<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 September 30, 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 November 13, 2000
716,148 Common Shares
<PAGE> 2
CONSUMERS BANCORP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
PART I-FINANCIAL INFORMATION
Item 1-Financial Statements
Interim financial information required by Item 310 (b) of Regulation S-B is
included in this Form 10-QSB as referenced below:
Page
Number(s)
-----------
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Condensed Consolidated Statements of Changes in
Shareholders' Equity 4
Condensed Consolidated Statements of Cash Flow 5
Notes to the Consolidated Financial Statements 6-10
Item 2- Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities and Use of Proceeds 19
Item 3 - Defaults upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE> 3
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,683 $ 5,629
Federal funds sold 6,350 --
Securities, available for sale 21,915 22,179
Loans, net 118,639 116,326
Cash surrender value of life insurance 2,863 2,106
Premises and equipment, net 4,909 4,908
Intangible assets 1,821 1,930
Accrued interest and other assets 1,686 1,453
--------- ---------
Total assets $ 163,866 $ 154,531
========= =========
LIABILITIES
Deposits
Non-interest bearing, demand $ 22,783 $ 23,514
Interest bearing, demand 11,599 12,143
Savings 51,194 53,988
Time 61,681 47,186
--------- ---------
Total deposits 147,257 136,831
Securities sold under agreements to repurchase 416 1,101
Federal Home Loan Bank advances 1,890 3,244
Accrued interest and other liabilities 1,550 1,094
--------- ---------
Total liabilities 151,113 142,270
SHAREHOLDERS' EQUITY
Common stock ($3.33 stated value, 720,000 shares
authorized and issued) 2,400 2,400
Capital surplus 2,438 2,438
Retained earnings 8,254 7,887
Treasury stock, at cost (3,883 at Sept. 30, and
June 30, 2000) (129) (129)
Accumulated other comprehensive losses (210) (335)
--------- ---------
Total shareholders' equity 12,753 12,261
--------- ---------
Total liabilities and shareholders' equity $ 163,866 $ 154,531
========= =========
</TABLE>
See the Notes to the Consolidated Financial Statements
1
<PAGE> 4
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1999
---- ----
<S> <C> <C>
Interest income
Loans, including fees $2,922 $2,431
Investments and mortgage-backed securities:
Taxable 317 302
Tax-exempt 29 36
Federal funds sold 37 22
------ ------
Total interest income 3,305 2,791
Interest expense
Deposits 1,172 878
FHLB advances 43 55
------ ------
Total interest expense 1,215 933
Net interest income 2,090 1,858
Provision for loan losses 113 97
------ ------
Net interest income after
provision for loan losses 1,977 1,761
Other income
Service charges on deposit accounts 193 148
Gain on securities sold -- 5
Other 123 78
------ ------
Total other income 316 231
Other expense
Salaries and employee benefits 807 606
Occupancy 271 172
Other 472 491
------ ------
Total other expense 1,550 1,269
Income before income taxes 743 723
Income tax expense 226 230
------ ------
Net Income $ 517 $ 493
====== ======
Basic earnings per share $ .72 $ .69
====== ======
</TABLE>
See the Notes to the Consolidated Financial Statements
2
<PAGE> 5
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Net Income $517 $493
Other comprehensive income, net of tax
Unrealized gains/ (losses) on securities:
Unrealized gains/(losses) arising
during the period 125 (46)
--- ----
Comprehensive income $642 $ 447
==== =====
</TABLE>
See the Notes to the Consolidated Financial Statements
3
<PAGE> 6
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 12,261 $ 11,135
Net income 517 493
Unrealized gain (loss) on securities
available for sale 125 (46)
-------- --------
Total comprehensive income 642 447
Cash dividends $0.21 and $0.20
per share, respectively (150) (143)
Sale of treasury stock -- 15
-------- --------
Balance at end of period $ 12,753 $ 11,454
======== ========
</TABLE>
See the Notes to the Consolidated Financial Statements
4
<PAGE> 7
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three months ended September 30
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 517 $ 493
Adjustments to reconcile net income to net
cash from operating activities 543 235
-------- --------
Net cash from operating activities 1,060 728
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (1,101) (2,665)
Sales -- 3,001
Maturities and principal paydowns 1,653 647
Net (increase) decrease in federal funds sold (6,350) 3,235
Net increase in loans (2,581) (4,077)
Acquisition of premises and equipment (139) (184)
Purchase of life insurance policies (725) --
-------- --------
Net cash from investing activities (9,243) (43)
-------- --------
CASH FLOWS FROM FINANCING
Net increase (decrease) in deposit accounts 10,426 (2,871)
Net change in short-term borrowings (685) 2,500
Repayments of FHLB advances (1,354) (40)
Dividends paid (150) (143)
Sale treasury of treasury stock -- 15
-------- --------
Net cash from financing activities 8,237 (539)
-------- --------
Increase in cash and cash equivalents 54 146
Cash and cash equivalents, beginning of year 5,629 4,773
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,683 $ 4,919
