Financial Highlights
Dollar amounts in thousands, except per share data.
ASSETS
Total cash and cash equivalents
Certificates of deposit in financial institutions
Securities, available-for-sale
Securities, held-to-maturity
Federal bank and other restricted stocks, at cost
Loans held for sale
Total loans
Less allowance for loan losses
Net loans
Other assets
Total assets
LIABILITIES
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time
Total deposits
Short-term borrowings
Federal Home Loan Bank advances
Other liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
Total liabilities and shareholders’ equity
June 30, 2014
June 30, 2013
$ 11,125
2,703
126,393
3,000
1,396
559
224,966
(2,405)
222,561
14,740
$382,477
$ 75,353
42,718
125,151
70,675
313,879
19,489
6,296
2,592
342,274
$ 9,356
4,175
97,229
3,000
1,186
93
217,040
(2,496)
214,544
13,906
$ 343,489
$ 71,148
37,529
106,221
79,209
294,107
12,490
6,366
2,383
315,346
40,203
$ 382,477
28,143
$ 343,489
Cash dividends paid per share
Weighted average number
of common shares outstanding
$ 0.48
$ 0.48
2,701,614
2,063,666
NET INCOME
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income
Other expense
Income before income taxes
Income taxes
Net income
$ 13,656
995
12,661
249
12,412
2,761
11,682
3,491
654
$ 2,837
$ 13,141
1,202
11,939
337
11,602
2,802
11,101
3,303
634
$ 2,669
Basic and diluted earnings per share
$ 1.05
$ 1.29
Please refer to the annual report on Form 10-K for additional financial information.
Dear Fellow Shareholders,
Our communities are what make Consumers National
Bank so different from regional banks and even other
community banks. Consumers leverages the capital of
predominately local shareholders by investing local
funds into the enterprises that spur local economies.
In return, the bank benefits from the vibrancy and
work ethic of the individuals, businesses, and farms
that come to together to make each town, village, or
city unique.
The success of each community has contributed to
the bank’s 49 year history and strong fiscal 2014
performance. The communities supported loan and
total asset growth of 3.7% and 11.4% respectively and
a 6.7% increase in deposit balances in the last fiscal
year. This balance sheet growth translated into a 6.0%
increase in net interest income and a 6.3% increase in
net income to $2.84 million; a record. These results
are a direct reflection on our employees and on the
people who live and work in the markets we serve.
Consumers Bancorp stock earned
$1.05 per share and maintained
a $.48 per share dividend on an
additional 656,000 shares in 2014.
The successful completion of the common stock
offering for approximately $10.0 million in gross
proceeds, which was completed in July, 2013, will
allow for significant organic growth and provide
strategic flexibility. We believe that this effort was
successful because of the bank’s local reputation,
market area, business model, portfolio mix, and
financial performance. We intend to build on each
of these factors as we believe that each continues to
support our stock performance. Through 2014, we
rewarded our shareholders with a reliable dividend.
We earned $1.05 per share and maintained a $.48 per
share dividend on an additional 655,668 shares.
Our business development efforts continue to result
in new relationship opportunities that are fueling
deposit and loan growth throughout our markets
and strengthening noninterest income. Adhering
relationship
involvement
to
development, two tenants of community banking, is
striking a chord with our customer base. While well-
community
and
rooted in our established markets, it is gratifying that
this message also resonates in our newest markets;
Hartville (2011) and Jackson (2012). During the 12
months ending June 30, 2014, loans increased $14.7
million, or 84% and deposits increased $2.4 million
or 20% in these two markets. Additionally, Utica
shale production continues to spur deposit growth
in our southern region. Combined, the Carrollton,
Waynesburg, and Malvern markets experienced a
22.6% increase in deposit balances over the twelve
month period ending June 30, 2014. The success
of our relationship banking efforts diversifies our
opportunities in our markets and protects us from
becoming over reliant on the shale industry to support
continued growth. Over $23 million dollars in
deposit growth over the last three years is attributed
to commercial deposits, much of which is the result
of expanded customer relationships that began on the
loan side of the ledger. The average annual growth
rate in commercial deposits for the three years ending
June 2014 was 18.6%.
We expect to increase our business development
efforts in our current markets and look to utilize our
i
to
continue
technology as we expand the geographical reach
of our prospecting and new business acquisition.
We
concentrate on developing
noninterest income through: commercial deposit
and cash management services; debit and credit card
interchange; and investment and insurance services.
Mortgage banking is also expected to contribute to
noninterest income growth. While the decline in
refinance activity has slowed the growth in mortgage
banking, we see opportunities for additional purchase
financing and construction lending as economic
conditions continue to improve. We have added
additional secondary market investors as well as VA,
FHA, and manufactured housing products that will
allow the bank to capitalize on these opportunities.
Technology and security remain investment priorities.
To stay ahead of customer technology expectations
our staff
launched: Check Connect, our retail
remote check deposit product; tablet banking for
Apple, Android, and Amazon tablets; and e-sign,
electronic signature capabilities for deposit products.
Furthermore, we implemented a secure token system
to strengthen our security over our cash management
products; enhanced security over our ATM network
and converted to a virtual server environment that
will strengthen our business resumption capabilities
and increase operating efficiency. To streamline
operations, we implemented complete document
imaging for loan and deposit products and invested
in new, more efficient payroll and accounts payable
systems. Well in advance of regulatory requirements,
we launched an enterprise risk management system
to help define, measure, and manage risk across the
organization. We continue to be an early adopter of
the technologies necessary to: protect our customers’
data; manage risk; increase efficiencies; and compete
for today’s technology-focused customers.
ii
Next year we will celebrate the bank’s 50th anniversary
and the opening of a new branch and corporate office
in Minerva. This construction is an investment in
our staff and a direct sign of our commitment to our
roots and to the future of community banking. Our
employees and customers have long made do with far
less than ideal working and banking conditions. We
will remedy that with a state-of-the-art facility that,
while providing customer and employee amenities
and back-office and branch operating efficiencies,
will also make a statement as to the permanence,
strength, and stability of the region’s leading local
banking institution.
Soon after our annual shareholder meeting, Phillip
Suarez will retire as the Bank’s Executive Vice
President and Senior Loan Officer. Over the past 14
years, Phil was a leader in building both a strong
credit culture and an effective business development
team. His efforts were rewarded as the bank was in
a position to expand during the most recent banking
crisis. We will miss his commitment to excellence
and his passion for community banking. I thank Phil
for his contributions to Consumers National Bank’s
bright future and wish him well in his retirement.
Next year, we will celebrate the
bank’s 50th anniversary and the
opening of a new branch and
corporate office in Minerva.
Succession is consistently noted as a major issue that
community banks must address to remain viable. Our
management team and Board take this issue seriously.
In July, 2013, we welcomed Frank Paden to our Board
of Directors and in November Scott Dodds joined
our executive management team. Frank brings 38
years of community banking experience and in-depth
knowledge of our eastern markets. With close to 30
years of community and regional bank commercial
lending and mortgage banking experience, Scott will
succeed Phil as Senior Lender. We will continue to
proactively prepare for future succession needs at all
levels of the organization.
I am sorry to write that since our last report Directors
Emeriti Homer Unkefer and Walter Young passed
away. A resident of Minerva, Homer was one of
the bank’s founders and served on the Board until
2005. The founder of Unkefer Equipment, he was an
avid supporter of the local farm community and an
enthusiastic promoter of Consumers National Bank.
Walt served on the bank’s Board from 1981 to 2006.
As a farmer and excavator, Walt worked to ensure the
bank met the needs of the small business community.
A Lake Mohawk resident, Walt could usually be
found in the Waynesburg branch. Good friends,
both men worked tirelessly to broaden the bank’s
local shareholder base. We will miss the enthusiasm
both had for their communities and their bank. We
continually strive to carry out their vision.
This annual report is dedicated
to the 12 communities that make
Consumers Bancorp,
Inc. a
dynamic organization.
This annual report is dedicated to the 12 communities
that make Consumers Bancorp a dynamic organization.
As we note on the cover of this report, “our
communities make the difference.” With Minerva as
the geographical center, our communities reach from
Lisbon in the east to Canton in western Stark County
and from Carrollton in the south to Hartville in the
north. Our markets include manufacturing centers in
Minerva, Salem, Alliance, and Canton, county seats
in Lisbon, Canton, and Carrollton, predominately
rural areas in Lisbon and Carrollton, and residential
communities like Hartville, Louisville and Jackson.
Many of our communities have been changed
forever by new technologies that allow access to
valuable natural resources, while others continue to
manufacture traditional products and components that
are shipped around the world. We are committed to
playing a major role as each of these areas prepares
to retain their heritage while competing in the global
economy. We pay tribute to the workers, farmers,
business owners, civic leaders, and volunteers who
work tirelessly to better their respective towns and
cities, and we thank them for understanding the value a
vibrant community bank adds to their neighborhoods.
Please take some time to learn about the cities and
towns in which we invest your capital and our time.
Your banking relationships and referrals are important
to our success. We look forward to serving you,
your neighbors, and colleagues. In the meantime,
we would like to share our excitement for 2014’s
accomplishments and for our bright future with you
at the Annual Shareholders’ meeting on October
28, 2014 at The Hartville Kitchen. Please join us to
hear more about how our mission and vision support
communities and shareholders. Lunch will be served
at noon.
Sincerely,
Ralph J. Lober, II
President and CEO
iii
Welcome to Consumers’
Communities
Stark
Population
375,432
Households
150,299
Median Income
$45,689
Businesses
29,479
Farms
1,168
Total Market*
$1.66B
Columbiana
Population
105,893
Households
42,476
Median Income
$41,870
Businesses
7,891
Farms
1,045
Total Market*
$1.32B
Minerva
Population
28,275
Households
11,424
Median Income
$43,127
Businesses
2,366
Farms
733
Total Market*
$560M
Carroll
*Market share data in this report was gathered from the Federal Deposit Insurance Corporation’s June 30, 2013 survey.
Known as the Carnation City,
Alliance is a vibrant and diverse
community.
Complementing
its growing industrial base, the
University of Mount Union, a
4-year private institution, was
founded in Alliance in 1846. The
restored Glamorgan Castle,
previous home of Colonel William
Henry Morgan, now serves as the
central administration building for
the Alliance City School District.
More
recently, Consumers
supported the renovation project
that provided updated YMCA
recreational facilities and new
space for the Early Childhood
Educational Alliance. Employees
serve on the Boards of the YMCA
and Alliance Area Development.
The bank also supports
the
Marlington Local Schools which
serves the Alliance market.
ALLIANCE
Population
22,213
Households
8,733
Founded
1854
Businesses
1,595
Market Share
5.06%
Households
1,178
Total Loans
$29,970,000
Total Deposits
$20,610,000
Branch Manager
Julie Schlemmer
Business
Development Officer
Harry Eaton
CARROLLTON
Population
3,241
Households
1,347
Founded
1834
Businesses
580
Market Share
15.93%
Households
1,751
Total Loans
$28,200,000
Total Deposits
$42,160,000
Branch Manager
Bev Newell
Business
Development Officer
Michele Catlett
Agriculture Lender
Sarah Chronister
v
Carrollton is the county seat
of Carroll County. The existing
courthouse was built in 1885 to
replace the original one built in
1835. Today, Carrollton is the
epicenter of northeast Ohio’s
Utica Shale oil and gas boom
with 198 of
the 215 drilled
wells in production and fueling
dramatic expansion in the local
economy and deposit growth at
Consumers. The bank annually
supports Big Brothers Big Sisters
and the 4-H programs at the
Carroll County fair.
to serve
When East Canton lost its only
bank in 2000, the community
asked Consumers to open a
branch
its financial
needs. We are proud to be the
only bank in the small village
with a big spirit. A recently
constructed high school and the
Foltz Community Center show
that the residents are attentive
to the needs of their community.
The village hall is recognized
of
by
travelers
passing
through East Canton
on Route 30 daily. Consumers
employees provide leadership in
the community through Rotary
and the East Canton Economic
Development Corporation. East
Canton is served by Osnaburg
Local Schools.
thousands
EAST CANTON
Population
1,589
Households
662
Founded
1700s
Businesses
130
Market Share
100%
Households
1,136
Total Loans
$5,360,000
Total Deposits
$20,630,000
Branch Manager
Nicole Howell
Business
Development Officer
Rick Baxter
HANOVERTON
Population
408
Households
162
Founded
1836
Businesses
78
Market Share
40.05%
Households
505
Total Loans
$740,000
Total Deposits
$10,540,000
Branch Manager
Dawn Chepke
Business
Development Officer
Vicki Hall
vi
restaurant and
Hanoverton lies on the historic
stagecoach
that once
road
passed
through Columbiana
County. The Spread Eagle
Tavern was one stop on the
journey where travelers could
rest. Today, it operates as a
popular
inn
that is a destination of its own.
Once an
important stop on
the Underground Railroad,
Hanoverton remains a quaint
town despite the huge growth
created by the oil and gas boom.
The new cracking plant nearby
has created new
that
support the local community. The
bank’s small office now serves
the needs of the highly traveled
area. Hanoverton is part of the
United Local School District.
jobs
includes
The Village of Hartville has
experienced dramatic growth in
the last decade. The complex
that
the Hartville
Kitchen, Hartville Hardware,
and Hartville Flea Market
draws thousands of local and
out of town visitors. Combined
with several other quaint local
businesses and Quail Hollow
State Park,
town has
the
flourished. The civic-minded
community
is part of Lake
Local Schools which has built
a modern high school sports
stadium that ranks as one of
the best in Ohio. Consumers
supports the schools through its
sponsorship of the Lake band
show and its membership in the
“Big Blue” marketing program.
The bank’s Hartville branch,
which opened in 2011, hosts
the Lake Chamber’s bi-weekly
networking events.
also made
Jackson Township is one of the
fastest growing communities
in Stark County. This growth is
due in large part to the tireless
efforts of the Jackson-Belden
Chamber of Commerce of which
is a prominent
Consumers
supporter. Community support
has
Jackson
High School highly regarded
academically. Consumers is a
sponsor of the award-winning
marching band and
its well
known Blacklight show. When
the David YMCA announced
expansion plans, the community,
including Consumers, responded
with strong financial support. The
Jackson branch, which opened
in 2012, allows the bank to serve
the greater Canton market,
home of the Pro Football Hall
of Fame and Canton Charge.
Employees participate on the
Boards of Habitat for Humanity,
Junior Achievement and Crisis
Intervention & Recovery Center.
HARTVILLE
Population
2,944
Households
1,154
Founded
1851
Businesses
575
Market Share
4.26%
Households
441
Total Loans
$18,800,000
Total Deposits
$11,690,000
Branch Manager
John Arnold
Business
Development Officer
Rick Baxter
JACKSON
BELDEN
Population
47,525
Households
19,110
Founded
1815
Businesses
1,347
Market Share
0.46%
Households
133
Total Loans
$13,640,000
Total Deposits
$3,110,000
Branch Manager
Greg Brokaw
Business
Development Officer
Sean Ulik
vii
LISBON
Population
2,821
Households
1,138
Founded
1825
Businesses
543
Market Share
30.73%
Households
959
Total Loans
$10,310,000
Total Deposits
$36,780,000
Branch Manager
Dawn Chepke
Business
Development Officer
Vicki Hall
LOUISVILLE
Population
9,186
Households
3,444
Founded
1834
Businesses
686
Market Share
7.15%
Households
820
Total Loans
$16,210,000
Total Deposits
$15,770,000
Branch Manager
Nick Lucas
Business
Development Officer
Rick Baxter
viii
Lisbon is the county seat of
Columbiana County and like
Hanoverton, was a stop on the
historic stagecoach road now
known as the Lincoln Highway
(Route 30). It is the birthplace
of Marcus Hanna, a successful
industrialist who played a key
role in the election of President
William McKinley. Each fall, the
community hosts the Johnny
Appleseed Festival in honor
of the man who planted apple
trees throughout the region.
Consumers is a festival sponsor
and supports the Lisbon school
district in Kent State University’s
Rural Scholar program which is
designed to help high school
students prepare for college.
Employees
the
Community Action Agency of
Columbiana County’s Board.
serve on
Known as
the Constitution
Town, Louisville holds an annual
parade to celebrate the U.S.
Constitution. The town is the
childhood home of Augustus
Juilliard whose philanthropy
built the renowned conservatory
of dance, music, and theatre
in New York City, The Juilliard
School. Chesapeake Energy
Corporation
recently built a
local headquarters in Louisville
to support its gas exploration
efforts in the region. Consumers
lent its support to the town
as a major contributor to the
new Leopard football stadium
construction. Employees also
participate in the local Rotary
and Chamber of Commerce.
