<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, 2000
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 X No
--- --
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 11, 2000
716,070 Common Shares
<PAGE> 2
CONSUMERS BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
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 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity 6
Condensed Consolidated Statements of Cash Flow 7
Notes to the Consolidated Financial Statements 8-12
Item 2- Management's Discussion and Analysis of Financial 13-21
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 22
Item 2 - Changes in Securities and Use of Proceeds 22
Item 3 - Defaults upon Senior Securities 22
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
<PAGE> 3
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,841 $ 4,773
Federal funds sold 4,600 3,235
Securities, available for sale 23,976 24,067
Loans, net 108,902 95,597
Cash surrender value of life insurance 2,080 2,007
Premises and equipment, net 4,749 3,530
Intangible assets 1,901 13
Accrued interest and other assets 1,524 1,413
-------- --------
Total assets $153,573 $134,635
======== ========
LIABILITIES
Deposits:
Non interest-bearing, demand $ 22,892 $ 18,235
Interest-bearing, demand 14,383 10,106
Savings 53,861 44,595
Time 46,595 46,169
-------- --------
Total deposits 137,731 119,105
Federal Home Loan Bank advances 2,837 2,959
Accrued and other liabilities 1,085 1,436
-------- --------
Total liabilities 141,653 123,500
SHAREHOLDERS' EQUITY
Common stock ($3.33 stated value, 720,000 shares
authorized and issued) 2,400 2,400
Capital surplus 2,436 2,427
Retained earnings 7,574 6,616
Treasury stock, at cost (3,930 at Mar. 31, and
4,255 at June 30) (130) (136)
Accumulated other comprehensive income (360) (172)
-------- --------
Total shareholders' equity 11,920 11,135
-------- --------
Total liabilities and shareholders' equity $153,573 $134,635
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
3
<PAGE> 4
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,596 $2,237 $7,552 $6,831
Investments & mortgage-backed
securities:
Taxable 318 294 921 872
Tax exempt 30 33 98 89
Federal funds sold 67 69 95 241
------ ------ ------ ------
Total interest income 3,011 2,633 8,666 8,033
Interest expense:
Deposits 965 931 2,693 2,985
FHLB advances 69 49 230 149
------ ------ ------ ------
Total interest expense 1,034 980 2,923 3,134
------ ------ ------ ------
Net interest income 1,977 1,653 5,743 4,899
Provision for loan losses (Note 4) 112 42 313 195
------ ------ ------ ------
Net interest income after
Provision for loan losses 1,865 1,611 5,430 4,704
Other income:
Service charges on deposits 159 141 462 393
Other income 144 143 315 308
Net securities gains 5
------ ------ ------ ------
Total other income 303 284 782 701
Other expenses:
Salaries and employee benefits 773 673 2,111 1,808
Occupancy 223 199 613 559
Other non-interest expense 501 383 1,397 1,070
------ ------ ------ ------
Total other expenses 1,497 1,255 4,121 3,437
Income before income taxes 671 640 2,091 1,968
Provision for income taxes 211 185 661 637
------ ------ ------ ------
Net Income $ 460 $ 455 $1,430 $1,331
====== ====== ====== ======
Earnings per share $ .64 $ .64 $ 1.99 $ 1.86
======= ======= ====== ======
</TABLE>
See the Notes to the Consolidated Financial Statements
4
<PAGE> 5
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 460 $ 455 $ 1,430 $ 1,331
Other comprehensive income, net of tax
Unrealized gains/(losses) arising
during the period (10) (91) (185) (3)
Reclassification adjustment for gains
recognized in income (3)
------- ------- ------- -------
Comprehensive income $ 450 $ 364 $ 1,242 $ 1,328
======= =======
</TABLE>
See the Notes to the Consolidated Financial Statements
5
<PAGE> 6
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 11,135 $ 10,131
Net income 1,430 1,331
Cash dividends $0.66 and $0.63
per share, respectively (472) (450)
Treasury stock purchases (49)
Treasury stock sales 15 48
Unrealized loss on investment securities
available for sale (188) (3)
-------- --------
Balance at end of period $ 11,920 $ 11,008
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
6
<PAGE> 7
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine months ended March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,430 $ 1,331
Adjustments to reconcile net income to net
cash from operating 99 279
-------- --------
Net cash from operating activities 1,529 1,610
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (4,852) (8,177)
Sales 3,001
Maturities and principal paydowns 1,584 3,806
Net decrease (increase) in federal funds sold (1,365) 2,025
Net decrease (increase) in loans (13,124) 2,114
Acquisition of premises and equipment (1,253) (499)
Purchase of life insurance policies (445)
-------- --------
Net cash from investing activities (16,009) (1,176)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposit accounts (537) (451)
Repayments of FHLB advances (122) (115)
Dividends paid (472) (450)
Purchases of branch deposits, net 16,664
Purchase of treasury stock (49)
Sale treasury of treasury stock 15 48
-------- --------
Net cash from financing activities 15,548 (1,017)
-------- --------
Increase in cash and cash equivalents 1,068 (583)
Cash and cash equivalents, beginning of year 4,773 4,802
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,841 $ 4,219
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
7
<PAGE> 8
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
NOTE 1 - PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of Consumers Bancorp, Inc. (Corporation) and its
wholly-owned subsidiary, Consumers National Bank (Bank). All significant
intercompany transactions have been eliminated in the consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated balance sheets of the
Corporation at March 31, 2000, 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, 1999, contains
consolidated financial statements and related notes which should be read in
conjunction with the accompanying consolidated financial statements.
