1999 from $2,302 for the three months ended December 31, 1998. The increase in interest income was due to higher average loans outstanding. The yield on average loans outstanding for the six month periods ended December 31, 1999, and December 31, 1998 was 9.74% and 9.63% respectively.

Interest earned on taxable and tax-exempt securities totaled $333 for the three month period ended December 31, 1999 compared to $311 for the three month period ended December 31, 1998. The increase was primarily the result of an increase in average balances. Interest income on federal funds sold decreased by $68 for the three months ended December 31, 1999, due to a decrease in the average outstandings.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Interest paid on deposits decreased $148, or 14.8% for the three months ended December 31, 1999 compared to the three months ended December 31, 1998 respectively. Interest paid on deposits declined $326 or 15.9% for the comparable six month period comparison from December 31, 1999 and December 31, 998. The decrease was primarily a result of the decline in interest rates as interest paid on average interest-bearing checking, savings, and time deposits has declined to 1.73%, 2.41%, and 5.07% from 2.08%, 2.81%, and 5.69% for the six month period ended December 31, 1999 and 1998, respectively.

Interest paid on FHLB Advances totaled $106 for the three months ended December 31, 1999 as compared to $49 for the three months ended December 31, 1998. The change was a result of an increase in the average level of borrowings from 1998 to 1999.

Provision for Loan Losses. The Corporation maintains an allowance for loan losses in an amount which, in management’s judgment, is adequate to absorb reasonably foreseeable losses inherent in the loan portfolio. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent on a variety of factors, including the performance of the Corporation’s loan portfolio, the economy, changes in collateral values and interest rates, and the view of the regulatory authorities toward loan classifications. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses, after net charge-offs have been deducted, to bring the allowance to a level which is considered adequate to absorb losses inherent in the loan portfolio. The amount of the provision is based on management’s monthly review of the loan portfolio and consideration of such factors as historical loss experience, economic conditions, changes in the size and composition of the loan portfolio, and specific borrower considerations, including the ability to repay the loan and estimated value of the underlying collateral.

The provision for loan losses for the three months ended December 31, 1999 totaled $104 as compared to $115 for the three months ended December 31, 1998, decrease of $11, or 9.6%. The allowance for loan losses totaled $1,293, or 1.23% of total loans receivable at December 31, 1999. The increase in the provision is reflective of the fact that the Corporation provided for net charge-offs during the period. Net charge-offs to average loans decreased to .19% for the three month period ended December 31, 1999 from .48% for the period ended December 31, 1998. For the six month period ended December 31, 1999, net charge offs to average loans decreased to .20% from .34% for the six month period ended December 31, 1998. Notwithstanding the charge-off history, management believes it is prudent to continue to increase the allowance for loan losses as total loans increase. Accordingly management anticipates it will continue its provisions to the allowance for loan losses whenever loan growth occurs.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Other Income. Other income includes service charges on deposits and other miscellaneous income. Other income of $248 for the three months ended December 31, 1999 represented an increase of $29, or 13.2% compared to the $219 of other income for the three months ended December 31, 1998. Other income increased $62 or 14.9% for the six months ended December 31, 1999 as compared to the six month period ended December 31, 1998. The increases were primarily due to an increase in service charge income on deposits resulting from adjustments made to the deposit service fee schedule, as well as the growth in deposit balances from the prior period. Increased income has also been realized from the increase in cash surrender value of life insurance, and fee income related to facilitating the origination of long term fixed rate loans for a third party. Management has elected not to add long term fixed rate mortgage loans to its portfolio. Consumers has entered into an arrangement whereby it assists a third party to fund long term fixed rate loans by taking loan applications, and assisting in the completion of certain loan documents for which it is paid a fee. The arrangement allows the Corporation to meet its customers’ needs by offering an opportunity to obtain long term fixed rate financing on a primary residence and is a source of additional non-interest income.

Other Expense. Other expense totaled $1,355 for the three months ended December 31, 1999 compared to $1,122 for the three months ended December 31, 1998, an increase of $233, or 20.8%. Other expense increased $442 or 20.3% for the six month period ended December 31, 1999 as compared to 1998. Start up costs of the Alliance office and wholly owned finance company were primary reasons for the increase.

Salary and benefits expense increased $90, or 15.8% and $213 or 19.5% for the three and six month periods ended December 31, 1999 as compared to December 31, 1998, respectively. The increase is the result of normal annual merit increases and the addition of new employees to facilitate growth. Occupancy expense increased $37 or 20.4% and $29 or 8.1% for the three and six month periods ended December 31, 1999, as compared to December 31, 1998, respectively. The increase in other expense was attributable to a general increase in various overhead categories due to continued growth of the Corporation.

