CONSUMERS BANCORP, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 033-79130
CONSUMERS BANCORP, INC.
(Exact name of Registrant as specified in
its charter)
OHIO 34-1771400
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
614 E. Lincoln Way
Minerva, Ohio 44657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 330-868-770l
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 report), and (2) has been subject to such filing requirements
for the past 90 days.
Yes______ No__x___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $3.33 Stated Value Outstanding at
November 2, 1998
714,595 Common
Shares
<PAGE>
CONSUMERS BANCORP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1998
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Rule 10-01 of Regulation
S-X (17 CFR Part 210) is included in this Form 10-QSB as
referenced below:
Page
Number(s)
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Condensed Consolidated Statements of Changes in
Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
Part II - Other Information
Item 3 - Submission of Matters to a Vote of 19
Security Holders
Item 4 - Other Information 19
Item 5 - Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
<TABLE>
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
Sept. 30, June 30,
1998 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,461,315 $ 4,801,773
Federal funds sold 6,475,000 7,725,000
Securities, available for sale 22,509,879 19,247,847
Loans, net 93,287,514 93,905,754
Cash surrender value of life insurance 1,725,518 1,476,149
Premises and equipment, net 2,734,809 2,781,772
Accrued interest and other assets 1,294,800 1,682,901
------------ ------------
Total Assets $132,488,835 $131,621,196
LIABILITIES
Deposits:
Noninterest bearing, demand $ 17,472,216 $ 17,713,127
Interest-bearing demand 10,218,647 9,827,883
Savings 41,608,938 42,323,793
Time 47,591,732 46,858,044
------------ ------------
Total deposits 116,891,533 116,722,847
Federal Home Loan Bank advances 3,075,314 3,112,897
Accrued and other liabilities 2,050,790 1,654,153
------------ ------------
Total Liabilities $122,017,637 $121,489,897
SHAREHOLDERS' EQUITY
Common stock ($3.33 stated value,
720,000 shares authorized and
issued) 2,400,000 2,400,000
Capital surplus 2,400,000 2,400,000
Retained earnings 5,689,348 5,389,142
Treasury stock, at cost (5,405 at
Sept. 30, and 4,250 At June 30) (156,646) (107,812)
Unrealized gain on securities available
for sale 138,496 49,969
------------ ------------
Total Shareholders' Equity 10,471,198 10,131,299
------------ ------------
Total Liabilities and Shareholders'
Equity $132,488,835 $131,621,196
------------ ------------
------------ ------------
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
<TABLE>
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
Sept. 30,
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $2,292,305 $2,220,217
Investments & mortgage-backed
securities:
Taxable 294,478 243,874
Tax exempt 28,440 23,920
Federal funds sold 97,554 37,721
---------- ----------
Total interest income 2,712,777 2,525,732
Interest expense:
Deposits 1,056,389 991,736
FHLB advances 50,600 43,000
---------- ----------
Total interest expense 1,106,989 1,034,736
Net interest income 1,605,788 1,490,996
Provision for loan losses (Note 4) 37,840 55,015
---------- ----------
Net interest income after provision
for loan losses 1,567,948 1,435,981
Other income:
Service charges on deposits 128,491 94,113
Other income 69,480 47,781
---------- ----------
Total other income 197,971 141,894
Other expenses:
Salaries and Employee Benefits 548,070 504,152
Occupancy 179,312 115,739
Other non-interest expense 332,365 282,972
---------- ----------
Total other expenses 1,059,747 902,863
Income before income taxes 706,172 675,012
Provision for income taxes 241,400 275,200
---------- ----------
Net income $ 464,772 $ 399,812
---------- ----------
---------- ----------
Basic earnings per share $ .65 $ .56
---------- ----------
---------- ----------
</TABLE>
<PAGE>
<TABLE>
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Net Income $464,772 $399,812
Other comprehensive income, net of tax
Unrealized gains/ (losses)
on securities:
Unrealized gains/(losses) arising
during the period 88,527 56,099
Less: Reclassified adjustment for
accumulated gains/(losses)
included in net income - -
--------- --------
Comprehensive income $553,299 $455,911
--------- --------
--------- --------
</TABLE>
See notes to the Consolidated Financial Statements
<PAGE>
<TABLE>
CONSUMERS BANCORP, INC.
