UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| Quarterly Report Pursuant to Section 13 or 15 (d) |
☐ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 20172020
Commission File No. 033-79130
CONSUMERS BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO | 34-1771400 |
(State or other jurisdiction | (I.R.S. Employer Identification No.) |
of incorporation or organization) |
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614 East Lincoln Way, P.O. Box 256, Minerva, Ohio | 44657 |
(Address of principal executive offices) | (Zip Code) |
(330) 868-7701
(Registrant’sRegistrant’s telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periodperiod that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | 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 SecuritiesExchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None |
There were 2,729,6443,028,100 shares of Registrant’sRegistrant’s common stock, no par value, outstanding as of February 9, 2018.10, 2021.
CONSUMERS BANCORP, INC. FORM 10-Q QUARTER ENDED December 31, |
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Table of Contents |
| Page Number (s) |
Part I – Financial Information | |
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Item 1 – Financial Statements (Unaudited) |
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Consolidated Balance Sheets at December 31, | 1 |
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Consolidated Statements of Income for the three and six months ended December 31, | 2 |
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Consolidated Statements of Comprehensive Income | 3 |
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Condensed Consolidated Statements of Changes in | 4 |
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Condensed Consolidated Statements of Cash Flows for the six months ended December 31, | 5 |
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Notes to the Consolidated Financial Statements |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 – Not Applicable for Smaller Reporting Companies |
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Item 4 – Controls and Procedures |
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Part II – Other Information | |
Item 1 – Legal Proceedings |
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Item 1A – Not Applicable for Smaller Reporting Companies |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3 – Defaults Upon Senior Securities |
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Item 4 – Mine Safety Disclosure |
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Item 5 – Other Information |
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Item 6 – Exhibits |
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Signatures |
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PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share data) | December 31, 2017 | June 30, 2017 | December 31, 2020 | June 30, 2020 | ||||||||||||
ASSETS | ||||||||||||||||
Cash on hand and noninterest-bearing deposits in financial institutions | $ | 8,910 | $ | 9,439 | $ | 8,996 | $ | 8,429 | ||||||||
Federal funds sold and interest-bearing deposits in financial institutions | 231 | 473 | 49 | 1,230 | ||||||||||||
Total cash and cash equivalents | 9,141 | 9,912 | 9,045 | 9,659 | ||||||||||||
Certificates of deposit in other financial institutions | 3,921 | 3,921 | 8,599 | 11,635 | ||||||||||||
Securities, available-for-sale | 135,738 | 142,086 | 145,665 | 143,918 | ||||||||||||
Securities, held-to-maturity (fair value of $4,083 at December 31, 2017 and $4,329 at June 30, 2017) | 4,061 | 4,259 | ||||||||||||||
Securities, held-to-maturity (fair value of $3,605 at December 31, 2020 and $3,868 at June 30, 2020) | 3,336 | 3,541 | ||||||||||||||
Equity securities, at fair value | 400 | — | ||||||||||||||
Federal bank and other restricted stocks, at cost | 1,425 | 1,425 | 2,472 | 2,472 | ||||||||||||
Loans held for sale | 814 | 1,252 | 4,770 | 3,507 | ||||||||||||
Total loans | 293,594 | 272,867 | 557,257 | 542,861 | ||||||||||||
Less allowance for loan losses | (3,225 | ) | (3,086 | ) | (5,912 | ) | (5,678 | ) | ||||||||
Net loans | 290,369 | 269,781 | 551,345 | 537,183 | ||||||||||||
Cash surrender value of life insurance | 9,201 | 9,065 | 9,573 | 9,442 | ||||||||||||
Premises and equipment, net | 13,137 | 13,398 | 14,972 | 14,901 | ||||||||||||
Other real estate owned | 57 | 71 | ||||||||||||||
Goodwill | 836 | 836 | ||||||||||||||
Core deposit intangible, net | 242 | 256 | ||||||||||||||
Accrued interest receivable and other assets | 2,418 | 2,713 | 2,805 | 3,470 | ||||||||||||
Total assets | $ | 470,282 | $ | 457,883 | $ | 754,060 | $ | 740,820 | ||||||||
LIABILITIES | ||||||||||||||||
Deposits | ||||||||||||||||
Non-interest bearing demand | $ | 108,503 | $ | 102,683 | ||||||||||||
Noninterest-bearing demand | $ | 194,180 | $ | 190,233 | ||||||||||||
Interest bearing demand | 55,056 | 54,123 | 104,777 | 99,173 | ||||||||||||
Savings | 152,659 | 151,154 | 241,854 | 228,567 | ||||||||||||
Time | 66,771 | 66,511 | 107,551 | 115,382 | ||||||||||||
Total deposits | 382,989 | 374,471 | 648,362 | 633,355 | ||||||||||||
Short-term borrowings | 22,507 | 23,986 | 13,275 | 6,943 | ||||||||||||
Federal Home Loan Bank advances | 17,188 | 12,320 | 18,083 | 31,161 | ||||||||||||
Accrued interest and other liabilities | 3,427 | 3,571 | 6,632 | 6,121 | ||||||||||||
Total liabilities | 426,111 | 414,348 | 686,352 | 677,580 | ||||||||||||
Commitments and contingent liabilities | ||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Preferred stock (no par value, 350,000 shares authorized, none outstanding) | — | — | — | — | ||||||||||||
Common stock (no par value, 3,500,000 shares authorized; 2,854,133 shares issued as of December 31, 2017 and June 30, 2017) | 14,630 | 14,630 | ||||||||||||||
Common stock (no par value, 8,500,000 shares authorized; 3,124,053 shares issued as of December 31, 2020 and June 30, 2020) | 20,011 | 19,974 | ||||||||||||||
Retained earnings | 31,044 | 30,122 | 44,492 | 40,460 | ||||||||||||
Treasury stock, at cost (124,489 and 130,606 common shares as of December 31, 2017 and June 30, 2017, respectively) | (1,576 | ) | (1,662 | ) | ||||||||||||
Treasury stock, at cost (95,953 and 108,475 common shares as of December 31, 2020 and June 30, 2020, respectively) | (1,324 | ) | (1,454 | ) | ||||||||||||
Accumulated other comprehensive income | 73 | 445 | 4,529 | 4,260 | ||||||||||||
Total shareholders’ equity | 44,171 | 43,535 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 470,282 | $ | 457,883 | ||||||||||||
Total shareholders’ equity | 67,708 | 63,240 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 754,060 | $ | 740,820 |
See accompanying notes to consolidated financial statementsstatements.
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months ended December 31, | Six Months ended December 31, | |||||||||||||||
(Dollars in thousands, except per share amounts) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income | ||||||||||||||||
Loans, including fees | $ | 3,437 | $ | 3,022 | $ | 6,665 | $ | 6,206 | ||||||||
Securities, taxable | 459 | 377 | 970 | 779 | ||||||||||||
Securities, tax-exempt | 367 | 357 | 734 | 708 | ||||||||||||
Federal funds sold and other interest bearing deposits | 28 | 30 | 65 | 60 | ||||||||||||
Total interest income | 4,291 | 3,786 | 8,434 | 7,753 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 253 | 183 | 501 | 353 | ||||||||||||
Short-term borrowings | 57 | 11 | 112 | 23 | ||||||||||||
Federal Home Loan Bank advances | 54 | 56 | 108 | 114 | ||||||||||||
Total interest expense | 364 | 250 | 721 | 490 | ||||||||||||
Net interest income | 3,927 | 3,536 | 7,713 | 7,263 | ||||||||||||
Provision for loan losses | 60 | 140 | 150 | 276 | ||||||||||||
Net interest income after provision for loan losses | 3,867 | 3,396 | 7,563 | 6,987 | ||||||||||||
Non-interest income | ||||||||||||||||
Service charges on deposit accounts | 301 | 314 | 609 | 644 | ||||||||||||
Debit card interchange income | 325 | 285 | 648 | 536 | ||||||||||||
Bank owned life insurance income | 68 | 63 | 136 | 112 | ||||||||||||
Securities gains, net | — | 22 | 38 | 125 | ||||||||||||
Loss on disposition of other real estate owned | — | (3 | ) | - | (3 | ) | ||||||||||
Other | 145 | 116 | 280 | 231 | ||||||||||||
Total non-interest income | 839 | 797 | 1,711 | 1,645 | ||||||||||||
Non-interest expenses | ||||||||||||||||
Salaries and employee benefits | 1,966 | 1,790 | 3,776 | 3,528 | ||||||||||||
Occupancy and equipment | 465 | 478 | 920 | 930 | ||||||||||||
Data processing expenses | 147 | 145 | 295 | 290 | ||||||||||||
Debit card processing expenses | 188 | 149 | 368 | 282 | ||||||||||||
Professional and director fees | 122 | 146 | 239 | 278 | ||||||||||||
FDIC assessments | 46 | 46 | 92 | 101 | ||||||||||||
Franchise taxes | 84 | 84 | 168 | 168 | ||||||||||||
Marketing and advertising | 61 | 65 | 139 | 144 | ||||||||||||
Telephone and network communications | 75 | 76 | 157 | 157 | ||||||||||||
Other | 406 | 347 | 799 | 734 | ||||||||||||
Total non-interest expenses | 3,560 | 3,326 | 6,953 | 6,612 | ||||||||||||
Income before income taxes | 1,146 | 867 | 2,321 | 2,020 | ||||||||||||
Income tax expense | 489 | 145 | 735 | 397 | ||||||||||||
Net income | $ | 657 | $ | 722 | $ | 1,586 | $ | 1,623 | ||||||||
Basic and diluted earnings per share | $ | 0.24 | $ | 0.27 | $ | 0.58 | $ | 0.60 |
See accompanying notes to consolidated financial statements
CONSUMERS BANCORP, INC.
Consolidated statements of comprehensive income (Loss)
(Unaudited)
(Dollars in thousands)
Three Months ended December 31 | Six Months ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 657 | $ | 722 | $ | 1,586 | $ | 1,623 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Net change in unrealized gains (losses) on securities available-for-sale: | ||||||||||||||||
Unrealized losses arising during the period | (631 | ) | (3,319 | ) | (527 | ) | (3,742 | ) | ||||||||
Reclassification adjustment for gains included in income | — | (22 | ) | (38 | ) | (125 | ) | |||||||||
Net unrealized losses | (631 | ) | (3,341 | ) | (565 | ) | (3,867 | ) | ||||||||
Income tax effect | 215 | 1,136 | 193 | 1,315 | ||||||||||||
Other comprehensive loss | (416 | ) | (2,205 | ) | (372 | ) | (2,552 | ) | ||||||||
Total comprehensive income (loss) | $ | 241 | $ | (1,483 | ) | $ | 1,214 | $ | (929 | ) |
Three Months ended December 31, | Six Months ended December 31, | |||||||||||||||
(Dollars in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Interest and dividend income | ||||||||||||||||
Loans, including fees | $ | 6,583 | $ | 4,862 | $ | 13,072 | $ | 9,623 | ||||||||
Securities, taxable | 344 | 480 | 716 | 990 | ||||||||||||
Securities, tax-exempt | 427 | 400 | 847 | 799 | ||||||||||||
Federal bank and other restricted stocks | 21 | 20 | 39 | 40 | ||||||||||||
Federal funds sold and other interest-bearing deposits | 42 | 16 | 89 | 42 | ||||||||||||
Total interest and dividend income | 7,417 | 5,778 | 14,763 | 11,494 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 487 | 910 | 1,064 | 1,855 | ||||||||||||
Short-term borrowings | 2 | 13 | 6 | 24 | ||||||||||||
Federal Home Loan Bank advances | 70 | 59 | 141 | 138 | ||||||||||||
Total interest expense | 559 | 982 | 1,211 | 2,017 | ||||||||||||
Net interest income | 6,858 | 4,796 | 13,552 | 9,477 | ||||||||||||
Provision for loan losses | 130 | 185 | 260 | 315 | ||||||||||||
Net interest income after provision for loan losses | 6,728 | 4,611 | 13,292 | 9,162 | ||||||||||||
Noninterest income | ||||||||||||||||
Service charges on deposit accounts | 314 | 360 | 621 | 733 | ||||||||||||
Debit card interchange income | 445 | 384 | 901 | 775 | ||||||||||||
Gain on sale of mortgage loans | 246 | 142 | 482 | 276 | ||||||||||||
Bank owned life insurance death benefit | — | — | — | 324 | ||||||||||||
Bank owned life insurance income | 65 | 66 | 131 | 134 | ||||||||||||
Securities gains, net | 8 | 4 | 8 | 110 | ||||||||||||
Other | 75 | 69 | 151 | 142 | ||||||||||||
Total noninterest income | 1,153 | 1,025 | 2,294 | 2,494 | ||||||||||||
Noninterest expenses | ||||||||||||||||
Salaries and employee benefits | 2,760 | 2,207 | 5,451 | 4,380 | ||||||||||||
Occupancy and equipment | 636 | 595 | 1,276 | 1,127 | ||||||||||||
Data processing expenses | 176 | 141 | 362 | 526 | ||||||||||||
Debit card processing expenses | 216 | 194 | 454 | 395 | ||||||||||||
Professional and director fees | 249 | 133 | 486 | 390 | ||||||||||||
FDIC assessments | 87 | 5 | 148 | (2 | ) | |||||||||||
Franchise taxes | 108 | 95 | 217 | 190 | ||||||||||||
Marketing and advertising | 116 | 93 | 250 | 274 | ||||||||||||
Telephone and network communications | 79 | 70 | 163 | 144 | ||||||||||||
Amortization of intangible | 7 | — | 14 | — | ||||||||||||
Other | 397 | 402 | 809 | 816 | ||||||||||||
Total noninterest expenses | 4,831 | 3,935 | 9,630 | 8,240 | ||||||||||||
Income before income taxes | 3,050 | 1,701 | 5,956 | 3,416 | ||||||||||||
Income tax expense | 543 | 261 | 1,048 | 473 | ||||||||||||
Net income | $ | 2,507 | $ | 1,440 | $ | 4,908 | $ | 2,943 | ||||||||
Basic and diluted earnings per share | $ | 0.83 | $ | 0.53 | $ | 1.63 | $ | 1.07 |
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYConsolidated statements of comprehensive income
(Unaudited)
(Dollars in thousands, except per share data) | ||||||||||||||||
Three Months ended December 31, | Six Months ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Balance at beginning of period | $ | 44,271 | $ | 44,020 | $ | 43,535 | $ | 43,793 | ||||||||
Net income | 657 | 722 | 1,586 | 1,623 | ||||||||||||
Other comprehensive loss | (416 | ) | (2,205 | ) | (372 | ) | (2,552 | ) | ||||||||
6,321 shares issued associated with stock awards during the six months ended December 31, 2017 | — | — | 90 | — | ||||||||||||
204 and 231 Dividend reinvestment plan shares associated with forfeited and expired restricted stock awards retired to treasury stock during the six months ended December 31, 2017 and 2016, respectively | — | — | — | — | ||||||||||||
Common cash dividends | (341 | ) | (327 | ) | (668 | ) | (654 | ) | ||||||||
Balance at the end of the period | $ | 44,171 | $ | 42,210 | $ | 44,171 | $ | 42,210 | ||||||||
Common cash dividends per share | $ | 0.125 | $ | 0.12 | $ | 0.245 | $ | 0.24 |
