<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended June 30, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................................
to....................................
CONSUMERS BANCORP, INC.
-----------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
OHIO 34-1771400
- ---- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
614 East Lincoln Way, P.O. Box 256, Minerva, Ohio 44657
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
</TABLE>
(330) 868-7701
- --------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Shares, $3.33 stated value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for the year ended June 30, 1999 was: $11,696,000
At September 27, 1999, there were issued and outstanding 716,070 of the Issuer's
Common Shares.
The aggregate market value of the Issuer's voting stock held by nonaffiliates of
the Issuer as of September 27, 1999 was $33,655,290.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Issuer's Proxy Statement dated September 01, 1999, are
incorporated by reference into Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Exchange Act; Item 10.
Executive Compensation; Item 11. Security Ownership of Certain Beneficial Owners
and Management; and Item 12. Certain Relationships and Related Transactions, of
Part III.
Transitional Small Business Disclosure Form (check one):
Yes [_] No [X]
- --------------------------------------------------------------------------------
1
<PAGE> 2
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS
- --------
Consumers Bancorp, Inc. (the "Corporation"), a bank holding company incorporated
under the laws of the State of Ohio, owns all of the issued and outstanding
capital stock of Consumers National Bank (the "Bank"), a bank chartered under
the laws of the United States. On February 28, 1995, the Corporation acquired
all of the common stock issued by the Bank through a triangular merger. The
Corporation's activities have been limited primarily to holding the common
shares of the Bank.
Serving the Minerva, Ohio area since 1965, the Bank's main office is located at
614 E. Lincoln Way, Minerva, Ohio. The Bank's business involves attracting
deposits from business and individual customer and using such deposits to
originate commercial, mortgage and consumer loans in its market area, consisting
primarily of Stark, Columbiana, Carroll and contiguous counties in Ohio. The
Bank also invests in securities consisting primarily of U.S. government and
government agency obligations, municipal obligations, mortgage-backed securities
and other securities.
The Bank owns 100% of Community Finance Home Mortgage Co. Inc., ("Community
Finance"), a registered finance company in the State of Ohio. This subsidiary
accounts for less than 2% of the Corporation's consolidated assets and business.
SUPERVISION AND REGULATION
- --------------------------
REGULATION OF THE CORPORATION: The Corporation is a registered bank holding
company organized under the laws of the State of Ohio. As such, the Corporation
is subject to the laws of the State of Ohio and is under the jurisdiction of the
Securities Act of 1933, as amended, and various Securities and Exchange
Commission rules and regulations relating to the offering and sale of its
securities. The Corporation is also subject to regulation under the Bank Holding
Company Act of 1956 as amended. The Federal Reserve Board regulates bank holding
companies and may examine or inspect the books and records of the Corporation
and the Bank.
The Corporation is not aware of any current recommendations by regulatory
authorities that, if they were to be implemented, would have a material effect
on the Corporation.
REGULATION OF THE BANK: As a bank holding company, the Corporation is subject to
regulation, supervision and examination by the Federal Reserve Bank (the "FRB").
As a nationally chartered commercial bank, the Bank is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency
(the "OCC"). These regulatory agencies have the authority to examine the books
and records of the Bank, and the Bank is subject to their rules and regulations.
Deposits in the Bank are insured up to applicable limits by the FDIC. The Bank
is also a member of the Federal Home Loan Bank of Cincinnati (the "FHLB").
Community Finance is subject to regulation by the State of Ohio.
- --------------------------------------------------------------------------------
2
<PAGE> 3
PART 1 - ITEM 1 - continued
The Corporation is not aware of any current recommendations by regulatory
authorities that, if they were to be implemented, would have a material effect
on the Corporation. In addition, the Corporation is not aware of any exposure to
material costs associated with environmental hazardous waste cleanup. Bank loan
procedures require EPA studies be obtained by Bank management prior to approving
any commercial real estate loan with such potential risk.
EMPLOYEES
- ---------
As of June 30, 1999, the Bank employed 75 full-time and 17 part-time employees.
STATISTICAL DISCLOSURE
- ----------------------
The following section contains certain financial disclosures related to the
Registrant as required under the Securities and Exchange Commission's Industry
Guide 3, "Statistical Disclosures by Bank Holding Companies", or a specific
reference as to the location of the required disclosures in the Registrant's
1999 Annual Report to Shareholders, portions of which are incorporated in this
10-KSB by reference.
- --------------------------------------------------------------------------------
3
<PAGE> 4
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The following tables further illustrate the impact on net interest income from
changes in average balances and yields of the Corporation's assets and
liabilities.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME FOR THE YEARS ENDED
------------------------------------------------------------------------------
JUNE 30,
--------
(in thousands except percentages)
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- -------------------------------- --------------------------------
Average Yield/ Average Yield/ Average Yield/
Assets balance Interest rate balance Interest rate balance Interest rate
- ------ ------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Taxable securities $ 20,155 1,193 5.93% $ 14,535 $ 950 6.60% $ 18,780 1,059 5.59%
Nontaxable securities 2,588 125 7.30 2,316 105 6.84 2,261 84 5.66
Loans receivable 94,432 9,147 9.71 97,542 9,049 9.28 86,244 8,225 9.54
Federal funds sold 6,095 304 4.99 5,710 239 4.18 3,376 202 5.98
-------- -------- -------- -------- -------- --------
Total Interest-Earning Assets 123,270 10,769 8.80 120,103 10,343 8.67 110,661 9,570 8.67
Noninterest-Earning Assets 9,641 9,224 7,650
-------- -------- --------
Total Assets $132,911 $129,327 $118,311
======== ======== ========
Interest Bearing Liabilities
NOW 10,249 198 1.93 $ 9,773 223 2.29 $ 10,230 215 2.10
Savings 42,380 1,142 2.69 40,854 1,321 3.23 41,626 1,452 3.49
Time Deposits 46,798 2,569 5.49 46,267 2,489 5.38 40,769 2,080 5.10
FHLB advances 3,040 197 6.48 3,836 201 5.23 1,600 109 6.83
-------- -------- -------- -------- -------- --------
Total interest bearing
liabilities 102,467 4,106 4.01 100,730 4,234 4.20 94,225 3,856 4.09
Noninterest bearing
liabilities 19,687 18,426 15,135
-------- -------- --------
Total liabilities 122,154 119,156 109,360
Shareholders equity 10,757 10,171 8,951
-------- -------- --------
Total liabilities and
Shareholders equity $132,911 $129,327 $118,311
======== ======== ========
Net interest income, interest
Rate spread $ 6,663 4.79% $ 6,109 4.47% $ 5,714 4.58%
======== ======== ========
Net interest margin (net interest
As a percent of average interest-
Earning assets 5.41% 5.09% 5.16%
Average interest-earning assets to
Interest-bearing liabilities 119.23% 119.09% 117.63%
</TABLE>
Nonaccruing loans are included in the daily average loan amounts outstanding.
Yields on nontaxable securities have been computed on a fully tax equivalent
basis utilizing a 34% tax rate. The historical amortized cost average balance of
$20,107 for 1999 and $14,393 for 1998 was used to calculate yields for taxable
securities. The average balance for securities represents the carrying value of
securities. The net yield on interest-earning assets was computed by dividing
net interest income by total interest-earning assets without the market value
adjustment related to available-for-sale securities.
- --------------------------------------------------------------------------------
4
<PAGE> 5
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 which cannot be segregated have been
allocated in proportion to the changes due to rate and volume.
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase/(Decrease) Increase/(Decrease)
------------------- -------------------
(In thousands)
Change Change Change Change
Total due to due to Total due to due to
Change Volume Rate Change Volume Rate
------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Securities
Taxable $ 243 $ 340 $ (97) $ (109) $ (281) $ 172
Nontaxable (1) 20 13 7 20 3 17
Loans (2) 98 (294) 392 825 1,053 (228)
Federal funds sold 65 17 48 37 110 (73)
------- ------- ------- ------- ------- -------
Total interest income 426 76 350 773 885 (112)
------- ------- ------- ------- ------- -------
Deposits
NOW accounts (25) 10 (35) 9 (10) 19
Savings deposits (197) 48 (227) (131) (26) (105)
Time deposits 80 29 51 409 291 118
FHLB Advances (4) (46) 42 91 122 (31)
------- ------- ------- ------- ------- -------
Total interest expense (128) 41 (169) 378 377 1
------- ------- ------- ------- ------- -------
Net interest income $ 554 $ 35 $ 519 $ 395 $ 508 $ (113)
======= ======= ======= ======= ======= =======
</TABLE>
(1) Nontaxable income is adjusted to a fully tax equivalent basis utilizing
a 34% tax rate.
