<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number
033-79130 CONSUMERS BANCORP, INC.
-----------------------
(Exact name of Registrant as specified in its charter)
OHIO 34-1771400
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
614 E. Lincoln Way
Minerva, Ohio 44657
- ------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 330-868-7701
------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $3.33 Stated Value Outstanding at May 10, 1999
715,745 Common Shares
<PAGE> 2
CONSUMERS BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1999
PART I-FINANCIAL INFORMATION
Item 1-Financial Statements
Interim financial information required by Rule 10-01 of Regulation S-X (17 CFR
Part 210) is included in this Form 10-QSB as referenced below:
<TABLE>
<CAPTION>
Page
Number (s)
----------
<S> <C>
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Condensed Consolidated Statements of Changes in
Shareholders' Equity 4
Condensed Consolidated Statements of Cash Flow 5
Notes to the Consolidated Financial Statements 6-10
Item 2- Management's Discussion and Analysis of Financial 11-19
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 2 - Changes in Securities and Use of Proceeds 20
Item 3 - Defaults upon Senior Securities 20
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
<PAGE> 3
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars, except per share amounts)
Mar. 31, June 30,
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,219 $ 4,802
Federal funds sold 5,700 7,725
Securities, available for sale 23,479 19,248
Loans, net 91,902 93,906
Cash surrender value of life insurance 1,983 1,476
Premises and equipment, net 3,027 2,781
Accrued interest and other assets 1,338 1,683
-------- --------
Total assets $131,648 $131,621
======== ========
LIABILITIES
Deposits:
Non-interest bearing, demand $ 16,853 $ 17,713
Interest-bearing, demand 9,715 9,828
Savings 42,719 42,324
Time 46,985 46,858
-------- --------
Total Deposits 116,272 116,723
Federal Home Loan Bank advances 2,998 3,113
Accrued and other liabilities 1,370 1,654
-------- --------
Total Liabilities 120,640 121,490
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 6,270 5,389
Treasury stock, at cost (4,255 at Mar. 31, and
4,250 at June 30) (136) (108)
Unrealized gain on securities available for sale 47 50
-- --
Total Shareholders' Equity 11,008 10,131
-------- --------
Total Liabilities and Shareholders' Equity $131,648 $131,621
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
1
<PAGE> 4
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars, except per share amounts)
Nine Months Ended Three Months Ended
March 31, March 31,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $6,831 $6,746 $2,237 $2,242
Investments & mortgage-backed
securities:
Taxable 872 700 294 228
Tax exempt 89 79 33 26
Federal funds sold 241 140 69 51
------ ------ ------ ------
Total interest income 8,033 7,665 2,633 2,547
Interest expense:
Deposits 2,985 3,005 931 984
FHLB advances 149 148 49 50
------ ------ ------ ------
Total interest expense 3,134 3,153 980 1,034
Net interest income 4,899 4,512 1,653 1,513
Provision for loan losses (Note 4) 195 97 42 12
------ ------ ------ ------
Net interest income after
Provision for loan losses 4,704 4,415 1,611 1,501
Other income:
Service charges on deposits 393 291 141 97
Other income 308 172 143 72
------ ------ ------ ------
Total other income 701 463 284 169
Other expenses:
Salaries and employee benefits 1,808 1,573 673 535
Occupancy 559 458 199 170
Other non-interest expense 1,070 995 383 339
------ ------ ------ ------
Total other expenses 3,437 3,026 1,255 1,044
Income before income taxes 1,968 1,852 640 626
Provision for income taxes 637 598 185 180
------ ------ ------ ------
Net Income $1,331 $1,254 $ 455 $ 446
====== ====== ====== ======
Basic earnings per share $ 1.86 $ 1.75 $ .64 $ .62
====== ====== ====== ======
</TABLE>
See the Notes to the Consolidated Financial Statements
2
<PAGE> 5
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars)
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net Income $1,331 $1,254
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized (losses) gains arising
during the period (3) 104
------ -------
Comprehensive income $1,328 $ 1,358
====== =======
</TABLE>
See the Notes to the Consolidated Financial Statements
3
<PAGE> 6
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars, except per share amounts)
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $ 10,131 $ 8,947
Net income 1,331 1,254
Cash dividends $0.63 and $0.62
per share, respectively (450) (445)
Treasury stock purchases (49) -0-
Treasury stock sales 48 -0-
Unrealized gain on investment securities
available for sale (3) 104
-------- --------
Balance at end of period $ 11,008 $ 9,860
