Bancorp Inc.
2020 Annual Report
Expanding Jefferson
County Markets
Adena, OH
Dillonvale, OH
Mt. Pleasant, OH
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Financial Highlights
Dollar amounts in thousands, except per share data.
Selected Items at Year-End
Financial Condition
Total assets
Securities, available for sale
Loans, net
Deposits
Shareholders’ equity
June 30, 2020
June 30, 2019
$
740,820
$
143,918
537,183
633,355
63,240
Share Information
Book value
$
20.97
$
Cash dividends paid per share
Basic and diluted earnings per share
0.540
1.92
Operations
Net interest income
Provision for loan losses
Noninterest income
Noninterest expenses
Net income
Asset Quality
Net charge offs (recoveries) to total loans
Non-performing assets to total assets
Allowance for loan losses to total loans
Performance Ratios
Return on average assets
Return on average equity
Net interest margin (fully tax equivalent)
$
21,484
$
1,980
4,703
17,768
5,527
0.02%
0.17%
1.05%
0.89%
9.67%
3.72%
553,936
144,010
365,387
472,174
51,166
18.72
0.520
2.04
17,389
(440)
4,268
15,518
5,566
-0.24%
0.14%
1.03%
1.07%
11.96%
3.62%
Please refer to the annual report on Form 10-K for additional financial information.
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Financial Highlights
P R E S I D E N T ’ S M E S S A G E T O S H A R E H O L D E R S
Dollar amounts in thousands, except per share data.
Selected Items at Year-End
Financial Condition
Securities, available for sale
Total assets
Loans, net
Deposits
Shareholders’ equity
June 30, 2020
June 30, 2019
$
740,820
$
Share Information
Book value
Cash dividends paid per share
Basic and diluted earnings per share
$
20.97
$
$
21,484
$
143,918
537,183
633,355
63,240
0.540
1.92
1,980
4,703
17,768
5,527
0.02%
0.17%
1.05%
0.89%
9.67%
3.72%
553,936
144,010
365,387
472,174
51,166
18.72
0.520
2.04
17,389
(440)
4,268
15,518
5,566
-0.24%
0.14%
1.03%
1.07%
11.96%
3.62%
Operations
Net interest income
Provision for loan losses
Noninterest income
Noninterest expenses
Net income
Asset Quality
Net charge offs (recoveries) to total loans
Non-performing assets to total assets
Allowance for loan losses to total loans
Performance Ratios
Return on average assets
Return on average equity
Net interest margin (fully tax equivalent)
Dear Fellow Shareholders:
I am pleased to report that 2020 was a year of significant
accomplishment including completion of a merger,
near record earnings, record loan production, improved
efficiency, and excellent asset quality metrics. While this
report undeniably reflects a successful year, this success
was achieved under difficult conditions. I am excited to
share the extraordinary story of how our 175 community
bankers worked harder than ever to bring you these
results.
On January 1, we completed the legal and financial close
of The Peoples National Bank of Mount Pleasant merger,
the first whole bank acquisition in the company’s history.
In February we completed the system conversion.
Departmental cooperation across both organizations
resulted in a smooth integration of systems, processes,
and cultures. Our new branches in Mount Pleasant,
Adena, and Dillonvale serve customers throughout
Ohio’s Jefferson, Harrison and Belmont counties
and in West Virginia’s northern counties. The merger
contributed to 2020 asset growth, further diversified
loan production, improved efficiency, and added depth
to our sales and support teams. While external sales
efforts to existing and potential clients were put on hold
in March due to the COVID-19 pandemic, promising
new initiatives are now underway. With an expanded
suite of banking products, state of the art technology,
and local bankers who know the market, we believe
there is opportunity to develop new and deepen existing
consumer and commercial relationships. We are pleased
to welcome the Peoples National Bank employees and
customers and The Peoples Bancorp of Mount Pleasant
shareholders to the Consumers Bancorp family. We
appreciate your history and your renewed commitment
to community banking.
We thought the Peoples merger story would take center
stage in 2020. We were wrong. While hitting in the last
four months of the fiscal year, the Corona virus and
its economic impact will dominate future reflections
on fiscal 2020. Our information technology and IT
security staff were fine tuning business resumption and
pandemic response plans long before most realized the
extent to which a full-blown pandemic could impact our
operations. The Pandemic Response Committee began
meeting in mid-February and by early March virtually
all back-office and sales staff were working remotely,
and all off-site activities were halted. By mid-March,
our branch lobbies were closed. New protocols, physical
barriers, and other protections where in place when our
branches began re-opening in May. Six months later,
most of our back-office staff are still working remotely.
I want to acknowledge their continued engagement and
the commitment of our front-line branch employees
lenders who never stopped providing vital
and
financial services to their communities. I am proud
of the preparation for and response to unprecedented
challenges.
Our response to our customers was equally impressive.
The bank reached out to all customers and beginning in
March processed 434 payment deferrals for commercial,
residential, and consumer loan customers impacted by
COVID-19. The deferrals helped consumers who faced
employment loss and provided a lifeline to businesses
as they reassessed and recalibrated their business plans.
The severity and timing of the economic impact was
inconsistent; however, uncertainty was everywhere.
While we are still assisting customers who were impacted
later in the crisis, as of August 31, 2020, customers
resumed payments on 87% of the loan balances that
were granted payment deferrals.
The government’s fiscal response to the crisis relied
heavily on the nation’s community banks. We were
ready for the challenge. Consumers National Bank
was an industry leader in implementing the Paycheck
Protection Program authorized by the CARES Act.
Responding to constant updates to guidance, our
lending team drew on their SBA lending experience to
implement processes that allowed the bank to process
applications and disburse funds on the first day of the
program. When the program ended on August 8, the bank
had disbursed $68.8 million to 607 businesses, nonprofit
organizations, and farms throughout 28 Ohio counties.
Originally concentrating on our own customers, the bank
eventually helped 128 new customers who were unable
to access the program through their own bank. Our 607
loan originations supported 9,412 paychecks and $330.2
million in annual payrolls. Our lending staff worked
tirelessly to help facilitate the largest economic rescue
program in U.S. history while our branches and ATMs
provided the conduit for the government’s individual
economic impact payments. The bank is also managing
the SBA payment relief program that was authorized
in the CARES Act for 116 SBA guaranteed loans in
the portfolio. Our people and our technology continue
to play a vital role in keeping cash flowing through our
communities.
The support that bank loan payment deferral, government
stimulus checks, and multiple government-supported
Please refer to the annual report on Form 10-K for additional financial information.
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Bancorp Inc.
Bancorp Inc.
how we operate. It is forcing more frequent and focused
honest communications with our customers and with
each other, spurring our staff to create more streamlined
processes, and reinforcing the importance of past and
future technology investments. It is challenging us
and making us better. It is spotlighting our community
impact and highlighting our empathy, flexibility, and
capabilities. When the crisis is over, it will have made
us stronger as individuals, as community bankers, and
as a company.
As a result of the Peoples National Bank merger John
(J.W.) Parkinson joined our board of directors. J.W.
served on the Peoples board for 14 years before joining
Consumers in January. Residing in Wintersville and
working in Belmont County, he promotes community
banking throughout the area and provides the bank with
valuable insights to the local market. Dave W. Johnson,
a bank and holding company director since 1997 will
retire from the Consumers Bancorp, Inc. and Consumers
National Bank boards at the annual meeting in October.
The bank has benefited from Dave’s manufacturing and
hospitality industry experience for over 23 years. We
will miss his real-world business insights and his support
in our eastern markets. Dave, thank you for your service
to Consumers National Bank.
The October 29th annual shareholders meeting will be
virtual. I am sorry that we cannot get together to celebrate
community banking but hope that you join us on-line for
the official meeting and presentation of 2020 financial
results and other highlights. As always, I welcome your
suggestions and business referrals. Thank you for your
investment in Consumers Bancorp. It is an investment
in your community that as of September 7, has a 3.9%
dividend yield. Thank you for your continued support of
community banking.
Sincerely,
Ralph J. Lober II
President and CEO
loan programs have provided to small businesses and
consumers is to an extent reflected in strong customer
balance sheets and good bank credit quality metrics. It is
difficult to assess the long-term impact of the continuing
crisis on disparate regions, industries, and customer
segments. We are keeping in close contact with our loan
customers and are advocating for additional economic
support. We have adjusted our qualitative modeling
factors to reflect higher levels of uncertainty and as a
result have added $1.9 million to the bank’s allowance
for loan losses in fiscal 2020.
The PPP loan proceeds resulted in a rapid increase in loan
and deposit balances. As we work through the forgiveness
phase of the program, we expect significantly higher
liquidity levels. While credit quality remains of utmost
concern, it is important that the bank prudently put
Our lending staff worked tirelessly to help facilitate the
largest economic rescue program in U.S. history while our
branches and ATMs provided the conduit for the government’s
individual economic impact payments.
these funds to work by identifying viable commercial,
mortgage, and consumer lending opportunities. We must
continue to lend in all rate and economic environments.
Adherence to strong credit criteria, solid loan structure,
and discipline served the bank well in the Great Recession
of 2008 and 2009. These fundamentals will again guide
us as we work out of the current environment.
The pandemic has accelerated our customers shift to
and embrace of electronic banking options. Personal
and business remote check deposit, ATM imaged
deposit, debit card usage, and online deposit and loan
applications have all witnessed significant increases
since the pandemic began. Remote check deposit usage
has increased approximately 86%. ATM transactions
are up 12% while ATM deposits have increase 39%
from pre-pandemic levels. As consumers move away
from cash, we have experienced 24% increase in debit
card transactions and 58% increase in person-to-person
payments since January 2020. The portion of branch
related
through our drive-
up tellers remains high even as branch lobbies were
reopened. We continue to monitor all delivery channels
and branch operations to ensure they meet customer
needs and reflect new behaviors.
transactions conducted
COVID-19 has been a great disrupter. It upends long-
term plans, and adds risk, expense, and uncertainty into
all facets of business. It is also fundamentally changing
ii
C H A I R M A N ’ S M E S S A G E T O S H A R E H O L D E R S
Dear Shareholders:
It is a pleasure to have this opportunity to share with
and online banking. Communications with customers
you Consumers National Bank’s 2020 story. It has been
became a focused effort, as existing and new customers
a year of change and challenges, one that impacted us all
were assisted with the Paycheck Protection Plan loans,
and one that Consumers successfully navigated. Since
payment extensions and loan modifications. As an
I joined the Board of Directors of Consumers National
SBA Preferred Provider and a committed community
Bank in 1987, we have experienced many events that
bank, Consumers was prepared to meet the needs of
have impacted the course of the bank. With each event,
individuals and businesses in all the communities we
you think you have weathered the storm and things begin
serve, including those in our newest markets in Jefferson
to normalize again, but then comes a year like 2020.
County.
In January, we celebrated the completion of our first
Change and challenges were navigated by a motivated
whole bank merger with Peoples Bancorp of Mt.
team lead by our President & CEO Ralph Lober. A
Pleasant, Inc. From the beginning both sides worked
special thank you to the dedicated Consumers team for
cooperatively to bring two banks with similar cultures
accepting change and working through challenges such
together. Integration went smoothly and the staff of
as; working from home, remote meetings, limited internet
Peoples Bank joined Consumers to make a difference
access, SBA access issues, branch closings, and for
in Mt. Pleasant, Adena and Dillonvale. Consumers was
managing the fear and anxiety created by the pandemic.
changed for the better, becoming a larger organization
We are proud of you and pleased with our fiscal year
formed by two local community banks seeking to further
2020 performance. As of June 30, 2020, assets increased
the community bank model.
33.7 % to $740.8 million, shareholder equity increased
23.6% to $63.2 million and book value increased from
$18.72 to $20.97 when compared to June 30, 2019.
The Board of Directors faced several changes and
challenges in 2020. We welcomed a new director, John
W. Parkinson, who came to us through the Peoples Bank
merger. Mr. Parkinson’s financial background and deep
ties to Jefferson County will be an asset to the board.
Phillip R. Mueller departed from the board in March
and David W. Johnson will be departing in October of
2020 after 23 years of service. We want to thank Mr.
Johnson and Mr. Mueller for sharing their time, talent
and service, and for their commitment to community
banking. Every addition and departure of a director
impacts board dynamics, and it challenges us. We accept
these challenges…we learn, we grow, and we stay
committed by adhering to a deeply rooted Consumers
banking philosophy.
In conclusion, we appreciate the ongoing support of our
shareholders, employees, customers and communities
and thank you for your investment in Consumers
Bancorp. We look forward to coming together in person
in the near future and wish you all the best.
Sincerely,
Laurie McClellan
Chairman of the Board
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Original Officers and Directors of
Peoples National Bank of Mt. Pleasant
March 12, 1903
The excitement we felt with a successful conversion
was challenged when the country began to shut down
due to COVID-19. The plans for hands-on-training with
our new associates was hampered by social distancing
and masks. Open houses to welcome our new customers
and shareholders were put on hold. The well thought out
Pandemic Plan was executed, and changes were made for
a new way of banking. Branch lobbies were closed and
transactions were conducted through drive-ups, ATMs
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Bancorp Inc.
C H A I R M A N ’ S M E S S A G E T O S H A R E H O L D E R S
Dear Shareholders:
It is a pleasure to have this opportunity to share with
you Consumers National Bank’s 2020 story. It has been
a year of change and challenges, one that impacted us all
and one that Consumers successfully navigated. Since
I joined the Board of Directors of Consumers National
Bank in 1987, we have experienced many events that
have impacted the course of the bank. With each event,
you think you have weathered the storm and things begin
to normalize again, but then comes a year like 2020.
and online banking. Communications with customers
became a focused effort, as existing and new customers
were assisted with the Paycheck Protection Plan loans,
payment extensions and loan modifications. As an
SBA Preferred Provider and a committed community
bank, Consumers was prepared to meet the needs of
individuals and businesses in all the communities we
serve, including those in our newest markets in Jefferson
County.
In January, we celebrated the completion of our first
whole bank merger with Peoples Bancorp of Mt.
Pleasant, Inc. From the beginning both sides worked
cooperatively to bring two banks with similar cultures
together. Integration went smoothly and the staff of
Peoples Bank joined Consumers to make a difference
in Mt. Pleasant, Adena and Dillonvale. Consumers was
changed for the better, becoming a larger organization
formed by two local community banks seeking to further
the community bank model.