======== ========
</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 accounts of Consumers Bancorp, Inc. (Corporation) and its
wholly-owned subsidiary, Consumers National Bank (Bank). All significant
intercompany transactions have been eliminated in the consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated balance sheets of the
Corporation at September 30, 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, 2000, 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 financial holding
company engaged in the business of commercial and retail banking, which accounts
for substantially all of the revenues, operating income, and assets.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments, and status of contingencies are particularly subject to change.
Cash Reserves: Consumers National Bank is required by the Federal Reserve Bank
to maintain reserves consisting of cash on hand and noninterest-bearing balances
on deposit with the Federal Reserve Bank. The required reserve balance at
September 30, 2000 was $1,006 and at June 30, 2000 was $1,070.
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.
6
<PAGE> 9
CONSUMERS BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 1 - CONTINUED
------------------
Concentrations of Credit Risk: The Bank grants consumer, real estate and
commercial loans primarily to borrowers in Stark, Columbiana and Carroll
counties. Automobiles and other consumer assets, business assets and residential
and commercial real estate secure most loans.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values.
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 September 30, 2000 and June 30, 2000.
Cash Surrender Value of Life Insurance: The Bank has purchased single-premium
life insurance policies to insure the lives of the participants in the salary
continuation plan. As of September 30, 2000, the Bank has total purchased
policies of $2,520 (total death benefit $7,640) with a cash surrender value of
$2,863. As of June 30, 2000, the Bank had total purchased policies of $1,795
(total death benefit $5,165 with a cash surrender value of $2,106. The amount
included in income (net of policy commissions and mortality costs) was
approximately $32 and $24 for the three month periods ended September 30, 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 building for which the straight-line basis
is used.
Intangible Assets: Purchaed intangible, core deposit value, is recorded at cost
and amortized over the estimated life. Core deposit value amortization is
straight-line over 12 years.
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. Properties held as other real estate owned at
September 30, 2000 were $171 and $0 at June 30, 2000.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance
Profit Sharing Plan: The company maintains a 401(k) profit sharing plan covering
substantially all employees. Contributions are made and expensed annually.
7
<PAGE> 10
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 1- CONTINUED
-----------------
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.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilites when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
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 716,117 and 715,883 for the quarters ending
September 30, 2000 and September 30, 1999. The Company's capital structure
contains no dilutive securities. As of September 30, 2000 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 three months ended September 30, 2000 and 1999, the Corporation paid
$1,075 and $1,057 in interest and $0 and $0 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 September 30, 2000 and
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------------
Gross Gross
Unrealized Unrealized Unrealized Fair
SEPTEMBER 30, 2000 Cost Gains Losses Value
---------------------------------------------------------
Securities available for sale:
<S> <C> <C> <C> <C>
U.S. Treasury and Federal Agencies $ 9,522 $ 10 $ (127) $ 9,405
Obligations of states and
political subdivisions 2,338 18 (63) 2,293
Mortgage-backed securities 9,339 7 (207) 9,139
Other securities 1,034 44 -- 1,078
------- ------- ------- -------
Total securities $22,233 $ 79 $ (397) $21,915
======= ======= ======= =======
</TABLE>
8
<PAGE> 11
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(In thousands of dollars, except per share amounts)
NOTE 2 - SECURITIES AVAILABLE FOR SALE - CONTINUED
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
JUNE 30, 2000 Cost Gains Losses Value
-------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and Federal Agencies $ 9,525 $ 3 $ (168) $ 9,360
Obligations of states and
political subdivisions 2,562 14 (85) 2,491
Mortgage-backed securities 9,597 -- (269) 9,328
Other securities 1,003 -- (3) 1,000
---------------------------------------------------
Total securities $22,687 $ 17 $ (525) $22,179
======= ======= ======= =======
</TABLE>
There were no sales or transfer of securities classified as available for sale
for the three month period ended September 30, 2000. During the three month
period ended September 30, 1999 gross gains of $6 and gross losses of $1 were
recognized on the sale of securities.