(Dollars in thousands) | Three Months ended December 31, | Six Months ended December 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 2,507 | $ | 1,440 | $ | 4,908 | $ | 2,943 | ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Net change in unrealized gains (losses) on securities available-for-sale: | ||||||||||||||||
Unrealized gains (losses) arising during the period | 278 | (28 | ) | 348 | 790 | |||||||||||
Reclassification adjustment for gains included in income | (8 | ) | (4 | ) | (8 | ) | (110 | ) | ||||||||
Net unrealized gains (losses) | 270 | (32 | ) | 340 | 680 | |||||||||||
Income tax effect | (57 | ) | 6 | (71 | ) | (144 | ) | |||||||||
Other comprehensive income (loss) | 213 | (26 | ) | 269 | 536 | |||||||||||
Total comprehensive income | $ | 2,720 | $ | 1,414 | $ | 5,177 | $ | 3,479 |
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
Balance, September 30, 2020 | $ | 20,011 | $ | 42,424 | $ | (1,324 | ) | $ | 4,316 | $ | 65,427 | |||||||||
Net income | 2,507 | 2,507 | ||||||||||||||||||
Other comprehensive income | 213 | 213 | ||||||||||||||||||
Cash dividends declared ($0.145 per share) | (439 | ) | (439 | ) | ||||||||||||||||
Balance, December 31, 2020 | $ | 20,011 | $ | 44,492 | $ | (1,324 | ) | $ | 4,529 | $ | 67,708 | |||||||||
Balance, September 30, 2019 | $ | 14,697 | $ | 37,622 | $ | (1,454 | ) | $ | 2,128 | $ | 52,993 | |||||||||
Net income | 1,440 | 1,440 | ||||||||||||||||||
Other comprehensive loss | (26 | ) | (26 | ) | ||||||||||||||||
Cash dividends declared ($0.135 per share) | (371 | ) | (371 | ) | ||||||||||||||||
Balance, December 31, 2019 | $ | 14,697 | $ | 38,691 | $ | (1,454 | ) | $ | 2,102 | $ | 54,036 |
(Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
Balance, June 30, 2020 | $ | 19,974 | $ | 40,460 | $ | (1,454 | ) | $ | 4,260 | $ | 63,240 | |||||||||
Net income | 4,908 | 4,908 | ||||||||||||||||||
Other comprehensive income | 269 | 269 | ||||||||||||||||||
12,522 shares associated with vested and expired stock awards | 37 | 130 | 167 | |||||||||||||||||
Cash dividends declared ($0.29 per share) | (876 | ) | (876 | ) | ||||||||||||||||
Balance, December 31, 2020 | $ | 20,011 | $ | 44,492 | $ | (1,324 | ) | $ | 4,529 | $ | 67,708 | |||||||||
Balance, June 30, 2019 | $ | 14,656 | $ | 36,487 | $ | (1,543 | ) | $ | 1,566 | $ | 51,166 | |||||||||
Net income | 2,943 | 2,943 | ||||||||||||||||||
Other comprehensive income | 536 | 536 | ||||||||||||||||||
11,813 shares associated with vested stock awards | 41 | 89 | 130 | |||||||||||||||||
Cash dividends declared ($0.27 per share) | (739 | ) | (739 | ) | ||||||||||||||||
Balance, December 31, 2019 | $ | 14,697 | $ | 38,691 | $ | (1,454 | ) | $ | 2,102 | $ | 54,036 |
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands) | Six Months Ended December 31, | Six Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net cash from operating activities | $ | 3,484 | $ | 2,152 | $ | 5,706 | $ | 2,214 | ||||||||
Cash flow from investing activities | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||
Purchases | (5,101 | ) | (17,368 | ) | ||||||||||||
Maturities, calls and principal pay downs | 8,848 | 11,753 | ||||||||||||||
Proceeds from sales | 1,586 | 3,383 | ||||||||||||||
Securities held-to-maturity | ||||||||||||||||
Purchases | — | (1,000 | ) | |||||||||||||
Principal pay downs | 198 | 198 | ||||||||||||||
Net decrease in certificates of deposits in other financial institutions | — | 990 | ||||||||||||||
Purchases of securities, available-for-sale | (24,975 | ) | (6,678 | ) | ||||||||||||
Maturities, calls and principal pay downs of securities, available-for-sale | 20,304 | 11,902 | ||||||||||||||
Sale of securities, available-for-sale | 2,733 | 6,110 | ||||||||||||||
Principal pay downs of securities, held-to-maturity | 205 | 206 | ||||||||||||||
Purchase of equity securities | (400 | ) | — | |||||||||||||
Net decrease in certificate of deposit in other financial institutions | 3,036 | 989 | ||||||||||||||
Net increase in loans | (20,967 | ) | (9,255 | ) | (14,431 | ) | (27,226 | ) | ||||||||
Purchase of Bank owned life insurance | — | (2,000 | ) | |||||||||||||
Acquisition of premises and equipment | (129 | ) | (252 | ) | ||||||||||||
Sale of other real estate owned | 71 | 7 | ||||||||||||||
Proceeds from BOLI death benefit | — | 753 | ||||||||||||||
Premises and equipment purchases | (194 | ) | (219 | ) | ||||||||||||
Sale of other repossessed assets | 17 | — | ||||||||||||||
Net cash from investing activities | (15,494 | ) | (13,544 | ) | (13,705 | ) | (14,163 | ) | ||||||||
Cash flow from financing activities | ||||||||||||||||
Net increase in deposit accounts | 8,518 | 8,797 | 15,007 | 15,471 | ||||||||||||
Net change in short-term borrowings | (1,479 | ) | 223 | 6,332 | 184 | |||||||||||
Proceeds from Federal Home Loan Bank advances | 5,400 | 18,325 | 1,300 | 9,500 | ||||||||||||
Repayments of Federal Home Loan Bank advances | (532 | ) | (14,630 | ) | (14,378 | ) | (7,900 | ) | ||||||||
Dividends paid | (668 | ) | (654 | ) | (876 | ) | (739 | ) | ||||||||
Net cash from financing activities | 11,239 | 12,061 | 7,385 | 16,516 | ||||||||||||
Increase (decrease) in cash or cash equivalents | (771 | ) | 669 | (614 | ) | 4,567 | ||||||||||
Cash and cash equivalents, beginning of period | 9,912 | 10,181 | 9,659 | 9,461 | ||||||||||||
Cash and cash equivalents, end of period | $ | 9,141 | $ | 10,850 | $ | 9,045 | $ | 14,028 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid during the period: | ||||||||||||||||
Interest | $ | 709 | $ | 484 | $ | 1,230 | $ | 2,022 | ||||||||
Federal income taxes | 405 | 150 | 1,055 | 350 | ||||||||||||
Non-cash items: | ||||||||||||||||
Transfer from loans to other real estate owned | 57 | 10 | ||||||||||||||
Transfer from loans held for sale to portfolio | 172 | — | ||||||||||||||
Transfer of loans to other repossessed assets | 9 | — | ||||||||||||||
Issuance of treasury stock for stock awards | 90 | — | 167 | 89 | ||||||||||||
Expired and forfeited dividend reinvestment plan shares associated with restricted stock awards that were retired to treasury stock | 4 | 4 | ||||||||||||||
Right of use assets obtained in exchange for lease liabilities | — | 582 |
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 1– Summary of Significant Accounting Policies:
Nature of Operations: Consumers Bancorp, Inc. (the Corporation) is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, Consumers National Bank (the Bank), a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and contiguous counties in Ohio. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.
Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Form 10-K10-K for the year ended June 30, 2017. 2020. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.
The consolidated financial statements include the accounts of the Corporation and the Bank.Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.
Segment Information: The Corporation is a bank holding company engaged in the business of commercial and retail banking, which accounts for substantially all of the revenues, operating income, and assets. Accordingly, all of itsthe Corporation’s operations are recorded in one segment, banking.
Reclassifications: Certain items in prior financial statements have been reclassified to conform to the current presentation. Any reclassifications had no impact on prior year net income or shareholders’ equity.
Recently Issued Accounting Pronouncements Not Yet Effective: In May 2014, FASB issuedJune 2016, the Financial Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Most of the Corporation’s revenue is derived from loans and financial instruments, which is not part of the scope of this ASU.The adoption of ASU 2014-09 as it relates to non-interest income, such as service charges and debit card interchange income, is not expected to have a material effect on the Corporation’s financial statements.
In January 2016, the FASBBoard (FASB) issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The main provisions of ASU 2016-01 address the valuation and impairment of certain equity investments along with simplified disclosures about those investments. Equity securities with readily determinable fair values will be treated in the same manner as other financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 is not expected to have a material impact on the Corporation's financial statements.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
In June 2016, FASB Issued ASU 2016-13,2016-13, Financial Instruments—Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP,generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU 2016-132016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-132016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods withwithin those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluatingHowever, during July 2019, FASB unanimously voted 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 impact of the adoption of this guidance on the Corporation’s consolidated financial statements, and are in the midst of gathering critical data to evaluate the impact. However, it is too early to estimate the impact.
In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). The ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities.effective date. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods beginning after December 15, 2018. Early adoption2022 for certain entities, including smaller reporting companies. The Corporation is permitted. Management is currently evaluating the impact of the adoption of this guidance on the Corporation’s consolidated financial statements and expects to recognize an increase in other assets and other liabilities for the rights and obligations created by leasing of branch offices. Management also expects minimal impact in the income statement with respect to occupancy expense related to leases.a smaller reporting company.
(Dollars in thousands, except per share amounts)
In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR, or other reference rates that may be discontinued, and provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria. The ASU also provides for a one-time sale and/or transfer to AFS or trading to be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. The Corporation does not expect ASU 2020-04 to have a material impact on its financial statements and disclosures.
Note 2 – Acquisition
On December 29, 2020, the Bank entered into a Branch Purchase and Assumption Agreement (P&A Agreement) with CFBank National Association (CFBank) to acquire two branches of CFBank in Columbiana County, Ohio. The P&A Agreement provides for the sale and transfer by CFBank to the Bank the land, buildings and other associated assets of CFBank’s drive-up branch location in Wellsville, Ohio and CFBank’s branch location in Calcutta, Ohio (the Branches); approximately $100 million in deposits attributable to the Branches; $15 million in aggregate principal amount of subordinated debt securities issued by unrelated financial institutions; all performing loans attributable to the Branches which are outstanding at closing (totaling approximately $3.1 million in aggregate principal amount as of November 30, 2020); and up to $13.5 million in aggregate principal amount of single family residential mortgage loans and home equity lines of credit to be identified by the parties prior to the closing principally from CFBank’s Northeast Ohio loan portfolio. In addition, CFBank will provide the opportunity for the Corporation to purchase at par at least $15 million in aggregate principal amount of participation interests in commercial and commercial real estate loans originated by and held in CFBank’s portfolio. In exchange, Consumers will pay to CFBank the net book value of the land, building and associated assets of the Branches, a deposit premium equal to 1.75% of the average daily deposits of the Branches for the 30 days preceding the closing, and the par value of the subordinated debt securities and loans acquired by Consumers.
The closing of the transactions contemplated by the P&A Agreement is subject to regulatory approval and satisfaction of other customary closing conditions. The parties expect the closing of the transactions to occur early in the third calendar quarter of 2021.
On June 14, 2019, the Corporation entered into an Agreement and Plan of Merger with Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) and its wholly owned subsidiary, The Peoples National Bank of Mount Pleasant (Peoples Bank). On January 1, 2020, Consumers completed the acquisition by merger of Peoples in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. Immediately following the merger, Peoples Bank, was merged into the Corporation’s banking subsidiary, Consumers National Bank.
On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The assets and liabilities of Peoples were recorded on the Corporation’s Balance Sheet at their estimated fair values as of January 1, 2020, the acquisition date, and Peoples’ results of operations are included in the Corporation’s Consolidated Statements of Income beginning on that date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of Peoples. 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.
Consideration Paid | $ | 10,405 | ||||||
Net assets acquired: | ||||||||
Cash and cash equivalents | $ | 833 | ||||||
Certificates of deposit in other financial institutions | 11,839 | |||||||
Securities, available-for-sale | 4,051 | |||||||
Federal bank and other restricted stocks, at cost | 154 | |||||||
Loans, net | 55,320 | |||||||
Premises and equipment | 818 | |||||||
Core deposit intangible | 270 | |||||||
Accrued interest receivable and other assets | 140 | |||||||
Noninterest-bearing deposits | (11,979 | ) | ||||||
Interest-bearing deposits | (48,872 | ) | ||||||
Federal funds purchased | (2,348 | ) | ||||||
Federal Home Loan Bank advances | (491 | ) | ||||||
Other liabilities | (166 | ) | ||||||
Total net assets acquired | 9,569 | |||||||
Goodwill | $ | 836 |
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 book balance of the loans at the time of the acquisition was $55,273 before considering Peoples’ allowance for loan losses, which was not carried over. The fair value disclosed above reflects a credit-related adjustment of $(890) and an adjustment for other factors of $937. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable, were immaterial. Acquisition costs of $827 pre-tax, or $680 after-tax, were recorded during the twelve-month period ended June 30, 2020.