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
4
<PAGE> 7
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars)
Nine months ended March 31
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,331 $ 1,254
Adjustments to reconcile net income to net
cash from operating 279 381
------- -------
Net cash from operating activities 1,610 1,635
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (8,177) (1,478)
Sales 999
Maturities and principal paydowns 3,806 2,004
Net decrease (increase) in federal funds sold 2,025 (2,550)
Net decrease (increase) in loans 2,114 (5,336)
Acquisition of premises and equipment (499) (802)
Purchase of life insurance policies (445) (170)
------- -------
Net cash from investing activities (1,176) (7,333)
CASH FLOWS FROM FINANCING
Net (decrease) increase in deposit accounts (451) 5,863
Proceeds from FHLB advances 650
Repayments of FHLB advances (115) (95)
Dividends paid (450) (445)
Purchase of treasury stock (49)
Sale treasury 48
------- -------
Net cash from financial activities (1,017) 5,973
------- -------
Increase (decrease) in cash and cash equivalents (583) 275
Cash and cash equivalents, beginning of year 4,802 5,047
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,219 $ 5,322
======= =======
</TABLE>
See the Notes to the Consolidated Financial Statements
5
<PAGE> 8
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands of dollars, except per share amounts)
NOTE 1 - PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the account of Consumers Bancorp, Inc. (Corporation) and its
wholly-owned subsidiary, Consumers National Bank (Bank). All significant
intercompany transactions have been eliminated in the consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated balance sheets of the
Corporation at March 31, 1999, and its income and cash flows for the periods
presented. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances.
The Annual Report for the Corporation for the year ended June 30, 1998, contains
consolidated financial statements and related notes which should be read in
conjunction with the accompanying consolidated financial statements.
Industry Segment Information: Consumers Bancorp, Inc. is a bank holding company
engaged in the business of commercial and retail banking, which accounts for
substantially all of the revenues, operating income, and assets. All commercial
and retail banking operations are considered by management to be aggregated into
one reportable operating segment of banking.
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 March 31,
1999 was $807 and at June 30, 1998 was $846.
Securities: Securities are classified into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are those that the
Bank has the positive intent and ability to hold to maturity, and are reported
at amortized cost. Available-for-sale securities are those that the Bank may
decide to sell if needed for liquidity, asset-liability management, or other
reasons. Available-for-sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of equity, net of
tax.
Realized gains or losses on sales are determined based on the amortized cost of
the specific security sold. Amortization of premiums and accretion of discount
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 amortized or discount accreted.
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.
6
<PAGE> 9
CONSUMERS BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
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 maybe made
for specific loans, but the entire allowance is available for any loan that, in
management's judgement, should be charged off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so the loan is reported, net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair value
of collateral if repayment is expected from the collateral. Loans are evaluated
for impairment when payments are delayed, typically 90 days or more, or when it
is probable that not all principal and interest amounts will be collected
according to the original terms of the loan. No loans were determined to be
impaired, as of and for the periods ended March 31, 1999 and June 30, 1998.
Cash Surrender Value of Life Insurance: The Bank has purchased single-premium
life insurance policies to insure the lives of the participants in the salary
continuation plan. As of March 31, 1999, the Bank has total purchased policies
of $1,785 (total death benefit $5,415) with a cash surrender value of $1,983. As
of June 30, 1998, the Bank had 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 $26 and
$20 for the three month periods ended March 31, 1999 and 1998 and $74 and $60,
respectively, for the nine month periods ended March 31, 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 building for which the straight-line basis
is used.
