Notes to the Consolidated Financial Statements
(Unaudited) (continued)
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 Stark, Columbiana, Carroll 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-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-K for the year ended June 30, 2012. 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. All significant inter-company transactions and accounts have been eliminated in consolidation.
Segment Information:
Consumers Bancorp,
Inc. is a bank holding company engaged in the business of commercial and retail banking, which accounts for substantially all of
the revenues, operating income, and assets. Accordingly, all of its operations are recorded in one segment, banking.
Reclassifications:
Certain items
in prior financial statements have been reclassified to conform to the current presentation.
New Accounting Standards:
In
February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-02,
Comprehensive
Income: Reporting of Amounts Classified out of Accumulated Other Comprehensive Income,
with the primary objective of
improving the reporting of reclassifications out of accumulated other comprehensive income. This ASU requires an entity to
provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but
only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same
reporting period. The amendments are effective prospectively for fiscal years, and interim periods within those year,
beginning after December 15, 2012. The Corporation early adopted the ASU as of March 31, 2013. The amendments did not have a
material impact on Corporation’s Consolidated Financial Statements. See Note 6 for the additional disclosure.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
Note 2 – Securities
Description of Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored entities and agencies
|
|
$
|
4,814
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
4,857
|
|
Obligations of state and political subdivisions
|
|
|
38,587
|
|
|
|
1,497
|
|
|
|
(124
|
)
|
|
|
39,960
|
|
Mortgage-backed securities – residential
|
|
|
49,133
|
|
|
|
1,022
|
|
|
|
(89
|
)
|
|
|
50,066
|
|
Collateralized mortgage obligations
|
|
|
6,615
|
|
|
|
20
|
|
|
|
(26
|
)
|
|
|
6,609
|
|
Trust preferred security
|
|
|
202
|
|
|
|
—
|
|
|
|
(64
|
)
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
99,351
|
|
|
$
|
2,582
|
|
|
$
|
(303
|
)
|
|
$
|
101,630
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored entities and agencies
|
|
$
|
8,487
|
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
8,567
|
|
Obligations of state and political subdivisions
|
|
|
33,808
|
|
|
|
1,577
|
|
|
|
(109
|
)
|
|
|
35,276
|
|
Mortgage-backed securities - residential
|
|
|
48,255
|
|
|
|
1,108
|
|
|
|
(32
|
)
|
|
|
49,331
|
|
Collateralized mortgage obligations
|
|
|
12,154
|
|
|
|
25
|
|
|
|
(82
|
)
|
|
|
12,097
|
|
Trust preferred security
|
|
|
202
|
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
$102,906
|
|
|
$
|
2,790
|
|
|
$
|
(361
|
)
|
|
$
|
105,335
|
|
Proceeds from the sale of available-for-sale
securities were as follows:
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Proceeds from sales
|
|
$
|
3,780
|
|
|
$
|
4,153
|
|
|
$
|
4,459
|
|
|
$
|
11,485
|
|
Gross realized gains
|
|
|
125
|
|
|
|
16
|
|
|
|
148
|
|
|
|
171
|
|
Gross realized losses
|
|
|
24
|
|
|
|
53
|
|
|
|
24
|
|
|
|
53
|
|
The amortized cost and fair values of available-for-sale
securities at March 31, 2013, 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 trust preferred
security are shown separately.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
|
|
Amortized
Cost
|
|
|
Estimated Fair
Value
|
|
Due in one year or less
|
|
$
|
4,547
|
|
|
$
|
4,583
|
|
Due after one year through five years
|
|
|
3,449
|
|
|
|
3,592
|
|
Due after five years through ten years
|
|
|
12,042
|
|
|
|
12,615
|
|
Due after ten years
|
|
|
23,363
|
|
|
|
24,027
|
|
Total
|
|
|
43,401
|
|
|
|
44,817
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential
|
|
|
49,133
|
|
|
|
50,066
|
|
Collateralized mortgage obligations
|
|
|
6,615
|
|
|
|
6,609
|
|
Trust preferred security
|
|
|
202
|
|
|
|
138
|
|
Total
|
|
$
|
99,351
|
|
|
$
|
101,630
|
|
The following table summarizes the securities
with unrealized losses at March 31, 2013 and June 30, 2012, 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
|
|
Description of Securities
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
6,566
|
|
|
$
|
(124
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,566
|
|
|
$
|
(124
|
)
|
Mortgage-backed securities - residential
|
|
|
10,792
|
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
10,792
|
|
|
|
(89
|
)
|
Collateralized mortgage obligations
|
|
|
4,839
|
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,839
|
|
|
|
(26
|
)
|
Trust preferred security
|
|
|
—
|
|
|
|
—
|
|
|
|
138
|
|
|
|
(64
|
)
|
|
|
138
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
22,197
|
|
|
$
|
(239
|
)
|
|
$
|
138
|
|
|
$
|
(64
|
)
|
|
$
|
22,335
|
|
|
$
|
(303
|
)
|
|
|
Less than 12 Months
|
|
|
12 Months or more
|
|
|
Total
|
|
Description of Securities
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
6,002
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,022
|
|
|
$
|
(109
|
)
|
Mortgage-backed securities - residential
|
|
|
11,135
|
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
11,135
|
|
|
|
(32
|
)
|
Collateralized mortgage obligations
|
|
|
6,411
|
|
|
|
(62
|
)
|
|
|
2,314
|
(20)
|
|
|
|
|
|
|
8,725
|
|
|
|
(82
|
)
|
Trust preferred security
|
|
|
—
|
|
|
|
—
|
|
|
|
64
|
|
|
|
(138
|
)
|
|
|
64
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
23,548
|
|
|
$
|
(203
|
)
|
|
$
|
2,378
|
|
|
$
|
(158
|
)
|
|
$
|
25,926
|
|
|
$
|
(361
|
)
|
Management evaluates securities for other-than-temporary
impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The
securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate
OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320,
Accounting for Certain Investments
in Debt and Equity Securities
. However, the trust preferred security is evaluated using the model outlined in FASB ASC Topic
325,
Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue
to be Held by a Transfer in Securitized Financial Assets.
In determining OTTI under the ASC Topic
320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has
been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline
was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely
than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary
decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a
point in time.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Unrealized losses on obligations of state
and political subdivisions, residential mortgage-backed securities and collateralized mortgage obligations have not been recognized
into income because the decline in fair value is not attributed to credit quality, management does not intend to sell and it is
likely that management will not be required to sell the securities prior to their anticipated recovery. The decline in fair value
of the residential mortgage-backed securities and collateralized mortgage obligations is attributable to higher than projected
prepayment speeds increasing the premium amortization and the decline in fair value of obligations of state and political subdivisions
is largely due to spreads for these securities being wider at March 31, 2013 than when the securities were purchased. The fair
value is expected to recover as the securities approach maturity.
Under the ASC Topic 325 model, the present
value of the remaining cash flows as estimated at the preceding evaluation date are compared to the current expected remaining
cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
The analysis of the trust preferred security falls within the scope of ASC Topic 325.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The Corporation owns a trust preferred
security with an adjusted amortized cost of $202 and a fair value of $138, which represents
collateralized
debt obligations (CDOs)
issued by other financial institutions
, bank holding companies and a
limited number of insurance companies
.
The security is part of a pool of issuers that support
a more senior tranche of securities. Due to principal and/or interest deferrals by the issuers of the underlying securities, the
cash interest payments for the trust preferred security are being deferred. On March 31, 2013, the lowest credit rating on this
security was Fitch’s rating of C, which is defined as highly speculative. The investment security is evaluated using a model
to compare the present value of expected cash flows to prior periods expected cash flows to determine if there has been an adverse
change in cash flows during the period. The discount rate used to calculate the cash flows is the coupon rate of the security,
based on the forward LIBOR curve. The OTTI model considers the structure and term of the CDO and the financial condition of the
underlying issuers. In addition we use the model to “stress” the CDO, or make assumptions more severe than expected
activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment
of the Corporation’s note class. According to the March 31, 2013 analysis, the expected cash flows were above the recorded
amortized cost of the trust preferred security. The accumulated other-than-temporary impairment loss that has been recognized in
earnings was $780 at March 31, 2013 and June 30, 2012. If there is further deterioration in the underlying collateral of this security,
other-than-temporary impairments may also occur in future periods. Due to the illiquidity in the market, it is unlikely the Corporation
would be able to recover its investment in this security if the Corporation sold the security at this time.