The bank’s office in Malvern
fulfills the financial needs at this
busy crossroads. The nearby
Lake Mohawk neighborhood
provides waterfront homes to
local residents.
hundreds of
The Great
Festival
Trail
attracts thousands of visitors
to this Ohio frontier celebration
is
every summer. Malvern
respected
the birthplace of
artist Clyde Singer, who
is
best known for his American
Scene paintings. Consumers
supports
schools and
community events such as the
annual Dancing on the Bridge
event, a fundraiser the Malvern
Community Development Fund
holds to make improvements
to the village. Malvern is served
by Brown Local Schools which
is building a new education
complex.
the
Consumers National Bank
opened for business in Minerva
in 1965 and has a long history
of supporting the people and
businesses
the village.
in
Significantly, portions of Minerva
lie in Carroll, Columbiana, and
Stark
counties—Consumers’
primary market area. The
summer home of President
McKinley, Minerva has a strong
agricultural and manufacturing
history. Award-winning Minerva
Dairy,
1894,
represents both categories.
Bank employees serve on
for
Boards and committees
the Chamber, Rotary, and
arts organizations. Minerva is
a leader in the ArtsinStark’s
20/20 Vision and home to the
ArtSpot artist’s co-op. The bank
is an avid supporter of the local
schools. Recently, Consumers
supported the Minerva football
stadium artificial turf project.
founded
in
MALVERN
Population
1,189
Households
522
Founded
1869
Businesses
145
Market Share
26.29%
Households
626
Total Loans
$3,810,000
Total Deposits
$9,290,000
Branch Manager
Patti Gotschall
Business
Development Officer
Michele Catlett
MINERVA
Population
3,720
Households
1,580
Founded
1818
Businesses
417
Market Share
39.87%
Households
2,288
Total Loans
$52,280,000
Total Deposits
$68,400,000
Branch Manager
Theresa Linder
Business
Development Officer
Vickie Ramsier
ix
SALEM
Population
12,130
Households
5,146
Founded
1806
Businesses
1,319
Market Share
13.22%
Households
2,227
Total Loans
$36,900,000
Total Deposits
$48,810,000
Branch Manager
Deb Mayernik
Business
Development Officer
Vicki Hall
Bob True
WAYNESBURG
Population
923
Households
391
Founded
1833
Businesses
118
Market Share
71.56%
Households
1,422
Total Loans
$8,800,000
Total Deposits
$26,120,000
Branch Manager
Patti Gotschall
Business
Development Officer
Michele Catlett
x
Salem was settled by Quakers
and became a heavy machining
center. It is the location of the
bank’s second office which
led to the name change from
Minerva National Bank
to
Consumers National Bank. The
Salem Community Foundation
plays an integral part in the
city’s civic endeavors. The
Salem Community Center is
a prominent example of its
work. Consumers participated
in financing the new Patient
Tower at the Salem Regional
Medical Center and a bank
officer serves on the hospital
Board. The Salem Chamber of
Commerce, of which the bank
is a member, is very active
in
the business community.
The bank participates in the
Banquet of Salem program that
provides meals to less fortunate
residents. Salem is the home of
Kent State University’s Salem
regional campus.
In 2013, Consumers National
Bank became the sole bank in
the
Waynesburg. Located at
intersection of Routes 43, 171
and 183, the bank’s office serves
the financial needs of a variety
of communities in the area. The
town is home to Waynesburg
Carriage and Cibo’s Restaurant
housed in the former Mohawk
Movie
theater which draws
patrons from all over Stark and
surrounding counties. The village
of Waynesburg is served by
the Sandy Valley Local School
district, which built a new K-12
learning complex in 2008/2009.
In addition to being the primary
bank,
serves
Consumers
Waynesburg in a variety of ways,
including supporting the Sandy
Valley schools by teaching Junior
Achievement classes.
AlliAnce
610 W. State Street
330-823-8178
cArrollton
1017 Canton Road NW
330-627-3523
eAst cAnton
440 W. Noble Street
330-488-0577
HAnoverton
30034 Canal Street
330-223-1534
HArtville
1215 W. Maple Street
330-877-2915
JAckson-Belden
4026 Dressler Road NW
330-479-9277
lisBon
7985 Dickey Drive
330-424-7271
louisville
1111 N. Chapel Street
330-875-4349
MAlvern
4070 Alliance Road NW
330-863-2641
MinervA
614 E. Lincoln Way
330-868-7701
sAleM
141 S. Ellsworth Avenue
330-332-0377
WAynesBurg
8607 Waynesburg Drive SE
330-866-5557
General Information
Independent Registered Public Accounting Firm
Crowe Horwath LLP
600 Superior Avenue, Ste. 902
Cleveland, Ohio 44114
Shareholder Relations
shareholderrelations@consumersbank.com
Website
www.consumersbancorp.com
General Counsel
Squire Patton Boggs
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
216-479-8500
Stock Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
800-368-5948
Market Maker
Thomas L. Dooley
Boenning & Scattergood
9916 Brewster Lane
Powell, Ohio 43065
614-203-2996
866-326-8113
Common Stock Listing
Consumers Bancorp, Inc. common stock trades on
the OTC Bulletin Board under the symbol CBKM. The
CUSIP is 210509105. As of June 30, 2014, there were
2,735,536 shares outstanding with 785 shareholders
of record and an estimated 345 additional beneficial
holders whose stock was held in nominee name.
Dividend Reinvestment and Stock Purchase Plan
Existing holders of common stock may elect to have all
or a portion of cash dividends automatically invested
in additional shares of common stock without payment
of any brokerage or service charge. Additionally,
shareholders may elect to purchase shares of common
stock with optional cash payments of $100 to $5,000 per
quarter without payment of any brokerage commission or
service charge. Shareholders should contact Registrar
and Transfer Company to execute these convenient
options at www.rtco.com or 800-368-5948.
Dividend Payments
Subject to the approval of the Board of Directors,
quarterly cash dividends are typically paid on or about
the 15th day of September, December, March, and
June.
Direct Deposit of Cash Dividends
Shareholders may elect to have their cash dividends
deposited directly into their savings or checking
account. Shareholders should contact Registrar and
Transfer Company to execute this convenient option at
www.rtco.com or 800-368-5948.
Annual Meeting
The 2014 annual meeting of shareholders will be held
on Tuesday, October 28, 2014, at 12:00 p.m. at The
Hartville Kitchen, 1015 Maple Street NW, Hartville, Ohio
44632.
Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2014, as filed with
the Securities and Exchange Commission, will be
furnished without charge to shareholders upon written
request to Theresa J. Linder, Corporate Secretary. An
electronic version is also available on our website at
www.consumersbancorp.com.
Our 2014 annual report was
printed by our customer Davis
Graphic Communication Solutions
in Summit County, Ohio.
CBKM 10-K 6/30/2014
Section 1: 10-K (FORM 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
xxxx Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2014
OR
¨¨¨¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File No. 033-79130
CONSUMERS BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO
(State or other jurisdiction of incorporation or organization)
34-1771400
(I.R.S. Employer Identification No.)
614 East Lincoln Way,
P.O. Box 256, Minerva, Ohio 44657
(330) 868-7701
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant Section 12(b) of the Act: None
Securities registered pursuant Section 12(g) of the Act: Common Shares, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨
Accelerated filer¨
Non-accelerated filer¨
(Do not check if small reporting company)
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Based on the closing sales price on December 31, 2013, the aggregate market value of the voting stock held by non-affiliates of the Registrant was
approximately $35,129,182.
The number of shares outstanding of the Registrant’s common stock, without par value was 2,735,536 at September 12, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
Certain specifically designated portions of Consumers Bancorp, Inc.’s definitive Proxy Statement dated September 24, 2014 for its 2014 Annual
Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1—BUSINESS
ITEM 1A—RISK FACTORS
ITEM 1B—UNRESOLVED STAFF COMMENTS
ITEM 2—PROPERTIES
ITEM 3—LEGAL PROCEEDINGS
ITEM 4—MINE SAFETY DISCLOSURES
PART II
ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 6—SELECTED FINANCIAL DATA
ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A—CONTROLS AND PROCEDURES
ITEM 9B—OTHER INFORMATION
PART III
ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11—EXECUTIVE COMPENSATION
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14—PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES
3
7
7
7
7
7
8
8
9
20
21
53
53
53
53
53
54
54
54
54
ITEM 1—BUSINESS
Business
PART I
Consumers Bancorp, Inc. (Corporation), is a bank holding company under the Bank Holding Company Act of 1956, as amended and is a
registered bank holding company, and was incorporated under the laws of the State of Ohio in 1994. In February 1995, the Corporation acquired all the
issued and outstanding capital stock of Consumers National Bank (Bank), a bank chartered under the laws of the United States of America. The
Corporation’s activities have been limited primarily to holding the common stock of the Bank.
Since 1965, the Bank’s main office has been serving the Minerva, Ohio area from its location at 614 East Lincoln Way, Minerva, 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 market area, consisting primarily of Stark, Columbiana, Carroll and contiguous counties in Ohio. The Bank currently has
twelve branch locations. The Bank also invests in securities consisting primarily of obligations of U.S. government sponsored entities, municipal
obligations and mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
Supervision and Regulation
The Corporation is supervised by the Board of Governors of the Federal Reserve System (Federal Reserve Board) and the Bank is subject to
supervision, regulation and periodic examination by the Office of the Comptroller of the Currency (OCC). Earnings of the Corporation are affected by
state and federal laws and regulations and by policies of various regulatory authorities. Changes in applicable law or in the policies of various
regulatory authorities could affect materially the business and prospects of the Corporation and the Bank. The following discussion of supervision
and regulation is qualified in its entirety by reference to the statutory and regulatory provisions discussed.
Regulation of the Corporation:
The Bank Holding Company Act: As a bank holding company, the Corporation is subject to regulation under the Bank Holding Company Act
of 1956, as amended (BHCA) and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (Federal
Reserve Board). Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board and required to file periodic
reports regarding its operations and any additional information that the Federal Reserve Board may require.
The BHCA generally limits the activities of a bank holding company to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries and engaging in any other activities that the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident to those activities. In addition, the BHCA requires every bank holding
company to obtain the approval of the Federal Reserve Board prior to acquiring substantially all the assets of any bank, acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or merging or consolidating with another bank holding company.
Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute
additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve
Board believes the payment of such dividends would be an unsafe or unsound practice. The Federal Reserve Board has extensive enforcement
authority over bank holding companies for violations of laws and regulations and unsafe or unsound practices.
Privacy Provisions of Gramm-Leach-Bliley Act: The Gramm-Leach-Bliley Act of 1999 contains extensive provisions on a customer’s right to
privacy of non-public personal information. Under these provisions, a financial institution must provide to its customers the institution’s policies and
procedures regarding the handling of customers’ non-public personal information. Except in certain cases, an institution may not provide personal
information to unaffiliated third parties unless the institution discloses that such information may be disclosed and the customer is given the
opportunity to opt out of such disclosure. The Corporation and the Bank are also subject to certain state laws that deal with the use and distribution
of non-public personal information.
Sarbanes-Oxley Act: The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the area of financial disclosure
and corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written certifications by the Corporation’s Chief Executive
Officer and Chief Financial Officer are required. These certifications attest that the Corporation’s quarterly and annual reports filed with the Securities
and Exchange Commission do not contain any untrue statement of a material fact or omit to state a material fact.
3
Regulation of the Bank:
As a national bank, Consumers National Bank is subject to regulation, supervision and examination by the OCC and by the Federal Deposit
Insurance Corporation (FDIC). These examinations are designed primarily for the protection of the depositors of the Bank.
Dividend Restrictions: Dividends from the Bank are the primary source of funds for payment of dividends to our shareholders. However, there
are statutory limits on the amount of dividends the Bank can pay without regulatory approval. Under regulations promulgated by the OCC, the Bank
may not declare a dividend in excess of its undivided profits. Additionally, the Bank may not declare a dividend if the total amount of all dividends,
including the proposed dividend, declared by the Bank in any calendar year exceeds the total of its retained net income of that year to date, combined
with its retained net income of the two preceding years, unless the dividend is approved by the OCC. The Bank may not declare or pay any dividend
if, after making the dividend, the Bank would be “undercapitalized,” as defined in the federal regulations.
FDIC: The FDIC is an independent federal agency, which insures the deposits of federally insured banks and savings associations up to certain
prescribed limits and safeguards the safety and soundness of financial institutions. The deposits of the Bank are subject to the deposit insurance
assessments of the Bank Insurance Fund of the FDIC. Under the FDIC’s deposit insurance assessment system, the assessment rate for any insured
institution varies according to regulatory capital levels of the institution and other factors such as supervisory evaluations.
The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and
may initiate enforcement actions against banks, after first giving the institution’s primary regulatory authority an opportunity to take such action. The
FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.
FHLB: The Bank is also a member of the Federal Home Loan Bank of Cincinnati (FHLB), which is a privately capitalized, government sponsored
enterprise that expands housing and economic development opportunities throughout the nation by providing loans and other banking services to
community-based financial institutions.
Risk-Based Capital Requirements: The Federal Reserve Board and the OCC employ similar risk-based capital guidelines in their examination
and regulation of bank holding companies and national banks. As of the fiscal year-end 2013, the Corporation met the definition of a Small Bank
Holding Company and, therefore, was exempt from consolidated risk-based and coverage capital adequacy guidelines for bank holding companies.
The guidelines involve a process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance
sheet structure against the capital base. If capital falls below the minimum levels established by the guidelines, the bank holding company or bank
may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities. In addition, failure to satisfy capital
guidelines could subject a banking institution to a variety of enforcement actions by federal bank regulatory authorities, including the termination of
deposit insurance by the FDIC and a prohibition on the acceptance of “brokered deposits.”
Under regulations adopted under these provisions, for an institution to be well capitalized it must have a total risk-based capital ratio of at least
10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive.
The OCC and the FDIC may take various corrective actions against any undercapitalized bank and any bank that fails to submit an acceptable capital
restoration plan or fails to implement a plan accepted by the OCC or the FDIC. These powers include, but are not limited to, requiring the institution to
be recapitalized, prohibiting asset growth, restricting interest rates paid, requiring prior approval of capital distributions by any bank holding company
that controls the institution, requiring divestiture by the institution of its subsidiaries or by the holding company of the institution itself, requiring
new election of directors, and requiring the dismissal of directors and officers. The OCC’s final supervisory judgment concerning an institution’s
capital adequacy could differ significantly from the conclusions that might be derived from the absolute level of an institution’s risk-based capital
ratios. Therefore, institutions generally are expected to maintain risk-based capital ratios that exceed the minimum ratios. At June 30, 2014, the Bank
was in compliance with all regulatory capital requirements.
Basel III Capital Rules. In July 2013, the Federal Reserve Board published final rules (the Basel III Capital Rules) establishing a new
comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as
“Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules
substantially revise the risk-based capital requirements applicable to the Bank compared to the current U.S. risk-based capital rules.
4
The Basel III Capital rules include new risk-based capital and leverage ratios, which are effective on January 1, 2015, and refine the definition of what
constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements will require the Bank to maintain: (i) a new
common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current
rules); and (iv) a Tier 1 leverage ratio of 4%. The rule also established a “capital conservation buffer” of 2.5% above the new regulatory minimum
capital requirements, which must consist entirely of common equity Tier 1 capital and results in the following minimum ratios: (i) a common equity Tier
1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be
phased in beginning in January 2016 at 0.625% of risk-weighted assets and increase by that amount each year until fully implemented in January 2019.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a common equity Tier 1
ratio to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and
compensation based on the amount of the shortfall.
Dodd-Frank Act: Federal regulators continue to implement many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the Dodd-Frank Act), which was signed into law on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded
framework of regulatory oversight for financial institutions, including depository institutions. Currently, federal regulators are still in the process of
implementing many portions of the Dodd-Frank Act. The Corporation is closely monitoring all relevant sections of the Dodd-Frank Act to ensure
continued compliance with these regulatory requirements. The following discussion summarizes significant aspects of the Dodd-Frank Act that may
affect the Corporation and the Bank:
·
·
·
·
·
·
Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau,
responsible for implementing, examining and enforcing compliance with federal consumer financial laws.
Require the OCC to make its capital requirements for national banks, countercyclical so that capital requirements increase in times of
economic expansion and decrease in times of economic contraction.
Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible
capital, eliminate the ceiling of the Deposit Insurance Fund (DIF) and increase the floor of the DIF, which generally will reduce the level
of assessments for institutions with assets below $10 billion and increase the level of assessments for institutions with assets in
excess of $10 billion.
Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, which
apply to all public companies, not just financial institutions.
Permanently increases the federal deposit insurance limit to $250,000.
Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay
interest on business transaction and other accounts effective one year after the bill was signed into law.
· Amend the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules regarding
interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new
statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.
· Make permanent SOX 404 (B) exemption regarding auditor attestation requirements for companies with less than $75 million in market
capitalization.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall
financial impact on the Corporation, its customers or the financial industry more generally. We will continue to monitor legislative developments and
assess their potential impact on our business.
5
Interstate Banking and Branching: The Interstate Banking and Branch Efficiency Act of 1995 has eased restrictions on interstate expansion
and consolidation of banking operations by, among other things: (i) permitting interstate bank acquisitions regardless of host state laws,
(ii) permitting interstate merger of banks unless specific states have opted out of this provision, and (iii) permitting banks to establish new branches
outside the state provided the law of the host state specifically allows interstate bank branching.