Other Real Estate Owned: Real estate properties, other than Company premises,
acquired through, or in lieu of, loan foreclosure are initially recorded at fair
value at the date of acquisition. Any reduction to fair value from the carrying
value of the related loan at the time of acquisition is accounted for as a loan
loss. After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell. Expenses,
gains and losses on disposition, and changes in the valuation allowance are
reported in other expenses. There were no properties held as other real estate
owned at March 31, 1999 and June 30, 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 715,745 and 717,000 for the quarters ending March
31, 1999 and March 31, 1998. The number of outstanding shares for the nine month
period ending March 31, 1999 and 1998 was 715,172 and 717,000, respectively. The
7
<PAGE> 10
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 1- CONTINUED
Company's capital structure contains no dilutive securities. All prior 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 March 31, 1999 the Company has 720,000 shares of common stock authorized
and issued.
Statement of Cash Flows: For purpose 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 nine months ended March 31, 1999, the Corporation paid $3,377 and $3,068
in interest and $680 and $650 in income taxes.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of the securities available for
sale, as presented on the consolidated balance sheet at March 31, 1999, and June
30, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999
--------------
Amortized Gross Unrealized Estimated
Cost Unrealized Losses Fair
Gains Value
----------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Federal Agencies $13,104 $ 126 $ (13) $13,217
Obligations of states and
political subdivisions 2,717 60
(29) 2,748
Mortgage-backed securities 6,915 1 (72) 6,844
Other securities
670 670
----------------------------------------------
Total investment securities $23,406 $ 187 $ (114) $23,479
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30,1998
------------
Amortized Gross Unrealized Estimated
Cost Unrealized Losses Fair
Gains Value
--------------------------------------------------
<S> <C> <C> <C> <C>
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
--------------------------------------------------
Total investment securities $19,174 $ 143 $ (69) $19,248
======= ======= ======= =======
</TABLE>
8
<PAGE> 11
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
During the nine month period ended March 31, 1999 and March 31, 1998, there were
no sales or transfer of securities classified as available for sale.
The amortized cost and estimated fair value of debit securities at March 31,
1999, by contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
March 31, 1999 Estimated
Amorized Cost Fair Value
------------- ----------
<S> <C> <C>
Securities available for sale:
Due in one year or less $ 1,518 $ 1,524
Due after one year through five years 11,029 11,158
Due after five years through ten years 3,237 3,246
Due after ten years 37 37
------- -------
Total 15,821 15,965
Mortgage-backed securities 6,915 6,844
Equity Securities 670 670
------- -------
Total $23,406 $23,479
======= =======
</TABLE>
At March 31, 1999, there were no holdings of securities of any one issuer, other
than the U.S. government and its agencies and corporations, with an aggregate
book value which exceeds 10% of shareholders' equity.
9
<PAGE> 12
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars)
NOTE 3 - LOANS
Total loans as presented on the balance sheets are comprised of the following
classifications:
<TABLE>
<CAPTION>
Mar. 31, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Real estate - residential mortgage $ 40,272 $ 44,072
Real estate - construction 1,390 1,609
Commercial, financial, and agricultural 37,310 36,449
Personal and other 14,234 13,116
Unearned fees and costs (184) (195)
Allowance for possible loan losses (1,120) (1,145)
-------- --------
Net Loans $ 91,902 $ 93,906
======== ========
</TABLE>
No loans were determined to be impaired at either March 31, 1999, or June 30,
1998, nor were there any such loans during the period then ended. At March 31,
1999, loans in non-accrual status totaled $136 and at June 30, 1998, totaled
$43. There was no other real estate owned as March 31, 1999, or June 30, 1998.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the nine months ended
March 31, 1999, and March 31, 1998, are as follows:
[CAPTION]
<TABLE>
(In thousands of dollars) 1999 1998
------- -------
<S> <C> <C>
Balance at beginning of period $ 1,145 $ 1,060
Loans charged off (258) (56)
Recoveries of loans previously charged off 38 29
Provision 195 97
------- -------
Balance at end of period $ 1,120 $ 1,130
======= =======
</TABLE>
10
<PAGE> 13
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
GENERAL
The following is management's analysis of the Corporation's results of
operations as of and for the three month and nine month periods ended March 31,
1999, compared to the same period in 1998, and the consolidated balance sheets
at March 31, 1999 compared to June 30, 1998. This discussion is designed to
provide a more comprehensive review of the operating results and financial
condition than could be obtained from an examination of the financial statements
alone. This analysis should be read in conjunction with the consolidated
financial statements and related footnotes and the selected financial data
included elsewhere in the is report.