Business Segment Information: Consumers Bancorp, Inc. is a finance 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: The 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, 2000 was $1,011
and at June 30, 1999 was $841.
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.
8
<PAGE> 9
CONSUMERS BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 1 - CONTINUED
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 judgment, should be charged off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so the loan is reported, net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair value
of collateral if repayment is expected from the collateral. Loans are evaluated
for impairment when payments are delayed, typically 90 days or more, or when it
is probable that not all principal and interest amounts will be collected
according to the original terms of the loan. No loans were determined to be
impaired, as of and for the periods ended March 31, 2000 and June 30, 1999.
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, 2000, the Bank has total purchased policies
of $1,795 (total death benefit of $5,525) with a cash surrender value of $2,080.
As of June 30, 1999, the Bank had total purchased policies of $1,795 (total
death benefit of $5,415 with a cash surrender value of $2,007. The amount
included in income (net of policy commissions and mortality costs) was
approximately $83 and $75 for the nine month periods ended, $28 and $27 for the
three month periods ended March 31, 2000 and 1999.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the assets' useful lives
on an accelerated basis, except for buildings for which the straight-line basis
is used.
Other Real Estate Owned: Real estate properties, other than Company premises,
acquired through, or in lieu of, loan foreclosure are initially recorded at fair
value at the date of acquisition. Any reduction to fair value from the carrying
value of the related loan at the time of acquisition is accounted for as a loan
loss. After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell. Expenses,
gains and losses on disposition, and changes in the valuation allowance are
reported in other expenses. Other real estate owned was $3 at March 31, 2000 and
$0 at June 30, 1999.
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 716,070 and 714,745 respectively, for the quarters
ending March 31, 2000 and March 31, 1999 and 716,007 and 715,172 for the nine
month periods ended March 31, 2000 and March 31, 1999, respectively.
9
<PAGE> 10
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 1- CONTINUED
The Company's capital structure contains no dilutive securities.
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 month period ended March 31, 2000 and 1999, the Corporation paid
$3,132 and $3,377 in interest and $689 and $680 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, 2000 and June
30, 1999 are as follows:
<TABLE>
<CAPTION>
March 31, 2000
--------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Federal Agencies $11,067 $ 4 $ (181) $10,890
Obligations of states and
political subdivisions 2,565 16 (96) 2,485
Mortgage-backed securities 9,990 (308) 9,682
Other securities 901 18 919
-------------------------------------------------
Total securities $24,523 $ 38 $ (585) $23,976
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Federal Agencies $13,090 $ 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
-------------------------------------------------
Total securities $24,327 $ 83 $(343) $24,067
======= ======= ======= =======
</TABLE>
10
<PAGE> 11
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 2 - SECURITIES AVAILABLE FOR SALE - CONTINUED
During the nine month period ended March 31, 2000 gross gains of $6 and gross
losses of $1 were recognized on the sale of securities. There were no sales or
transfer of securities classified as available for sale for the three and nine
month period ended March 31, 1999.
The amortized cost and estimated fair value of debt securities at March 31,
2000, 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.