(2) Nonaccrual loan balances are included for purposes of computing the
rate and volume effects although interest on these balances has been
excluded.
- --------------------------------------------------------------------------------
5
<PAGE> 6
II. INVESTMENT PORTFOLIO
The following tables summarize the amounts and distribution of the Corporation's
securities held and the weighted average yields as of June 30, 1999:
<TABLE>
<CAPTION>
1999
-------------------------------
Amortized Fair Average
Cost Value Yield/cost
(Dollars in thousands)
AVAILABLE FOR SALE
U.S. TREASURY AND FEDERAL
AGENCY SECURITIES:
<S> <C> <C> <C>
3 months or less $ 0 $ 0 - %
Over 3 months though 1 year 2,043 2,050 5.74
Over 1 year through 5 years 9,035 9,002 5.81
Over 5 years through 10 years 2,012 1,982 6.40
------- -------
TOTAL U.S. TREASURY AND
FEDERAL AGENCY SECURITIES 13,090 13,034 5.89
------- -------
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS:
Over 3 months or less 220 221 6.80
Over 3 months through 1 year 297 299 7.09
Over 1 year through 5 years 982 1,002 7.42
Over 5 years through 10 years 1,592 1,537 7.41
------- -------
TOTAL OBLIGATIONS OF STATES
AND POLITICAL SUBDIVISIONS 3,091 3,059 7.34
------- -------
CORPORATE BONDS:
Over 10 years -- -- --
MORTGAGE-BACKED SECURITIES:
Over 1 year through 5 years 483 482 6.11
Over 10 years 6,876 6,705 6.19
------- -------
TOTAL MORTGAGE-BACKED
SECURITIES 7,359 7,187 6.18
------- -------
OTHER EQUITY SECURITIES 787 787
------- -------
TOTAL SECURITIES $24,327 $24,067 6.17%
======= =======
</TABLE>
The weighted average interest rates are based on coupon rates for securities
purchased at par value and on effective interest rates considering amortization
or accretion if the securities were purchased at a premium or discount. The
weighted average yield on tax exempt obligations has been determined on a tax
equivalent basis. Other securities consists of Federal Home Loan Bank and
Independent State Bank stock that bear no stated maturities and do not reflect
principal prepayment assumptions. Available for sale yields are based on
amortized cost balances.
Excluding those holdings of the investment portfolio in U.S. Treasury securities
and other agencies and corporations of the U.S. government, there were no
investments in securities
- --------------------------------------------------------------------------------
6
<PAGE> 7
of any one issuer which exceeded 10% of the consolidated shareholder's equity of
the Registrant at June 30, 1999.
III. LOAN PORTFOLIO
A. Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at June 30,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate - mortgage $ 40,258 $ 44,073 $ 43,919 $ 45,630 $ 38,671
Real estate - construction 785 1,609 2,550 - -
Commercial financial and agricultural 40,564 36,449 29,596 23,105 25,506
Installment loans to individuals 15,415 13,228 12,796 12,680 12,587
-------- -------- -------- --------- ---------
Total loans $ 97,022 $ 95,359 $ 88,861 $ 81,415 $ 76,764
======== ======== ======== ========= =========
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates - The
following is a schedule of contractual maturities and repayments excluding
residential real estate mortgage and consumer loans, as of June 30, 1999:
(Dollars in thousands)
<TABLE>
<CAPTION>
Commercial, financial and agricultural
<S> <C>
Due in one year or less $ 9,340
Due after one year, but within five years 9,919
Due after five years 21,305
-------
Total $40,564
=======
</TABLE>
The following is a schedule of fixed rate and variable rate commercial,
financial and agricultural loans due after one year (variable rate loans are
those loans with floating or adjustable interest rates):
(Dollars in thousands)
<TABLE>
<CAPTION>
Fixed Variable
Interest Rates Interest Rates
Total commercial, financial and
<S> <C> <C>
agricultural loans due after one year $ 12,337 $ 18,887
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 8
C. Risk Elements
Nonaccrual, Past Due and Restructured Loans - The following schedule summarizes
nonaccrual, past due, and restructured loans:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Nonaccrual loans $ 136 $ 43 $ 213 $ 93 $ 204
Accrual loans past due 90 days 236 644 110 378 285
Restructured loans 0 0 0 0 0
-------- -------- -------- -------- --------
Total 372 687 323 471 489
Potential problem loans 0 0 0 0 0
-------- -------- -------- -------- --------
Total $ 372 $ 687 $ 323 $ 471 $ 489
======== ======== ======== ======== ========
</TABLE>
Potential Problem Loans - As shown in the table above, at June 30, 1999, there
were no loans not otherwise identified which are included on Management's watch
list. Management's watch list includes both loans which Management has some
doubt as to the borrowers' ability to comply with the present repayment terms
and loans which management is actively monitoring due to changes in the
borrowers financial condition. These loans and their potential loss exposure
have been considered in Management's analysis of the adequacy of the allowance
for loan losses.
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.
No material amount of loans that have been classified by regulatory examiners as
loss, substandard, doubtful, or special mention have been excluded from the
amounts disclosed as nonaccrual, past due 90 days or more, restructured, or
potential problem loans.
Other Interest Bearing Assets -As of June 30, 1999, there are no other interest
bearing assets that would be required to be disclosed under Item III C.1 or 2 if
such assets were loans. The Registrant had Other Real Estate Owned of $3 at June
30, 1999 and $0 at June 30, 1998.
- --------------------------------------------------------------------------------
8
<PAGE> 9
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following schedule presents an analysis of the allowance for loan losses,
average loan data, and related ratios for the years ended June 30,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Allowance for loan losses at beginning of year $1,145 $1,060 $ 950 $ 900 $ 740
Loans charged off:
Real estate mortgage 3 3 0 20 9
Real estate construction 0 0 0 0 0
Commercial, financial and agricultural 148 5 11 0 7
Installment loans to individuals 144 70 99 82 101
------ ------ ------ ------ ------
Total charge-offs 295 78 110 102 117
Recoveries:
Real estate mortgage 0 0 21 3 4
Real estate construction 0 0 0 0 0
Commercial, financial and agricultural 0 2 9 0 1
Installment loans to individuals 65 35 54 36 46
------ ------ ------ ------ ------
Total recoveries 65 37 84 39 51
------ ------ ------ ------ ------
Net charge-offs/(recoveries) 230 41 26 63 66
Provision for loan loss
charged to operations 278 126 136 113 226
------ ------ ------ ------ ------
Allowance for loan losses at end of year $1,193 $1,145 $1,060 $ 950 $ 900
====== ====== ====== ====== ======
</TABLE>
The allowance for loan losses balance and the provision charged to expense are
judgmentally determined by Management based upon the periodic review of the loan
portfolio, an analysis of impaired loans, past loan loss experience, economic
conditions, anticipated loan portfolio growth, and various other circumstances
which are subject to change over time. In making this judgment, Management
reviews selected large loans as well as delinquent loans, nonaccrual loans,
problem loans, and loans to industries experiencing economic difficulties. The
collectibility of these loans is evaluated after considering the current
financial position of the borrower, the estimated market value of the
collateral, guarantees and the Corporation's collateral position versus other
creditors. Judgments, which are necessarily subjective, as to the probability of
loss and the amount of such loss, are formed on these loans, as well as other
loans in the aggregate.