Note 3 – Loans
Major classifications of loans were as
follows:
|
|
March 31,
2013
|
|
|
June 30,
2012
|
|
Commercial
|
|
$
|
24,967
|
|
|
$
|
23,041
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,232
|
|
|
|
1,546
|
|
Other
|
|
|
121,197
|
|
|
|
110,775
|
|
1 – 4 Family residential real estate:
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
32,858
|
|
|
|
34,000
|
|
Non-owner occupied
|
|
|
18,396
|
|
|
|
18,794
|
|
Construction
|
|
|
474
|
|
|
|
187
|
|
Consumer
|
|
|
11,775
|
|
|
|
9,407
|
|
Subtotal
|
|
|
212,899
|
|
|
|
197,750
|
|
Less: Net deferred loan fees
|
|
|
(285
|
)
|
|
|
(320
|
)
|
Allowance for loan losses
|
|
|
(2,377
|
)
|
|
|
(2,335
|
)
|
Net Loans
|
|
$
|
210,237
|
|
|
$
|
195,095
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(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 ending March 31, 2013:
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
145
|
|
|
$
|
1,288
|
|
|
$
|
644
|
|
|
$
|
290
|
|
|
$
|
2,367
|
|
Provision for loan losses
|
|
|
(3
|
)
|
|
|
78
|
|
|
|
(11)
|
|
|
|
26
|
|
|
|
90
|
|
Loans charged-off
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
(43
|
)
|
|
|
(19)
|
|
|
|
(93
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
13
|
|
Total ending allowance balance
|
|
$
|
111
|
|
|
$
|
1,366
|
|
|
$
|
590
|
|
|
$
|
310
|
|
|
$
|
2,377
|
|
The following table presents the activity in the allowance for
loan losses by portfolio segment for the nine months ended March 31, 2013:
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
143
|
|
|
$
|
1,283
|
|
|
$
|
712
|
|
|
$
|
197
|
|
|
$
|
2,335
|
|
Provision for loan losses
|
|
|
3
|
|
|
|
107
|
|
|
|
(64
|
)
|
|
|
125
|
|
|
|
171
|
|
Loans charged-off
|
|
|
(35
|
)
|
|
|
(24
|
)
|
|
|
(58
|
)
|
|
|
(59
|
)
|
|
|
(176
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
47
|
|
Total ending allowance balance
|
|
$
|
111
|
|
|
$
|
1,366
|
|
|
$
|
590
|
|
|
$
|
310
|
|
|
$
|
2,377
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(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 ending March 31, 2012:
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
118
|
|
|
$
|
965
|
|
|
$
|
900
|
|
|
$
|
143
|
|
|
$
|
2,126
|
|
Provision for loan losses
|
|
|
4
|
|
|
|
3
|
|
|
|
2
|
|
|
|
2
|
|
|
|
11
|
|
Loans charged-off
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
(27
|
)
|
Recoveries
|
|
|
—
|
|
|
|
65
|
|
|
|
—
|
|
|
|
39
|
|
|
|
104
|
|
Total ending allowance balance
|
|
$
|
122
|
|
|
$
|
1,033
|
|
|
$
|
902
|
|
|
$
|
157
|
|
|
$
|
2,214
|
|
The following table presents the activity in the allowance for
loan losses by portfolio segment for the nine months ending March 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
179
|
|
|
$
|
882
|
|
|
$
|
947
|
|
|
$
|
93
|
|
|
$
|
2,101
|
|
Provision for loan losses
|
|
|
(57
|
)
|
|
|
86
|
|
|
|
19
|
|
|
|
122
|
|
|
|
170
|
|
Loans charged-off
|
|
|
—
|
|
|
|
—
|
|
|
|
(69
|
)
|
|
|
(127
|
)
|
|
|
(196
|
)
|
Recoveries
|
|
|
—
|
|
|
|
65
|
|
|
|
5
|
|
|
|
69
|
|
|
|
139
|
|
Total ending allowance balance
|
|
$
|
122
|
|
|
$
|
1,033
|
|
|
$
|
902
|
|
|
$
|
157
|
|
|
$
|
2,214
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The following table presents the balance
in the allowance for loan losses and t
he recorded investment in loans by portfolio segment and based on impairment method as of
March 31, 2013. Included in the recorded investment in loans is $542 of accrued interest receivable net of deferred loan fees of
$285.
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
11
|
|
|
$
|
100
|
|
|
$
|
201
|
|
|
|
$—
|
|
|
$
|
312
|
|
Collectively evaluated for impairment
|
|
|
100
|
|
|
|
1,266
|
|
|
|
389
|
|
|
|
310
|
|
|
|
2,065
|
|
Total ending allowance balance
|
|
$
|
111
|
|
|
$
|
1,366
|
|
|
$
|
590
|
|
|
$
|
310
|
|
|
$
|
2,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
53
|
|
|
$
|
880
|
|
|
$
|
1,345
|
|
|
|
$—
|
|
|
$
|
2,278
|
|
Loans collectively evaluated for impairment
|
|
|
24,972
|
|
|
|
123,575
|
|
|
|
50,493
|
|
|
|
11,838
|
|
|
|
210,878
|
|
Total ending loans balance
|
|
$
|
25,025
|
|
|
$
|
124,455
|
|
|
$
|
51,838
|
|
|
$
|
11,838
|
|
|
$
|
213,156
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(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, 2012. Included in the recorded investment in loans is $494 of accrued interest receivable net of deferred loan fees of
$320.
