Consumers Bancorp Inc 10-K for FY2023
Consumers Bancorp Inc (CBKM)
About this 10-K
Consumers Bancorp Inc filed this 10-K on September 7, 2023, covering the fiscal year ended June 30, 2023 (FY2023).
Headline figures
Fiscal year ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.14M
- up 7.1% from $3.86M a year earlier
- Net income
- $10.67M
- down 4.6% from net income of $11.19M a year earlier
- Diluted EPS
- $3.45
- down 6.3% from $3.68 a year earlier
| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| WASHINGTON, D.C. 20549 |
FORM
| | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
For The Transition Period From To .
For the fiscal year ended
Commission File No.
CONSUMERS BANCORP, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
P.O. Box 256,
(
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| (Title of each class) | (Trading Symbol(s)) | (Name of each exchange on which registered) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
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 reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Based on the closing sales price on December 31, 2022, the aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was approximately $
The number of shares outstanding of the Registrant’s common stock, no par value, was
DOCUMENTS INCORPORATED BY REFERENCE
Certain specifically designated portions of Consumers Bancorp, Inc.’s definitive Proxy Statement, dated September 7, 2023, for its 2023 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
| PART I. |
|
| Item 1—Business |
3 |
| Item 1A—Risk Factors |
7 |
| Item 1B—Unresolved Staff Comments |
7 |
| Item 2—Properties |
8 |
| Item 3—Legal Proceedings |
8 |
| Item 4—Mine Safety Disclosures |
8 |
| PART II. |
|
| Item 5—Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
9 |
| Item 6—[Reserved] |
|
| Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 |
| Item 7A—Quantitative and Qualitative Disclosures About Market Risk |
22 |
| Item 8—Financial Statements and Supplementary Data |
23 |
| Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
57 |
| Item 9A—Controls and Procedures |
57 |
| Item 9B—Other Information |
57 |
| Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
57 |
| PART III. |
|
| Item 10—Directors, Executive Officers and Corporate Governance |
58 |
| Item 11—Executive Compensation |
58 |
| Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
58 |
| Item 13—Certain Relationships and Related Transactions, and Director Independence |
58 |
| Item 14—Principal Accounting Fees and Services |
58 |
| PART IV. |
|
| Item 15—Exhibit and Financial Statement Schedules |
59 |
| Item 16—Form 10-K Summary |
59 |
| Signatures |
61 |
PART I
Item 1—Business
(Dollars in thousands, except per share data)
General
Consumers Bancorp, Inc. (Corporation) is a bank holding company as defined under the Bank Holding Company Act of 1956, as amended (BHCA), and is a registered bank holding company under that act and was incorporated under the laws of the State of Ohio in 1994. In February 1995, the Corporation acquired all the issued and outstanding capital stock of Consumers National Bank (Bank), a bank chartered under the laws of the United States of America. The Corporation’s activities have been limited primarily to holding the common stock of the Bank.
Consumers National Bank is a community-oriented financial institution that offers a wide range of commercial and consumer loan and deposit products, as well as mortgage, financial planning and investment services to individuals, farmers and small and medium sized businesses in our markets. Since 1965, the Bank’s main office has been serving Minerva, Ohio, and surrounding areas from its location at 614 East Lincoln Way, Minerva, Ohio. The Bank seeks to be the provider of choice for financial solutions to customers who value exceptional personalized service, local decision making, and modern banking technology. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its market area, consisting primarily of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. As of June 30, 2023, the Bank had 21 full-service branch locations and one loan production office. The Bank also invests in securities consisting primarily of obligations of U.S. government-sponsored entities, municipal obligations and mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
On July 16, 2021, the Corporation completed its acquisition (branch acquisition) of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the branch acquisition, the Corporation assumed $104,538 in branch deposits for a deposit premium of 1.75%. In addition, the Corporation acquired $15,602 of subordinated debt securities issued by unrelated financial institutions, $19,943 of loans, and recorded goodwill of $1,616. This transaction qualified as a business combination.
Supervision and Regulation
The Corporation and the Bank are subject to regulation by the Securities and Exchange Commission (SEC), the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Office of the Comptroller of the Currency (OCC) and other federal and state regulators. The regulatory framework is intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole and not for the protection of shareholders and creditors. Earnings and dividends of the Corporation are affected by state and federal laws and regulations and by policies of various regulatory authorities. Changes in applicable law or in the policies of various regulatory authorities could affect materially the business and prospects of the Corporation and the Bank. The following describes selected federal and state statutory and regulatory provisions that have, or could have, a material impact on the Corporation. The following discussion of supervision and regulation is qualified in its entirety by reference to the statutory and regulatory provisions discussed.
Regulation of the Corporation
The Bank Holding Company Act: As a bank holding company, the Corporation is subject to regulation under the BHCA, and the examination and reporting requirements of the Federal Reserve Board. Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve Board may require.
The BHCA generally limits the activities of a bank holding company to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries and engaging in any other activities that the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident to those activities. In addition, subject to certain exceptions, the BHCA requires every bank holding company to obtain the approval of the Federal Reserve Board prior to acquiring substantially all the assets of any bank, acquiring direct or indirect ownership or control of more than 5% of the voting shares of a bank or merging or consolidating with another bank holding company.
Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice. The Federal Reserve Board has extensive enforcement authority over bank holding companies for violations of laws and regulations and unsafe or unsound practices.
Privacy Provisions of Gramm-Leach-Bliley Act: The Gramm-Leach-Bliley Act of 1999 contains extensive provisions on a customer’s right to privacy of non-public personal information. Under these provisions, a financial institution must provide its customers with the institution’s policies and procedures regarding the handling of customers’ non-public personal information. Except in certain cases, an institution may not provide personal information to unaffiliated third parties unless the institution discloses that such information may be disclosed, and the customer is given the opportunity to opt out of such disclosure. The Corporation and the Bank are also subject to certain state laws that deal with the use and distribution of non-public personal information.
Sarbanes-Oxley Act: The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the areas of financial disclosure and corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written certifications by the Corporation’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest that the Corporation’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact or omit to state a material fact.
Regulation of the Bank
As a national bank, the Bank is subject to regulation, supervision, and examination by the OCC and by the Federal Deposit Insurance Corporation (FDIC). These examinations are designed primarily for the protection of the depositors of the Bank.
Dividend Restrictions: Dividends from the Bank are the primary source of funds for payment of dividends to the Corporation’s shareholders. There are statutory limits, however, on the amount of dividends the Bank can pay without regulatory approval. Under regulations promulgated by the OCC, the Bank may not declare a dividend in excess of its undivided profits. Additionally, the Bank may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the Bank in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the OCC. The Bank may not declare or pay any dividend if, after making the dividend, the Bank would be “undercapitalized,” as defined in the federal regulations.
FDIC: The FDIC is an independent federal agency, which insures the deposits of federally insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The deposits of the Bank are subject to the deposit insurance assessments of the Deposit Insurance Fund of the FDIC. Under the FDIC’s deposit insurance assessment system, the assessment rate for any insured institution varies according to regulatory capital levels of the institution and other factors such as supervisory evaluations.
The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against banks, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.
Current Expected Credit Loss Model: In December 2018, the OCC, the Federal Reserve Board, and the FDIC issued a final rule to address regulatory treatment of credit loss allowances under the current expected credit loss (CECL) model. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day one adverse effects on regulatory capital that may result from the adoption of the CECL model. The Bank adopted the CECL model on July 1, 2023 since it’s a smaller reporting company and expects to elect to phase in the day-one effect of adopting CECL for regulatory capital purposes.
Risk-Based Capital Requirements: The Federal Reserve Board and the OCC employ similar risk-based capital guidelines in their examination and regulation of bank holding companies and national banks, respectively. The Corporation meets the definition of a Small Bank Holding Company and, therefore, was exempt from maintaining consolidated regulatory capital ratios. Instead, regulatory capital ratios only apply at the subsidiary bank level. The guidelines involve a process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the capital base. If capital falls below the minimum levels established by the guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities. In addition, failure to satisfy capital guidelines could subject a banking institution to a variety of enforcement actions by federal bank regulatory authorities, including the termination of deposit insurance by the FDIC and a prohibition on the acceptance of “brokered deposits.”
Effective January 1, 2020, qualifying community banking organizations may elect to comply with a greater than 9% community bank leverage ratio (CBLR) requirement in lieu of the currently applicable requirements for calculating and reporting risk-based capital ratios. The CBLR is equal to Tier 1 capital divided by average total consolidated assets. In order to qualify for the CBLR election, a community bank must (i) have a leverage capital ratio greater than 9 percent, (ii) have less than $10 billion in average total consolidated assets, (iii) not exceed certain levels of off-balance sheet exposure and trading assets plus trading liabilities and (iv) not be an advanced approaches banking organization. A community bank that meets the above qualifications and elects to utilize the CBLR is considered to have satisfied the risk-based and leverage capital requirements in the generally applicable capital rules and is also considered to be "well capitalized" under the prompt corrective action rules. The Bank has not elected to be subject to the CBLR.
Unless a community bank qualifies for, and elects to comply with the CBLR beginning on January 1, 2020, national banks are required to maintain the Basel III minimum levels of regulatory capital. The Basel III capital requirements for U.S. banking organizations became effective on January 1, 2015 and were fully phased in by January 1, 2019. Under Basel III, the Bank is required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8%, and a Tier 1 leverage ratio of 4%. Basel III also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which effectively resulted in a minimum common equity Tier 1 capital ratio of 7%, a Tier 1 capital ratio of 8.5%, a total capital ratio of 10.5% and a Tier 1 leverage ratio of 6.5%. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a common equity Tier 1 ratio to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
The OCC and the FDIC may take various corrective actions against any undercapitalized bank and any bank that fails to submit an acceptable capital restoration plan or fails to implement a plan accepted by the OCC or the FDIC. These powers include, but are not limited to, requiring the institution to be recapitalized, prohibiting asset growth, restricting interest rates paid, requiring prior approval of capital distributions by any bank holding company that controls the institution, requiring divestiture by the institution of its subsidiaries or by the holding company of the institution itself, requiring new election of directors, and requiring the dismissal of directors and officers. The OCC’s final supervisory judgment concerning an institution’s capital adequacy could differ significantly from the conclusions that might be derived from the absolute level of an institution’s risk-based capital ratios. Therefore, institutions generally are expected to maintain risk-based capital ratios that exceed the minimum ratios. As of June 30, 2023, the Bank exceeded minimum regulatory capital requirements to be considered well-capitalized.
Dodd-Frank Wall Street Reform and Consumer Protection Act: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established the Consumer Financial Protection Bureau (CFPB), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive and abusive acts or practices and seeks to ensure consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since it was established the CFPB has exercised extensive rulemaking and interpretive authority.