- --------------------------------------------------------------------------------
9
<PAGE> 10
The following schedule is a breakdown of the allowance for loan losses allocated
by type of loan and related ratios:
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
----------------------------------------------------------------------
(Dollars in thousands) Percentage Percentage
of Loans of Loans
In Each in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
June 30, 1999
-------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 553 41.8%
Installment loans to individuals 248 15.9
Real Estate 206 42.3
Unallocated 186 -
------------ -------
Total $ 1,193 100.0%
============ ========
June 30, 1998 June 30, 1997
------------- -------------
Commercial, financial and agricultural $ 524 38.2% $ 476 33.3%
Installment loans to individuals 232 13.9 210 14.4
Real Estate 176 47.9 166 52.3
Unallocated 213 - 208 -
------------ ------ --------- ------
Total $ 1,145 100.0% $ 1,060 100.0%
============ ======= ========== ======
June 30, 1996 June 30, 1995
------------- -------------
Commercial, financial and agricultural $ 426 28.4 $ 408 33.2%
Installment loans to individuals 193 15.6 184 16.4
Real Estate 143 56.0 134 50.4
Unallocated 188 - 174 -
------------ ------ ---------- -----
Total $ 950 100.0% $ 900 100.0%
============ ======= ========== =====
</TABLE>
At June 30, 1999 there was no loans classified as impaired and therefore no
specific allocations for any loans classified as impaired. Because Management's
analysis of problem loans would have provided a similar allocation prior to
adopting SFAS No. 114, the adoption of SFAS No. 114 had no impact on the
comparability of the June 30, 1999 allowance for loan loss allocation to prior
periods.
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-offs that
occur.
- --------------------------------------------------------------------------------
10
<PAGE> 11
V. DEPOSITS
The following is a schedule of average deposit amounts and average rates paid on
each category for the periods included:
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------------------
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposit $ 17,860 $ 16,728 $ 13,757
Interest bearing demand deposits 10,249 1.93% 9,773 2.29% 10,230 2.10%
Savings 42,380 2.69 40,854 3.23 41,626 3.49
Certificates and other time deposits 46,798 5.49 46,267 5.38 40,769 5.10
---------- -------- -------
Total $ 117,287 3.33% $113,622 3.55% $106,382 3.52%
========== ======== ========
</TABLE>
The following table summarizes time deposits issued in amounts of $100,000 or
more as of June 30, 1999 by time remaining until maturity:
(Dollars in thousands)
Maturing in:
Under 3 months $ 3,520
Over 3 to 6 months 3,165
Over 6 to 12 months 853
Over 12 months 1,877
------------
Total $ 9,415
============
VI. Return on Equity and Assets
June 30, 1999 June 30, 1998
------------- -------------
Return on Average Assets 1.37% 1.34%
Return on Average Equity 16.93% 7.03%
Dividend Payout Ratio 32.62% 34.30%
Average Equity to Average Assets 8.09% 7.86%
- --------------------------------------------------------------------------------
11
<PAGE> 12
ITEM 2 - DESCRIPTION OF PROPERTY
The Bank owns and maintains the premises in which four of the seven banking
facilities are located. Carrollton, Alliance, and the Salem Finance offices are
is leased to the Bank under terms as detailed in the Annual Report to the
shareholders and incorporated herein by reference. The location of each of the
offices is as follows:
Minerva Office: 614 E. Lincoln Way, P.O. Box 256, Minerva, Ohio, 44657
Salem Office: 141 S. Ellsworth Ave., P.O. Box 798, Salem, Ohio, 44460
Waynesburg Office: 8607 Waynesburg Dr. SE, P.O. Box 746, Waynesburg,
Ohio, 44688
Hanoverton Office: 30034 Canal St., P.O. Box 178, Hanoverton, Ohio,
44423
Carrollton Office: 1017 Canton Rd. NW, P.O. Box 8, Carrollton, Ohio,
44615
Alliance Office: 610 West State St., Alliance, Ohio, 44601
Salem Finance Office: 2368 A. East State St., Salem, Ohio, 44460
ITEM 3 - LEGAL PROCEEDINGS
Corporation management is aware of no pending or threatened litigation in which
the Corporation or its subsidiary Bank faces potential loss or exposure which
will materially affect the consolidated financial statements or involves a claim
for damages exceeding ten percent of the assets of the Corporation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this section is incorporated by reference to the
Registrant's Definitive Proxy Statement and Notice of Annual Meeting of
Shareholders scheduled for September 15, 1999, ("1999 Proxy Statement") filed
with the Commission pursuant to Section 14(A) of the Securities Exchange Act of
1934 and is incorporated by reference into the form 10-KSB Annual Report.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this section is incorporated by reference to the
information appearing under the caption "Market Price of the Corporation's
Common Shares & Related Shareholder Matters" located on Page 4 of the 1999
Annual Report to Shareholders incorporated herein by reference.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appears on pages 24 through 29 of the Registrant's 1999 Annual
Report to Shareholders and is incorporated herein by reference.
- --------------------------------------------------------------------------------
12
<PAGE> 13
ITEM 7 - FINANCIAL STATEMENTS
The Registrant's Report of Independent Auditors and Consolidated Financial
Statements and accompanying notes are listed below and are incorporated herein
by reference to Consumers Bancorp, Inc.'s 1999 Annual Report to Shareholders
(Exhibit 13, pages 5 through 23).
Report of Independent Auditors
Consolidated Balance Sheets
June 30, 1999 and 1998
Consolidated Statements of Income
For the two years ended June 30, 1999
Consolidated Statement of Changes in Shareholders' Equity
For the two years ended June 30, 1999
Consolidated Statements of Cash Flows
For the two years ended June 30, 1999
Notes to Consolidated Financial Statements
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Board of Directors of Consumers Bancorp, Inc. on May 8, 1998, engaged the
accounting firm of Crowe, Chizek and Company LLP to serve as independent
accountants for the Corporation for 1998. The work of S. R. Arner & Co. was
concluded. During the two most recent years and interim period subsequent to May
8, 1998, there have been no disagreements with S. R. Arner & Co. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events. S. R. Arner & Co.'s report
on the financial statements for the past two years contained no adverse opinion
or disclaimer and was not qualified or modified as to uncertainty, audit scope,
or accounting principle.
- --------------------------------------------------------------------------------
13
<PAGE> 14
PART III
Information relating to the following items is included in the Registrant's
Definitive Proxy statement and Notice of Annual Meeting of Shareholders to be
held on September 15, 1999, ("1999 Proxy Statement") filed with the Commission
pursuant to Section 14(A) of the Securities Exchange Act of 1934 and is
incorporated by reference into the form 10-KSB Annual Report.
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 10 - EXECUTIVE COMPENSATION
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
14
<PAGE> 15
ITEM 13 - EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Reference to
Regulation S-B Prior Filing
Exhibit Exhibit Number
Number Description of Document Attached Hereto
------ ----------------------- ---------------
<S> <C> <C>
3.1 Amended Articles of Incorporation of
the Corporation *
3.2 Code of Regulations of the Corporation *
4 Form of Shares Certificate of Common Shares *
13 Annual Report to Shareholders for the fiscal year
ended June 30, 1999 **
20 Proxy Statement for the 1999 Annual ***
Meeting of the Shareholders
27 Financial Data Schedule **
</TABLE>
* Indicates documents which have been previously filed. All such previously
filed documents are hereby incorporated by reference in accordance with
Item 601 of Regulation S-B. Such documents are available to shareholders
without charge upon request.
** The indicated exhibit has been filed as separate pages of the 1999 Form
10-KSB and is available to shareholders upon request.
*** The indicated exhibit was separately filed by the Corporation and such
document is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
Consumers Bancorp Inc. filed reports on Form 8-K during the quarter ended June
30, 1999 as follows:
(1) Form 8-K dated June 8, 1999 regarding the removal of a director from
the board of directors of Consumers National Bank.
- --------------------------------------------------------------------------------
15
<PAGE> 16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSUMERS NATIONAL BANK
September 27, 1999 By: /s/ Mark S, Kelly
------------------ -------------------------------------
Date Mark S. Kelly
President and Chief Executive Officer
By: /s/ Paula J. Meiler
-------------------------------------
Paula J. Meiler
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of registrant and in the capacities indicated on
September 27, 1999.