March 31, 2000
--------------
Amortized Estimated
Cost Fair Value
---- ----------
Securities available for sale:
Due in one year or less $ 4,020 $ 4,015
Due after one year through five years 7,373 7,273
Due after five years through ten years 2,239 2,087
Due after ten years
------- -------
Total 13,632 13,375
Mortgage-backed securities 9,990 9,682
Equity Securities 901 919
------- -------
Total $24,523 $23,976
======= =======
At March 31, 2000, 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.
11
<PAGE> 12
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands of dollars)
NOTE 3 - LOANS
Total loans as presented on the balance sheets are comprised of the following
classifications:
March 31, 2000 June 30, 1999
-------------- -------------
Real estate - residential mortgage $ 46,061 $ 40,258
Real estate - construction 1,970 785
Commercial, financial, and agricultural 45,043 40,564
Personal and other 17,398 15,415
Unearned fees and costs (222) (232)
Allowance for possible loan losses (1,348) (1,193)
--------- ---------
Net Loans $ 108,902 $ 95,597
========= =========
No loans were determined to be impaired at either March 31, 2000, or June 30,
1999, nor were there any such loans during the period then ended. At March 31,
2000, loans on non-accrual status totaled $0 and at June 30, 1999, totaled $135.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the nine months ended
March 31, 2000, and March 31, 1999, are as follows:
(In thousands of dollars) 2000 1999
---- ----
Balance at beginning of period $1,193 $1,145
Loans charged off (226) (258)
Recoveries of loans previously charged off 68 38
Provision 313 195
------ ------
Balance at end of period $1,348 $1,120
====== ======
12
<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 for the three month and nine month periods ended March 31, 2000,
compared to the same periods in 1999, and the consolidated balance sheets at
March 31, 2000 compared to June 30, 1999. 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 $460 for the three months ended
March 31, 2000 compared to $455 for the three months ended March 31, 1999. This
increase was primarily due to an increase in net interest income which is offset
by an increase in other expenses. Net income increased $99 or 7.4% for the nine
months ended March 31, 2000 as compared to the comparable period in 1999. 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 $1,977 for the three months
ended March 31, 2000 compared to $1,653 for the three months ended March 31,
1999, an increase of $324 or 19.6%. Net interest income totaled $5,743 for the
nine months ended March 31, 2000, an increase of $844 or 17.2%. The additional
net interest income was primarily due to the increase in interest and fees on
loans, and decreases in interest expense.
Interest and fees on loans increased $359, or 16.0%, to $2,596 for the three
months ended March 31, 2000 from $2,237 for the three months ended March 31,
2000. The increase in interest income was due to higher average loans
outstanding. The yield on average loans outstanding for the nine month periods
ended March 31, 2000, and March 31, 1999 was 9.78% and 9.67% respectively.
Interest earned on taxable and tax-exempt securities totaled $348 for the three
month period ended March 31, 2000 compared to $327 for the three month period
ended March 31, 2000. The increase was primarily the result of an increase in
average balances. Interest income on federal funds sold decreased by $2 for the
three months ended March 31, 2000, due to a decrease in the average
outstandings.
13
<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 increased $34, or 3.7% for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 respectively.
Interest paid on deposits declined $292 or 9.8% for the comparable nine month
period comparison from March 31, 2000 and March 31, 1999. 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 1.79%,
2.54%, and 5.04% from 1.99%, 2.76 %, and 5.58 % for the nine month period ended
March 31, 2000 and 1999, respectively.
Interest paid on FHLB Advances totaled $69 for the three months ended March 31,
2000 as compared to $49 for the three months ended March 31, 1999. The change
was a result of an increase in the average level of borrowings from 1999 to
2000.
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, 2000 totaled
$112 as compared to $42 for the three months ended March 31, 1999, an increase
of $70, or 166.7%. The allowance for loan losses totaled $1,348, or 1.22% of
total loans receivable at March 31, 2000. Net charge-offs to average loans
decreased to .21% for the three month period ended March 31, 2000 from .25% for
the period ended March 31, 1999. For the nine month period ended March 31, 2000,
net charge offs to average loans decreased to .20% from .32% for the nine month
period ended March 31, 1999. 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.