Condensed Consolidated Statements of Changes in Shareholders'
Equity
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Balance at beginning of period $10,131,299 $8,947,160
Net income 464,772 399,812
Cash dividends $0.23 and $0.31
per share, respectively (164,566) (143,400)
Treasury stock purchases (48,834) -0-
Unrealized gain on investment
securities available for sale 88,527 56,099
----------- ----------
Balance at end of period $10,471,198 $9,259,671
</TABLE>
See the notes to the Consolidated Financial Statements
<PAGE>
<TABLE>
CONSUMERS BANCORP, INC.
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Three months ended September 30
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 464,772 $ 399,812
Adjustments to reconcile net income to net
cash from operating activities 852,854 2,289,647
---------- ----------
Net cash from operating activities $1,317,626 $2,689,459
---------- ----------
Cash flows from investing activities
Securities available for sale
Purchases (4,513,494) (443,603)
Sales -0- -0-
Maturities and principal paydowns 1,330,522 1,085,687
Net decrease in federal funds sold 1,250,000 1,550,000
Net decrease (increase) in loans 618,240 (3,483,105)
Acquisition of premises and equipment (31,053) (213,720)
Purchase of life insurance policies (230,000) (170,000)
---------- ----------
Net cash from investing activities (1,575,785) (1,674,741)
---------- ----------
Cash flows from financing activities
Net increase (decrease) in deposit accounts 168,686 (487,241)
Proceeds from FHLB advances -0- 650,000
Repayments of FHLB advances (37,585) (35,426)
Dividends paid (164,566) (143,400)
Purchase of treasury stock (48,834) -0-
---------- ----------
Net cash from financing activities (82,299) (16,067)
---------- ----------
Increase (decrease) in cash and cash equivalents (340,458) 998,651
Cash and cash equivalents, beginning of year 4,801,773 4,047,960
Cash and cash equivalents, end of year $4,461,315 $5,046,611
---------- ----------
---------- ----------
</TABLE>
See the Notes to the Consolidated Financial Statements
<PAGE>
CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Principles of Consolidation: The consolidated financial
statements include the accounts of Consumers Bancorp, Inc.
(Corporation) and its wholly-owned subsidiary, Consumers National
Bank (Bank). All significant intercompany transactions have been
eliminated in the consolidation.
These interim financial statements are prepared without audit and
reflect all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly the
consolidated balance sheets of the Corporation at September 30,
1998, and its income and cash flows for the periods presented.
The accompanying consolidated financial statements do not purport
to contain all the necessary financial disclosures required by
generally accepted accounting principles that might otherwise be
necessary in the circumstances. The Annual Report for the
Corporation for the year ended June 30, 1998, contains
consolidated financial statements and related notes which should
be read in conjunction with the accompanying consolidated
financial statements.
Industry Segment Information: Consumers Bancorp, Inc. is a bank
holding company engaged in the business of commercial and retail
banking, which accounts for substantially all of the revenues,
operating income, and assets.
Use of Estimates: To prepare financial statements in conformity
with generally accepted accounting principles, management makes
estimates and assumptions based on available information. These
estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, fair values
of financial instruments, and status of contingencies are
particularly subject to change.
Cash Reserves: Consumers National Bank is required by the Federal
Reserve to maintain reserves consisting of cash on hand and
noninterest-bearing balances on deposit with the Federal Reserve
Bank. The required reserve balance at September 30, 1998 was
$1,190,000 and at June 30, 1998 was $1,188,000.
Securities: Securities are classified into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are
those that the Bank has the positive intent and ability to hold to
maturity, and are reported at amortized cost. Available-for-sale
securities are those that the Bank may decide to sell if needed
for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of
equity, net of tax.
Realized gains or losses on sales are determined based on the
amortized cost of the specific security sold. Amortization of
premiums and accretion of discounts are computed under a system
materially consistent with the level yield method and are
recognized as adjustments to interest income. Prepayment activity
on mortgage-backed securities is affected primarily by changes in
interest rates. Yields on mortgage-backed securities are adjusted
as prepayments occur through changes to premium amortization or
discount accretion.
Loans: Loans are reported at the principal balance outstanding,
net of deferred loan fees. Interest income is reported on the
interest method and includes amortization of net deferred loan
fees and costs over the loan term.