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Estate
|
|
|
Estate
|
|
|
Consumer
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
50
|
|
|
$
|
82
|
|
|
$
|
258
|
|
|
|
$—
|
|
|
$
|
390
|
|
Collectively evaluated for impairment
|
|
|
93
|
|
|
|
1,201
|
|
|
|
454
|
|
|
|
197
|
|
|
|
1,945
|
|
Total ending allowance balance
|
|
$
|
143
|
|
|
$
|
1,283
|
|
|
$
|
712
|
|
|
$
|
197
|
|
|
$
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
148
|
|
|
$
|
996
|
|
|
$
|
1,417
|
|
|
|
$—
|
|
|
$
|
2,561
|
|
Loans collectively evaluated for impairment
|
|
|
22,940
|
|
|
|
111,352
|
|
|
|
51,683
|
|
|
|
9,388
|
|
|
|
195,363
|
|
Total ending loans balance
|
|
$
|
23,088
|
|
|
$
|
112,348
|
|
|
$
|
53,100
|
|
|
$
|
9,388
|
|
|
$
|
197,924
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The following table presents information related to loans individually
evaluated for impairment by class of loans as of and for the nine months ended March 31, 2013:
|
|
|
|
|
Unpaid
|
|
|
Allowance for
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Losses
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
$
|
4
|
|
|
|
$—
|
|
|
|
$—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
67
|
|
|
|
67
|
|
|
|
—
|
|
|
|
63
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
126
|
|
|
|
126
|
|
|
|
—
|
|
|
|
96
|
|
|
|
—
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
56
|
|
|
|
56
|
|
|
|
—
|
|
|
|
57
|
|
|
|
3
|
|
|
|
3
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
53
|
|
|
|
53
|
|
|
|
11
|
|
|
|
96
|
|
|
|
8
|
|
|
|
8
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
812
|
|
|
|
813
|
|
|
|
100
|
|
|
|
809
|
|
|
|
66
|
|
|
|
66
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
283
|
|
|
|
282
|
|
|
|
39
|
|
|
|
305
|
|
|
|
—
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
881
|
|
|
|
881
|
|
|
|
162
|
|
|
|
923
|
|
|
|
18
|
|
|
|
18
|
|
Total
|
|
$
|
2,278
|
|
|
$
|
2,278
|
|
|
$
|
312
|
|
|
$
|
2,353
|
|
|
$
|
95
|
|
|
$
|
95
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(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 March 31, 2013:
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
67
|
|
|
|
$—
|
|
|
|
$—
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
57
|
|
|
|
1
|
|
|
|
1
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
816
|
|
|
|
3
|
|
|
|
3
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
285
|
|
|
|
—
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
884
|
|
|
|
6
|
|
|
|
6
|
|
Total
|
|
$
|
2,310
|
|
|
$
|
10
|
|
|
$
|
10
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The following table presents information related to loans individually
evaluated for impairment by class of loans as of June 30, 2012 and for the nine months ended March 31, 2012:
|
|
As of June 30, 2012
|
|
|
Nine Months ended March 31, 2012
|
|
|
|
Unpaid
|
|
|
|
|
|
Allowance for
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Losses
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
12
|
|
|
$
|
12
|
|
|
|
$—
|
|
|
$
|
25
|
|
|
|
$—
|
|
|
|
$—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
144
|
|
|
|
144
|
|
|
|
—
|
|
|
|
491
|
|
|
|
67
|
|
|
|
67
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
238
|
|
|
|
238
|
|
|
|
—
|
|
|
|
94
|
|
|
|
2
|
|
|
|
2
|
|
Non-owner occupied
|
|
|
64
|
|
|
|
65
|
|
|
|
—
|
|
|
|
57
|
|
|
|
3
|
|
|
|
3
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
136
|
|
|
|
136
|
|
|
|
50
|
|
|
|
88
|
|
|
|
2
|
|
|
|
2
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
851
|
|
|
|
852
|
|
|
|
82
|
|
|
|
797
|
|
|
|
12
|
|
|
|
12
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
160
|
|
|
|
160
|
|
|
|
13
|
|
|
|
255
|
|
|
|
2
|
|
|
|
2
|
|
Non-owner occupied
|
|
|
952
|
|
|
|
954
|
|
|
|
245
|
|
|
|
929
|
|
|
|
10
|
|
|
|
10
|
|
Total
|
|
$
|
2,557
|
|
|
$
|
2,561
|
|
|
$
|
390
|
|
|
$
|
2,736
|
|
|
$
|
98
|
|
|
$
|
98
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(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 March 31, 2012:
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
13
|
|
|
|
$—
|
|
|
|
$—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
208
|
|
|
|
64
|
|
|
|
64
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
90
|
|
|
|
—
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
65
|
|
|
|
1
|
|
|
|
1
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
141
|
|
|
|
2
|
|
|
|
2
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
869
|
|
|
|
1
|
|
|
|
1
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
328
|
|
|
|
2
|
|
|
|
2
|
|
Non-owner occupied
|
|
|
968
|
|
|
|
4
|
|
|
|
4
|
|
Total
|
|
$
|
2,682
|
|
|
$
|
74
|
|
|
$
|
74
|
|
The following table presents the recorded
investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2013 and June 30,
2012:
|
|
March 31, 2013
|
|
|
June 30, 2012
|
|
|
|
|
|
|
Loans Past Due
|
|
|
|
|
|
Loans Past Due
|
|
|
|
|
|
|
Over 90 Days
|
|
|
|
|
|
Over 90 Days
|
|
|
|
|
|
|
Still
|
|
|
|
|
|
Still
|
|
|
|
Non-accrual
|
|
|
Accruing
|
|
|
Non-accrual
|
|
|
Accruing
|
|
Commercial
|
|
$
|
46
|
|
|
|
$—
|
|
|
$
|
51
|
|
|
|
$—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
494
|
|
|
|
—
|
|
|
|
911
|
|
|
|
—
|
|
1 – 4 Family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
303
|
|
|
|
—
|
|
|
|
307
|
|
|
|
—
|
|
Non-owner occupied
|
|
|
674
|
|
|
|
—
|
|
|
|
663
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Total
|
|
$
|
1,517
|
|
|
|
$—
|
|
|
$
|
1,932
|
|
|
|
$
—
|
|
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.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The following table presents the aging
of the recorded investment in past due loans as of March 31, 2013 by class of loans:
|
|
Days Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
30 - 59
|
|
|
60 - 89
|
|
|
90 Days or
|
|
|
Total
|
|
|
Loans Not
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
Greater
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Total
|
|
Commercial
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
46
|
|
|
$
|
73
|
|
|
$
|
24,952
|
|
|
$
|
25,025
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,232
|
|
|
|
3,232
|
|
Other
|
|
|
—
|
|
|
|
63
|
|
|
|
—
|
|
|
|
63
|
|
|
|
121,160
|
|
|
|
121,223
|
|
1-4 Family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
180
|
|
|
|
—
|
|
|
|
258
|
|
|
|
438
|
|
|
|
32,528
|
|
|
|
32,966
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
84
|
|
|
|
84
|
|
|
|
18,315
|
|
|
|
18,399
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
473
|
|
|
|
473
|
|
Consumer
|
|
|
36
|
|
|
|
16
|
|
|
|
—
|
|
|
|
52
|
|
|
|
11,786
|
|
|
|
11,838
|
|
Total
|
|
$
|
238
|
|
|
$
|
84
|
|
|
$
|
388
|
|
|
$
|
710
|
|
|
$
|
212,446
|
|
|
$
|
213,156
|
|
The above table of past due loans includes
the recorded investment in non-accrual loans of $388 in the 90 days or greater and $1,129 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, 2012 by class of loans:
|
|
Days Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
30 - 59
|
|
|
60 - 89
|
|
|
90 Days or
|
|
|
Total
|
|
|
Loans Not
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
Greater
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Total
|
|
Commercial
|
|
$
|
85
|
|
|
|
$—
|
|
|
$
|
33
|
|
|
$
|
118
|
|
|
$
|
22,970
|
|
|
$
|
23,088
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
202
|
|
|
|
—
|
|
|
|
—
|
|
|
|
202
|
|
|
|
1,345
|
|
|
|
1,547
|
|
Other
|
|
|
82
|
|
|
|
—
|
|
|
|
268
|
|
|
|
350
|
|
|
|
110,451
|
|
|
|
110,801
|
|
1-4 Family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
174
|
|
|
|
—
|
|
|
|
178
|
|
|
|
352
|
|
|
|
33,766
|
|
|
|
34,118
|
|
Non-owner occupied
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
|
|
18,753
|
|
|
|
18,796
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
186
|
|
|
|
186
|
|
Consumer
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
9,380
|
|
|
|
9,388
|
|
Total
|
|
$
|
586
|
|
|
$
|
8
|
|
|
$
|
479
|
|
|
$
|
1,073
|
|
|
$
|
196,851
|
|
|
$
|
197,924
|
|
The above table of past due loans includes the recorded investment
in non-accrual loans of $43 in the 30 – 59 days past due category, $479 in the 90 days or greater and $1,410 in the loans
not past due category.
Troubled Debt Restructurings:
As of March 31, 2013, the recorded investment
of loans classified as troubled debt restructurings was $1,972 with $270 of specific reserves allocated to these loans. As of June
30, 2012, the recorded investment of loans classified as troubled debt restructurings was $1,973 with $258 of specific reserves
allocated to these loans. As of March 31, 2013 and June 30, 2012, the Corporation had not committed to lend any additional amounts
to customers with outstanding loans that are classified as troubled debt restructurings.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
During the nine months ended March 31,
2013 and during the year ended June 30, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification
of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan;
an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;
a permanent reduction of the principal balance of the loan; or a temporary reduction in the payment amount to interest only.
Modifications involving a reduction of
the stated interest rate of the loan were for periods ranging from 12 months to 25 years. Modifications involving an extension
of the maturity date were for a period of 5 years to 25 years.