Community Reinvestment Act: The Community Reinvestment Act requires depository institutions to assist in meeting the credit needs of their
market areas, including low and moderate-income areas, consistent with safe and sound banking practices. Under this Act, each institution is required
to adopt a statement for each of its market areas describing the depository institution’s efforts to assist in its community’s credit needs. Depository
institutions are periodically examined for compliance and assigned ratings. Banking regulators consider these ratings when considering approval of a
proposed transaction by an institution.
USA Patriot Act: In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA Patriot Act) Act of 2001 (Patriot Act). The Patriot Act is designed to deny terrorists and criminals the ability to obtain access
to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in
the transfer of money. The Patriot Act mandates financial services companies to implement additional policies and procedures with respect to
additional measures designed to address any or all of the following matters: money laundering, terrorist financing, identifying and reporting
suspicious activities and currency transactions, and currency crimes.
Employees
As of June 30, 2014, the Bank employed 104 full-time and 24 part-time employees. None of the employees are represented by a collective
bargaining group. Management considers its relations with employees to be good.
Statistical Disclosure
The following statistical information is included on the indicated pages of this Report:
Average Consolidated Balance Sheet And Net Interest Margin
Interest Rates and Interest Differential
Carrying Values Of Securities
Maturities And Weighted-Average Yield Of Securities
Loan Types
Selected Loan Maturities And Interest Sensitivity
Non-accrual, Past Due And Restructured Loans And Other Nonperforming Assets
Potential Problem Loans
Summary Of Loan Loss Experience
Allocation Of Allowance For Loan Losses
Average Amount And Average Rate Paid On Deposits
Time Deposits Of $100 Thousand Or More
Short-Term Borrowings
Selected Consolidated Financial Data
Available Information
10
11
13
14
15
15
16
16
16
16
17
17
17 and 43
8
The Corporation files annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange
Commission (SEC). These filings are available to the public over the Internet at the SEC’s web site at www.sec.gov. Shareholders may also read and
copy any document that the Corporation files at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549, on official
business days during the hours of 10:00 a.m. and 3:00 p.m. Shareholders may call the SEC at 1-800-SEC-0330 for further information on the public
reference room.
Shareholders may request a copy of any of the Corporation’s filings at no cost by writing or e-mailing the Corporation at the following address
or e-mail address: Consumers Bancorp, Inc., Attn: Theresa J. Linder, 614 East Lincoln Way, Minerva, Ohio 44657 or e-mail to
shareholderrelations@consumersbank.com.
The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics
for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the
Investor Relations section under Corporate Governance of the Corporation’s website (www.consumersbank.com). Copies of either of the Code of
Ethics Policies are also available in print to shareholders upon request, addressed to the Corporate Secretary at Consumers Bancorp, Inc., 614 East
Lincoln Way, Minerva, Ohio 44657. The Corporation intends to post amendments to or waivers from its Code of Ethics on its website.
6
ITEM 1A—RISK FACTORS
Not applicable for Smaller Reporting Companies.
ITEM 1B—UNRESOLVED STAFF COMMENTS
None.
ITEM 2—PROPERTIES
The Bank owns and maintains the premises in which nine banking facilities are located, and leases offices in Carrollton, Alliance and Malvern.
The location of each of the twelve currently operating offices is as follows:
Minerva Office:
Salem Office:
Waynesburg Office:
Hanoverton Office:
Carrollton Office:
Alliance Office:
Lisbon Office:
Louisville Office:
East Canton Office:
Malvern Office:
Hartville Office:
Jackson-Belden Office:
614 E. Lincoln Way, P.O. Box 256, Minerva, Ohio, 44657
141 S. Ellsworth Ave., P.O. Box 798, Salem, Ohio, 44460
8607 Waynesburg Dr. SE, P.O. Box 746, Waynesburg, Ohio, 44688
30034 Canal St., P.O. Box 178, Hanoverton, Ohio, 44423
1017 Canton Rd. NW, Carrollton, Ohio, 44615
610 West State St., Alliance, Ohio, 44601
7985 Dickey Dr., Lisbon, Ohio 44432
1111 N. Chapel St., Louisville, Ohio 44641
440 W. Noble, East Canton, Ohio, 44730
4070 Alliance Rd., Malvern, Ohio 44644
1215 W. Maple Street, Hartville, OH 44632
4026 Dressler Road NW, Canton, Ohio 44718
In the opinion of management, the properties listed above are adequate for their present uses and the Bank’s business requirements and are
adequately covered by insurance. A new facility is being constructed at the Minerva, Ohio location to replace the existing branch and corporate
headquarters.
ITEM 3—LEGAL PROCEEDINGS
The Corporation is not a party to any pending material legal or administrative proceedings, other than ordinary routine litigation incidental to
the business of the Corporation. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or
affiliate of the Corporation is a party or has a material interest that is adverse to the Corporation. No routine litigation in which the Corporation is
involved is expected to have a material adverse impact on the financial position or results of operations of the Corporation.
ITEM 4—MINE SAFETY DISCLOSURES
None.
7
PART II
ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The Corporation had 2,735,536 common shares outstanding on June 30, 2014 with 785 shareholders of record and an estimated 345 additional
beneficial holders whose stock was held in nominee name. Attention is directed to Item 12 in this Form 10-K for information regarding the
Corporation’s equity incentive plans, which information is incorporated herein by reference.
The common shares of Consumers Bancorp, Inc. are traded on the over-the-counter bulletin board. The following quoted market prices reflect
inter-dealer prices, without adjustments for retail markups, markdowns, or commissions and may not represent actual transactions. The market prices
represent highs and lows reported during the quarterly period.
Quarter Ended
High
Low
Cash dividends paid per share
Quarter Ended
High
Low
Cash dividends paid per share
September 30, December 31, March 31,
2013
2013
2014
June 30,
2014
$
18.00 $
15.35
0.12
21.98 $
16.30
0.12
21.25 $
18.10
0.12
20.00
18.75
0.12
September 30, December 31, March 31,
2012
2012
2013
June 30,
2013
$
16.00 $
14.55
0.12
17.50 $
14.75
0.12
20.50 $
15.51
0.12
17.50
15.55
0.12
Management does not have knowledge of the prices paid in all transactions and has not verified the accuracy of those prices that have been
reported. Because of the lack of an established market for the Corporation’s common shares, these prices may not reflect the prices at which the
common shares would trade in an active market.
The Corporation’s management is currently committed to continuing to pay regular cash dividends; however, there can be no assurance as to
future dividends because they are dependent on the Corporation’s future earnings, capital requirements and financial condition. The Corporation’s
principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of dividends that may be
paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited
to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described
above. See Note 1 and Note 10 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and
Results of Operation for dividend restrictions.
There were no repurchases of the Corporation’s securities during the 2014 fiscal year.
ITEM 6—SELECTED FINANCIAL DATA
Not applicable for Smaller Reporting Companies.
8
ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
General
The following is management’s analysis of the Corporation’s financial condition and results of operations as of and for the years ended
June 30, 2014 and 2013. This discussion is designed to provide a more comprehensive review of the operating results and financial position than could
be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial
statements and related footnotes and the selected financial data included elsewhere in this report.
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio, owns all of the issued and outstanding
capital stock of Consumers National Bank, a bank chartered under the laws of the United States of America. The Corporation’s activities have been
limited primarily to holding the common stock of the Bank. The Bank’s business involves attracting deposits from businesses and individual
customers and using such deposits to originate commercial, mortgage and consumer loans in its market area, consisting primarily of 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.
Comparison of Results of Operations for the Years Ended June 30, 2014 and June 30, 2013
Net Income. Net income increased by $168, or 6.3%, from fiscal year 2013 to fiscal year 2014. The following key factors summarize our results of
operations for the year ended June 30, 2014:
·
·
·
net interest income increased by $722, or 6.0%, in fiscal year 2014 from the same prior year period;
loan loss provision expense in fiscal year 2014 totaled $249 compared with $337 in 2013; and
total other expenses increased $581, or 5.2% in fiscal year 2014, principally as a result of higher salary and employee benefits due to staff
hired in the lending area and an increase in professional and director expenses.
Return on average equity and return on average assets were 7.44% and 0.77%, respectively, for the 2014 fiscal year-to-date period compared with
9.21% and 0.78%, respectively, for the same period last year. The return on average equity declined from the same period last year due to a $9.1 million
increase in average equity mainly as a result of the $9.2 million in net proceeds from the rights and public offering that were completed in July 2013.
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 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.
Net Interest Income Year ended June 30,
Net interest income
Taxable equivalent adjustments to net interest
Net interest income, fully taxable equivalent
Net interest margin
Taxable equivalent adjustment
Net interest margin, fully taxable equivalent
$
$
2014
2013
$
12,661
716
13,377
$
3.65%
0.21
3.86%
11,939
647
12,586
3.70%
0.20
3.90%
Net interest income for the 2014 fiscal year was $12,661, an increase of $722, or 6.0%, from $11,939 in the 2013 fiscal year. The Corporation’s tax
equivalent net interest margin for the year ended June 30, 2014 was 3.86%, a decrease of 4 basis points from 2013. Interest income for the 2014 fiscal
year was $13,656, an increase of $515, or 3.9%, from $13,141 in the 2013 fiscal year. An increase of $21,680, or 6.7%, 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 2014
fiscal year was $995, a decrease of $207, or 17.2%, from $1,202 in the 2013 fiscal year. This decrease was mainly the result of lower market rates
affecting the rates paid on time deposits and due to an increase in lower costing interest bearing demand and savings deposit products as depositors
shifted funds from time deposits. The Corporation offers an interest bearing demand 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, the rate paid on the
interest bearing demand checking account product was 0.20% and 0.21% for the 2014 and 2013 periods, respectively.
9
Average Balance Sheet and Net Interest Margin
Interest earning assets:
Taxable securities
Nontaxable Securities (1)
Loans receivable (1)
Interest bearing deposits and federal funds sold
Total interest earning assets
Non-interest earning assets
Total assets
Interest bearing liabilities:
Interest bearing demand
Savings
Time deposits
Short-term borrowings
FHLB advances
Total interest bearing liabilities
Non-interest bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Average
Balance
2014
Interest
Yield/
Rate
Average
Balance
2013
Interest
Yield/
Rate
1,606
2,032
10,687
47
14,372
82
92
609
26
186
995
$
$
$
$
75,808 $
44,813
217,547
9,164
347,332
19,982
367,314
40,112 $
118,066
74,628
15,888
6,433
255,127
74,065
329,192
38,122
367,314
2.13% $
4.54
4.91
0.51
4.14%
$
0.20% $
0.08
0.82
0.16
2.89
0.39%
$
66,241 $
40,469
205,934
13,008
325,652
18,084
343,736
37,167 $
103,729
82,613
13,457
6,433
243,399
71,350
314,749
28,987
343,736
1,263
1,888
10,577
60
13,788
79
86
816
22
199
1,202
1.94%
4.87
5.14
0.46
4.27%
0.21%
0.08
0.99
0.16
3.09
0.49%
Net interest income, interest rate spread (1)
$
13,377
3.75%
$
12,586
3.78%
Net interest margin (net interest as a percent of average
interest earning assets) (1)
Federal tax exemption on non-taxable securities and
loans included in interest income
Average interest earning assets to interest bearing
liabilities
(1)
Calculated on a fully taxable equivalent basis
3.86%
3.90%
$
716
$
647
136.14%
133.79%
10
The following table presents the changes in the Corporation’s interest income and interest expense resulting from changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing liabilities. Changes attributable to both rate and volume that cannot be
segregated have been allocated in proportion to the changes due to rate and volume.
INTEREST RATES AND INTEREST DIFFERENTIAL
2014 Compared to 2013
Increase / (Decrease)
Change
due to
Volume
Change
due to
Rate
Total
Change
2013Compared to 2012
Increase / (Decrease)
Change
due to
Volume
Change
due to
Rate
Total
Change
(In thousands)
$
$
343 $
144
110
(13)
584
3
6
(207)
4
(13)
(207)
791 $
211 $
276
582
(19)
1,050
6
11
(74)
4
—
(53)
1,103 $
132 $
(132)
(472)
6
(466)
(3)
(5)
(133)
—
(13)
(154)
(312) $
(539) $
329
387
3
180
28
(30)
(217)
(7)
(31)
(257)
437 $
(183) $
536
1,275
(17)
1,611
23
15
(34)
(3)
(12)
(11)
1,622 $
(356)
(207)
(888)
20
(1,431)
5
(45)
(183)
(4)
(19)
(246)
(1,185)
Interest earning assets:
Taxable securities
Nontaxable securities (1)
Loans receivable (2)
Federal funds sold
Total interest income
Interest bearing liabilities:
Interest bearing demand
Savings deposits
Time deposits
Short-term borrowings
FHLB advances
Total interest expense
Net interest income
(1)
(2)
Nontaxable income is adjusted to a fully tax equivalent basis utilizing a 34% tax rate.
Non-accrual loan balances are included for purposes of computing the rate and volume effects although interest on these balances has been
excluded.
Provision for Loan Losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to
an amount that represents management’s assessment of the estimated probable credit losses in the Corporation’s loan portfolio that have been
incurred at each balance sheet date. The provision for loan losses was $249 in fiscal year 2014 compared to $337 in fiscal year 2013. For 2014, net
charge-offs were $340, or 0.15% of total loans compared with $176, or 0.08% of total loans, for the same period last year. The provision for loan losses
decreased compared to the prior year primarily as a result of a decline in the specific reserve required for loans individually evaluated for impairment
and from a decline in loans classified as substandard.
For 2014, the provision for the commercial portfolio was $163 primarily as a result of an increase in the level of loans classified as special
mention combined with an overall increase in commercial loans from June 30, 2013. A negative provision for loan losses was recognized within the 1-4
family residential real estate portfolio segment for the twelve month period ended June 30, 2014. This negative provision for loan losses was
recognized primarily as a result of the following: from June 30, 2013 to June 30, 2014 there was a reduction in the recorded investment of 1-4 family
residential real estate loans classified as special mention, substandard and doubtful; and from June 30, 2013 to June 30, 2014 there was a reduction in
the reserve required for 1-4 family residential real estate loans individually evaluated for impairment. The provision for the consumer loan portfolio was
$248 for 2014 primarily as a result of $134 in net charge-offs. The allowance for loan losses as a percentage of loans was 1.07% at June 30, 2014 and
1.15% at June 30, 2013.
Non-performing loans were $1,959 as of June 30, 2014 and represented 0.87% of total loans. This compared with $1,099, or 0.51% of total loans,
at June 30, 2013. The allowance for loan losses to total non-performing loans at June 30, 2014 was 122.77% compared with 227.12% at June 30, 2013.
Non-performing loans, impaired loans and loans past due 90 days or greater all increased as a result of a $1,423 commercial real estate credit that was
placed on non-accrual during the first quarter of fiscal year 2014. This loan is well secured by two farms and multiple homes and a portion of the
collateral has already been sold at a private auction. The estimated remaining balance after receipt of the proceeds from the private sale is well secured
by the borrower’s personal residence. Non-performing loans have been considered in management’s analysis of the appropriateness of the allowance
for loan losses. Management and the Board of Directors closely monitor these loans and believe the prospect for recovery of principal, less identified
specific reserves, are favorable.
11
Other Income. Total other income was $2,761 for the 2014 fiscal year, compared to $2,802 for the same period last year. Excluding security gains,
other income increased by $67, or 2.5%, to $2,712 for the 2014 fiscal year, compared with $2,645 for the same period last year.
Service charges on deposit accounts decreased by $7, or 0.5%, in 2014 to $1,321 from $1,328 in the previous fiscal year. This change was mainly
due to a decrease in overdraft fee income that was partially offset by an increase in checking account service charges primarily as a result of the
implementation of a new business deposit account structure.
Debit card interchange income increased by $81, or 10.2% in 2014 to $877 from $796 in the previous fiscal year primarily as a result of an increase
in the number of debit cards issued and the resulting increase in volume from debit card usage by our customers. The Corporation anticipates some
longer term market-related impact on its debit card interchange income as a result of the Dodd-Frank Act amendments to the Electronic Fund Transfer
Act even though the Bank is not directly subject to these new regulations.
Bank owned life insurance income decreased by $6, or 3.3%, in 2014 to $178 from $184 for the same period last year as a result of the yield being
impacted by lower market rates.
A loss of $10 was recognized from the sale of a multi-family residential property that was acquired through a deed in lieu of foreclosure.
Other Expenses. Total other expenses were $11,682 for the year ended June 30, 2014; an increase of $581, or 5.2% from $11,101 for the year
ended June 30, 2013.
Salaries and employee benefit expenses increased $270, or 4.4%, during the fiscal year ended June 30, 2014 mainly due to normal merit increases
and staff additions in the lending area. These increases were partially offset by lower expenses associated with the salary continuation plan as the
benefit for employees nearing retirement has become fully accrued for.