Interstate Banking and Branching: The Interstate Banking and Branch Efficiency Act of 1995 has eased restrictions on interstate expansion and consolidation of banking operations by, among other things: (i) permitting interstate bank acquisitions regardless of host state laws, (ii) permitting interstate merger of banks unless specific states have opted out of this provision, and (iii) permitting banks to establish new branches outside the state provided the law of the host state specifically allows interstate bank branching.
Community Reinvestment Act: The Community Reinvestment Act (CRA) requires depository institutions to assist in meeting the credit needs of their market areas, including low- and moderate-income areas, consistent with safe and sound banking practices. Under this Act, each institution is required to adopt a statement for each of its market areas describing the depository institution’s efforts to assist in its community’s credit needs. Depository institutions are periodically examined for compliance and assigned ratings. Banking regulators consider these ratings when considering approval of a proposed transaction by an institution. The Bank’s most recent CRA rating is satisfactory.
USA PATRIOT Act: In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act). The Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The Patriot Act mandates that financial services companies implement additional policies and procedures with respect to additional measures designed to address any or all the following matters: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes.
The Anit-Money Laundering Act: In 2021, Congress enacted the Anti-Money Laundering Act of 2020 (AMLA), which amended the Bank Secrecy Act of 1970 (BSA). The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.
Office of Foreign Assets Control Regulation: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including applicable bank regulatory authorities not approving merger or acquisition transactions when regulatory approval is required or prohibiting such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Cybersecurity: In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyberattack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyberattack.
In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. In addition, in July 2023, the SEC adopted rules that require disclosure of material cybersecurity incidents, processes, if any, for assessing, identifying and managing material cybersecurity risk as well as whether any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Corporation.
In November 2021, the OCC, the FRB and the FDIC issued a final rule, which became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity, or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident that rises to the level of a notification event has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation.
Furthermore, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require, once administrative rules are adopted, certain covered entities, including those in the financial services industry, to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (CISA) within 72 hours after it reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and many states have also recently implemented or modified their data breach notification, information security and data privacy requirements. We expect this trend of state-level activity in those areas to continue and we are monitoring developments in the states in which our customers are located.
In the ordinary course of business, electronic communications and information systems are relied upon to conduct operations, to deliver services to customers and to store sensitive data. The Corporation employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, increasing volume of attacks, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Corporation and its customers.
Government Monetary Policy: The earnings of the Corporation are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member and nonmember bank deposits. Federal Reserve Board monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including the Bank, and are expected to continue to do so in the future.
Executive and Incentive Compensation: Under the Dodd-Frank Act and rules adopted by the SEC in October 2022, public companies will be required, once stock exchanges adopt additional listing requirements, to adopt and implement “clawback” policies for incentive compensation payments and to disclose the details of the procedures for recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements. Such clawback policies are intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives (including former executives) who received incentive awards.
Employees
As of June 30, 2023, the Bank employed 173 full-time and 21 part-time employees. None of the employees are represented by a collective bargaining group. Management considers its relations with employees to be good.
Available Information
The Corporation files annual, quarterly, and current reports, proxy statements, and other information with the SEC. These filings are available to the public over the Internet at the SEC’s website at www.sec.gov. Shareholders may also read and copy any document that the Corporation files at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Shareholders may call the SEC at 1-800-SEC-0330 for further information on the public reference room.
The Corporation’s reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available, free of charge, on our website (www.consumers.bank) as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the Investor Relations section under Corporate Governance of the Corporation’s website. The Corporation intends to post amendments to or waivers from either of its Code of Ethics Policies on its website. A printed copy of any of these documents will be provided to any requesting shareholder.
Item 1A—Risk Factors
Not applicable for Smaller Reporting Companies.
Item 1B—Unresolved Staff Comments
None.
Item 2—Properties
The Bank operates 21 full-service banking facilities and one loan production office (LPO) as noted below:
| Location |
Address |
Owned |
Leased |
|||
| Adena |
9 East Main Street, Adena, Ohio 43901 |
X |
||||
| Alliance |
610 West State Street, Alliance, Ohio 44601 |
X |
||||
| Bergholz |
256 2nd Street, Bergholz, Ohio 43908 |
X |
||||
| Brewster |
210 Wabash Ave S, Brewster, Ohio 44613 |
X |
||||
| Calcutta |
49028 Foulks Drive, Calcutta, Ohio 43920 |
X |
||||
| Carrollton |
1017 Canton Road NW, Carrollton, Ohio 44615 |
X |
||||
| Dillonvale |
44 Smithfield Street, Dillonvale, Ohio 43917 |
X |
||||
| East Canton |
440 W. Noble, East Canton, Ohio 44730 |
X |
||||
| Fairlawn |
3680 Embassy Parkway Suite B, Fairlawn, Ohio 44333 |
X |
||||
| Green |
4086 Massillon Road, Green, Ohio 44685 |
X |
||||
| Hanoverton |
30034 Canal Street, P.O. Box 178, Hanoverton, Ohio 44423 |
X |
||||
| Hartville |
1215 W. Maple Street, Hartville, Ohio 44632 |
X |
||||
| Jackson-Belden |
4026 Dressler Road NW, Canton, Ohio 44718 |
X |
||||
| Lisbon |
7985 Dickey Drive, Lisbon, Ohio 44432 |
X |
||||
| Louisville |
1111 N. Chapel Street, Louisville, Ohio 44641 |
X |
||||
| Malvern |
4070 Alliance Road, Malvern, Ohio 44644 |
X |
||||
| Minerva |
614 E. Lincoln Way, P.O. Box 256, Minerva, Ohio 44657 |
X |
||||
| Mount Pleasant |
298 Union Street, Mount Pleasant, Ohio 43939 |
X |
||||
| Salem |
141 S. Ellsworth Avenue, P.O. Box 798, Salem, Ohio 44460 |
X |
||||
| Waynesburg |
8607 Waynesburg Drive SE, P.O. Box 746, Waynesburg, Ohio 44688 |
X |
||||
| Wellsville |
565 Main Street, Wellsville, Ohio 43968 |
X |
||||
| Boardman LPO |
725 Boardman-Canfield Road, Building 1, Boardman, Ohio 44512 |
X |
The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. In management’s opinion, all properties owned and operated by the Bank are adequately insured.
Item 3—Legal Proceedings
The Corporation is not a party to any pending material legal or administrative proceedings, other than ordinary routine litigation incidental to the business of the Corporation. 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 therein that is adverse to the Corporation. No routine litigation in which the Corporation is involved is expected to have a material adverse impact on the financial position or results of operations of the Corporation.
Item 4—Mine Safety Disclosures
None.
PART II
Item 5—Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
The Corporation had 3,096,100 common shares outstanding on June 30, 2023, with 730 shareholders of record and an estimated 816 additional beneficial holders whose stock was held in nominee name. Attention is directed to Item 12 in this Form 10-K for information regarding the Corporation’s equity incentive plans, which information is incorporated herein by reference.
The common shares of Consumers Bancorp, Inc. are quoted on the OTCQX® Best Market under the symbol CBKM. The following quoted market prices reflect inter-dealer prices, without adjustments for retail markups, markdowns, or commissions and may not represent actual transactions. The market prices represent highs and lows reported during the applicable quarterly period.
| Quarter Ended |
September 30, |
December 31, |
March 31, |
June 30, |
||||||||||||
| High |
$ | 21.00 | $ | 21.00 | $ | 20.45 | $ | 18.50 | ||||||||
| Low |
18.20 | 17.90 | 17.21 | 15.83 | ||||||||||||
| Cash dividends paid per share |
0.17 | 0.17 | 0.17 | 0.17 | ||||||||||||
| Quarter Ended |
September 30, |
December 31, |
March 31, |
June 30, |
||||||||||||
| High |
$ | 23.75 | $ | 23.20 | $ | 24.50 | $ | 23.40 | ||||||||
| Low |
19.21 | 21.47 | 21.86 | 19.00 | ||||||||||||
| Cash dividends paid per share |
0.16 | 0.16 | 0.16 | 0.16 | ||||||||||||
Management does not have knowledge of the prices paid in all transactions and has not verified the accuracy of those prices that have been reported. Because of the lack of an established market for the Corporation’s common shares, these prices may not reflect the prices at which the common shares would trade in an active market.
The Corporation’s management is currently committed to continuing to pay regular cash dividends; however, there can be no assurance as to future dividends because they are dependent on the Corporation’s future earnings, capital requirements and financial condition. The Corporation’s principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. See Note 1 and Note 13 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for dividend restrictions.
There were no repurchases of the Corporation’s securities during fiscal year 2023.
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
General
The following is management’s analysis of the Corporation’s financial condition and results of operations as of and for the years ended June 30, 2023 and 2022. This discussion is designed to provide a more comprehensive review of the operating results and financial position than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “continue,” “estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. Risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:
| ● |
changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in asset credit quality or debtors being unable to meet their obligations because of high unemployment rates and inflationary pressures; |
|
| ● |
rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income; |
|
| ● |
changes in the level of non-performing assets and charge-offs; |
|
| ● |
unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources; |
|
| ● |
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply; |
|
| ● |
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; |
|
| ● |
breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; |
|
| ● |
changes in consumer spending, borrowing and savings habits; |
|
| ● |
declining asset values impacting the underlying value of collateral; |
|
| ● |
changes in accounting policies, rules and interpretations; |
|
| ● |
our ability to attract and retain qualified employees; |
|
| ● |
competitive pressures on product pricing and services; and |
|
| ● |
changes in the reliability of our vendors, internal control systems or information systems. |
The risks and uncertainties identified above are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect us. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition, and results of operations.
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio, owns all the issued and outstanding capital stock of Consumers National Bank, a bank chartered under the laws of the United States of America. The Corporation’s activities have been limited primarily to holding the common stock of the Bank. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its market area, consisting primarily of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. The Bank also invests in securities consisting primarily of U.S. government-sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.
On July 16, 2021, the Corporation completed the branch acquisition and assumed $104,538 of branch deposits for a 1.75% deposit premium and purchased $15,602 in subordinated debt securities issued by unrelated financial institutions and $19,943 in loans. In relation to the branch acquisition, the Corporation recorded goodwill of $1,616. This transaction qualified as a business combination.
Comparison of Results of Operations for the Years Ended June 30, 2023 and June 30, 2022
Net Income. Net income was $10,674 for fiscal year 2023 compared with $11,192 for fiscal year 2022. The following key factors summarize our results of operations for the year ended June 30, 2023 compared with the same prior year period:
| ● |
net interest income increased by $969, or 3.0%, in fiscal year 2023, primarily because of a $51,065, or 5.6%, increase in average interest-earning assets; |
|
| ● |
a $855 provision for loan loss expense was recorded during fiscal year 2023 compared with $735 during fiscal year 2022; and |
|
| ● |
total other expenses increased by $1,470, or 6.3%, in fiscal year 2023 due to increases in salaries and employee benefits; occupancy and equipment expenses; and professional and director fees. |
Return on average equity and return on average assets were 20.27% and 1.05%, respectively, for fiscal year 2023 compared with 16.43% and 1.17%, respectively, for the same period last year.