Original Officers and Directors of
Peoples National Bank of Mt. Pleasant
March 12, 1903
The excitement we felt with a successful conversion
was challenged when the country began to shut down
due to COVID-19. The plans for hands-on-training with
our new associates was hampered by social distancing
and masks. Open houses to welcome our new customers
and shareholders were put on hold. The well thought out
Pandemic Plan was executed, and changes were made for
a new way of banking. Branch lobbies were closed and
transactions were conducted through drive-ups, ATMs
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Change and challenges were navigated by a motivated
team lead by our President & CEO Ralph Lober. A
special thank you to the dedicated Consumers team for
accepting change and working through challenges such
as; working from home, remote meetings, limited internet
access, SBA access issues, branch closings, and for
managing the fear and anxiety created by the pandemic.
We are proud of you and pleased with our fiscal year
2020 performance. As of June 30, 2020, assets increased
33.7 % to $740.8 million, shareholder equity increased
23.6% to $63.2 million and book value increased from
$18.72 to $20.97 when compared to June 30, 2019.
The Board of Directors faced several changes and
challenges in 2020. We welcomed a new director, John
W. Parkinson, who came to us through the Peoples Bank
merger. Mr. Parkinson’s financial background and deep
ties to Jefferson County will be an asset to the board.
Phillip R. Mueller departed from the board in March
and David W. Johnson will be departing in October of
2020 after 23 years of service. We want to thank Mr.
Johnson and Mr. Mueller for sharing their time, talent
and service, and for their commitment to community
banking. Every addition and departure of a director
impacts board dynamics, and it challenges us. We accept
these challenges…we learn, we grow, and we stay
committed by adhering to a deeply rooted Consumers
banking philosophy.
In conclusion, we appreciate the ongoing support of our
shareholders, employees, customers and communities
and thank you for your investment in Consumers
Bancorp. We look forward to coming together in person
in the near future and wish you all the best.
Sincerely,
Laurie McClellan
Chairman of the Board
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Consumers Bancorp, Inc. Directors
Laurie McClellan, Chairman of the Board
Member: Executive, Loan
Hometown: Minerva, Stark County
John Furey, Vice Chairman
Member: Loan, Compensation, Executive (Chair)
Hometown: Malvern, Stark County
Independent Registered Public Accounting Firm
Shareholder Relations
Brad Goris
Member: Asset/Liability, Audit/Risk, Compensation,
Corp. Governance
Hometown: Alliance, Stark County
Richard Kiko, Jr.
Member: Audit/Risk, Asset/Liability,
Corp. Governance
Hometown: Wadsworth, Medina County
Frank Paden
Member: Audit/Risk (Chair), Compensation (Chair),
Executive and Loan
Hometown: Youngstown, Mahoning County
Harry Schmuck, Jr.
Member: Loan (Chair), Audit/Risk, Corp. Governance
Hometown: Louisville, Stark County
David Johnson
Member: Asset/Liability, Compensation,
Corp. Governance (Chair)
Hometown: Salem, Columbiana County
Thomas Kishman
Member: Compensation, Executive, Loan
Hometown: Minerva, Stark County
John Parkinson
Hometown: Wintersville, Jefferson County
Member: Asset/Liability and Audit/Risk
Consumers National Bank Management
Ralph Lober II, President & CEO
Member: Asset/Liability Committee (Chair), Loan
Hometown: Jackson Township, Stark County
Scott Dodds, EVP, Senior Loan Officer
Hometown: Akron, Summit County
Kim Chuckalovchak, VP, IT Manager
Hometown: Minerva, Stark County
Derek Williams, SVP, Retail Sales & Operations
Hometown: Louisville, Stark County
Suzanne Mikes, SVP, Chief Credit Officer
Hometown: Green, Summit County
Renee Wood, EVP, Chief Financial Officer
Hometown: Canton, Stark County
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shareholderrelations@consumersbank.com
Website
www.consumersbancorp.com
Annual Meeting
The 2020 annual meeting of shareholders will be
held at 10:00 a.m. on Thursday, October 29, 2020. In
order to maintain proper social distancing, this year’s
Annual Meeting will be a completely virtual meeting of
stockholders, which will be conducted solely online via
live webcast. You will be able to attend and participate
in
the Annual Meeting online, vote your shares
electronically and submit your questions prior to and
during the meeting. Website and password information
for joining the meeting online are provided in the
accompanying proxy statement. There is no physical
location for the Annual Meeting.
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, 2020, as filed with
the Securities and Exchange Commission, will be
furnished without charge to shareholders upon written
request to Theresa J. Linder, Corporate Secretary, at
614 East Lincoln Way, P.O. Box 256, Minerva, Ohio
44657. An electronic version is also available on our
Consumers Bancorp, Inc. common stock trades on the
website at www.consumersbancorp.com.
OTCQX Bulletin Board under the symbol CBKM. The
CUSIP is 210509105. As of June 30, 2020, there were
3,015,578 shares outstanding with 745 shareholders
Directors Emeriti
James V. Hanna
of record and an estimated 681 additional beneficial
James R. Kiko, Sr
holders whose stock was held in nominee name.
John E. Tonti
General Information
Crowe LLP
600 Superior Avenue, Ste. 902
Cleveland, Ohio 44114
Legal Counsel
Squire Patton Boggs (US) LLP
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 479-8500
Stock Transfer Agent and Registrar
Computershare Shareholder Services
PO Box 505005
Louisville, KY 40233-5005
(800) 522-6645
5050 Blazer Parkway, Suite 103
Market Maker
Thomas L. Dooley
Nick Bicking
D.A. Davidson & Co.
Dublin, OH 43017
(614) 710-7061
(800) 394-9230
Common Stock Listing
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
Computershare to execute these convenient options at
www-us.computershare.com or (800) 368-5948 or a
participating broker.
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 Computershare
Shareholder Services at www-us.computershare.com
or (800) 368-5948 or a participating broker.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2020
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
(Title of each class)
(Trading Symbol(s))
(Name of each exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
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 ☒
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),
Yes ☒ No ☐
and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
Yes ☒ No ☐
that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
Based on the closing sales price on December 31, 2019, the aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant was approximately $47,639,232.
The number of shares outstanding of the Registrant’s common stock, no par value, was 3,015,578 at September 10, 2020.
Certain specifically designated portions of Consumers Bancorp, Inc.’s definitive Proxy Statement, dated September 21, 2020, for its
2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
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
6
6
6
7
7
8
8
9
21
22
55
55
55
56
56
56
56
57
57
ITEM 1—BUSINESS
(Dollars in thousands, except per share data)
General
PART I
Consumers Bancorp, Inc. (Corporation) is a bank holding company as defined under the Bank Holding Company Act of 1956,
as amended (BHCA), and is a registered bank holding company under that act, 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.
Consumers National Bank is a community-oriented financial institution that offers a wide range of commercial and consumer
loan and deposit products, as well as mortgage, financial planning and investment services to individuals, farmers and small and
medium sized businesses in our markets. Since 1965, the Bank’s main office has been serving the Minerva, Ohio, and surrounding
areas from its location at 614 East Lincoln Way, Minerva, Ohio. The Bank seeks to be the provider of choice for financial solutions
to customers who value exceptional personalized service, local decision making, and modern banking technology. The Bank’s
business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial,
mortgage and consumer loans in its market area, consisting primarily of Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and
contiguous counties in Ohio. The Bank currently has 18 full-service branch locations and one loan production office. 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.
On January 1, 2020, the Corporation completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples)
in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the
Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. On December
31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers
located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The financial position and results of operations of Peoples prior to its
acquisition date are not included in Consumers’ financial results for periods prior to the acquisition date.
Supervision and Regulation
The Corporation and the Bank are subject to regulation by the Securities and Exchange Commission (SEC), the Board of
Governors of the Federal Reserve System (Federal Reserve Board), the Office of the Comptroller of the Currency (OCC) and other
federal and state regulators. The regulatory framework is intended primarily for the protection of depositors, federal deposit
insurance funds and the banking system as a whole and not for the protection of shareholders and creditors. Earnings and dividends
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 describes selected federal and state statutory and regulatory provisions that have, or could
have, a material impact on the Corporation. 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 BHCA,
and the examination and reporting requirements of the Federal Reserve Board. Under the BHCA, the Corporation is subject to
periodic examination by the Federal Reserve Board and is 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, subject to certain exceptions, 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
3
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 areas 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 SEC do not contain any untrue statement of a material fact or omit to state
a material fact.
Regulation of the Bank
As a national bank, the 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 the
Corporation’s shareholders. There are statutory limits, however, 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 Deposit 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.
Current Expected Credit Loss Model: In December 2018, the OCC, the Federal Reserve Board, and the FDIC issued a final
rule to address regulatory treatment of credit loss allowances under the current expected credit loss (CECL) model. The rule revised
the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible
for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day one adverse
effects on regulatory capital that may result from the adoption of the CECL model. The Bank is required to adopt the CECL model
by July 1, 2024 since it’s a smaller reporting company.
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, respectively. The Corporation meets the
definition of a Small Bank Holding Company and, therefore, was exempt from maintaining consolidated regulatory capital ratios.
Instead, regulatory capital ratios only apply at the subsidiary bank level. 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.”
The Basel III capital requirements for U.S. banking organizations became effective on January 1, 2015 and were fully phased
in by January 1, 2019. Under Basel III, the Bank is required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a
Tier 1 capital ratio of 6%, a total capital ratio of 8%, and a Tier 1 leverage ratio of 4%. Basel III also established a “capital
4
conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which effectively resulted in a minimum
common equity Tier 1 capital ratio of 7%, a Tier 1 capital ratio of 8.5%, a total capital ratio of 10.5% and a Tier 1 leverage ratio of
6.5%. 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.
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, 2020,
the Bank exceeded minimum regulatory capital requirements to be considered well-capitalized.
Dodd-Frank Wall Street Reform and Consumer Protection Act: The Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) created many new restrictions and an expanded framework of regulatory oversight for financial
institutions, including depository institutions. The Dodd-Frank Act centralized responsibility for consumer financial protection by
creating a new agency, the Consumer Financial Protection Bureau (CFPB), and giving it responsibility for implementing, examining
and enforcing compliance with federal consumer protection laws. The CFPB has examination and enforcement authority over all
banks with more than $10 billion in assets, as well as their affiliates. Although the CFPB does not have direct supervisory authority
over banks with less than $10 billion in assets, the CFPB has broad rulemaking authority for a wide range of consumer financial
laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.
Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition
of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability
to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity
to act in the consumer’s interests. The Corporation is closely monitoring all relevant sections of the Dodd-Frank Act to ensure
continued compliance with these regulatory requirements and assess their potential impact on our business.
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 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 that financial services companies
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.
Cybersecurity: In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement
indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that
their risk management processes also address the risk posed by compromised customer credentials, including security measures to
reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a
financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid
recovery, resumption and maintenance of the institution’s operations after a cyberattack involving destructive malware. A financial
institution is also expected to develop appropriate processes to enable recovery of data and business operations and address
rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of
cyberattack.
5
In the ordinary course of business, electronic communications and information systems are relied upon to conduct operations,
to deliver services to customers and to store sensitive data. The Corporation employs a variety of preventative and detective tools to
monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving
nature and sophistication of these threats, increasing volume of attacks, as well as due to the expanding use of internet banking,
mobile banking and other technology-based products and services by the Corporation and its customers.
Employees
As of June 30, 2020, the Bank employed 149 full-time and 23 part-time employees. None of the employees are represented
by a collective bargaining group. Management considers its relations with employees to be good.
Available Information
The Corporation files annual, quarterly, and current reports, proxy statements, and other information with the SEC. These
filings are available to the public over the Internet at the SEC’s website 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.
Shareholders may call the SEC at 1-800-SEC-0330 for further information on the public reference room.
The Corporation’s reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available, free of charge, on
our website (www.consumersbank.com) as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
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. The
Corporation intends to post amendments to or waivers from either of its Code of Ethics Policies on its website. A printed copy of
any of these documents will be provided to any requesting shareholder.
ITEM 1A—RISK FACTORS
Not applicable for Smaller Reporting Companies.
ITEM 1B—UNRESOLVED STAFF COMMENTS
None.
ITEM 2—PROPERTIES
The Bank operates eighteen full-service banking facilities and one loan production office (LPO) as noted below:
Location
Address
Owned
Leased
614 E. Lincoln Way, P.O. Box 256, Minerva, Ohio, 44657
Minerva
141 S. Ellsworth Avenue, P.O. Box 798, Salem, Ohio, 44460
Salem
Waynesburg
8607 Waynesburg Drive SE, P.O. Box 746, Waynesburg, Ohio, 44688
30034 Canal Street, P.O. Box 178, Hanoverton, Ohio, 44423
Hanoverton
1017 Canton Road NW, Carrollton, Ohio, 44615
Carrollton
610 West State Street, Alliance, Ohio, 44601
Alliance
7985 Dickey Drive, Lisbon, Ohio 44432
Lisbon
1111 N. Chapel Street, Louisville, Ohio 44641
Louisville
440 W. Noble, East Canton, Ohio, 44730
East Canton
4070 Alliance Road, Malvern, Ohio 44644
Malvern
Hartville
1215 W. Maple Street, Hartville, Ohio 44632
Jackson-Belden 4026 Dressler Road NW, Canton, Ohio 44718
Bergholz
Fairlawn
Brewster
Mount Pleasant
Adena
Dillonvale
Wooster LPO
210 Wabash Ave S, Brewster, OH 44613
298 Union Street, Mount Pleasant, OH 43939
9 East Main Street, Adena, OH 43901
44 Smithfield Street, Dillonvale, OH 43917
146 East Liberty Street, Wooster, Ohio 44691
256 2nd Street, Bergholz, Ohio 43908
3680 Embassy Parkway Suite B, Fairlawn, Ohio 44333
6
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are
being used. In management’s opinion, all properties owned and operated by the Bank are adequately insured.
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 therein 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 3,015,578 common shares outstanding on June 30, 2020 with 745 shareholders of record and an estimated
681 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 quoted on the OTCQX® Best Market under the symbol CBKM. 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 applicable quarterly period.