Occupancy and equipment expenses increased $55, or 4.3%, during the fiscal year ended June 30, 2014 primarily as a result of investments in
new computer and communication equipment. A new facility is being constructed at the Minerva, Ohio location to replace the existing branch and
corporate headquarters. The remaining book value of the Minerva facility is being expensed over the estimated remaining useful life. The new facility
is anticipated to be completed during the 2016 fiscal year and upon being placed into service, it is expected that occupancy expenses will increase.
Professional and director fees increased by $139, to $466 during the 2014 fiscal year from $327 from the 2013 fiscal year. The increase was
primarily a result of an increase in consulting fees due to the implementation of an enterprise risk management program and the addition of a director
to the Board of Directors.
Marketing and advertising expenses declined by $37, or 13.2%, during the 2014 fiscal year from the same period last year. The decline was
primarily the result of lower marketing expenses since these expenses were higher in the same prior year period due to the opening of the Jackson-
Belden office on July 31, 2012.
Loan and collection expenses increased by $88, to $198 during the 2014 fiscal year from the same period last year primarily as a result of
expenses associated with a multi-family residential property that was acquired through a deed in lieu of foreclosure. This property was sold during the
third quarter of fiscal year 2014.
Debit card processing expenses increased by $36, or 9.2%, from the same period last year primarily as a result of increased debit card usage by
our customers.
Other expenses totaled $1,284 for the year ended June 30, 2014, a decrease of $77, or 5.7%, from $1,361 for the year ended June 30, 2013. The
decrease was mainly the result of lower office supply and education and development expenses.
Income Tax Expense. The provision for income taxes totaled $654 and $634 for the years ended June 30, 2014 and 2013, respectively. The
effective tax rates were 18.7% and 19.2%, respectively. 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.
12
Financial Condition
Total assets at June 30, 2014 were $382,477 compared to $343,489 at June 30, 2013, an increase of $38,988, or 11.4%. The growth in total assets
was mainly attributed to an increase of $29,164 in securities and an increase of $7,926, or 3.7% in total loans. This growth was primarily funded by an
increase of $19,790, or 6.7%, in total deposits and an increase of $12,060 in shareholders’ equity. The increase in shareholders’ equity was primarily
the result of the funds received from the rights and public offering that were completed in July 2013. The Corporation intends to use the net proceeds
to enhance the Bank’s overall capital position, for general corporate purposes and future organic and other growth opportunities.
Securities. Total securities increased by $29,164 from $100,229 at June 30, 2013 to $129,393 at June 30, 2014. As of June 30, 2014, there were
$126,393 securities classified as available-for-sale and there was a $3,000 security classified as held-to-maturity which was a local municipal bond. The
securities portfolio is mainly comprised of residential mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae,
Freddie Mac and Ginnie Mae, state and political subdivisions and obligations of government-sponsored enterprises.
The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2014
and 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and
gross unrecognized gains and losses:
Available-for-sale
June 30, 2014
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations
Trust preferred security
Total available-for-sale securities
Held-to-maturity
June 30, 2014
Obligations of state and political subdivisions
Total held-to-maturity securities
Available-for-sale
June 30, 2013
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations
Trust preferred security
Total available-for-sale securities
Held-to-maturity
June 30, 2013
Obligations of state and political subdivisions
Total held-to-maturity securities
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair
Value
$
$
18,345 $
44,645
57,370
3,887
202
124,449 $
126 $
1,124
965
42
210
2,467 $
(35) $
(257)
(231)
—
—
(523) $
18,436
45,512
58,104
3,929
412
126,393
Gross
Amortized Unrecognized Unrecognized
Gains
Losses
Gross
Cost
Fair
Value
$
$
3,000 $
3,000 $
40 $
40 $
— $
— $
3,040
3,040
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair
Value
$
$
4,700 $
39,777
46,834
5,740
202
97,253 $
6 $
805
552
11
—
1,374 $
(48) $
(770)
(497)
(43)
(40)
(1,398) $
4,658
39,812
46,889
5,708
162
97,229
Gross
Amortized Unrecognized Unrecognized
Gains
Losses
Gross
Cost
Fair
Value
$
$
3,000 $
3,000 $
— $
— $
74 $
74 $
2,926
2,926
13
The following tables summarize the amounts and distribution of the Corporation’s securities held and the weighted average yields as of June 30,
2014:
Available-for-sale
Obligations of government sponsored entities:
Over 3 months through 1 year
Over 1 year through 5 years
Over 5 years through 10 years
Total obligations of government sponsored entities
Obligations of state and political subdivisions:
Over 3 months through 1 year
Over 1 year through 5 years
Over 5 years through 10 years
Over 10 years
Total obligations of state and political subdivisions
Mortgage-backed securities - residential:
Over 3 months through 1 year
Over 1 year through 5 years
Over 5 years through 10 years
Total mortgage-backed securities
Collateralized mortgage obligations:
Over 3 months through 1 year
Over 1 year through 5 years
Total collateralized mortgage obligations
Trust preferred security
Total available-for-sale securities
Held-to-maturity
Obligations of state and political subdivisions:
Over 10 years
Total held-to-maturity securities
Amortized
Cost
Fair
Value
Average
Yield /
Cost
$
$
2,258 $
3,651
12,436
18,345
1,275
3,350
17,925
22,095
44,645
117
42,101
15,152
57,370
218
3,669
3,887
202
124,449 $
2,264
3,654
12,518
18,436
1,308
3,459
18,291
22,454
45,512
120
42,711
15,273
58,104
220
3,709
3,929
412
126,393
1.57%
1.78
2.29
2.10
6.48
3.96
4.36
4.59
4.51
4.66
2.34
2.54
2.40
2.28
2.04
2.05
—
3.10%
Amortized
Cost
Fair
Value
Average
Yield /
Cost
$
$
3,000 $
3,000 $
3,040
3,040
3.10%
3.10%
The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering
amortization or accretion if the securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations has been
calculated on a tax equivalent basis. Average yields are based on amortized cost balances. The yield on the trust preferred security is zero since the
cash interest payments for this security are being deferred.
At June 30, 2014, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies and corporations, with
an aggregate book value which exceeds 10% of shareholders’ equity.
Loans. Loan receivables increased by $7,926 to $224,966 at June 30, 2014 compared to $217,040 at June 30, 2013. Loan demand increased,
particularly in the commercial and commercial real estate segments, principally as a result of increased calling efforts within and around the
surrounding markets of the Bank’s branch locations.
14
Major classifications of loans, net of deferred loan fees and costs, were as follows as of June 30:
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
Construction
Consumer loans
Total loans
2014
2013
$
33,780 $
26,670
3,674
131,227
2,083
125,379
31,046
16,464
185
8,590
224,966 $
32,759
17,894
375
11,880
217,040
$
The following is a schedule of contractual maturities and repayments of 1-4 family residential real estate construction, commercial and commercial real
estate loans, as of June 30, 2014:
Due in one year or less
Due after one year but within five years
Due after five years
Total
$
$
11,037
21,715
136,114
168,866
The following is a schedule of fixed and variable rate 1-4 family residential real estate construction, commercial and commercial real estate loans
due after one year (variable rate loans are those loans with floating or adjustable interest rates) as of June 30, 2014:
Total 1-4 family residential real estate construction, commercial and commercial real estate loans due after
one year
Fixed
Variable
Interest Rates Interest Rates
$
56,671 $
101,158
Foreign Outstandings—there were no foreign outstandings during the periods presented. There are no concentrations of loans greater than
10% of total loans, which are not otherwise disclosed as a category of loans.
Allowance for Loan Losses. The allowance for loan losses balance and the provision charged to expense are judgmentally determined by
management based upon a periodic review of the loan portfolio, an analysis of impaired loans, past loan loss experience, current economic conditions,
collateral value assumptions for collateral-dependent loans and various other circumstances which are subject to change over time. Probable incurred
losses are estimated by stratifying the total loan portfolio into pools of homogenous loans by ownership, collateral type and loan purpose and
applying the Bank’s three year historical loss ratio, increased for more recent trends in loss experience, to each loan pool. Also, the local
unemployment rate is monitored and additional reserves are applied to all loans that are not assigned a specific reserve if there is an increase in the
local unemployment rate. Specific reserves are determined by management’s review of delinquent loans, impaired loans, non-accrual loans, loans
classified as substandard, watch list loans, loans to industries experiencing economic difficulties and other selected large loans. The collectability of
these loans is evaluated after considering the current financial position of the borrower, the estimated market value of the collateral, guarantees and
the Corporation’s collateral position versus other creditors. Judgments, which are necessarily subjective, as to the probability of loss and the amount
of such loss, are formed on these loans, as well as other loans in the aggregate.
Failure to receive principal and interest payments when due on any loan results in efforts to restore such loan to a current status. Loans are
classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest is not expected. The loans must be
brought and kept current for six sustained payments before being considered for removal from non-accrual status. Commercial and commercial real
estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan
documents, is not probable. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected from the collateral. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when it is probable that not all principal and interest amounts will be collected
according to the original terms of the loan. As of June 30, 2014, impaired loans totaled $3,208, of which $1,763 are included in non-accrual loans.
Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings.
15
The following schedule summarizes non-accrual, past due, impaired and restructured loans for the years ended June 30:
Non-accrual loans
Accruing loans past due 90 days or more
Total non-performing loans
Other real estate owned
Total non-performing assets
Impaired loans
Accruing restructured loans
2014
2013
$
$
$
$
$
1,959 $
—
1,959 $
204
2,163 $
3,208 $
1,445 $
1,097
2
1,099
—
1,099
2,306
1,274
The non-performing loans are either in the process of foreclosure or efforts are being made to work with the borrower to bring the loan current.
Properties acquired by the Corporation as a result of foreclosure, or by deed in lieu of foreclosure, are classified as “other real estate owned” until
such time as they are sold or otherwise disposed. As of June 30, 2014, there was $204, or two individual properties, classified as other real estate
owned. As of June 30, 2013, there were no properties classified as other real estate owned.
Potential Problem Loans. There were no loans, not otherwise identified above, included on management’s watch or troubled loan lists that
management has serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Management’s watch and troubled loan
lists includes loans which management has some doubt as to the borrowers’ ability to comply with the present repayment terms, loans which
management is actively monitoring due to changes in the borrowers financial condition and other loans which management wants to more closely
monitor due to special circumstances. These loans and their potential loss exposure have been considered in management’s analysis of the adequacy
of the allowance for loan losses.
The following table summarizes the Corporation’s loan loss experience, and provides a breakdown of the charge-off, recovery and other activity
for the years ended June 30:
Allowance for loan losses at beginning of year
Loans charged off:
Commercial
Commercial real estate
1-4 Family residential real estate
Consumer loans
Total charge offs
Recoveries:
Commercial real estate
1-4 Family residential real estate
Consumer loans
Total recoveries
Net charge offs
Provision for loan losses charged to operations
Allowance for loan losses at end of year
2014
2013
$
2,496 $
2,335
17
49
214
241
521
3
71
107
181
340
249
2,405 $
35
24
64
115
238
—
1
61
62
176
337
2,496
$
The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios:
Commercial
Commercial real estate loans
1-4 Family residential real estate
Consumer loans
Total
Allocation of the Allowance for Loan Losses
% of Loan
Allowance
Type to
Amount
Total Loans
Allowance
Amount
% of Loan
Type to
Total Loans
June 30, 2014
June 30, 2013
307
1,440
294
364
2,405
15.0% $
60.0
21.2
3.8
100.0% $
161
1,471
614
250
2,496
12.3%
58.7
23.5
5.5
100.0%
$
$
16
While management’s periodic analysis of the adequacy of the allowance for loan loss may allocate portions of the allowance for specific
problem loan situations, the entire allowance is available for any loan charge-off that may occur.
Premises and Equipment. A new facility is being constructed at the Minerva, Ohio location to replace the existing branch and corporate
headquarters. The new facility is anticipated to be completed during the 2016 fiscal year and the balance of net premises and equipment is expected to
increase during the construction period.
Funding Sources. Total deposits increased $19,790, or 6.7%, from $294,107 at June 30, 2014 to $313,897 at June 30, 2014. Savings deposits
increased $18,930, or 17.8%, interest bearing demand deposits increased $5,189, or 13.8%, and non-interest bearing demand checking balances
increased $4,205, or 5.9%, from June 30, 2013 to June 30, 2014. Time deposits decreased by $8,534, or 10.8%, as customers choose to deposit funds
into more liquid deposit products during the current low interest rate environment. The increase in deposits reflects the results of the Corporation’s
increased calling efforts and the economic benefit from the oil and gas activity in the Bank’s primary market areas.
The following is a schedule of average deposit amounts and average rates paid on each category for the periods included:
Non-interest bearing demand deposit
Interest bearing demand deposit
Savings
Certificates and other time deposits
Total
Years Ended June 30,
2014
2013
Amount
Rate
Amount
Rate
$
$
71,515
40,112
118,066
74,628
304,321
$
—
0.20%
0.08
0.82
0.26% $
68,984
37,167
103,729
82,613
292,493
—
0.21%
0.08
0.99
0.34%
The following table summarizes time deposits issued in amounts of $100 thousand or more as of June 30, 2014 by time remaining until maturity:
Maturing in:
Under 3 months
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
$
$
4,131
8,680
5,755
9,658
28,224
See Note 6—Short-Term Borrowings to the Consolidated Financial Statements, for information concerning short-term borrowings.
Capital Resources
Total shareholders’ equity increased by $12,060 from $28,143 at June 30, 2014 to $40,203 at June 30, 2014. The increase was primarily the result of
$9,237 in net proceeds from the completion of the rights and public offering in July 2013 and net income of $2,837 for the current fiscal year. These
increases were partially offset by cash dividends paid of $1,313.
In July 2013, the Corporation completed its rights offering with the sale of 655,668 shares of common stock for gross proceeds of approximately
$10.0 million. Under the rights offering, the Corporation distributed to its shareholders of record as of March 26, 2013, proportional rights to purchase
additional shares and the opportunity to purchase shares in excess of their basic subscription rights. The Corporation also offered any shares not
subscribed for in the rights offering through a subsequent public offering. The Corporation intends to use the net proceeds to enhance the Bank’s
overall capital position, general corporate purposes and future organic and other growth opportunities.
At June 30, 2014, management believes the Bank complied with all regulatory capital requirements. Based on the Bank’s computed regulatory
capital ratios, the OCC has determined the Bank to be well capitalized under the Federal Deposit Insurance Act as of its latest exam date. The Bank’s
actual and required capital amounts are disclosed in Note 10 of the Consolidated Financial Statements. Management is not aware of any matters
occurring subsequent to that exam that would cause the Bank’s capital category to change.
17
Liquidity
Management considers the asset position of the Bank to be sufficiently liquid to meet normal operating needs and conditions. The Bank’s
earning assets are divided primarily between loans and available-for-sale securities, with any excess funds placed in federal funds sold or interest-
bearing deposit accounts with other financial institutions on a daily basis.
Net cash inflow from operating activities for the 2014 fiscal year were $3,989 and net cash inflows from financing activities were $34,643. Net
cash outflows from investing activities were $36,863. The major sources of cash were $19,790 net increase in deposits, $22,221 net increase from sales,
maturities or principal pay downs on available-for-sale securities. The major uses of cash were the $50,310 purchase of securities and a $9,179 net
increase in loans. Total cash and cash equivalents were $11,125 as of June 30, 2014 compared to $9,356 at June 30, 2013.
The Bank groups its loan portfolio into four major categories: commercial loans; commercial real estate loans; 1-4 family residential real estate
loans; and consumer loans. The Bank’s 1-4 family residential real estate loan portfolio consists of three basic segments: variable rate mortgage loans
and fixed rate mortgage loans for terms generally not longer than fifteen years, variable rate home equity line of credit loans, and fixed rate term loans
having maturity or renewal dates that are less than the scheduled amortization period. Commercial and commercial real estate loans are comprised of
both variable rate notes subject to interest rate changes based on the prime rate or Treasury index, and fixed rate notes having maturities of generally
not greater than ten years. Consumer loans offered by the Bank are generally written for periods of up to seven years, based on the nature of the
collateral. These may be either installment loans having regular monthly payments or demand type loans for short periods of time.
Funds not allocated to the Bank’s loan portfolio are invested in various securities having diverse maturity schedules. The majority of the
Bank’s securities are held in obligations of U.S. Government sponsored entities, mortgage-backed securities, and investments in tax free municipal
bonds.
The Bank offers several forms of deposit products to its customers. The rates offered by the Bank and the fees charged for them are competitive
with others available currently in the market area. While the Bank continues to be under competitive pressures in the Bank’s market area as financial
institutions attempt to attract and keep new deposits, we believe many commercial and retail customers have been continuing to turn to community
banks. Time deposit interest rates continued to remain low during the 2014 fiscal year. Compared to our peers, the Corporation’s core deposits consist
of a larger percentage of non-interest bearing demand deposits resulting in the cost of funds remaining at a low level of 0.39%.