RESULTS OF OPERATIONS
NET INCOME. The Corporation earned net income of $455 for the three months ended
March 31, 1999 compared to $446 for the three months ended March 31, 1998. This
increase was primarily due to an increase in net interest income which is off
set by and an increase in other expenses. Net income increased $77 or 6.1% for
the nine months ended March 31, 1999 as compared to the comparable period in
1998. The increase is due to an increases in net interest income and all other
income partially offset by increases in other expense.
NET INTEREST INCOME. Net interest income totaled $1,653 for the three months
ended March 31, 1999 compared to $1,513 for the three months ended March 31,
1998, an increase of $140 or 9.3%. Net interest income totaled $4,899 for the
nine months ended March 31, 1999 compared to $4,512 for the nine months ended
March 31, 1998, an increase of $387 or 8.6%. The additional net interest income
was primarily due to the increase in interest and fees on loans, which was
partially offset by increases in interest expense.
Interest and fees on loans decreased $5, or .2%, to $2,237 for the three months
ended March 31, 1999 from $2,242 for the three months ended March 31, 1998.
Interest and fees on loans increased $85 or 1.3% for the nine months ended March
31, 1999 as compared to the nine months ended March 31, 1998. The increase in
interest income was due to higher average loans outstanding. The yield on
average loans outstanding for the three month and nine month periods ended March
31, 1999 was 9.76% and 9.67% respectively.
Interest earned on taxable and tax-exempt securities totaled $327 for the three
month period ended March 31, 1999 compared to $254 for the three month period
ended March 31, 1998. The increase was primarily the result of significantly
higher average balances due to securities purchases made during the past three
months. Interest income on federal funds sold increased by $18 for the three
months ended March 31,1999, due to an increase in the average outstandings. As
loan growth has recently slowed, excess funds have been maintained in short term
investments such as federal funds sold and are gradually being invested in
various securities as opportunities arise, with consideration given to future
funding needs.
11
<PAGE> 14
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
Interest paid on deposits decreased $53, or 5.4% for the three months and $20 or
.7% for the nine months ended March 31, 1999 compared to the three and nine
months ended March 31, 1998 respectively. The decrease was primarily a result of
the decline in interest rates as interest paid on average interest-bearing
checking, savings, and time deposits has declined to 1.99%, 2.76%, and 5.58%
from 2.38%, 3.27%, and 5.81% for the nine month period ended March 31, 1999 and
1998, respectively.
Interest paid on FHLB Advances totaled $49 for the three months ended March 31,
1999 as compared to $50 for the three months ended March 31, 1998. Interest paid
on advances for the nine months ended March 31, 1999 was $149 as compared to
$148 for the comparable period in 1998. The change was a result of an increase
in the average level of borrowings from 1997 to 1998 as well as an increase in
the cost of borrowings.
PROVISION FOR LOAN LOSSES. The Corporation maintains an allowance for loan
losses in an amount which, in management's judgment, is adequate to absorb
reasonably foreseeable losses inherent in the loan portfolio. While management
utilizes its best judgment and information available, the ultimate adequacy of
the allowance is dependent on a variety of factors, including the performance of
the Corporation's loan portfolio, the economy, changes in collateral values and
interest rates, and the view of the regulatory authorities toward loan
classifications. The provision for loan losses is determined by management as
the amount to be added to the allowance for loan losses, after net charge-offs
have been deducted, to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio. The amount of the
provision is based on management's monthly review of the loan portfolio and
consideration of such factors as historical loss experience, economic
conditions, changes in the size and composition of the loan portfolio, and
specific borrower considerations, including the ability to repay the loan and
estimated value of the underlying collateral.