Net Interest Income. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies, and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income.
Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate of 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances and average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost.
| Net Interest Income Year ended June 30, |
2023 |
2022 |
||||||
| Net interest income |
$ | 33,715 | $ | 32,746 | ||||
| Taxable equivalent adjustments to net interest |
204 | 513 | ||||||
| Net interest income, fully taxable equivalent |
$ | 33,919 | $ | 33,259 | ||||
| Net interest margin |
3.35 | % |
3.54 | % |
||||
| Taxable equivalent adjustment |
0.02 | 0.06 | ||||||
| Net interest margin, fully taxable equivalent |
3.37 | % |
3.60 | % |
||||
FTE net interest income for fiscal year 2023 was $33,919, an increase of $660 or 2.0%, from $33,259 in fiscal year 2022. The Corporation’s tax equivalent net interest margin was 3.37% for fiscal year 2023 and 3.60% for fiscal year 2022. FTE interest income for fiscal year 2023 was $41,143, an increase of $6,470, or 18.70%, from fiscal year 2022, primarily due to a $51,065, or 5.6%, increase in average interest-earning assets from fiscal year 2022. The growth in average interest-earning assets was primarily a result of a $65,313, or 10.9%, increase in average loans. In fiscal year 2022, interest income was positively impacted by $2,612 in interest and fee income that was recognized on Paycheck Protection Program loans. The Corporation’s yield on average interest-earning assets was 4.09% for the 2023 fiscal year compared with 3.75% for the same period last year.
Interest expense for fiscal year 2023 was $7,224, an increase of $5,810 from fiscal year 2022 primarily because of the rapid increase in current market interest rates and the increased competition for deposits. The Corporation’s average cost of funds was 1.03% for fiscal year 2023 compared with 0.22% for the same prior year period.
Average Balance Sheet and Net Interest Margin
| 2023 |
2022 | |||||||||||||||||||||||
| Average |
Interest |
Yield/ |
Average |
Interest |
Yield/ |
|||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||
| Taxable securities |
$ | 209,906 | $ | 5,338 | 2.24 | % |
$ | 185,741 | $ | 3,572 | 1.87 | % |
||||||||||||
| Nontaxable securities (1) |
84,023 | 2,459 | 2.67 | 86,710 | 2,580 | 3.00 | ||||||||||||||||||
| Loan receivables (1) |
662,163 | 32,757 | 4.95 | 596,850 | 28,216 | 4.73 | ||||||||||||||||||
| Federal bank and other restricted stocks |
2,360 | 149 | 6.31 | 2,489 | 82 | 3.29 | ||||||||||||||||||
| Equity securities |
384 | 33 | 8.59 | 427 | 33 | 7.73 | ||||||||||||||||||
| Interest bearing deposits and federal funds sold |
12,118 | 407 | 3.36 | 47,672 | 190 | 0.40 | ||||||||||||||||||
| Total interest earning assets |
970,954 | 41,143 | 4.09 | % |
919,889 | 34,673 | 3.75 | % |
||||||||||||||||
| Noninterest earning assets |
48,917 | 39,059 | ||||||||||||||||||||||
| Total assets |
$ | 1,019,871 | $ | 958,948 | ||||||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||
| Interest bearing demand |
$ | 157,508 | $ | 1,128 | 0.72 | % |
$ | 147,312 | $ | 166 | 0.11 | % |
||||||||||||
| Savings |
352,897 | 2,513 | 0.71 | 349,380 | 388 | 0.11 | ||||||||||||||||||
| Time deposits |
156,357 | 3,019 | 1.93 | 113,143 | 568 | 0.50 | ||||||||||||||||||
| Short-term borrowings |
22,603 | 397 | 1.76 | 12,960 | 47 | 0.36 | ||||||||||||||||||
| FHLB advances |
10,019 | 167 | 1.67 | 14,639 | 245 | 1.67 | ||||||||||||||||||
| Total interest-bearing liabilities |
699,384 | 7,224 | 1.03 | % |
637,434 | 1,414 | 0.22 | % |
||||||||||||||||
| Noninterest-bearing liabilities |
267,837 | 253,407 | ||||||||||||||||||||||
| Total liabilities |
967,221 | 890,841 | ||||||||||||||||||||||
| Shareholders’ equity |
52,650 | 68,107 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 1,019,871 | $ | 958,948 | ||||||||||||||||||||
| Net interest income, interest rate spread (1) |
$ | 33,919 | 3.06 | % |
$ | 33,259 | 3.53 | % |
||||||||||||||||
| Net interest margin (net interest as a percent of average interest earning assets) (1) |
3.37 | % |
3.60 | % |
||||||||||||||||||||
| Federal tax exemption on non-taxable securities and loans included in interest income |
$ | 204 | $ | 513 | ||||||||||||||||||||
| Average interest earning assets to interest bearing liabilities |
138.83 | % |
144.31 | % |
||||||||||||||||||||
____________
| (1) |
Calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%. |
The following table presents the changes in the Corporation’s interest income and interest expense resulting from changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities. Changes attributable to both rate and volume that cannot be segregated have been allocated in proportion to the changes due to rate and volume.
INTEREST RATES AND INTEREST DIFFERENTIAL
| 2023 Compared to 2022 |
2022 Compared to 2021 |
|||||||||||||||||||||||
| Total |
Change |
Change |
Total |
Change |
Change |
|||||||||||||||||||
| (In thousands) |
||||||||||||||||||||||||
| Interest earning assets: |
||||||||||||||||||||||||
| Taxable securities |
$ | 1,766 | $ | 975 | $ | 791 | $ | 1,978 | $ | 1,932 | $ | 46 | ||||||||||||
| Nontaxable securities (1) |
(121 | ) |
177 | (298 | ) |
432 | 558 | (126 | ) |
|||||||||||||||
| Loan receivables (2) |
4,541 | 3,188 | 1,353 | 3,315 | 2,188 | 1,127 | ||||||||||||||||||
| Federal bank and other restricted stocks |
67 | (4 | ) |
71 | 6 | 1 | 5 | |||||||||||||||||
| Interest bearing deposits and federal funds sold |
217 | (238 | ) |
455 | 24 | 92 | (68 | ) |
||||||||||||||||
| Equity securities |
— | (3 | ) |
3 | 16 | 17 | (1 | ) |
||||||||||||||||
| Total interest and dividend income |
6,470 | 4,095 | 2,375 | 5,771 | 4,788 | 983 | ||||||||||||||||||
| Interest bearing liabilities: |
||||||||||||||||||||||||
| Interest bearing demand |
962 | 12 | 950 | 17 | 41 | (24 | ) |
|||||||||||||||||
| Savings deposits |
2,125 | 4 | 2,121 | 55 | 115 | (60 | ) |
|||||||||||||||||
| Time deposits |
2,451 | 290 | 2,161 | (565 | ) |
107 | (672 | ) |
||||||||||||||||
| Short-term borrowings |
350 | 57 | 293 | 38 | 6 | 32 | ||||||||||||||||||
| FHLB advances |
(78 | ) |
(77 | ) |
(1 | ) |
(31 | ) |
(84 | ) |
53 | |||||||||||||
| Total interest expense |
5,810 | 286 | 5,524 | (486 | ) |
185 | (671 | ) |
||||||||||||||||
| Net interest income |
$ | 660 | $ | 3,809 | $ | (3,149 | ) |
$ | 6,257 | $ | 4,603 | $ | 1,654 | |||||||||||
____________
| (1) |
Nontaxable income is adjusted to a fully tax equivalent basis utilizing a statutory federal income tax rate of 21.0%. |
| (2) |
Non-accrual loan balances are included for purposes of computing the rate and volume effects although interest on these balances has been excluded. |
Provision for Loan Losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses in the Corporation’s loan portfolio that have been incurred at each balance sheet date. The amount of the provision is affected by loan charge-offs, recoveries and changes in specific and general allocations required for the allowance for loan losses. Management considers a number of factors that impact the provision for loan losses, such as historical loss experience, the present and prospective financial condition of borrowers, the current conditions within the markets where the Corporation originates loans, the status of nonperforming assets, the estimated underlying value of the collateral and other factors related to the ultimate collectability of the loan portfolio.
A provision for loan loss expense of $855 was recorded in fiscal year 2023 compared with $735 in fiscal year 2022. The loan loss provision expense recorded in fiscal year 2023 was primarily due to the organic growth within the loan portfolio. For fiscal year 2023, net charge offs of $291, or 0.04% of total loans, were recorded compared with $46, or 0.01% of total loans, for the same period last year. The allowance for loan losses as a percentage of loans was 1.09% at June 30, 2023 and 1.17% at June 30, 2022. The decline in the allowance for loan losses as a percentage of total loans was due to the improvement in economic conditions as the economy has remained resilient following the pandemic and through the rapid rise in short-term interest rates. Also, substandard and non-accrual loans are at very low levels.
Non-performing loans were $104, or 0.01% of total loans, as of June 30, 2023. This compared with $440, or 0.07% of total loans, as of June 30, 2022. Non-performing loans declined primarily because two loans that had a balance of $382 as of June 30, 2022 were returned to accrual status during fiscal year 2023. Non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors closely monitor these loans and believe the prospect for recovery of principal, less identified specific reserves, are favorable.
Other Income. Total other income increased by $12, or 0.3%, to $4,747 for fiscal year 2023. Service charges on deposit accounts increased by $138, or 9.5%, in fiscal year 2023 primarily as a result of increases in personal and business service charges on demand deposit accounts. Debit card interchange income increased by $112, or 5.4% in fiscal year 2023 because of increased debit card usage and an increase in the number of cards issued. These increases were partially offset by mortgage banking activity income decreasing by $287 in fiscal year 2023 because of the increase in mortgage rates impacting refinancing and new home sales volume.
Other Expenses. Total other expenses were $24,685 for the year ended June 30, 2023; an increase of $1,470, or 6.3%, from $23,215 for the year ended June 30, 2022.
Salaries and employee benefit expenses increased by $760, or 5.7%, during fiscal year 2023 primarily due to merit and cost of living increases and lower deferred loan costs. These increases were partially offset by lower salary continuation plan expenses because of an increase in the discount rate and lower incentive expenses.
Professional and director fees increased by $187, or 21.3%, during fiscal year 2023 from the same period last year primarily because of an increase in director fees and consulting expenses. Director fees increased mainly due to the issuance of restricted stock awards and units in fiscal year 2023 as the Corporation started issuing restricted stock units in fiscal year 2023 to better align the expense recognition with the performance criteria. In addition, consulting fees were higher in fiscal year 2023 as the Corporation prepared for the additional documentation and audit requirements of the FDIC Improvement Act of 1991 since the Corporation now has over $1 billion in total assets and as it prepared for the adoption of the current expected credit loss model accounting standard.