The following table presents loans by class
modified as troubled debt restructurings that occurred during the nine months ended March 31, 2013:
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
Loans
|
|
|
Investment
|
|
|
Investment
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
$
|
285
|
|
|
$
|
282
|
|
1 – 4 Family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1
|
|
|
|
21
|
|
|
|
21
|
|
Total
|
|
|
2
|
|
|
$
|
306
|
|
|
$
|
303
|
|
The following table presents loans by class
modified as troubled debt restructurings that occurred during the nine month period ending March 31, 2012:
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
Number of
|
|
|
Outstanding Recorded
|
|
|
Outstanding Recorded
|
|
|
|
Loans
|
|
|
Investment
|
|
|
Investment
|
|
Commercial
|
|
|
1
|
|
|
$
|
85
|
|
|
$
|
85
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
137
|
|
|
|
137
|
|
1 – 4 Family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1
|
|
|
|
114
|
|
|
|
114
|
|
Non-owner occupied
|
|
|
7
|
|
|
|
534
|
|
|
|
466
|
|
Total
|
|
|
11
|
|
|
$
|
870
|
|
|
$
|
802
|
|
Troubled debt restructurings increased
the allowance for loan losses by $41 and $43 for the three and nine month periods ending March 31, 2013, respectively. There were
no charge offs from troubled debt restructurings during the three or nine month periods ending March 31, 2013. Troubled debt restructurings
increased the allowance for loan losses by $12 and $32 for the three and nine month periods ending March 31, 2012, respectively.
There were no charge offs from troubled debt restructurings during the three month period ending March 31, 2012 and charge offs
of $63 during the nine month period ending March 31, 2012.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
There were no loans classified as troubled
debt restructurings for which there was a payment default during the three or nine month periods ending March 31, 2013. The following
table presents loans by class modified as troubled debt restructurings for which there was a payment default within 12 months following
the modification during the period ending March 31, 2012:
|
|
Number of
|
|
|
Recorded
|
|
|
|
Loans
|
|
|
Investment
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
$
|
440
|
|
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: current financial information,
historical payment experience, credit documentation, public information, and current economic trends, among other factors. The
Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding
loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. Management
monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirm 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.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
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.
Loans not meeting the criteria above that
are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated
are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status,
which 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 March 31, 2013
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
Not
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Rated
|
|
Commercial
|
|
$
|
23,826
|
|
|
$
|
64
|
|
|
$
|
24
|
|
|
$
|
53
|
|
|
$
|
1,058
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,144
|
|
|
|
88
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
111,936
|
|
|
|
5,222
|
|
|
|
2,729
|
|
|
|
880
|
|
|
|
456
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,302
|
|
|
|
—
|
|
|
|
—
|
|
|
|
408
|
|
|
|
28,256
|
|
Non-owner occupied
|
|
|
14,665
|
|
|
|
1,376
|
|
|
|
887
|
|
|
|
937
|
|
|
|
534
|
|
Construction
|
|
|
168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,838
|
|
Total
|
|
$
|
158,041
|
|
|
$
|
6,750
|
|
|
$
|
3,640
|
|
|
$
|
2,278
|
|
|
$
|
42,447
|
|
|
|
As of June 30, 2012
|
|
|
|
Special
|
|
|
Not
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Rated
|
|
Commercial
|
|
$
|
21,642
|
|
|
$
|
240
|
|
|
$
|
14
|
|
|
$
|
148
|
|
|
$
|
1,044
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,353
|
|
|
|
163
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
Other
|
|
|
98,942
|
|
|
|
7,332
|
|
|
|
2,657
|
|
|
|
996
|
|
|
|
874
|
|
1-4 Family residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
4,256
|
|
|
|
—
|
|
|
|
99
|
|
|
|
398
|
|
|
|
29,365
|
|
Non-owner occupied
|
|
|
14,205
|
|
|
|
2,197
|
|
|
|
875
|
|
|
|
1,019
|
|
|
|
500
|
|
Construction
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,388
|
|
|
|
|
|
Total
|
|
$
|
140,445
|
|
|
$
|
9,932
|
|
|
$
|
3,645
|
|
|
$
|
2,561
|
|
|
$
|
41,341
|
|
Note 4 - Fair Value
Fair value is the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that
may be used to measure fair values:
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Level 1: Quoted prices (unadjusted) for
identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs
that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or
liability.
Financial assets and financial liabilities
measured at fair value on a recurring basis include the following:
Securities available-for-sale:
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 market indicators (Level 3 inputs). The fair
value of the Level 3 security is obtained from a third-party pricing service. Discounted cash flows are calculated using spread
to the swap and LIBOR curves. Rating agency and industry research reports as well as defaults and deferrals on the individual security
is reviewed and incorporated into the calculation.
Assets and liabilities measured at fair
value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy
utilized to measure fair value:
|
|
|
|
|
Fair Value Measurements at
March 31, 2013 Using
|
|
|
|
Balance at
March 31, 2013
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored entities and agencies
|
|
$
|
4,857
|
|
|
$
|
—
|
|
|
$
|
4,857
|
|
|
$
|
—
|
|
Obligations of states and political subdivisions
|
|
|
39,960
|
|
|
|
—
|
|
|
|
39,960
|
|
|
|
—
|
|
Mortgage-backed securities – residential
|
|
|
50,066
|
|
|
|
—
|
|
|
|
50,066
|
|
|
|
—
|
|
Collateralized mortgage obligations
|
|
|
6,609
|
|
|
|
—
|
|
|
|
6,609
|
|
|
|
—
|
|
Trust preferred security
|
|
|
138
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
Fair Value Measurements at
June 30, 2012 Using
|
|
|
|
Balance at
June 30, 2012
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored entities and agencies
|
|
$
|
8,567
|
|
|
$
|
—
|
|
|
$
|
8,567
|
|
|
$
|
—
|
|
Obligations of states and political subdivisions
|
|
|
35,276
|
|
|
|
—
|
|
|
|
35,276
|
|
|
|
—
|
|
Mortgage-backed securities - residential
|
|
|
49,331
|
|
|
|
—
|
|
|
|
49,331
|
|
|
|
—
|
|
Collateralized mortgage obligations
|
|
|
12,097
|
|
|
|
—
|
|
|
|
12,097
|
|
|
|
—
|
|
Trust preferred security
|
|
|
64
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1
and Level 2 during the first nine months of the 2013 fiscal year or the during the 2012 fiscal year.
The following table presents a reconciliation
of the trust preferred security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for
the nine months ended March 31, 2013 and 2012:
|
|
2013
|
|
|
2012
|
|
Beginning balance
|
|
$
|
64
|
|
|
$
|
67
|
|
Change in fair value included in other comprehensive income
|
|
|
74
|
|
|
|
(3
|
)
|
Ending balance, March 31
|
|
$
|
138
|
|
|
$
|
64
|
|
The significant unobservable inputs used
in the fair value measurement of the Corporation’s trust preferred security are probabilities of specific-issuer defaults
and deferrals and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases
in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in
specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement.
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 assets 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. 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.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Financial assets and financial liabilities
measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
Fair Value Measurements at
March 31, 2013 Using
|
|
|
|
Balance at
March 31, 2013
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
118
|
|
|
|
—
|
|
|
|
—
|
|
|
|
118
|
|
Non-owner occupied
|
|
|
448
|
|
|
|
—
|
|
|
|
—
|
|
|
|
448
|
|
|
|
|
|
|
Fair Value Measurements at
June 30, 2012 Using
|
|
|
|
Balance at
June 30, 2012
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
647
|
|
|
|
—
|
|
|
|
—
|
|
|
|
647
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
40
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40
|
|
Non-owner occupied
|
|
|
438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
438
|
|
Impaired loans,
which are generally measured for impairment using the fair value of the collateral for collateral dependant loans, had a principal
balance of $786, with a valuation allowance of $184 at March 31, 2013. As of June 30, 2012, impaired loans with a principal balance
of $1,479 had a valuation allowance of $343. The resulting impact to the provision for loan losses was a reduction of $56 and $83
being recorded for the three and nine month periods ended March 31, 2013, respectively. The resulting impact to the provision for
loan losses was a reduction of $53 for the three month period ended March 31, 2012 and an increase of $20 being recorded for the
nine month period ended March 31, 2012.