<TABLE>
<CAPTION>
Signatures Signatures
---------- ----------
<S> <C>
/s/ Mark S. Kelly /s/ Laurie L.McClellan
- ------------------------------------- ----------------------------------
Mark S. Kelly Laurie L. McClellan
President and Chief Executive Officer Chairman of the Board and Director
/s/ J.V. Hanna /s/ Walter J. Young
- ------------------------------------- ----------------------------------
J.V. Hanna Walter J. Young
Vice President and Director Vice President and Director
/s/ John P. Furey /s/ David W. Johnson
- ------------------------------------- ----------------------------------
John P. Furey David W. Johnson
Director Director
/s/ James R. Kiko /s/ Thomas M. Kishman
- ------------------------------------- ----------------------------------
James R. Kiko Thomas M. Kishman
Director Director
/s/ Harry W. Schmuck /s/ Homer R. Unkefer
- ------------------------------------- ----------------------------------
Harry W. Schmuck Homer R. Unkefer
Director Director
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE> 1
Exhibit 13
----------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
GENERAL
The following is management's analysis of the Corporation's financial condition
and results of operations as of and for the year ended June 30, 1999, compared
to prior years. 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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999 AND JUNE
30, 1998
NET INCOME. The Corporation earned net income of $1,821,000 for the year ended
June 30, 1999 compared to $1,732,000 for the year ended June 30, 1998. The
increase was primarily due to an increase in net interest income and other
income partially offset by an increase in the other expense.
NET INTEREST INCOME. Net interest income totaled $6,663,000 for the year ended
June 30, 1999 compared to $6,109,000 for the year ended June 30, 1998, an
increase of $554,000 or 9.07%. The earnings growth was due to the increase of
interest and fees on loans totaling $98,000 and interest on taxable securities
of $243,000 and the decrease interest expense on deposits of $124,000.
Interest and fees on loans increased 1.08% from $9,049,000 for the year ended
June 30, 1998 to $9,147,000 for the year ended June 30, 1999. The increase in
interest income was due to higher average loans outstanding and an increase in
the average yield earned on loans.
Interest earned on taxable and tax-exempt securities totaled $1,318,000 for the
year ended June 30, 1999 compared to $1,055,000 for the year ended June 30,
1998. The increase was primarily the result of higher average balances of
securities. Interest income on fed funds sold increased 27.2% for the year ended
June 30, 1999, due to an increase in the average outstandings. During the latter
part of the year, as loan growth slowed and deposit balances increased, excess
funds were gradually being invested in various securities, with consideration
given to future funding needs.
Total interest expense decreased $128,000 or 3.02% for the year ended June 30,
1999 compared to the year ended June 30, 1998. The decrease was primarily a
result of the decline in interest rates during the year.
Interest paid on FHLB Advances totaled $197,000 for the year ended June 30, 1999
compared to $201,000 for the year ended June 30, 1998. The change was a result
of a decrease in the average level of borrowings from 1998 to 1999.
- --------------------------------------------------------------------------------
1
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
PROVISION FOR LOAN LOSSES. The Corporation maintains an allowance for loan
losses in an amount which, in management's judgment, is adequate to absorb
reasonably foreseeable losses in the loan portfolio. While management utilizes
its best judgment 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 real estate 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 year ended June 30, 1999 totaled $278,000
compared to $126,000 for the year ended June 30, 1998, an increase of $152,000.
The allowance for loan losses totaled $1,193,000 or 1.23% of total loans
receivable at June 30, 1999, compared with $1,145,000 or 1.20% of total loans
receivable at June 30, 1998. The increase in the provision for loan losses for
the year ended June 30, 1999 was primarily due to the increased level of loans
and net charge-offs.
OTHER INCOME. Other income primarily includes service charges on deposits and
other miscellaneous income. Other income of $927,000 for the year ended June 30,
1999 represented an increase of $276,000 or 42.4% over the $651,000 of other
income for the year ended June 30, 1998. The increase was due primarily to an
increase in service charge income on deposits resulting from an increase in the
amount of deposits as well as increases in the cash surrender value of life
insurance and increases in the 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 and has entered into an
arrangement whereby it assists a third party by taking loan applications
completing certain loan documents for which it is paid a fee. The arrangement
allows the Corporation to meet its customers need 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 $4,661,000 for the year ended June 30, 1999
compared to $3,964,000 for the year ended June 30, 1998, an increase of $697,000
or 17.6%. Increases in salaries and benefits, occupancy and other expenses were
the primary reason for the increase and were partially offset by a decrease in
directors fees and professional fees.
Salary and benefits expense increased $395,000 or 18.7%. The increase is the
result of normal, annual merit increases and the addition of new employees to
facilitate growth. During the year, the bank opened a new branch office in
Alliance, Ohio, and a wholly-owned finance company subsidiary in Salem, Ohio.
The increase in occupancy expense was primarily due to the depreciation and
maintenance associated with these two projects and the renovation of the Salem
branch. The increase in other expense was attributable to general increase in
various overhead categories due to the continued growth of the Company.
<PAGE> 3
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
INCOME TAX EXPENSE. The change in income tax expense is primarily attributable
to the decrease in income before income taxes and the change in the after tax
effect of tax-exempt income and other items. The provision for income taxes
totaled $830,000 for the year ended June 30, 1999 compared to $938,000 for the
year ended June 30, 1998, a decrease of $108,000. The effective tax rates were
31.3% and 35.1% for the years ended June 30, 1999 and 1998.
FINANCIAL CONDITION
Total assets at June 30, 1999 were $134.6 million compared to $131.6 million at
June 30, 1998, an increase of $3 million, or 2.3%. The increase in total assets
was primarily due to an increase in loans and securities funded by an increase
in deposits and a decrease in federal funds sold.
Loans receivable increased $1.7 million from $93.9 million at June 30, 1998 to
$95.6 million at June 30, 1999. The Corporation experienced increases in all
loan categories except for real estate mortgages and construction loans. The
largest increase was in commercial loans which increased $4.1 million or 11.3%.
Installment loans had an increase of 16.5%.
Total deposits increased $2.3 million from $116.8 million at June 30, 1998 to
$119.1 million at June 30, 1999. The Corporation experienced increases in all
types of deposits other than time deposit accounts which decreased only
slightly. The majority of deposit growth was in savings accounts which increased
by $2.2 million, or 5.37%. In addition, non-interest and interest bearing
deposits increased 2.79% and 2.83% respectively from June 30, 1998 to June 30,
1999.
Total shareholders' equity increased $1 million from $10.1 million at June 30,
1998 to $11.1 million at June 30, 1999. The increase is primarily due to net
income of $1.8 million which was partially offset by cash dividends of $594
thousand.
ASSET AND LIABILITY MANAGEMENT
The Bank measures interest-rate risk from the perspectives of earnings at risk
and value at risk. The primary purpose of both the loan and investment
portfolios is the generation of income, but if credit risk is the principal
focus of risk analysis in the loan portfolio, interest-rate risk is the
principal focus in the investment portfolio. Because of the greater liquidity of
the investment portfolio, it is the vehicle for managing interest-rate risk in
the entire balance sheet. The Bank manages interest rate risk position using
simulation analysis of net interest income and net income over a two-year
period. The Bank also calculates the effect of an instantaneous change in market
interest rates on the economic value of equity or net portfolio value. Once
these analysis are complete, management reviews the results, with an emphasis on
the income-simulation results for purposes of managing interest-rate risk. The
rate sensitivity position is managed to avoid wide swings in net interest
margins. Measurement and identification of current and potential interest rate
risk exposures is
<PAGE> 4
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
conducted quarterly, with reporting and monitoring also occurring quarterly. The
bank applies interest rate shocks to its financial instruments up and down 200
basis points. The following table presents an analysis of the potential
sensitivity of the Bank's annual net interest income and present value of the
Bank's financial instruments to sudden and sustained 200 basis point changes in
market interest rates:
<TABLE>
<CAPTION>
Alco
One Year Net Interest Income Change 1999 Guidelines
- -------------------------------------- ---- ----------
<S> <C> <C>
+200 Basis Points (.7)% (16.0)%
- -200 Basis Points 2.0% (16.0)%
Net Present Value of Equity Change
+200 Basis Points (5.0)% (20.0)%
- -200 Basis Points 29.9% (20.0)%
</TABLE>
The projected volatility of net interest income and net present value of equity
rates to a +/- 200 basis points change at June 30, 1999 fall well with in the
Board of Directors guidelines.