Financial institutions tax expenses decreased by $64, or 11.8%, in fiscal year 2023 since this is a capital-based tax and total capital was lower as of the measurement date in fiscal year 2023 because of the accumulated other comprehensive loss.
Other expenses increased by $256, or 12.7%, because of increases primarily in insurance, postage, and loan expenses as a result of the growth in the organization.
Income Tax Expense. Income tax expense totaled $2,248 and $2,339 and the effective tax rates were 17.4% and 17.3% for the fiscal years ended June 30, 2023 and 2022, respectively. Income tax expense was calculated utilizing a statutory federal income tax rate of 21.0% in fiscal years 2023 and 2022. The effective tax rate differs from the federal statutory rate as a result of tax-exempt income from obligations of states and political subdivisions, loans and bank owned life insurance earnings.
Financial Condition
Total assets as of June 30, 2023 were $1,060,024 compared with $977,313 at June 30, 2022, an increase of $82,711, or 8.5%. The growth in total assets is mainly attributable to an increase of $98,519, or 16.1%, in total loans and was primarily funded by a $65,971, or 7.4%, increase in total deposits.
Securities. Total securities were $286,575 at June 30, 2023, of which $279,605 were classified as available-for-sale and $6,970 were classified as held-to-maturity. The securities portfolio is mainly comprised of mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae, state and political subdivisions and government-sponsored enterprises. The following tables summarize the amortized cost and fair value of available-for-sale securities at June 30, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income or loss:
| June 30, 2023 Available-for-sale |
Amortized |
Gross |
Gross |
Fair |
||||||||||||
| Obligation of U.S Treasury |
$ | 8,941 | $ | — | $ | (533 | ) |
$ | 8,408 | |||||||
| Obligations of U.S. government-sponsored entities and agencies |
29,430 | 7 | (3,745 | ) |
25,692 | |||||||||||
| Obligations of state and political subdivisions |
92,891 | 63 | (8,982 | ) |
83,972 | |||||||||||
| U.S. Government-sponsored mortgage-backed securities - residential |
104,689 | 12 | (15,066 | ) |
89,635 | |||||||||||
| U.S. Government-sponsored mortgage-backed securities – commercial |
8,604 | — | (1,809 | ) |
6,795 | |||||||||||
| U.S. Government-sponsored collateralized mortgage obligations – residential |
55,800 | 8 | (5,738 | ) |
50,070 | |||||||||||
| Other debt securities |
17,175 | — | (2,142 | ) |
15,033 | |||||||||||
| Total available-for-sale securities |
$ | 317,530 | $ | 90 | $ | (38,015 | ) |
$ | 279,605 | |||||||
| June 30, 2022 Available-for-sale |
Amortized |
Gross |
Gross |
Fair |
||||||||||||
| U.S. Treasury |
$ | 8,909 | $ | — | $ | (462 | ) |
$ | 8,447 | |||||||
| Obligations of U.S. government-sponsored entities and agencies |
28,689 | — | (2,424 | ) |
26,265 | |||||||||||
| Obligations of state and political subdivisions |
105,977 | 129 | (8,749 | ) |
97,357 | |||||||||||
| U.S. government-sponsored mortgage-backed securities - residential |
113,812 | 13 | (11,642 | ) |
102,183 | |||||||||||
| U.S. government-sponsored mortgage-backed securities - commercial |
8,623 | — | (1,322 | ) |
7,301 | |||||||||||
| U.S. government-sponsored collateralized mortgage obligations – residential |
40,952 | 1 | (2,774 | ) |
38,179 | |||||||||||
| Other debt securities |
17,367 | — | (752 | ) |
16,615 | |||||||||||
| Total available-for-sale securities |
$ | 324,329 | $ | 143 | $ | (28,125 | ) |
$ | 296,347 | |||||||
The following tables summarize the amortized cost and fair value of held-to-maturity securities at June 30, 2023 and 2022 and the corresponding gross unrecognized gains and losses:
| June 30, 2023 Held-to-maturity |
Amortized |
Gross |
Gross Losses |
Fair |
||||||||||||
| Obligations of state and political subdivisions |
$ | 6,970 | $ | — | $ | (676 | ) |
$ | 6,294 | |||||||
| June 30, 2022 Held-to-maturity |
Amortized |
Gross Gains |
Gross |
Fair |
||||||||||||
| Obligations of state and political subdivisions |
$ | 7,874 | $ | 47 | $ | (90 | ) |
$ | 7,831 | |||||||
The following tables summarize the amounts and distribution of the Corporation’s securities held and the weighted average yields as of June 30, 2023:
| Available-for-sale |
Amortized |
Fair |
Average |
|||||||||
| Obligations of U.S. Treasury |
||||||||||||
| Over 3 months through 1 year |
$ | 2,494 | $ | 2,412 | 0.60 | % |
||||||
| Over 1 year through 5 years |
6,447 | 5,996 | 0.91 | |||||||||
| Total obligations of U.S. Treasury |
8,941 | 8,408 | 0.82 | |||||||||
| Obligations of government-sponsored entities: |
||||||||||||
| Over 3 months through 1 year |
1,001 | 987 | 2.22 | |||||||||
| Over 1 year through 5 years |
5,767 | 5,476 | 2.79 | |||||||||
| Over 5 years through 10 years |
20,181 | 17,134 | 2.03 | |||||||||
| Over 10 years |
2,481 | 2,095 | 2.04 | |||||||||
| Total obligations of government-sponsored entities |
29,430 | 25,692 | 2.48 | |||||||||
| Obligations of state and political subdivisions: |
||||||||||||
| 3 months or less |
1,000 | 996 | 0.50 | |||||||||
| Over 3 months through 1 year |
502 | 504 | 5.43 | |||||||||
| Over 1 year through 5 years |
16,891 | 16,168 | 2.94 | |||||||||
| Over 5 years through 10 years |
13,777 | 12,650 | 2.76 | |||||||||
| Over 10 years |
60,721 | 53,654 | 3.00 | |||||||||
| Total obligations of state and political subdivisions |
92,891 | 83,972 | 2.94 | |||||||||
| Mortgage-backed securities - residential: |
||||||||||||
| Over 3 months through 1 year |
94 | 91 | 2.09 | |||||||||
| Over 1 year through 5 years |
18,834 | 17,492 | 2.62 | |||||||||
| Over 5 years through 10 years |
76,352 | 64,444 | 1.94 | |||||||||
| Over 10 years |
9,409 | 7,608 | 1.92 | |||||||||
| Total mortgage-backed securities - residential |
104,689 | 89,635 | 2.06 | |||||||||
| Amortized |
Fair |
Average |
||||||||||
| Collateralized mortgage obligations: |
||||||||||||
| Mortgage-backed securities – commercial: |
||||||||||||
| Over 1 year through 5 years |
$ | 1,321 | $ | 1,071 | 1.69 | % |
||||||
| Over 5 years through 10 years |
2,920 | 2,379 | 1.90 | |||||||||
| Over 10 years |
4,363 | 3,345 | 2.12 | |||||||||
| Total mortgage-backed securities - commercial |
8,604 | 6,795 | 1.98 | |||||||||
| Collateralized mortgage obligations: |
||||||||||||
| 3 months or less |
110 | 109 | 1.47 | |||||||||
| Over 3 months through 1 year |
812 | 810 | 5.41 | |||||||||
| Over 1 year through 5 years |
19,508 | 18,723 | 4.33 | |||||||||
| Over 5 years through 10 years |
32,513 | 28,190 | 2.75 | |||||||||
| Over 10 years |
2,857 | 2,238 | 1.67 | |||||||||
| Total collateralized mortgage obligations |
55,800 | 50,070 | 3.28 | |||||||||
| Other debt securities |
||||||||||||
| Over 5 years through ten years |
17,175 | 15,033 | 3.52 | |||||||||
| Total other debt securities |
17,175 | 15,033 | 3.52 | |||||||||
| Total available-for-sale securities |
$ | 317,530 | $ | 279,605 | 2.61 | % |
||||||
| Held-to-maturity |
||||||||||||
| Obligations of state and political subdivisions: |
||||||||||||
| Over 1 year through 5 years |
$ | 3,092 | $ | 2,988 | 2.14 | % |
||||||
| Over 5 years through 10 years |
533 | 533 | 4.23 | |||||||||
| Over 10 years |
3,345 | 2,818 | 3.01 | |||||||||
| Total held-to-maturity securities |
$ | 6,970 | $ | 6,294 | 2.72 | % |
||||||
The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective yields considering amortization or accretion if the securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations has been calculated on a tax equivalent basis. Average yields are based on amortized cost balances.
Loans. Loan receivables increased by $98,519, or 16.1%, to $710,362 at June 30, 2023 compared to $611,843 at June 30, 2022. Commercial loans increased by $25,547, or 29.3%, primarily because of a third-party residential mortgage warehouse line-of-credit that had a balance of $10,000 as of June 30, 2023 and had a zero balance as of June 30, 2022. Consumer loans increased by $20,588, or 45.9%, primarily as a result of the expansion of indirect auto lending and an increase in direct auto loans due to successful marketing campaigns. Major classifications of loans, net of deferred loan fees and costs, were as follows as of June 30:
| 2023 |
2022 |
|||||||
| Commercial |
$ | 112,627 | $ | 87,080 | ||||
| Commercial real estate: |
||||||||
| Construction |
23,905 | 15,095 | ||||||
| Other |
318,054 | 291,310 | ||||||
| 1-4 Family residential real estate: |
||||||||
| Owner occupied |
158,037 | 143,180 | ||||||
| Non-owner occupied |
23,840 | 25,988 | ||||||
| Construction |
8,490 | 4,369 | ||||||
| Consumer loans |
65,409 | 44,821 | ||||||
| Total loans |
$ | 710,362 | $ | 611,843 | ||||
The following table shows the major classifications of loans, net of deferred fees and costs, which are based on the contractual terms for repayment of principal, that are due in the periods indicated as of June 30, 2023:
| Maturing |
||||||||||||||||||||
| After one year |
After five years |
|||||||||||||||||||
| Within |
but within |
But within |
After |
|||||||||||||||||
| one year |
five years |
Fifteen years |
Fifteen years |
Total |
||||||||||||||||
| Commercial |
$ | 25,056 | $ | 39,994 | $ | 47,450 | $ | 127 | $ | 112,627 | ||||||||||
| Commercial real estate: |
||||||||||||||||||||
| Construction |
1 | 12,718 | 2,878 | 8,308 | 23,905 | |||||||||||||||
| Other |
10,626 | 12,959 | 123,828 | 170,641 | 318,054 | |||||||||||||||
| 1-4 Family residential real estate: |
||||||||||||||||||||
| Owner occupied |
985 | 2,396 | 35,547 | 119,109 | 158,037 | |||||||||||||||
| Non-owner occupied |
696 | 1,264 | 14,649 | 7,231 | 23,840 | |||||||||||||||
| Construction |
— | 3,215 | — | 5,275 | 8,490 | |||||||||||||||
| Consumer loans |
1,839 | 33,369 | 30,018 | 183 | 65,409 | |||||||||||||||
| Total loans |
$ | 39,203 | $ | 105,915 | $ | 254,370 | $ | 310,874 | $ | 710,362 | ||||||||||
The following is a schedule of fixed and variable rate 1-4 family residential real estate construction, commercial and commercial real estate loans due after one year (variable rate loans are those loans with floating or adjustable interest rates) as of June 30, 2023:
| Total due after one year: |
Fixed |
Variable |
||||||
| Commercial |
$ | 76,299 | $ | 11,272 | ||||
| Commercial real estate: |
||||||||
| Construction |
3,128 | 20,776 | ||||||
| Other |
154,356 | 153,072 | ||||||
| 1-4 Family residential real estate: |
||||||||
| Owner occupied |
126,204 | 30,848 | ||||||
| Non-owner occupied |
15,300 | 7,844 | ||||||
| Construction |
4,904 | 3,586 | ||||||
| Consumer loans |
63,543 | 27 | ||||||
Allowance for Loan Losses. The allowance for loan losses balance and the provision charged to expense are judgmentally determined by management based upon a periodic review of the loan portfolio for valuation purposes and to determine the adequacy of the allowance for loan losses. Management establishes allowances for estimated losses on loans based upon its evaluation of the pertinent factors underlying the types and quality of loans; historical loss experience based on volume and types of loans; trend in portfolio volume and composition; level and trend of nonperforming assets; detailed analysis of individual loans for which full collectability may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such loans and the current economic conditions affecting the collectability of loans in the portfolio.