The valuation technique used by an independent
third party appraiser in the fair value measurement of collateral for collateral-dependent 1-4 family non-owner occupied impaired
loans primarily consisted of the sales comparison and income approach. The significant unobservable inputs used in the fair value
measurement relate to adjustments made to the value set forth in the appraisal by deducting a distressed sale adjustment. For the
March 31, 2013 period, the collateral discount for the 1-4 family owner occupied impaired loan was 32.7% and for 1-4 family non-owner
occupied impaired loans ranged from 10.4% to 29.5%. For the June 30, 2012 period, collateral discounts for commercial real estate
impaired loans ranged from 33% to 41% and for 1-4 family non-owner occupied impaired loans ranged from 15% to 39%.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Estimated fair value for cash and cash
equivalents, certificates of deposits in other financial institutions, accrued interest receivable and payable, demand and savings
deposits and short-term borrowings were considered to approximate carrying value. The methodologies for other financial assets
and financial liabilities are discussed below:
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 3 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.
Time deposits:
Fair value of fixed-maturity
certificates of deposit was estimated using the rates offered at March 31, 2013 and June 30, 2012, for deposits of similar remaining
maturities. Estimated fair value does not include the benefit that result from low-cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the market resulting in a Level 2 classification.
Federal Home Loan Bank advances:
Fair value of Federal Home Loan Bank advances was estimated using current rates at March 31, 2013 and June 30, 2012 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.
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 following table.
The following table shows the estimated
fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets,
segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
March 31, 2013
|
|
|
June 30, 2012
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair
Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs:
Cash and cash equivalents
|
|
$
|
16,921
|
|
|
$
|
16,921
|
|
|
$
|
13,745
|
|
|
$
|
13,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs:
Certificates of deposits in other financial institutions
|
|
|
5,645
|
|
|
|
5,645
|
|
|
|
5,645
|
|
|
|
5,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
1,141
|
|
|
|
1,141
|
|
|
|
1,043
|
|
|
|
1,043
|
|
Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
192
|
|
|
|
199
|
|
|
|
377
|
|
|
|
387
|
|
Loans
|
|
|
210,237
|
|
|
|
209,575
|
|
|
|
195,095
|
|
|
|
196,592
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs:
Demand and savings deposits
|
|
|
218,815
|
|
|
|
218,815
|
|
|
|
200,011
|
|
|
|
200,011
|
|
Time deposits
|
|
|
80,459
|
|
|
|
81,044
|
|
|
|
84,470
|
|
|
|
85,262
|
|
Short-term borrowings
|
|
|
12,483
|
|
|
|
12,483
|
|
|
|
13,722
|
|
|
|
13,722
|
|
Federal Home Loan Bank advances
|
|
|
6,389
|
|
|
|
7,076
|
|
|
|
6,446
|
|
|
|
7,398
|
|
Accrued interest payable
|
|
|
57
|
|
|
|
57
|
|
|
|
56
|
|
|
|
56
|
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Note 5 – Earnings Per Share
Basic earnings per share is the amount
of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided
by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of
earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially
dilutive common shares that may be issued upon the vesting of restricted stock awards. The following table details the
calculation of basic and diluted earnings per share:
|
|
For the Three Months
Ended March 31,
|
|
|
For the Nine Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
628
|
|
|
$
|
686
|
|
|
$
|
1,990
|
|
|
$
|
2,164
|
|
Weighted average common shares outstanding
|
|
|
2,065,887
|
|
|
|
2,051,024
|
|
|
|
2,061,969
|
|
|
|
2,050,390
|
|
Basic income per share
|
|
$
|
0.30
|
|
|
$
|
0.33
|
|
|
$
|
0.96
|
|
|
$
|
1.06
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
628
|
|
|
$
|
686
|
|
|
$
|
1,990
|
|
|
$
|
2,164
|
|
Weighted average common shares outstanding
|
|
|
2,065,887
|
|
|
|
2,051,024
|
|
|
|
2,061,969
|
|
|
|
2,050,390
|
|
Dilutive effect of restricted stock
|
|
|
595
|
|
|
|
534
|
|
|
|
541
|
|
|
|
445
|
|
Total common shares and dilutive potential common shares
|
|
|
2,066,482
|
|
|
|
2,051,558
|
|
|
|
2,062,510
|
|
|
|
2,050,835
|
|
Dilutive income per share
|
|
$
|
0.30
|
|
|
$
|
0.33
|
|
|
$
|
0.96
|
|
|
$
|
1.06
|
|
Note 6 –Accumulated Other Comprehensive
Income
The components of other comprehensive income related to unrealized
gains and losses on available-for-sale securities for the three month period ended March 31, 2013, were as follows:
|
|
For the Three Months Ended
March
31, 2013
|
|
Beginning balance
|
|
$
|
1,835
|
|
Other comprehensive income before reclassification, net of taxes of $137
|
|
|
(264
|
)
|
Amounts reclassified from accumulated other comprehensive income, net of taxes of $34
1
|
|
|
(67
|
)
|
Net current period other comprehensive income, net of tax
|
|
|
(331
|
)
|
Ending balance
|
|
$
|
1,504
|
|
1
Within
the consolidated statement of income, security gains/(losses), net in non-interest income was impacted by $101 and income
tax expense was impacted by $34 due to reclassifications from accumulated other comprehensive income.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
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’s analysis
of the Corporation’s results of operations for the three and nine month periods ended March 31, 2013, compared to the same
periods in 2012, and the consolidated balance sheet at March 31, 2013 compared to June 30, 2012. 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 the 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 Stark, Columbiana, Carroll 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.
Overview of Strategic Initiatives
On February
26, 2013, the Corporation filed a registration statement with the Securities and Exchange Commission (SEC) related to a $10 million
shareholder rights offering. Under the rights offering, the Corporation is distributing to its shareholders of record as of March
26, 2013, proportional rights to purchase additional shares and, subject to availability, shareholders will have the opportunity
to purchase shares in excess of their basic subscription rights. The Corporation may also offer any shares not subscribed for in
the rights offering through a subsequent public offering. The Corporation intends to use the net proceeds from the rights offering
and subsequent public offering, if any, to enhance the Bank’s overall capital position and for general corporate purposes,
future organic and other growth opportunities.
Results of Operations
Three and Nine Months Ended March 31,
2013 and March 31, 2012
In the third quarter of fiscal year 2013,
net income was $628, or $0.30 per common share, compared with $686, or $0.33 per common share, in the prior year period.
The
following key factors summarize our results of operations for the three months ending March 31, 2013:
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
|
·
|
net interest income of $2,923 remained consistent with the same prior year period;
|
|
·
|
loan loss provision expense in fiscal year 2013 totaled $90 compared to $11 from the same period
last year;
|
|
·
|
noninterest income increased by $148, or 25.3%, in fiscal year 2013 from the same prior year period.
In the current year, a $101 net gain on the sale of securities was recognized compared with a $37 net loss in the same prior year
period; and
|
|
·
|
noninterest expenses increased by $188, or 7.2%, in fiscal year 2013
principally as a result of higher salary and employee benefits
due to staff hired in the lending area and new staff for
the Jackson-Belden office that opened July 31, 2012.
|
In the first nine months of fiscal year
2013, net income was $1,990, or $0.96 per common share, compared with $2,164, or $1.06 per common share, in the prior year period.