Interest income is not reported when full loan repayment is in
doubt, typically when payments are past due over 90 days.
Payments received on such loans are reported as principal
reductions.
Concentrations of Credit Risk: The Bank grants consumer, real
estate and commercial loans primarily to borrowers in Stark,
Columbiana and Carroll counties. Automobiles and other consumer
assets, business assets and residential and commercial real estate
secure most loans.
Allowance for Loan Losses: The allowance for loan losses is a
valuation allowance, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management
estimates the allowance balance required based on past loan loss
experience, known and inherent risks in the portfolio, information
about specific borrower situations and estimated collateral
values, 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.
Loan impairment is reported when full payment under the loan terms
is not expected. Impairment is evaluated in total for smaller-balance
loans of similar nature such as residential mortgage,
consumer, and credit card loans, and on an individual loan basis
for other loans. If a loan is impaired, a portion of the
allowance is allocated so the loan is reported, net, at the
present value of estimated future cash flows using the loan's
existing rate or at the fair value of collateral if repayment is
expected from the collateral. Loans are evaluated for impairment
when payments are delayed, typically 90 days or more, or when it
is probable that not all principal and interest amounts will be
collected according to the original terms of the loan. No loans
were determined to be impaired, as of and for the periods ended
September 30, 1998 and June 30, 1998.
Cash Surrender Value of Life Insurance: The Bank has purchased
single-premium life insurance policies to insure the lives of the
participants in the salary continuation plan. As of September
30, 1998, the Bank has total purchased policies of $1,570,000
(total death benefit $4,197,000) with a cash surrender value of
$1,726,000. As of June 30, 2998, the Bank had total purchased
policies of $1,340,000 (total death benefit $3,967,000) with a
cash surrender value of $1,476,000. The amount included in
income (net of policy commissions and mortality costs) was
approximately $22,000 and $19,000 for the periods ended September
30, and June 30, 1998.
Premises and Equipment: Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed over the
assets' useful lives on an accelerated basis, except for buildings
for which the straight-line basis is used.
Other Real Estate Owned: Real estate properties, other than
Company premises, acquired through, or in lieu of, loan
foreclosure are initially recorded at fair value at the date of
acquisition. Any reduction to fair value from the carrying value
of the related loan at the time of acquisition is accounted for as
a loan loss. After acquisition, a valuation allowance reduces the
reported amount to the lower of the initial amount or fair value
less costs to sell. Expenses, gains and losses on disposition,
and changes in the valuation allowance are reported in other
expenses. There were no properties held as other real estate
owned at September 30, 1998 and June 30, 1998.
Profit Sharing Plan: The Company maintains a 40l(k) profit
sharing plan covering substantially all employees. Contributions
are made and expensed annually.
Income Taxes: The Company files a consolidated federal income tax
return. Income tax expense is the sum of the current-year income
tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected
future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Earnings and Dividends Declared per Share: Earnings per common
share are computed based on the weighted average common shares
outstanding. The number of outstanding shares used was 714,595
and 716,808 for the periods ending September 30, 1998 and June 30,
1998. The Company's capital structure contains no dilutive
securities. All prior period per share information has been
restated for the effect of the stock split.
The Company declared a three-for-one stock split during the year
ended June 30, 1998. In conjunction with the stock split, the
Company changed the stated value of common stock from $10.00 to
$3.33 and issued 480,000 shares of common stock. As of September
30, 1998 the Company has 720,000 shares of common stock authorized
and issued.
Statement of Cash Flows: For purposes of reporting cash flows,
cash and cash equivalents include the Company's cash on hand and
due from banks. The company reports net cash flows for customer
loan transactions and deposit transactions.
For the three months ended September 30, 1998 and 1997, the
Corporation paid $1,002,000 and $1,242,000 in interest and $50,000
and $35,000 in income taxes.