Quarter Ended
High
Low
Cash dividends paid per share
September 30,
2019
December 31,
2019
March 31,
2020
June 30,
2020
$
18.73 $
17.45
0.13 5
19.55 $
17.99
0.13 5
20.00 $
13.00
0.135
15.05
14.16
0.13 5
Quarter Ended
High
Low
Cash dividends paid per share
September 30,
2018
December 31,
2018
March 31,
2019
June 30,
2019
$
24.00 $
23.20
0.13
24.14 $
16.85
0.13
19.50 $
16.85
0.13
19.25
18.40
0.13
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 13 to the
Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations
for dividend restrictions.
There were no repurchases of the Corporation’s securities during the 2020 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, 2020 and 2019. 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.
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K, which are not statements of historical fact, constitute forward-
looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “continue,”
“estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions are intended to
identify forward-looking statements. 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. The COVID-19 pandemic is adversely affecting us, our customers,
employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of
operations, liquidity, and prospects is uncertain. Other risks and uncertainties that could cause actual results for future periods to
differ materially from those anticipated or projected include, but are not limited to:
●
●
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●
changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in, among
other things, high unemployment rates, a deterioration in credit quality of our assets or debtors being unable to meet their
obligations;
changes in the level of non-performing assets and charge-offs;
declining asset values impacting the underlying value of collateral;
rapid fluctuations in market interest rates could result in changes in fair market valuations and net interest income; pricing
and liquidity pressures may result;
unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability
to find alternative funding sources;
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and
insurance) with which we must comply;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies, rules and interpretations that may come as a result of COVID-19 or otherwise;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal
Reserve Board;
competitive pressures on product pricing and services;
breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats;
changes in the reliability of our vendors, internal control systems or information systems;
unanticipated difficulties or expenditures related to the acquisition of Peoples; and
our ability to attract and retain qualified employees.
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.
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio, owns all 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 Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and contiguous
counties in Ohio. The Bank also invests in securities consisting primarily of U.S. government-sponsored entities, municipal
obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.
9
On January 1, 2020, the Corporation completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples)
in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the
Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. On December
31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers
located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The financial position and results of operations of Peoples prior to its
acquisition date are not included in Consumers’ financial results for periods prior to the acquisition date.
COVID-19 Pandemic
In response to COVID-19, management is actively pursuing multiple avenues to assist customers during these uncertain times.
For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes two key SBA
initiatives to assist small businesses. The first SBA program is the Paycheck Protection Program (PPP) that was designed to provide
a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program
if the borrower keeps all employees on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or
utilities. A total of $66,606 of PPP loans for 571 customers were outstanding as of June 30, 2020. The second SBA program is the
Subsidy for Certain Loan Payments in which the SBA will pay the principal, interest, and any associated fees the borrower owes on
certain SBA loans for a six-month period. As of March 31, 2020, the Corporation had $18,285 of SBA loans which are eligible for
payment assistance from the SBA. Management has been working with these borrowers to secure the principal and interest payments
from the SBA.
Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by
COVID-19. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan
modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only
payments for up to 90 days. Interest will be deferred but will continue to accrue during the deferment period and the maturity date
on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance,
modifications made under this program in response to COVID-19 will not be classified as troubled debt restructurings. As of June
30, 2020, 270 commercial loans with an outstanding balance of $72,995, 48 mortgage loans with an outstanding balance of $4,632,
four home equity lines of credit with an outstanding balance of $227, and 97 consumer loans with an outstanding balance of $1,001
were granted 90 days of payment deferrals. As of August 31, 2020, a second 90 days of payment deferral has been granted for 49
commercial loans with an outstanding balance of $9,341, seven mortgage loans with an outstanding balance of $647 and four
consumer loans with an outstanding balance of $44.
We are also assisting customers, in certain circumstances, by waiving late charges, refunding NSF and overdraft fees, and
waiving CD prepayment penalties for customers experiencing financial hardship due to COVID-19. The consumer reserve personal
line of credit has been redesigned to provide easier access and a lower initial rate on this unsecured line of credit that is linked to a
personal checking account. Commercial customers are encouraged to access available funds on their lines of credit and we expect
to provide emergency commercial lines of credit to qualified borrowers in order to assist borrowers in meeting payroll and other
recurring fixed expenses. As of June 30, 2020, five emergency lines of credit were provided to commercial borrowers with a
committed liability of $725.
The Corporation has modified its business practices with a portion of employees working remotely from their homes to limit
interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. Branch lobbies
were closed for a six-week period but are now opened for normal business. The Company is encouraging virtual meetings and
conference calls in place of in-person meetings, including the annual shareholders meeting which will be held virtually this year.
Additionally, travel for business has been restricted. The Company is promoting social distancing, frequent hand washing and
thorough disinfection of all surfaces.
10
Comparison of Results of Operations for the Years Ended June 30, 2020 and June 30, 2019
Net Income. Net income was $5,527 for fiscal year 2020 compared with $5,566 for fiscal year 2019. The following key factors
summarize our results of operations for the year ended June 30, 2020 compared with the same prior year period:
●
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●
net interest income increased by $4,095, or 23.5%, in fiscal year 2020, primarily as a result of a $176,848, or 34.6%,
increase in average interest-earning assets, which was primarily due to the merger with Peoples and from the addition
of PPP loan receivables;
a $1,980 provision for loan loss expense was recorded during the 2020 fiscal year compared with a negative provision
for loan loss expense of $440 during the 2019 fiscal year;
total other income increased by $435, or 10.2%, in fiscal year 2020, which includes net securities gains of $355 in
fiscal year 2020 compared to $561 in the same prior year period; and
total other expenses increased by $2,250, or 14.5%, in fiscal year 2020 and include $827 of merger related expenses
and six months of expenses associated with the three new office locations and additional staff gained as a result of the
merger with Peoples.
Return on average equity and return on average assets were 9.67% and 0.89%, respectively, for the 2020 fiscal year-to-date
period compared with 11.96% and 1.07%, respectively, for the same period last year.
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. In addition, prevailing
economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest
and the availability and cost of credit, which, in turn, can significantly affect net interest income. Since the Federal Open Market
Committee establishing a near-zero target range for the federal funds rate, earnings could be negatively affected if the interest we
receive on loans and securities falls more quickly that interest we pay on deposits and borrowings. Net interest margin is calculated
by dividing net interest income on a fully tax equivalent basis (FTE) by total interest-earning assets. FTE income includes tax-
exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate of 21.0%. 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
$
$
2020
2019
21,484 $
326
21,810 $
3.67%
0.05
3.72%
17,389
345
17,734
3.55%
0.12
3.62%
FTE net interest income for the 2020 fiscal year was $21,810, an increase of $4,076 or 23.0%, from $17,734 in the 2019 fiscal
year. The Corporation’s tax equivalent net interest margin was 3.72% for the year ended June 30, 2020 and was 3.62% for the fiscal
year ended 2019. FTE interest income for the 2020 fiscal year was $25,631, an increase of $4,741, or 22.7%, from the 2019 fiscal
year primarily as a result of a $101,153, or 20.7%, increase in average interest-earning assets from the 2019 fiscal year. The growth
in average interest-earning assets was primarily a result of the addition of PPP loans, the merger with Peoples and organic loan
growth. Interest income includes $644 of interest and fee income that was recognized related to the PPP loans. Interest expense for
the 2020 fiscal year was $3,821, an increase of $665, or 21.1%, from the 2019 fiscal year. This increase was mainly due to an increase
of $63,872, or 18.0%, in total interest-bearing liabilities as a result of the merger with Peoples. The overall cost of funds increased
slightly to 0.91% for the current fiscal year from 0.89% for the prior fiscal year.
11
Average Balance Sheet and Net Interest Margin
Average
Balance
2020
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
2019
Interest earning assets:
Taxable securities
Nontaxable securities (1)
Loan receivables (1)
Federal bank and other restricted stocks
Interest bearing deposits and federal funds sold
Total interest earning assets
Noninterest earning assets
Total assets
Interest bearing liabilities:
Interest bearing demand
Savings
Time deposits
Short-term borrowings
FHLB advances
Total interest-bearing liabilities
Noninterest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income, interest rate spread (1)
Net interest margin (net interest as a percent of
$
81,609 $
61,215
433,948
1,960
10,589
589,321
32,180
$ 621,501
$
86,418 $
191,119
118,847
4,306
17,630
418,320
146,050
564,370
57,131
$ 621,501
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
1,932
1,914
21,553
75
157
25,631
428
799
2,259
43
292
3,821
2.40% $
3.24
4.97
3.83
1.48
4.37%
85,837 $
60,124
2,192
1,918
336,384 16,601
86
93
488,168 20,890
1,518
4,305
30,905
$ 519,073
0.50% $
0.42
1.90
1.00
1.66
0.91%
82,086 $
161,062
91,291
3,521
16,488
354,448
118,099
472,547
46,526
$ 519,073
547
706
1,533
51
319
3,156
2.50%
3.19
4.94
5.67
2.16
4.26%
0.67%
0.44
1.68
1.45
1.93
0.89%
$ 21,810
3.46%
$ 17,734
3.37%
3.72%
3.62%
$
326
$
345
140.88%
137.73%
____________
(1)
Calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%.
12
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
2020 Compared to 2019
Increase / (Decrease)
Change
due to
Volume
Change
due to
Rate
Total
Change
2019 Compared to 2018
Increase / (Decrease)
Change
due to
Volume
Change
due to
Rate
Total
Change
(In thousands)
$
(84) $
30
107
(32)
(176) $
(34)
4,845
21
(260) $
(4)
4,952
(11)
106 $
13
2,018
5
276 $
(78)
2,645
5
Interest earning assets:
Taxable securities
Nontaxable securities (1)
Loan receivables (2)
Federal bank and other restricted stocks
Interest bearing deposits and 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) Nontaxable income is adjusted to a fully tax equivalent basis utilizing a statutory federal income tax rate of 21.0%.
(2) Non-accrual loan balances are included for purposes of computing the rate and volume effects although interest on these
432
351
793
(189)
98
1,485
1,305 $
(119)
93
726
(8)
(27)
665
4,076 $
68
14
246
(268)
55
115
1,941 $
28
127
505
10
21
691
4,066 $
(147)
(34)
221
(18)
(48)
(26)
10 $
(58)
2,790
64
4,741
(86)
2,056
101
4,757
(37)
(16)
$
364
337
547
79
43
1,370
(636)
170
(91)
627
—
28
734
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. Management considers historical loss experience, the present and
prospective financial condition of borrowers, the current conditions within the markets where the Corporation originates loans, the
status of nonperforming assets, the estimated underlying value of the collateral and other factors related to the ultimate collectability
of the loan portfolio. In fiscal year 2020, a provision for loan loss expense of $1,980 was recorded compared with a negative provision
for loan loss expense of $440 in fiscal year 2019. The provision for loan loss expense increased in fiscal year 2020 primarily due to
the deterioration in the economic environment as a result of the impact of COVID-19 and higher loan balances from organic loan
growth. A negative provision for loan loss expense was recorded in fiscal year 2019 primarily as a result of a full principal recovery
of a prior period loan charge-off.
For the 2020 fiscal year, net charge offs of $90 were recorded compared with net recoveries of $806 for the same period last
year. Net recoveries for the 2019 fiscal year were primarily within the commercial real estate portfolio and included a full principal
recovery of a prior period charge-off. The allowance for loan losses as a percentage of loans was 1.05% at June 30, 2020 and 1.03%
at June 30, 2019. The allowance for loan losses as a percent of total loans on June 30, 2020 is not comparable to June 30, 2019 since
the loans acquired from Peoples were recorded at fair value without a related allowance for loan losses. As of June 30, 2020, the
allowance for loan losses as a percentage of total loans, excluding the loans acquired in the Peoples acquisition, was 1.15%.
Non-performing loans were $1,226 as of June 30, 2020 and represented 0.23% of total loans. This compared with $785, or
0.21% of total loans at June 30, 2019. 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.
Other Income. Total other income increased by $435, or 10.2%, to $4,703 for the 2020 fiscal year.
Debit card interchange income increased by $121, or 8.3%, in 2020 to $1,575 primarily as a result of increased debit card
usage and an increase in the number of cards issued. Gain on sale of mortgage loans increased by $85, or 18.6%, in 2020 primarily
13
as a result of an increase in volume. Other income in the 2020 fiscal year includes $324 of income recognized as a result of proceeds
received from a bank owned life insurance policy claim and net securities gains of $355 compared to net security gains of $561 in
fiscal year 2019. During the 2019 fiscal year, the pooled trust preferred security was sold because of the significant increase in the
value of this security resulting in a gain of $593. The Corporation does not own any other security of this type.
Other Expenses. Total other expenses were $17,768 for the year ended June 30, 2020; an increase of $2,250, or 14.5%, from
$15,518 for the year ended June 30, 2019.
Salaries and employee benefit expenses increased by $1,227, or 14.7%, during the 2020 fiscal year mainly as a result of six
months of expenses associated with the additional staff gained as a result of the merger with Peoples for the three new office locations
and increased incentive expenses.
Occupancy and equipment expenses increased by $370, or 17.7%, during the 2020 fiscal year from the same period last year
primarily as a result of increased depreciation expense for the Salem branch location since it is expected that this location will be
replaced in the spring of 2021. Also, occupancy expenses increased as a result of additional cleaning and protective equipment
needed as a result of COVID-19 and from the three new office locations acquired from the merger with Peoples.
Data processing expenses increased by $286, or 46.1% and professional and director fees increased by $228, or 28.5%, during
the 2020 fiscal year from the same period last year primarily as a result of system conversion and termination costs, investment
banker, legal, accounting and auditing fees associated with the acquisition of Peoples.
Income Tax Expense. Income tax expense totaled $912 and $1,013 and the effective tax rates were 14.2% and 15.4% for the
years ended June 30, 2020 and 2019, respectively. Income tax expense was calculated utilizing a statutory federal income tax rate
of 21.0% in the 2019 and 2020 fiscal years. The effective tax rate differs from the federal statutory rate as a result of tax-exempt
income from obligations of states and political subdivisions, loans and bank owned life insurance earnings and death benefit.
Financial Condition
Total assets at June 30, 2020 were $740,820 compared with $553,936 at June 30, 2019, an increase of $186,884, or 33.7%.
From June 30, 2019, total assets increased by $74,261 due to the acquisition of Peoples and $112,623 due to organic growth. The
growth in total assets is mainly attributable to an increase of $173,686, or 47.0%, in total loans which was primarily funded by a
$161,181, or 34.1%, increase in total deposits.