Income Tax Expense. The provision for income taxes totaled $220 for the three months ended December 31, 1999 compared to $211 for the three months ended December 31, 1998, an increase of $9, or 4.3%. The effective tax rate was 31.5% for the three month periods ended December 31, 1999 and 1998 respectively.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Financial Condition

Total assets at December 31, 1999 were $139,392 compared to $134,635 at June 30, 1999, an increase of $4,757 or 3.5%. Loan receivables increased $8,339 from $95,597 at June 30, 1999 to $103,936 at December 31, 1999. Personal loan totals increased for the period while residential real estate loans increased $3,696 or 9.1%, real estate construction loans increased $749, or 95.4%, and commercial loans increased $2,733, or 6.7%. The increases are caused by customer refinances on many real estate loans. Loan growth is expected to continue to increase in the near future as customers anticipate a rise in short-term interest rates. Investments in available for sale securities have decreased from $24,067 at June 30, 1999 to $22,225 at December 31, 1999, or 7.7%.

Total shareholders equity increased from $11,135 at June 30, 1999, to $11,620 at December 31, 1999. This increase is a combination of net income for the period along with sales of treasury stock, offset by cash dividends paid and the decrease in value of available for sale securities.

Liquidity

Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’s earning assets are divided primarily between loans and investment securities, with any excess funds placed in federal funds sold on a daily basis. Management continually strives to obtain the best mix of loans and investments to both maximize yield and insure the soundness of the portfolio, as well as to provide funding for loan demand as needed.

The Corporation groups its loan portfolio into four major categories: commercial loans, real estate loans, personal loans, and credit card outstanding balances. Commercial loans are comprised of both variable rate notes subject to daily interest rate changes based on the prime rate, and fixed rate notes having maturities of generally not greater than five years. Commercial loans have shown impressive growth recently, with outstanding balances up by $2,733, or 6.7% since June 30, 1999. This is mainly due to the Corporation’s ability to tailor loan programs to the specific requirements of the business, professional, and agricultural customers in its market area. The Corporation’s real estate loan portfolio consists of three basic segments: conventional mortgage loans having fixed rates and maturities not exceeding fifteen years, variable rate home equity lines of credit, and fixed rate loans having maturity or renewal dates that are less than the scheduled amortization period. Real estate loan growth has improved through the past quarter after several quarters of substantial decline. Competition is very heavy in the Corporation’s market for these types of loans, both from local and national lenders. In 1997 the Corporation became affiliated with the Community Mortgage Network, which is a program that allows the Corporation to offer very attractive mortgage loan options to its customers. The personal loans offered by the Corporation are generally written for periods up to five years, based on the nature of the collateral. These may be either installment loans having regular monthly payments, or

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

demand type loans for short periods of time. Credit card receivables are made up of charge card account holders who are mainly established customers of the Corporation, with the Corporation maintaining a very conservative policy on card limits and new accounts. Personal loans and credit card receivables have remained at relatively the same levels during the past full fiscal year.

Funds not allocated to the Corporation’s loan portfolio are invested in various securities having diverse maturity schedules. The majority of the Corporation’s investments are held in U.S. Treasury securities or other securities issued by U.S. Government agencies, and to a lesser extent, investments in tax free municipal bonds. Net interest yields for the investment account were 6.07% and 6.02% respectively for the six month periods ended December 31, 1999 and December 31, 1998.

The Corporation offers several forms of deposit programs to its customers. The rates offered by the Corporation and the fees charged for them are competitive with others available currently in the market area. Time deposit interest rates have slowly increased this period as many financial institutions attempted to attract and keep new deposits to fund loan growth, but as loan growth has increased, selected rates have increased as well. Interest rates on demand deposits and savings deposits have stabilized at low historical levels. As a result of the current rate structure on deposits, growth has been flat recently, with some loss of deposit base during the current quarter.

To provide an additional source of loan funds, the Corporation has entered into an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati to obtain matched funding for loans. Repayment is made either over a fifteen year period, or over a three year period with a balloon payment. At December 31, 1999, these FHLB balances totaled $12,928. An additional $5,000 was borrowed on an overnight basis to fund short-term cash needs and $5,000 was borrowed on a short term basis to fund anticipated year 2000 cash withdrawals. The Corporation considers this agreement with the FHLB to be a good source of liquidity funding, secondary to its deposit base.