The amortized cost and estimated fair value of debit securities at September 30,
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.
<TABLE>
<CAPTION>
September 30, 2000
---------------------------
Amortized Estimated
Cost Fair Value
------- -----------
<S> <C> <C>
Securities available for sale:
Due in one year or less $ 3,257 $ 3,252
Due after one year through five years 6,368 6,319
Due after five years through ten years 2,235 2,127
Due after ten years -- --
------- -------
Total 11,860 11,698
Mortgage-backed securities 9,339 9,139
Equity Securities 1,034 1,078
------- -------
Total $22,233 $21,915
======= =======
</TABLE>
At September 30, 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.
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>
SEPT. 30, 2000 JUNE 30, 2000
-------------- -------------
<S> <C> <C>
Real estate - residential mortgage $ 50,576 $ 43,769
Real estate - construction 3,336 878
Commercial, financial, and agricultural 47,548 54,542
Personal and other 18,849 18,810
Unearned fees and costs (244) (260)
Allowance for possible loan losses (1,426) (1,413)
--------- ---------
Loans, net $ 118,639 $ 116,326
========= =========
</TABLE>
No loans were determined to be impaired at either September 30, 2000, or June
30, 2000, nor were there any such loans during the period then ended. At
September 30, 2000, loans in non-accrual status totaled $26 and at June 30,
2000, totaled $53.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
----------------------------------
A summary of activity in the allowance for loan losses for the three months
ended September 30, 2000, and September 30, 1999, are as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 1,413 $ 1,185
Loans charged off (123) (58)
Recoveries of loans previously charged off 23 14
Provision 113 97
------- -------
Balance at end of period $ 1,426 $ 1,238
======= =======
</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 period ended September 30, 2000,
compared to the same period in 1999, and the consolidated balance sheets at
September 30, 2000 compared to June 30, 2000. This discussion is designed to
provide a more comprehensive review of the operating results and financial
condition than could be obtained from an examination of the financial statements
alone. This analysis should be read in conjunction with the consolidated
financial statements and related footnotes and the selected financial data
included elsewhere in this report.
RESULTS OF OPERATIONS
NET INCOME. The Corporation earned net income of $517 for the three months ended
September 30, 2000 compared to $493 for the three months ended September 30,
1999. This increase was primarily due to an increase of $232 in net interest
income and $85 in other income offset by an increase in other expenses. Net
income increased $24 or 4.9% for the three months ended September 30, 2000 as
compared to the comparable period in 1999.
NET INTEREST INCOME. Net interest income totaled $2,090 for the three months
ended September 30, 2000 compared to $1,858 for the three months ended September
30, 1999, an increase of $232 or 11.1%. 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 increased $491, or 20.2%, to $2,922 for the three
months ended September 30, 2000 from $2,431 for the three months ended September
30, 1999. The increase in interest income was due to higher average loans
outstanding. The yield on average loans outstanding for the three month periods
ended September 30, 2000, and September 30, 1999 was
9.83% and 9.84% respectively.
Interest earned on taxable and tax-exempt securities totaled $346 for the three
month period ended September 30, 2000 compared to $338 for the three month
period ended September 30, 1999. The increase was primarily the result of an
increase in yield. Interest income on federal funds sold increased by $15 for
the three months ended September 30, 2000, due to an increase in yield.