Securities. Total securities were $147,459 at June 30, 2020, of which $143,918 were classified as available-for-sale and $3,541
were classified as held-to-maturity. The securities portfolio is mainly comprised of residential mortgage-backed securities and
collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae, obligations of the U.S. Treasury, state and
political subdivisions and government-sponsored enterprises.
The following tables summarize the amortized cost and fair value of available-for-sale securities at June 30, 2020 and 2019
and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income or loss:
June 30, 2020
Available-for-sale
U.S. Treasury
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
U.S. government-sponsored mortgage-backed securities - residential
U.S. government-sponsored mortgage-backed securities - commercial
U.S. government-sponsored collateralized mortgage obligations -
residential
Total available-for-sale securities
$
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
1,248 $
10,133
60,343
48,645
8,444
8 $
399
3,149
1,515
55
— $
—
—
(4)
(2)
1,256
10,532
63,492
50,156
8,497
9,712
138,525 $
285
5,411 $
(12)
(18) $
9,985
143,918
14
June 30, 2019
Available-for-sale
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
U.S. government-sponsored mortgage-backed securities - residential
U.S. government-sponsored collateralized mortgage obligations -
residential
Total available-for-sale securities
$
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
19,227 $
56,405
56,309
287 $
1,557
450
(1) $
(33)
(448)
19,513
57,929
56,311
10,087
142,028 $
198
2,492 $
(28)
(510) $
10,257
144,010
The following tables summarize the amortized cost and fair value of held-to-maturity securities at June 30, 2020 and 2019
and the corresponding gross unrecognized gains and losses:
June 30, 2020
Held-to-maturity
Obligations of state and political subdivisions
Total held-to-maturity securities
June 30, 2019
Held-to-maturity
Obligations of state and political subdivisions
Total held-to-maturity securities
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
$
$
3,541 $
3,541 $
327 $
327 $
— $
— $
3,868
3,868
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
$
$
3,786 $
3,786 $
35 $
35 $
— $
— $
3,821
3,821
The following tables summarize the amounts and distribution of the Corporation’s securities held and the weighted average
yields as of June 30, 2020:
Available-for-sale
Obligations of U.S. Treasury:
3 Months or less
Over 3 months through 1 year
Total Obligations of U.S. Treasury
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 1 year through 5 years
Over 5 years through 10 years
Total mortgage-backed securities - residential
Mortgage backed securities – commercial:
Over 3 months through 1 year
Over 1 year through 5 years
Over 5 years through 10 years
Over 10 years
Total mortgage-backed securities - commercial
Collateralized mortgage obligations:
Over 3 months through 1 year
Over 1 year through 5 years
Total collateralized mortgage obligations
Total available-for-sale securities
Amortized
Cost
Fair
Value
Average
Yield
$
500 $
748
1,248
1,998
6,246
1,889
10,133
2,615
10,796
14,168
32,764
60,343
43,105
5,540
48,645
1,995
3,930
1,501
1,018
8,444
501
755
1,256
2,014
6,512
2,006
10,532
2,635
11,149
14,741
34,967
63,492
44,458
5,698
50,156
1,999
3,979
1,501
1,018
8,497
1.67 %
1.66
1.66
2.09
2.32
2.44
2.30
3.24
3.23
3.23
3.49
3.39
2.37
2.60
2.40
1.06
1.69
1.90
2.49
1.67
2,465
7,247
9,712
138,525 $
2,496
7,489
9,985
143,918
1.85
2.76
2.53
2.68 %
$
15
Held-to-maturity
Obligations of state and political subdivisions:
Over 5 years through 10 years
Over 10 years
Total held-to-maturity securities
Amortized
Cost
Fair
Value
Average
Yield
$
$
373 $
3,168
3,541 $
398
3,470
3,868
2.88%
2.40
2.45%
The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective yields
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.
At June 30, 2020, there were no holdings of securities of any one issuer, other than the U.S. government-sponsored entities
and agencies, with an aggregate book value which exceeds 10% of shareholders’ equity.
Loans. Loan receivables increased by $173,686 to $542,861 at June 30, 2020 compared to $369,175 at June 30, 2019. As of
June 30, 2020, total loans include $48,806 of outstanding loans that were acquired from Peoples and the remaining increase in loans
of $124,880, or 33.8%, was as a result of organic loan growth. Included in the organic loan growth is $66,606 of PPP loans that were
funded during the fourth quarter of fiscal year 2020.
Commercial loans include $66,606 of PPP loans and the remaining growth in commercial loans was primarily as a result of
the Bank’s participation in a third-party residential mortgage warehouse lending program. Loan demand increased, particularly in
the commercial real estate and 1-4 family residential real estate segments, principally as a result of increased calling efforts.
Consumer loans organic growth was $3,669, or 71.3%, primarily as a result of an increase in direct auto loans as a result of a
successful marketing campaign and the expansion of indirect auto lending into the new markets from the Peoples acquisition. 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
2020
2019
$
157,029 $
80,424
16,190
228,552
91,006
19,337
9,418
21,329
542,861 $
16,034
194,839
56,289
14,481
1,959
5,149
369,175
$
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, 2020:
Due in one year or less
Due after one year but within five years
Due after five years
Total
$
$
57,485
97,455
256,249
411,189
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, 2020:
Total 1-4 family residential real estate construction, commercial and commercial
real estate loans due after one year
$
226,846 $
126,858
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.
Fixed
Interest Rates
Variable
Interest Rates
16
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 for valuation purposes and to determine the adequacy
of the allowance for loan losses. Management establishes allowances for estimated losses on loans based upon its evaluation of the
pertinent factors underlying the types and quality of loans; historical loss experience based on volume and types of loans; trend in
portfolio volume and composition; level and trend of nonperforming assets; detailed analysis of individual loans for which full
collectability may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such
loans and the current economic conditions affecting the collectability of loans in the portfolio.
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, 2020, impaired loans totaled $1,923, of which $1,185 are included in non-accrual loans.
Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings.
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 and repossessed assets owned
Total non-performing assets
Impaired loans
Accruing restructured loans
2020
2019
$
$
$
$
$
1,185 $
41
1,226 $
7
1,233 $
1,923 $
738 $
785
—
785
—
785
1,189
404
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 and vehicles acquired by the Corporation as a result of foreclosure or repossession, or by deed in lieu of
foreclosure, are classified as “other real estate and repossessed assets owned” until they are sold or otherwise disposed of.
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 borrower’s 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 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
2020
2019
$
3,788
$
3,422
—
6
140
146
4
4
48
56
90
1,980
5,678
$
80
—
36
116
875
23
24
922
(806)
(440)
3,788
Net charge offs (recoveries)
Provision for loan losses charged to operations
Allowance for loan losses at end of year
$
Ratio of net charge offs (recoveries) to average loans outstanding
0.02%
(0.24)%
17
The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios:
Allocation of the Allowance for Loan Losses
Allowance
Amount
% of Loan
Type to
Total Loans
Allowance
Amount
% of Loan
Type to
Total Loans
$
$
June 30, 2020
947
3,623
989
119
5,678
June 30, 2019
28.9% $
45.1
22.1
3.9
100.0% $
660
2,575
494
59
3,788
21.8%
57.1
19.7
1.4
100.0%
Commercial
Commercial real estate loans
1-4 Family residential real estate
Consumer loans
Total
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. Significant uncertainty
remains regarding future levels of criticized and classified loans, nonperforming loans and charge-offs, but some deterioration is
expected as a result of the COVID-19 pandemic. As of June 30, 2020, 270 commercial loans with an outstanding balance of $72,995,
48 mortgage loans with an outstanding balance of $4,632, four home equity lines of credit with an outstanding balance of $227, and
97 consumer loans with an outstanding balance of $1,001 were granted 90 days of payment deferrals. As of August 31, 2020, a
second 90 days of payment deferral has been granted for 49 commercial loans with an outstanding balance of $9,341, seven mortgage
loans with an outstanding balance of $647 and four consumer loans with an outstanding balance of $44. Management has identified
the hospitality industry and religious organizations as the industries that could be most at risk due to the COVID-19 pandemic. As
of June 30, 2020, the total balance of loans to the hospitality industry, excluding PPP loans, was $19,736, which includes $2,193 in
loans to businesses in the hotel industry. As of June 30, 2020, the total balance of loans to religious organizations, excluding PPP
loans, was $8,425, which includes $6,403 in loans to local churches. Management will continue to closely monitor changes in the
loan portfolio and adjust the provision accordingly.
Funding Sources. Total deposits increased by $161,181, or 34.1%, from $472,174 at June 30, 2019 to $633,355 at June 30,
2020, of which $100,330, or 21.2%, was related to organic deposit growth. The organic deposit growth was primarily associated
with the retention of PPP loan proceeds, consumer economic stimulus payments and a decline in overall consumer spending resulting
from the COVID-19 pandemic. For the fiscal year ended June 30, 2020, noninterest-bearing demand deposits increased by $73,994,
or 63.7%, savings and money market deposits increased by $66,306, or 40.9%, and interest-bearing demand deposits increased by
$17,704, or 21.7%, from the same prior year period.
Short-term borrowings increased by $3,257, or 88.4%, to $6,943 at June 30, 2020 from $3,686 at June 30, 2019. This increase
was primarily associated with the retention of PPP loan proceeds in commercial sweep repurchase agreement accounts.
The following is a schedule of average deposit amounts and average rates paid on each category for the periods included:
Years Ended June 30,
2020
2019
Rate
Amount
Rate
Noninterest-bearing demand deposit
Interest-bearing demand deposit
Savings
Certificates and other time deposits
Total
Amount
$
140,826
86,418
191,119
118,847
537,210
$
— $
0.50%
0.42
1.90
0.65% $
113,761
82,086
161,062
91,291
448,200
—
0.67%
0.44
1.68
0.62%
The following table summarizes time deposits issued in amounts of $100 or more as of June 30, 2020 by time remaining until
maturity:
Maturing in:
Under 3 months
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
$
$
6,921
15,957
27,741
15,567
66,186
See Note 8—Short-Term Borrowings to the Consolidated Financial Statements, for information concerning short-term
borrowings.
18
Capital Resources
Total shareholders’ equity increased by $12,074 from $51,166 at June 30, 2019 to $63,240 at June 30, 2020. The primary
reason for the increase was the issuance of common shares as part of the consideration in the acquisition of Peoples, which added
$5,277 to shareholders’ equity. In addition, the increase in shareholders’ equity included $5,527 of net income for the current fiscal
year and an increase of $2,694 in accumulated other comprehensive income from an increase in the unrealized gains in the mark-to-
market of available-for-sale securities. These increases were partially offset by cash dividends paid of $1,554. For the 2020 fiscal
year, the average equity to average total assets ratio was 9.19% and the dividend payout ratio was 28.1%. For the 2019 fiscal year,
the average equity to average total assets ratio was 8.96% and the dividend payout ratio was 25.5%.
At June 30, 2020, 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 13-Regulatory Matters to 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.
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.
Net cash inflows from operating activities for the 2020 fiscal year were $5,593 and net cash inflows from financing activities
were $107,655. Net cash outflows from investing activities were $113,050. The major sources of cash were a $100,330 net increase
in deposits and a $44,330 increase from sales, maturities or principal pay downs on available-for-sale securities. The major uses of
cash were a $118,463 net increase in loans and the $36,775 purchase of available-for-sale securities. Total cash and cash equivalents
were $9,659 as of June 30, 2020 compared to $9,461 at June 30, 2019.
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 primarily consists of
fixed and variable rate mortgage loans for terms generally not longer than thirty years and variable rate home equity lines of credit.
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 twenty 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. A
majority of the Bank’s securities are held in obligations of U.S. Government-sponsored entities, mortgage-backed securities, and
investments in tax-exempt municipal bonds.
The Bank offers several forms of deposit products to its customers. We believe the rates offered by the Bank and the fees
charged for them are competitive with others currently available 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. Compared to our peers, the Corporation’s core deposits
consist of a larger percentage of noninterest-bearing demand deposits resulting in the cost of funds remaining at a relatively low
level of 0.91%.
Jumbo time deposits (those with balances of $250 and over) were $36,747 and $39,034 at June 30, 2020 and 2019,
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.
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,
2020, the Bank could, without prior approval, declare a dividend of approximately $5,856.
19
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 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.
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. The most significant accounting policies followed by the Corporation are
presented in Note 1-Summary of Significant Accounting Policies to the Consolidated Financial Statements. These policies, along
with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are
valued in the financial statements and how those values are determined.
Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments,
estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial
statements. In the event 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. Management has identified
the following as critical accounting policies:
Allowance for Loan Losses. The determination of the allowance for loan losses involves considerable subjective judgment
and estimation by management. The allowance for loan losses is a reserve established through a provision for loan losses charged to
expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of
loans. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio
in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other
pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses. All of these factors may be
susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others
require qualitative judgment. Although management believes its process for determining the allowance adequately considers all of
the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to
significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be
required that would adversely impact the Corporation’s financial condition or earnings in future periods.
Goodwill. The Company accounts for business combinations using the acquisition method of accounting. Accordingly, the
identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with
any excess of the cost of the acquisition over the fair value recorded as goodwill. The Company performs an evaluation of goodwill
for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The evaluation for impairment involves comparing the current estimated fair value of the Company to its carrying value. If the
current estimated fair value exceeds the carrying value, no additional testing is required and an impairment loss is not recorded. If
the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of
goodwill being recorded. The Corporation noted its stock price fell below the carrying value of equity per share and during the fourth
quarter of fiscal year 2020 elected to proceed to a quantitative test to compare the Corporation’s fair value with its carrying amount.
As of June 30, 2020, the Corporation had $835 in goodwill and the resultant fair value from the quantitative goodwill impairment
test was 114% of book value. The estimated fair value of the Corporation was determined by applying weighting factors to the
income and market valuation methodologies. In performing its analyses, the Corporation made numerous assumptions with respect
to industry performance, business, economic and market conditions, and various other matters, many of which cannot be predicted
and are beyond the Corporation's control. Management's financial projections reflect the best currently available estimates and
judgments as to the expected future financial performance of the Corporation. However, in the income approach, the most critical
assumption is the future earnings of the Corporation and if future earnings are less than what was estimated, goodwill could become
impaired during a future period. In addition, the market valuation methodologies utilized by the Corporation employ assumptions that
may be anticipated by an acquirer in estimating the fair value of the Corporation. The impairment test of goodwill indicated no
impairment existed as of the valuation date. However, it is impossible to know the future impact of the evolving economic conditions
related to COVID-19. If for any future period it is determined that there has been impairment in the carrying value of our goodwill
balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk
based capital ratios.