The provision for loan losses for the three months ended March 31, 1999 totaled
$42 as compared to $12 for the three months ended March 31, 1998, an increase of
$30 , or 250%. The allowance for loan losses totaled $1,120, or 1.2% of total
loans receivable at March 31, 1999. The increase in the provision is reflective
of the fact that the Corporation provided for net charge-offs during the period.
Net charge-offs to average loans increased to .32% for the nine month period
ended March 31, 1999 from .04% for the period ended March 31, 1998. This
increase results primarily from the charge-off of two credits. Notwithstanding
the charge-off history, management believes it is prudent to continue to
increase the allowance for loan losses as total loans increase. Accordingly
management anticipates it will continue its provisions to the allowance for loan
losses whenever loan growth occurs.
12
<PAGE> 15
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
OTHER INCOME. Other income includes service charges on deposits and other
miscellaneous income. Other income of $284 for the three months ended March 31,
1999 represented an increase of $115, or 68.0% compared to the $169 of other
income for the three months ended March 31, 1998. Other income of $701 for the
nine months ended March 31, 1999 represented and increase of $238 or 51.4%
compared to the $463 of other income for the nine months ended March 31, 1998.
The increases were primarily due to an increase in service charge income on
deposits resulting from adjustments made to the deposit service fee schedule, as
well as the growth in deposit balances from the prior period. Increased income
has also been realized from the increase in cash surrender value of life
insurance, and fee income related to facilitating the origination of long term
fixed rate loans for a third party. Management has elected not to add long term
fixed rate mortgage loans to its portfolio. Consumers has entered into an
arrangement whereby it assists a third party to long term fixed rate loans by
taking loan applications, and assisting in the completion of certain loan
documents for which it is paid a fee. The arrangement allows the Corporation to
meet its customers' needs by offering an opportunity to obtain long term fixed
rate financing on a primary residence and is a source of additional non-interest
income.
OTHER EXPENSE. Other expense totaled $1,255 for the three months ended March 31,
1999 compared to $1,044 for the three months ended March 31, 1998, an increase
of $211, or 20.2%. Other expense increased $411 or 13.6% for the nine month
period ended March 31, 1999 as compared to 1998. Start up costs of the Alliance
office and wholly owned finance company were primary reasons for the increase.
Salary and benefits expense increased $138, or 25.8% and $235 or 14.9% for the
three and nine month periods ended March 31, 1999 as compared to March 31, 1998,
respectively. The increase is the result of normal annual merit increases and
the addition of new employees to facilitate growth. The increase in occupancy
expense of $29 and $101 for the three and nine month periods ended March 31,
1999, respectively, as compared to March 31, 1998 was primarily due to the
depreciation and maintenance associated with two major projects which added to
the net premises and equipment balance sheet totals. A large addition was made
to the main office in Minerva to increase space for loan department and
management offices. In addition, ATM machines were installed at four of the
branch office locations during the second quarter of the last fiscal year. The
increase in other expense was attributable to a general increase in various
overhead categories due to continued growth of the Corporation.
INCOME TAX EXPENSE. The provision for income taxes totaled $185 for the three
months ended March 31, 1999 compared to $180 for the three months ended March
31, 1998, an increase of $5, or 2.8%. The effective tax rate was 31.5% for the
three and nine month periods ended March 31, 1999 and 1998 respectively. Total
assets at March 31, 1999 were $131,648 compared to $131,621 at June 30, 1998, an
increase of $27 or .02%.
13
<PAGE> 16
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
FINANCIAL CONDITION
Loan receivables decreased $2,004 from $93,906 at June 30, 1998 to $91,902 at
March 31, 1999. Personal loan totals increased for the period while residential
real estate loans decreased $3,800, or 8.6%, real estate construction loans
decreased $219, or 13.6%, and commercial loans increased $861, or 2.4%. The
decreases are caused by customer refinances to take advantage of the current low
rates available on many real estate loans. Loan growth should show a gradual
increase as these refinancings slow in the near future. Excess funds have been
shifted to investments in available for sale securities, which have increased
from $19,248 at June 30, 1998 to $23,479 at March 31, 1999, or 22%.