(Dollars in thousands, except per share amounts)
Note 23– Securities
Available –for-Sale
| Amortized | Gross | Gross | Fair | ||||||||||||
December 31, 2017 | ||||||||||||||||
Obligations of U.S. government-sponsored entities and agencies | $ | 13,752 | $ | 30 | $ | (146 | ) | $ | 13,636 | |||||||
Obligations of state and political subdivisions | 56,718 | 746 | (283 | ) | 57,181 | |||||||||||
Mortgage-backed securities – residential | 58,051 | 98 | (631 | ) | 57,518 | |||||||||||
Mortgage-backed securities– commercial | 1,446 | — | (10 | ) | 1,436 | |||||||||||
Collateralized mortgage obligations– residential | 5,483 | — | (137 | ) | 5,346 | |||||||||||
Pooled trust preferred security | 178 | 443 | — | 621 | ||||||||||||
Total available-for-sale securities | $ | 135,628 | $ | 1,317 | $ | (1,207 | ) | $ | 135,738 |
Available –for-Sale
| Amortized | Gross | Gross | Fair | ||||||||||||
December 31, 2020 | ||||||||||||||||
U.S. Treasury | $ | 499 | $ | 2 | $ | — | $ | 501 | ||||||||
Obligations of U.S. government-sponsored entities and agencies | 7,793 | 316 | — | 8,109 | ||||||||||||
Obligations of state and political subdivisions | 63,359 | 3,675 | — | 67,034 | ||||||||||||
U.S. Government-sponsored mortgage-backed securities–residential | 56,757 | 1,496 | (5 | ) | 58,248 | |||||||||||
U.S. Government-sponsored mortgage-backed securities– commercial | 7,004 | 75 | (1 | ) | 7,078 | |||||||||||
U.S. Government-sponsored collateralized mortgage obligations– residential | 4,520 | 175 | — | 4,695 | ||||||||||||
Total available-for-sale securities | $ | 139,932 | $ | 5,739 | $ | (6 | ) | $ | 145,665 |
Held-to-Maturity
| Amortized | Gross | Gross | Fair | Amortized | Gross | Gross | Fair | ||||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Obligations of state and political subdivisions | $ | 4,061 | $ | 22 | $ | — | $ | 4,083 | $ | 3,336 | $ | 269 | $ | — | $ | 3,605 | ||||||||||||||||
Total held-to-maturity securities | $ | 3,336 | $ | 269 | $ | — | $ | 3,605 |
Available–for-Sale | Amortized | Gross | Gross | Fair | ||||||||||||
June 30, 2017 | ||||||||||||||||
Obligations of U.S. government-sponsored entities and agencies | $ | 12,571 | $ | 90 | $ | (74 | ) | $ | 12,587 | |||||||
Obligations of state and political subdivisions | 56,824 | 890 | (254 | ) | �� | 57,460 | ||||||||||
Mortgage-backed securities – residential | 64,092 | 184 | (438 | ) | 63,838 | |||||||||||
Mortgage-backed securities – commercial | 1,459 | — | (1 | ) | 1,458 | |||||||||||
Collateralized mortgage obligations - residential | 6,310 | 1 | (100 | ) | 6,211 | |||||||||||
Pooled trust preferred security | 155 | 377 | — | 532 | ||||||||||||
Total available-for-sale securities | $ | 141,411 | $ | 1,542 | $ | (867 | ) | $ | 142,086 |
Available–for-Sale
| Amortized | Gross | Gross | Fair | ||||||||||||
June 30, 2020 | ||||||||||||||||
U.S. Treasury | $ | 1,248 | $ | 8 | $ | — | $ | 1,256 | ||||||||
Obligations of U.S. government-sponsored entities and agencies | 10,133 | 399 | — | 10,532 | ||||||||||||
Obligations of state and political subdivisions | 60,343 | 3,149 | — | 63,492 | ||||||||||||
U.S. government-sponsored mortgage-backed securities - residential | 48,645 | 1,515 | (4 | ) | 50,156 | |||||||||||
U.S. government-sponsored mortgage-backed securities - commercial | 8,444 | 55 | (2 | ) | 8,497 | |||||||||||
U.S. government-sponsored collateralized mortgage obligations - residential | 9,712 | 285 | (12 | ) | 9,985 | |||||||||||
Total available-for-sale securities | $ | 138,525 | $ | 5,411 | $ | (18 | ) | $ | 143,918 |
Held-to-Maturity | Amortized | Gross | Gross | Fair | Amortized | Gross | Gross | Fair | ||||||||||||||||||||||||
June 30, 2017 | ||||||||||||||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||||||||||||||
Obligations of state and political subdivisions | $ | 4,259 | $ | 73 | $ | (3 | ) | $ | 4,329 | $ | 3,541 | $ | 327 | $ | — | $ | 3,868 | |||||||||||||||
Total held-to-maturity securities | $ | 3,541 | $ | 327 | $ | — | $ | 3,868 |
(Dollars in thousands, except per share amounts)
Proceeds from the sale and call of available-for-sale securities were as follows:
Three Months Ended December 31 | Six Months Ended December 31, | Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Proceeds from sales | $ | — | $ | 1,594 | $ | 1,586 | $ | 3,383 | ||||||||||||||||||||||||
Proceeds from sales and calls | $ | 2,733 | $ | 1,650 | 2,733 | 6,110 | ||||||||||||||||||||||||||
Gross realized gains | — | 24 | 39 | 127 | 31 | 4 | 31 | 110 | ||||||||||||||||||||||||
Gross realized losses | — | 2 | 1 | 2 | ||||||||||||||||||||||||||||
Gross realized losses | 23 | — | 23 | — |
The incomeincome tax provision related to thesethe net realized gain amounted to $2 for the three- and six-month periods ended December 31, 2020. The income tax provision related to the net realized gains and losses amounted to $13$1 and $22 for the six monthsthree- and six-month periods ended December 31, 2017 and $8 and $43 for the three and six months ended December 31, 2016.2019, respectively.
The amortized cost and fair values of debt securities at December 31, 2017, 2020, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized mortgage obligations and the pooled trust preferred security are shown separately.
Available-for-Sale | Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
Due in one year or less | $ | 2,170 | $ | 2,192 | $ | 4,930 | $ | 5,006 | ||||||||
Due after one year through five years | 18,053 | 18,167 | 14,015 | 14,545 | ||||||||||||
Due after five years through ten years | 28,838 | 28,992 | 13,700 | 14,327 | ||||||||||||
Due after ten years | 21,409 | 21,466 | 39,006 | 41,766 | ||||||||||||
Total | 70,470 | 70,817 | 71,651 | 75,644 | ||||||||||||
U.S. Government-sponsored mortgage-backed and related securities | 64,980 | 64,300 | 69,281 | 70,021 | ||||||||||||
Pooled trust preferred security | 178 | 621 | ||||||||||||||
Total available-for-sale securities | $ | 135,628 | $ | 135,738 | $ | 139,932 | $ | 145,665 | ||||||||
Held-to-Maturity | ||||||||||||||||
Due after one year through five years | $ | 334 | $ | 356 | ||||||||||||
Due after five years through ten years | 564 | 579 | 667 | 735 | ||||||||||||
Due after ten years | 3,497 | 3,504 | 2,335 | 2,514 | ||||||||||||
Total held-to-maturity securities | $ | 4,061 | $ | 4,083 | $ | 3,336 | $ | 3,605 |
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
The following table summarizes the securities with unrealized losses at December 31, 2017 2020 and June 30,2017, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
U.S. Government-sponsored mortgage-backed securities – residential | 1,198 | (5 | ) | — | — | 1,198 | (5 | ) | ||||||||||||||||
U.S. Government-sponsored mortgage-backed securities- commercial | 1,422 | (1 | ) | — | — | 1,422 | (1 | ) | ||||||||||||||||
Total temporarily impaired | $ | 2,620 | $ | (6 | ) | $ | — | $ | — | $ | 2,620 | $ | (6 | ) |
(Dollars in thousands, except per share amounts)
Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
Obligations of US government-sponsored entities and agencies | $ | 9,901 | $ | (146 | ) | $ | — | $ | — | $ | 9,901 | $ | (146 | ) | ||||||||||
Obligations of states and political subdivisions | 11,862 | (93 | ) | 8,179 | (190 | ) | 20,041 | (283 | ) | |||||||||||||||
Mortgage-backed securities - residential | 27,316 | (243 | ) | 22,415 | (388 | ) | 49,731 | (631 | ) | |||||||||||||||
Mortgage-backed securities - commercial | 1,435 | (10 | ) | — | — | 1,435 | (10 | ) | ||||||||||||||||
Collateralized mortgage obligations – residential | — | — | 5,346 | (137 | ) | 5,346 | (137 | ) | ||||||||||||||||
Total temporarily impaired | $ | 50,514 | $ | (492 | ) | $ | 35,940 | $ | (715 | ) | $ | 86,454 | $ | (1,207 | ) |
Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
June 30, 2017 | ||||||||||||||||||||||||
Obligations of US government-sponsored entities and agencies | $ | 4,336 | $ | (74 | ) | $ | — | $ | — | $ | 4,336 | $ | (74 | ) | ||||||||||
Obligations of states and political subdivisions | 13,881 | (241 | ) | 834 | (13 | ) | 14,715 | (254 | ) | |||||||||||||||
Mortgage-backed securities - residential | 42,071 | (391 | ) | 2,805 | (47 | ) | 44,876 | (438 | ) | |||||||||||||||
Mortgage-backed securities - commercial | 1,458 | (1 | ) | — | — | 1,458 | (1 | ) | ||||||||||||||||
Collateral mortgage obligation - residential | 5,417 | (88 | ) | 654 | (12 | ) | 6,071 | (100 | ) | |||||||||||||||
Total temporarily impaired | $ | 67,163 | $ | (795 | ) | $ | 4,293 | $ | (72 | ) | $ | 71,456 | $ | (867 | ) |
Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||||||
U.S. Government-sponsored mortgage-backed securities – residential | — | — | 625 | (4 | ) | 625 | (4 | ) | ||||||||||||||||
U.S. Government-sponsored mortgage-backed securities – commercial | 1,806 | (2 | ) | — | — | 1,806 | (2 | ) | ||||||||||||||||
U.S. Government-sponsored collateralized mortgage obligations - residential | 1,700 | (12 | ) | — | — | 1,700 | (12 | ) | ||||||||||||||||
Total temporarily impaired | $ | 3,506 | $ | (14 | ) | $ | 625 | $ | (4 | ) | $ | 4,131 | $ | (18 | ) |
Management evaluates securities for other-than-temporary impairmentimpairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities.
In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1)(1) the length of time and the extent to which the fair value has been less than cost, (2)(2) the financial condition and near-term prospects of the issuer, (3)(3) whether the market decline was affected by macroeconomic conditions, and (4)(4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The unrealized losses within the securities portfolio as of December 31, 2017 2020 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The decline in fair value within the securities portfolio is largely due to changesincreases in interest ratesmortgage backed and collateralized mortgage obligations prepayment speeds impacting the fair value is expected to recover as the securities approach maturity.yield on bonds that were purchased at a premium. The mortgage-backed securities and collateralized mortgage obligations were primarily issued by Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. The Corporation does not own any private label mortgage-backed securities.
Note 34 – Loans
Major classifications of loans were as follows:
December 31, 2017 | June 30, 2017 | December 31, 2020 | June 30, 2020 | |||||||||||||
Commercial | $ | 49,561 | $ | 46,336 | $ | 158,911 | $ | 158,667 | ||||||||
Commercial real estate: | ||||||||||||||||
Construction | 5,936 | 5,588 | 3,802 | 16,235 | ||||||||||||
Other | 169,692 | 157,861 | 250,529 | 229,029 | ||||||||||||
1 – 4 Family residential real estate: | ||||||||||||||||
Owner occupied | 45,351 | 41,581 | 93,726 | 90,494 | ||||||||||||
Non-owner occupied | 16,163 | 14,377 | 20,210 | 19,370 | ||||||||||||
Construction | 1,931 | 1,993 | 6,026 | 9,344 | ||||||||||||
Consumer | 4,960 | 5,131 | 24,230 | 21,334 | ||||||||||||
Subtotal | 293,594 | 272,867 | 557,434 | 544,473 | ||||||||||||
Net Deferred loan fees and costs | (177 | ) | (1,612 | ) | ||||||||||||
Allowance for loan losses | (3,225 | ) | (3,086 | ) | (5,912 | ) | (5,678 | ) | ||||||||
Net Loans | $ | 290,369 | $ | 269,781 | $ | 551,345 | $ | 537,183 |
Loans presentedThe commercial loan category in the above are nettable includes PPP loans of deferred loan fees and costs$52,539 as of $313 and $294 for December 31, 2017 2020 and $66,606 as of June 30, 2017, respectively.2020 and a mortgage loan warehouse line of credit to another financial institution with an outstanding balance of $47,268 as of December 31, 2020 and $32,869 as of June 30, 2020. The outstanding balance of the warehouse line of credit can fluctuate significantly based on the other financial institution’s funding needs.
(Dollars in thousands, except per share amounts)
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2017:2020:
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Commercial | Residential | |||||||||||||||||||||||||||||||||||||
Real | Real | Real | Real | |||||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | Commercial | Estate | Estate | Consumer | Total | |||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 572 | $ | 2,081 | $ | 473 | $ | 68 | $ | 3,194 | $ | 940 | $ | 3,694 | $ | 997 | $ | 136 | $ | 5,767 | ||||||||||||||||||||
Provision for loan losses | (17 | ) | 57 | 20 | — | 60 | (82 | ) | 122 | 31 | 59 | 130 | ||||||||||||||||||||||||||||
Loans charged-off | — | — | (33 | ) | (5 | ) | (38 | ) | — | — | — | (12 | ) | (12 | ) | |||||||||||||||||||||||||
Recoveries | — | 6 | 1 | 2 | 9 | — | 1 | — | 26 | 27 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 555 | $ | 2,144 | $ | 461 | $ | 65 | $ | 3,225 | $ | 858 | $ | 3,817 | $ | 1,028 | $ | 209 | $ | 5,912 |
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2017:2020:
1-4 Family | ||||||||||||||||||||||||||||||||||||||||
1-4 Family | Commercial | Residential | ||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Real | Real | |||||||||||||||||||||||||||||||||||||
Real | Real | Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 518 | $ | 2,038 | $ | 473 | $ | 57 | $ | 3,086 | $ | 947 | $ | 3,623 | $ | 989 | $ | 119 | $ | 5,678 | ||||||||||||||||||||
Provision for loan losses | 35 | 82 | 20 | 13 | 150 | (67 | ) | 192 | 39 | 96 | 260 | |||||||||||||||||||||||||||||
Loans charged-off | — | — | (33 | ) | (8 | ) | (41 | ) | (22 | ) | — | — | (56 | ) | (78 | ) | ||||||||||||||||||||||||
Recoveries | 2 | 24 | 1 | 3 | 30 | — | 2 | — | 50 | 52 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 555 | $ | 2,144 | $ | 461 | $ | 65 | $ | 3,225 | $ | 858 | $ | 3,817 | $ | 1,028 | $ | 209 | $ | 5,912 |
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2016:2019:
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Commercial | Residential | |||||||||||||||||||||||||||||||||||||
Real | Real | Real | Real | |||||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | Commercial | Estate | Estate | Consumer | Total | |||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 510 | $ | 2,643 | $ | 411 | $ | 120 | $ | 3,684 | $ | 649 | $ | 2,645 | $ | 550 | $ | 65 | $ | 3,909 | ||||||||||||||||||||
Provision for loan losses | (14 | ) | 157 | 51 | (54 | ) | 140 | 117 | 6 | 64 | (2 | ) | 185 | |||||||||||||||||||||||||||
Loans charged-off | — | (700 | ) | (23 | ) | (8 | ) | (731 | ) | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||||||||||
Recoveries | 1 | — | 26 | 3 | 30 | — | 1 | 1 | 6 | 8 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 497 | $ | 2,100 | $ | 465 | $ | 61 | $ | 3,123 | $ | 766 | $ | 2,652 | $ | 615 | $ | 62 | $ | 4,095 |
(Dollars in thousands, except per share amounts)
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2016:2019:
1-4 Family | ||||||||||||||||||||||||||||||||||||||||
1-4 Family | Commercial | Residential | ||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Real | Real | |||||||||||||||||||||||||||||||||||||
Real | Real | Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 505 | $ | 2,518 | $ | 402 | $ | 141 | $ | 3,566 | $ | 660 | $ | 2,575 | $ | 494 | $ | 59 | $ | 3,788 | ||||||||||||||||||||
Provision for loan losses | (9 | ) | 282 | 78 | (75 | ) | 276 | 106 | 75 | 120 | 14 | 315 | ||||||||||||||||||||||||||||
Loans charged-off | — | (700 | ) | (44 | ) | (12 | ) | (756 | ) | — | — | — | (23 | ) | (23 | ) | ||||||||||||||||||||||||
Recoveries | 1 | — | 29 | 7 | 37 | — | 2 | 1 | 12 | 15 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 497 | $ | 2,100 | $ | 465 | $ | 61 | $ | 3,123 | $ | 766 | $ | 2,652 | $ | 615 | $ | 62 | $ | 4,095 |
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2017. 2020. Included in the recorded investment in loans is $695$1,607 of accrued interest receivable.