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 investment securities, with any excess funds
placed in Federal Funds Sold on a daily basis.
The Bank groups its loan portfolio into four major categories; real estate
loans, commercial, financial and agricultural loans, personal loans, and credit
card outstanding balances. The Bank's real estate loan portfolio consists of
three basic segments: conventional mortgage loans having fixed rates for terms
not longer than fifteen years, variable rate home equity lines of credit loans
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 Bank's market for these types of loans, both from local and
national lenders. In 1997 the Bank became affiliated with the Community Mortgage
Network, which is a program that allows the Bank to offer a very attractive
mortgage loan option to its customers. Commercial, financial and agricultural
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. These loans have shown considerable
growth during the past year, with outstanding balances up by $4,115,000 or
11.3%. This is mainly due to the Bank's ability to tailor loan programs to the
specific requirements of the business, professional, and agricultural customers
in its market area. The personal loans offered by the Bank are generally written
for periods of 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 Bank, with the
Bank maintaining a very conservative policy on card limits and new accounts.
Credit card receivables have remained at relatively the same levels during the
past year.
<PAGE> 5
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
Funds not allocated to the Bank's loan portfolio are invested in various
securities having diverse maturity schedules. The majority of the Bank'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 these various types of investments as of June 30,
1999 were 5.88% for U.S. Treasury securities 5.94% for agency securities, and
7.41% tax equivalent for municipal securities.
The Bank offers several forms of deposit programs to its customers. The rates
offered by the Bank and the fees charged for them are competitive with others
available currently in the market area. Time deposit interest rates have
remained fairly steady during the year, with some downward movement during the
last two quarters. Much of this stability in rates is caused by the competitive
pressures in the Bank's market area as financial institutions attempt to attract
and keep new deposits to fund growth. Interest rates on demand deposits and
savings deposits continue to be at levels as low as have been seen in many
years. As a result, the trend for new deposit growth appears to be primarily in
either noninterest-bearing demand deposits or savings deposits.
Time deposits decreased from $11,662,000 for jumbo time deposits (those with
balances of $100,000 and over) to 9,415,000 at June 30, 1999. These deposits are
monitored closely by the Bank, priced on an individual basis, and often matched
with a corresponding investment instrument. The Bank 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 as a
primary source of funding however, and the Bank can foresee no dependence on
these types of deposits for the near term.
To provide additional source of loan funds, the Bank 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 year end, these FHLB advances
totaled $2,959,000. The Bank considers this agreement with FHLB to be a good
source of loan funding, secondary to its deposit base.
The net interest margin is monitored monthly. It is the Bank's goal to maintain
the net interest margin at 4.0% or greater. The net interest margin on a tax
equivalent basis for 1999 was 5.47% as compared to 5.38% for 1998.
CAPITAL RESOURCES
At June 30, 1999, management believes the Bank complied with all regulatory
capital requirements. Based on the Bank's computed regulatory capital ratios,
the Office of the Controller of the Currency 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 9 of the
consolidated financial statements. Management is not aware of any matters
occurring subsequent to that exam that would cause the Bank's capital category
to change.
RECENT ACCOUNTING DEVELOPMENTS
<PAGE> 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
Recent pronouncements by the Financial Accounting Standards Board ("FASB") could
have an impact on financial statements issued in subsequent periods. Set forth
below are summaries of such pronouncements.
Statement 134 on mortgage banking will, in 1999, allow mortgage loans that are
securitized to be classified as trading, available for sale, or in certain
circumstances held in maturity. Currently these must be classified as trading.
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 as the Year 1900. This could result in major systems failures and
miscalculations.
It is anticipated that approximately $60,000 will be spent on the preparedness
project. This includes assessment, renovation, and validation of all systems and
applications. Estimates include $30,000 for testing and software renovation,
$10,000 for customer awareness programs, and $20,000 for internal labor costs.
To date total non interest expense associated with the project approximates
$50,000.
The bank identified twenty mission critical systems which have had complete
assessment and validation and testing. The final software upgrade is in place
and testing and training of personnel is in process. In the unlikely event that
a mission critical system should fail on January 1, 2000, the Year 2000
committee is planning alternative methods of doing business and is in the
process of testing those procedures. The completed contingency plan should be in
place by September 30, 1999.
Management has determined that the Bank's programs are or will be capable of
identifying the turn of the century. The issue is closely monitored by
management and management believes all mission critical systems are now Year
2000 compliant. The Corporation's planning included customer awareness programs
and a risk analysis of the Corporation's business partners. Not withstanding the
Corporations efforts to become Year 2000 ready, non-compliance by the
Corporation's business
<PAGE> 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
partners, vendors, and suppliers could have a negative impact of an
undeterminable amount on the Corporation.
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> 8
Exhibit 13
Financial Highlights
June 30, June 30, Percent
1999 1998 Change
---- ---- ------
Total interest income $ 10,769 $ 10,343 4.12%
Total interest expense 4,106 4,234 (3.02)
Net income 1,821 1,732 5.14
Assets 134,635 131,621 2.29
Deposits 119,105 116,750 2.02
Loans, net 95,597 93,906 1.80
Securities available for sale 24,067 19,248 25.04
Shareholders' equity 11,135 10,131 9.91
Net income per share $ 2.54 $ 2.42 4.96%
Cash dividends paid per share .83 .83
Book value per share 15.56 14.13 10.12
Weighted average number of
shares outstanding 715,315 716,808
<PAGE> 9
BUSINESS OF CONSUMERS BANCORP, INC.
FINANCIAL CORPORATION
Consumers Bancorp, Inc. (the "Corporation"), a bank holding company incorporated
under the laws of the State of Ohio, owns all of the issued and outstanding
capital stock of Consumers National Bank (the "Bank"), a bank chartered under
the laws of the United States. On February 28, 1995, the Corporation acquired
all of the common stock issued by the Bank through a triangular merger. The
Corporation's activities have been limited primarily to holding the common
shares of the Bank.
Serving the Minerva, Ohio area since 1965, the Bank's main office is located at
614 E. Lincoln Way, Minerva, Ohio. The Bank's business involves attracting
deposits from business and individual customer and using such deposits to
originate commercial, mortgage and consumer loans in its market area, consisting
primarily of Stark, Columbiana, Carroll and contiguous counties in Ohio. The
Bank also invests in securities consisting primarily of U.S. government and
government agency obligations, municipal obligations, mortgage-backed securities
and other securities.
As a bank holding company, the Corporation is subject to regulation, supervision
and examination by the Federal Reserve Bank (the "FRB"). As a nationally
chartered commercial bank, the Bank is subject to regulation, supervision and
examination by the Office of the Comptroller of the Currency (the "OCC").
Deposits in the Bank are insured up to applicable limits by the FDIC. The Bank
is also a member of the Federal Home Loan Bank of Cincinnati (the "FHLB").
The Corporation is not aware of any current recommendations by regulatory
authorities that, if they were to be implemented, would have a material effect
on the Corporation. In addition, the Corporation is not aware of any exposure to
material costs associated with environmental hazardous waste cleanup. Bank loan
procedures require EPA studies be obtained by Bank management prior to approving
any commercial real estate loan with such potential risk.
As of June 30, 1999, the Bank employed 75 full-time and 17 part-time employees.
- --------------------------------------------------------------------------------
<PAGE> 10
MARKET PRICE OF THE CORPORATION'S
COMMON SHARES AND RELATED
SHAREHOLDER MATTERS
The Corporation had 715,745 common shares outstanding on June 30, 1999 held by
approximately 667 shareholders.