The following key factors summarize our results of operations for the nine months ending March 31, 2013:
|
·
|
net interest income increased by $244, or 2.8%, in fiscal year 2013 from the same prior year period;
|
|
·
|
loan loss provision expense in fiscal year 2013 of $171 remained consistent with the same prior
year period;
|
|
·
|
noninterest income increased by $121, or 6.2%, in fiscal year 2013 from
the same prior year period mainly as a result of a $109 increase in other income primarily as a result of increases from the
gain
on the sale of loans and investment advisory and brokerage income
; and
|
|
·
|
noninterest expenses increased by $721, or 9.4%, in fiscal year 2013
principally as a result of higher salary and employee benefits
due to staff hired in the lending area and new staff for
the Jackson-Belden office that opened July 31, 2012. Also, occupancy and equipment expense increased primarily as a result of higher
depreciation expense associated with the Minerva, Ohio location since a new facility is planned to replace the current facility
by spring of 2015.
|
Return on average equity (ROE) and return
on average assets (ROA) were 8.67% and 0.74%, respectively, for the third quarter of fiscal year 2013 compared to 10.09% and 0.86%,
respectively, for the third quarter of fiscal year 2012. ROE and ROA were 9.19% and 0.78%, respectively, for the first nine months
of fiscal year 2013 compared to 9.28% and 0.81%, respectively, for the same prior year period.
Net Interest Income
Net interest income, the difference between
interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest
component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition
of interest-earning assets and interest-bearing liabilities. 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. All average balances are daily average balances. Non-accruing
loans are included in average loan balances.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
The Corporation’s net interest margin
for the three months ended March 31, 2013 was 3.85%, compared to 4.03% for the same year ago period.
Net interest income for the three months ended March 31, 2013 increased by $4, or 0.1%, to $2,923 from $2,919 for the same
year ago period. The increase in net interest income was primarily the result of a decline in the Corporation’s cost of funds
and an increase in average interest-earning assets.
Interest income for the three months ended
March 31, 2013 decreased by $51, or 1.6%, from the same year ago period. An increase of $20,297, or 6.6%, in average interest-earning
assets more than offset the impact the low interest rate environment has had on the yield of average interest-earning assets. Interest
expense for the three months ended March 31, 2013 decreased by $55, or 15.9%, from the same year ago period. The Corporation’s
cost of funds decreased to 0.48% for the three month period ended March 31, 2013 from 0.60% for the same year ago period mainly
due to lower market rates affecting the rates paid on all interest-bearing deposit accounts and borrowings.
The Corporation’s net interest margin
for the nine months ended March 31, 2013 was 3.91%, compared to 4.07% for the same year ago period.
Net interest income for the nine months ended March 31, 2013 increased by $244, or 2.8%, to $8,957 from $8,713 for the same
year ago period. The increase in net interest income was primarily the result of a decline in the Corporation’s cost of funds
and an increase in average interest-earning assets.
Interest income for the nine months ended
March 31, 2013 increased by $50, or 0.5%, from the same year ago period. An increase of $24,455, or 8.2%, in average interest-earning
assets more than offset the impact the low interest rate environment has had on the yield of average interest-earning assets. Interest
expense for the nine months ended March 31, 2013 decreased by $194, or 17.2%, from the same year ago period. The Corporation’s
cost of funds decreased to 0.51% for the nine month period ended March 31, 2013 from 0.68% for the same year ago period mainly
due to lower market rates affecting the rates paid on most all interest-bearing deposit accounts and borrowings. The Corporation
has introduced a NOW checking account product that pays a higher rate of interest to customers who meet certain qualifications,
with one of the main qualifications being the frequent use of a debit card. As a result, debit card interchange income has increased
(see discussion in “Non-Interest Income” section) and the cost of the NOW checking account increased from 0.19% to
0.22% from the same year ago period.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Average
Balance Sheets and Analysis of Net Interest Income for the Three Months Ended March 31,
|
(In thousands,
except percentages)
|
|
|
2013
|
|
|
2012
|
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
$
|
67,682
|
|
|
$
|
293
|
|
|
|
1.78
|
%
|
|
$
|
76,924
|
|
|
$
|
445
|
|
|
|
2.35
|
%
|
Nontaxable securities (1)
|
|
|
40,310
|
|
|
|
473
|
|
|
|
4.97
|
|
|
|
30,330
|
|
|
|
396
|
|
|
|
5.56
|
|
Loans receivable (1)
|
|
|
207,612
|
|
|
|
2,594
|
|
|
|
5.07
|
|
|
|
180,594
|
|
|
|
2,546
|
|
|
|
5.67
|
|
Interest bearing deposits and federal
funds sold
|
|
|
11,768
|
|
|
|
15
|
|
|
|
0.52
|
|
|
|
19,227
|
|
|
|
12
|
|
|
|
0.25
|
|
Total interest-earning assets
|
|
|
327,372
|
|
|
|
3,375
|
|
|
|
4.22
|
%
|
|
|
307,075
|
|
|
|
3,399
|
|
|
|
4.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
17,897
|
|
|
|
|
|
|
|
|
|
|
|
13,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
345,269
|
|
|
|
|
|
|
|
|
|
|
$
|
320,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
39,060
|
|
|
$
|
21
|
|
|
|
0.22
|
%
|
|
$
|
33,044
|
|
|
$
|
20
|
|
|
|
0.24
|
%
|
Savings
|
|
|
105,448
|
|
|
|
19
|
|
|
|
0.07
|
|
|
|
94,833
|
|
|
|
26
|
|
|
|
0.11
|
|
Time deposits
|
|
|
81,481
|
|
|
|
196
|
|
|
|
0.98
|
|
|
|
83,517
|
|
|
|
243
|
|
|
|
1.17
|
|
Short-term borrowings
|
|
|
12,076
|
|
|
|
5
|
|
|
|
0.17
|
|
|
|
13,411
|
|
|
|
5
|
|
|
|
0.15
|
|
FHLB advances
|
|
|
6,513
|
|
|
|
49
|
|
|
|
3.05
|
|
|
|
6,484
|
|
|
|
51
|
|
|
|
3.16
|
|
Total interest-bearing liabilities
|
|
|
244,578
|
|
|
|
290
|
|
|
|
0.48
|
%
|
|
|
231,289
|
|
|
|
345
|
|
|
|
0.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing checking accounts
|
|
|
69,004
|
|
|
|
|
|
|
|
|
|
|
|
59,493
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,346
|
|
|
|
|
|
|
|
|
|
|
|
2,205
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
315,928
|
|
|
|
|
|
|
|
|
|
|
|
292,987
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
29,341
|
|
|
|
|
|
|
|
|
|
|
|
27,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
345,269
|
|
|
|
|
|
|
|
|
|
|
$
|
320,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, interest
rate spread (1)
|
|
|
|
|
|
$
|
3,085
|
|
|
|
3.74
|
%
|
|
|
|
|
|
$
|
3,054
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (net interest as a percent
of average interest-earning assets) (1)
|
|
|
|
|
|
|
|
|
|
|
3.85
|
%
|
|
|
|
|
|
|
|
|
|
|
4.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax exemption
on non-taxable securities and loans included in interest income
|
|
|
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to interest-bearing
liabilities
|
|
|
133.85
|
%
|
|
|
|
|
|
|
|
|
|
|
132.77
|
%
|
|
|
|
|
|
|
|
|
(1) calculated on a fully taxable equivalent basis
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Average Balance
Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31,
|
(In thousands,
except percentages)
|
|
|
2013
|
|
|
2012
|
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
$
|
68,117
|
|
|
$
|
1,010
|
|
|
|
2.01
|
%
|
|
$
|
74,303
|
|
|
$
|
1,400
|
|
|
|
2.54
|
%
|
Nontaxable securities (1)
|
|
|
39,208
|
|
|
|
1,393
|
|
|
|
4.96
|
|
|
|
27,380
|
|
|
|
1,126
|
|
|
|
5.69
|
|
Loans receivable (1)
|
|
|
203,447
|
|
|
|
7,919
|
|
|
|
5.19
|
|
|
|
179,538
|
|
|
|
7,654
|
|
|
|
5.67
|
|
Interest bearing deposits and federal
funds sold
|
|
|
13,316
|
|
|
|
46
|
|
|
|
0.46
|
|
|
|
18,412
|
|
|
|
42
|
|
|
|
0.30
|
|
Total interest-earning assets
|
|
|
324,088
|
|
|
|
10,368
|
|
|
|
4.30
|
%
|
|
|
299,633
|
|
|
|
10,222
|
|
|
|
4.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
17,959
|
|
|
|
|
|
|
|
|
|
|
|
13,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
342,047
|
|
|
|
|
|
|
|
|
|
|
$
|
312,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
36,586
|
|
|
$
|
61
|
|
|
|
0.22
|
%
|
|
$
|
23,325
|
|
|
$
|
33
|
|
|
|
0.19
|
%
|
Savings
|
|
|
102,667
|
|
|
|
67
|
|
|
|
0.09
|
|
|
|
88,895
|
|
|
|
89
|
|
|
|
0.13
|
|
Time deposits
|
|
|