<PAGE>
CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
(continued)
Note 2 - Investment Securities
The amortized cost and estimated fair value of the securities available for
sale, as presented
on the consolidated balance sheet at September 30, 1998, and June 30, 1998
are as follows:
<TABLE>
September 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Federal Agencies $13,113,725 $241,036 $ -0- $13,354,761
Obligations of U.S. government
agencies and corporations
Obligations of states and
political subdivisions 2,362,313 62,491 (21,366) 2,403,438
Mortgage-backed securities 6,047,701 9,545 (82,212) 5,975,034
Other securities 776,646 -0- -0- 776,646
----------- --------- --------- ------------
Total investment securities $22,300,385 $313,072 $(103,578) $22,509,879
----------- --------- --------- ------------
----------- --------- --------- ------------
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
----------------------------------------------------
Securities available for sale:
U.S. Treasury and Federal Agencies $13,111,936 $ 93,350 $ (3,947) $13,201,339
Obligations of states and
political subdivisions 2,366,461 49,679 (4,004) 2,412,136
Mortgage-backed securities 2,915,946 286 (61,395) 2,854,837
Other securities 779,535 -0- -0- 779,535
------------- --------- --------- ------------
Total investment securities $19,173,878 $143,315 $ (69,346) $19,247,847
------------- --------- --------- ------------
------------- --------- --------- ------------
</TABLE>
During the three month period ended September 30, 1998, there were no sales
or transfer of
securities classified as available for sale.
<PAGE>
CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
(continued)
The amortized cost and estimated fair value of debt securities at
September 30, 1998, by contractual maturity, are shown below.
Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
September 30, 1998
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------------------------
<S> <C> <C>
Securities available for sale:
Due in one year or less $ 2,448,749 $ 2,457,701
Due after one year through
five years 10,163,686 10,372,622
Due after five years through
ten years 2,863,603 2,927,876
Due after ten years 124,546 124,546
----------- -----------
Total 15,600,584 15,882,745
Mortgage-backed securities 6,047,701 5,975,034
Equity securities 652,100 652,100
----------- -----------
Total $22,300,385 $22,509,879
----------- -----------
----------- -----------
</TABLE>
At September 30, 1998, there were no holdings of securities of any
one issuer, other than the U.S. government and its agencies and
corporations, with an aggregate book value which exceeds 10% of
shareholders' equity.
<PAGE>
CONSUMERS BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
(continued)
Note 3 - Loans
Total loans as presented on the balance sheets are comprised of
the following classifications:
Sept. 30, June 30,
1998 1998
Real estate - residential mortgage $41,528,528 $44,071,799
Real estate - construction 1,375,795 1,608,887
Commercial, financial, and
agricultural 37,838,948 36,449,263
Personal and other 13,877,112 13,115,622
Unearned Fees and costs (197,417) (194,817)
Allowance for possible loan losses (1,135,452) (1,145,000)
------------ ------------
Total Loans $93,287,514 $93,905,754
------------ ------------
------------ ------------
No loans were determined to be impaired at either September 30,
1998, or June 30, 1998, nor were there any such loans during the
period then ended. At September 30, 1998, loans in non-accrual
states totaled $38,566 and at June 30, 1998, totaled $43,154.
There was no other real owned as of September 30, 1998, or June
30, 1998.
Note 4 - Allowance for Loan Losses
A summary of activity in the allowance for loan losses for the
three months ended September 30, 1998, and September 30, 1997, are
as follows:
(in thousands of dollars) 1998 1997
Balance at beginning of period $1,145,000 $1,060,000
Loans charged off (50,558) (17,593)
Recoveries of loans previously
charged off 3,170 7,578
Provision 37,840 55,015
------------ ------------
Balance at end of period $1,135,452 $1,105,000
------------ ------------
------------ ------------
<PAGE>
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following is managements analysis of the Corporation's
results of operations as of and for the three months ended
September 30, 1998, compared to the same period in 1997, and the
consolidated balance sheets at September 30, 1998 compared to June
30, 1998. This discussion is designed to provide a more
comprehensive review of the operating results and financial
condition than could be obtained from an examination of the
financial statements alone. This analysis should be read in
conjunction with the consolidated financial statements and related
footnotes and the selected financial data included elsewhere in
this report.
Results of Operations
Net Income. The Corporation earned net income of $464,772 for the
three months ended September 30, 1998 compared to $399,812 for the
three months ended September 30, 1997. This increase was primarily
due to an increase in net interest income and other income, and a
decrease in income tax expense partially offset by an increase in
other expenses.
Net Interest Income. Net interest income totaled $1,605,788 for
the three months ended September 30, 1998 compared to $1,490,996
for the three months ended September 30, 1997, an increase of
$114,792, or 7.70%. The additional net income was primarily due to
the increase in interest and fees on loans resulting from an
increase in average loans outstanding, and an increase in the
yield on loans, which was partially offset by increases in
interest expense due to an increase in average interest bearing
liabilities during the period.