Failure to receive principal and interest payments when due on any loan results in efforts to restore such loan to a current status. Loans are classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest is not expected. The loans must be brought and kept current for six sustained payments before being considered for removal from non-accrual status. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. 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. As of June 30, 2023, impaired loans totaled $405, of which $54 are included in non-accrual loans. Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings.
The following table summarizes non-accrual loans, non-performing assets, impaired and restructured loans, and associated ratios for the years ended June 30:
| 2023 |
2022 |
|||||||
| Non-accrual loans |
$ | 54 | $ | 431 | ||||
| Accruing loans past due 90 days or more |
50 | 9 | ||||||
| Total non-performing loans |
$ | 104 | $ | 440 | ||||
| Other real estate and repossessed assets owned |
124 | — | ||||||
| Total non-performing assets |
$ | 228 | $ | 440 | ||||
| Impaired loans |
$ | 405 | $ | 473 | ||||
| Accruing restructured loans |
$ | 351 | $ | 42 | ||||
| Non-accrual to total loans |
0.01 | % |
0.07 | % |
||||
| ALLL to non-accrual loans |
N/M |
* | N/M |
* | ||||
| *Not meaningful |
The non-performing loans are either in the process of foreclosure or efforts are being made to work with the borrower to bring the loan current. Properties and vehicles acquired by the Corporation as a result of foreclosure or repossession, or by deed in lieu of foreclosure, are classified as “other real estate and repossessed assets owned” until they are sold or otherwise disposed of.
The following table summarizes the Corporation’s loan loss experience, and provides a breakdown of the charge-off, recovery and other activity for the years ended June 30:
| 2023 |
2022 |
|||||||
| Allowance for loan losses at beginning of year |
$ | 7,160 | $ | 6,471 | ||||
| Loans charged off: |
||||||||
| 1-4 Family residential real estate |
6 | 41 | ||||||
| Consumer loans |
441 | 132 | ||||||
| Total charge offs |
447 | 173 | ||||||
| Recoveries: |
||||||||
| Commercial |
— | 23 | ||||||
| Commercial real estate |
1 | 2 | ||||||
| 1-4 Family residential real estate |
4 | 20 | ||||||
| Consumer loans |
151 | 82 | ||||||
| Total recoveries |
156 | 127 | ||||||
| Net charge offs |
291 | 46 | ||||||
| Provision for loan losses charged to operations |
855 | 735 | ||||||
| Allowance for loan losses at end of year |
$ | 7,724 | $ | 7,160 | ||||
| Ratio of net charge offs to average loans outstanding |
0.04 | % |
0.01 | % |
||||
| ALLL to total loans |
1.09 | % |
1.17 | % |
||||
The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios:
| Allocation of the Allowance for Loan Losses |
||||||||||||||||
| Allowance |
% of Loan |
Allowance |
% of Loan |
|||||||||||||
| June 30, 2023 |
June 30, 2022 |
|||||||||||||||
| Commercial |
$ | 1,308 | 15.9 | % |
$ | 960 | 14.2 | % |
||||||||
| Commercial real estate loans |
3,943 | 48.1 | 3,927 | 50.1 | ||||||||||||
| 1-4 Family residential real estate |
1,571 | 26.8 | 1,645 | 28.4 | ||||||||||||
| Consumer loans |
902 | 9.2 | 628 | 7.3 | ||||||||||||
| Total |
$ | 7,724 | 100.0 | % |
$ | 7,160 | 100.0 | % |
||||||||
While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-off that may occur. While the Corporation has historically experienced strong trends in asset quality, due to the current economic concerns with high inflation and rising interest rates, uncertainty remains regarding future levels of criticized and classified loans, nonperforming loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and adjust the provision accordingly.
Other Assets: As of June 30, 2023, the total accrued interest receivable and other assets were $22,967 compared with $10,184 as of June 30, 2022. As of June 30, 2023, a $10,250 investment in a limited partnership that invests in qualified affordable housing projects that will generate tax benefits for the investors is included in other assets. See Note 16—Affordable Tax Credit Partnership to the Consolidated Financial Statements, for information concerning the low-income housing tax credit investment.
Deposits. Total deposits increased by $65,971, or 7.4%, from $886,562 at June 30, 2022 to $952,533 at June 30, 2023. As market rates have risen, customers have chosen to move funds from savings and money market deposit products to higher yielding certificates of deposits. As of June 30, 2023, the Corporation maintained a favorable funding mix with 26.3% of total deposits in noninterest-bearing demand deposits, 16.0% in interest-bearing demand deposits, 35.2% in savings and money market deposits, and 22.5% in certificates and other time deposits.
The following is a schedule of average deposit amounts and average rates paid on each category for the periods included:
| Years Ended June 30, |
||||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Amount |
Rate |
Amount |
Rate |
|||||||||||||
| Noninterest-bearing demand deposit |
$ | 258,463 | — | $ | 246,089 | — | ||||||||||
| Interest-bearing demand deposit |
157,508 | 0.72 | % |
147,312 | 0.11 | % |
||||||||||
| Savings |
352,897 | 0.71 | 349,380 | 0.11 | ||||||||||||
| Certificates and other time deposits |
156,357 | 1.93 | 113,143 | 0.50 | ||||||||||||
| Total |
$ | 925,225 | 0.72 | % |
$ | 855,924 | 0.13 | % |
||||||||
Uninsured deposits as of June 30, 2023 were $267,449, or 28.1% of total deposits, and includes $95,445 of uninsured public fund deposits that are fully collateralized. Uninsured deposits as of June 30, 2022 were $264,350, or 29.8% of total deposits, and includes $95,075 of uninsured public fund deposits that are fully collateralized. Uninsured deposits as of June 30, 2023 and 2022 are based on estimates and include portions of FDIC-insured deposit accounts that exceed the insurance limit of $250 thousand per separately insured depositor.
The following table summarizes time deposits issued in amounts of more than $250 thousand as of June 30, 2023 by time remaining until maturity:
| Maturing in: |
||||
| Under 3 months |
$ | 16,270 | ||
| Over 3 to 6 months |
6,384 | |||
| Over 6 to 12 months |
19,796 | |||
| Over 12 months |
3,122 | |||
| Total |
$ | 45,572 |
Short-term Borrowings: Short-term borrowings increased by $5,072, or 23.8%, to $26,367 at June 30, 2023 from $21,295 at June 30, 2022. This increase was primarily associated with large new deposits from existing local commercial customers into the sweep repurchase agreement product that is fully collateralized. See Note 8—Short-Term Borrowings to the Consolidated Financial Statements, for information concerning short-term borrowings.
Other Liabilities: As of June 30, 2023, the total accrued interest payable and other liabilities was $16,864 compared with $7,230 as of June 30, 2022. As of June 30, 2023, an unfunded commitment of $9,668 associated with an affordable housing tax credit investment was included in other liabilities. See Note 16—Affordable Tax Credit Partnership to the Consolidated Financial Statements, for information concerning the low-income housing tax credit investment.
Capital Resources
Total shareholders’ equity increased by $1,514 from $53,970 as of June 30, 2022 to $55,484 at June 30, 2023. The primary reason for the increase in shareholders’ equity was because of net income of $10,674 for the 2023 fiscal year which was partially offset by an increase of $7,855 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from cash dividends paid of $2,095. The total accumulated other comprehensive loss was $29,961 as of June 30, 2023. Available-for-sale securities and shareholders’ equity were impacted by rapidly rising interest rates during 2022 and 2023 causing the accumulated other comprehensive loss to increase as available-for-sale securities are marked to fair market value. As market interest rates rise, the fair value of fixed-rate securities decline with a corresponding net of tax decline recorded in the accumulated other comprehensive loss portion of equity. This unrealized loss in securities is temporary and is adjusted monthly for additional market interest rate fluctuations, principal paydowns, calls, and maturities. The Corporation has significant sources of liquidity and therefore does not expect to have to sell securities to fund growth.
For fiscal year 2023, the average equity to average total assets ratio was 5.16% and the dividend payout ratio was 19.6%. For fiscal year 2022, the average equity to average total assets ratio was 7.10% and the dividend payout ratio was 17.4%.
At June 30, 2023, management believes the Bank complied with all regulatory capital requirements. Based on the Bank’s computed regulatory capital ratios, the OCC has determined the Bank to be well capitalized under the Federal Deposit Insurance Act as of its latest exam date. The Bank’s actual and required capital amounts are disclosed in Note 13-Regulatory Matters to the Consolidated Financial Statements. Management is not aware of any matters occurring subsequent to that exam that would cause the Bank’s capital category to change.
At June 30, 2023, the Corporation had no unconsolidated, related special purpose entities, nor did the Corporation engage in hedging contracts, such as interest rate swaps, which may expose the Corporation to liabilities greater than the amounts recorded on the consolidated balance sheet. The Corporation’s investment policy prohibits engaging in derivative contracts for speculative trading purposes; however, in the future, the Corporation may pursue certain contracts, such as interest rate swaps, to execute a sound and defensive interest rate risk management policy.