20
Contractual Obligations, Commitments and Contingent Liabilities
The following table presents, as of June 30, 2020, 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
7
8
2021
2022
2023
2024
2025
Thereafter Total
$ 85,856 $ 18,178 $
—
6,943
7,394 $
—
1,471 $
—
1,487 $
—
996 $ 115,382
6,943
—
9
10
5
13,116
146
105
—
1,794
146
95
—
79
146
76
—
6,567
142
51
—
9,605
141
146
—
31,161
—
2,695
1,974
—
473
— 517,973
Note 14-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, 2020, 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,
to execute a sound and defensive interest rate risk management policy.
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for Smaller Reporting Companies.
21
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Consumers Bancorp, Inc.
Minerva, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Consumers Bancorp, Inc. (the "Company") as of June 30, 2020
and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows
for each of the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and
the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
Crowe LLP
We have served as the Company’s auditor since 1998.
Cleveland, Ohio
September 22, 2020
22
CONSOLIDATED BALANCE SHEETS
As of June 30, 2020 and 2019
(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 2020 $3,868 and 2019 $3,821)
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
Goodwill
Core deposit intangible, net
Accrued interest receivable and other assets
Total assets
LIABILITIES:
Deposits:
Noninterest-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 (Note 14)
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value; 350,000 shares authorized
Common shares, no par value; 8,500,000 shares authorized; 3,124,053 shares issued as of
June 30, 2020 and 2,854,133 shares issued as of June 30, 2019
Retained earnings
Treasury stock, at cost (108,475 and 120,288 common shares at June 30, 2020 and 2019,
respectively)
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
2020
2019
8,429 $
1,230
9,659
11,635
143,918
3,541
2,472
3,507
542,861
(5,678)
537,183
9,442
14,901
836
256
3,470
740,820 $
190,233 $
99,173
228,567
115,382
633,355
6,943
31,161
6,121
677,580
9,322
139
9,461
1,983
144,010
3,786
1,723
1,657
369,175
(3,788)
365,387
9,606
14,155
—
—
2,168
553,936
116,239
81,469
162,261
112,205
472,174
3,686
22,700
4,210
502,770
—
—
19,974
40,460
(1,454)
4,260
63,240
740,820 $
14,656
36,487
(1,543)
1,566
51,166
553,936
$
$
$
$
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2020 and 2019
(Dollar amounts in thousands, except per share data)
2020
2019
Interest income:
Loans, including fees
Securities, taxable
Securities, tax-exempt
Federal bank and other restricted stocks
Federal funds sold and interest-bearing deposits
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 death benefit
Bank owned life insurance income
Gain on sale of mortgage loans
Securities gains, net
Other
Total other income
Other expenses:
Salaries and employee benefits
Occupancy and equipment
Data processing expenses
Debit card processing expenses
Professional and director fees
Federal Deposit Insurance Corporation assessments
Franchise taxes
Marketing and advertising
Loan and collection expenses
Telephone and communications
Amortization of intangible
Other
Total other expenses
Income before income taxes
Income tax expense
Net income
Basic and diluted earnings per share
$
$
$
21,544 $
1,932
1,597
75
157
25,305
3,486
43
292
3,821
21,484
1,980
19,504
1,350
1,575
324
265
543
355
291
4,703
9,582
2,466
907
810
1,027
106
403
475
95
301
14
1,582
17,768
6,439
912
5,527 $
1.92 $
16,590
2,192
1,584
86
93
20,545
2,786
51
319
3,156
17,389
(440)
17,829
1,264
1,454
—
271
458
561
260
4,268
8,355
2,096
621
765
799
149
361
424
101
268
—
1,579
15,518
6,579
1,013
5,566
2.04
See accompanying notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended June 30, 2020 and 2019
(Dollar amounts in thousands, except per share data)
Net income
Other comprehensive income, net of tax:
Net change in unrealized gains:
Unrealized gains arising during the period
Reclassification adjustment for gains included in income
Net unrealized gain
Income tax effect
Other comprehensive income
Total comprehensive income
2020
2019
$
5,527 $
5,566
3,766
(355)
3,411
(717)
2,694
8,221 $
4,612
(561)
4,051
(850)
3,201
8,767
$
See accompanying notes to consolidated financial statements.
25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended June 30, 2020 and 2019
(Dollar amounts in thousands, except per share data)
Common
Shares
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance, June 30, 2018
Net income
Other comprehensive income
2,614 shares associated with vested stock awards
Cash dividends declared ($0.52 per share)
Balance, June 30, 2019
Net income
Other comprehensive income
269,920 shares issued for the Peoples acquisition
11,813 shares associated with vested stock awards
Cash dividends declared ($0.54 per share)
Balance, June 30, 2020
$
14,630 $
32,342 $
5,566
(1,576) $
(1,635) $
3,201
26
33
$
14,656 $
(1,421)
36,487 $
5,527
(1,543) $
1,566 $
2,694
5,277
41
89
$
19,974 $
(1,554)
40,460 $
(1,454) $
4,260 $
43,761
5,566
3,201
59
(1,421)
51,166
5,527
2,694
5,277
130
(1,554)
63,240
See accompanying notes to consolidated financial statements.
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2020 and 2019
(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:
Depreciation
Securities amortization and accretion, net
Provision for loan losses
Gain on disposal of fixed assets
Loss on disposition or direct write-down of other real estate and repossessed assets owned
Net gain on sale of loans
Deferred income tax expense
Gain on sale of securities
Intangible amortization
Origination of loans held for sale
Proceeds from loans held for sale
Income from BOLI death benefit
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:
Principal pay downs
Net decrease in certificates of deposit with other financial institutions
Purchase of Federal Home Loan Stock
Net increase in loans
Acquisition, net of cash received
Proceeds from BOLI death benefit
Acquisition of premises and equipment
Disposal of premises and equipment
Proceeds from sale of other real estate and repossessed assets owned
Net cash flows from investing activities
Cash flows from financing activities:
Net increase in deposit accounts
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Change in short-term borrowings
Dividends paid
Net cash flows from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest
Federal income taxes
Non-cash items:
Transfer from loans to other repossessed assets
Transfer from loans held for sale to portfolio
Issuance of treasury stock for stock awards
27
2020
2019
$
5,527 $
5,566
1,044
353
1,980
(2)
(1)
(543)
(361)
(355)
14
(38,411)
37,104
(324)
(265)
(167)
5,593
(36,775)
25,909
18,421
245
2,187
(595)
(118,463)
(4,295)
753
(497)
—
60
(113,050)
100,330
22,500
(14,530)
909
(1,554)
107,655
198
9,461
9,659 $
3,890 $
675
7
—
89
797
784
(440)
(11)
—
(458)
173
(561)
—
(29,473)
29,797
—
(271)
483
6,386
(22,914)
19,091
7,670
238
990
(264)
(49,935)
—
—
(1,671)
45
—
(46,750)
42,211
13,000
(2,056)
(9,681)
(1,421)
42,053
1,689
7,772
9,461
3,092
820
—
75
59
$
$
Right of use assets obtained in exchange for lease liabilities
582
—
Acquisition of Peoples:
Consideration paid
Noncash assets acquired:
Certificates of deposit in other financial institutions
Securities, available-for-sale
Federal bank and other restricted stocks, at cost
Loans, net
Premises and equipment
Goodwill
Core deposit intangible
Accrued interest receivable and other assets
Total noncash assets acquired
Liabilities assumed:
Deposits
Federal funds purchased
Federal Home Loan Bank advances
Other liabilities
Total liabilities assumed
Net noncash assets acquired
Cash acquired
$10,405
11,839
4,051
154
55,320
818
836
270
140
73,428
60,851
2,348
491
166
63,856
9,572
833
See accompanying notes to consolidated financial statements.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
(Dollar amounts in thousands, except per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 Carroll, Columbiana,
Jefferson, Stark, Summit, Wayne and contiguous counties in Ohio. The Bank’s business involves attracting deposits from businesses
and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.
Business Segment Information: The Corporation is 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.
Acquisition: At the date of acquisition the Corporation records the assets and liabilities of acquired companies on the
Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Corporation’s
Consolidated Statements of Income beginning at the acquisition date. Expenses arising from acquisition activities are recorded in
the Consolidated Statements of Income during the periods incurred.
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.
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.
Certificates of Deposit in Financial Institutions: Certificates of deposit in other financial institutions are carried at cost.
Cash Reserves: The Bank is required to maintain cash on hand and noninterest-bearing balances on deposit with the Federal
Reserve Bank to meet regulatory reserve and clearing requirements. The required reserve balance was zero at June 30, 2020 and
$456 at June 30, 2019.
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 the Corporation has the positive intent and ability to hold to maturity. Available-
for-sale securities are those 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 whether 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
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
Carroll, Columbiana, Jefferson, Stark, Summit and Wayne counties. Therefore, the Corporation’s exposure to credit risk is
significantly affected by changes in the economy in these counties. Automobiles and other consumer assets, business assets and
residential and commercial real estate secure most loans.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance 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 troubled debt
restructurings and classified as impaired. Factors considered by management in determining impairment include payment status,
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Impairment is evaluated collectively 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, depending on loan segment. This actual loss experience is supplemented with economic and
other factors based on the risks present for each portfolio segment. These 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: 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 made based 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, owners of 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, the business conducted on the property securing the loan or, in the case of loans to farmers, management and operation of the
farm. 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 nonowner-occupied loans.
1-4 Family 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 85% of the purchase price or the appraised value of the real estate securing the
loan unless the borrower provides private mortgage insurance.
Consumer: 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
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Other Real Estate and Repossessed Assets Owned: Real estate properties and other repossessed assets, which are primarily
vehicles, 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 Corporation,
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 Corporation 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, 2020, the Bank had policies with total death benefits
of $19,067 and total cash surrender values of $9,442. As of June 30, 2019, the Bank had policies with total death benefits of $19,806
and total cash surrender values of $9,606. 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 charges 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.
Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase
price over the fair value of acquired assets and liabilities. Core deposit intangible assets arise from whole bank or branch acquisitions
and are measured at fair value and then are amortized over their estimated useful lives. Goodwill is not amortized but is assessed at
least annually for impairment. Any such impairment will be recognized in the period identified. The Corporation has selected April
30 as the date to perform the annual impairment test, however based on the current economic conditions related to COVID-19, an
interim assessment was completed as of June 30, 2020. Goodwill is the only intangible asset with an indefinite life on the
Corporation’s balance sheet.
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 Plans: The Bank maintains a 401(k) savings and retirement plan covering all eligible employees and matching
contributions are expensed as made. Salary continuation plan expense allocates the benefits over years of service.
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 that 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.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Comprehensive Income: Comprehensive income 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 Corporation’s 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 Note 15 of the Consolidated Financial Statements. 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 these 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.
Reclassifications: Certain reclassifications have been made to the June 30, 2019 financial statements to be comparable to the
June 30, 2020 presentation. The reclassifications had no impact on prior year net income or shareholders’ equity.
Adoption of New Accounting Standards: In February 2016, FASB issued accounting standards update (ASU) 2016-02,
Leases (Topic 842). This ASU requires all organizations that lease assets to recognize on the balance sheet the assets and liabilities
for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures are required so users can
understand more about the nature of an entity’s leasing activities. The new guidance was effective for annual reporting periods, and
interim reporting periods within those annual periods, beginning after December 15, 2018. The Corporation has several lease
agreements, such as branch locations, which were previously considered operating leases, and therefore, not recognized on the
Corporation’s consolidated condensed statements of financial condition. The new guidance requires these lease agreements to now
be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease
liability. As of July 1, 2019, the Corporation adopted ASU 2016-02 using the modified retrospective method. There was no
cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. As of June 30, 2020, the
Corporation had contractual operating lease commitments of $473.
Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, Financial Accounting Standards Board
(FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit
losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under
current U.S. generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss
has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize
an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of
amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit
loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance
in ASU 2016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for
interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB
unanimously voted for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB
approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after
December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company.
NOTE 2—ACQUISITION
On June 14, 2019, the Corporation entered into an Agreement and Plan of Merger with Peoples Bancorp of Mt. Pleasant, Inc.
(Peoples) and its wholly owned subsidiary, The Peoples National Bank of Mount Pleasant (Peoples Bank). On January 1, 2020,
Consumers completed the acquisition by merger of Peoples in a stock and cash transaction for an aggregate consideration of
approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in cash to the former shareholders of Peoples. Immediately following the merger, Peoples Bank, was merged into the Corporation’s
banking subsidiary, Consumers National Bank.
On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its
three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The assets and liabilities of Peoples were recorded on
the Corporation’s Balance Sheet at their estimated fair values as of January 1, 2020, the acquisition date, and Peoples’ results of
operations are included in the Corporation’s Consolidated Statements of Income beginning on that date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition
of Peoples. Core deposit intangible will be amortized over ten years on a straight-line basis. Goodwill will not be amortized, but
instead will be evaluated for impairment.
Consideration Paid
Net assets acquired:
Cash and cash equivalents
Certificates of deposit in other financial institutions
Securities, available-for-sale
Federal bank and other restricted stocks, at cost
Loans, net
Premises and equipment
Core deposit intangible
Accrued interest receivable and other assets
Noninterest-bearing deposits
Interest-bearing deposits
Federal funds purchased
Federal Home Loan Bank advances
Other liabilities
Total net assets acquired
Goodwill
$
10,405
$
833
11,839
4,051
154
55,320
818
270
140
(11,979 )
(48,872 )
(2,348 )
(491 )
(166 )
$
9,569
836
The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised
judgement in accounting for the acquisition. The fair value of loans was estimated using discounted contractual cash flows. The
book balance of the loans at the time of the acquisition was $55,273 before considering Peoples’ allowance for loan losses, which
was not carried over. The fair value disclosed above reflects a credit-related adjustment of $(890) and an adjustment for other factors
of $937. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were
immaterial. Acquisition costs of $827 pre-tax, or $680 after-tax, were recorded for the twelve-month period ended June 30, 2020.