Jumbo time deposits (those with balances of $100 and over) were $28,224 and $33,693 at June 30, 2014 and 2013, respectively. These deposits
are monitored closely by the Bank and typically priced on an individual basis. When these deposits are from a municipality, certain bank-owned
securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee paid
broker to obtain deposits from outside its normal service area as an additional source of funding. However, these deposits are not relied upon as a
primary source of funding and the Bank can foresee no dependence on these types of deposits in the near term. The Bank had no brokered deposits
at June 30, 2014.
Dividends from the Bank are the primary source of funds for payment of dividends to our shareholders. However, there are statutory limits on
the amount of dividends the Bank can pay without regulatory approval. Under these regulations, the amount of dividends that may be paid in any
calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital
requirements described above. Additionally, the Bank may not declare or pay any dividend if, after making the dividend, the Bank would be
“undercapitalized,” as defined in the federal regulations. As of June 30, 2014 the Bank could, without prior approval, declare a dividend of
approximately $4,542.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting
principles, which require the measurement of financial position and results of operations primarily in terms of historical dollars without considering
changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of the Corporation are monetary in nature. Therefore, as a financial institution, interest rates have a more significant impact on the
Corporation’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. The liquidity, maturity structure and quality of the Corporation’s assets and liabilities are critical to the
maintenance of acceptable performance levels.
18
Critical Accounting Policies and Use of Significant Estimates
The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes
to the Consolidated Financial Statements and management’s discussion and analysis are, to a large degree, dependent upon the Corporation’s
accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to
change.
Presented below is a discussion of the accounting policy that management believes is the most important to the portrayal and understanding of
the Corporation’s financial condition and results of operations. This policy requires management’s most difficult, subjective and complex judgments
about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of
such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. Also, see Note 1 of the
Consolidated Financial Statements for additional information related to significant accounting policies.
Allowance for Loan Losses. Management periodically reviews the loan portfolio in order to establish an estimated allowance for loan losses
(allowance) that are probable as of the respective reporting date. Additions to the allowance are charged against earnings for the period as a provision
for loan losses. Actual loan losses are charged against the allowance when management believes that the collection of principal will not occur. Unpaid
interest for loans that are placed on non-accrual status is reversed against current interest income.
The allowance is regularly reviewed by management to determine whether or not the amount is considered adequate to absorb probable
incurred losses. If not, an additional provision is made to increase the allowance. This evaluation includes specific loss estimates on certain
individually reviewed loans, loss estimates for loan groups or pools that are based on historical loss experience and general loss estimates that are
based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to
repay, and current economic and industry conditions, among other things. The allowance is also subject to periodic examination by regulators whose
review includes a determination as to its adequacy to absorb probable incurred losses.
Those judgments and assumptions that are most critical to the application of this accounting policy are the initial and on-going credit-
worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of
underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk grading, emerging or
changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater
than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors including the breadth
and depth of experience of lending officers, credit administration and the loan review staff that periodically review the status of the loan, changing
economic and industry conditions, changes in the financial condition of the borrower, and changes in the value and availability of the underlying
collateral and guarantees.
While we strive to reflect all known risk factors in our evaluations, judgment errors may occur. If different assumptions or conditions were to
prevail, the amount and timing of interest income and loan losses could be materially different. These factors are most pronounced during economic
downturns. Since, as described above, so many factors can affect the amount and timing of losses on loans it is difficult to predict, with any degree of
certainty, the affect on income if different conditions or assumptions were to prevail.
Valuation of Securities and Other-Than-Temporary Impairment (OTTI). The fair value of available-for-sale securities is estimated using
relevant market information and other assumptions. Fair value measurements are classified within one of three levels in a valuation hierarchy based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk, discounted cash flows, prepayments, and other factors, especially in the absence
of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Securities are reviewed at least quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In
estimating other-than-temporary impairment, management evaluates: the length of time and extent the fair value has been less than cost, the expected
cash flows of the security, the financial condition and near term prospects of the issuer, and whether the Corporation has the intent to sell the security
or the likelihood the Corporation will be required to sell the security at an unrealized loss position prior to any anticipated recovery in fair value, which
may be maturity. A decline in value that is considered to be credit-related other-than-temporary is recorded as a loss within other income in the
consolidated statements of income.
19
Contractual Obligations, Commitments and Contingent Liabilities
The following table presents, as of June 30, 2014, the Corporation’s significant fixed and determinable contractual obligations by payment date.
The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts. Further
discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.
Certificates of deposit
Short-term borrowings
Federal Home Loan Advances
Salary continuation plan
Operating leases
Deposits without maturity
Note
Reference
2015
2016
2017
2018
2019
Thereafter
Total
5 $
6
7
8
4
41,635 $
19,489
61
46
106
—
13,152 $
—
559
99
47
—
6,683 $
—
62
123
28
—
4,584 $
—
5,564
117
17
—
2,916 $
—
50
142
—
—
1,705 $
—
—
1,195
—
—
70,675
19,489
6,296
1,722
198
243,222
Note 11- Commitments with Off-balance Sheet Risk to the Consolidated Financial Statements discusses in greater detail other commitments and
contingencies and the various obligations that exist under those agreements. These commitments and contingencies consist primarily of commitments
to extend credit to borrowers under lines of credit.
Off-Balance Sheet Arrangements
At June 30, 2014, the Corporation had no unconsolidated, related special purpose entities, nor did the Corporation engage in derivatives and
hedging contracts, such as interest rate swaps, which may expose the Corporation to liabilities greater than the amounts recorded on the consolidated
balance sheet. The Corporation’s investment policy prohibits engaging in derivative contracts for speculative trading purposes; however, in the
future, the Corporation may pursue certain contracts, such as interest rate swaps, in an effort to execute a sound and defensive interest rate risk
management policy.
Forward-Looking Statements
All statements set forth in this discussion or future filings by the Corporation with the Securities and Exchange Commission, or other public or
shareholder communications, or in oral statements made with the approval of an authorized executive officer, that are not historical in nature, including
words or phrases such as “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
our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are
made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by
law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. 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 the Bank’s customers;
·
·
competitive pressures on product pricing and services; and
a continued deterioration in market conditions causing debtors to be unable to meet their obligations.
The risks and uncertainties identified above are not the only risks we face. Additional risks and uncertainties not presently known to us or that
we currently believe to be immaterial also may adversely affect us. Should any known or unknown risks and uncertainties develop into actual events,
those developments could have material adverse effects on our business, financial condition and results of operations.
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for Smaller Reporting Companies.
20
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT ON THE CORPORATION`S INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Consumers Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(1) promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, our principal executive and principal financial officers and effected by the board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
·
·
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2014. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992 Internal Control-
Integrated Framework. Based on that assessment, we have concluded that, as of June 30, 2014, our internal control over financial reporting is effective
based on those criteria.
This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to rules
of the Securities and Exchange Commission that permit the Corporation to provide only management’s report in this annual report.
/s/ Ralph J. Lober, II
Ralph J. Lober, II
Chief Executive Officer
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer & Treasurer
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Consumers Bancorp, Inc.
Minerva, Ohio
We have audited the accompanying consolidated balance sheets of Consumers Bancorp, Inc. as of June 30, 2014 and 2013 and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Consumers
Bancorp, Inc. as of June 30, 2014 and 2013 and the results of its operations and its cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
Cleveland, Ohio
September 24, 2014
/s/ Crowe Horwath LLP
Crowe Horwath LLP
22
CONSOLIDATED BALANCE SHEETS
As of June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
ASSETS:
Cash on hand and noninterest-bearing deposits in financial institutions
Federal funds sold and interest-bearing deposits in financial institutions
Total cash and cash equivalents
Certificate of deposits in financial institutions
Securities, available-for-sale
Securities, held-to-maturity (fair value 2014 $3,040, 2013 $2,926)
Federal bank and other restricted stocks, at cost
Loans held for sale
Total loans
Less allowance for loan losses
Net loans
Cash surrender value of life insurance
Premises and equipment, net
Other real estate owned
Accrued interest receivable and other assets
Total assets
LIABILITIES:
Deposits:
Non-interest bearing demand
Interest bearing demand
Savings
Time
Total deposits
Short-term borrowings
Federal Home Loan Bank advances
Accrued interest payable and other liabilities
Total liabilities
Commitments and contingent liabilities
$
$
$
2014
2013
9,049 $
2,076
11,125
2,703
126,393
3,000
1,396
559
224,966
(2,405)
222,561
5,967
6,713
204
1,856
382,477 $
75,353 $
42,718
125,151
70,675
313,897
19,489
6,296
2,592
342,274
—
6,922
2,434
9,356
4,175
97,229
3,000
1,186
93
217,040
(2,496)
214,544
5,789
5,708
—
2,409
343,489
71,148
37,529
106,221
79,209
294,107
12,490
6,366
2,383
315,346
—
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value; 350,000 shares authorized
Common shares, no par value; 3,500,000 shares authorized; 2,854,133 and 2,198,465 shares issued as of June 30,
2014 and 2013, respectively
Retained earnings
Treasury stock, at cost (129,875 and 129,855 common shares at June 30, 2014 and 2013, respectively)
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
—
—
14,630
25,940
(1,650)
1,283
40,203
382,477 $
5,393
24,416
(1,650)
(16)
28,143
343,489
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
2014
2013
Interest income:
Loans, including fees
Federal funds sold and interest-bearing deposits in financial institutions
Securities, taxable
Securities, tax-exempt
Total interest and dividend income
Interest expense:
Deposits
Short-term borrowings
Federal Home Loan Bank advances
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Service charges on deposit accounts
Debit card interchange income
Bank owned life insurance income
Gain on sale of mortgage loans
Securities gains, net
Loss on disposition of other real estate owned
Other
Total other income
Other expenses:
Salaries and employee benefits
Occupancy and equipment
Data processing expenses
Professional and director fees
Federal Deposit Insurance Corporation assessments
Franchise taxes
Marketing and advertising
Loan and collection expenses
Telephone and communications
Debit card processing expenses
Other
Total other expenses
Income before income taxes
Income tax expense
Net income
Basic and diluted earnings per share
$
$
$
10,642 $
47
1,606
1,361
13,656
783
26
186
995
12,661
249
12,412
1,321
877
178
125
49
(10)
221
2,761
6,360
1,325
563
466
233
303
243
198
279
428
1,284
11,682
3,491
654
2,837 $
1.05 $
10,549
60
1,263
1,269
13,141
981
22
199
1,202
11,939
337
11,602
1,328
796
184
121
157
—
216
2,802
6,090
1,270
502
327
203
286
280
110
280
392
1,361
11,101
3,303
634
2,669
1.29
See accompanying notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
Net income
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses):
Unrealized gains (loss) arising during the period
Reclassification adjustment for gains included in income
Net unrealized gain (loss)
Income tax effect
Other comprehensive income (loss)
Total comprehensive income
2014
2013
$
2,837 $
2,669
2,017
(49)
1,968
669
1,299
4,136 $
(2,296)
(157)
(2,453)
(833)
(1,620)
1,049
$
See accompanying notes to consolidated financial statements.
25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
Common
Shares
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
$
5,205
$
$
22,740
2,669
(1,659) $
1,604
$
(1,620)
9
Balance, June 30, 2012
Net income
Other comprehensive loss
Issuance of 691 shares for vested restricted stock awards, including tax benefit
104 Dividend reinvestment plan shares associated with forfeited and expired restricted stock
awards retired to treasury
Issuance of 11,674 shares for dividend reinvestment and stock purchase plan
Cash dividends declared ($0.48 per share)
Balance, June 30, 2013
Net income
Other comprehensive income
Issuance of 655,668 shares for rights and public offering, net of offering costs of $762
20 Dividend reinvestment plan shares associated with forfeited restricted stock awards retired
188
5,393
9,237
(993)
24,416
2,837
(1,650)
(16)
1,299
to treasury
Cash dividends declared ($0.48 per share)
Balance, June 30, 2014
$
14,630
$
(1,313)
25,940
$
(1,650) $
1,283
$
See accompanying notes to consolidated financial statements.
26
27,890
2,669
(1,620)
9
188
(993)
28,143
2,837
1,299
9,237
(1,313)
40,203
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
2014
2013
$
2,837 $
2,669
Depreciation
Securities amortization and accretion, net
Provision for loan losses
Loss on disposition of other real estate owned
Net gain on sale of loans
Deferred income tax expense (benefit)
Gain on sale of securities
Origination of loans held for sale
Proceeds from loans held for sale
Increase in cash surrender value of life insurance
Change in:
Other assets and other liabilities
Net cash flows from operating activities
Cash flows from investing activities:
Securities available-for-sale:
Purchases
Maturities, calls and principal pay downs
Proceeds from sales of available-for-sale securities
Securities held-to-maturity:
Purchases
Net decrease in certificates of deposit with other financial institutions
Purchase of Federal Reserve Bank stock, at cost
Net increase in loans
Acquisition of premises and equipment
Proceeds from sale of other real estate owned
Net cash flows from investing activities
Cash flows from financing activities:
Net increase in deposit accounts
Proceeds from Federal Home Loan advances
Repayments of FHLB advances
Change in short-term borrowings
Net proceeds from rights and public offerings
Proceeds from dividend reinvestment and stock purchase plan
Dividends paid
Net cash flows from financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Federal income taxes paid
Noncash transactions:
Transfer from loans to repossessed assets
Issuance of treasury stock for restricted stock awards
See accompanying notes to consolidated financial statements.
27
551
942
249
10
(125)
27
(49)
(6,636)
6,295
(178)
66
3,989
(50,310)
17,573
4,648
—
1,472
(210)
(9,179)
(1,556)
699
(36,863)
19,790
2,500
(2,570)
6,999
9,237
—
(1,313)
34,643
1,769
9,356
11,125 $
999 $
785
913
—
558
1,423
337
—
(121)
(96)
(157)
(4,274)
4,679
(184)
712
5,546
(24,791)
21,379
7,798
(3,000)
1,470
—
(19,786)
(514)
—
(17,444)
9,626
—
(80)
(1,232)
—
188
(993)
7,509
(4,389)
13,745
9,356
1,210
680
—
9
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014 and 2013
(Dollar amounts in thousands, except per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise indicated, dollar amounts are in thousands, except per share data.
Principles of Consolidation: The consolidated financial statements include the accounts of Consumers Bancorp, Inc. (Corporation) and its
wholly owned subsidiary, Consumers National Bank (Bank), together referred to as the Corporation. All significant intercompany transactions have
been eliminated in the consolidation.
Nature of Operations: Consumers Bancorp, Inc. is a bank holding company headquartered in Minerva, Ohio that provides, through its banking
subsidiary, a broad array of products and services throughout its primary market area of 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.
Business 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 its revenues, operating income, and assets. Accordingly, all of its operations are reported in one
segment, banking.
Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes
estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements
and the disclosures provided, and actual results could differ. The allowance for loan losses, fair values of financial instruments, and determination of
other-than-temporary impairment of securities are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities of less than 90 days and
federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions
and short-term borrowings.
Interest–Bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and
are carried at cost.
Cash Reserves: The Bank is required to maintain cash on hand and non-interest bearing balances on deposit with the Federal Reserve Bank to
meet regulatory reserve and clearing requirements. The required reserve balance at June 30, 2014 and 2013 was $3,952 and $4,291, respectively.
Securities: Securities are generally classified into either held-to-maturity or available-for-sale categories. Held-to-maturity securities are carried
at amortized cost and are those that the Corporation has the positive intent and ability to hold to maturity. Available-for-sale securities are those that
the Corporation may decide to sell before maturity if needed for liquidity, asset-liability management, or other reasons. Available-for-sale securities are
reported at fair value, with unrealized gains or losses included in other comprehensive income (loss) as a separate component of equity, net of tax.
Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized on
the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses
on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis and more frequently when economic
or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the
unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more
likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria
regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.
For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to
credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive
income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
For equity securities, the entire amount of impairment is recognized through earnings.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Bank and Other Restricted Stocks: The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to
own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock, included with
Federal bank and other restricted stocks on the Consolidated Balance Sheet, is carried at cost, classified as a restricted security and periodically
evaluated for impairment based on ultimate recovery of par value. Federal Reserve Bank stock is also carried at cost. Since these stocks are viewed as
a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair
value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights released. Net
unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the
difference between the selling price and the carrying value of the related loan sold.
Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the
principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method
without anticipating prepayments. The recorded investment in loans includes accrued interest receivable.
Interest income on commercial, commercial real estate and 1-4 family residential loans is discontinued at the time the loan is 90 days delinquent
unless the loan is well-secured and in the process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due
status is determined by the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not received on loans placed on non-accrual is reversed against interest income. Interest received on such loans is
accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when the
customer has exhibited the ability to repay and demonstrated this ability over at least a consecutive six month period and future payments are
reasonably assured.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as
commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when funded.