Liquidity
Management considers the asset position of the Bank to be sufficiently liquid to meet normal operating needs and conditions. The Bank’s earning assets are divided primarily between loans and available-for-sale securities, with any excess funds placed in federal funds sold or interest-bearing deposit accounts with other financial institutions.
For fiscal year 2023, net cash inflows from operating activities were $13,316, net cash inflows from financing activities were $69,706 and net cash outflows from investing activities were $92,219. Major sources of cash were a $65,971 net increase in deposits and $37,794 in cash received from sales, maturities, or principal pay downs of available-for-sale securities. Major uses of cash were a $98,945 net increase in loans and $31,799 of purchases of available-for-sale securities. Total cash and cash equivalents were $20,952 as of June 30, 2023 compared to $18,529 at June 30, 2022.
The Bank groups its loan portfolio into four major categories: commercial loans; commercial real estate loans; 1-4 family residential real estate loans; and consumer loans. The Bank’s 1-4 family residential real estate loan portfolio primarily consists of fixed and variable rate mortgage loans for terms generally not longer than thirty years and variable rate home equity lines of credit. Commercial and commercial real estate loans are comprised of both variable rate notes subject to interest rate changes based on the prime rate or Treasury index, and fixed rate notes having maturities of generally not greater than twenty years. Consumer loans offered by the Bank are generally written for periods of up to seven 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.
Funds not allocated to the Bank’s loan portfolio are invested in various securities having diverse maturity schedules. A majority of the Bank’s securities are held in obligations of U.S. Government-sponsored entities, mortgage-backed securities, and investments in tax-exempt municipal bonds.
The Bank offers several forms of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with others currently available in the market area. While the Bank continues to be under competitive pressures in the Bank’s market area as financial institutions attempt to attract and keep new deposits, we believe many commercial and retail customers are turning to community banks. Compared to our peers, the Corporation’s core deposits consist of a larger percentage of noninterest-bearing demand deposits resulting in a lower cost of funds of 1.03% for fiscal year 2023.
Jumbo time deposits (those with balances of $250 and over) were $46,822 and $18,164 at June 30, 2023 and 2022, respectively. These deposits are monitored closely by the Bank and typically priced on an individual basis. When these deposits are from a municipality, certain bank-owned securities are pledged to guarantee the safety of these public fund deposits as required by Ohio law. The Corporation has the option to use a fee paid broker to obtain deposits from outside its normal service area as an additional source of funding. However, these deposits are not relied upon as a primary source of funding and there were no brokered deposits as of June 30, 2023 or 2022.
To provide additional sources of liquidity, the Corporation has lines of credit with other financial institutions and has entered into agreements with the Federal Home Loan Bank of Cincinnati (FHLB) and the Federal Reserve Discount Window. As of June 30, 2023, advances from the FHLB of Cincinnati totaled $8,776 compared with $8,256 as of June 30, 2022. As of June 30, 2023, the Bank had the ability to borrow an additional $109,442 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.
Dividends from the Bank are the primary source of funds for payment of dividends to our shareholders. However, there are statutory limits on the amount of dividends the Bank can pay without regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. Additionally, the Bank may not declare or pay any dividend if, after making the dividend, the Bank would be “undercapitalized,” as defined in the federal regulations. As of June 30, 2023, the Bank could, without prior approval, declare a dividend of approximately $21,811.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with U.S. 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 the assets and liabilities of the Corporation are monetary in nature. Therefore, as a financial institution, interest rates have a more significant impact on the Corporation’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.
Critical Accounting Policies and Use of Significant Estimates
The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and management’s discussion and analysis are, to a large degree, dependent upon the Corporation’s accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change. The most significant accounting policies followed by the Corporation are presented in Note 1-Summary of Significant Accounting Policies to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. Management has identified the following as critical accounting policies:
Allowance for Loan Losses. The determination of the allowance for loan losses involves considerable subjective judgment and estimation by management. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries, and losses. All these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods.
Goodwill. The Corporation accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. The carrying value of goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The evaluation for impairment involves comparing the current estimated fair value of a reporting unit to its carrying value. If the current estimated fair value of a reporting unit exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. If the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of goodwill being recorded. Further valuation procedures would include allocating the estimated fair value to all assets and liabilities of the reporting unit to determine an implied goodwill value. If the implied value of goodwill of a reporting unit is less than the carrying amount of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Management evaluated goodwill as of April 30, 2023, the measurement date, utilizing an income approach that incorporated a discounted cash flow model that involved management assumptions based upon future growth and earnings projections. The estimated fair value of the reporting unit was then compared to the current carrying value to determine if impairment had occurred. It is our opinion that, as of the measurement date, the aggregate fair value of the reporting unit exceeded the carrying value of the reporting unit. Therefore, management concluded that goodwill was not impaired. Although we believe our assumptions are reasonable, actual results may vary significantly and it is impossible to know the future impact of evolving economic conditions. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk based capital ratios.
Contractual Obligations, Commitments and Contingent Liabilities
The following table presents, as of June 30, 2023, the Corporation’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.
| Note |
2024 |
2025 |
2026 |
2027 |
2028 |
Thereafter |
Total |
|||||||||||||||||||||||||
| Certificates of deposit |
7 | $ | 193,381 | $ | 16,089 | $ | 2,890 | $ | 1,373 | $ | 434 | $ | 176 | $ | 214,343 | |||||||||||||||||
| Short-term borrowings |
8 | 26,367 | — | — | — | — | — | 26,367 | ||||||||||||||||||||||||
| Federal Home Loan advances |
9 | 671 | 4,056 | 46 | 3 | — | 4,000 | 8,776 | ||||||||||||||||||||||||
| Salary continuation plan |
10 | 142 | 141 | 141 | 141 | 253 | 2,869 | 3,687 | ||||||||||||||||||||||||
| Operating leases |
5 | 177 | 145 | 125 | 115 | 115 | 342 | 1,019 | ||||||||||||||||||||||||
| Deposits without maturity |
— | — | — | — | — | — | 738,190 | |||||||||||||||||||||||||
Note 14-Commitments with Off-Balance Sheet Risk to the Consolidated Financial Statements discusses in greater detail other commitments and contingencies and the various obligations that exist under those agreements. These commitments and contingencies consist primarily of commitments to extend credit to borrowers under lines of credit.
Item 7A— Quantitative and Qualitative Disclosures About Market Risk
Not applicable for Smaller Reporting Companies.
Item 8— Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors
Consumers Bancorp, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Consumers Bancorp, Inc and subsidiaries (the “Company”) as of June 30, 2023 and 2022; the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the years then ended; and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses - Significant Assumptions in General Reserves - Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
The allowance for loan losses (allowance) represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers nonimpaired loans and is based on historical loss experience adjusted for current factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels of and trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; volume and severity of past-due loans and other similar conditions; quality of the loan review system; value of underlying collateral for collateral dependent loans; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
We identified the Company’s significant assumptions in general reserves in the allowance for loan losses as a critical audit matter. Given the significant estimates and assumptions management makes to estimate the current factor adjustments of the allowance for loan losses, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the qualitative factors within the allowance included the following, among others:
| ● |
We obtained an understanding of management’s process for determining the need for qualitative factor adjustments, identifying appropriate factors, and measuring the direction and magnitude of the adjustments. |
| ● |
We evaluated the reasonableness of management’s judgments and tests of accuracy of underlying support related to the qualitative factors. |
| ● |
We evaluated the design of controls over the application of management’s qualitative factor methodology in the estimate of general reserves. |
| ● |
We evaluated management's rationale for determining qualitative adjustments were relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management. |
| ● |
Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources. |
| ● |
We assessed changes in qualitative factors year over year against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments. |
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor since 2020.
Auburn Hills, Michigan
September 7, 2023
CONSOLIDATED BALANCE SHEETS
As of June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
| 2023 | 2022 | |||||||
| ASSETS: | ||||||||
| Cash on hand and noninterest-bearing deposits in financial institutions | $ | $ | ||||||
| Federal funds sold and interest-bearing deposits in financial institutions | ||||||||
| Total cash and cash equivalents | ||||||||
| Certificates of deposit in financial institutions | ||||||||
| Securities, available-for-sale | ||||||||
| Securities, held-to-maturity (fair value 2023 $and 2022 $) | ||||||||
| Equity securities, at fair value | ||||||||
| Federal bank and other restricted stocks, at cost | ||||||||
| Loans held for sale | ||||||||
| Total loans | ||||||||
| Less allowance for loan losses | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| Cash surrender value of life insurance | ||||||||
| Premises and equipment, net | ||||||||
| Goodwill | ||||||||
| Core deposit intangible, net | ||||||||
| Accrued interest receivable and other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES: | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing demand | $ | $ | ||||||
| Interest bearing demand | ||||||||
| Savings | ||||||||
| Time | ||||||||
| Total deposits | ||||||||
| Short-term borrowings | ||||||||
| Federal Home Loan Bank advances | ||||||||
| Accrued interest payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities (Note 14) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, par value; shares authorized | ||||||||
| Common shares, par value; shares authorized; and shares issued as of June 30, 2023 and June 30, 2022, respectively | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( and common shares at June 30, 2023 and 2022, respectively) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
| 2023 |
2022 |
|||||||
| Interest and dividend income: |
||||||||
| Loans, including fees |
$ | $ | ||||||
| Securities, taxable |
||||||||
| Securities, tax-exempt |
||||||||
| Equity securities |
||||||||
| Federal bank and other restricted stocks |
||||||||
| Federal funds sold and interest-bearing deposits |
||||||||
| Total interest and dividend income |
||||||||
| Interest expense: |
||||||||
| Deposits |
||||||||
| Short-term borrowings |
||||||||
| Federal Home Loan Bank advances |
||||||||
| Total interest expense |
||||||||
| Net interest income |
||||||||
| Provision for loan losses |
||||||||
| Net interest income after provision for loan losses |
||||||||
| Other income: |
||||||||
| Service charges on deposit accounts |
||||||||
| Debit card interchange income |
||||||||
| Bank owned life insurance income |
||||||||
| Mortgage banking activity |
||||||||
| Securities gains, net |
||||||||
| Net change in market value of equity securities |
( |
) |
( |
) |
||||
| Other |
||||||||
| Total other income |
||||||||
| Other expenses: |
||||||||
| Salaries and employee benefits |
||||||||
| Occupancy and equipment |
||||||||
| Data processing expenses |
||||||||
| Debit card processing expenses |
||||||||
| Professional and director fees |
||||||||
| Federal Deposit Insurance Corporation assessments |
||||||||
| Financial institutions tax |
||||||||
| Marketing and advertising |
||||||||
| Loan and collection expenses |
||||||||
| Telephone and communications |
||||||||
| Amortization of intangible |
||||||||
| Other |
||||||||
| Total other expenses |
||||||||
| Income before income taxes |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Basic and diluted earnings per share |
$ | $ | ||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
| 2023 |
2022 |
|||||||
| Net income |
$ | $ | ||||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Net change in unrealized gains: |
||||||||
| Unrealized losses arising during the period |
( |
) |
( |
) |
||||
| Reclassification adjustment for gains included in income |
( |
) |
( |
) |
||||
| Net unrealized loss |
( |
) |
( |
) |
||||
| Income tax effect |
||||||||
| Other comprehensive loss |
( |
) |
( |
) |
||||
| Total comprehensive income (loss) |
$ | $ | ( |
|||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
| Common | Retained | Treasury | Accumulated | Total | ||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| 8,003 shares issued associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| 20,571 shares associated with vested stock awards | ||||||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| 12,683 shares issued associated with dividend reinvestment plan and stock purchase plan | ||||||||||||||||||||
| 26,743 shares associated with vested stock awards | ||||||||||||||||||||
| Restricted stock expense | — | |||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash flows from operating activities: |
||||||||
| Depreciation |
||||||||
| Securities amortization and accretion, net |