Interest and fees on loans increased $72,088, or 3.25%, from
$2,220,217 for the three months ended September 30, 1997 to
$2,292,305 for the three months ended September 30, 1998. The
increase in interest income was due to higher average loans
outstanding and an increase in the average yield on loans.
Interest earned on taxable and tax-exempt securities totaled
$322,918 for the period ended September 30, 1998 compared to
$267,794 for the period ended September 30, 1997. The increase was
primarily the result of significantly higher average balances due
to securities purchases made during the past three months, caused
by somewhat slower loan growth. Interest income on federal funds
sold increased by $59,833 for the three months ended September 30,
1998, due to an increase in the average outstandings. As loan
growth has recently slowed, excess funds have been maintained in
short term investments such as federal funds sold and are
gradually being invested in various securities as opportunities
arise, with consideration given to future funding needs.
Interest paid on deposits increased $64,653, or 6.52% for the
three months ended September 30, 1998 compared to the three months
ended September 30, 1997. The increase was primarily a result of
the increase in average interest-bearing deposits during the
period and was partially offset by a decline in interest rates.
Interest paid on FHLB Advances totaled $50,600 for the three
months ended September 30, 1998 compared to $43,000 for the three
months ended September 30, 1997 The change was a result of an
increase in the average level of borrowings from 1997 to 1998 as
well as an increase in the cost of borrowings.
Provision for Loan Losses. The Corporation maintains an allowance
for loan losses in an amount which, in managements judgement, is
adequate to absorb reasonably foreseeable losses inherent in the
loan portfolio. While management utilizes its best judgement and
information available, the ultimate adequacy of the allowance is
dependent upon a variety of factors, including the performance of
the Corporation's loan portfolio, the economy, changes in
collateral values and interest rates, and the view of the
regulatory authorities toward loan classifications. The provision
for loan losses is determined by management as the amount to be
added to the allowance for loan losses, after net charge-offs have
been deducted, to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan
portfolio. The amount of the provision is based on management's
monthly review of the loan portfolio and consideration of such
factors as historical loss experience, economic conditions,
changes in the size and composition of the loan portfolio, and
specific borrower considerations, including the ability to repay
the loan and the estimated value of the underlying collateral.
The provision for loan losses for the three months ended September
30, 1998 totaled $37,840 compared to $55,015 for the three months
ended September 30, 1997, a decrease of $17,175, or 31.22%. The
allowance for loan losses totaled $1,135,452, or 1.20% of total
loans receivable at September 30, 1998, compared with $1,145,000,
or 1.20% of total loans receivable at June 30, 1998. The reduction
in the provision is reflective of the fact that the Corporation
has not experienced significant net charge-offs during the period.
Notwithstanding the charge-off history, management believes it is
prudent to continue to increase the allowance for loan losses as
total loans increase. Accordingly management anticipates it will
continue its provisions to the allowance for loan losses whenever
loan growth occurs.
Other Income. Other income primarily includes service charges on
deposits and other miscellaneous income. Other income of $197,971
for the three months ended September 30, 1998 represented an
increase of $56,077, or 39.52% over the $141,894 of other income
for the three months ended September 30, 1997. The increase was
primarily due to an increase in service charge income on deposits
resulting from adjustments made to the deposit service fee
schedule, as well as the growth in deposit balances from the prior
period. Increased income has also been realized from the increase
in cash surrender value of life insurance, and fee income related
to facilitating the origination of long term fixed rate loans for
a third party. Management has elected not to make long term fixed
rate mortgage loans on its balance sheet, and has entered into an
arrangement whereby it assists a third party originate long term
fixed rate loans by taking loan applications, and assisting in the
completion of certain loan documents for which it is paid a fee.
The arrangement allows the Corporation to meet its customers'
needs by offering an opportunity to obtain long term fixed rate
financing on a primary residence and is a source of additional
non-interest income.
Other expense. Other expense totaled $1,059,747 for the three
months ended September 30, 1998 compared to $902,863 for the three
months ended September 30, 1997, an increase of $156,884, or
14.80%. Increases in salaries and benefits, occupancy, and other
expenses were the primary reason for the increase and were
partially offset by a decrease in director's fees and professional
fees.