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 increased $294, or 33.5% for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999
respectively. The increase was primarily a result of the increase in interest
rates on savings and time deposits. Savings deposit interest expense increasing
due to the origination of money market savings products from January 2000
forward and time deposit interest expense increasing due to the general rise in
interest rates in the economy. Interest paid on average interest-bearing
checking, savings, and time deposits has changed from 1.76%, 2.43%, and 5.11% to
1.66%, 3.02%, and 5.48% for the three month period ended September 30, 1999 and
2000, respectively.
Interest paid on FHLB Advances totaled $43 for the three months ended September
30, 2000 as compared to $55 for the three months ended September 30, 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
probable losses 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 probable losses. 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 September 30, 2000
totaled $113 as compared to $97 for the three months ended September 30, 1999,
an increase of $16, or 16.5%. The allowance for loan losses totaled $1,426, or
1.19% of total loans receivable at September 30, 2000. 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
.33% for the three month period ended September 30, 2000 from .21% for the
period ended September 30, 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 for probable losses.
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 $316 for the three months ended September
30, 2000 represented an increase of $85, or 36.8% compared to the $231 of other
income for the three months ended September 30, 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, fee income related
to the sales of specialized investments and title agency fees.
OTHER EXPENSE. Other expense totaled $1,550 for the three months ended September
30, 2000 compared to $1,269 for the three months ended September 30, 1999, an
increase of $281, or 22.1%. Start up costs of the Louisville, East Canton and
the purchase of the Lisbon offices were the primary reasons for the increase.
Salary and benefits expense increased $201 or 33.2% for the three month period
ended September 30, 2000 as compared to September 30, 1999. The increase is the
result of normal annual merit increases and the addition of new employees to
facilitate growth. Occupancy expense increased $99 for the three month period
ended September 30, 2000, as compared to September 30, 1999. These increases are
primarily the result of the opening of the Louisville, East Canton and the
purchase of the Lisbon offices.
INCOME TAX EXPENSE. The provision for income taxes totaled $226 for the three
months ended September 30, 2000 compared to $230 for the three months ended
September 30, 1999, a decrease of $4 or 1.7%. The effective tax rate was 30.4%
and 31.8% for the three month periods ended September 30, 2000 and 1999
respectively.
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
Total assets at September 30, 2000 were $163,866 compared to $154,531 at June
30, 2000, an increase of $9,335 or 6.04%. Loan receivables increased $2,313 from
$116,326 at June 30, 2000 to $118,639 at September 30, 2000. Personal loan
totals increased for the period while residential real estate loans increased
$6,807 or 15.6%, real estate construction loans increased $2,458 or 280%, and
commercial loans decreased $6,994 or 12.8%. The increases are 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
$22,179 at June 30, 2000 to $21,915 at September 30, 2000, or 1.2%. Federal
funds sold have increased $6,350 resulting from deposits increasing $10,426
primarily the result of a short-term time deposit special made available to
depositors under $100 during the thirty-fifth anniversary special of the
subsidiary bank. Net interest margins will continue to compress during the
December quarter as bank time deposit rates remain relatively higher than other
debt instruments in the market.
Total shareholders equity increased from $12,261 at June 30, 2000, to $12,753 at
September 30, 2000. This increase is a combination of net income for the period,
offset by cash dividends paid and an increase 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 three major categories:
commercial loans, real estate loans, and personal loans. Commercial loans are
comprised of both variable rate notes subject to daily interest rate changes
based on the prime rate, and fixed rate notes having maturities of generally not
greater than five years. Real estate loans have shown impressive growth
recently, with outstanding balances up by $6,807 or 15.6% since June 30, 2000.
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 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
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<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)
may be either installment loans having regular monthly payments, or demand type
loans for short periods of time. Personal loans have remained at relatively the
same levels during the past quarter.
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 6.53% and
6.16% respectively for the three month periods ended September 30, 2000 and
September 30, 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 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. To provide an
additional source of loan funds, the Corporation has entered into an agreement
with the Federal Home Loan Bank (FHLB) of Cincinnati to obtain matched funding
for loans. Repayment is made either over a fifteen year period, or over a three
year period with a balloon payment. At September 30, 2000, these FHLB balances
totaled $1,890. 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 increased from
$9,495 at June 30, 2000 to $13,230 at September 30, 2000, or 39.3%. 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.