||||||||
| Provision for loan losses |
||||||||
| Loss on disposal of fixed assets |
||||||||
| Loss on disposition of other real estate and repossessed assets owned |
||||||||
| Mortgage banking activity |
( |
) |
( |
) |
||||
| Deferred income tax (benefit) expense |
( |
) |
||||||
| Gain on sale of securities |
( |
) |
( |
) |
||||
| Net change in market value of equity securities |
||||||||
| Amortization of intangibles |
||||||||
| Origination of loans held for sale |
( |
) |
( |
) |
||||
| Proceeds from loans held for sale |
||||||||
| Increase in cash surrender value of life insurance |
( |
) |
( |
) |
||||
| Change in other assets and other liabilities |
( |
) |
||||||
| Net cash flows from operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Securities available-for-sale: |
||||||||
| Purchases |
( |
) |
( |
) |
||||
| Maturities, calls and principal pay downs |
||||||||
| Proceeds from sales of available-for-sale securities |
||||||||
| Securities held-to-maturity: |
||||||||
| Purchases |
( |
) |
||||||
| Principal pay downs |
||||||||
| Net decrease in certificates of deposit with other financial institutions |
||||||||
| Purchase of Federal Reserve Bank stock, at cost |
( |
) |
||||||
| Net increase in loans |
( |
) |
( |
) |
||||
| Acquisition, net of cash received |
||||||||
| Acquisition of premises and equipment |
( |
) |
( |
) |
||||
| Disposal of premises and equipment |
||||||||
| Proceeds from sale of other real estate and repossessed assets owned |
||||||||
| Net cash flows from investing activities |
( |
) |
( |
) |
||||
| Cash flows from financing activities: |
||||||||
| Net increase in deposit accounts |
||||||||
| Proceeds from Federal Home Loan Bank advances |
||||||||
| Repayments of Federal Home Loan Bank advances |
( |
) |
( |
) |
||||
| Change in short-term borrowings |
||||||||
| Proceeds from dividend reinvestment and stock purchase plan |
||||||||
| Dividends paid |
( |
) |
( |
) |
||||
| Net cash flows from financing activities |
||||||||
| (Decrease) increase in cash and cash equivalents |
( |
) |
||||||
| Cash and cash equivalents, beginning of year |
||||||||
| Cash and cash equivalents, end of year |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid during the period: |
||||||||
| Interest |
$ | $ | ||||||
| Federal income taxes |
||||||||
| Non-cash items: |
||||||||
| Transfer from loans to other repossessed assets |
||||||||
| Transfer from loans to other real estate owned |
||||||||
| Issuance of treasury stock for stock awards |
||||||||
| Branch acquisition: |
||||||||
| Noncash assets acquired: |
||||||||
| Securities, available-for-sale |
||||||||
| Loans |
||||||||
| Premises and equipment |
||||||||
| Goodwill |
||||||||
| Core deposit intangible |
||||||||
| Accrued interest receivable and other assets |
||||||||
| Total noncash assets acquired |
||||||||
| Liabilities assumed: |
||||||||
| Deposits |
||||||||
| Other liabilities |
||||||||
| Total liabilities assumed |
||||||||
| Net noncash liabilities assumed |
( |
) |
||||||
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023 and 2022
(Dollar amounts in thousands, except per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of Consumers Bancorp, Inc. (Corporation) and its wholly owned subsidiary, Consumers National Bank (Bank), together referred to as the Corporation. All significant intercompany transactions have been eliminated in the consolidation.
Nature of Operations: Consumers Bancorp, Inc. is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit and Wayne counties in Ohio. Its market includes these counties as well as the contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.
Business Segment Information: The Corporation is engaged in the business of commercial and retail banking, which accounts for substantially all its revenues, operating income, and assets. Accordingly, all its operations are reported in
Acquisition: At the date of acquisition the Corporation records the assets and liabilities of acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Corporation’s Consolidated Statements of Income beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Income during the periods incurred.
Use of Estimates: To prepare financial statements in conformity with U.S. 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 actual results could differ.
Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities of less than 90 days and federal funds sold. Cash flows are reported on a net basis for customer loan and deposit transactions, interest bearing deposits in other financial institutions and short-term borrowings.
Interest–Bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.
Certificates of Deposit in Financial Institutions: Certificates of deposit in other financial institutions are carried at cost.
Cash Reserves: The Bank is required to maintain cash on hand and noninterest-bearing balances on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements. The required reserve balance was
Securities: Securities are generally classified into either held-to-maturity or available-for-sale categories. Held-to-maturity securities are carried at amortized cost and are those the Corporation has the positive intent and ability to hold to maturity. Available-for-sale securities are those the Corporation may decide to sell before maturity 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 in other comprehensive income (loss) as a separate component of equity, net of tax.
Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities and collateralized mortgage obligations where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The evaluation of securities includes consideration given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Corporation has the intent to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. In analyzing an issuer's financial condition, management may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether the Corporation intends to sell the security, or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI will be recognized in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the security. If a security is determined to be other-than-temporarily impaired, but the Corporation does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.
Equity Securities: Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Federal Bank and Other Restricted Stocks: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock, included with Federal bank and other restricted stocks on the Consolidated Balance Sheet, is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Federal Reserve Bank stock is also carried at cost. Since these stocks are viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights released. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
Mortgage Banking Derivatives: Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Changes in the fair values of these derivatives are included in net gains on sales of loans.
Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable.
Interest income on commercial, commercial real estate and 1-4 family residential loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in the process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is determined by the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not received on loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when the customer has exhibited the ability to repay and demonstrated this ability over at least a consecutive six-month period and future payments are reasonably assured.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when funded.
Concentrations of Credit Risk: The Bank grants consumer, real estate, and commercial loans primarily to borrowers in Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, Wayne, and contiguous counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in these 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 for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings, and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is evaluated collectively for smaller-balance loans of similar nature such as residential mortgage, consumer 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. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors based on the risks present for each portfolio segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the most recent three-year period, depending on loan segment. This actual loss experience is supplemented with economic and other factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels of and trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability and depth of lending management and other relevant staff; volume and severity of past due loans and other similar conditions; quality of the loan review system; value of underlying collateral for collateral dependent loans; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified:
Commercial: Commercial loans are made for a wide variety of general business purposes, including financing for equipment, inventories and accounts receivable. The term of each commercial loan varies by its purpose. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily made based on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the areas where the Bank operates.
Commercial Real Estate: Commercial real estate loans include mortgage loans to farmers, owners of multi-family investment properties, developers and owners of commercial real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan, the business conducted on the property securing the loan or, in the case of loans to farmers, management and operation of the farm. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporation’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus nonowner-occupied loans.
1-4 Family Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include both owner occupied, non-owner occupied and home equity loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and an appropriately appraised value of the real estate securing the loan that generally requires that the residential real estate loan amount be no more than 85% of the purchase price or the appraised value of the real estate securing the loan unless the borrower provides private mortgage insurance.
Consumer: The Corporation originates direct and indirect consumer loans, primarily automobile loans, personal lines of credit, and unsecured consumer loans in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.
Low Income Housing Tax Credits (LIHTC): The Corporation has invested in LIHTCs through funds that assist corporations in investing in limited partnerships and limited liability companies that own, develop and operate low income residential rental properties for purposes of qualifying for the LIHTCs. These investments are accounted for under the proportional amortization method which recognizes the amortization of the investment in proportion to the tax credit and other tax benefits received.
Other Real Estate and Repossessed Assets Owned: Real estate properties and other repossessed assets, which are primarily vehicles, acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less costs to sell at the date of acquisition, establishing a new cost basis. 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. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If the fair value declines after acquisition, a valuation allowance is recorded as a charge to income. Operating costs after acquisition are expensed. Gains and losses on disposition are reported as a charge to income.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvements, generally over the lesser of the remaining term of the lease facility or the estimated economic life of the improvement. Useful lives range from years for software to and one-half years for buildings.
Cash Surrender Value of Life Insurance: The Bank has purchased single-premium life insurance policies to insure the lives of current and former participants in the salary continuation plan. As of June 30, 2023, the Bank had policies with total death benefits of $
Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired assets and liabilities. Core deposit intangible assets arise from whole bank or branch acquisitions and are measured at fair value and then are amortized over their estimated useful lives. Goodwill is not amortized but is assessed at least annually for impairment. Any such impairment will be recognized in the period identified. The Corporation has selected April 30 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Corporation’s balance sheet.
Long-Term Assets: Premises, equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Repurchase Agreements: Substantially all repurchase agreement liabilities, which are classified as short-term borrowings, represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.
Retirement Plans: The Bank maintains a 401(k) savings and retirement plan covering all eligible employees and matching contributions are expensed as made. Salary continuation plan expense allocates the benefits over years of service.
Income Taxes: The Corporation 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 basis 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. The Corporation applies a more likely than not recognition threshold for all tax uncertainties in accordance with U.S. generally accepted accounting principles. A tax position is recognized as a benefit only if it is more likely than not that the position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit greater than 50% likely of being realized on examination. The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.
Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable upon the vesting of restricted stock awards.
Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees over the required service period, generally defined as the vesting period. The fair value of restricted stock awards is estimated by using the market price of the Corporation’s common stock at the date of grant. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as incurred.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, which are also recognized as a separate component of equity, net of tax.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the Corporation’s financial statements.
Fair Value of Financial Instruments: Fair value of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15 of the Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, discounted cash flows, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the holding company or by the holding company to shareholders.
Reclassifications: Certain reclassifications have been made to the June 30, 2022 financial statements to be comparable to the June 30, 2023 presentation. The reclassifications had no impact on prior year net income or shareholders’ equity.
Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU added a new Topic 326 to the codification and removed the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under U.S. generally accepted accounting principles, companies generally recognized credit losses when it is probable that the loss had been incurred. ASU 2016-13 removes all current loss recognition thresholds and requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. The new guidance also amended the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 was effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance was permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company.