The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing
date of the acquisition as additional information relative to closing date fair values becomes available.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—SECURITIES
The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-
maturity at June 30, 2020 and 2019 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, 2020
Obligations of U.S. Treasury
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
U.S. Government-sponsored mortgage-backed securities - residential
U.S. Government-sponsored mortgage-backed securities - commercial
U.S. Government-sponsored collateralized mortgage obligations –
residential
Total available-for-sale securities
$
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
1,248 $
10,133
60,343
48,645
8,444
8 $
399
3,149
1,515
55
— $
—
—
(4)
(2)
1,256
10,532
63,492
50,156
8,497
9,712
138,525 $
285
5,411 $
(12)
(18) $
9,985
143,918
Held-to-maturity
June 30, 2020
Obligations of state and political subdivisions
Total held-to-maturity securities
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
$
$
3,541 $
3,541 $
327 $
327 $
— $
— $
3,868
3,868
Available-for-sale
June 30, 2019
Obligations of U.S. government-sponsored entities and agencies
Obligations of state and political subdivisions
U.S. Government-sponsored mortgage-backed securities - residential
U.S. Government-sponsored collateralized mortgage obligations –
residential
Total available-for-sale securities
$
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
19,227 $
56,405
56,309
287 $
1,557
450
(1) $
(33)
(448)
19,513
57,929
56,311
10,087
142,028 $
198
2,492 $
(28)
(510) $
10,257
144,010
Held-to-maturity
June 30, 2019
Obligations of state and political subdivisions
Total held-to-maturity securities
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
$
$
3,786 $
3,786 $
35 $
35 $
— $
— $
3,821
3,821
Proceeds from sales of available-for-sale securities during fiscal year 2020 and fiscal year 2019 were as follows:
Proceeds from sales
Gross realized gains
Gross realized losses
$
2020
2019
18,421 $
355
—
7,670
606
45
The income tax provision related to these net realized gains amounted to $74 in fiscal year 2020 and $118 in fiscal year 2019.
The amortized cost and fair values of debt securities at June 30, 2020 by expected maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized
mortgage obligations are shown separately.
35
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
U.S. Government-sponsored mortgage-backed and related securities
Total
Held-to-maturity
Due after five years through ten years
Due after ten years
Total
Amortized
Cost
Fair Value
5,861 $
17,042
16,057
32,764
71,724
66,801
138,525 $
5,905
17,661
16,748
34,966
75,280
68,638
143,918
Amortized
Cost
Fair Value
373 $
3,168
3,541 $
398
3,470
3,868
$
$
$
$
Securities with a carrying value of approximately $69,048 and $72,600 were pledged at June 30, 2020 and 2019, respectively,
to secure public deposits and commitments as required or permitted by law. At June 30, 2020 and 2019, there were no holdings of
securities of any one issuer, other than obligations of U.S. government-sponsored entities and 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, 2020 and 2019, aggregated
by investment category and length of time that the individual securities have been in a continuous unrealized loss position:
Available-for-sale
June 30, 2020
Mortgage-backed securities –
Less than 12 Months
Fair
Value
Unrealized
Loss
12 Months or more
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
residential
$
— $
— $
625 $
(4 ) $
625 $
Mortgage-backed securities –
commercial
Collateralized mortgage
obligations - residential
Total temporarily impaired
1,806
1,700
3,506 $
$
(2)
—
—
1,806
(12)
(14) $
—
625 $
—
(4 ) $
1,700
4,131 $
(4)
(2)
(12)
(18)
Less than 12 Months
Fair
Value
Unrealized
Loss
12 Months or more
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
Available-for-sale
June 30, 2019
Obligations of U.S. government-
sponsored entities and agencies
Obligations of states and political
subdivisions
Mortgage-backed securities –
residential
Collateralized mortgage obligations –
residential
Total temporarily impaired
$
$
— $
— $
998 $
(1) $
998 $
—
—
—
— $
—
5,201
(33)
5,201
—
36,362
(448)
36,362
(448 )
—
— $
3,277
45,838 $
(28)
(510) $
3,277
45,838 $
(28 )
(510 )
(1 )
(33 )
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.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
As of June 30, 2020, the Corporation’s securities portfolio consisted of 255 available-for-sale and three held-to-maturity
securities. There were four available-for-sale securities in an unrealized loss position at June 30, 2020, one of which was in a
continuous loss position for twelve or more months. There were no held-to-maturity securities in an unrealized loss position at June
30, 2020. The unrealized losses within the mortgage-backed and collateralized mortgage obligation securities portfolios in fiscal
year 2020 were primarily attributed to higher than expected prepayments and uncertainty in prepayment behavior was likely affecting
the market values. At June 30, 2020, all the mortgage-backed securities and collateralized mortgage obligations held by the
Corporation were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions
which the government has affirmed its commitment to support. Also, management monitors the financial condition of the individual
municipal securities 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 OTTI related to these securities at June 30,
2020. Also, there was no OTTI recognized at June 30, 2019.
NOTE 4—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
Net deferred loan fees and costs
Allowance for loan losses
Net loans
2020
2019
$
158,667 $
80,453
16,235
229,029
90,494
19,370
9,344
21,334
544,473
(1,612)
(5,678)
537,183 $
16,120
195,269
55,941
14,517
1,931
5,150
369,381
(206)
(3,788)
365,387
$
The above table includes $66,606 of PPP loans in the commercial loan category. The following table presents the activity in the
allowance for loan losses by portfolio segment for the year ended June 30, 2020:
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
$
$
660 $
287
—
—
947 $
2,575 $
1,044
—
4
3,623 $
494 $
497
(6)
4
989 $
59 $
152
(140)
48
119 $
3,788
1,980
(146)
56
5,678
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2019:
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
Allowance for loan losses:
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Total ending allowance balance
$
$
586 $
74
—
—
660 $
2,277 $
(498)
(80)
876
2,575 $
499 $
(28)
—
23
494 $
60 $
12
(36)
23
59 $
3,422
(440)
(116)
922
3,788
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, 2020. Included in the recorded investment in loans is $1,936 of accrued
interest receivable.
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
Allowance for loan losses:
Ending allowance balance attributable to
loans:
Individually evaluated for impairment
Acquired loans collectively evaluated
for impairment
$
28 $
6 $
— $
— $
—
103
94
—
34
197
Originated loans collectively evaluated
for impairment
Total ending allowance balance
$
Recorded investment in loans:
Loans individually evaluated for
919
947 $
3,514
3,623 $
895
989 $
119
119 $
5,447
5,678
impairment
$
179 $
1,045 $
699 $
— $
1,923
Acquired loans collectively evaluated
for impairment
Originated loans collectively evaluated
for impairment
Total ending loans balance
$
1,095
8,072
27,252
12,550
48,969
156,054
157,328 $
236,840
245,957 $
92,168
120,119 $
8,843
21,393 $
493,905
544,797
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, 2019. Included in the recorded investment in loans is $891 of accrued
interest receivable.
1-4 Family
Commercial Residential
Commercial
Real
Estate
Real
Estate
Consumer
Total
Allowance for loan losses:
Ending allowance balance attributable to
loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$
2 $
658
7 $
2,568
— $
494
— $
59
9
3,779
Total ending allowance balance
$
660 $
2,575 $
494 $
59 $
3,788
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recorded investment in loans:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
$
174 $
658 $
357 $
— $
1,189
80,413
210,709
72,591
5,164
368,877
Total ending loans balance
$
80,587 $
211,367 $
72,948 $
5,164 $
370,066
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, 2020:
Unpaid
Principal
Balance
Allowance
for
Recorded
Investment Allocated
Average
Loan Losses Recorded
Interest
Income
Investment Recognized Recognized
Cash Basis
Interest
With no related allowance recorded:
$
Commercial
Commercial real estate:
Other
1-4 Family residential real
estate:
Owner occupied
Non-owner occupied
With an allowance recorded:
Commercial
Commercial real estate:
— $
— $
— $
4 $
— $
922
836
—
521
88
604
284
463
236
176
179
117
247
168
12
—
9
—
88
12
—
9
—
—
28
6
34 $
Other
Total
$
209
2,195 $
209
1,923 $
217
1,274 $
13
122 $
13
122
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, 2019:
Unpaid
Principal
Balance
With no related allowance recorded:
Allowance
for
Average
Loan Losses Recorded
Recorded
Investment Allocated Investment Recognized Recognized
Interest
Income
Cash Basis
Interest
Commercial
Commercial real estate:
Other
1-4 Family residential real
estate:
Owner occupied
Non-owner occupied
With an allowance recorded:
Commercial real estate:
Other
Commercial
Total
$
— $
— $
— $
86 $
6 $
580
436
—
1,051
28
124
297
93
264
—
—
97
279
221
173
1,395 $
222
174
1,189 $
$
7
2
9 $
226
44
1,783 $
—
—
14
2
50 $
6
28
—
—
14
2
50
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2020 and 2019:
June 30, 2020
June 30, 2019
Loans Past
Due
Over 90 Days
Still
Loans Past
Due
Over 90 Days
Still
Commercial
Commercial real estate:
Other
1 – 4 Family residential:
Owner occupied
Non-owner occupied
Consumer
Total
Non-accrual Accruing
21 $
$
— $
Non-accrual Accruing
785
143
236
—
1,185 $
$
—
29
—
12
41 $
— $
436
85
264
—
785 $
—
—
—
—
—
—
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, 2020 by class of loans:
30 – 59
Days
Days Past Due
60 - 89
Days
90 Days or
Greater
Total
Past Due
Loans Not
Past Due
Total
Commercial
Commercial real estate:
Construction
Other
1-4 Family residential:
Owner occupied
Non-owner occupied
Construction
Consumer
Total
$
— $
— $
21 $
21 $
157,307 $
157,328
—
—
—
—
—
127
127 $
—
2
—
—
—
49
51 $
—
628
172
—
—
12
833 $
—
630
16,241
229,086
16,241
229,716
172
—
—
188
1,011 $
91,102
19,410
9,435
21,205
543,786 $
91,274
19,410
9,435
21,393
544,797
$
The above table of past due loans includes the recorded investment in non-accrual loans of $2 in the 60-89 days, $792 in the
90 days or greater category and $391 in the loans not past due category.
The following table presents the aging of the recorded investment in past due loans as of June 30, 2019 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
$
— $
— $
— $
— $
80,587 $
80,587
—
199
40
—
—
1
240 $
$
—
—
—
—
—
—
— $
40
—
—
80
—
—
—
80 $
—
199
16,075
195,093
16,075
195,292
120
—
—
1
320 $
56,347
14,518
1,963
5,163
369,746 $
56,467
14,518
1,963
5,164
370,066
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The above table of past due loans includes the recorded investment in non-accrual loans of $198 in the 30-59 days, $80 in the
90 days or greater category and $507 in the loans not past due category.
Troubled Debt Restructurings (TDR):
The Corporation has certain loans that have been modified in order to maximize collection of loan balances that are classified
as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original
terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered.
In response to COVID-19, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted
by the virus. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan
modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only
payments for up to 90 days. Interest will be deferred but will continue to accrue during the deferment period and the maturity date
on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance,
modifications made under this program in response to COVID-19 will not be classified as TDRs. As of June 30, 2020, there were
419 loans with an outstanding balance of $78,855, or 14.5% of total loans, that were granted 90 days of payment deferrals under the
loan modification program that was adopted in response to COVID-19 that are not classified as TDRs.
At June 30, 2020 and 2019, the Corporation had $974 and $725, respectively, of loans classified as TDRs which are included
in impaired loans above. At June 30, 2020 and 2019, the Corporation had $12 and $9, respectively, of specific reserves allocated to
these loans.
During the fiscal year ended June 30, 2020, the terms of one loan was modified as a troubled debt restructuring by extending
the maturity date. As of June 30, 2020, the Corporation had not committed to lend any additional funds to customers with outstanding
loans that were classified as troubled debt restructurings. The following table presents loans by class modified as troubled debt
restructurings that occurred during the year ended June 30, 2020:
1-4 Family residential:
Owner occupied
Total
Pre-Modification
Post-Modification
Outstanding
Recorded
Investment
Outstanding
Recorded
Investment
Number of
Loans
1 $
1 $
314 $
314 $
314
314
The troubled debt restructuring described above did not result in any charge-off nor did it increase the allowance for loan
losses during the twelve months ended June 30, 2020.
During the fiscal year ended June 30, 2019, the terms of certain loans were modified as a troubled debt restructuring. The
modification of the terms of such loans included a combination of forgiveness of a portion of the principal amount owed, which
resulted in a reduction in the monthly payment amount, an extension of the maturity date and the extension of additional credit to
provide operating funds. As of June 30, 2019, the Corporation had not committed to lend any additional funds to customers with
outstanding loans that were classified as troubled debt restructurings. The following table presents loans by class modified as troubled
debt restructurings that occurred during the year ended June 30, 2019:
Commercial
Commercial real estate:
Other
Total
Pre-Modification
Post-Modification
Outstanding
Recorded
Investment
Outstanding
Recorded
Investment
Number of
Loans
1 $
1
2 $
38 $
161
199 $
176
59
235
The troubled debt restructuring described above increased the allowance for loan losses and resulted in a charge-off of $80
during the twelve months ended June 30, 2019.
There were no loans classified as troubled debt restructurings that were modified within the last twelve months for which there
was a payment default.
41
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, 2020, 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
$
152,911 $
Substandard Doubtful
3,979 $
143 $
21 $
16,241
220,311
2,419
18,435
3,234
153
413,704 $
—
1,469
—
186
—
—
1,798 $
—
5,378
334
223
—
—
9,914 $
—
785
—
236
—
—
1,042 $
$
Not
Rated
274
—
1,773
88,521
330
6,201
21,240
118,339
As of June 30, 2019, 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
$
74,393 $
Substandard Doubtful
1,012 $
4,942 $
— $
16,075
179,952
—
8,071
2,245
13,413
—
32
286,110 $
—
205
—
—
13,218 $
—
5,337
24
318
—
—
6,691 $
$
—
436
5
263
—
—
704 $
42
Not
Rated
240
—
1,496
54,193
319
1,963
5,132
63,343
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5—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
2020
2019
1,603 $
349
14,191
6,333
22,476
(7,575)
14,901 $
1,511
344
13,013
5,872
20,740
(6,585)
14,155
$
$
Depreciation expense was $1,044 and $797 for the years ended June 30, 2020 and 2019, respectively.