The shares of Common Stock of Consumers Bancorp, Inc. are traded on the
over-the-counter market primarily with brokers in the Corporation's service
area. The following quoted market prices reflect inter-dealer prices, without
adjustments for retail markups, markdowns, or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30,
1998 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High $ 42.88 $ 43.00 $ 47.00 $ 50.00
Low 41.63 41.63 42.00 47.00
Cash Dividends .23 .20 .20 .20
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30,
1997 1997 1998 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High $ 25.25 $ 27.50 $ 30.00 $ 42.75
Low 22.67 25.25 27.50 30.00
Cash Dividends .20 .25 .17 .21
</TABLE>
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 stock, these prices
may not reflect the prices at which the stock would trade in an active market.
- --------------------------------------------------------------------------------
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Consumers Bancorp, Inc.
Minerva, Ohio
We have audited the accompanying consolidated balance sheets of Consumers
Bancorp, Inc. as of June 30, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consumers Bancorp,
Inc. as of June 30, 1999 and 1998 and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Cleveland, Ohio
July 23, 1999
- --------------------------------------------------------------------------------
<PAGE> 12
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,773 $ 4,790
Federal funds sold 3,235 7,725
Securities available for sale 24,067 19,248
Loans, net 95,597 93,906
Cash surrender value of life insurance 2,007 1,476
Premises and equipment, net 3,530 2,782
Accrued interest and other assets 1,426 1,694
---------- ----------
Total assets $ 134,635 $ 131,621
========== ==========
LIABILITIES
Deposits
Noninterest-bearing demand $ 18,235 $ 17,740
Interest-bearing demand 10,106 9,828
Savings 44,595 42,324
Time 46,169 46,858
---------- ----------
Total deposits 119,105 116,750
---------- ----------
Federal Home Loan Bank advances 2,959 3,113
Accrued interest and other liabilities 1,436 1,627
---------- ----------
Total liabilities 123,500 121,490
SHAREHOLDERS' EQUITY
Common stock, $3.33 stated value, 720,000
shares authorized and issued 2,400 2,400
Capital surplus 2,427 2,400
Retained earnings 6,616 5,389
Treasury stock, at cost (4,255 and 4,250 shares
at June 30, 1999 and 1998) (136) (108)
Accumulated other comprehensive income (172) 50
---------- ----------
Total shareholders' equity 11,135 10,131
---------- ----------
Total liabilities and shareholders' equity $ 134,635 $ 131,621
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2.
<PAGE> 13
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 9,147 $ 9,049
Federal funds sold 304 239
Investment and mortgage-backed securities:
Taxable 1,193 950
Tax-exempt 125 105
---------- ----------
Total interest income 10,769 10,343
INTEREST EXPENSE
Deposits 3,909 4,033
Federal Home Loan Bank advances 197 201
---------- ----------
Total interest expense 4,106 4,234
Net interest income 6,663 6,109
Provision for possible loan losses 278 126
---------- ----------
Net interest income after provision
for possible loan losses 6,385 5,983
OTHER INCOME
Service charges on depositors accounts 532 407
Other income 395 244
---------- ----------
Total other income 927 651
OTHER EXPENSES
Salaries and employee benefits 2,505 2,110
Occupancy 719 564
Directors fees 175 195
Professional fees 74 76
Franchise taxes 112 157
Printing and supplies 228 150
Other non-interest expense 848 712
---------- ----------
Total other expenses 4,661 3,964
---------- ----------
Income before income taxes 2,651 2,670
Income tax expense 830 938
---------- ----------
Net income $ 1,821 $ 1,732
========== ==========
Basic earnings per share $ 2.54 $ 2.42
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3.
<PAGE> 14
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Comprehensive Shareholders'
Stock Surplus Earnings Stock Income Equity
----- ------- -------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1997 $ 2,400 $ 2,400 $ 4,252 $ (55) $ (50) $ 8,947
Comprehensive income:
Net income 1,732 1,732
Unrealized gain on
securities available
for sale 100 100
---
Total comprehensive income 1,832
Cash dividends declared
($.83 per share) (595) (595)
Purchase of 1,250
treasury shares (53) (53)
--------- --------- --------- -------- -------- ---------
Balance, June 30, 1998 2,400 2,400 5,389 (108) 50 10,131
Comprehensive income:
Net income 1,821 1,821
Unrealized loss on
securities available
for sale (222) (222)
---------
Total comprehensive income 1,599
Cash dividends declared
($.83 per share) (594) (594)
Purchase of 1,155
treasury shares (49) (49)
Sale of 1,150
treasury shares 27 21 48
--------- --------- --------- -------- -------- ---------
Balance, June 30, 1999 $ 2,400 $ 2,427 $ 6,616 $ (136) $ (172) $ 11,135
========= ========= ========= ======== ======== =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
<PAGE> 15
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1999 and 1998
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,821 $ 1,732
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 288 274
Securities amortization, net 135 46
Provision for loan losses 278 126
Deferred income taxes 143 (61)
Loss on sale of investment securities 1
Stock dividend on FHLB stock (43) (39)
Change in
Cash surrender value (86) (70)
Income taxes payable (40) 214
Accrued interest receivable 1 (150)
Accrued interest payable (237) 206
Other assets and other liabilities 325 (142)
-------- --------
Net cash from operating activities 2,585 2,137
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (11,479) (4,833)
Sales 999
Maturities and principal paydowns 6,232 3,127
Net decrease (increase) in federal funds sold 4,490 (4,225)
Net increase in loans (1,969) (6,808)
Acquisition of premises and equipment (1,037) (828)
Purchase of life insurance policies (445) (170)
-------- --------
Net cash from investing activities (4,208) (12,738)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 2,355 10,474
Proceeds from FHLB advances 650
Repayments of FHLB advances (154) (132)
Dividends paid (594) (595)
Sale of treasury stock 48
Purchase of treasury stock (49) (53)
-------- --------
Net cash from financing activities 1,606 10,344
-------- --------
Change in cash and cash equivalents (17) (257)
Cash and cash equivalents, beginning of year 4,790 5,047
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,773 $ 4,790
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5.
<PAGE> 16
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise indicated, amounts are in thousands, except per share data.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Consumers Bancorp, Inc. (Corporation) and its wholly-owned
subsidiary, Consumers National Bank (Bank). The Bank has a finance company,
Community Finance as part of their business. All significant intercompany
transactions have been eliminated in the consolidation.
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 its 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 June 30,
1999 and 1998, was $841 and $846.
SECURITIES: Securities are generally classified into either held to maturity or
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.
- --------------------------------------------------------------------------------
6.
<PAGE> 17
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 years ended June 30, 1999 and 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 June 30, 1999, the Bank has total purchased policies of
$1,795 (total death benefit $5,165) with a cash surrender value of $2,007. As of
June 30, 1998, the Bank has total purchased policies of $1,340 (total death
benefit $3,967) with a cash surrender value of $1,476. The amount included in
income (net of policy commissions and mortality costs) was approximately $86 and
$70 for the years ended June 30, 1999 and 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.
- --------------------------------------------------------------------------------
7.
<PAGE> 18
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 June 30, 1999 and 1998.
PROFIT SHARING PLAN: The Company maintains a 401(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 715,315 and 716,808 for the years ended June 30,
1999 and 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 June 30, 1999 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 years ended June 30, 1999 and 1998, the Bank paid $4,329 and $4,028 in
interest and $866 and $830 in income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad
- --------------------------------------------------------------------------------
8.
<PAGE> 19
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
markets for particular items. Changes in assumptions or in market conditions
could significantly affect the estimates.
RECLASSIFICATIONS: Certain reclassifications have been made to the June 30, 1998
financial statements to be comparable to the June 30, 1999 presentation.
NOTE 2 - SECURITIES
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
JUNE 30, 1999
Securities available for sale:
U.S. Treasury and Federal
agencies $ 13,090 $ 44 $ (100) $ 13,034
Obligations of states and political
subdivisions 3,091 38 (70) 3,059
Mortgage-backed securities 7,359 1 (173) 7,187
Other securities 787 787
--------------- ------------ ------------ ----------------
$ 24,327 $ 83 $ (343) $ 24,067
=============== ============ ============ ================
JUNE 30, 1998
Securities available for sale:
U.S. Treasury and Federal
agencies $ 13,112 $ 93 $ (4) $ 13,201
Obligations of states and political
subdivisions 2,366 50 (4) 2,412
Mortgage-backed securities 2,916 (61) 2,855
Other securities 780 780
--------------- ------------ ------------ ----------------
$ 19,174 $ 143 $ (69) $ 19,248
=============== ============ ============ ================
</TABLE>
Securities with a carrying value of approximately $9,182 and $10,630 were
pledged at June 30, 1999 and 1998 to secure public deposits and commitments as
required or permitted by law.