Concentrations of Credit Risk: The Bank grants consumer, real estate and commercial loans primarily to borrowers in Stark, Columbiana and
Carroll counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in this tri-county area.
Automobiles and other consumer assets, business assets and residential and commercial real estate secure most loans.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged
against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance
may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified resulting in a concession, and
for which the borrower is experiencing financial difficulties, are considered trouble debt restructurings and classified as impaired. Factors considered
by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer loans and on an individual
loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so the loan is reported, net, at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected from the collateral. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when it is probable that not all principal and interest amounts will be collected
according to the original terms of the loan. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the
present value of estimated future cash flows using the loan’s effective interest rate at inception. If a troubled debt restructuring is considered to be a
collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the
Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss
experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the most recent three year
period. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These
economic factors include consideration of the following: levels of and trends in volume and terms of loans; effects of any changes in risk selection
and underwriting standards; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and
other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The
following portfolio segments have been identified:
Commercial Loans: Commercial loans are made for a wide variety of general business purposes, including financing for equipment, inventories
and accounts receivable. The term of each commercial loan varies by its purpose. Commercial loans are underwritten after evaluating and
understanding the borrower’s ability to operate profitably and prudently expand its business. Current and projected cash flows are evaluated to
determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of
the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected
and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business
assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an
unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially
dependent on the ability of the borrower to collect amounts due from its customers. The commercial loan portfolio includes loans to a wide variety of
corporations and businesses across many industrial classifications in the areas where the Bank operates.
Commercial Real Estate: Commercial real estate loans include mortgage loans to farmers, multi-family investment properties, developers and
owners of commercial real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is
generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the
loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties
securing the Corporation’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the
Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real
estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate
loans versus non-owner occupied loans.
Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include both owner occupied,
non-owner occupied and home equity loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the
principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and an appropriately appraised
value of the real estate securing the loan that generally requires that the residential real estate loan amount be no more than 80% of the purchase price
or the appraised value of the real estate securing the loan. Underwriting standards for home equity loans are heavily influenced by statutory
requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a
borrower can have at one time and documentation requirements.
Consumer Loans: The Corporation originates direct and indirect consumer loans, primarily automobile loans, personal lines of credit, and
unsecured consumer loans in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest
due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and
lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are
dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Real Estate Owned: Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less costs to
sell at the date of acquisition, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of
acquisition is accounted for as a loan loss. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If
the fair value declines after acquisition, a valuation allowance is recorded as a charge to income. Operating costs after acquisition are expensed. Gains
and losses on disposition are reported as a charge to income.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.
Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not
maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is
computed primarily using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvements, generally over
the lesser of the remaining term of the lease facility or the estimated economic life of the improvement. Useful lives range from three years for software
to thirty-nine and one-half years for buildings.
Cash Surrender Value of Life Insurance: The Bank has purchased single-premium life insurance policies to insure the lives of current and
former participants in the salary continuation plan. As of June 30, 2014, the Bank had policies with total death benefits of $12,144 and total cash
surrender values of $5,967. As of June 30, 2013, the Bank had policies with total death benefits of $12,103 and total cash surrender values of $5,789.
Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash
surrender value adjusted for other changes or other amounts due that are probable at settlement. Tax-exempt income is recognized from the periodic
increases in cash surrender value of these policies.
Long-term Assets: Premises, equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount
may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Repurchase Agreements: Substantially all repurchase agreement liabilities, which are classified as short-term borrowings, represent amounts
advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.
Retirement Plan: The Bank maintains a 401(k) savings and retirement plan covering all eligible employees. Matching contributions are made
and expensed annually.
Income Taxes: The Corporation files a consolidated federal income tax return. Income tax expense is the sum of the current-year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized. The Corporation applies a more likely than not recognition threshold for all
tax uncertainties in accordance with U.S. generally accepted accounting principles. A tax position is recognized as a benefit only if it is more likely
than not the position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit greater than 50% likely of being realized on examination. The Corporation recognizes interest and/or penalties related to income
tax matters in income tax expense.
Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable upon
the vesting of restricted stock awards.
Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees over the required service period,
generally defined as the vesting period. The fair value of restricted stock awards is estimated by using the market price of the Corporation’s common
stock at the date of grant. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period
for the entire award.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, which are also recognized as a separate component
of equity, net of tax.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such
matters that will have a material effect on the financial statements.
Fair Value of Financial Instruments: Fair value of financial instruments are estimated using relevant market information and other assumptions,
as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit
risk, discounted cash flows, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions
or in market conditions could significantly affect the estimates.
Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the
holding company or by the holding company to shareholders. As of June 30, 2014 the Bank could, without prior approval, declare a dividend of
approximately $4,542.
Reclassifications: Certain reclassifications have been made to the June 30, 2013 financial statements to be comparable to the June 30, 2014
presentation. The reclassifications had no impact on prior year net income or shareholders’ equity.
Adoption of New Accounting Standards: In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by
Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The
amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical
possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the
residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the
creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments
require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded
investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local
requirements of the applicable jurisdiction. The amendments in this update are effective for public business entities for annual periods, and interim
periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this update using either a
modified retrospective transition method or a prospective transition method. Management does not believe the amendments will have a material
impact on the Corporation’s Consolidated Financial Statements.
Recently Issued Accounting Pronouncements: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new
revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition,
this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue
recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting
period. The Corporation is evaluating the effect of adopting this new accounting Update.
32
NOTE 2—SECURITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2014
and 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and
gross unrecognized gains and losses:
Available-for-sale
June 30, 2014
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations - residential
Trust preferred security
Total available-for-sale securities
Held-to-maturity
June 30, 2014
Obligations of state and political subdivisions
Total held-to-maturity securities
Available-for-sale
June 30, 2013
Obligations of U.S. government sponsored entities and agencies
Obligations of state and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations - residential
Trust preferred security
Total available-for-sale securities
Held-to-maturity
June 30, 2013
Obligations of state and political subdivisions
Total held-to-maturity securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
$
$
$
$
$
18,345 $
44,645
57,370
3,887
202
124,449 $
126 $
1,124
965
42
210
2,467 $
(35) $
(257)
(231)
—
—
(523) $
18,436
45,512
58,104
3,929
412
126,393
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
3,000 $
3,000 $
40 $
40 $
— $
— $
3,040
3,040
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
4,700 $
39,777
46,834
5,740
202
97,253 $
6 $
805
552
11
—
1,374 $
(48) $
(770)
(497)
(43)
(40)
(1,398) $
4,658
39,812
46,889
5,708
162
97,229
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
3,000 $
3,000 $
— $
— $
(74) $
(74) $
2,926
2,926
Proceeds from sales of debt securities during 2014 and 2013 were as follows:
Proceeds from sales
Gross realized gains
Gross realized losses
$
2014
2013
4,648 $
50
1
7,798
181
24
The income tax provision applicable to realized gains amounted to $17 in 2014 and $61 in 2013 and the income tax benefit applicable to realized
losses amounted to $8 in 2013. There was no tax benefit recognized from gross realized losses in 2014.
The amortized cost and fair values of debt securities at June 30, 2014 by contractual 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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available-for-sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Mortgage-backed securities – residential
Collateralized mortgage obligations
Trust preferred security
Total
Held-to-maturity
Due after ten years
Total
Amortized
Cost
Fair Value
3,533 $
7,001
30,361
22,095
62,990
57,370
3,887
202
124,449 $
3,572
7,113
30,809
22,454
63,948
58,104
3,929
412
126,393
Amortized
Cost
Fair Value
3,000 $
3,000 $
3,040
3,040
$
$
$
$
Securities with a carrying value of approximately $44,720 and $27,781 were pledged at June 30, 2014 and 2013, respectively, to secure public
deposits and commitments as required or permitted by law. At June 30, 2014 and 2013, there were no holdings of securities of any one issuer, other
than the U.S. government and its agencies, with an aggregate book value greater than 10% of shareholders’ equity.
The following table summarizes the securities with unrealized and unrecognized losses at June 30, 2014 and 2013, aggregated by investment
category and length of time the individual securities have been in a continuous unrealized or unrecognized loss position:
Available-for-sale
June 30, 2014
Obligations of U.S. government-sponsored entities and
agencies
Obligations of states and political subdivisions
Mortgage-backed securities - residential
Total temporarily impaired
Available-for-sale
June 30, 2013
Obligations of U.S. government-sponsored entities and
agencies
Obligations of states and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations
Trust preferred security
Total temporarily impaired
$
$
$
$
Less than 12 Months
Fair
Value
Unrealized
Loss
12 Months or more
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
1,492 $
9,929
10,403
21,824 $
(7) $
(223)
(210)
(440) $
5,411 $
3,719
2,342
11,472 $
(28) $
(34)
(21)
(83) $
6,903 $
13,648
12,745
33,296 $
(35)
(257)
(231)
(523)
Less than 12 Months
Fair
Value
Unrealized
Loss
12 Months or more
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
4,418 $
17,826
28,836
4,696
—
55,776 $
(48) $
(766)
(497)
(43)
—
(1,354) $
— $
107
—
—
162
269 $
— $
(4)
—
—
(40)
(44) $
4,418 $
17,933
28,836
4,696
162
56,045 $
(48)
(770)
(497)
(43)
(40)
(1,398)
Held-to-maturity
June 30, 2013
Obligations of states and political subdivisions
Total temporarily impaired
Less than 12 Months
Fair
Value
Unrecognized Loss
12 Months or more
Fair
Value
Unrecognized
Loss
Total
Fair
Value
Unrecognized
Loss
$
$
3,000 $
3,000 $
(74) $
(74) $
— $
— $
— $
— $
2,926 $
2,926 $
(74)
(74)
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
As of June 30, 2014, the Corporation’s securities portfolio consisted of $126,393 available-for-sale securities, of which $33,296 were in an
unrealized loss position. There were fifty-seven securities in an unrealized loss position at June 30, 2014, forty of which were in a continuous loss
position for twelve or more months. The unrealized losses related to the Corporation’s obligations of U.S. government-sponsored entities and
agencies, obligations of states and political subdivisions and residential mortgage-backed securities, as discussed below:
U.S. government-sponsored entities and agencies: At June 30, 2014, the securities issued by U.S. government-sponsored entities and agencies
held by the Corporation were primarily issued by Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to
support. Because the decline in fair value is attributable to higher interest rates, and not credit quality, and because the Corporation does not have the
intent to sell nor is it likely that it will be required to sell the securities before their anticipated recovery, the Corporation does not consider these
securities to be other-than-temporarily impaired.
Obligations of States and Political Subdivisions: At June 30, 2014, approximately 95.9% of the obligations of states and political subdivisions
classified as available-for-sale were general obligation bonds and 4.1% were revenue bonds. The unrealized losses were mainly attributable to the
spreads for these types of securities being wider at June 30, 2014 than when these securities were purchased and changes in interest rates.
Management monitors the financial data of the individual municipalities to ensure they meet minimum credit standards. Since the Corporation does
not intend to sell these securities and it is not likely the Corporation will be required to sell these securities at an unrealized loss position prior to any
anticipated recovery in fair value, which may be maturity, management does not believe there is any other-than-temporary impairment related to these
securities at June 30, 2014.
Mortgage-Backed Securities At June 30, 2014, all of the mortgage-backed securities held by the Corporation were issued by U.S. government-
sponsored entities and agencies, primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment
to support. Because the decline in fair value is attributable to higher interest rates and higher than projected prepayment speeds increasing the
premium amortization, and not credit quality, and because the Corporation does not have the intent to sell nor is it likely that it will be required to sell
the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—LOANS
Major classifications of loans were as follows as of June 30:
Commercial
Commercial real estate:
Construction
Other
1 – 4 Family residential real estate:
Owner occupied
Non-owner occupied
Construction
Consumer
Subtotal
Less: Deferred loan fees and costs
Allowance for loan losses
Net loans
2014
2013
$
33,809 $
26,678
3,688
131,518
31,044
16,505
186
8,604
225,354
(388)
(2,405)
222,561 $
2,096
125,630
32,755
17,941
377
11,866
217,343
(303)
(2,496)
214,544
$
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending June 30, 2014:
Commercial
Real
Estate
1-4 Family
Residential
Real
Estate
Commercial
Consumer
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
$
$
161 $
163
(17)
—
307 $
1,471 $
15
(49)
3
1,440 $
614 $
(177)
(214)
71
294 $
250 $
248
(241)
107
364 $
2,496
249
(521)
181
2,405
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending June 30, 2013:
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
Commercial
Real
Estate
1-4 Family
Residential
Real
Estate
Commercial
Consumer
Total
$
$
143 $
53
(35)
—
161 $
36
1,283 $
212
(24)
—
1,471 $
712 $
(35)
(64)
1
614 $
197 $
107
(115)
61
250 $
2,335
337
(238)
62
2,496
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on
impairment method as of June 30, 2014. Included in the recorded investment in loans is $491 of accrued interest receivable net of deferred loans fees of
$388.
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Recorded investment in loans:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loans balance
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
$
$
$
$
— $
307
307 $
110 $
1,330
1,440 $
8 $
286
294 $
— $
364
364 $
118
2,287
2,405
— $
33,855
33,855 $
2,404 $
132,760
135,164 $
798 $
47,019
47,817 $
— $
8,621
8,621 $
3,202
222,255
225,457
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, 2013. Included in the recorded investment in loans is $546 of accrued interest receivable net of deferred loans fees of
$303.
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Recorded investment in loans:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loans balance
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
3 $
158
161 $
89 $
1,382
1,471 $
243 $
371
614 $
— $
250
250 $
335
2,161
2,496
51 $
26,683
26,734 $
865 $
126,881
127,746 $
1,396 $
49,780
51,176 $
— $
11,930
11,930 $
2,312
215,274
217,586
$
$
$
$
37
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30,
2014:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unpaid
Principal
Balance
Allowance for Average
Recorded Loan Losses Recorded
Investment Allocated
Interest
Income
Investment Recognized Recognized
Cash Basis
Interest
With no related allowance recorded:
Commercial real estate:
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
With an allowance recorded:
Commercial
Commercial real estate:
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
Total
$
1,642 $
1,635 $
— $
1,304 $
— $
121
472
—
121
472
—
—
—
—
152
71
8
768
769
110
781
127
78
3,208 $
127
78
3,202 $
$
4
4
118 $
216
626
3,158 $
39
2
3
28
8
13
93 $
—
39
2
3
28
8
13
93
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30,
2013:
Unpaid
Principal
Balance
Allowance for Average
Recorded Loan Losses Recorded
Investment Allocated
Interest
Income
Investment Recognized Recognized
Cash Basis
Interest
With no related allowance recorded:
Commercial real estate:
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
With an allowance recorded:
Commercial
Commercial real estate:
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
Total
$
65 $
65 $
— $
63 $
— $
125
56
51
125
56
51
793
800
283
933
2,306 $
281
934
2,312 $
$
—
—
3
89
56
187
335 $
103
57
88
808
298
927
2,344 $
—
5
8
72
—
24
109 $
—
—
5
8
72
—
24
109
38
The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of June 30,
2014 and 2013:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
June 30, 2013
Commercial
Commercial real estate:
Other
1 – 4 Family residential:
Owner occupied
Non-owner occupied
Consumer
Total
Loans Past Due
Over 90 Days
Still
Accruing
Non-accrual
Loans Past Due
Over 90 Days
Still
Accruing
— $
—
—
—
—
— $
46 $
86
295
663
7
1,097 $
—
—
—
—
2
2
Non-accrual
$
— $
1,683
276
—
—
1,959 $
$
Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for
impairment and individually classified impaired loans.
The following table presents the aging of the recorded investment in past due loans as of June 30, 2014 by class of loans:
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential:
Owner occupied
Non-owner occupied
Construction
Consumer
Total
30 - 59
Days
$
$
Days Past Due
60 - 89
Days
90 Days or
Greater
Total
Past Due
Loans Not
Past Due
Total
66 $
—
—
111
—
—
106
283 $
— $
—
—
122
39
—
—
161 $
— $
66 $
33,789 $
33,855
—
1,625
81
—
—
—
1,706 $
—
1,625
3,679
129,860
314
39
—
106
2,150 $
30,817
16,462
185
8,515
223,307 $
3,679
131,485
31,131
16,501
185
8,621
225,457
The above table of past due loans includes the recorded investment in non-accrual loans of $40 in the 30-59 days past due category, $122 in the 60-89
days past due category, $1,706 in the 90 days or greater category and $91 in the loans not past due category.
39
The following table presents the aging of the recorded investment in past due loans as of June 30, 2013 by class of loans:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential:
Owner occupied
Non-owner occupied
Construction
Consumer
Total
30 - 59
Days
Days Past Due
60 - 89
Days
$
— $
— $
90 Days or
Greater
Total
Loans Not
Past Due Past Due
46 $
26,688 $
46 $
Total
26,734
—
1,158
245
—
—
72
1,475 $
$
—
—
—
—
—
35
35 $
—
—
252
84
—
2
384 $
—
1,158
2,088
124,500
2,088
125,658
497
84
—
109
1,894 $
32,365
17,854
376
11,821
215,692 $
32,862
17,938
376
11,930
217,586
The above table of past due loans includes the recorded investment in non-accrual loans of $7 in the 30-59 days past due category, $382 in the 90
days or greater category and $708 in the loans not past due category.