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Commercial | Residential | |||||||||||||||||||||||||||||||||||||
Real | Real | Real | Real | |||||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | Commercial | Estate | Estate | Consumer | Total | |||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | 30 | $ | — | $ | — | $ | 30 | $ | 3 | $ | — | $ | 6 | $ | — | $ | 9 | ||||||||||||||||||||
Collectively evaluated for impairment | 555 | 2,114 | 461 | 65 | 3,195 | |||||||||||||||||||||||||||||||||||
Acquired loans collectively evaluated for impairment | — | 101 | 84 | — | 185 | |||||||||||||||||||||||||||||||||||
Originated loans collectively evaluated for impairment | 855 | 3,716 | 938 | 209 | 5,718 | |||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 555 | $ | 2,144 | $ | 461 | $ | 65 | $ | 3,225 | $ | 858 | $ | 3,817 | $ | 1,028 | $ | 209 | $ | 5,912 | ||||||||||||||||||||
Recorded investment in loans: | ||||||||||||||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 122 | $ | 1,303 | $ | 340 | $ | — | $ | 1,765 | $ | 148 | $ | 1,151 | $ | 1,044 | $ | — | $ | 2,343 | ||||||||||||||||||||
Loans collectively evaluated for impairment | 49,553 | 174,707 | 63,293 | 4,971 | 292,524 | |||||||||||||||||||||||||||||||||||
Acquired loans collectively evaluated for impairment | 661 | 7,824 | 23,220 | 8,935 | 40,640 | |||||||||||||||||||||||||||||||||||
Originated loans collectively evaluated for impairment | 158,331 | 245,489 | 96,733 | 15,328 | 515,881 | |||||||||||||||||||||||||||||||||||
Total ending loans balance | $ | 49,675 | $ | 176,010 | $ | 63,633 | $ | 4,971 | $ | 294,289 | $ | 159,140 | $ | 254,464 | $ | 120,997 | $ | 24,263 | $ | 558,864 |
(Dollars in thousands, except per share amounts)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2017. 2020. Included in the recorded investment in loans is $581$1,936 of accrued interestinterest receivable.
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||
Commercial | Residential | Commercial | Residential | |||||||||||||||||||||||||||||||||||||
Real | Real | Real | Real | |||||||||||||||||||||||||||||||||||||
Commercial | Estate | Estate | Consumer | Total | Commercial | Estate | Estate | Consumer | Total | |||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | 42 | $ | 2 | $ | — | $ | 44 | $ | 28 | $ | 6 | $ | — | $ | — | $ | 34 | ||||||||||||||||||||
Collectively evaluated for impairment | 518 | 1,996 | 471 | 57 | 3,042 | |||||||||||||||||||||||||||||||||||
Acquired loans collectively evaluated for impairment | — | 103 | 94 | — | 197 | |||||||||||||||||||||||||||||||||||
Originated loans collectively evaluated for impairment | 919 | 3,514 | 895 | 119 | 5,447 | |||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 518 | $ | 2,038 | $ | 473 | $ | 57 | $ | 3,086 | $ | 947 | $ | 3,623 | $ | 989 | $ | 119 | $ | 5,678 | ||||||||||||||||||||
Recorded investment in loans: | ||||||||||||||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 444 | $ | 1,587 | $ | 203 | $ | — | $ | 2,234 | $ | 179 | $ | 1,045 | $ | 699 | $ | — | $ | 1,923 | ||||||||||||||||||||
Loans collectively evaluated for impairment | 45,993 | 162,176 | 57,901 | 5,144 | 271,214 | |||||||||||||||||||||||||||||||||||
Acquired loans collectively evaluated for impairment | 1,095 | 8,072 | 27,252 | 12,550 | 48,969 | |||||||||||||||||||||||||||||||||||
Originated loans collectively evaluated for impairment | 156,054 | 236,840 | 92,168 | 8,843 | 493,905 | |||||||||||||||||||||||||||||||||||
Total ending loans balance | $ | 46,437 | $ | 163,763 | $ | 58,104 | $ | 5,144 | $ | 273,448 | $ | 157,328 | $ | 245,957 | $ | 120,119 | $ | 21,393 | $ | 544,797 |
The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of December 31, 2017 2020 and for the six months ended December 31, 2017:2020:
As of December 31, 2017 | Six Months ended December 31, 2017 | As of December 31, 2020 | Six Months ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Unpaid | Allowance for Loan | Average | Interest | Cash Basis | Unpaid | Allowance for | Average | Interest | Cash Basis | |||||||||||||||||||||||||||||||||||||||
Principal | Recorded | Losses | Recorded | Income | Interest | Principal | Recorded | Loan Losses | Recorded | Income | Interest | |||||||||||||||||||||||||||||||||||||
Balance | Investment | Allocated | Investment | Recognized | Recognized | Balance | Investment | Allocated | Investment | Recognized | Recognized | |||||||||||||||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 122 | $ | 122 | $ | — | $ | 117 | $ | 3 | $ | 3 | ||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 973 | 976 | — | 1,057 | 16 | 16 | $ | 1,286 | $ | 1,151 | $ | — | $ | 867 | $ | 4 | $ | 4 | ||||||||||||||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 25 | 25 | — | 80 | — | — | 947 | 797 | — | 629 | 11 | 11 | ||||||||||||||||||||||||||||||||||||
Non-owner occupied | 315 | 315 | — | 322 | — | — | 274 | 217 | — | 225 | — | — | ||||||||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 147 | 148 | 3 | 160 | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 327 | 327 | 30 | 337 | 5 | 5 | — | — | — | 205 | 6 | 6 | ||||||||||||||||||||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 30 | 30 | 6 | 5 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,762 | $ | 1,765 | $ | 30 | $ | 1,913 | $ | 24 | $ | 24 | $ | 2,684 | $ | 2,343 | $ | 9 | $ | 2,091 | $ | 25 | $ | 25 |
(Dollars in thousands, except per share amounts)
The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended December 31,2017: 2020:
Average | Interest | Cash Basis | Average | Interest | Cash Basis | |||||||||||||||||||
Recorded | Income | Interest | Recorded | Income | Interest | |||||||||||||||||||
Investment | Recognized | Recognized | Investment | Recognized | Recognized | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 120 | $ | 1 | $ | 1 | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Other | 1,061 | 6 | 6 | $ | 907 | $ | 3 | $ | 3 | |||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||
Owner occupied | 318 | — | — | 720 | 5 | 5 | ||||||||||||||||||
Non-owner occupied | 58 | — | — | 220 | — | — | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial | 150 | 2 | 2 | |||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Other | 330 | 5 | 5 | 204 | 3 | 3 | ||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||
Owner occupied | 10 | — | — | |||||||||||||||||||||
Total | $ | 1,887 | $ | 12 | $ | 12 | $ | 2,211 | $ | 13 | $ | 13 |
The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, 2017 2020 and for the six months ended December 31, 2016:2019:
As of June 30, 2017 | Six Months ended December 31, 2016 | As of June 30, 2020 | Six Months ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Unpaid | Allowance for Loan | Average | Interest | Cash Basis | Unpaid | Allowance for | Average | Interest | Cash Basis | |||||||||||||||||||||||||||||||||||||||
Principal | Recorded | Losses | Recorded | Income | Interest | Principal | Recorded | Loan Losses | Recorded | Income | Interest | |||||||||||||||||||||||||||||||||||||
Balance | Investment | Allocated | Investment | Recognized | Recognized | Balance | Investment | Allocated | Investment | Recognized | Recognized | |||||||||||||||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 482 | $ | 444 | $ | — | $ | 330 | $ | 80 | $ | 80 | ||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | 170 | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Other | 1,928 | 1,039 | — | 1,081 | 105 | 105 | $ | 922 | $ | 836 | $ | — | $ | 303 | $ | 87 | $ | 87 | ||||||||||||||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 104 | 103 | — | 127 | — | — | 604 | 463 | — | 25 | 7 | 7 | ||||||||||||||||||||||||||||||||||||
Non-owner occupied | — | — | — | 205 | — | — | 284 | 236 | — | 254 | — | — | ||||||||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | — | — | — | 7 | — | — | 176 | 179 | 28 | 167 | 5 | 5 | ||||||||||||||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 548 | 548 | 42 | 2,030 | 15 | 15 | 209 | 209 | 6 | 219 | 6 | 6 | ||||||||||||||||||||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 99 | 100 | 2 | 139 | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 3,161 | $ | 2,234 | $ | 44 | $ | 4,089 | $ | 209 | $ | 209 | $ | 2,195 | $ | 1,923 | $ | 34 | $ | 968 | $ | 105 | $ | 105 |
(Dollars in thousands, except per share amounts)
The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months months ended December 31, 2016:2019:
Average | Interest | Cash Basis | Average | Interest | Cash Basis | |||||||||||||||||||
Recorded | Income | Interest | Recorded | Income | Interest | |||||||||||||||||||
Investment | Recognized | Recognized | Investment | Recognized | Recognized | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Construction | $ | 10 | $ | — | $ | — | ||||||||||||||||||
Other | 607 | — | — | $ | 244 | $ | 1 | $ | 1 | |||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||
Owner occupied | 127 | — | — | 10 | — | — | ||||||||||||||||||
Non-owner occupied | 202 | — | — | 250 | — | — | ||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial | 14 | — | — | 165 | 2 | 2 | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Other | 1,612 | 7 | 7 | 218 | 3 | 3 | ||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||
Owner occupied | 101 | 1 | 1 | |||||||||||||||||||||
Total | $ | 2,673 | $ | 8 | $ | 8 | $ | 887 | $ | 6 | $ | 6 |
The followingfollowing table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2017 2020 and June 30, 2017:2020:
December 31, 2017 | June 30, 2017 | December 31, 2020 | June 30, 2020 | |||||||||||||||||||||||||||||
Loans Past Due | Loans Past Due | Loans Past Due | Loans Past Due | |||||||||||||||||||||||||||||
Over 90 Days | Over 90 Days | Over 90 Days | Over 90 Days | |||||||||||||||||||||||||||||
Still | Still | Still | Still | |||||||||||||||||||||||||||||
Non-accrual | Accruing | Non-accrual | Accruing | Non-accrual | Accruing | Non-accrual | Accruing | |||||||||||||||||||||||||
Commercial | $ | — | $ | — | $ | 368 | $ | — | ||||||||||||||||||||||||
Commercial | $ | — | $ | — | $ | 21 | $ | — | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Other | 537 | — | 729 | — | 902 | — | 785 | — | ||||||||||||||||||||||||
1 – 4 Family residential: | ||||||||||||||||||||||||||||||||
Owner occupied | 13 | — | 90 | — | 821 | — | 143 | 29 | ||||||||||||||||||||||||
Non-owner occupied | 315 | — | — | — | 217 | — | 236 | — | ||||||||||||||||||||||||
Consumer | — | — | — | 12 | ||||||||||||||||||||||||||||
Total | $ | 865 | $ | — | $ | 1,187 | $ | — | $ | 1,940 | $ | — | $ | 1,185 | $ | 41 |
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.
(Dollars in thousands, except per share amounts)
The following table presents the aging of the recorded investment in past due loans as of December 31, 2017 2020 by class of loans:
Days Past Due | Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
30 - 59 | 60 - 89 | 90 Days or | Total | Loans Not | 30 - 59 | 60 - 89 | 90 Days or | Total | Loans Not | |||||||||||||||||||||||||||||||||||||||
Days | Days | Greater | Past Due | Past Due | Total | Days | Days | Greater | Past Due | Past Due | Total | |||||||||||||||||||||||||||||||||||||
Commercial | $ | — | $ | — | $ | — | $ | — | $ | 49,675 | $ | 49,675 | $ | — | $ | — | $ | — | $ | — | $ | 159,140 | $ | 159,140 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | — | 5,943 | 5,943 | — | — | — | — | 3,791 | 3,791 | ||||||||||||||||||||||||||||||||||||
Other | 230 | — | — | 230 | 169,837 | 170,067 | — | — | 629 | 629 | 250,044 | 250,673 | ||||||||||||||||||||||||||||||||||||
1-4 Family residential: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 12 | — | — | 12 | 45,477 | 45,489 | 450 | 4 | 269 | 723 | 93,926 | 94,649 | ||||||||||||||||||||||||||||||||||||
Non-owner occupied | — | — | — | — | 16,210 | 16,210 | — | — | — | — | 20,223 | 20,223 | ||||||||||||||||||||||||||||||||||||
Construction | — | — | — | — | 1,934 | 1,934 | 4 | — | — | 4 | 6,121 | 6,125 | ||||||||||||||||||||||||||||||||||||
Consumer | 4 | 2 | — | 6 | 4,965 | 4,971 | 261 | 49 | — | 310 | 23,953 | 24,263 | ||||||||||||||||||||||||||||||||||||
Total | $ | 246 | $ | 2 | $ | — | $ | 248 | $ | 294,041 | $ | 294,289 | $ | 715 | $ | 53 | $ | 898 | $ | 1,666 | $ | 557,198 | $ | 558,864 |
The above table of past due loans includes the recorded investment in non-accrual loans of$865 $898 in the 90 days or greater category and $1,042 in the loans not past due category.