Proceeds from sales of mortgage-backed and debt securities during 1999 and 1998
were $0 and $999. A loss of $1 was recognized for the security sold during the
year ended June 30, 1998.
- --------------------------------------------------------------------------------
9.
<PAGE> 20
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 2 -SECURITIES (Continued)
The amortized cost values and fair values of debt and mortgage-backed securities
available for sale at June 30, 1999, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 2,560 $ 2,570
Due after one year through five years 8,916 9,020
Due after five years through ten years 3,466 3,387
After ten years 1,340 1,217
--------------- ----------------
16,282 16,194
Mortgage-backed securities 7,359 7,187
Equity securities 686 686
--------------- ----------------
$ 24,327 $ 24,067
=============== ================
</TABLE>
NOTE 3 - LOANS
Major classifications of loans are as follows as of June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Real estate - mortgage $ 40,258 $ 44,073
Real estate - construction 785 1,609
Commercial, financial and agricultural 40,564 36,449
Installment loans to individuals 15,415 13,228
--------------- ----------------
97,022 95,359
Unearned discount (26) (113)
Deferred loan fees (206) (195)
Allowance for possible loan losses (1,193) (1,145)
--------------- ----------------
$ 95,597 $ 93,906
=============== ================
</TABLE>
No loans were determined to be impaired at June 30, 1999 and 1998, nor were
there any such loans during the years then ended. If interest had been accrued
on non-accrual loans, interest income would have increased by $14 and $13 for
the years ended June 30, 1999 and 1998.
- --------------------------------------------------------------------------------
10.
<PAGE> 21
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
The changes in the allowance for possible loan losses consists of the following
for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of year $ 1,145 $ 1,060
Loan charged off (295) (78)
Recoveries of loans previously charged off 65 37
Provision 278 126
-------------- --------------
Balance at end of year $ 1,193 $ 1,145
============== ==============
</TABLE>
The Bank has granted loans to certain of its executive officers and directors
and their related business interests. A summary of activity during the year
ended June 30, 1999 on related party loans aggregating $60,000 or more to any
one related party is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Principal balance at beginning of year $ 554
New loans 1,612
Repayments (563)
--------------
Principal balance at end of year $ 1,603
==============
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows as of June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premises and equipment, at cost
Land $ 515 $ 266
Land improvements 159 159
Buildings and leasehold improvements 2,279 1,884
Furniture, fixtures, and equipment 2,706 2,314
-------------- --------------
5,659 4,623
Accumulated depreciation and amortization (2,129) (1,841)
-------------- --------------
$ 3,530 $ 2,782
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
11.
<PAGE> 22
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 5 - DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination of $100,
was $9,415 and $11,662 in 1999 and 1998.
Scheduled maturities of time deposits at June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 39,128
2001 6,288
2002 753
---------------
$ 46,169
===============
</TABLE>
Included in time deposits at June 30, 1999, is a $1,000 brokered time deposit at
a rate of 5.55% maturing on February 12, 2001. Related party deposits totaled
$1,480 at June 30, 1999.
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances at June 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Interest Balance
Maturity Rate June 30, 1999
-------- ---- -------------
<S> <C> <C>
7/1/2000 6.50% $ 920
10/1/2000 6.16% 604
7/1/2010 6.90% 497
10/1/2010 7.00% 463
12/1/2010 6.10% 475
--------------
$ 2,959
==============
</TABLE>
The following table is a summary of the scheduled principal payments for these
advances:
<TABLE>
<CAPTION>
Twelve Months Principal
Ending June 30, Payments
--------------- --------
<S> <C>
2000 $ 164
2001 976
2002 666
2003 108
Thereafter 1,045
---------------
$ 2,959
==============
</TABLE>
- --------------------------------------------------------------------------------
12.
<PAGE> 23
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES (Continued)
Pursuant to collateral agreements with the FHLB, advances are secured by all
stock invested in the FHLB and certain qualifying first mortgage loans. As of
June 30, 1999, the Bank could borrow a total of $10,648 in cash management
advances based on the amount of FHLB stock owned. Qualifying first mortgage
loans pledged to secure FHLB advances totaled approximately $4,439 at June 30,
1999.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Bank has a 401(k) savings and retirement plan available for substantially
all eligible employees. Under the plan, the Bank is required to match each
participant's voluntary contribution to the plan but not to exceed four percent
of the individual compensation. The plan was submitted and approved by the
Internal Revenue Service. Amounts charged to operations were $63 and $54, for
the years ended June 30, 1999 and 1998.
During September 1995, the Board of Directors adopted a Salary Continuation Plan
(the Plan) to encourage Bank Executives (Assistant Vice-Presidents and above) to
remain employees of the Bank. The Plan provides additional retirement and
spousal survivorship benefits for those Executives who have attained age 40 and
have at least five years of service. The Plan provides a participant or a
surviving spouse upon retirement or death with fifteen years of income payments
equal to 70% of the employee's base pay at the time of termination. The amount
of base pay is limited to the lesser of the preceding year's annual base salary
before termination or the annual base salary at the inception of the agreement
with the employee plus 3.5% annual inflation. Plan benefits are reduced for
primary social security benefits, other Bank benefit programs, and the maximum
annuitized benefits from Bank contributions made under the Bank's 401(k) plan,
which assumes that the Executive had been contributing an amount sufficient to
maximize the Bank's matching provisions of the 401(k) plan. Vesting in the Plan
commences at age 50 and is prorated until age 65, however, vesting is 100% upon
the death of the Executive, if they were insurable, otherwise, benefits cease at
death. The benefit amount is determined using a 8.5% discount factor, compounded
monthly. For the years ended June 30, 1999 and 1998, approximately $75 and $68
have been charged to expense.
- --------------------------------------------------------------------------------
13.
<PAGE> 24
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following for the years ended
June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current incomes taxes $ 687 $ 999
Deferred income taxes 143 (61)
------------ -----------
$ 830 $ 938
============ ===========
</TABLE>
The deferred income taxes consist of the following for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Allowance for possible loan losses $ 352 $ 336
Net unrealized securities loss 89
Deferred compensation 109 49
Accrued expenses 13
Deferred tax liabilities
Depreciation (137) (56)
Loan fees (152) (39)
FHLB Stock dividends (12)
Net unrealized securities gain (25)
------------ -----------
Net deferred tax asset $ 249 $ 278
============ ===========
</TABLE>
The difference between the provision for income taxes and amounts computed by
applying the statutory income tax rate of 34% to statutory income before taxes
consists of the following for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income taxes computed at the
Tax rate on pretax income $ 901 $ 908
Add (subtract) tax effect of
Tax exempt income (55) (44)
Amortization of goodwill 3 3
Other (19) 71
------------ -----------
$ 830 $ 938
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
14.
<PAGE> 25
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 9 - REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective-action
regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
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. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
--------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
</TABLE>
At year-end, actual Bank capital levels (in millions) and minimum required
levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
June 30, 1999
- -------------
Total capital (to risk weighted assets) $ 12.46 13.4% $ 7.44 8.0% $ 9.30 10.0%
Tier 1 capital (to risk weighted assets) 11.30 12.1 3.72 4.0 5.58 6.0
Tier 1 capital (to average assets) 11.30 8.4 5.39 4.0 6.73 5.0
June 30, 1998
- -------------
</TABLE>
- --------------------------------------------------------------------------------
15.
<PAGE> 26
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 11.15 12.8% $ 6.99 8.0% $ 8.74 10.0%
Tier 1 capital (to risk weighted assets) 10.05 11.5 3.49 4.0 5.24 6.0
Tier 1 capital (to average assets) 10.05 8.2 4.93 4.0 6.16 5.0
</TABLE>
- --------------------------------------------------------------------------------
16.
<PAGE> 27
NOTE 9 - REGULATORY MATTERS (Continued)
As of 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.