83,689
|
|
|
|
640
|
|
|
|
1.02
|
|
|
|
85,979
|
|
|
|
802
|
|
|
|
1.24
|
|
Short-term borrowings
|
|
|
13,241
|
|
|
|
16
|
|
|
|
0.16
|
|
|
|
15,312
|
|
|
|
23
|
|
|
|
0.20
|
|
FHLB advances
|
|
|
6,453
|
|
|
|
149
|
|
|
|
3.08
|
|
|
|
6,907
|
|
|
|
180
|
|
|
|
3.47
|
|
Total interest-bearing liabilities
|
|
|
242,636
|
|
|
|
933
|
|
|
|
0.51
|
%
|
|
|
220,418
|
|
|
|
1,127
|
|
|
|
0.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing checking accounts
|
|
|
68,203
|
|
|
|
|
|
|
|
|
|
|
|
63,997
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
313,217
|
|
|
|
|
|
|
|
|
|
|
|
286,460
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
28,830
|
|
|
|
|
|
|
|
|
|
|
|
26,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
342,047
|
|
|
|
|
|
|
|
|
|
|
$
|
312,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, interest
rate spread (1)
|
|
|
|
|
|
$
|
9,435
|
|
|
|
3.79
|
%
|
|
|
|
|
|
$
|
9,095
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (net
interest as a percent of average interest-earning assets) (1)
|
|
|
|
|
|
|
|
|
|
|
3.91
|
%
|
|
|
|
|
|
|
|
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax exemption
on non-taxable securities and loans included in interest income
|
|
|
|
|
|
$
|
478
|
|
|
|
|
|
|
|
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning
assets to interest-bearing liabilities
|
|
|
133.57
|
%
|
|
|
|
|
|
|
|
|
|
|
135.94
|
%
|
|
|
|
|
|
|
|
|
(1) calculated on a fully taxable equivalent basis
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Provision for Loan Losses
The provision for loan losses represents
the charge to income necessary to adjust the allowance for loan losses to an amount that represents management's assessment of
the estimated probable incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet
date. For the three month period ended March 31, 2013, the provision for loan losses was $90, an increase of $79 from the same
prior year period. For the nine month period ended March 31, 2013, the provision for loan losses was $171, compared with $170
from the same prior year period.
The allowance for loan losses as a percentage
of loans was 1.18% at June 30, 2012 and 1.12% at March 31, 2013. From June 30, 2012 to March 31, 2013, there was a reduction in
the recorded investment of loans classified as special mention, substandard and doubtful and the percentage of loans classified
as pass credits increased from 70.96% at June 30, 2012 to 74.14% at March 31, 2013. The improvement in the risk classifications
of the loan portfolio was the primary reason for the reduction in the allowance for loan losses as a percentage of total loans
from June 30, 2012.
Net charge-offs for the nine month period
ending March 31, 2013 were $129, or 0.08% of total average loans on an annualized basis, compared with $57, or 0.04% of total average
loans, for the same period last year. The provision for the 1-4 family residential real estate loan portfolio was a negative $64
for the current nine month period primarily as a result of improvement in the three year historical loss ratio for this portfolio.
Non-performing loans were $1,517 as of
March 31, 2013 and represented 0.71% of total loans. This compared with $1,932, or 0.98%, at June 30, 2012 and $1,995, or 1.08%,
as of March 31, 2012. The allowance for loan losses to total non-performing loans at March 31, 2013 was 156.69% compared with 120.86%
at June 30, 2012 and 110.98% at March 31, 2012.
The provision for loan losses for the period
ending March 31, 2013 was considered sufficient by management for maintaining an appropriate allowance for loan losses for probable
incurred credit losses.
Non-Interest Income
Non-interest income totaled $733 for the
third quarter of fiscal year 2013, compared to $585 for the same period last year. Non-interest income for the third quarter of
fiscal year 2013 included a net gain from the sale of securities of $101 compared with a net loss of $37 recognized during the
same prior year period.
Service charges on deposits decreased
by $37, or 10.9%, during the third quarter of fiscal year 2013 due to a decline in overdraft fee income from the same period last
year. Debit card interchange income increased by $3, or 1.6%, from the same period last year mainly due to an increase in debit
card usage by our customers as a result of the NOW checking account product previously discussed.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Other non-interest income increased by
$49, or 100.0%, during the third quarter of fiscal year 2013 primarily as a result of increases in gain on the sale of mortgage
loans and investment advisory and brokerage income.
Non-interest income totaled $2,075 for
the first nine months of fiscal year 2013, compared to $1,954 for the same period last year. Non-interest income for the first
nine months of fiscal year 2013 included a net gain from the sale of securities of $124 compared with a net gain of $118 recognized
during the same prior year period. Also included in non-interest income during the 2012 fiscal year was a $53 loss from the sale
of other real estate that was acquired through loan foreclosure.
Service charges on deposits decreased by
$82 or 7.7%, during the first nine months of fiscal year 2013 mainly due to a decline in overdraft fee income from the same period
last year. The decline in overdraft income was partially offset by an increase in service charge income on personal checking accounts
as a result of product changes that went into effect in December 2011. Debit card interchange income increased by $44, or 8.1%,
from the same period last year mainly due to an increase in debit card usage by our customers as a result of the new NOW checking
account product previously discussed.
Other non-interest income increased by
$109, or 80.7%, during the first nine months of fiscal year 2013 primarily as a result of increases in the gain on the sale of
loans and investment advisory and brokerage income.
Non-Interest Expenses
Total non-interest expenses increased
to $2,799, or by 7.2%, during the third quarter of fiscal year 2013, compared with $2,611 during the same year ago period.
Salaries and employee benefits increased
by $127, or 8.9%, during the third quarter of fiscal year 2013. The increase was primarily associated with staff additions in the
lending area and new staff for the Jackson-Belden office that was opened July 31, 2012.
Occupancy and equipment increased by $53,
or 19.8%, during the third quarter of fiscal year 2013 mainly due to an increase in building depreciation expense associated with
the Minerva, Ohio corporate headquarters and Jackson-Belden branch location. The remaining book value of this location is being
expensed over the remaining useful life as a new facility is planned to replace the current facility by spring of 2015. Occupancy
and equipment expenses also increased as a result of the new Jackson-Belden office that opened on July 31, 2012.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Telephone and network communications expenses
increased by $15, or 25.0%, during the third quarter of fiscal year 2013 mainly as a result of one-time costs associated with the
switch to a fiber optic communications network.
Total other expenses increased by $23,
or 6.8%, during the third quarter of fiscal year 2013 mainly due to higher education and development expenses and higher loan appraisal
expenses.
Total non-interest expenses increased
to $8,394, or by 9.4%, during the first nine months of fiscal year 2013, compared with $7,673 during the same year ago period.
Salaries and employee benefits increased
by $531, or 13.1%, during the first nine months of fiscal year 2013. The increase was primarily associated with staff additions
in the lending area and new staff for the Jackson-Belden office that was opened July 31, 2012.
Occupancy and equipment increased by $181,
or 23.1%, during the first nine months of fiscal year 2013 mainly due to an increase in building depreciation expense associated
with the Minerva, Ohio corporate headquarters and Jackson-Belden branch location. The remaining book value of this location is
being expensed over the remaining useful life as a new facility is planned to replace the current facility by spring of 2015. Occupancy
and equipment expenses also increased as a result of the new Jackson-Belden office that opened on July 31, 2012.
Marketing and advertising expenses increased
by $18, or 8.6%, to $228 compared to the same period last year mainly due to an increase in marketing efforts as a result of the
opening of the Jackson-Belden branch location.