Jumbo time deposits (those with balances of $100 and over) have decreased from $9,415 at June 30, 1999 to $8,991 at December 31, 1999, or 4.5%. These deposits are monitored closely by the Corporation, priced on an individual basis, and often matched with a corresponding investment instrument. The Corporation has on occasion used a fee paid broker to obtain these types of funds from outside its normal service area as another alternative for its funding needs. These deposits are not relied upon as a primary source of funding however, and the Corporation can foresee no dependence on these types of deposits for the near term.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest bearing liabilities, is monitored quarterly. It is the Corporation’s goal to maintain this spread at better than 4.0%. The spread for the six month periods ended December 31, 1999 and 1998 were 5.38% and 4.58%, respectively and for the fiscal year ended June 30, 1999 was 5.47%

Asset and Liability Management

The Corporation is exposed to market risks in the normal course of business. Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The Corporation seeks to achieve constant growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The Asset and liability Committee (ALCO) oversees financial risk management, establishing broad policies that govern a variety of financial risks inherent in the Corporation’s operation. ALCO monitors the Corporation’s interest rates and sets limits on allowable risk annually. Market risk is the potential of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates. The Corporation’s market risk is composed primarily of interest rate risk. Interest rate risk is monitored using gap analysis, earnings simulation and net present value estimations. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of short-term and long-term interest rate risk in the Corporation. Gap analysis measures the amount of repricing risk in the balance sheet at a point in time. Earnings simulation involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. ALCO also monitors the net present value of the balance sheet, which is the discounted present value of all asset and liability cash flows.

Capital Resources

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Capital Resources (continued)

The subsidiary Bank is subject to various regulatory capital requirements administered by federal regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions that, if undertaken, could have a direct material affect on the Bank’s financial statements. The Bank is considered well capitalized under the Federal Deposit Insurance Act at December 31, 1999. Management is not aware of any matters occurring subsequent to December 31, 1999 that would cause the Bank’s capital category to change.

Recent Accounting Developments

Recent pronouncements by the Financial Accounting Standards Board (“FASB”) will have an impact on financial statements issued in subsequent periods. Set forth below are summaries of such pronouncements.

Statement 134 on mortgage banking will, in 1999, allow mortgage loans that are securitized to be classified as trading, available for sale, or in certain circumstances held in maturity. Currently these must be classified as trading.

These statements are not expected to have a material effect on the Corporation’s consolidated financial position or results of operation.

Impact on Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with 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 of the assets and liabilities of the Corporation are monetary in nature. Therefore, interest rates have a more significant impact on a financial institution’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.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Year 2000 Issue

Management determined that all of the Bank’s programs were capable of identifying the turn of the century. There were no interruptions to normal business activities and all systems performed as tested.

It was anticipated that approximately $60 would be spent on the preparedness project. Project expenditures approximated $55 with $25 for internal labor costs, $30 for testing and software renovation, and $10 for customer awareness.

Management continues to monitor its customers, vendors, and suppliers, and has discovered no non-compliance by any business partner.

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CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

(In thousands of dollars, except per share data)

Forward Looking Statements

When used in this discussion or future filings by the Corporation with the Securities and Exchange Commission, or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to ,” “is anticipated,” “estimate”, “project,” “believe” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changed in levels of market interest rated, credit risks of lending activities and competitive and regulatory factors, could affect the Corporation’s actual results for future periods to differ materially from those anticipated or projected.

The Corporation is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on its liquidity, capital resources or operations except as discussed herein. The Corporation is not aware of any current recommendations by regulatory authorities which would have such effect if implemented.

General

The bank has opened a full service branch office on Route 44 in Louisville, Ohio on February 07, 2000.

After the close of business January 14, 2000 Consumers National Bank consummated an agreement to purchase and assume certain assets and liabilities of a branch of Firstar Bank, National Association and its related drive-in facility in Lisbon, Ohio. At closing the branch had approximately $19 million in deposits. The purchase of the branch increased the assets of Consumers National Bank to approximately $150 million while leaving the bank well capitalized.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

There is no pending litigation, other than routine litigation incidental to the business of Consumers Bancorp Inc. “the Corporation’ and its affiliate, or of a material nature involving or naming the Corporation or its affiliate as a defendant. 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 which is adverse to the Corporation or its affiliate. None of the routine litigation in which the Corporation or its affiliate are involved is expected to have a material adverse upon the financial position or results of operations of the Corporation or its affiliate.

Item 2 – Changes in Securities

Not Applicable.

Item 3 – Defaults Upon Senior Securities

Not Applicable

Item 4 – Shareholders Meeting

Not Applicable

Item 5 – Other Information

Not Applicable

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PART II – OTHER INFORMATION (continued)

Item 6 – Exhibits and Reports on Form 8-K

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Consumers Bancorp, Inc.
10-QSB
CONSUMERS BANCORP, INC.

SIGNATURES

In accordance with the requirements of the Exchange Act, the restraint has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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