Troubled Debt Restructurings:
As of June 30, 2014, the recorded investment of loans classified as troubled debt restructurings was $1,528 with $118 of specific reserves allocated to
these loans. As of June 30, 2013, the recorded investment of loans classified as troubled debt restructurings was $1,946 with $245 of specific reserves
allocated to these loans. As of June 30, 2014 and 2013, the Corporation had not committed to lend any additional amounts to customers with
outstanding loans that are classified as troubled debt restructurings.
During the year ended June 30, 2014 there were no loan modifications completed that were classified as troubled debt restructurings. There was no
increase to the allowance for loan losses or any charge offs from troubled debt restructurings during the twelve month period ended June 30, 2014.
During the year ended June 30, 2013, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such
loans included a reduction of the stated interest rate of the loan as well as an extension of the maturity date at a stated rate of interest lower than the
current market rate for new debt with similar risk. During the 2013 fiscal year, modifications completed involving a reduction of the stated interest rate
of the loan for periods ranging from 6 months to 5 years and modifications involving the extension of the maturity date for a period of 5 years to 10
years.
The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended June 30, 2013:
Pre-Modification
Post-Modification
Number of Outstanding Recorded Outstanding Recorded
Loans
Investment
Investment
June 30, 2013
Commercial real estate:
Other
1 – 4 Family residential:
Owner occupied
Total
1 $
1
2 $
285 $
21
306 $
282
21
303
The troubled debt restructurings described above increased the allowance for loan losses by $42 and there were no charge offs from troubled debt
restructurings during the fiscal year ending June 30, 2013.
There were no loans classified as troubled debt restructurings for which there was a payment default during the 2014 or the 2013 fiscal years. A loan is
considered to be in payment default once it is 90 days contractually past due under the modified terms.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:
current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other
factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding
loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a
monthly basis. The Corporation uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future
date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are
characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and
improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency
status, which was discussed previously.
As of June 30, 2014, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as
follows:
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
Construction
Consumer
Total
Pass
Special
Mention
Substandard
Doubtful
Not
Rated
$
29,337 $
3,503 $
62 $
— $
3,619
121,659
3,959
14,632
—
—
173,206 $
$
—
3,040
—
565
—
—
7,108 $
60
3,526
—
599
—
—
4,247 $
—
2,404
248
550
—
—
3,202 $
953
—
856
26,924
155
185
8,621
37,694
As of June 30, 2013, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as
follows:
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential real estate:
Owner occupied
Non-owner occupied
Construction
Consumer
Total
Special
Pass
Not
Mention
Substandard
Doubtful
Rated
$
23,886 $
1,236 $
224 $
51 $
2,003
115,269
4,083
14,443
243
—
159,927 $
$
85
4,439
—
1,104
—
—
6,864 $
41
—
4,073
—
995
—
—
5,292 $
—
865
406
990
—
—
2,312 $
1,337
—
1,012
28,373
406
133
11,930
43,191
The Bank has granted loans to certain of its executive officers, directors and their affiliates. A summary of activity during the year ended
June 30, 2014 of related party loans were as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principal balance, July 1
New loans
Repayments
Principal balance, June 30
NOTE 4—PREMISES AND EQUIPMENT
Major classifications of premises and equipment were as follows as of June 30:
Land
Land improvements
Building and leasehold improvements
Furniture, fixture and equipment
Total premises and equipment
Accumulated depreciation and amortization
Premises and equipment, net
$
$
694
2,742
(344)
3,092
2014
2013
$
$
1,469 $
406
6,141
4,795
12,811
(6,098)
6,713 $
1,467
406
5,046
4,598
11,517
(5,809)
5,708
Depreciation expense was $551 and $558 for the years ended June 30, 2014 and 2013, respectively.
The Corporation is obligated under non-cancelable operating leases for facilities and equipment. The approximate minimum annual rentals and
commitments under these non-cancelable agreements and leases with remaining terms in excess of one year are as follows:
Twelve Months Ending June 30
2015
2016
2017
2018
$
$
106
47
28
17
198
Rent expense incurred was $115 and $110 during the years ended June 30, 2014 and 2013, respectively.
NOTE 5—DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination of $100 was $28,224 and $33,693 as of June 30, 2014 and 2013,
respectively.
Scheduled maturities of time deposits at June 30, 2014 were as follows:
Twelve Months Ending June 30
2015
2016
2017
2018
2019
Thereafter
Related party deposits totaled $6,489 as of June 30, 2014 and $5,069 as of June 30, 2013.
42
$
$
41,635
13,152
6,683
4,584
2,916
1,705
70,675
NOTE 6—SHORT-TERM BORROWINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-term borrowings consisted of repurchase agreements and Federal fund purchased. Repurchase agreements are financing arrangements.
Physical control is maintained for all securities pledged to secure repurchase agreements. Information concerning all short-term borrowings at June 30,
maturing in less than one year is summarized as follows:
Balance at June 30
Average balance during the year
Maximum month-end balance
Average interest rate during the year
Weighted average rate, June 30
$
2014
2013
$
19,489
15,888
20,299
0.16%
0.16%
12,490
13,457
15,005
0.16%
0.17%
Repurchase agreements mature daily. The Bank has pledged obligations of government-sponsored entities and mortgage-backed securities with
a carrying value of $20,708 and $14,948 at June 30, 2014 and 2013, respectively, as collateral for the repurchase agreements. Total interest expense on
short-term borrowings was $26 and $22 for the years ended June 30, 2014 and 2013, respectively.
NOTE 7—FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances were as follows:
Advance Type
Principal and interest, mortgage matched
Interest-only, single maturity
Interest-only, single maturity
Interest-only, putable
Principal and interest, mortgage matched
Maturity
04/01/2014
10/09/2015
10/12/2017
12/07/2017
04/01/2019
Term
Fixed
Fixed
Fixed
Fixed
Fixed
Interest Rate
Balance
June 30, 2014
2.54% $
1.43
2.07
3.24
4.30
$
Balance
June 30, 2013
16
500
500
5,000
350
6,366
- $
500
500
5,000
296
6,296 $
Each fixed rate advance has a prepayment penalty equal to the present value of 100% of the lost cash flow based upon the difference between
the contract rate on the advance and the current rate on the new advance. The $5 million putable advance with the maturity date of December 7, 2017
can be called quarterly until maturity at the option of the FHLB, with the next call option being September 8, 2014. The following table is a summary of
the scheduled principal payments for all advances:
Twelve Months Ending June 30
2015
2016
2017
2018
2019
Principal
Payments
61
559
62
5,564
50
6,296
$
$
Pursuant to collateral agreements with the FHLB, advances are secured by all the stock invested in the FHLB and certain qualifying first
mortgage loans. The advances were collateralized by $31,641 and $33,950 of first mortgage loans under a blanket lien arrangement at June 30, 2014 and
2013, respectively. Based on this collateral and the Corporation’s holdings of FHLB stock, the Bank was eligible to borrow up to a total of $18,150 in
advances at June 30, 2014.
43
NOTE 8—EMPLOYEE BENEFIT PLANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank maintains a 401(k) savings and retirement plan that permits eligible employees to make before- or after-tax contributions to the plan,
subject to the dollar limits from Internal Revenue Service regulations. The Bank matches 100% of the employee’s voluntary contributions to the plan
based on the amount of each participant’s contributions up to a maximum of 4% of eligible compensation. All regular full-time and part-time employees
who complete six months of service and are at least 21 years of age are eligible to participate. Amounts charged to operations were $148 and $136, for
the years ended June 30, 2014 and 2013, respectively.
The Bank has adopted a Salary Continuation Plan (the Plan) to encourage Bank executives to remain employees of the Bank. The Plan provides
such executives (and, in the event of the executive’s death, surviving beneficiary) with 180 months of salary continuation payments equal to a certain
percentage of an executive’s average compensation, as defined within each agreement, for the three full calendar years prior to Normal Retirement
Age. For purposes of the Plan, “Normal Retirement Age” means the executive’s 65th birthday. Vesting under the Plan commences at age 50 and is
prorated until age 65. If an executive dies during active service, the executive’s beneficiary is entitled to the Normal Retirement Benefit. The executive
can become fully vested in the Accrual Balance upon termination of employment following a disability or a change in control of the Bank. For
purposes of the Plan, “Accrual Balance” means the liability that should be accrued by the Corporation for the Corporation’s obligation to the
executive under the Plan. For purposes of calculating the Accrual Balance, the discount rate in effect at June 30, 2014 was 5.0%. The accrued liability
for the salary continuation plan was $1,722 as of June 30, 2014 and $1,566 as of June 30, 2013. For the years ended June 30, 2014 and 2013, $178 and
$237, respectively, have been charged to expense in connection with the Plan. Distributions to participants were $22 for both of the years ending June
30, 2014 and 2013.
The 2010 Omnibus Incentive Plan (2010 Plan) is a nonqualified share based compensation plan. The 2010 Plan was established to promote
alignment between key employee’s performance and the Corporation’s shareholder interests by motivating performance through the award of stock-
based compensation. The 2010 Plan is intended to attract, retain and motivate key employees and as a means to compensate outside directors for their
service to the Corporation. The 2010 Plan has been approved by the Corporation’s shareholders. The Compensation Committee of the Corporation’s
Board of Directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award
contract.
Under the 2010 Plan, the Corporation may grant, among other things, nonqualified stock options, incentive stock options, stock appreciation
rights, restricted stock, restricted stock units, or any combination thereof to certain employees and directors. Each award is evidenced by an award
agreement that specifies the number of shares awarded, the vesting period, the performance requirements, and such other provisions as the
Compensation Committee determines. Upon a change-in-control of the Corporation, as defined in the 2010 Plan, all outstanding awards immediately
vest.
The Corporation has granted restricted stock awards to certain employees and directors. Restricted stock awards are issued at no cost to the
recipient, and can be settled only in shares at the end of the vesting period. These awards vest on the anniversary date of the award if certain
specified net income performance targets as established by the Compensation Committee are achieved. Restricted stock awards provide the holder
with full voting rights and dividends during the vesting period. Cash dividends are reinvested into shares of stock and are subject to the same
restrictions and vesting as the initial award. All dividends are forfeitable in the event the shares do not vest. The fair value of the restricted stock
awards is the closing market price of the Corporation’s common stock on the date of the grant and compensation expense is recognized over the
vesting period of the awards. Restricted stock awarded during the period presented vest under a graduated schedule over a five-year period.
The following table summarizes the status of the restricted stock awards:
Outstanding at June 30, 2013
Granted
Forfeited
Nonvested at June 30, 2014
Expired on September 24, 2014
Nonvested at September 24, 2014
Restricted Stock
Awards
Weighted-Average
Grant Date Fair
Value Per Share
13.00
15.75
13.92
14.20
13.44
14.43
6,892 $
5,153
(767)
11,278
(2,637)
8,641 $
There was no expense recognized in the 2014 fiscal year in connection with the restricted stock awards since grants of 2,637 with a weighted-
average grant date fair value of $13.44 expired due to not meeting the performance targets. There was no expense recognized in the 2013 fiscal year in
connection with the restricted stock awards since the grants scheduled to vest in the 2013 fiscal year expired due to not meeting the performance
targets. As of June 30, 2014, there was $125 of total unrecognized compensation costs, subject to meeting performance targets, related to nonvested
shares granted under the plan. The cost is expected to be recognized over a weighted-average period of 1.85 years.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9—INCOME TAXES
The provision for income taxes consists of the following for the years ended June 30:
Current income taxes
Deferred income tax expense (benefit)
The net deferred income tax asset consists of the following components at June 30:
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Net unrealized securities loss
Recognized loss on impairment of security
Intangibles
OREO deferred gain
Nonaccrual loan interest income
Gross deferred tax asset
Deferred tax liabilities:
Depreciation
Loan fees
Prepaid expenses
FHLB stock dividends
Net unrealized securities gain
Gross deferred tax liabilities
Net deferred asset
2014
2013
627 $
27
654 $
730
(96)
634
2014
2013
698 $
645
—
265
22
15
100
1,745
(288)
(223)
(94)
(165)
(661)
(1,431)
314 $
742
581
8
265
66
16
82
1,760
(294)
(217)
(74)
(165)
—
(750)
1,010
$
$
$
$
The difference between the provision for income taxes and amounts computed by applying the statutory income tax rate of 34% to statutory
income before taxes consists of the following for the years ended June 30:
Income taxes computed at the statutory rate on pretax income
Tax exempt income
Cash surrender value income
Other
2014
2013
1,187 $
(483)
(61)
11
654 $
1,123
(437)
(63)
11
634
$
$
At June 30, 2014 and June 30, 2013, the Corporation had no unrecognized tax benefits recorded. The Corporation does not expect the total
amount of unrecognized tax benefits to significantly increase within the next twelve months. There were no interest or penalties recorded for the years
ended June 30, 2014 and 2013 and there were no amounts accrued for interest and penalties at June 30, 2014 and 2013.
The Corporation and the Bank are subject to U.S. federal income tax as an income-based tax and a capital-based franchise tax in the state of
Ohio. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before 2010.
45
NOTE 10—REGULATORY MATTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings,
and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory
action that could have a direct material effect on the financial statements. Management believes as of June 30, 2014, the Bank has met all capital
adequacy requirements to which it is subject.
The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, under-capitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
As of fiscal year-end 2014, the Corporation met the definition of a small bank holding company and, therefore, was exempt from consolidated
risk-based and leverage capital adequacy guidelines for bank holding companies. At year-end 2014 and 2013, actual Bank capital levels (in millions)
and minimum required levels were as follows:
June 30, 2014
Total capital (to risk weighted assets)
Bank
Tier 1 capital (to risk weighted assets)
Bank
Tier 1 capital (to average assets)
Bank
June 30, 2013
Total capital (to risk weighted assets)
Bank
Tier 1 capital (to risk weighted assets)
Bank
Tier 1 capital (to average assets)
Bank
Actual
Amount Ratio
Minimum Required
For Capital
Adequacy Purposes
Ratio
Amount
Minimum Required
To Be Well
Capitalized Under
Prompt Corrective
Action Regulations
Amount
Ratio
$
39.2
15.3% $
20.5
8.0% $
25.7
10.0%
36.8
14.4
10.3
36.8
9.8
15.1
4.0
4.0
15.4
18.9
6.0
5.0
$
30.5
13.0% $
18.8
8.0% $
23.4
10.0%
28.0
12.0
9.4
28.0
8.1
13.9
4.0
4.0
14.1
17.4
6.0
5.0
As of the latest regulatory examination, the Bank was categorized as well capitalized. There are no conditions or events since that examination
that management believes may have changed the Bank’s category.
The Corporation’s principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any
calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital
requirements described above. As of June 30, 2014 the Bank could, without prior approval, declare a dividend of approximately $4,542.
On February 26, 2013, the Corporation filed a registration statement with the Securities and Exchange Commission (SEC) related to a $10.0 million
shareholder rights offering. Under the rights offering, the Corporation distributed to its shareholders of record as of March 26, 2013, proportional
rights to purchase additional shares and the opportunity to purchase shares in excess of their basic subscription rights. The Corporation also offered
any shares not subscribed for in the rights offering through a subsequent public offering. In July 2013, the Corporation completed its rights and
public offering with the sale of 655,668 shares of common stock for net proceeds of $9,237, consisting of gross proceeds of $9,999, net of $762 of
issuance costs. The Corporation intends to use the net proceeds to enhance the Bank’s overall capital position, for general corporate purposes and
future organic and other growth opportunities.
46
NOTE 11—COMMITMENTS WITH OFF-BALANCE SHEET RISK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank is a party to commitments to extend credit in the normal course of business to meet the financing needs of its customers.
Commitments are agreements to lend to customers providing there are no violations of any condition established in the contract. Commitments to
extend credit have a fixed expiration date or other termination clause. These instruments involve elements of credit and interest rate risk more than the
amount recognized in the statements of financial position. The Bank uses the same credit policies in making commitments to extend credit as it does
for on-balance sheet instruments.
The Bank evaluates each customer’s credit on a case by case basis. The amount of collateral obtained is based on management’s credit
evaluation of the customer. The amount of commitments to extend credit and the exposure to credit loss for non-performance by the customer was
$50,298 and $35,776 as of June 30, 2014 and 2013, respectively. Of the June 30, 2014 commitments, $41,450 carried variable rates of interest ranging from
2.00% to 7.25% and $8,848 carried fixed rates of interest ranging from 2.25% to 6.50%. Of the June 30, 2013 commitments, $27,913 carried variable rates
of interest ranging from 1.25% to 8.25% and $7,863 carried fixed rates of interest ranging from 1.52% to 17.25%. Financial standby letters of credit were
$890 and $485 as of June 30, 2014 and 2013, respectively. In addition, commitments to extend credit of $7,685 and $8,351 as of June 30, 2014 and 2013,
respectively, were available to checking account customers related to the overdraft protection program. Since some loan commitments expire without
being used, the amount does not necessarily represent future cash commitments.