Salary and benefits expense increased $43,918, or 8.71%. The
increase is the result of normal annual merit increases and the
addition of new employees to facilitate growth. The increase in
occupancy expense was primarily due to the depreciation and
maintenance associated with two major projects which added to the
net premises and equipment balance sheet totals. A large addition
was made to the main office in Minerva to increase space for loan
department and management offices. In addition, ATM machines were
installed at four of the branch office locations during the second
quarter of the last fiscal year. The increase in other expense
was attributable to a general increase in various overhead
categories due to continued growth of the Corporation.
Income tax expense. The provision for income taxes totaled
$241,400 for the three months ended September 30, 1998 compared to
$275,200 for the three months ended September 30, 1997, a decrease
of $33,800, or 12.28%. The effective tax rates were 34.2% and
40.8% for the three months ended September 30, 1998 and 1997
respectively.
Financial Condition
Total assets at September 30, 1998 were $132,488,835 compared to
$131,621,196 at June 30, 1998, an increase of $867,639, or .66%.
Loan receivables decreased $618,240 from $93,905,754 at June 30,
1998 to $93,287,514 at September 30, 1998. Residential real estate
loans decreased $2,543,271, or 5.77%, real estate construction
loans decreased $233,092, or 14.49%, commercial, financial, and
agricultural loans increased $1,389,685, or 3.81% and personal
loans increased $761,490 or 5.81%. Most of these decreases are
caused by customer refinances to take advantage of the current low
rates available on many real estate loans. Loan growth should show
a gradual increase as these refinancings slow in the near future.
Excess funds have been shifted to investments in available for
sale securities, which have increased from $19,247,847 at June 30,
1998 to $22,509,879 at September 30, 1998, or 16.95%. The
Corporation has experienced only some very minor growth in total
deposits for the three months ended September 30, 1998. The
deposit growth was effected by the continuing fall of interest
rates on deposits that has occurred recently.
Total shareholders equity increased from $10,131,299 at June 30,
1998, to $10,471,198 at September 30, 1998. This increase is a
combination of net income for the period along with an
increase in the unrealized gain on available for sale securities,
offset by purchases of treasury stock and cash dividends paid.
Asset and Liability Management
Management considers the asset position of the Corporation to be
sufficiently liquid to meet normal operating needs and conditions.
The Corporation's earning assets are divided primarily between
loans and investment securities, with any excess funds placed in
federal funds sold on a daily basis. Management continually
strives to obtain the best mix of loans and investments to both
maximize yield and insure the soundness of the portfolio, as well
as to provide funding for loan demand as needed.
The Corporation groups its loan portfolio into three major
categories: commercial loans, real estate loans and personal
loans. Commercial loans are comprised of both variable rate notes
subject to daily interest rate changes based on the prime rate,
and fixed rate notes having maturities of generally not greater
than five years. Commercial loans have shown impressive growth
recently, with outstanding balances increasing by $6.9 million, or
23.2% during the last full fiscal year. This is mainly due to the
Corporation's ability to tailor loan programs to the specific
requirements of the business, professional, and agricultural
customers in its market area. The Corporation's real estate loan
portfolio consists of three basic segments: conventional mortgage
loans having fixed rates and maturities not exceeding fifteen
years, variable rate home equity lines of credit, and fixed rate
loans having maturity or renewal dates that are less than the
scheduled amortization period. Real estate loan growth has slowed
through the past two year period after several years of
substantial growth. Competition is very heavy in the Corporation's
market for these types of loans, both from local and national
lenders. In 1997 the Corporation became affiliated with the
Community Mortgage Network, which is a program that allows the
Corporation to offer very attractive mortgage loan options to its
customers. The personal loans offered by the Corporation are
generally written for periods up to five 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. Credit card receivables are made up of charge
card account holders who are mainly established customers of the
Corporation, with the Corporation maintaining a very conservative
policy on card limits and new accounts. Personal loans, which
include credit card receivables, have remained at relatively the
same levels during the past full fiscal year.
Funds not allocated to the Corporation's loan portfolio are
invested in various securities having diverse maturity schedules.
The majority of the Corporation's investments are held in U.S.