The following table presents the aging of the recorded investment in past due loans as of June 30, 2017 2020 by class of loans:
Days Past Due | Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
30 - 59 | 60 - 89 | 90 Days or | Total | Loans Not | 30 - 59 | 60 - 89 | 90 Days or | Total | Loans Not | |||||||||||||||||||||||||||||||||||||||
Days | Days | Greater | Past Due | Past Due | Total | Days | Days | Greater | Past Due | Past Due | Total | |||||||||||||||||||||||||||||||||||||
Commercial | $ | — | $ | — | $ | 35 | $ | 35 | $ | 46,402 | $ | 46,437 | $ | — | $ | — | $ | 21 | $ | 21 | $ | 157,307 | $ | 157,328 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | — | 5,596 | 5,596 | — | — | — | — | 16,241 | 16,241 | ||||||||||||||||||||||||||||||||||||
Other | — | — | 130 | 130 | 158,037 | 158,167 | — | 2 | 628 | 630 | 229,086 | 229,716 | ||||||||||||||||||||||||||||||||||||
1-4 Family residential: | ||||||||||||||||||||||||||||||||||||||||||||||||
Owner occupied | 13 | — | 74 | 87 | 41,605 | 41,692 | — | — | 172 | 172 | 91,102 | 91,274 | ||||||||||||||||||||||||||||||||||||
Non-owner occupied | — | — | — | — | 14,416 | 14,416 | — | — | — | — | 19,410 | 19,410 | ||||||||||||||||||||||||||||||||||||
Construction | — | — | — | — | 1,996 | 1,996 | — | — | — | — | 9,435 | 9,435 | ||||||||||||||||||||||||||||||||||||
Consumer | 22 | — | — | 22 | 5,122 | 5,144 | 127 | 49 | 12 | 188 | 21,205 | 21,393 | ||||||||||||||||||||||||||||||||||||
Total | $ | 35 | $ | — | $ | 239 | $ | 274 | $ | 273,174 | $ | 273,448 | $ | 127 | $ | 51 | $ | 833 | $ | 1,011 | $ | 543,786 | $ | 544,797 |
The above table of past due loans includes the recorded investment in non-accrual loans of$239 $2 in the 60-89 days, $792 in the 90 days or greater category and $948$391 in the loans not past due category.
Troubled Debt Restructurings: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. In response to COVID-19, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by the virus. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as TDRs. As of December 31, 2020, 18 borrowers with an aggregate outstanding balance of $667 are in payment deferral status under this loan modification program.
As of December 31, 2017, 2020 and June 30, 2020, the recorded investmentCorporation had $934 and $974, respectively, of loans classified as troubled debt restructurings was $1,582 with $30 of specific reserves allocated to these loans.TDRs which are included in impaired loans above. As of December 31, 2017, 2020 and June 30, 2020, the Corporation had not committed to lend anany additional $192funds to customers with outstanding loans that were classified as troubled debt restructurings. As of December 31, 2020 and June 30, 2017, 2020, the recorded investment of loans classified as troubled debt restructurings was $1,740 with $33Corporation had $3 and $12, respectively, of specific reservesreserve allocated to these loans. As of June 30, 2017, the Corporation had committed to lend an additional $175 to customers with outstanding loans that were classified as troubled debt restructurings.
(Dollars in thousands, except per share amounts)
During the threethree- and six monthssix-month periods ended December 31, 2017 2020 and 2016,2019, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge offs from troubled debt restructurings that were completed during the threethree- and six monthsix-month periods ended December 31, 2017 2020 and 2016.2019.
ThereThere were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the threethree- and six monthsix-month periods ended December 31, 2017 2020 and 2016.2019. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: currentcurrent financial information, historical payment experience, credit documentation, public information, current economic trends and other relevant information. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $100$100 and non-homogeneous loans, such as commercial and commercial real estate loans. Management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirmaffirms the risk ratings for the loans and leases in their respective portfolio on an annual basis. The Corporation uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are eithereither less than $100$100 or are included in groups of homogeneous loans. Generally, 1-4 Family Residential and Consumer loans are not risk rated, except when collateral is used for a business purpose. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:
As of December 31, 2017 | ||||||||||||||||||||
Special | Not | |||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Rated | ||||||||||||||||
Commercial | $ | 48,091 | $ | 883 | $ | 339 | $ | — | $ | 362 | ||||||||||
Commercial real estate: | ||||||||||||||||||||
Construction | 5,941 | — | 2 | — | — | |||||||||||||||
Other | 156,415 | 10,365 | 1,772 | 537 | 978 | |||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||
Owner occupied | 2,661 | 58 | 14 | 13 | 42,743 | |||||||||||||||
Non-owner occupied | 14,669 | 203 | 433 | 315 | 590 | |||||||||||||||
Construction | 765 | — | — | — | 1,169 | |||||||||||||||
Consumer | 119 | — | — | — | 4,852 | |||||||||||||||
Total | $ | 228,661 | $ | 11,509 | $ | 2,560 | $ | 865 | $ | 50,694 |
As of June 30, 2017 | As of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
Special | Not | Special | Not | |||||||||||||||||||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Rated | Pass | Mention | Substandard | Doubtful | Rated | |||||||||||||||||||||||||||||||
Commercial | $ | 44,435 | $ | 907 | $ | 642 | $ | — | $ | 453 | $ | 158,054 | $ | 453 | $ | 359 | $ | — | $ | 274 | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||||||||||
Construction | 4,514 | 1,035 | — | 4 | 43 | |||||||||||||||||||||||||||||||||||
Construction | 3,791 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Other | 150,460 | 5,110 | 1,566 | 470 | 561 | 241,702 | 1,933 | 5,075 | 902 | 1,061 | ||||||||||||||||||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||||||||||||||||||||||
Owner occupied | 2,668 | — | 11 | 30 | 38,983 | |||||||||||||||||||||||||||||||||||
Owner occupied | 1,988 | — | 18 | 603 | 92,040 | |||||||||||||||||||||||||||||||||||
Non-owner occupied | 13,633 | 210 | 261 | 187 | 125 | 19,265 | 173 | 210 | 217 | 358 | ||||||||||||||||||||||||||||||
Construction | 1,223 | — | — | — | 773 | 1,306 | — | — | — | 4,819 | ||||||||||||||||||||||||||||||
Consumer | 145 | — | — | — | 4,999 | 687 | — | — | — | 23,576 | ||||||||||||||||||||||||||||||
Total | $ | 217,078 | $ | 7,262 | $ | 2,480 | $ | 691 | $ | 45,937 | $ | 426,793 | $ | 2,559 | $ | 5,662 | $ | 1,722 | $ | 122,128 |
(Dollars in thousands, except per share amounts)
As of June 30, 2020, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:
As of June 30, 2020 | ||||||||||||||||||||
Special | Not | |||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Rated | ||||||||||||||||
Commercial | $ | 152,911 | $ | 143 | $ | 3,979 | $ | 21 | $ | 274 | ||||||||||
Commercial real estate: | ||||||||||||||||||||
Construction | 16,241 | — | — | — | — | |||||||||||||||
Other | 220,311 | 1,469 | 5,378 | 785 | 1,773 | |||||||||||||||
1-4 Family residential real estate: | ||||||||||||||||||||
Owner occupied | 2,419 | — | 334 | — | 88,521 | |||||||||||||||
Non-owner occupied | 18,435 | 186 | 223 | 236 | 330 | |||||||||||||||
Construction | 3,234 | — | — | — | 6,201 | |||||||||||||||
Consumer | 153 | — | — | — | 21,240 | |||||||||||||||
Total | $ | 413,704 | $ | 1,798 | $ | 9,914 | $ | 1,042 | $ | 118,339 |
Note 45 - 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 measurementmeasurement 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 Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’scompany’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Financial assets and financial liabilities measured at fair value on a recurringrecurring basis include the following:
Securities available-for-sale: When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).
(Dollars in thousands, except per share amounts)
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 measuremeasure fair value:
Fair Value Measurements at December 31, 2017 Using | ||||||||||||||||
Balance at December 31, 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Obligations of U.S. government-sponsored entities and agencies | $ | 13,636 | $ | — | $ | 13,636 | $ | — | ||||||||
Obligations of states and political subdivisions | 57,181 | — | 57,181 | — | ||||||||||||
Mortgage-backed securities – residential | 57,518 | — | 57,518 | — | ||||||||||||
Mortgage-backed securities – commercial | 1,436 | — | 1,436 | — | ||||||||||||
Collateralized mortgage obligations - residential | 5,346 | — | 5,346 | — | ||||||||||||
Pooled trust preferred security | 621 | — | 621 | — |
Fair Value Measurements at December 31, 2020 | ||||||||||||||||
Balance at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury | $ | 501 | $ | — | $ | 501 | $ | — | ||||||||
Obligations of U.S. government-sponsored entities and agencies | 8,109 | — | 8,109 | — | ||||||||||||
Obligations of states and political subdivisions | 67,034 | — | 67,034 | — | ||||||||||||
U.S. Government-sponsored mortgage-backed securities – residential | 58,248 | — | 58,248 | — | ||||||||||||
U.S. Government-sponsored mortgage-backed securities – commercial | 7,078 | — | 7,078 | — | ||||||||||||
U.S. Government-sponsored collateralized mortgage obligations - residential | 4,695 | — | 4,695 | — | ||||||||||||
Equity securities | 400 | — | 400 | — |
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Fair Value Measurements at June 30, 2017 Using | ||||||||||||||||
Balance at June 30, 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Obligations of U.S. government-sponsored entities and agencies | $ | 12,587 | $ | — | $ | 12,587 | $ | — | ||||||||
Obligations of states and political subdivisions | 57,460 | — | 57,460 | — | ||||||||||||
Mortgage-backed securities - residential | 63,838 | — | 63,838 | — | ||||||||||||
Mortgage-backed securities - commercial | 1,458 | — | 1,458 | — | ||||||||||||
Collateralized mortgage obligations - residential | 6,211 | — | 6,211 | — | ||||||||||||
Pooled trust preferred security | 532 | — | 532 | — |
Fair Value Measurements at June 30, 2020 | ||||||||||||||||
Balance at June 30, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Securities available-for-sale: | ||||||||||||||||
Obligations of U.S. Treasury | $ | 1,256 | $ | — | $ | 1,256 | $ | — | ||||||||
Obligations of government-sponsored entities | 10,532 | — | 10,532 | — | ||||||||||||
Obligations of states and political subdivisions | 63,492 | — | 63,492 | — | ||||||||||||
U.S. Government-sponsored mortgage-backed securities - residential | 50,156 | — | 50,156 | — | ||||||||||||
U.S. Government-sponsored mortgage-backed securities – commercial | 8,497 | — | 8,497 | — | ||||||||||||
U.S. Government-sponsored collateralized mortgage obligations | 9,985 | — | 9,985 | — |
There were no transfers between Level 1 and Level 2 during the three or six monththree-month and six-month periods ended December 31, 2017 2020 or 2016.2019.
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assetsAssets and financial liabilities measured at fair value on a non-recurring basis include the following:
Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. There were no impaired loans measured at fair value on a non-recurring basis at December 31, 2020 or June 30, 2020 and there was no impact to the provision for loan losses for the three- or six-month periods ended December 31, 2020 or 2019.
(Dollars in thousands, except per share amounts)
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.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
There were no financial assets measured at fair value on a non-recurring basis at December 31, 2017. Financial assets measured at fair value on a non-recurring basis at June 30, 2017 are summarized below:
Fair Value Measurements at June 30, 2017 Using | ||||||||||||||||
Balance at June 30, 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans: | ||||||||||||||||
Commercial Real Estate - Other | $ | 130 | $ | — | $ | — | $ | 130 | ||||||||
Other Real Estate Owned: | ||||||||||||||||
1-4 Family residential real estate | 71 | — | — | 71 |
There were no impaired loans measured at fair value on a non-recurring basis at December 31, 2017 and there was no impact to the provision for loan losses for the three months ended December 31, 2017. The resulting impact to the provision for loan losses was a decrease of $17 being recorded for the six months ended December 31, 2017. Impaired loans, measured for impairment using the fair value of the collateral, had a recorded investment of $130, with no valuation allowance at June 30, 2017. The resulting impact to the provision for loan losses was a decrease of $87 and $47 being recorded for the three and six months ended December 31, 2016, respectively.
Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $71, which was made up of the outstanding balance of $103, net of a valuation allowance of $32 at June 30, 2017. There were no other real estate owned or other repossessed assets being carried at fair value as of December 31, 2017.
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at 2020 or June 30, 2017:
June 30, 2017 | Fair Value | Valuation Technique | Unobservable Inputs | Range | Weighted Average | ||||||||||||
Impaired loans: | |||||||||||||||||
Commercial Real Estate – Other | $ | 130 | Bid Indications | N/A | 0.0 | % | 0.0 | % | |||||||||
Other Real Estate Owned: | |||||||||||||||||
1-4 Family residential real estate | $ | 71 | Bid Indications | N/A | 0.0 | % | 0.0 | % |
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)2020.
The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’sCorporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
December 31, 2017 | June 30, 2017 | December 31, 2020 | June 30, 2020 | |||||||||||||||||||||||||||||
Carrying | Estimated | Carrying | Estimated | Carrying | Estimated | Carrying | Estimated | |||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||||||||
Level 1 inputs: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 9,141 | $ | 9,141 | $ | 9,912 | $ | 9,912 | $ | 9,045 | $ | 9,045 | $ | 9,659 | $ | 9,659 | ||||||||||||||||
Level 2 inputs: | ||||||||||||||||||||||||||||||||
Certificates of deposits in other financial institutions | 3,921 | 3,924 | 3,921 | 3,927 | ||||||||||||||||||||||||||||
Certificates of deposit in other financial institutions | 8,599 | 8,819 | 11,635 | 11,889 | ||||||||||||||||||||||||||||
Loans held for sale | 814 | 833 | 1,252 | 1,286 | 4,770 | 4,907 | 3,507 | 3,566 | ||||||||||||||||||||||||
Accrued interest receivable | 1,310 | 1,310 | 1,212 | 1,212 | 2,327 | 2,327 | 2,646 | 2,646 | ||||||||||||||||||||||||
Level 3 inputs: | ||||||||||||||||||||||||||||||||
Securities held-to-maturity | 4,061 | 4,083 | 4,259 | 4,329 | 3,336 | 3,605 | 3,541 | 3,868 | ||||||||||||||||||||||||
Loans, net | 290,369 | 284,618 | 269,781 | 266,041 | 551,345 | 565,397 | 537,183 | 548,247 | ||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||
Level 2 inputs: | ||||||||||||||||||||||||||||||||
Demand and savings deposits | 316,218 | 316,218 | 307,960 | 307,960 | 540,811 | 540,811 | 517,973 | 517,973 | ||||||||||||||||||||||||
Time deposits | 66,771 | 66,676 | 66,511 | 66,535 | 107,551 | 108,158 | 115,382 | 116,238 | ||||||||||||||||||||||||
Short-term borrowings | 22,507 | 22,507 | 23,986 | 23,986 | 13,275 | 13,275 | 6,943 | 6,943 | ||||||||||||||||||||||||
Federal Home Loan Bank advances | 17,188 | 16,796 | 12,320 | 12,054 | 18,083 | 18,423 | 31,161 | 31,571 | ||||||||||||||||||||||||
Accrued interest payable | 74 | 74 | 40 | 40 | 88 | 88 | 107 | 107 |
The assumptions used to estimate fair value are described as follows:
Cash and cash equivalents: The carrying value of cash, deposits in other financial institutions and federal funds sold were considered to approximate fair value resulting in a Level 1 classification.
Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification.
Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: 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. For adjustable rate loans that reprice at least annually and for fixed rate commercial loans with maturities of six months or less which possess normal risk characteristics, carrying value was determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds made to local municipalities. The fair values of these securities are estimated using a spread to the applicable municipal fair market curve resulting in a Level 3 classification.
Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at December 31, 2017 and June 30, 2017, for deposits of similar remaining maturities, resulting in a Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at December 31, 2017 and June 30, 2017 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.
Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were 2,062569 shares of restricted stock that were anti-dilutive for the three and six monthssix-month period ended December 31, 2017. 2020. There were no equity instruments1,645 and 2,204 shares of restricted stock that were anti-dilutive for the threethree- and six monthssix-month periods ended December 31, 2016. 30, 2019. The following table details the calculation of basic and diluted earnings per share:
For the Three Months Ended December 31, | For the Six Months Ended December 31, | For the Three Months Ended December 31, | For the Six Months Ended December 31, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||
Net income available to common shareholders | $ | 657 | $ | 722 | $ | 1,586 | $ | 1,623 | $ | 2,507 | $ | 1,440 | $ | 4,908 | $ | 2,943 | ||||||||||||||||
Weighted average common shares outstanding | 2,727,666 | 2,724,061 | 2,725,859 | 2,723,988 | 3,017,268 | 2,737,800 | 3,015,741 | 2,737,755 | ||||||||||||||||||||||||
Basic income per share | $ | 0.24 | $ | 0.27 | $ | 0.58 | $ | 0.60 | $ | 0.83 | $ | 0.53 | $ | 1.63 | $ | 1.07 | ||||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||
Net income available to common shareholders | $ | 657 | $ | 722 | $ | 1,586 | $ | 1,623 | ||||||||||||||||||||||||
Weighted average common shares outstanding | 2,727,666 | 2,724,061 | 2,725,859 | 2,723,988 | ||||||||||||||||||||||||||||
Dilutive effect of restricted stock | — | 19 | — | 13 | ||||||||||||||||||||||||||||
Total common shares and dilutive potential common shares | 2,727,666 | 2,724,080 | 2,725,859 | 2,724,001 | ||||||||||||||||||||||||||||
Dilutive income per share | $ | 0.24 | $ | 0.27 | $ | 0.58 | $ | 0.60 |
(Dollars in thousands, except per share amounts)
Diluted: | ||||||||||||||||
Net income available to common shareholders | $ | 2,507 | $ | 1,440 | $ | 4,908 | $ | 2,943 | ||||||||
Weighted average common shares outstanding | 3,017,268 | 2,737,800 | 3,015,741 | 2,737,755 | ||||||||||||
Dilutive effect of restricted stock | 21 | — | — | — | ||||||||||||
Total common shares and dilutive potential common shares | 3,017,289 | 2,737,800 | 3,015,741 | 2,737,755 | ||||||||||||
Dilutive income per share | $ | 0.83 | $ | 0.53 | $ | 1.63 | $ | 1.07 |
Note 6–Accumulated7 –Accumulated Other Comprehensive Income (Loss)
The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three and six month periodsix-month periods ended December 31, 2017 2020 and 2016,2019, were as follows:
Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | |||||||||||||||||||
Balance as of September 30, 2017 | $ | 741 | $ | (252 | ) | $ | 489 | |||||||||||||||||||
Unrealized holding loss on available-for-sale securities arising during the period | (631 | ) | 215 | (416 | ) | |||||||||||||||||||||
Balance as of December 31, 2017 | $ | 110 | $ | (37 | ) | $ | 73 | |||||||||||||||||||
Balance as of September 30, 2016 | $ | 3,095 | $ | (1,053 | ) | $ | 2,042 | |||||||||||||||||||
Balance as of September 30, 2020 | $ | 5,463 | $ | (1,147 | ) | $ | 4,316 | |||||||||||||||||||
Unrealized holding loss on available-for-sale securities arising during the period | (3,319 | ) | 1,128 | (2,191 | ) | 278 | (59 | ) | 219 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | (22 | ) | 8 | (14 | ) | (a)(b) | (8 | ) | 2 | (6 | ) | (a)(b) | ||||||||||||||
Net current period other comprehensive loss | (3,341 | ) | 1,136 | (2,205 | ) | 270 | (57 | ) | 213 | |||||||||||||||||
Balance as of December 31, 2016 | $ | (246 | ) | $ | 83 | $ | (163 | ) | ||||||||||||||||||
Balance as of December 31, 2020 | $ | 5,733 | $ | (1,204 | ) | $ | 4,529 | |||||||||||||||||||
Balance as of September 30, 2019 | $ | 2,694 | $ | (566 | ) | $ | 2,128 | |||||||||||||||||||
Unrealized holding gain on available-for-sale securities arising during the period | (28 | ) | 5 | (23 | ) | |||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | (4 | ) | 1 | (3 | ) | (a)(b) | ||||||||||||||||||||
Net current period other comprehensive income | (32 | ) | 6 | (26 | ) | |||||||||||||||||||||
Balance after reclassification as of December 31, 2019 | $ | 2,662 | $ | (560 | ) | $ | 2,102 |
(a)(a) Securities gains,(gains) losses, net
(b) Income tax expense
CONSUMERS BANCORP, INC.
(Dollars in thousands, except per share amounts)
Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
Balance as of June 30, 2017 | $ | 675 | $ | (230 | ) | $ | 445 | ||||||
Unrealized holding loss on available-for-sale securities arising during the period | (527 | ) | 180 | (347 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income | (38 | ) | 13 | (25 | ) | (a)(b) | |||||||
Net current period other comprehensive loss | (565 | ) | 193 | (372 | ) | ||||||||
Balance as of December 31, 2017 | $ | 110 | $ | (37 | ) | $ | 73 | ||||||
Balance as of June 30, 2016 | $ | 3,621 | $ | (1,232 | ) | $ | 2,389 | ||||||
Unrealized holding loss on available-for-sale securities arising during the period | (3,742 | ) | 1,272 | (2,470 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income | (125 | ) | 43 | (82 | ) | (a)(b) | |||||||
Net current period other comprehensive loss | (3,867 | ) | 1,315 | (2,552 | ) | ||||||||
Balance as of December 31, 2016 | $ | (246 | ) | $ | 83 | $ | (163 | ) |
Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
Balance as of June 30, 2020 | $ | 5,393 | $ | (1,133 | ) | $ | 4,260 | ||||||
Unrealized holding gain on available-for-sale securities arising during the period | 348 | (73 | ) | 275 | |||||||||
Amounts reclassified from accumulated other comprehensive income | (8 | ) | 2 | (6 | ) | (a)(b) | |||||||
Net current period other comprehensive income | 340 | (71 | ) | 269 | |||||||||
Balance as of December 31, 2020 | $ | 5,733 | $ | (1,204 | ) | $ | 4,529 | ||||||
Balance as of June 30, 2019 | $ | 1,982 | $ | (416 | ) | $ | 1,566 | ||||||
Unrealized holding gain on available-for-sale securities arising during the period | 790 | (166 | ) | 624 | |||||||||
Amounts reclassified from accumulated other comprehensive income | (110 | ) | 22 | (88 | ) | (a)(b) | |||||||
Net current period other comprehensive income | 680 | (144 | ) | 536 | |||||||||
Balance after reclassification as of December 31, 2019 | $ | 2,662 | $ | (560 | ) | $ | 2,102 |
(a) Securities gains,Securities (gains) losses, net
(b) Income tax expense
Note 78– COVID-19Income Taxes
On In December 22, 2017, 2019, a novel strain of coronavirus surfaced in Wuhan, China, and has spread around the U.S. government enacted comprehensive tax legislation commonly referred to asworld, resulting in business and social disruption. The coronavirus was declared a Pandemic by the Tax CutsWorld Health Organization on March 11, 2020. The operations and Jobs Act (Tax Act). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, decreasing U.S. corporate income tax rates to 21.0% from 35.0%. Asbusiness results of the Corporation has a June 30 fiscal year-end,could be materially adversely affected. The extent to which the lower corporate income tax ratecoronavirus may impact business activity or investment results will depend on future developments, which are highly uncertain and cannot be phased in, resulting in a blended U.S. statutory federal rate of approximately 27.55% forpredicted, including new information which may emerge concerning the Corporation's fiscal year ending June 30, 2018, and 21.0% for subsequent fiscal years. In addition, the reductionseverity of the corporate tax ratecoronavirus and the actions required to contain the Corporation to revaluecoronavirus or treat its deferred tax assets and liabilities based on the lower federal tax rate of 21.0%.
impact, among others. As a result of the new legislation, duringeconomic shutdown engineered to slow down the quarter ended December 31, 2017, spread of COVID-19, the Corporation recorded a one-time income tax expenseability of $348our customers to make payments on loans could be adversely impacted, resulting in conjunction with writing down its net deferred tax assets. The impact of using the 27.55% blended federal tax rate for the quarter ended December 31, 2017 versus a 34.0% rate reduced the income tax expense by approximately $95. Therefore, the effective tax rate was 42.7%elevated loan losses and 31.7% for the three and six months ended December 31, 2017, respectively, compared to 16.7% and 19.7% for the three and six months ended December 31, 2016, respectively.
The changes includedan increase in the Tax Act are broad and complex. The final transition impactsCorporation’s allowance for loan losses. Additionally, it is reasonably possible future evaluations of the Tax Act may differ from the above estimates, possibly materially, due to, among other things, changescarrying amount of goodwill could result in interpretations of the Tax Act, any legislative action to address questionsa conclusion that arise because of the Tax Act, and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act.goodwill is impaired.
CONSUMERS BANCORP, INC.
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
General
The following is management’smanagement’s analysis of the Corporation’s results of operations for the threethree- and six monthssix-month periods ended December 31, 2017,2020, compared to the same period in 2016,2019, and the consolidated balance sheet at December 31, 2017,2020, compared to June 30, 2017.2020. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Corporation), owns all of thethe issued and outstanding common shares of Consumers National Bank, a bank chartered under the laws of the United States of America (the Bank). The Corporation’s activities have been limited primarily to holding the common shares of the Bank. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its market area, consisting primarily of Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and contiguous counties in Ohio. The Bank also invests in securities consisting primarily of U.S. government sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.
On December 29, 2020, the Bank entered into a P&A Agreement with CFBank to acquire CFBank’s drive-up branch location in Wellsville, Ohio and CFBank’s branch location in Calcutta, Ohio. As part of this transaction, the Bank will acquire approximately $100 million in deposits attributable to the Branches; $15 million in aggregate principal amount of subordinated debt securities issued by unrelated financial institutions; all performing loans attributable to the Branches which are outstanding at closing (totaling approximately $3.1 million in aggregate principal amount as of November 30, 2020); and up to $13.5 million in aggregate principal amount of single family residential mortgage loans and home equity lines of credit to be identified by the parties prior to the closing principally from CFBank’s Northeast Ohio loan portfolio. In addition, CFBank will provide the opportunity for the Corporation to purchase at par at least $15 million in aggregate principal amount of participation interests in commercial and commercial real estate loans originated by and held in CFBank’s portfolio. The closing of the transactions is subject to regulatory approval and satisfaction of other customary closing conditions and is expected to occur early in the third calendar quarter of 2021.
On January 1, 2020, the Corporation completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio.
COVID-19 Pandemic
In response to COVID-19, management is actively pursuing multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes key SBA initiatives to assist small businesses. The Paycheck Protection Program (PPP) was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program if the borrower meets payroll and other requirements. A total of $52,539 of PPP loans from the first round of assistance were outstanding as of December 31, 2020. Demand for the second round of the PPP program has been strong and submission of applications began on January 15, 2021. As of February 2, 2021, there were a total of $25,831 of loans funded and an additional $8,263 million submitted and waiting the SBA’s approval as part of the second round of the PPP loan program.
Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as troubled debt restructurings. As of December 31, 2020, 18 borrowers with an outstanding balance of $667 are in payment deferral status under this loan modification program.
(Dollars in thousands, except per share amounts)
We have assisted and may continue to assist customers who are experiencing financial hardship due to COVID-19 by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties. The consumer reserve personal line of credit, an on this unsecured line of credit that is linked to a personal checking account, has been redesigned to provide easier access and a lower initial rate. Commercial customers have been encouraged to access available funds on their lines of credit, and we’ve been ready to provide emergency commercial lines of credit to qualified borrowers in order to assist in meeting payroll and other recurring fixed expenses. In response to COVID-19, we provided four emergency lines of credit; however, the lines of credit have since been closed as the borrowers did not need to access the funds.
The Corporation has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. With the holiday surge in COVID-19 cases, the branch lobbies were again closed to the public for walk-in transactions but available to customers to complete paperwork or complex transactions. If the infection rate improves, we expect to reopen branch lobbies during the first calendar quarter of 2021. The Corporation is encouraging virtual meetings and conference calls in place of in-person meetings. Additionally, travel for business has been restricted. The Corporation is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces.
Results of Operations
Three Three- and Six Six-MonthMonths Periods Ended December 31, 2017 2020 and 2019December 31, 2016
In the second quarter of fiscal year 2018, pre-tax income increased by $279, or 32.2% from the same period last year. Net income for the second quarter of fiscal year 20182021 was $657,$2,507, or $0.24$0.83 per common share, compared to $722,$1,440, or $0.27$0.53 per common share for the three months ended December 31, 2016.2019. The following are key highlights of our results of operations for the three months ended December 31, 2017:2020 compared to the prior fiscal year comparable period:
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● | net interest income increased by | |
● | a $130 provision for loans loss expense was recorded for the second quarter of fiscal year 2021 compared with $185 for the prior year period; | |
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In the first six months of fiscal year 2018, pre-tax2021, net income increased by $301,was $4,908, or 14.9% from the same period last year. Net income for the six months ended December 31, 2017 was $1,586, or $0.58$1.63 per common share, compared to $1,623,$2,943, or $0.60$1.07 per common share, for the six months ended December 31, 2016.2019. The following are key highlights of our results of operations for the six months ended December 31, 2017:2020:
● | net interest income increased by | |
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● |
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| employee benefit expenses due to the |
(Dollars in thousands, except per share amounts)
Return on average equity and return on average assets were 7.09%14.83% and 0.67%1.31%, respectively, for the first six months of fiscal year 2018ended December 31, 2020 compared to 7.34%11.03% and 0.74%1.04%, respectively, for the same prior year period.