Total shareholders equity increased from $10,131 at June 30, 1998, to $11,008 at
March 31, 1999. This increase is a combination of net income for the period
along with an increase in the unrealized gain on available for sale securities,
offset by purchases of treasury stock and cash dividends paid.
ASSET AND LIABILITY MANAGEMENT
Management considers the asset position of the Corporation to be sufficiently
liquid to meet normal operating needs and conditions. The Corporation's earning
assets are divided primarily between loans and investment securities, with any
excess funds placed in federal funds sold on a daily basis. Management
continually strives to obtain the best mix of loans and investments to both
maximize yield and insure the soundness of the portfolio, as well as to provide
funding for loan demand as needed.
The Corporation groups its loan portfolio into four major categories: commercial
loans, real estate loans, personal loans, and credit card outstanding balances.
Commercial loans are comprised of both variable rate notes subject to daily
interest rate changes based on the prime rate, and fixed rate notes having
maturities of generally not greater than five years. Commercial loans have shown
impressive growth recently, with outstanding balances up by $861, or 2.4% since
June 30, 1998. This is mainly due to the Corporation's ability to tailor loan
programs to the specific requirements of the business, professional, and
agricultural customers in its market area. The Corporation's real estate loan
portfolio consists of three basic segments: conventional mortgage loans having
fixed rates and maturities not exceeding fifteen years, variable rate home
equity lines of credit, and fixed rate loans having maturity or renewal dates
that are less than the scheduled amortization period. Real estate loan growth
has slowed through the past two year period after several years of substantial
growth. Competition is very heavy in the Corporation's market for these types of
loans, both from local and national lenders. In 1997 the Corporation became
affiliated with the Community Mortgage Network, which is a program that allows
the Corporation to offer very attractive mortgage loan options to its customers.
The personal loans offered by the Corporation are generally written for periods
up to five years, based on the nature of the collateral. These may be either
installment loans having regular monthly payments, or
14
<PAGE> 17
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
demand type loans for short periods of time. Credit card receivables are made up
of charge card account holders who are mainly established customers of the
Corporation, with the Corporation maintaining a very conservative policy on card
limits and new accounts. Personal loans and credit card receivables have
remained at relatively the same levels during the past full fiscal year.
Funds not allocated to the Corporation's loan portfolio are invested in various
securities having diverse maturity schedules. The majority of the Corporation's
investments are held in U.S. Treasury securities or other securities issued by
U.S. Government agencies, and to a lesser extent, investments in tax free
municipal bonds. Net interest yields for the investment account were 6.08% and
6.06% respectively for the three month and nine month periods ended March 31,
1999.
The Corporation offers several forms of deposit programs to its customers. The
rates offered by the Corporation and the fees charged for them are competitive
with others available currently in the market area. Time deposit interest rates
have continued their downward trend this period that began during the middle of
the last fiscal year. These rates had been relatively high for some time as many
financial institutions attempted to attract and keep new deposits to fund loan
growth, but as this growth has slowed, rates have slipped lower as well.
Interest rates on demand deposits and savings deposits continue to fall to low
historical levels. As a result of the current rate structure on deposits, growth
has been flat recently, with some loss of deposit base during the current
quarter.
Jumbo time deposits (those with balances of $100 and over) have decreased from
$10,662 at June 30, 1998 to $9,918 at March 31, 1999, or 7.5%. These deposits
are monitored closely by the Corporation, priced on an individual basis, and
often matched with a corresponding investment instrument. The Corporation has on
occasion used a fee paid broker to obtain these types of funds from outside its
normal service area as another alternative for its funding needs. These deposits
are not relied upon as a primary source of funding however, and the Corporation
can foresee no dependence on these types of deposits for the near term.
To provide an additional source of loan funds, the Corporation has entered into
an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati to obtain
matched funding for loans. Repayment is made either over a fifteen year period,
or over a three year period with a balloon payment. At March 31, 1999, these
FHLB balances totaled $2,998 . The Corporation considers this agreement with the
FHLB to be a good source of loan funding, secondary to its deposit base.
