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U.S. SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended September 30, 2002.

Commission file number
033-79130

CONSUMERS BANCORP, INC.

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

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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-Q
QUARTER ENDED SEPTEMBER 30, 2002
Part I – Financial Information

Item 1 – Financial Statements (Unaudited)

Interim financial information required by Item 310 (b) of Regulation S-B is included in this Form 10-Q as referenced below:

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CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share data)

See accompanying notes to consolidated financial statements

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

(Dollars in thousands, except per share amounts)

See accompanying notes to consolidated financial statements

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

(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

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CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Dollars in thousands)

See accompanying notes to consolidated financial statements.

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

(Dollars in thousands, except per share amounts)

Note 1 — Principles of Consolidation: The consolidated financial statements include the accounts of Consumers Bancorp, Inc. (Corporation) and its wholly owned subsidiary, Consumers National Bank (Bank). The Bank has a finance company Community Finance Home Mortgage Company, Inc. and a title company, Community Title Agency, Inc. as part of its business. 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 September 30, 2002, 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 accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances. The Annual Report for the Corporation for the year ended June 30, 2002, contains consolidated financial statements and related notes that should be read in conjunction with the accompanying consolidated financial statements.

Segment Information: Consumers Bancorp, Inc. is a financial holding company engaged in the business of commercial and retail banking, which accounts for substantially all of the revenues, operating income, and assets.

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 Bank to maintain reserves consisting of cash on hand and noninterest-bearing balances on deposit with the Federal Reserve Bank. The required reserve balance at September 30, 2002 was $1,208 and at June 30, 2002 was $1,181.

Securities: Securities are classified only as available-for-sale. 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.

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

(Dollars in thousands, except per share amounts)

Note 1 – continued

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.

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. Allocations of the allowance maybe made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, 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 and 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. No loans were determined to be impaired, as of and for the periods ended September 30, 2002 and June 30, 2002.

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 September 30, 2002, the Bank has total purchased policies of $2,520 (total death benefit

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

(Dollars in thousands, except per share amounts)

Note 1- continued

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.

Intangible Assets: Purchased intangible, core deposit value, is recorded at cost and amortized over the estimated life. Core deposit value amortization is straight-line over 12 years.

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. Properties held as other real estate owned at September 30, 2002 were $12 and $0 at June 30, 2002.

Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.

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.

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 now are such matters that will have a material effect on the financial statements.

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

(Dollars in thousands, except per share amounts)

Note 1- continued

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 three months ended September 30, 2002 and 2001, the Corporation paid $857 and $1,429 in interest and $75 and $77 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 September 30, 2002 and June 30, 2002 are as follows:

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

(Dollars in thousands, except per share amounts)

Note 2 – Securities available for sale

The amortized cost and estimated fair value of debit securities at September 30, 2002, 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 September 30, 2002, 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.

Note 3 — Loans

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

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

(Dollars in thousands)

Note 3 – Loans (continued)

Note 4 — Allowance for Loan Losses

A summary of activity in the allowance for loan losses for the three months ended September 30, 2002, and September 30, 2001, are as follows:

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

(Dollars in thousands, except per share data)

General

The following is management’s analysis of the Corporation’s results of operations as of and for the three month period ended September 30, 2002, compared to the same period in 2001, and the consolidated balance sheets at September 30, 2002 compared to June 30, 2002. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

Results of Operations

Net Income. The Corporation earned net income of $642 for the three months ended September 30, 2002 compared to $523 for the three months ended September 30, 2001. This increase was primarily due to increases of $156 in net interest income and $138 in other income offset by an increase in other expenses. Net income increased $119 or 22.8% for the three months ended September 30, 2002 as compared to the comparable period in 2001.

Net Interest Income. Net interest income totaled $2,366 for the three months ended September 30, 2002 compared to $2,210 for the three months ended September 30, 2001, an increase of $156 or 7.1%. The additional net interest income was primarily due to the decrease in interest expense.

Interest and fees on loans decreased $472, or 14.8%, to $2,727 for the three months ended September 30, 2002 from $3,199 for the three months ended September 30, 2001. The decrease in interest income was due to decrease in both average volume and yield. The yield on average loans outstanding for the three month periods ended September 30, 2002, and September 30, 2001 was 8.68% and 9.52% respectively.

Interest earned on taxable and tax-exempt securities totaled $394 for the three month period ended September 30, 2002 compared to $301 for the three month period ended September 30, 2001. The increase was primarily a result of an increase in volume. Interest income on federal funds sold decreased by $20 for the three months ended September 30, 2002, due to a decrease in yield.

The following table reflects the components of Consumers net interest income for the three months ended September 30, 2002 and 2001. Rates are computed on a tax equivalent basis and non-accrual loans have been included in the average balances.

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

Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended September 30
(In thousands except percentages)

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

(Dollars in thousands, except per share data)

Interest expense on deposits decreased $555, or 41.0% for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. The decrease was a result of rate decreases on savings and time deposits.

Interest paid on FHLB Advances totaled $34 for the three months ended September 30, 2002 and compared to $34 for the three months ended September 30, 2001.

Provision for Loan Losses. The Corporation maintains an allowance for loan losses in an amount, which, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. While management utilizes specific allocations and historical loss experience, 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 real estate 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 probable losses 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 September 30, 2002 totaled $118 as compared to $188 for the three months ended September 30, 2001, a decrease of $70 or 37.2%. The decrease in the provision is reflective of the fact that the Corporation provides for losses inherent in the portfolio. Net charge-offs to average loans decreased to .29 % for the three month period ended September 30, 2002 from .58% for the period ended September 30, 2001. The decrease in net charge-offs in 2002 compared to 2001 is primarily attributed to a reduction of consumer lending at the Finance Company subsidiary and a tightening of consumer credit standards. Charge-offs have been made in accordance with the Corporation’s standard policy and have occurred primarily in the consumer loan portfolio.

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

(Dollars in thousands, except per share data)

Other Income. Other income includes service charges on deposits and other miscellaneous income. Other income of $542 for the three months ended September 30, 2002 represented an increase of $138, or 34.2% compared to the $404 of other income for the three months ended September 30, 2001. The increases were primarily due to volume increases in overdraft and non-sufficient funds fees attributable to an Overdraft Privilege program. Increased income has also been realized from the increase in cash surrender value of life insurance, fee income related to the sales of specialized investments and title agency fees.

Other Expense. Other expense totaled $1,832 for the three months ended September 30, 2002 compared to $1,671 for the three months ended September 30, 2001, an increase of $161, or 9.6 %.

Salary and benefits expense increased $52 or 6.0% for the three month period ended September 30, 2002 as compared to September 30, 2001. The increase is the result of normal annual merit increases and the addition of new personnel within loan review, compliance and loan operation areas. Occupancy expense increased $26 for the three month period ended September 30, 2002, as compared to September 30, 2001.