14
<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 $303 for the three months ended March 31,
2000 represented an increase of $19, or 6.7% compared to the $284 of other
income for the three months ended March 31, 1999. Other income increased $81 or
11.6% for the nine months ended March 31, 2000 as compared to the nine month
period ended March 31, 1999. 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
fund 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 $1,497 for the three months ended March 31,
2000 compared to $1,255 for the three months ended March 31, 1999, an increase
of $242, or 19.3%. Other expense increased $684 or 19.9% for the nine month
period ended March 31, 2000 as compared to 1999. Start up costs of the
Louisville office and installation of an on-line teller system were primary
reasons for the increase.
Salary and benefits expense increased $100, or 14.9% and $303 or 16.8% for the
three and nine month period ended March 31, 2000 as compared to March 31, 1999.
The increase is the result of normal annual merit increases and the addition of
new employees to facilitate growth. Occupancy expense increased $24 or 12.1% and
$54 or 9.7% for the three and nine month periods ended March 31, 2000, as
compared to March 31, 1999, respectively. 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 $211 for the three
months ended March 31, 2000 compared to $185 for the three months ended March
31, 1999, an increase of $26, or 14.1%. The effective tax rate was 31.4% and
31.5% for the three month periods ended March 31, 2000 and 1999 respectively.
15
<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
Total assets at March 31, 2000 were $153,573 compared to $134,635 at June 30,
1999, an increase of $18,938 or 14.1%. Loan receivables increased $13,305 from
$95,597 at June 30, 1999 to $108,902 at March 31, 2000. Personal loan totals
increased for the period while residential real estate loans increased $5,803 or
14.4%, real estate construction loans increased $1,185, or 151.0%, and
commercial loans increased $4,479, or 11.0%. The increases were caused by
customer refinances on many real estate loans. Loan growth is expected to
continue to increase in the near future as customers anticipate a rise in
short-term interest rates. Investments in available for sale securities have
decreased from $24,067 at June 30, 1999 to $23,976 at March 31, 2000, or .4%.
After the close of business January 14, 2000, the bank acquired the Lisbon, Ohio
branches of Firstar Bank, National Association. In the transaction, Consumers
acquired $226 of loans, $220 real estate, and assumed $19,100 in deposit
liabilities. Consumers paid a premium of $2,100 in the transaction, which is
reflected in intangible assets and is being amortized over a twelve year life.
Total shareholders' equity increased from $11,135 at June 30, 1999, to $11,920
at March 31, 2000. This increase is a combination of net income for the period
along with sales of treasury stock, offset by cash dividends paid and the
decrease in value of available for sale securities.
LIQUIDITY
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 $4,479, or 11.0%
since June 30, 1999. 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 improved through the past quarter after several quarters of substantial
decline. Competition is very heavy in the Corporation's market for these types
of loans, both from local and national lenders. In 1997 the Corporation
16
<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)
became affiliated with the Community Mortgage Network, which is a program that
allows the Corporation to offer very attractive mortgage loan options to its
customers. The personal loans offered by the Corporation are generally written
for periods up to five years, based on the nature of the collateral. These may
be either installment loans having regular monthly payments, or demand type
loans for short periods of time. Credit card receivables are made up of charge
card account holders who are mainly established customers of the Corporation,
with the Corporation maintaining a very conservative policy on card limits and
new accounts. Personal loans 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 securities account were 6.23 % and
6.06 % respectively for the nine month periods ended March 31, 2000 and 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 slowly increased this period as many financial institutions attempted to
attract and keep new deposits to fund loan growth, but as loan growth has
increased, selected rates have increased as well. Interest rates on demand
deposits and savings deposits have stabilized at 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.
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, 2000, these
FHLB balances totaled $2,837. The Corporation considers this agreement with the
FHLB to be a good source of liquidity funding, secondary to its deposit base.
Jumbo time deposits (those with balances of $100 and over) have decreased from
$9,415 at June 30, 1999 to $8,915 at March 31, 2000, or 5.3%. 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.
17
<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)
ASSET AND LIABILITY MANAGEMENT
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 nine month periods ended March 31, 2000 and
1999 were 5.39% and 4.69%, respectively and for the fiscal year ended June 30,
1999 was 5.47%
The Corporation is exposed to market risks in the normal course of business.
Changes in market interest rates may result in changes in the fair market value
of the Corporation's financial instruments, cash flows, and net interest income.
The Corporation seeks to achieve constant growth in net interest income and
capital while managing volatility arising from shifts in market interest rates.