15
<PAGE> 18
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
Although management monitors interest rates on an ongoing basis, a quarterly
rate sensitivity report is used to determine the effect of interest rate changes
on the financial statements. In the opinion of management, enough assets or
liabilities could be repriced over the near term (up to three years) to
compensate for such changes. The spread on interest rates, or the difference
between the average earning assets and the average interest bearing liabilities,
is monitored quarterly. It is the Corporation's goal to maintain this spread at
better than 4.0%. The spread for the three and nine month period ended March 31,
1999 was 5.51% and 5.38%, respectively and for the fiscal year ended June 30,
1998 was 5.20%
CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
Tier 1 Capital Amount Percent Amount Percent
- -------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Actual $10,947 12.7% $10,050 11.5%
Required 3,448 4.0% 3,490 4.0%
Total Risked Based Capital
- --------------------------
Actual $12,025 13.9% $11,150 12.8%
Required 6,896 8.0% 6,990 8.0%
Tier 1 Capital : Average assets
- -------------------------------
Actual $10,947 8.3% $10,050 8.2%
Required $ 5,293 4.0% $ 4,930 4.0%
</TABLE>
The subsidiary Bank is subject to various regulatory capital requirements
administered by federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory actions that, if undertaken, could
have a direct material affect on the Bank's financial statements. The Bank is
considered well capitalized under the Federal Deposit Insurance Act at March 31,
1999. Management is not aware of any maters occurring subsequent to March 31,
1999 that would cause the Bank's capital category to change.
16
<PAGE> 19
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
RECENT ACCOUNTING DEVELOPMENTS
Recent pronouncements by the Financial Accounting Standards Board ("FASB") will
have an impact on financial statements issued in subsequent periods. Set forth
below are summaries of such pronouncements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This Statement established standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in full set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Income tax effects must also
be shown. This Statement is effective for fiscal years beginning after December
15, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of a
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises reported selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 13, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 addresses the accounting for
derivative instruments and certain derivative instruments embedded in other
contracts, and hedging activities. The statement standardizes the accounting for
derivative instruments by requiring that an entry recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. This statement is effective for all fiscal years beginning after
June 15, 1999.
These statements are not expected to have a material effect on the Corporation's
consolidated financial position or results of operation.
IMPACT ON INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and results of operations primarily in terms
of historical dollars without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Corporation are monetary in
nature. Therefore, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. The liquidity, maturity structure
and quality of the Corporation's assets and liabilities are critical to the
maintenance of acceptable performance levels.
17
<PAGE> 20
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
YEAR 2000 ISSUE
Many computer programs use only two digits to identify a year in the date field
and were apparently designed and developed without considering the impact of the
upcoming change in the century. Such programs could erroneously read entries for
the Year 2000 ["Y2K"] as the year 1900. This could result in major system
failures and miscalculations.
It is anticipated that approximately $60 will be spent on the preparedness
project. This includes assessment, renovation and validation of all systems and
applications. Estimates include $30 for testing and software renovation, $10 for
customer awareness programs, and $20 for internal labor costs. To date total non
interest expense associated with the project approximates $45.
Rapid and accurate data processing is essential to the operation of financial
institutions, such as Consumers National Bank. As a result, the Corporation has
formed a Y2K committee to assess the extent to which the Bank, its customers,
and outside vendors may be adversely affected by Y2K problems. Management
believes it has an effective plan in place to resolve the Y2K issue in a timely
manner. Management has completed its assessment of all business processes that
could be affected by the Y2K issue. Currently, the team is in the renovation and
implementation phase of the project. Of the twenty mission critical tasks, all
have been validated. One critical system requires a software upgrade and
management expects to complete the remediation and testing of this critical
business process by June 30, 1999. Management has completed several customer
awareness programs to establish a risk analysis of both significant loan and
deposit customers. These customers have been identified and their efforts
monitored to obtain Y2K compliance.