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Net Interest Income
Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’sCorporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. 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. As a result of the Federal Open Market Committee established a near-zero target range for the federal funds rate, earnings could be negatively affected if the interest we receive on loans and securities falls more quickly than interest we pay on deposits and borrowings. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 20182021 and 2020 fiscal yearyears was 27.55% and for the 2017 fiscal year was 34.0%. With the enactment of the Tax Act, the statutory tax rate was changed in the second quarter of fiscal year 2018 to 27.55% by using a blended rate of the new 21.0% federal rate that went into effect on January 1, 2018 and the previous federal rate of 34.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances.
The Corporation’sCorporation’s net interest margin was 3.61%3.87% for the three months ended December 31, 2017,2020, compared with 3.62% for the same period in 2016.2019. FTE net interest income for the three months ended December 31, 20172020 increased by $290,$2,090, or 7.8%42.9%, to $4,011$6,964 from $3,721$4,874 for the same prior year ago period.
Tax-equivalent interest income for the three months ended December 31, 20172020 increased by $404,$1,667, or 10.2%28.5%, from the same prior year ago period. Interest income was positively impacted by a $31,513,$182,889, or 7.7%34.1%, increase in average interest-earning assets from the same prior year period. The Corporation’s yield on average interest-earningperiod due to the assets increased to 3.94% foracquired from the three months ended December 31, 2017Peoples acquisition as well as organic loan growth. Additionally, interest income was positively impacted by the accretion of origination fees from 3.86% for the same period last year. The yield on average interest-earning assets increased despitePPP loans and from a decline in the tax-equivalent yield on nontaxable securities which occurred as a result of the decline in the statutory federal tax rate. The increase in the yield on average interest-earning assets was primarily a result of a positive change in the earning asset mix, with higher yielding loans increasing faster than lower yielding securitiessecurities. However, a reduction in the accretion of origination fees from PPP loans as well as an increasethese loans are forgiven and the significant decline in interest rates.rates will continue to impact the yield on interest-earning assets and could ultimately result in a decline in interest income. The Corporation’s yield on average interest-earning assets was 4.18% for the three months ended December 31, 2020 compared with 4.35% for the same period last year.
Interest expense for the three months ended December 31, 2017 increased2020 decreased by $114$423, or 43.1%, from the same prior year ago period.period primarily due to a reduction in deposit and borrowing costs as a result of lower market interest rates. The Corporation’s cost of funds was 0.46% for the three months ended December 31, 20172020 compared with 0.34%1.02% for the same prior year ago period. The increase in short term market interest rates has impacted the rates paid on money market accounts, short-term borrowings and time deposits.
The Corporation’sCorporation’s net interest margin was 3.62%3.86% for the six months ended December 31, 20172020, compared with 3.74%3.62% for the same period in 2016.2019. FTE net interest income for the six months ended December 31, 20172020 increased by $356,$4,124, or 4.7%42.8%, to $7,985$13,756 from $7,629$9,632 for the same prior year ago period.
Tax-equivalent interest income for the six months ended December 31, 20172020 increased by $587,$3,318, or 7.2%28.5%, from the same prior year ago period. Interest income was positively impacted by a $182,309, or 34.4%, increase in average interest-earning assets from the same prior year period due to the assets acquired from the Peoples acquisition as well as organic loan growth. Additionally, interest income was positively impacted by the accretion of origination fees from the PPP loans and from a change in the earning asset mix, with higher yielding loans increasing faster than lower yielding securities. However, a reduction in the accretion of origination fees from PPP loans as these loans are forgiven and the significant decline in interest rates will continue to impact the yield on interest-earning assets and could ultimately result in a decline in interest income. The Corporation’s yield on average interest-earning assets declined to 3.95%was 4.20% for the six months ended December 31, 2017 from 3.98%2020 compared with 4.38% for the same period last year. For the six months ended December 31, 2017, the tax-equivalent yield on nontaxable securities was negatively impacted by 0.36% due to the enactment of the Tax Act and the resulting decline in the statutory federal tax rate.
Interest expense for the six months ended December 31, 2017 increased2020 decreased by $231$806 from the same prior year ago period. The Corporation’s cost of funds was 0.46%0.50% for the six months ended December 31, 20172020 compared with 0.34%1.05% for the same prior year ago period. The decline in short term market interest rates had an impact on the rates paid on all interest-bearing deposit products and Federal Home Loan Bank (FHLB) advances.
CONSUMERS
(Dollars in thousands, except per share data)amounts)
Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended December 31, (In thousands, except percentages) | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average Balance |
Interest | Yield/ Rate | Average Balance |
Interest | Yield/ Rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Taxable securities | $ | 81,941 | $ | 459 | 2.22 | % | $ | 75,524 | $ | 377 | 2.01 | % | ||||||||||||
Nontaxable securities (1) | 60,556 | 448 | 2.97 | 60,326 | 535 | 3.58 | ||||||||||||||||||
Loans receivable (1) | 292,149 | 3,440 | 4.67 | 263,909 | 3,029 | 4.55 | ||||||||||||||||||
Interest bearing deposits and federal funds sold | 6,533 | 28 | 1.70 | 9,907 | 30 | 1.20 | ||||||||||||||||||
Total interest-earning assets | 441,179 | 4,375 | 3.94 | % | 409,666 | 3,971 | 3.86 | % | ||||||||||||||||
Noninterest-earning assets | 31,646 | 29,148 | ||||||||||||||||||||||
Total Assets | $ | 472,825 | $ | 438,814 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
NOW | $ | 53,913 | $ | 20 | 0.15 | % | $ | 48,960 | $ | 19 | 0.15 | % | ||||||||||||
Savings | 152,502 | 78 | 0.20 | 138,402 | 36 | 0.10 | ||||||||||||||||||
Time deposits | 66,770 | 155 | 0.92 | 66,425 | 128 | 0.76 | ||||||||||||||||||
Short-term borrowings | 26,249 | 57 | 0.86 | 20,481 | 11 | 0.21 | ||||||||||||||||||
FHLB advances | 12,829 | 54 | 1.67 | 14,042 | 56 | 1.58 | ||||||||||||||||||
Total interest-bearing liabilities | 312,263 | 364 | 0.46 | % | 288,310 | 250 | 0.34 | % | ||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Noninterest-bearing checking accounts | 112,039 | 103,143 | ||||||||||||||||||||||
Other liabilities | 3,956 | 3,695 | ||||||||||||||||||||||
Total liabilities | 428,258 | 395,148 | ||||||||||||||||||||||
Shareholders’ equity | 44,567 | 43,666 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 472,825 | $ | 438,814 | ||||||||||||||||||||
Net interest income, interest rate spread (1) | $ | 4,011 | 3.48 | % | $ | 3,721 | 3.52 | % | ||||||||||||||||
Net interest margin (net interest as a percent of average interest-earning assets) (1) | 3.61 | % | 3.62 | % | ||||||||||||||||||||
Federal tax exemption on non-taxable securities and loans included in interest income | $ | 84 | $ | 185 | ||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities | 141.28 | % | 142.09 | % |
Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended December 31, (In thousands, except percentages) |
2020 | 2019 | |||||||||||||||||||||||
Average Balance |
Interest | Yield/ Rate | Average Balance |
Interest | Yield/ Rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Taxable securities | $ | 74,051 | $ | 344 | 1.90 | % | $ | 79,160 | $ | 480 | 2.43 | % | ||||||||||||
Nontaxable securities (1) | 67,892 | 529 | 3.24 | 61,281 | 475 | 3.17 | ||||||||||||||||||
Loans receivable (1) | 552,897 | 6,587 | 4.73 | 390,708 | 4,865 | 4.94 | ||||||||||||||||||
Federal bank and other restricted stocks | 2,472 | 21 | 3.37 | 1,723 | 20 | 4.61 | ||||||||||||||||||
Interest bearing deposits and federal funds sold | 21,742 | 42 | 0.77 | 3,293 | 16 | 1.93 | ||||||||||||||||||
Total interest-earning assets | 719,054 | 7,523 | 4.18 | % | 536,165 | 5,856 | 4.35 | % | ||||||||||||||||
Noninterest-earning assets | 30,865 | 31,384 | ||||||||||||||||||||||
Total Assets | $ | 749,919 | $ | 567,549 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
NOW | $ | 107,191 | $ | 38 | 0.14 | % | $ | 84,140 | $ | 131 | 0.62 | % | ||||||||||||
Savings | 235,414 | 84 | 0.14 | 170,287 | 210 | 0.49 | ||||||||||||||||||
Time deposits | 112,543 | 365 | 1.29 | 111,806 | 569 | 2.02 | ||||||||||||||||||
Short-term borrowings | 8,596 | 2 | 0.09 | 3,915 | 13 | 1.32 | ||||||||||||||||||
FHLB advances | 20,006 | 70 | 1.39 | 12,627 | 59 | 1.85 | ||||||||||||||||||
Total interest-bearing liabilities | 483,750 | 559 | 0.46 | % | 382,775 | 982 | 1.02 | % | ||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Noninterest-bearing checking accounts | 193,587 | 126,270 | ||||||||||||||||||||||
Other liabilities | 5,907 | 4,900 | ||||||||||||||||||||||
Total liabilities | 683,244 | 513,945 | ||||||||||||||||||||||
Shareholders’ equity | 66,675 | 53,604 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 749,919 | $ | 567,549 | ||||||||||||||||||||
Net interest income, interest rate spread (1) | $ | 6,964 | 3.72 | % | $ | 4,874 | 3.33 | % | ||||||||||||||||
Net interest margin (net interest as a percent of average interest-earning assets) (1) | 3.87 | % | 3.62 | % | ||||||||||||||||||||
Federal tax exemption on non-taxable securities and loans included in interest income | $ | 106 | $ | 78 | ||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities | 148.64 | % | 140.07 | % |
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 27.55% in the 2018 fiscal year and 34.0% in the 2017 fiscal year21.0%
(Dollars in thousands, except per share data)amounts)
Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31, (In thousands, except percentages) | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average Balance |
Interest | Yield/ Rate | Average Balance |
Interest | Yield/ Rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Taxable securities | $ | 83,578 | $ | 970 | 2.30 | % | $ | 75,745 | $ | 779 | 2.07 | % | ||||||||||||
Nontaxable securities (1) | 60,635 | 997 | 3.30 | 59,710 | 1,061 | 3.61 | ||||||||||||||||||
Loans receivable (1) | 286,273 | 6,674 | 4.62 | 262,296 | 6,219 | 4.70 | ||||||||||||||||||
Interest bearing deposits and federal funds sold | 7,546 | 65 | 1.71 | 9,225 | 60 | 1.29 | ||||||||||||||||||
Total interest-earning assets | 438,032 | 8,706 | 3.95 | % | 406,976 | 8,119 | 3.98 | % | ||||||||||||||||
Noninterest-earning assets | 31,699 | 28,008 | ||||||||||||||||||||||
Total Assets | $ | 469,731 | $ | 434,984 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
NOW | $ | 53,556 | $ | 40 | 0.15 | % | $ | 48,770 | $ | 36 | 0.15 | % | ||||||||||||
Savings | 152,080 | 158 | 0.21 | 135,957 | 67 | 0.10 | ||||||||||||||||||
Time deposits | 66,595 | 303 | 0.90 | 66,216 | 250 | 0.75 | ||||||||||||||||||
Short-term borrowings | 26,197 | 112 | 0.85 | 19,965 | 23 | 0.23 | ||||||||||||||||||
FHLB advances | 12,915 | 108 | 1.66 | 14,583 | 114 | 1.55 | ||||||||||||||||||
Total interest-bearing liabilities | 311,343 | 721 | 0.46 | % | 285,491 | 490 | 0.34 | % | ||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Noninterest-bearing checking accounts | 110,111 | 102,144 | ||||||||||||||||||||||
Other liabilities | 3,920 | 3,507 | ||||||||||||||||||||||
Total liabilities | 425,374 | 391,142 | ||||||||||||||||||||||
Shareholders’ equity | 44,357 | 43,842 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 469,731 | $ | 434,984 | ||||||||||||||||||||
Net interest income, interest rate spread (1) | $ | 7,985 | 3.49 | % | $ | 7,629 | 3.64 | % | ||||||||||||||||
Net interest margin (net interest as a percent of average interest-earning assets) (1) | 3.62 | % | 3.74 | % | ||||||||||||||||||||
Federal tax exemption on non-taxable securities and loans included in interest income | $ | 272 | $ | 366 | ||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities | 140.69 | % | 142.55 | % |
Average Balance Sheets and Analysis of Net Interest Income for the Six Months Ended December 31, (In thousands, except percentages) |
2020 | 2019 | |||||||||||||||||||||||
Average Balance |
Interest | Yield/ Rate | Average Balance |
Interest | Yield/ Rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Taxable securities | $ | 76,240 | $ | 716 | 1.92 | % | $ | 81,399 | $ | 990 | 2.43 | % | ||||||||||||
Nontaxable securities (1) | 67,183 | 1,043 | 3.24 | 61,029 | 949 | 3.18 | ||||||||||||||||||
Loans receivable (1) | 548,530 | 13,080 | 4.73 | 382,035 | 9,628 | 5.00 | ||||||||||||||||||
Federal bank and other restricted stocks | 2,472 | 39 | 3.13 | 1,723 | 40 | 4.61 | ||||||||||||||||||
Interest bearing deposits and federal funds sold | 18,409 | 89 | 0.96 | 4,339 | 42 | 1.92 | ||||||||||||||||||
Total interest-earning assets | 712,834 | 14,967 | 4.20 | % | 530,525 | 11,649 | 4.38 | % | ||||||||||||||||
Noninterest-earning assets | 30,600 | 31,107 | ||||||||||||||||||||||
Total Assets | $ | 743,434 | $ | 561,632 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
NOW | $ | 104,646 | $ | 83 | 0.16 | % | $ | 83,316 | $ | 276 | 0.66 | % | ||||||||||||
Savings | 231,954 | 189 | 0.16 | 168,234 | 432 | 0.51 | ||||||||||||||||||
Time deposits | 113,680 | 792 | 1.38 | 112,224 | 1,147 | 2.03 | ||||||||||||||||||
Short-term borrowings | 8,238 | 6 | 0.14 | 3,620 | 24 | 1.32 | ||||||||||||||||||
FHLB advances | 22,059 | 141 | 1.27 | 14,003 | 138 | 1.95 | ||||||||||||||||||
Total interest-bearing liabilities | 480,577 | 1,211 | 0.50 | % | 381,397 | 2,017 | 1.05 | % | ||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Noninterest-bearing checking accounts | 191,360 | 122,263 | ||||||||||||||||||||||
Other liabilities | 5,851 | 5,071 | ||||||||||||||||||||||
Total liabilities | 677,788 | 508,731 | ||||||||||||||||||||||
Shareholders’ equity | 65,646 | 52,901 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 743,434 | $ | 561,632 | ||||||||||||||||||||
Net interest income, interest rate spread (1) | $ | 13,756 | 3.70 | % | $ | 9,632 | 3.33 | % | ||||||||||||||||
Net interest margin (net interest as a percent of average interest-earning assets) (1) | 3.86 | % | 3.62 | % | ||||||||||||||||||||
Federal tax exemption on non-taxable securities and loans included in interest income | $ | 204 | $ | 155 | ||||||||||||||||||||
Average interest-earning assets to interest-bearing liabilities | 148.33 | % | 139.10 | % |
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 27.55% in the 2018 fiscal year and 34.0% in the 2017 fiscal year21.0%
Provision for Loan Losses
The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’smanagement’s assessment of the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the three monthssix-month period ended December 31, 2017,2020, the provision for loan losses was $60$260 compared to $140with $315 for the same prior year period. ForNet charge-offs of $26 were recorded during the six-month period ended December 31, 2017,2020 compared with $8 during the provision for loan losses was $150 compared to $276 for the same prior year period.six-month period ended December 31, 2019.