The Asset and liability Committee (ALCO) oversees financial risk management,
establishing broad policies that govern a variety of financial risks inherent in
the Corporation's operation. ALCO monitors the Corporation's interest rates and
sets limits on allowable risk annually. Market risk is the potential of loss
arising from adverse changes in the fair value of financial instruments due to
changes in interest rates. The Corporation's market risk is composed primarily
of interest rate risk. Interest rate risk is monitored using gap analysis,
earnings simulation and net present value estimations. Combining the results
from these separate risk measurement processes allows a reasonably comprehensive
view of short-term and long-term interest rate risk in the Corporation. Gap
analysis measures the amount of repricing risk in the balance sheet at a point
in time. Earnings simulation involves forecasting net interest earnings under a
variety of scenarios including changes in the level of interest rates, the shape
of the yield curve, and spreads between market interest rates. ALCO also
monitors the net present value of the balance sheet, which is the discounted
present value of all asset and liability cash flows.
CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
Tier 1 Capital Amount Percent Amount Percent
- --------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Actual $10,379 10.01% $11,300 12.1%
Required 4,116 4.0% 3,720 4.0%
Total Risked Based Capital
- --------------------------
Actual $11,667 11.3% $12,460 13.4%
Required 8,231 8.0% 7,440 8.0%
Tier 1 Capital : Average assets
- -------------------------------
Actual $10,379 7.1% $11,300 8.4%
Required 5,818 4.0% 5,390 4.0%
</TABLE>
18
<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)
CAPITAL RESOURCES (CONTINUED)
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,
2000. Management is not aware of any matters occurring subsequent to March 31,
2000 that would cause the Bank's capital category to change.
RECENT ACCOUNTING DEVELOPMENTS
Recent pronouncements by the Financial Accounting Standards Board ("FASB") will
have an impact on financial statements issued in subsequent periods. There are
no recent accounting developments that will have an impact on financial
statements issued by the Corporation in subsequent periods..
.
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.
19
<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
Management determined that all of the Bank's programs were capable of
identifying the turn of the century. There were no interruptions to normal
business activities and all systems performed as tested.
Management continues to monitor its customers, vendors, and supplies, and has
discovered no non-compliance by any business partner.
20
<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
On May 04, 2000 the bank opened a full service branch at 440 West Noble Street
in East Canton, Ohio.
21
<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 and Use of Proceeds
- --------------------------------------------------
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
22
<PAGE> 23
PART II - OTHER INFORMATION (CONTINUED)
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 - Consumers Bancorp Inc. filed reports on Form 8-K
during the quarter ended March, 31, 2000 as follows:
(1) None
23
<PAGE> 24
CONSUMERS BANCORP, INC.
10-QSB
CONSUMERS BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CONSUMERS BANCORP, INC.
-----------------------
(Registrant)
Date: May 11, 2000 /s/ Mark S. Kelly
------------ -----------------------
Mark S. Kelly
President and C.E.O.
Date: May 11, 2000 /s/ Paula J. Meiler
------------ -----------------------
Paula J. Meiler
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001006830
<NAME> CONSUMERS BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 5,795
<INT-BEARING-DEPOSITS> 46
<FED-FUNDS-SOLD> 4,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,976
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 110,250
<ALLOWANCE> 1,348
<TOTAL-ASSETS> 153,573
<DEPOSITS> 137,731
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,085
<LONG-TERM> 2,837
0
0
<COMMON> 2,400
<OTHER-SE> 9,520
<TOTAL-LIABILITIES-AND-EQUITY> 153,573
<INTEREST-LOAN> 7,552
<INTEREST-INVEST> 1,019
<INTEREST-OTHER> 95
<INTEREST-TOTAL> 8,666
<INTEREST-DEPOSIT> 2,693
<INTEREST-EXPENSE> 2,923
<INTEREST-INCOME-NET> 5,743
<LOAN-LOSSES> 313
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 4,121
<INCOME-PRETAX> 2,091
<INCOME-PRE-EXTRAORDINARY> 2,091
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,430
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.99
<YIELD-ACTUAL> 5.97
<LOANS-NON> 0
<LOANS-PAST> 400
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,193
<CHARGE-OFFS> 226
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 1,348
<ALLOWANCE-DOMESTIC> 1,162
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 186
</TABLE>