Treasury securities or other securities issued by U.S. Government
agencies, and to a lesser extent, investments in tax free
municipal bonds. Yields for investments as of September 30, 1998,
were 5.88% for U.S. Treasury securities, 6.18% for U.S. Government
agency securities, and 6.25% for municipal securities.
The Corporation offers several forms of deposit programs to its
customers. The rates offered by the Corporation and the fees
charged for them are competitive with others available currently
in the market area. Time deposit interest rates have continued
their downward trend this period that began during the middle of
the last fiscal year. These rates had been relatively high for
some time as many financial institutions attempted to attract and
keep new deposits to fund loan growth, but as this growth has
slowed, rates have slipped lower as well. Interest rates on demand
deposits and savings deposits continue to fall to levels as low as
has been seen in many years. As a result of the current rate
structure on deposits, growth has been flat recently, with some
loss of deposit base during the current quarter.
Jumbo time deposits (those with balances of $100,000 and over)
have decreased from $10,662,366 at June 30, 1998 to $10,408,059 at
September 30, 1998, or 2.39%. These deposits are monitored closely
by the Corporation, priced on an individual basis, and often
matched with a corresponding investment instrument. The
Corporation has on occasion used a fee paid broker to obtain these
types of funds from outside its normal service area as another
alternative for its funding needs. These deposits are not relied
upon as a primary source of funding however, and the Corporation
can foresee no dependence on these types of deposits for the near
term.
To provide an additional source of loan funds, the Corporation has
entered into an agreement with the Federal Home Loan Bank (FHLB)
of Cincinnati to obtain matched funding for loans. Repayment is
made either over a fifteen year period, or over a three year
period with a balloon payment. At September 30, 1998, these FHLB
balances totaled $3,075,314. The Corporation considers this
agreement with the FHLB to be a good source of loan funding,
secondary to its deposit base.
A monthly rate sensitivity report is used to determine the effect
of interest rate changes on the financial statements. In the
opinion of management, enough assets or liabilities could be
repriced over the near term (up to three years) to compensate for
such changes. The spread on interest rates, or the difference
between the average earning assets and the average interest
bearing liabilities, is monitored quarterly. It is the
Corporation's goal to maintain this spread at better than 4.0%.
The spread at September 30, 1998 was 5.1%, and at June 30, 1998
was 5.2%.
Capital Resources
The subsidiary Bank is subject to various regulatory capital
requirements administered by federal regulatory agencies. Failure
to meet minimum capital requirements can initiate certain
mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Under capital
adequacy guidelines and regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and
certain off balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgements by
regulators about the Bank's components, risk weightings, and other
factors. At September 30, 1998, management believes the Bank
complied with all regulatory capital requirements. Based on the
Bank's computed regulatory capital ratios, the Bank is considered
well capitalized under the Federal Deposit Insurance Act at
September 30, 1998. Management is not aware of any matters
occurring subsequent to September 30, 1998 that would cause the
Bank's capital category to change.
Recent Accounting Developments
Recent pronouncements by the Financial Accounting Standards Board
("FASB") will have an impact on financial statements issued in
subsequent periods. Set forth below are summaries of such
pronouncements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
addresses the accounting for derivative instruments and certain
derivative instruments embedded in other contracts, and hedging
activities. The statement standardizes the accounting for
derivative instruments by requiring that an entity recognize those
items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is
effective for all fiscal years beginning after June 15, 1999.
This statement is not expected to have a material effect on the
Corporation's consolidated financial position or results of
operation.
Impact on Inflation and Changing Prices
The financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position
and results of operations primarily in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation. Unlike most industrial
companies, virtually all of the assets and liabilities of the
Corporation are monetary in nature. Therefore, interest rates
have a more significant impact on a financial institution'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.
Year 2000 Issue
Many computer programs use only two digits to identify a year in
the date field and were apparently designed and developed without
considering the impact of the upcoming change in the century.
Such programs could erroneously read entries for the Year 2000
["Y2K"] as the year 1900. This could result in major system
failures and miscalculations.
The Corporation's challenge is to assess and test all computer
systems and applications for Year 2000 readiness. It is
anticipated that approximately $50,000 will be spent on the
preparedness project. This includes assessment, renovation (if
necessary) and validation of all systems and applications.