NOTE 12—FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of
inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use
in pricing an asset or liability.
Financial assets and financial liabilities measured at fair value on a recurring basis include the following:
Securities available-for-sale: 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 calculated
using spread to the swap and LIBOR curves. During times when trading is more liquid, broker quotes are used (if available) to validate the model.
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:
Assets:
Securities available-for-sale:
Obligations of government-sponsored entities
Obligations of states and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations
Trust preferred security
Fair Value Measurements at
June 30, 2014 Using
Balance at
June 30, 2014
Level 1
Level 2
Level 3
18,436 $
45,512
58,104
3,929
412
— $
—
—
—
—
18,436 $
45,512
58,104
3,929
412
—
—
—
—
—
$
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities available-for-sale:
Obligations of government sponsored entities
Obligations of states and political subdivisions
Mortgage-backed securities - residential
Collateralized mortgage obligations
Trust preferred security
Balance at
June 30, 2013
$
4,658 $
39,812
46,889
5,708
162
Fair Value Measurements at
June 30, 2013 Using
Level 1
Level 2
Level 3
— $
—
—
—
—
4,658 $
39,812
46,889
5,708
—
—
—
—
—
162
There were no transfers between Level 1 and Level 2 during the 2014 or the 2013 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 years ended June 30, 2014 and 2013:
Beginning balance
Realized losses included in other income
Change in fair value included in other comprehensive income
Transfers out of Level 3
Ending balance, June 30
Trust Preferred Security
2014
2013
$
$
162 $
—
250
(412)
— $
64
—
98
—
162
The fair value of the trust preferred security with a fair value of $412 as of June 30, 2014 was transferred from Level 3 to Level 2 because of observable
market data available for the security. As of June 30, 2013, the significant unobservable inputs used in the fair value measurement of the Corporation’s
trust preferred security were 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 or are charged down to their fair value. For collateral dependent loans, fair value
is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the
inputs for determining fair value.
Financial assets and financial liabilities measured at fair value on a non-recurring basis are summarized below:
Impaired loans:
Commercial Real Estate - Other
Fair Value Measurements at
June 30, 2014 Using
Balance at
June 30, 2014
Level 1
Level 2
Level 3
$
101 $
— $
— $
101
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements at
June 30, 2013 Using
Balance at
June 30, 2013
Level 1
Level 2
Level 3
$
43 $
— $
— $
101
475
—
—
—
—
43
101
475
Impaired loans:
Commercial
1-4 Family:
Owner occupied
Non-owner occupied
Impaired loans, which are generally measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal
balance of $101, with no valuation allowance at June 30, 2014. The resulting impact to the provision for loan losses was a reduction of $108 being
recorded for the year ended June 30, 2014. As of June 30, 2013, impaired loans with a principal balance of $839 had a valuation allowance of $220. The
resulting impact to the provision for loan losses was a reduction of $48 being recorded for the year ended June 30, 2013.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-
recurring basis at June 30, 2014:
Fair
Value
Valuation
Technique
Unobservable
Inputs
Range
Weighted Average
Impaired loans:
Commercial Real Estate -
Other
$
Adjustment for
Sales comparison differences between -14.00% to 31.90%
comparable sales
approach
101
22.52%
The valuation technique used by an independent third party appraiser in the fair value measurement of collateral for collateral-dependent commercial
real estate impaired loans primarily consisted of the sales comparison approach. 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 any adjustment made to the
value set forth in the appraisal due to a distressed sale situation. During the 2013 fiscal year, collateral discounts for 1-4 family non-owner occupied
impaired loans ranged from 0% to 20%.
The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated
balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Financial Assets:
Level 1 inputs:
Cash and cash equivalents
Level 2 inputs:
Certificates of deposits in other financial institutions
Loans held for sale
Accrued interest receivable
Level 3 inputs:
Securities held-to-maturity
Loans, net
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits
Time deposits
Short-term borrowings
Federal Home Loan Bank advances
Accrued interest payable
2014
2013
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
$
11,125 $
11,125 $
9,356 $
9,356
2,703
559
1,048
2,703
570
1,048
4,175
93
1,044
4,175
97
1,044
3,000
222,561
3,040
223,128
3,000
214,544
2,926
212,555
243,222
70,675
19,489
6,296
44
243,222
70,583
19,489
6,655
44
214,898
79,209
12,490
6,366
48
214,898
79,575
12,490
7,049
48
49
The assumptions used to estimate fair value are described as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and cash equivalents: The carrying value of cash, deposits in other financial institutions and federal funds sold were considered to approximate
fair value resulting in a Level 1 classification.
Certificates of deposits in other financial institutions, accrued interest receivable and payable, demand and savings deposits and short-term
borrowings: The carrying value of certificates of deposits in other financial institutions, accrued interest receivable and payable, demand and savings
deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification.
Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in
a Level 2 classification.
Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans that reprice at least
annually and for fixed rate commercial loans with maturities of six months or less which possess normal risk characteristics, carrying value was
determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed
rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities resulting in a Level 3 classification. The
methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Securities held-to-maturity: The held-to-maturity security is a revenue bond made to a local municipality. The fair value of this security is calculated
using a spread to the Bloomberg municipal fair market health care curve resulting in a Level 3 classification.
Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at June 30, 2014 and 2013, 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 June 30, 2014 and 2013 for
similar financing resulting in a Level 2 classification.
Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as
Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability; and
therefore, are not subject to the fair value disclosure requirements.
Off-balance sheet commitments: The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit
quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.
NOTE 13—PARENT COMPANY FINANCIAL STATEMENTS
Condensed financial information of Consumers Bancorp. Inc. (parent company only) follows:
Condensed Balance Sheets
Assets
Cash
Securities, available-for-sale
Other assets
Investment in subsidiary
Total assets
Liabilities
Other liabilities
Shareholders’ equity
Total liabilities & shareholders’ equity
50
June 30,
2014
June 30,
2013
$
$
$
$
85 $
1,988
94
38,086
40,253 $
50 $
40,203
40,253 $
31
—
126
28,012
28,169
26
28,143
28,169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Income and Comprehensive Income
Cash dividends from Bank subsidiary
Other income
Other expense
Income before income taxes and equity in undistributed net income of subsidiary
Income tax benefit
Income before equity in undistributed net income of Bank subsidiary
Equity in undistributed net income of subsidiary
Net income
Comprehensive income
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income
Equity in undistributed net income of Bank subsidiary
Change in other assets and liabilities
Net cash flows from operating activities
Cash flows from investing activities
Purchases of available-for-sale securities
Repayment of subordinated note
Disposal of premises and equipment
Net cash flows from financing activities
Cash flows from financing activities
Dividend paid
Investment in subsidiary
Net proceeds from rights offering
Proceeds from dividend reinvestment and stock purchase plan
Issuance of treasury stock for restricted stock awards
Net cash flows from financing activities
Change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
51
Year Ended
Year Ended
June 30, 2014 June 30, 2013
$
$
$
1,150 $
39
205
984
(53)
1,037
1,800
2,837 $
4,136 $
880
94
174
800
(22)
822
1,847
2,669
1,649
Year Ended
June 30, 2014
Year Ended
June 30, 2013
$
$
2,837 $
(1,800)
(38)
999
(1,946)
—
77
(1,869)
(1,313)
(7,000)
9,237
—
—
924
54
31
85 $
2,669
(1,847)
(69)
753
—
2,000
—
2,000
(993)
(2,000)
—
188
9
(2,796)
(43)
74
31
Note 14 – EARNINGS PER SHARE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Basic:
Net income available to common shareholders
Weighted average common shares outstanding
Basic income per share
Diluted:
Net income available to common shareholders
Weighted average common shares outstanding
Dilutive effect of restricted stock
Total common shares and dilutive potential common shares
Dilutive income per share
For the year Ended June 30,
2014
2013
$
$
$
$
2,837 $
2,701,614
1.05 $
2,669
2,063,666
1.29
2,837 $
2,701,614
392
2,702,006
1.05 $
2,669
2,063,666
539
2,064,205
1.29
Note 15 –ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the periods ended June 30,
2014 and June 30, 2013, were as follows:
Balance as of June 30, 2012
Unrealized holding loss on available-for-sale securities arising
during the period
Amounts reclassified from accumulated other comprehensive
income
Net current period other comprehensive loss
Balance as of June 30, 2013
Unrealized holding gain on available-for-sale securities arising
during the period
Amounts reclassified from accumulated other comprehensive
income
Net current period other comprehensive gain
Balance as of June 30, 2014
(a) Securities gain, net
(b) Income tax expense
Pretax
Tax Expense
(Benefit)
After-tax
Affected Line Item
in Consolidated
Statements of
Income
$
2,429 $
(825) $
1,604
(2,296)
(157)
(2,453)
(24)
780
53
833
8
(1,516)
(104)
(1,620)
(16)
2,017
(686)
1,331
(49)
1,968
1,944 $
17
(669)
(661) $
(32)
1,299
1,283
$
(a)(b)
(a)(b)
52
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A—CONTROLS AND PROCEDURES
The management of the Corporation is responsible for establishing and maintaining effective disclosure controls and procedures, as defined
under Rule 13a-15(e) of the Securities Exchange Act of 1934 (Act). As of June 30, 2014, an evaluation was performed under the supervision and with
the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
the Corporation’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the Corporation’s disclosure controls and procedures as of June 30, 2014 were effective in ensuring that information required to be disclosed by the
Corporation in the reports that it files or submits under the Act were recorded, processed, summarized and reported within the time period required by
the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the management, including
the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no
changes in the Corporation’s internal controls over financial reporting that occurred during the fourth quarter of fiscal year 2014 that have materially
affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting. The Report of Management on the
Company’s Internal Controls Over Financial Reporting appears on page 21.
ITEM 9B—OTHER INFORMATION
None.
ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 24, 2014 under the captions “Election of
Directors,” “Directors and Executive Officers,” “The Board of Directors and its Committees,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” and “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference.
The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics
for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the
Investor Relations section under Corporate Governance of the Corporation’s website (www.consumersbank.com). Copies of either of the Code of
Ethics Policies are also available in print to share owners upon request, addressed to the Corporate Secretary at Consumers Bancorp, Inc., 614 East
Lincoln Way, Minerva, Ohio 44657. The Corporation intends to post amendments to or waivers from its Code of Ethics on its website.
ITEM 11—EXECUTIVE COMPENSATION
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 24, 2014 under the captions “Director
Compensation,” “Executive Compensation,” “Defined Contribution Plan,” “Outstanding Equity Awards at Fiscal Year-End,” and “Salary Continuation
Program,” and is incorporated herein by reference.
53
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth information about common stock authorized for issuance, segregated between stock-based compensation plans
approved by shareholders and stock-based compensation plans not approved by shareholders, as of June 30, 2014. Additional information regarding
stock-based compensation plans is presented in Note 8 - Employee Benefit Plans to the Consolidated Financial Statements located elsewhere in this
report.
Number of securities remaining
Plan Category
Plans approved by shareholders
Plans not approved by shareholders
Total
outstanding options,
warrants, and rights
Number of securities to Weighted-average available for future issuance under
equity compensation plans (excluding
be issued upon exercise of exercise price of
outstanding options, securities issuable under outstanding
warrants and rights
—
—
—
options, warrants and rights)(1)
88,031
—
88,031
—
—
—
(1)Securities remaining available for future issuance excludes 11,278 shares of restricted stock that have been issued and are subject to forfeiture if
specified performance targets are not achieved.
The remaining information required by this item is set forth in the Corporation’s Proxy Statement dated September 24, 2014 under the caption
“Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 24, 2014 under the caption “Certain
Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference.
ITEM 14—PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 24, 2014 under the caption “Principal
Accounting Fees and Services,” and is incorporated herein by reference.
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
(1) The report of independent registered accounting firm and the consolidated financial statements appearing in Item 8.
(2) Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial
statements.
(3) The exhibits required by this item are listed in the Exhibit Index of this Form 10-K.
(b) The exhibits to this Form 10-K begin on page 56 of this report.
(c) See Item 15(a)(2) above.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 24, 2014
CONSUMERS BANCORP, INC.
By:
By:
/s/ Ralph J. Lober, II
President and Chief Executive Officer
(principal executive officer)
/s/ Renee K. Wood
Chief Financial Officer and Treasurer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on September 24, 2014.
Signatures
Signatures
/s/ Laurie L. McClellan
Laurie L. McClellan
Chairman of the Board of Directors
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer and Treasurer
(principal financial officer)
/s/ Bradley Goris
Bradley Goris
Director
/s/ David W. Johnson
David W. Johnson
Director
/s/ Thomas M. Kishman
Thomas M. Kishman
Director
/s/ Harry W. Schmuck, Jr.
Harry W. Schmuck, Jr.
Director
/s/ Ralph J. Lober, II
Ralph J. Lober, II
President, Chief Executive Officer and Director
(principal executive officer)
/s/ John P. Furey
John P. Furey
Director
/s/ James V. Hanna
James V. Hanna
Director
/s/ James R. Kiko, Sr.
James R. Kiko, Sr.
Director
/s/ Frank L. Paden
Frank L. Paden
Director
/s/ John E. Tonti
John E. Tonti
Director
55
Exhibit Number Description of Document
EXHIBIT INDEX
3.1
3.2
4
10.3
10.6
10.8
11
21
23
31.1
31.2
32.1
101
Amended and Restated Articles of Incorporation of the Corporation. Reference is made to Form 10-K of the Corporation filed
September 22, 2010, which is incorporated herein by reference.
Amended and Restated Code of Regulations of the Corporation. Reference is made to Form 10-K (File No. 033-79130) of the
Corporation filed September 15, 2008, which is incorporated herein by reference.
Form of Certificate of Common Shares. Reference is made to Form 10-KSB (File No. 033-79130) of the Corporation filed
September 26, 2002, which is incorporated herein by reference.
Lease Agreement entered into between Furey Holdings, LLC and Consumers National Bank on December 23, 2005. Reference is
made to Form 10-Q (File No. 033-79130) of the Corporation filed February 14, 2006, which is incorporated herein by reference.
2011 Amendment and Restatement of Salary Continuation agreement entered into with Mr. Lober on February 11, 2011. Reference is
made to Form 10-Q of the Corporation filed February 11, 2011, which is incorporated herein by reference.
Salary Continuation agreement entered into with Ms. Wood on February 14, 2014. Reference is made to Form 10-Q of the
Corporation filed February 14, 2014, which is incorporated herein by reference.
Computation of Earnings per Share. Reference is made to this Annual Report on Form 10-K Note 14 to the Consolidated Financial
Statements, which is incorporated herein by reference.
Subsidiaries of Consumers Bancorp, Inc. Filed with this Annual Report on Form 10-K.
Consent of Crowe Horwath LLP
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
The following material from Consumers Bancorp, Inc.’s Form 10-K Report for the year ended June 30, 2014, formatted in XBRL
(Extensible Business Reporting Language) includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Income, (3)
Consolidated Statements of Comprehensive Income, (4) Consolidated Statement of Changes in Shareholders’ Equity, (5)
Consolidated Statements of Cash Flows, and (6) the Notes to Consolidated Financial Statements.
(Back To Top)
Section 2: EX-21 (EXHIBIT 21)
56
Consumers National Bank, a nationally chartered bank
Subsidiaries of Consumers Bancorp, Inc.
(Back To Top)
Section 3: EX-23 (EXHIBIT 23)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 21
EXHIBIT 23
We consent to the incorporation by reference in Registration Statement No. 333-161023 on Form S-3 of Consumers Bancorp, Inc. of our
report dated September 24, 2014 relating to the consolidated financial statements, appearing in this Annual Report on Form 10-K.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
Cleveland, Ohio
September 24, 2014
(Back To Top)
Section 4: EX-31.1 (EXHIBIT 31.1)
I, Ralph J. Lober, certify that:
1.
I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.;
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
September 24, 2014
Date
(Back To Top)
Section 5: EX-31.2 (EXHIBIT 31.2)
By:
/s/ Ralph J. Lober, II
Ralph J. Lober, II
Chief Executive Officer
I, Renee K. Wood, certify that:
1.
I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.;
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
September 24, 2014
Date
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By:
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer & Treasurer
Section 6: EX-32.1 (EXHIBIT 32.1)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of Consumers Bancorp, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2014 as filed
with the Securities and Exchange Commission on the date hereof the (“Report”), the undersigned officers of the Company do hereby certify that:
a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
EXHIBIT 32.1
Date: September 24, 2014
/s/ Ralph J. Lober, II
Ralph J. Lober, II
Chief Executive Officer
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer & Treasurer
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