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 on a taxable equivalent basis for the three month
periods ended September 30, 2000 and 1999 were 5.24% and 5.43%, respectively and
for the fiscal year ended June 30, 2000 was 5.33%
ASSET AND LIABILITY MANAGEMENT
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>
September 30, 2000 June 30, 2000
------------------ -----------------------
TIER 1 CAPITAL Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Actual $11,142 9.9% $10,590 9.8%
Required 4,523 4.0% 4,320 4.0%
TOTAL RISKED BASED CAPITAL
Actual $12,553 11.1% $11,940 11.1%
Required 9,046 8.0% 8,640 8.0%
TIER 1 CAPITAL : AVERAGE ASSETS
Actual $11,142 7.1% $10,590 7.0%
Required 6,259 4.0% 6,060 4.0%
</TABLE>
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)
CAPITAL RESOURCES (CONTINUED)
The Company and subsidiary Bank are 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 Company's financial
statements. The Bank is considered well capitalized under the Federal Deposit
Insurance Act at September 30, 2000. Management is not aware of any matters
occurring subsequent to September 30, 2000 that would cause the Bank's capital
category to change.
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)
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.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), subsequently amended by SFAS No. 137 and 138, which the company is
required to adopt effective January 1, 2001. SFAS 133 will require the company
to record all derivatives on the balance sheet at fair value. Changes in
derivative fair values will either be recognized in earnings as offsets to the
changes in fair value of related hedged assets, liabilities and firm commitments
or, for forecasted transactions, deferred and recorded as a component of other
stockholders' equity until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair value
will be immediately recognized in earnings. The impact of SFAS 133 on the
company's financial statements will depend on a variety of factors, including
future interpretative guidance from the FASB, the future level of forecasted and
actual foreign currency transactions, the extent of the company's hedging
activities, the types of hedging instruments used and the effectiveness of such
instruments. However, the company does not believe the effect of adopting SFAS
133 will be material to its financial position.
GENERAL
The bank has committed to construct a branch in East Canton, Ohio at the present
site. It is estimated the cost of construction to be $300.
18
<PAGE> 21
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 - SHAREHOLDERS MEETING
Consumers Bancorp, Inc. held its annual meeting of shareholders on October
18, 2000, for the following purposes: 1) To vote to amend and restate the
Articles of Incorporation to require that certain actions be approved by a
super-majority of shareholders; 2) To vote to amend and restate the
Regulations to increase flexibility and modernize the Regulations; and 3)
to elect three directors and to transact such other business as would
properly come before the meeting. Results of shareholder voting were as
follows:
Amend and Restate Articles of Incorporation:
For 484,234 Against 730 Abstain 3,525
Amend and Restate Regulations:
For 484,126 Against 838 Abstain 3,525
Election of Directors::
Thomas M. Kishman Harry W. Schmuck Homer R. Unkefer
For 537,175 536,455 537,505
Withheld 1,816 2,536 1,486
The following directors were not up for election at the annual meeting and
their respective terms in office continued after the Annual Meeting.
Laurie L. McClellan
David W. Johnson James R. Kiko, Sr.
John P. Furey J.V. Hanna
Walter J. Young Mark S. Kelly
19
<PAGE> 22
PART II - OTHER INFORMATION (CONTINUED)
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 - Consumers Bancorp Inc. filed reports on Form 8-K
during the quarter ended September 30, 2000 as follows:
None
20
<PAGE> 23
CONSUMERS BANCORP, INC.
10-QSB
CONSUMERS BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the restraint has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSUMERS BANCORP, INC.
-----------------------
(Registrant)
Date: NOVEMBER 13, 2000 /s/ MARK S. KELLY
----------------- -----------------
Mark S. Kelly
President and C.E.O.
Date: NOVEMBER 13, 2000 /s/ Paula J. Meiler
----------------- -----------------------
Paula J. Meiler
Chief Financial Officer
21