Rapid and accurate data processing is essential to the operation
of financial institutions, such as Consumers National Bank. As a
result, the Corporation has formed a Year 2000 committee to assess
the extent to which the Bank and its outside vendors may be
adversely affected by Year 2000 problems. At June 30, 1998, the
Corporation's Y2K team had completed the awareness and assessment
phases for all systems and applications. Currently, the team is
in the renovation and validation phase and December 31, 1998, has
been identified as a target completion date for this phase of the
project.
Management anticipates that most of the Bank's programs will be
capable of identifying the turn of the century. The issue is
closely monitored by management and full readiness is expected by
the end of 1998. Additionally, contingency plans have been
developed for all critical systems and applications determined to
be Year 2000 compliant. These contingencies, should they be
needed, will be implemented beginning December 31, 1998.
Contingency plans will also be developed and implemented for
systems and applications that have met Year 2000 compliance. While
the Corporation does not anticipate that any year 2000 computer
problems or expenses required to correct such problems will
materially affect its financial condition and results of
operations, no assurance can be given in this regard. The Y2K
team's utmost attention and resources are being directed to meet
full readiness.
Forward Looking Statements
When used in this discussion or future filings by the Corporation
with the Securities and Exchange Commission, or other public or
shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is
anticipated," "estimate", "project," "believe" or similar
expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. The Corporation wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various
factors, including regional and national economic conditions,
changes in levels of market interest rates, credit risks of
lending activities and competitive and regulatory factors, could
affect the Corporation's financial performance and could cause the
Corporation's actual results for future periods to differ
materially from those anticipated or projected.
The Corporation is not aware of any trends, events or
uncertainties that will have or are reasonably likely to have a
material effect on its liquidity, capital resources or operations
except as discussed herein. The Corporation is not aware of any
current recommendations by regulatory authorities which would have
such effect if implemented.
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
Consumers Bancorp, Inc. held its Annual meeting of Shareholders on
September, 16, 1998, for the purpose of electing three directors
and to transact such other business as would properly come before
the meeting. Results of shareholder voting on these individuals
were as follows:
Election of Directors
James R. Kiko Walter J. Young J.V. Hanna John P. Furey
For 563,653 563,749 563,749 562,249
Withhold 432 336 336 1,836
Abstain -0- -0- -0- -0-
Item 5 - Other Information
N/A
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
There are no exhibits submitted with this report.
B. Reports on Form 8-K - No reports on Form 8-K were filed by the
Registrant during the quarter ended September 30, 1998.
<PAGE>
10-QSB
CONSUMERS BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSUMERS BANCORP, INC.
(Registrant)
Date: November 3, 1998 /s/ Laurie L. McClellan
-----------------------
Laurie L. McClellan
Chairman
Date: November 3, 1998 /s/ Mark S. Kelly
-----------------------
Mark S. Kelly
President and C.E.O.
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 4,433,000
<INT-BEARING-DEPOSITS> 33,000
<FED-FUNDS-SOLD> 6,475,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,510,000
<INVESTMENTS-CARRYING> 22,300,000
<INVESTMENTS-MARKET> 22,510,000
<LOANS> 94,423,000
<ALLOWANCE> 1,135,000
<TOTAL-ASSETS> 132,489,000
<DEPOSITS> 116,892,000
<SHORT-TERM> 69,300,000
<LIABILITIES-OTHER> 5,126,000
<LONG-TERM> 47,592,000
2,400,000
0
<COMMON> 0
<OTHER-SE> 8,071,000
<TOTAL-LIABILITIES-AND-EQUITY> 132,489,000
<INTEREST-LOAN> 2,292,000
<INTEREST-INVEST> 323,000
<INTEREST-OTHER> 98,000
<INTEREST-TOTAL> 2,713,000
<INTEREST-DEPOSIT> 1,056,000
<INTEREST-EXPENSE> 1,107,000
<INTEREST-INCOME-NET> 1,606,000
<LOAN-LOSSES> 38,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 51,000
<INCOME-PRETAX> 706,000
<INCOME-PRE-EXTRAORDINARY> 465,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 465,000
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 5.08
<LOANS-NON> 39,000
<LOANS-PAST> 272,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,145,000
<CHARGE-OFFS> 51,000
<RECOVERIES> 3,000
<ALLOWANCE-CLOSE> 1,135,000
<ALLOWANCE-DOMESTIC> 1,135,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 211,000
</TABLE>