Effective July 1, 2019, the Corporation adopted ASU 2016-02, Leases (Topic 842). As of June 30, 2020, the Corporation
leased real estate for six office locations and various equipment under operating lease agreements. The lease agreements have
maturity dates ranging from one year or less to September 1, 2028, including extension periods. Lease agreements for four locations
have a lease term of 12 months or less and are therefore considered short-term leases and are exempt from Topic 842. The weighted
average remaining life of the lease term for the leases with a term over 12 months was 51.92 months as of June 30, 2020.
Costs associated with operating leases accounted for under Topic 842 were $109 for the twelve-month period ended June 30,
2020. The costs of short-term leases were $87 for the twelve-month period ended June 30, 2020. The right-of-use asset, included in
premises and equipment, and lease liability, included in other liabilities, were $473 as of June 30, 2020.
Total estimated rental commitments for the operating leases within the scope of Topic 842 were as follows as of June 30,
2020:
Period Ending June 30
2021
2022
2023
2024
Thereafter
Total
$
$
105
95
76
51
146
473
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the Corporation’s acquired goodwill and intangible assets as of June 30, 2020. There were no
goodwill or intangible assets as of June 30, 2019.
Goodwill
Core deposit intangible
Total
June 30, 2020
Gross Carrying
Amount
Accumulated
Amortization
$
$
836 $
270
1,106 $
—
14
14
Goodwill and the core deposit intangible assets resulted from the acquisition of Peoples (see Note 2). Goodwill represents the
excess of the total purchase price paid for the acquisition over the fair value of the identifiable assets acquired, net of the fair value
of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or
changes in circumstances indicate the asset might be impaired. Impairment exists when a reporting unit’s carrying amount exceeds
its fair value. For the goodwill impairment analysis, the Corporation is the only reporting unit. Management performed a quantitative
impairment test of the Corporation’s goodwill during the fourth quarter of fiscal year 2020. Based on this test, management concluded
that the Corporation’s goodwill was not impaired at June 30, 2020. Goodwill is the only intangible asset on the Corporation’s balance
sheet with an indefinite life.
The core deposit intangible asset is amortized on a straight-line basis over ten years. The Corporation recorded intangible
amortization expense of $14 in 2020 and expects to record $28 per year for each of the next five fiscal years and $116 thereafter.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7—DEPOSITS
Interest-bearing deposits as of June 30, 2020 and 2019 were as follows:
2020
2019
Demand
Savings and money market
Time:
$250 and over
Other
Total
$
$
99,173 $
228,567
36,747
78,635
443,122
$
Scheduled maturities of time deposits at June 30, 2020 were as follows:
Twelve Months Ending June 30
2021
2022
2023
2024
2025
Thereafter
$
$
81,469
162,261
39,034
73,171
355,935
85,856
18,178
7,394
1,471
1,487
996
115,382
As of June 30, 2020, FHLB public unit deposit standby letters of credit of $6,750 were issued to collateralize public fund
deposits.
NOTE 8—SHORT-TERM BORROWINGS
Short-term borrowings consisted of repurchase agreements and federal funds purchased. Information concerning all short-term
borrowings at June 30, 2020 and 2019, 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
$
2020
2019
6,943 $
4,306
7,705
1.00%
0.25%
3,686
3,521
3,975
1.45%
1.39%
Securities sold under agreements to repurchase are utilized to facilitate the needs of our customers. Physical control is
maintained for all securities pledged to secure repurchase agreements. Securities available-for-sale pledged for repurchase
agreements as of June 30, 2020 and 2019 are presented in the following table:
U.S. government-sponsored entities and agencies pledged
Residential mortgage-backed securities pledged
Commercial mortgage-backed securities
Total pledged
Repurchase agreements
$
$
$
Overnight and Continuous
2020
2019
1,031 $
2,720
3,288
7,039 $
6,943 $
998
3,938
—
4,936
3,686
Total interest expense on short-term borrowings was $43 and $51 for the years ended June 30, 2020 and 2019, respectively.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9—FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances were as follows:
Stated Interest Rate
Range
Advance Type
From
To
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
June 30, 2020
June 30, 2019
Fixed rate,
amortizing
Fixed rate
Variable rate
1.37 %
0.00
0.26
1.37% $
1.97
0.26
461
24,200
6,500
1.37% $
1.59
0.26
—
11,200
11,500
—%
1.59
2.56
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 a comparable new advance. The following table is a
summary of the scheduled principal payments for all advances:
Twelve Months Ending June 30
2021
2022
2023
2024
Thereafter
Total
Principal
Payments
13,116
1,794
79
6,567
9,605
31,161
$
$
Pursuant to collateral agreements with the FHLB, advances are secured by all the stock invested in the FHLB and certain
qualifying first mortgage and multi-family loans. The advances were collateralized by $92,056 and $61,812 of first mortgage and
multi-family loans under a blanket lien arrangement at June 30, 2020 and 2019, respectively. Based on this collateral and the
Corporation’s holdings of FHLB stock, the Bank was eligible to borrow up to a total of $32,425 in additional advances at June 30,
2020.
NOTE 10—EMPLOYEE BENEFIT PLANS
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 $282 and $236 for the years ended June 30, 2020 and 2019,
respectively.
The Bank maintains a nonqualified Salary Continuation Plan (SCP) to reward and encourage certain Bank executives to remain
employees of the Bank. The SCP is considered an unfunded plan for tax and Employee Retirement Income Security Act (ERISA)
purposes and all obligations arising under the SCP are payable from the general assets of the Corporation. The estimated present
value of future benefits to be paid to certain current and former executives totaled $2,695 as of June 30, 2020 and $2,475 as of
June 30, 2019 and is included in other liabilities. For purposes of calculating the present value of future benefits, a discount rate of
4.0% was in effect at June 30, 2020 and 4.5% was in effect at June 30, 2019. For the years ended June 30, 2020 and 2019, $305 and
$230, respectively, have been charged to expense in connection with the SCP. Distributions to participants were $85 and $76 for the
years ended June 30, 2020 and 2019, respectively.
The 2010 Omnibus Incentive Plan (2010 Plan) is a nonqualified share-based compensation plan. The 2010 Plan was established
to promote alignment between key employees’ 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 talented employees and
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.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 any employee and outside director.
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. Awards are made at the end of the
measurement period of certain specified performance targets once those performance targets as established by the Compensation
Committee are achieved. Some awards, primarily the awards made to directors, vest on the date of grant. For other awards, primarily
the awards made to executive management, 25% vest on the grant date, which is the end of the performance period, with the
remaining vesting 25% per year over a three-year period. 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, which is used to measure compensation expense, 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.
The following table summarizes the status of the restricted stock awards:
Outstanding at June 30, 2019
Granted
Vested
Non-vested at June 30, 2020
Restricted Stock
Awards
Weighted-
Average
Grant Date Fair
Value Per Share
22.49
18.18
19.05
19.31
3,649 $
11,813
(6,776)
8,686 $
There was $159 in expense recognized in the 2020 fiscal year and $74 in expense recognized in the 2019 fiscal year in
connection with the restricted stock awards. As of June 30, 2019, there was $112 of total unrecognized compensation expense related
to non-vested shares and the expense is expected to be recognized over the next three years.
NOTE 11—INCOME TAXES
The provision for income taxes consisted of the following for the years ended June 30, calculated utilizing a statutory federal
income tax rate of 21.0%:
Current income taxes
Deferred income tax expense
Total income tax expense
2020
2019
1,273 $
(361)
912 $
840
173
1,013
$
$
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net deferred income tax asset consisted of the following components at June 30:
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Deferred income
Non-accrual loan interest income
Other
Gross deferred tax asset
Deferred tax liabilities:
Depreciation
Loan fees
FHLB stock dividends
Prepaid expenses
Intangible assets
Net unrealized securities gain
Gross deferred tax liabilities
Net deferred liability
2020
2019
$
$
1,119 $
722
46
42
9
1,938
(742 )
(402 )
(102 )
(72 )
(102 )
(1,132 )
(2,552 )
(614 ) $
701
616
55
50
7
1,429
(645)
(278)
(102)
(42)
—
(416)
(1,483)
(54)
The difference between the provision for income taxes and amounts computed by applying the statutory income tax rate of
21.0% to income before taxes consisted 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 and death benefit
Tax credit
Other non-deductible expenses
Total income tax expense
$
$
1,352 $
(317)
(124)
(25)
26
912 $
1,382
(319)
(57)
(28)
35
1,013
2020
2019
The effective tax rate was 14.2% for the year ended June 30, 2020 compared to 15.4% for the year ended June 30, 2019. At
June 30, 2020 and June 30, 2019, 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, 2020 and 2019 and there were no amounts accrued for interest and penalties at June 30, 2020
and 2019.
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 2016.
NOTE 12—RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain executive officers, directors and their affiliates. A
summary of activity during the year ended June 30, 2020 of related party loans were as follows:
Principal balance, July 1
New loans, net of refinancing
Repayments
Changes due to changes in related parties
Principal balance, June 30
$
$
10,562
1,083
(1,451 )
(4,840 )
5,354
Deposits from executive officers, directors and their affiliates totaled $4,332 at June 30, 2020 and $3,800 at June 30, 2019.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13—REGULATORY MATTERS
Banks and bank holding companies are 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.
The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized,
undercapitalized, 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 2020 and 2019, the Corporation met the definition of a Small Bank Holding Company and, therefore,
was exempt from maintaining consolidated regulatory capital ratios. Instead, regulatory capital ratios only apply at the subsidiary
bank level. The Basel III Capital Rules became effective for the Bank on January 1, 2015 and certain provisions were subject to a
phase-in period. The implementation of the capital conservation buffer was phased in from 0.625% on January 1, 2016 to 2.5% on
January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions
with a ratio of Common Equity Tier 1 capital 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. The net unrealized gain or loss
on available for sale securities is not included in computing regulatory capital. In 2019, the Community Bank Leverage Ratio (CBLR)
was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations
(QCBO). If a bank qualifies as a QCB0, maintains a CBLR of 9.00% or greater, and opts in to the CBLR framework, the bank would
be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the risk-based capital rule
described above. The CBLR rule took effect January 1, 2020 and banks could opt-in through an election in the first quarter 2020
regulatory filing. The Bank qualified as a QCBO except it did not met the minimum CBLR threshold at that time. The CARES Act
temporarily reduced the minimum CBLR to 8.00% through December 31, 2020. Under the reduced CBLR threshold, the Bank meets
the criteria of a QCBO as of June 30, 2020 but did not opt-in to the CBLR. Management believes as of June 30, 2020, the Bank met
all capital adequacy requirements to which it was subject.
The following table presents actual and required capital ratios as of June 30, 2020 and June 30, 2019 for the Bank:
Actual
Minimum Capital
Required – Basel III
(1)
Minimum Required
To Be Considered Well
Capitalized
Amount Ratio Amount Ratio
Amount Ratio
June 30, 2020
Common equity Tier 1 to risk-weighted assets $
Tier 1 capital to risk weighted assets
Total capital to risk weighted assets
Tier 1 capital to average assets
57.6
57.6
63.2
57.6
11.55% $
11.55
12.69
8.04
22.4
29.9
39.9
28.7
4.50% $
6.00
8.00
4.00
32.4
39.9
49.8
35.8
6.50%
8.00
10.00
5.00
Actual
Minimum Capital
Required -
Basel III (1)
Minimum Required
To Be Considered Well
Capitalized
Amount Ratio Amount Ratio
Amount Ratio
June 30, 2019
Common equity Tier 1 to risk-weighted assets $
Tier 1 capital to risk weighted assets
Total capital to risk weighted assets
Tier 1 capital to average assets
48.0
48.0
51.8
48.0
11.68% $
11.68
12.60
8.88
18.5
24.6
32.9
21.6
4.50% $
6.00
8.00
4.00
26.7
32.9
41.1
27.0
6.50%
8.00
10.00
5.00
(1) These amounts exclude the capital conservation buffer.
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
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2020 the Bank could, without prior
approval, declare a dividend of approximately $5,856.
NOTE 14—COMMITMENTS WITH OFF-BALANCE SHEET RISK
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 that 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 (before considering collateral) was $98,923 and $83,702 as of June 30, 2020 and 2019,
respectively. Of the June 30, 2020 commitments, $75,614 carried variable rates and $23,309 carried fixed rates of interest ranging
from 3.25% to 6.75% with maturity dates from September 2020 to August 2051. Of the June 30, 2019 commitments, $67,722 carried
variable rates and $15,980 carried fixed rates of interest ranging from 3.50% to 6.75% with maturity dates from July 2019 to June
2050. Financial standby letters of credit were $2,103 and $2,563 as of June 30, 2020 and 2019, respectively. In addition,
commitments to extend credit of $10,323 and $8,840 as of June 30, 2020 and 2019, 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 15—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 unobservable
inputs (Level 3 inputs).
Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value:
Fair Value Measurements at
June 30, 2020 Using
Balance at
June 30, 2020 Level 1 Level 2
Level 3
Securities available-for-sale:
Obligations of U.S. Treasury
Obligations of U.S. government-sponsored entities and agencies
Obligations of states and political subdivisions
U.S. government-sponsored mortgage-backed securities - residential
U.S. government-sponsored mortgage-backed securities - commercial
U.S. government-sponsored collateralized mortgage obligations
$
1,256 $
10,532
63,492
50,156
8,497
9,985
— $
—
—
—
—
—
1,256 $
10,532
63,492
50,156
8,497
9,985
—
—
—
—
—
—
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements at
June 30, 2019 Using
Balance at
June 30, 2019 Level 1 Level 2
Level 3
Securities available-for-sale:
Obligations of U.S. government-sponsored entities and agencies
Obligations of states and political subdivisions
U.S. government-sponsored mortgage-backed securities - residential
U.S. government-sponsored collateralized mortgage obligations
$
19,513 $
57,929
56,311
10,257
— $
—
—
—
$
19,513
57,929
56,311
10,257
—
—
—
—
There were no transfers between Level 1 and Level 2 during the 2020 or the 2019 fiscal year.
Certain assets and 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. Assets and 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.
Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at
lower of cost or fair value less estimated costs to sell. Real estate owned properties and other repossessed assets, which are primarily
vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned
or other repossessed assets being carried at fair value as of June 30, 2020 or June 30, 2019.
There were no assets measured at fair value on a non-recurring basis at June 30, 2020. Assets and liabilities measured at fair
value on a non-recurring basis at June 30, 2019 are summarized below:
Fair Value Measurements at
June 30, 2019 Using
Balance at
June 30, 2019
Level 1
Level 2
Level 3
Impaired loans:
Commercial Real Estate - Other
$
59 $
— $
— $
59
Impaired loans, measured for impairment using the fair value of the collateral, had a recorded investment of $59, with no
valuation allowance at June 30, 2019. The resulting impact to the provision for loan losses was an increase of $80 for the twelve
months ended June 30, 2019. There were no impaired loans measured at fair value on a non-recurring basis at June 30, 2020 and
there was no impact to the provision for loan losses for the twelve months ended June 30, 2020.
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, 2019:
Impaired loans:
Commercial Real Estate – Other
$
Settlement
Agreement
59
N/A
0.0%
0.0%
Fair Value
Valuation
Technique
Unobservable
Inputs
Range
Weighted
Average
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:
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2020
2019
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents
Level 2 inputs:
$
9,659 $
9,659 $
9,461 $
Certificates of deposits in other financial institutions
Loans held for sale
Accrued interest receivable
11,635
3,507
2,646
11,889
3,566
2,646
1,983
1,657
1,607
9,461
1,983
1,687
1,607
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
3,541
537,183
3,868
548,247
3,786
365,387
3,821
366,911
517,973
115,382
6,943
31,161
107
517,973
116,238
6,943
31,571
107
359,969
112,205
3,686
22,700
132
359,969
112,841
3,686
22,596
132
NOTE 16—PARENT COMPANY FINANCIAL STATEMENTS
The 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
June 30,
2020
June 30,
2019
$
$
$
$
258 $
—
274
62,853
63,385 $
145 $
63,240
63,385 $
38
1,646
75
49,545
51,304
138
51,166
51,304
Year Ended
June 30, 2020
Year Ended
June 30, 2019
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
$
$
$
6,120 $
25
1,050
5,095
(189)
5,284
243
5,527 $
8,221 $
1,620
40
408
1,252
(49)
1,301
4,265
5,566
8,767
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income
Equity in undistributed net income of Bank subsidiary
Securities amortization and accretion, net
Change in other assets and liabilities
Net cash flows from operating activities
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities
Acquisition
Net cash flows from investing activities
Cash flows from financing activities:
Dividend paid
Issuance of treasury stock for stock awards
Net cash flows from financing activities
Change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
NOTE 17–EARNINGS PER SHARE
Year Ended
June 30, 2020
Year Ended
June 30, 2019
$
$
5,527 $
(243)
(8)
(158)
5,118
1,654
(5,128)
(3,474)
(1,554)
130
(1,424)
220
38
258 $
5,566
(4,265)
(10)
63
1,354
—
—
—
(1,421)
59
(1,362)
(8)
46
38
Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting
period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings
per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to
include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. There were
1,655 shares of restricted stock that were anti-dilutive for the year ending June 30, 2020. There were 1,103 shares of restricted stock
that were anti-dilutive for the year ending June 30, 2019. 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,
2020
2019
5,527 $
2,874,234
1.92 $
5,566
2,731,247
2.04
5,527 $
2,874,234
—
2,874,234
1.92 $
5,566
2,731,247
—
2,731,247
2.04
$
$
$
$
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18–ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of other comprehensive income related to unrealized gains on available-for-sale securities for the periods
ended June 30, 2020 and June 30, 2019, were as follows:
Pretax
Tax
Effect
After-tax
$
(2,069) $
434 $
(1,635)
Affected Line
Item
in Consolidated
Statements of
Income
Balance as of June 30, 2018
Unrealized holding gain on available-for-sale
securities arising during the period
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive income
Balance as of June 30, 2019
Unrealized holding gain on available-for-sale
securities arising during the period
Amounts reclassified from accumulated other
comprehensive income
$
Net current period other comprehensive income
Balance as of June 30, 2020
$
(a) Securities gain, net
(b) Income tax expense
4,612
(968)
(561)
4,051
1,982 $
118
(850)
(416) $
3,766
(791)
(355)
3,411
5,393 $
74
(717)
(1,133) $
3,644
(443)
3,201
1,566
2,975
(281)
2,694
4,260
(a)(b)
(a)(b)
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – REVENUE RECOGNITION
On July 1, 2018, the Corporation adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) and all subsequent
ASUs that modified Topic 606. Interest income, net securities gains (losses), gains from the sale of mortgage loans and bank-owned life
insurance are not included within the scope of Topic 606. For the revenue streams in the scope of Topic 606, service charges on deposits
and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the
Corporation's revenue from contracts with customers is recognized within noninterest income.
Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account
maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering
and other fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's
request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing
the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the
overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Interchange income: The Corporation earns interchange income from cardholder transactions conducted through the various
payment networks. Interchange income from cardholder transactions represent a percentage of the underlying transaction value and are
recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees is
processed through noninterest income.
The following table presents the Corporation's sources of noninterest income for the year ended June 30, 2020 and 2019.
For the year Ended June 30,
2020
2019
Noninterest income
In scope of Topic 606:
Service charges on deposit accounts
Debit card interchange income
Other income
Noninterest income (in scope of Topic 606)
Noninterest income (out-of-scope of Topic 606)
$
1,350 $
1,575
291
3,216 $
1,487
Total noninterest income
$
4,703 $
Note 20 – COVID-19
1,264
1,454
260
2,978
1,290
4,268
In December 2019, a novel strain of coronavirus surfaced in Wuhan, China, and has spread around the world, resulting in business
and social disruption. The coronavirus was declared a Pandemic by the World Health Organization on March 11, 2020. The operations
and business results of the Corporation could be materially adversely affected. The extent to which the coronavirus may impact business
activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new
information which may emerge concerning the severity of the coronavirus and the actions required to contain the coronavirus or treat
its impact, among others. As a result of the economic shutdown engineered to slow down the spread of COVID-19, the ability of our
customers to make payments on loans could be adversely impacted, resulting in elevated loan losses and an increase in the Corporation’s
allowance for loan losses. Additionally, it is reasonably possible future evaluations of the carrying amount of goodwill could result in a
conclusion that goodwill is impaired.
54
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A—CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, an
evaluation of the effectiveness of the Corporation’s disclosure controls and procedures (as defined under Rule 13a-15(e) of the
Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report on Form 10-K. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and
procedures were effective.
Management’s Report on 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 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.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2020 based on the criteria
for effective internal control over financial reporting established in “Internal Control-Integrated Framework,” issued by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission in 2013. Based on that assessment, we have
concluded that, as of June 30, 2020, 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 SEC that permit the Corporation to provide only management’s report in this annual report.
Changes In Internal Control Over Financial Reporting
There were no changes in the Corporation’s internal controls over financial reporting that occurred during the fourth quarter of
fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over
financial reporting.
ITEM 9B—OTHER INFORMATION
None.
55
PART III
ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 21, 2020, under the
captions “Election of Directors,” “Directors and Executive Officers,” “The Board of Directors and its Committees,” “Delinquent
Section 16(a) Reports,” 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 Governance Documents 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 either of its Code of Ethics Policies on its website.
ITEM 11—EXECUTIVE COMPENSATION
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 21, 2020 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.
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,
2020. Additional information regarding stock-based compensation plans is presented in Note 10 - Employee Benefit Plans to the
Consolidated Financial Statements located elsewhere in this report.
Number of securities
to
be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
—
—
—
—
—
—
Number of securities
remaining
available for future issuance
under
equity compensation plans
(excluding
securities issuable under
outstanding
options, warrants and rights)
76,974
—
76,974
Plan Category
Plans approved by shareholders
Plans not approved by shareholders
Total
The remaining information required by this item is set forth in the Corporation’s Proxy Statement, dated September 21, 2020,
under the caption “Security Ownership of Certain Beneficial Owners,” 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 21, 2020, under the
caption “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference.
56
ITEM 14—PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is set forth in the Corporation’s Proxy Statement, dated September 21, 2020, 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 58 of this report.
(c)
See Item 15(a)(2) above.
57
EXHIBIT INDEX
Exhibit Number Description of Document
2.1
3.1
3.2
4
4.1
10.1
10.2
10.3
10.6
10.8
10.9
10.10
21
23
31.1
31.2
32.1
101
Agreement and Plan of Merger by and among Consumers Bancorp, Inc., Consumers National Bank, Peoples
Bancorp of Mt. Pleasant, Inc., and The Peoples National Bank of Mount Pleasant, dated June 14, 2019. Reference
is made to the Registration Statement on S-4 (File No. 333-233306) filed on August 15, 2019.
Amended and Restated Articles of Incorporation of the Corporation. Reference is made to Form 10-Q (File No.
033-79130) of the Corporation filed November 8, 2019, 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 30, 2002, which is incorporated herein by reference.
Description of Securities of Consumers Bancorp, Inc.
Amendment No. 3, October 3, 2016 to the Salary Continuation agreement entered into with Mr. Lober on February
11, 2011. Reference is made to Form 10-Q of the Corporation filed February 14, 2017, which is incorporated herein
by reference.
Salary Continuation agreement entered into with Mr. Dodds on November 4, 2016. Reference is made to Form 8-
K of the Corporation filed November 9, 2016, 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 (File No. 033-79130) of the Corporation filed February 11, 2011, which is
incorporated herein by reference.
Consumers Bancorp 2010 Omnibus Incentive Plan Form of Restricted Stock Award Agreement. Reference is made
to Form 8-K (File No. 033-79130) of the Corporation filed September 16, 2011, which is incorporated herein by
reference.
Salary Continuation Agreement with Ms. Wood on December 30, 2015. Reference is made to Form 8-K of the
Corporation filed on December 30, 2015, which is incorporated herein by reference.
First Amendment dated June 13, 2018, to Lease Agreement entered into between Furey Holdings, LLC and
Consumers National Bank on December 23, 2005. Reference is made to Form 8-K (File No. 033-79130) of the
Corporation filed June 15, 2018, which is incorporated herein by reference.
Subsidiaries of Consumers Bancorp, Inc. Filed with this Annual Report on Form 10-K.
Consent of Crowe 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, 2020,
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.
58
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 22, 2020
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 22, 2020.
Signatures
Signatures
/s/ Laurie L. McClellan
Laurie L. McClellan
Chairman of the Board of Directors
/s/ Ralph J. Lober, II
Ralph J. Lober, II
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Renee K. Wood
Renee K. Wood
Chief Financial Officer and Treasurer
(principal financial officer)
/s/ Bradley Goris
Bradley Goris
Director
/s/ Richard T. Kiko, Jr.
Richard T. Kiko, Jr.
Director
/s/ Frank L. Paden
Frank L. Paden
Director
/s/ Harry W. Schmuck, Jr.
Harry W. Schmuck, Jr.
Director
/s/ John P. Furey
John P. Furey
Director
/s/ David W. Johnson
David W. Johnson
Director
/s/ Thomas M. Kishman
Thomas M. Kishman
Director
/s/ John W. Parkinson
John Parkinson
Director
59
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General Information
Independent Registered Public Accounting Firm
Crowe LLP
600 Superior Avenue, Ste. 902
Cleveland, Ohio 44114
Shareholder Relations
shareholderrelations@consumersbank.com
Website
www.consumersbancorp.com
Annual Meeting
The 2020 annual meeting of shareholders will be
held at 10:00 a.m. on Thursday, October 29, 2020. In
order to maintain proper social distancing, this year’s
Annual Meeting will be a completely virtual meeting of
stockholders, which will be conducted solely online via
live webcast. You will be able to attend and participate
in
the Annual Meeting online, vote your shares
electronically and submit your questions prior to and
during the meeting. Website and password information
for joining the meeting online are provided in the
accompanying proxy statement. There is no physical
location for the Annual Meeting.
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, 2020, as filed with
the Securities and Exchange Commission, will be
furnished without charge to shareholders upon written
request to Theresa J. Linder, Corporate Secretary, at
614 East Lincoln Way, P.O. Box 256, Minerva, Ohio
44657. An electronic version is also available on our
website at www.consumersbancorp.com.
Directors Emeriti
James V. Hanna
James R. Kiko, Sr
John E. Tonti
Legal Counsel
Squire Patton Boggs (US) LLP
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 479-8500
Stock Transfer Agent and Registrar
Computershare Shareholder Services
PO Box 505005
Louisville, KY 40233-5005
(800) 522-6645
Market Maker
Thomas L. Dooley
Nick Bicking
D.A. Davidson & Co.
5050 Blazer Parkway, Suite 103
Dublin, OH 43017
(614) 710-7061
(800) 394-9230
Common Stock Listing
Consumers Bancorp, Inc. common stock trades on the
OTCQX Bulletin Board under the symbol CBKM. The
CUSIP is 210509105. As of June 30, 2020, there were
3,015,578 shares outstanding with 745 shareholders
of record and an estimated 681 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
Computershare to execute these convenient options at
www-us.computershare.com or (800) 368-5948 or a
participating broker.
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 Computershare
Shareholder Services at www-us.computershare.com
or (800) 368-5948 or a participating broker.
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Consumers Branch Locations
Adena
9 E. Main St.
Alliance
610 W. State St.
Bergholz
256 Second St.
Brewster
210 Wabash Ave. S.
Dillonvale
44 Smithfield St.
Carrollton
1017 Canton Rd. NW
East Canton
440 W. Noble St.
Fairlawn
3680 Embassy Pkwy.
Hanoverton
30034 Canal St.
Hartville
1215 W. Maple St.
Jackson-Belden
4026 Dressler Rd. NW
Lisbon
7985 Dickey Dr.
Louisville
1111 N. Chapel St.
Malvern
4070 Alliance Rd. NW
Minerva
614 E. Lincoln Way
Mount Pleasant
298 Union St.
Salem
141 S. Ellsworth Ave.
Waynesburg
8607 Waynesburg Dr. SE
Wooster Business Lending Office
146 E. Liberty St., Ste. 220
Bancorp Inc.
614 E. Lincoln Way, Minerva, Ohio 44657
ConsumersBank.com
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