Telephone and network communications expenses
increased by $44, or 25.0%, during the first nine months of fiscal year 2013 mainly as a result of one-time costs associated with
the switch to a fiber optic communications network.
Debit card processing expenses increased
by $7, or 2.5%, during the first nine months of fiscal year 2013 mainly as a result of increased debit card usage by our customers.
The amortization of intangible expense
declined from the previous year since the core deposit purchase premium of the Lisbon, Ohio branch that was purchased in January
2000 is fully amortized.
Total other expenses increased by $92,
or 8.9%, during the first nine months of fiscal year 2013, mainly as a result of higher internet banking expenses as a result
of an increased number of personal and business customers using the internet banking product and higher education and development
expenses from the introduction of a management development program.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Income Taxes
Income tax expense for the three month
period ended March 31, 2013 decreased by $57, to $139 from $196, compared to a year ago. The effective tax rate was 18.1% for the
current quarter as compared to 22.2% for the same period last year.
Income tax expense for the nine month period
ended March 31, 2013 decreased by $183, to $477 from $660, compared to a year ago. The effective tax rate was 19.3% for the current
period as compared to 23.4% for the same period last year. The decline in the effective tax rate was primarily the result of an
increase in tax-exempt municipal income.
The effective tax rate differed from the
federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions, loans
and earnings on bank owned life insurance.
Financial Condition
Total assets at March 31, 2013 were $349,407
compared to $334,761 at June 30, 2012, an increase of $14,646, or an annualized 5.8%.
Available-for-sale securities decreased
by $3,705 from $105,335 at June 30, 2012 to $101,630 at March 31, 2013.
Total loans increased by $15,184, or an
annualized 10.2%, to $212,614 at March 31, 2013 compared to $197,430 at June 30, 2012 mainly as a result of expanded calling efforts.
Non-Performing Assets
The following table presents the aggregate
amounts of non-performing assets and respective ratios as of the dates indicated.
|
|
March 31, 2013
|
|
|
June 30,
2012
|
|
|
March 31, 2012
|
|
Non-accrual loans
|
|
$
|
1,517
|
|
|
$
|
1,932
|
|
|
$
|
1,995
|
|
Loans past due over 90 days and still accruing
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total non-performing loans
|
|
|
1,517
|
|
|
|
1,932
|
|
|
|
1,995
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total non-performing assets
|
|
$
|
1,517
|
|
|
$
|
1,932
|
|
|
$
|
1,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
0.71
|
%
|
|
|
0.98
|
%
|
|
|
1.08
|
%
|
Allowance for loan losses to
total non-performing loans
|
|
|
156.69
|
%
|
|
|
120.86
|
%
|
|
|
110.98
|
%
|
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
As of March 31, 2013, impaired loans totaled
$2,278, of which $1,385 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 insure the soundness of the portfolio, as well as to provide funding for loan demand
as needed.
Net cash inflow from operating activities
for the nine month period ended March 31, 2013 was $3,390, net cash outflows from investing activities was $13,116 and net cash
inflows from financing activities was $12,902. A major source of cash was $21,341 from sales, maturities, calls or principal pay
downs on available-for-sale securities and a $14,793 increase in deposits. A major use of cash included the $18,735 purchase of
securities and a $15,313 increase in loans. Total cash and cash equivalents was $16,921 as of March 31, 2013 compared to $13,745
at June 30, 2012 and $20,377 at March 31, 2012.
The Bank offers several types of deposit
products to its customers. The rates offered by the Bank and the fees charged for them are competitive with others currently available
in the market area. Deposits totaled $299,274 at March 31, 2013 compared with $284,481 at June 30, 2012. The overall cost for funds
decreased by 17 basis points for the nine month period ended March 31, 2013 compared with the same year ago period.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
To provide an additional source of liquidity,
the Corporation has entered into an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati. At March 13, 2013, FHLB advances
totaled $6,389 as compared with $6,446 at June 30, 2012. As of March 31, 2013, t
he Bank had the ability
to borrow an additional $21,714 from the FHLB based on a blanket pledge of qualifying first mortgage loans.
The Corporation
considers the FHLB to be a reliable source of liquidity funding, secondary to its deposit base.
Short-term borrowings consisted of repurchase
agreements which is a financing arrangement that matures daily and federal funds purchased from correspondent banks. The Bank pledges
securities as collateral for the repurchase agreements. Short-term borrowings decreased to $12,483 at March 31, 2013 from $13,722
at June 30, 2012.
Jumbo time deposits (those with balances
of $100 thousand and over) totaled $33,069 at March 31, 2013 and $34,422 at June 30
, 2012
. 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.
Capital Resources
Total shareholders’ equity increased
by $1,304 from June 30, 2012 to $29,194 as of March 31, 2013. The increase was mainly due to net income for the current nine month
period which was partially offset by cash dividends paid during the period.
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.
The Bank’s leverage and risk-based
capital ratios as of March 31, 2013 were 8.0% and 13.1%, respectively. This compares to leverage and risk-based capital ratios
of 7.4% and 13.4%, respectively, as of June 30, 2012. 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 March 31
,
2013
that would cause the Bank’s capital category to change.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
As previously
discussed, the Corporation filed a registration statement with the SEC related to a $10 million shareholder rights offering. The
Corporation intends to use the net proceeds from the rights offering and subsequent public offering, if any, to enhance the Bank’s
overall capital position and for general corporate purposes,
future organic and other growth opportunities.
Regulatory reforms continue to be adopted
which impose additional restrictions on current business practices and one such proposal is the Federal Reserve BASEL III capital
plan rules. In June 2012, the Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance
Corporation (collectively, the Agencies) each issued notices of proposed rulemaking that would revise and replace the Agencies’
current capital rules to align with the BASEL III capital standards and meet certain requirements of the Dodd-Frank Act. Certain
requirements of the notices of proposed rulemaking would establish more restrictive capital definitions, higher risk-weightings
for certain asset classes, capital buffers and higher minimum capital ratios. The notices of proposed rulemaking were in a comment
period through October 22, 2012, and are currently being evaluated by the Agencies. We are currently evaluating the impact of the
proposals on our regulatory capital ratios. There can be no guarantee that Basel III will be adopted in its current form, what
changes may be made before adoption, or when ultimate adoption will occur.
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’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 valuation of securities as critical accounting policies and an understanding of these
policies are necessary to understand the financial statements. Critical accounting policies are those policies that 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. Footnote one (Securities and Allowance for Loan Losses), footnote two (Securities), footnote three (Loans)
and Management Discussion and Analysis of Financial Condition and Results from Operation (Critical Accounting Policies) of the
2012 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses and valuation
of securities and other-than-temporary impairment. There have been no significant changes in the application of accounting policies
since June 30, 2012.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited) (continued)
(Dollars in thousands, except per share amounts)
Forward-Looking Statements
When used in this report (including
information incorporated by reference in this report), the words or phrases “will likely result,” “are expected
to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe”
or 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. These forward-looking statements may involve risks
and uncertainties that are difficult to predict, may be beyond the Corporation’s 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 undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
Factors that could cause actual results for future periods to differ materially from those anticipated or projected include, but
are not limited to:
|
·
|
regional and national economic conditions becoming less favorable than expected, resulting in,
among other things, a deterioration in credit quality of assets and the underlying value of collateral could prove to be less valuable
than otherwise assumed;
|
|
·
|
the economic impact from the oil and gas activity in the region could be less than expected or
the timeline for development could be longer than anticipated;
|
|
·
|
an extended period in which market levels of interest rates remain at historical low levels which
could reduce, or put pressure on our ability to maintain, anticipated or actual margins;
|
|
·
|
the nature, extent, and timing of government and regulatory actions;
|
|
·
|
material unforeseen changes in the financial condition or results of Consumers National Bank’s
customers;
|
|
·
|
competitive pressures on product pricing and services; and
|
|
·
|
a deterioration in market conditions causing debtors to be unable to meet their obligations.
|
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.
CONSUMERS BANCORP, INC.