Dividends paid by the Bank are the primary source of funds available to the
Corporation for payment of dividends to shareholders and for other working
capital needs. Applicable state statutes and regulations impose restrictions on
the amount of dividends that may be declared by the Bank. Dividends, which may
be paid by the Bank to the Corporation without obtaining prior approval from
bank regulatory agencies, approximated $3,514 at June 30, 1999. The Corporation
may not pay dividends more than retained earnings.
NOTE 10 - 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 there are no violations of any
condition established in the contract. Commitments to extend credit have a fixed
expiration date or other termination clause. These instruments involve elements
of credit and interest rate risk more than the amount recognized in the
statements of financial position. The Bank uses the same credit policies in
making commitments to extend credit as it does for on-balance sheet instruments.
The Bank evaluates each customer's credit on a case by case basis. The amount of
collateral obtained is based on management's credit evaluation of the customer.
The amount of commitments to extend credit and the exposure to credit loss for
non-performance by the customer was $14,677 and $7,402 as of June 30, 1999 and
1998. Of the June 30, 1999 commitments, $5,612 carried adjustable rates of
interest ranging from 7.75% to 18.00% and $9,064 carried fixed rates of interest
ranging from 7.0% to 11.0%. Since some commitments to make loans expire without
being used, the amount does not necessarily represent future cash commitments.
- --------------------------------------------------------------------------------
17.
<PAGE> 28
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 11 - FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value at June 30, 1999 and 1998,
and the related carrying value of financial instruments:
<TABLE>
<CAPTION>
1999 1998
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 4,773 $ 4,773 $ 4,790 $ 4,790
Federal funds sold 3,235 3,235 7,725 7,725
Securities available for sale 24,067 24,067 19,248 19,248
Loans, net 95,597 95,370 93,906 93,331
Cash surrender value of
life insurance 2,007 2,007 1,476 1,476
Accrued interest receivable 900 900 901 901
Financial liabilities
Demand and savings deposits (72,936) (72,936) (69,892) (69,892)
Time deposits (46,169) (46,324) (46,858) (47,212)
Federal Home Loan Bank
advance (2,959) (2,667) (3,113) (2,973)
Accrued interest payable (886) (886) (1,123) (1,123)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. Estimated fair value for cash and due from banks and
federal funds sold is considered to approximate cost. Estimated fair value of
securities is based on quoted market values for the individual securities or
equivalent securities. Fair value for loans was estimated for portfolios of
loans with similar financial characteristics. For adjustable rate loans that
reprice at least annually and for fixed rate commercial loans with maturities of
six months or less which possess normal risk characteristics, carrying value is
determined to be fair value. Fair value of other types of loans (including
adjustable rate loans which reprice less frequently than annually and fixed rate
term loans or loans which possess higher risk characteristics) is estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for similar
anticipated maturities. Fair value for nonaccrual loans is based on recent
appraisals of the collateral or, if appropriate, using estimated discounted cash
flows. Fair value of core deposits, including demand deposits, savings accounts
and certain money market deposits, is the amount payable on demand. Fair value
of fixed-maturity certificates of deposit is estimated using the rates offered
at June 30, 1999 and 1998, for deposits of similar remaining maturities.
Estimated fair value does not include the benefit that results from low-cost
funding provided by the deposit liabilities compared to the cost of borrowing
funds in the market. Fair value of accrued interest is determined to be the
carrying amount since these financial instruments generally represent
obligations which are due on demand. The fair value of unrecorded commitments at
June 30, 1999 and 1998, is not material.
- --------------------------------------------------------------------------------
18.
<PAGE> 29
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 11 - FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS (Continued)
While the estimates of fair value are based on management's judgment of the most
appropriate factors, no assurance can be made that were the Bank to have
disposed of such items at June 30, 1999 and 1998, estimated fair values would
necessarily have been achieved at these dates, since market values may differ
depending on various circumstances. Estimated fair values at, June 30, 1999 and
1998, should not necessarily be considered to apply at subsequent dates.
Other assets and liabilities of the Bank may have value but are not included in
the above disclosures. In addition, nonfinancial instruments typically not
recognized in these financial statements nevertheless may have value, but are
not included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the value of a trained work
force, customer goodwill and similar items.
NOTE 12 - PARENT COMPANY FINANCIAL STATEMENTS
Condensed financial information of Consumers Bancorp. Inc. (parent company only)
follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Assets
Organizational fee, net of amortization $ 6 $ 15
Investment in subsidiary 11,129 10,116
---------------- ----------------
Total assets $ 11,135 $ 10,131
================ ================
Shareholders' equity $ 11,135 $ 10,131
================ ================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME Year Ended Year Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash dividends from subsidiary $ 622 $ 648
Amortization expense 6 10
---------------- ----------------
Income before equity in undistributed
net income of subsidiary 616 638
Equity in undistributed net income
of subsidiary 1,205 1,094
---------------- ----------------
Net income $ 1,821 $ 1,732
================ ================
</TABLE>
- --------------------------------------------------------------------------------
19.
<PAGE> 30
CONSUMERS BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
NOTE 12 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Net income $ 1,821 $ 1,732
Equity in undistributed net income of subsidiary (1,205) (1,094)
Amortization of organizational fees 6 10
---------------- ----------------
Net cash provided by operating activities 622 648
Cash flows from financing activities
Cash dividends (594) (595)
Sale of treasury stock 21
Purchase of treasury stock (49) (53)
---------------- -----------------
Net cash used by financing activities (622) (648)
Change in cash and cash equivalents -0- -0-
---------------- ----------------
Cash and cash equivalents, end of year $ -0- $ -0-
================= =================
</TABLE>
- --------------------------------------------------------------------------------
20.
<PAGE> 31
GENERAL INFORMATION
EXTERNAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Crowe, Chizek and Company LLP
Landerbrook Corporate Center One
5900 Landerbrook Drive, Suite 205
Cleveland, Ohio 44124-4043
CORPORATE COUNSEL
Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
TRANSFER AGENT AND REGISTRAR
Consumers Bancorp, Inc.
C/o Theresa J. Gill, Corporate Secretary
614 East Lincoln Way
Minerva, Ohio 44657
MARKET MARKERS
McDonald & Company Securities, Inc. Sweney Cartwright & Co.
United Bank Plaza 17 South High Street
200 Market Ave. South, Suite 410 Suite 300
Canton, Ohio 44702 Columbus, Ohio 43215
800-962-0537 800-334-7481
ANNUAL MEETING
The 1999 annual meeting of stockholders will be held on September 15, 1999 at
7:00 PM at the main offices of Consumers National Bank, 614 East Lincoln Way,
Minerva, Ohio 44657.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Bank's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1999 as filed with the Securities and Exchange Commission will be furnished
without charge to stockholders upon written request to Theresa J. Gill,
Administrative Officer.
- --------------------------------------------------------------------------------
21.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001006830
<NAME> CONSUMERS BANCORP INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4731
<INT-BEARING-DEPOSITS> 42
<FED-FUNDS-SOLD> 3235
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24067
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 97022
<ALLOWANCE> 1193
<TOTAL-ASSETS> 134635
<DEPOSITS> 119105
<SHORT-TERM> 1532
<LIABILITIES-OTHER> 1436
<LONG-TERM> 1427
0
2400
<COMMON> 0
<OTHER-SE> 8735
<TOTAL-LIABILITIES-AND-EQUITY> 11135
<INTEREST-LOAN> 9147
<INTEREST-INVEST> 1318
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 10769
<INTEREST-DEPOSIT> 3909
<INTEREST-EXPENSE> 4106
<INTEREST-INCOME-NET> 6663
<LOAN-LOSSES> 278
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4661
<INCOME-PRETAX> 2651
<INCOME-PRE-EXTRAORDINARY> 2651
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1821
<EPS-BASIC> 2.54
<EPS-DILUTED> 2.54
<YIELD-ACTUAL> 8.74
<LOANS-NON> 136
<LOANS-PAST> 236
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1145
<CHARGE-OFFS> 295
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 1193
<ALLOWANCE-DOMESTIC> 1193
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 186
</TABLE>