Management anticipates that the Bank's programs critical to its core business
operations will be capable of identifying the turn of the century. The issue is
closely monitored by management and full readiness is expected by second quarter
1999. Additionally, contingency plans have been developed for all critical
systems and applications determined to be Y2K compliant. These contingency plans
have been developed and implemented for systems and applications that have met
Y2K compliance. Consumers does not anticipate that any Y2K computer problems or
expenses required to correct such problems will materially affect its financial
condition and results of operations; however, no assurance can be given in these
regard as to non-compliance by third parties (including loan customers) and
disruptions to the economy in general resulting from Y2K issues could also have
a negative impact of an undeterminable amount on Consumers. The Y2K team's
utmost attention and resources are being directed to meet full readiness.
18
<PAGE> 21
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share data)
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
," "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, changed in
levels of market interest rated, credit risks of lending activities and
competitive and regulatory factors, could affect 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.
GENERAL
The bank has announced intentions to open a branch office on Route 44 in
Louisville, Ohio. A full service office is expected to be under construction and
opened during the fourth quarter 1999.
The bank opened Community Finance Home Mortgage Company, a consumer finance
company, as a subsidiary during November 1998 at 2368A East State Street, Salem,
Ohio. The establishment of the finance subsidiary allows the bank to pursue
small loans to those customers who typically may or may not qualify under the
more stringent underwriting requirements for commercial bank credit. These loans
typically provide greater interest income and credit risk. Management
anticipates improving interest margins without taking on substantial credit
risk.
The bank opened a full service branch at 610 West State Street, Alliance, Ohio
during March 1999.
19
<PAGE> 22
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
There is no pending litigation, other than routine litigation incidental to
the business of Consumers Bancorp Inc. `the Corporation' and its affiliate,
or of a material nature involving or naming the Corporation or its
affiliate as a defendant. Further, there are
no material legal proceedings in which any director, executive officer,
principal shareholder or affiliate of the Corporation is a party or has a
material interest which is adverse to the Corporation or its affiliate.
None of the routine litigation in which the Corporation or its affiliate
are involved is expected to have a material adverse upon the financial
position or results of operations of the Corporation or its affiliate.
Item 2 - Changes in Securities
- ------------------------------
Not Applicable.
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not Applicable
Item 5 - Other Information
- --------------------------
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibits
Exhibit 11 Statement regarding Computation of Per Share Earnings (included
in Note 1 to the Consolidated Financial Statements).
Exhibit 27 Financial Data Schedules.
B. Reports on Form 8-K - No reports on Form 8-K were filed by the Registrant
during the quarter ended March 31, 1999.
20
<PAGE> 23
CONSUMERS BANCORP, INC.
10-QSB
CONSUMERS BANCORP, INC.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
restraint has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSUMERS BANCORP, INC.
-----------------------
(Registrant)
Date: May 10, 1999 /s/ Mark S. Kelly
-------------------- ---------------------
Mark S. Kelly
President and C.E.O.
Date: May 10, 1999 /s/ Paula J. Meiler
-------------------- ---------------------
Paula J. Meiler
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001006830
<NAME> CONSUMERS BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,192
<INT-BEARING-DEPOSITS> 27
<FED-FUNDS-SOLD> 5,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,479
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 93,022
<ALLOWANCE> 1,120
<TOTAL-ASSETS> 131,648
<DEPOSITS> 116,272
<SHORT-TERM> 40
<LIABILITIES-OTHER> 1,370
<LONG-TERM> 2,958
0
0
<COMMON> 2,400
<OTHER-SE> 8,608
<TOTAL-LIABILITIES-AND-EQUITY> 131,648
<INTEREST-LOAN> 6,831
<INTEREST-INVEST> 961
<INTEREST-OTHER> 241
<INTEREST-TOTAL> 8,033
<INTEREST-DEPOSIT> 2,985
<INTEREST-EXPENSE> 3,134
<INTEREST-INCOME-NET> 4,899
<LOAN-LOSSES> 220
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,437
<INCOME-PRETAX> 1,968
<INCOME-PRE-EXTRAORDINARY> 1,968
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,331
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 8.09
<LOANS-NON> 136
<LOANS-PAST> 90
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<ALLOWANCE-OPEN> 1,145
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<ALLOWANCE-CLOSE> 1,120
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</TABLE>