Non-performing loans were $865$1,940 as of December 31, 20172020 compared with $1,187$1,226 as of June 30, 20172020 and $1,589$427 as of December 31, 2016. For the six months ended2019. Non-performing loans to total loans were 0.35% at December 31, 2017 net charge-offs totaled $11 compared with net charge-offs of $719 for2020 and 0.23% at June 30, 2020. Non-accrual loans have primarily increased within the same prior year period. 1-4 family owner occupied loan category in part due to the COVID-19 pandemic impact on certain borrowers.
The allowance for loan losses as a percentage of loans was 1.10%1.06% at December 31, 20172020 and 1.13%1.05% at June 30, 2017. The2020. As of December 31, 2020, the ALLL as a percentage of total loans excluding PPP loans was 1.17%. During the second quarter of fiscal year 2021, there was a significant decline in loans classified as substandard due to the full payoff of a large loan relationship that was in this category. Uncertainty remains regarding future levels of criticized and classified loans, non-performing loans and charge-offs, but some deterioration is expected as a result of the COVID-19 pandemic. Management will continue to closely monitor changes in the loan portfolio and adjust the provision for loan lossesaccordingly.
Noninterest Income
Noninterest income increased by $128 for the second quarter of fiscal year 2021 from the same period last year primarily due to a $104, or 73.2%, increase in gains from the sale of mortgage loans and a $61, or 15.9%, increase in debit card interchange income. Debit card interchange income increased as a result of increased debit card usage and an increase in the number of cards issued. These increases were partially offset by a decline of $46, or 12.8%, in service charges on deposit accounts primarily due to a decline in overdraft charges as the COVID-19 pandemic dramatically impacted consumer spending habits and increased NSF and overdraft fee waivers as we assist customers who have been impacted by COVID-19.
Noninterest income decreased by $200 for the six-month period ended December 31, 2017 was considered sufficient2020 from the same period last year primarily since the prior year period included $324 of income recognized as a result of proceeds received from a bank owned life insurance policy claim and a $110 gain on the sale of securities. These reductions were partially offset by management for maintaining an appropriate allowance for probable incurred credit losses.a $205, or 74.0%, increase on gains from the sale of mortgage loans and a $126, or 16.3%, increase in debit card interchange income, that were partially offset by a decline of $112, or 15.3%, in service charges on deposit accounts. Gains from the sale of mortgage loans have been positively impacted by record low mortgage rates in 2020 helping increase the volume of loans sold.
Non-Interest IncomeNoninterest Expenses
Non-interest incomeTotal noninterest expenses increased by $42,$896, or 5.3%22.85%, for the second quarter of fiscal year 2018 from the same period last year and by $66, or 4.0%, for the first six months of fiscal year 2018 from2021 compared with the same period last year. Non-interest income was positively impacted by increases in debit card interchange income, gains fromNoninterest expenses for the salethree-month period ended December 31, 2020 include expenses associated with the three new office locations and additional staff gained as a result of the merger with Peoples that closed on January 1, 2020. In addition, incentive accruals and mortgage loans and earnings on bank owned life insurance. These increases were partially offset by a decline in gains from the sale of securities.
Non-Interest Expenses
Total non-interest expensescommissions also increased to $3,560, or by 7.0%, during the second quarter of fiscal year 2018,2021. Professional fees of $59 associated with the announced planned purchase of two branch locations in Columbiana County, Ohio were recognized during the three-month period ended December 31, 2020.
Total noninterest expenses increased by $1,390, or 16.9%, for the six-month period ended December 31, 2020 compared with $3,326 during the same year ago period. Total non-interestperiod last year. Salaries and employee benefit expenses increased by $1,071, or 24.5%, due to $6,953, or by 5.2%, during the firstinclusion of six months of expenses in fiscal year 2018, compared2021 associated with $6,612 during the samethree new office locations and additional staff gained as a result of the merger with Peoples, increased incentive accruals, and higher mortgage commissions due to the increase in volume. Data processing expenses declined by $164, or 31.2%, because fiscal year ago period. Total non-interest2020 included expenses for system deconversion files related to the merger with Peoples. Also, FDIC assessments increased by $150 for the current year-to-date period since the Small Bank Assessment Credits were impacted by increasesapplied to the FDIC insurance invoices for the six-month period ended December 31, 2019.
(Dollars in salary, incentive and debit card processing expenses.thousands, except per share amounts)
Income Taxes
Income tax expense was $489$543 and $735$1,048 for the threethree- and six monthssix-month periods ended December 31, 2017,2020, respectively, compared to $145$261 and $397$473 for the threethree- and six monthssix-month periods ended December 31, 2016,2019, respectively. The effective tax rate was 42.7%17.8% and 31.7%17.6% for the threethree- and six monthssix-month periods ended December 31, 2017,2020, respectively, compared to 16.7%with 15.3% and 19.7%13.8% for the threethree- and six monthssix-month periods ended December 31, 2016,2019, respectively. Income tax expense and theThe effective tax rates differed from the federal statutory rate was higher in the 2018 fiscal year compared to the same prior year periods primarily due to the enactment of the Tax Act and increased income before income taxes. Asas a result of the enactmenttax-exempt income from obligations of the Tax Act, a one-time income tax expense of $253 was recorded in conjunction with revaluing the Company's net deferred tax assetsstates and utilization of a blended tax rate. The enactment of the Tax Act required the Corporation to revalue its deferred tax assetspolitical subdivisions, loans and liabilities based upon the lower enacted federal corporate income tax rate at which the Corporation expects to recognize thebank owned life insurance earnings and death benefit. During the three months ended December 31, 2017 a one-time income tax expense of $348 was recorded in conjunction with writing down its net deferred tax assets. In addition, the Company will utilize a blended tax rate for its fiscal year ending June 30, 2018 given the Tax Act lowered the federal corporate tax rate beginning January 1, 2018. As a result of utilizing a blended tax rate for its fiscal year ending June 30, 2018, the Company recognized a $95 benefit to income tax expense for both the three and six months ended December 31, 2017.
Financial ConditionCondition
Total assets at as of December 31, 20172020 were $470,282$754,060 compared to $457,883$740,820 at June 30, 2017,2020, an increase of $12,399,$13,240, or an annualized 5.4%3.5%.
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Total loans increased by $20,727,$14,396, or an annualized 15.2%5.3%, from $272,867 at$542,861 as of June 30, 20172020 to $293,594 at$557,257 as of December 31, 2017. The growth in the loan portfolio was primarily related to growth within the commercial real estate and 1-4 family residential real estate segments to borrowers within the Bank’s primary market area. The loan growth was primarily funded2020. As of December 31, 2020, total loans included $52,539 of PPP loans, a decline of $14,067, or 21.1%, from June 30, 2020.
As of December 31, 2020, total deposits increased by an increase of $8,518,$15,007, or an annualized 4.5%4.7%, from June 30, 2020. The Corporation has been able to maintain a favorable deposit mix, with 29.9% in totalnoninterest-bearing deposits, 16.2% in interest bearing demand deposits, 37.3% in savings and money market deposits, and a decline of $6,34816.6% in available-for-sale securities.time deposits.
Non-Performing Assets
The following table presents the aggregate amounts of non-performing assets and respectiveselect ratios as of the dates indicated.
December 31, 2017 | June 30, 2017 | December 31, 2016 | December 31, 2020 | June 30, 2020 | December 31, 2019 | |||||||||||||||||||
Non-accrual loans | $ | 865 | $ | 1,187 | $ | 1,589 | $ | 1,940 | $ | 1,185 | $ | 427 | ||||||||||||
Loans past due over 90 days and still accruing | — | — | — | — | 41 | — | ||||||||||||||||||
Total non-performing loans | 865 | 1,187 | 1,589 | |||||||||||||||||||||
Other real estate owned | 57 | 71 | — | |||||||||||||||||||||
Total non-performing assets | $ | 922 | $ | 1,258 | $ | 1,589 | ||||||||||||||||||
Total non-performing loans | 1,940 | 1,226 | 427 | |||||||||||||||||||||
Other repossessed assets | — | 7 | — | |||||||||||||||||||||
Total non-performing assets | $ | 1,940 | $ | 1,233 | $ | 427 | ||||||||||||||||||
Non-performing loans to total loans | 0.29 | % | 0.44 | % | 0.60 | % | 0.35 | % | 0.23 | % | 0.11 | % | ||||||||||||
Allowance for loan losses to total non-performing loans | 372.83 | % | 259.98 | % | 196.54 | % | 304.74 | % | 463.13 | % | 959.02 | % |
As of December 31, 2017,2020, impaired loans totaled $1,765,$2,343, of which $865$1,938 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.
Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements
Liquidity
The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of our customers and provide adequate flexibility for the Corporation to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and, at times, to fund deposit outflows and operating activities. The Corporation’s principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’s earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and insureensure the soundness of the portfolio, as well as to provide funding for loan demand as needed.
(Dollars in thousands, except per share data)amounts)
ForFor the six months ended December 31, 2017,2020, net cash inflow from operating activities was $3,484,$5,706, net cash outflows from investing activities was $15,494$13,705 and net cash inflows from financing activities was $11,239.$7,385. A major source of cash was $10,434a $15,007 increase in deposits and $20,304 from sales, maturities, calls or principal pay downs on available-for-sale securities, $8,518 increase in deposits and $5,400 proceeds from FHLB advances. Thesecurities. A major use of cash was $24,975 purchases of available-for-sale securities and a $20,967$14,431 increase in loans. Total cash and cash equivalents was $9,141were $9,045 as of December 31, 2017,2020, compared to $9,912$9,659 at June 30, 20172020 and $10,850$14,028 at December 31, 2016.2019.
The Bank offers several types of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with othersthe rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $382,989$648,362 at December 31, 20172020 compared with $374,471$633,355 at June 30, 2017.2020.
To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At December 31, 2017,2020, advances from the FHLB of Cincinnati totaled $17,188$18,083 compared with $12,320$31,161 at June 30, 2017.2020. As of December 31, 2017,2020, the Bank had the ability to borrow an additional $17,032$41,561 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.
Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and federal funds purchased from correspondent banks. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $22,507$13,275 at December 31, 20172020 and $23,986$6,943 at June 30, 2017.2020.
Jumbo time deposits (those with balances of $250 and over) totaled $13,754 at$33,418 as of December 31, 20172020 and $14,252 at$36,747 as of June 30, 2017.2020. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Off-Balance Sheet Arrangements
In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans,loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $62,158 at$108,614 as of December 31, 20172020 and $53,742 at$101,026 as of June 30, 2017.2020.
Capital Resources
Total shareholders’shareholders’ equity increased to $44,171$67,708 as of December 31, 20172020 from $43,535$63,240 as of June 30, 2017.2020. The primary reason for the increase in shareholders’ equity was the result offrom net income of $1,586$4,908 for the 2018first six months of fiscal year 2021 which was partially offset by $668 in cash dividends paid and a $372 other comprehensive loss from a decline in unrealized gains on available-for-sale securities.of $876.
The Bank is subject to various regulatory capital requirements administered by federal regulatory agencies. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Corporation’s financial statements.
(Dollars in thousands, except per share amounts)
As of December 31, 2017,2020, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 12.64%11.65% and the leverage and total risk-based capital ratios were 9.00%8.29% and 13.60%12.77%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 13.21%11.55% and leverage and total risk-based capital ratios of 9.06%8.04% and 14.20%12.69%, respectively, as of June 30, 2017.2020. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to December 31, 20172020 that would cause the Bank’s capital category to change.
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Critical Accounting Policies
The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations are, to a large degree, dependent upon the Corporation’s accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change.
The Corporation has identified the appropriateness of the allowance for loan losses and the evaluation of goodwill for impairment as a critical accounting policypolicies and an understanding of this policythese policies is necessary to understand the financial statements. Critical accounting policies are those policies thatthat require management’s most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses)Losses and Goodwill and Other Intangible Assets), note threeNote four (Loans), Note six (Goodwill and Intangible Assets) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 20172020 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since June 30, 2017.2020.
Forward-Looking Statements
When usedCertain statements contained in this report (including information incorporated by reference in this report),Quarterly Report on Form 10-Q, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “will likely result,“may,” “are expected to,” “will continue,” “is anticipated,“continue,” “estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “believe” or“expect,” “anticipate” and similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond the Corporation’sour control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, the Corporation undertakeswe undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. FactorsThe COVID-19 pandemic is affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other 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:
● |
|
| local, regional and national economic conditions becoming less favorable than |
● |
| |
● | declining asset values impacting the underlying value of collateral; | |
● | sustained low market interest rates could result in | |
● |
| |
● | the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply; | |
● | changes in consumer spending, borrowing and savings habits; | |
● | changes in accounting policies, rules and interpretations that may come as a result |
● | the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; | |
● | competitive pressures on product pricing and services; |
● |
| |
● | changes in the | |
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|
The risks and uncertainties identified above are not the only risks the Corporation faces. Additional risks and uncertainties not presently known to the Corporation or that the Corporation currently believes to be immaterial also may adversely affect the Corporation. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on the Corporation’s business, financial condition and results of operations.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’sCorporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2017.2020.
Changes in Internal Controls Over Financial Reporting
There have not been any changes in the Corporation’sCorporation’s internal control over financial reporting that occurred during the Corporation’s last quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
CONSUMERS BANCORP, INC.
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
None
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not Applicable
Item 5 – Other Information
None
Item 6 – Exhibits
Exhibit Number | Description |
Exhibit | |
Exhibit 10.12 | |
Exhibit 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
Exhibit 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
Exhibit 32.1 | |
Exhibit 101 | The following materials from Consumers Bancorp, Inc.’s Form 10-Q Report for the quarterly period ended December 31, |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CONSUMERS BANCORP, INC. (Registrant) |
|
|
Date: February | /s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer) |
|
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Date: February | /s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer) |
38