The Corporation adopted this new guidance on July 1, 2023. Management analyzed and finalized its pool segmentation, established the peer group that will be used as the source of loss experience data, and completed parallel calculations in preparation for adoption of the new methodology. The Net Present Value of Discounted Cash Flow methodology is being used for all loan pools and the implementation of ASU No. 2016-13 is expected to increase the balance of the allowance for loan losses by less than $
In March 2022, FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will be required to determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments in ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which require that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This update is not expected to have a significant impact on the Corporation’s financial statements.
NOTE 2—ACQUISITION
On July 16, 2021, the Corporation completed its acquisition of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association. In connection with the branch acquisition, the Corporation assumed $
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by the Corporation at the date of acquisition. The core deposit intangible will be amortized over years on a straight-line basis. Goodwill will not be amortized, but instead will be evaluated for impairment.
| Assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Securities, available-for-sale | ||||
| Loans | ||||
| Premises and equipment | ||||
| Core deposit intangible | ||||
| Accrued interest receivable | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Noninterest-bearing deposits | ||||
| Interest-bearing deposits | ||||
| Other liabilities | ||||
| Total liabilities assumed | ||||
| Fair value of net liabilities assumed | ( | ) | ||
| Cash received | ||||
| Goodwill | $ |
The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgement in accounting for the acquisition. The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the acquisition was $
NOTE 3—SECURITIES
The following table summarizes the amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:
| Available-for-sale | Amortized | Gross | Gross | Fair | ||||||||||||
| June 30, 2023 | ||||||||||||||||
| Obligation of U.S Treasury | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ( | ) | ||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - residential | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - commercial | ( | ) | ||||||||||||||
| U.S. Government-sponsored collateralized mortgage obligations – residential | ( | ) | ||||||||||||||
| Other debt securities | ( | ) | ||||||||||||||
| Total available-for-sale securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity | Amortized | Gross | Gross Losses | Fair | ||||||||||||
| June 30, 2023 | ||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale | Amortized | Gross | Gross | Fair | ||||||||||||
| June 30, 2022 | ||||||||||||||||
| Obligation of U.S Treasury | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ( | ) | ||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - residential | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - commercial | ( | ) | ||||||||||||||
| U.S. Government-sponsored collateralized mortgage obligations – residential | ( | ) | ||||||||||||||
| Other debt securities | ( | ) | ||||||||||||||
| Total available-for-sale securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity | Amortized | Gross | Gross Losses | Fair | ||||||||||||
| June 30, 2022 | ||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | ( | ) | $ | ||||||||||
Proceeds from sales of available-for-sale securities during fiscal year 2023 and fiscal year 2022 were as follows:
| 2023 | 2022 | |||||||
| Proceeds from sales | $ | $ | ||||||
| Gross realized gains | ||||||||
| Gross realized losses | ( | ) | ( | ) | ||||
The income tax provision related to the net realized gains amounted to $
The amortized cost and fair values of debt securities at June 30, 2023 by expected maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations are shown separately.
| Available-for-sale | Amortized Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Total | ||||||||
| U.S. Government-sponsored mortgage-backed and related securities | ||||||||
| Total | $ | $ | ||||||
| Held-to-maturity | Amortized Cost | Fair Value | ||||||
| Due after one year through five years | $ | $ | ||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
Securities with a carrying value of approximately $
The following table summarizes the securities with unrealized and unrecognized losses at June 30, 2023 and 2022, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position:
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| June 30, 2023 | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| Available-for-sale | ||||||||||||||||||||||||
| Obligations of U.S Treasury | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Mortgage-backed securities – residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Mortgage-backed securities – commercial | ( | ) | ( | ) | ||||||||||||||||||||
| Collateralized mortgage obligations - residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other debt securities | ( | ) | ( | ) | ||||||||||||||||||||
| Total temporarily impaired | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| June 30, 2023 | Fair | Unrecognized | Fair | Unrecognized | Fair | Unrecognized | ||||||||||||||||||
| Held-to-maturity | ||||||||||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| June 30, 2022 | Fair | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Available-for-sale | ||||||||||||||||||||||||
| Obligations of U.S Treasury | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ( | ) | ( | ) | ||||||||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Mortgage-backed securities – residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Mortgage-backed securities – commercial | ( | ) | ( | ) | ||||||||||||||||||||
| Collateralized mortgage obligations – residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other debt securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total temporarily impaired | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| June 30, 2022 | Fair | Unrecognized | Fair | Unrecognized | Fair | Unrecognized | ||||||||||||||||||
| Held-to-maturity | ||||||||||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities.
In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
As of June 30, 2023, the Corporation’s securities portfolio consisted of
As of June 30, 2023, the Corporation owned equity securities with an amortized cost of $
| 2023 | 2022 | |||||||
| Unrealized loss recognized on equity securities held at the end of the period | $ | ( | ) | $ | ( | ) | ||
NOTE 4—LOANS
Major classifications of loans were as follows as of June 30:
| 2023 | 2022 | |||||||
| Commercial | $ | $ | ||||||
| Commercial real estate: | ||||||||
| Construction | ||||||||
| Other | ||||||||
| 1 – 4 Family residential real estate: | ||||||||
| Owner occupied | ||||||||
| Non-owner occupied | ||||||||
| Construction | ||||||||
| Consumer | ||||||||
| Subtotal | ||||||||
| Net deferred loan fees and costs | ||||||||
| Allowance for loan losses | ( | ) | ( | ) | ||||
| Net loans | $ | $ | ||||||
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2023:
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for loan losses | ( | ) | ||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2022:
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for loan losses | ( | ) | ||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2023. Included in the recorded investment in loans is $
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Ending allowance balance attributable to loans: | ||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
| Recorded investment in loans: | ||||||||||||||||||||
| Loans individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending loans balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2022. Included in the recorded investment in loans is $
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Ending allowance balance attributable to loans: | ||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
| Recorded investment in loans: | ||||||||||||||||||||
| Loans individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending loans balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2023:
| Unpaid | Allowance for | Average | Interest | Cash Basis | ||||||||||||||||||||
| Principal | Recorded | Loan Losses | Recorded | Income | Interest | |||||||||||||||||||
| Balance | Investment | Allocated | Investment | Recognized | Recognized | |||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||||||
| Commercial | $ | $ | $ | — | $ | $ | $ | |||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||||||
| Owner occupied | — | |||||||||||||||||||||||
| Non-owner occupied | — | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2022:
| Unpaid | Allowance for | Average | Interest | Cash Basis | ||||||||||||||||||||
| Principal | Recorded | Loan Losses | Recorded | Income | Interest | |||||||||||||||||||
| Balance | Investment | Allocated | Investment | Recognized | Recognized | |||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||||||
| Commercial | $ | $ | $ | — | $ | $ | $ | |||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||||||
| Owner occupied | — | |||||||||||||||||||||||
| Non-owner occupied | — | |||||||||||||||||||||||
| With an allowance recorded: | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2023 and 2022:
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| Loans Past Due | Loans Past Due | |||||||||||||||
| Over 90 Days | Over 90 Days | |||||||||||||||
| Still | Still | |||||||||||||||
| Non-accrual | Accruing | Non-accrual | Accruing | |||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate: | ||||||||||||||||
| Other | ||||||||||||||||
| 1 – 4 Family residential: | ||||||||||||||||
| Owner occupied | ||||||||||||||||
| Non-owner occupied | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
The following table presents the aging of the recorded investment in past due loans as of June 30, 2023 by class of loans:
| Days Past Due | ||||||||||||||||||||||||
| 30 – 59 | 60 - 89 | 90 Days or | Total | Loans Not | ||||||||||||||||||||
| Days | Days | Greater | Past Due | Past Due | Total | |||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| 1-4 Family residential: | ||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The above table of past due loans includes the recorded investment in non-accrual loans of $
The following table presents the aging of the recorded investment in past due loans as of June 30, 2022 by class of loans:
| Days Past Due | ||||||||||||||||||||||||
| 30 – 59 | 60 - 89 | 90 Days or | Total | Loans Not | ||||||||||||||||||||
| Days | Days | Greater | Past Due | Past Due | Total | |||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| 1-4 Family residential: | ||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The above table of past due loans includes the recorded investment in non-accrual loans of $
Troubled Debt Restructurings (TDR):
The Corporation has certain loans that have been modified in order to maximize collection of loan balances that are classified as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered.
The Corporation had $
There were
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $
Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which was discussed previously.
As of June 30, 2023, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:
| Special | Not | |||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Rated | ||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
As of June 30, 2022, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:
| Special | Not | |||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Rated | ||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
NOTE 5—PREMISES AND EQUIPMENT
Major classifications of premises and equipment were as follows as of June 30:
| 2023 | 2022 | |||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Building and leasehold improvements | ||||||||
| Furniture, fixture and equipment | ||||||||
| Total premises and equipment | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Premises and equipment, net | $ | $ | ||||||
Depreciation expenses were $
As of June 30, 2023, the Corporation leased real estate for seven office locations and various equipment under operating lease agreements. The lease agreements have maturity dates ranging from one year or less to May 31, 2035, including extension periods. Lease agreements for two locations have a lease term of 12 months or less and are therefore considered short-term leases. Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. The majority of renewals to extend the lease terms are included in our right-of-use assets and lease liabilities as they are reasonably certain of exercise. As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments. The weighted average remaining life of the lease term for the leases with a term over 12 months was
Rent expense for all the operating leases was $
Total estimated rental commitments for the operating leases with a term over 12 months were as follows as of June 30, 2023:
| Period Ending June 30 | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | $ | |||
| Less: present value discount | $ | ( | ) | |
| Total lease liabilities | $ |
NOTE 6 – GOODWILL AND ACQUIRED INTANGIBLE ASSETS
The change in goodwill was as follows:
| 2023 | 2022 | |||||||
| Beginning of year | $ | $ | ||||||
| Acquired goodwill | ||||||||
| Ending balance as of June 30, | $ | $ | ||||||
The following table summarizes the Corporation’s acquired intangible assets as of June 30, 2023 and 2022.
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
| Core deposit intangible | $ | $ | $ | $ | ||||||||||||
Goodwill and the core deposit intangible assets resulted from the acquisition of Peoples Bancorp of Mt. Pleasant, Inc. that was completed on January 1, 2020, and the branch acquisition that was completed on July 16, 2021. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset might be impaired. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. For the goodwill impairment analysis, the Corporation is the only reporting unit. Management performed a quantitative impairment assessment at April 30, 2023. The assessment estimated fair value on an income approach that incorporated a discounted cash flow model that involved management assumptions based upon future growth and earnings projections. The results of the assessment indicated
The core deposit intangible asset is amortized on a straight-line basis over years. The Corporation recorded intangible amortization expense of $
NOTE 7—DEPOSITS
Interest-bearing deposits as of June 30, 2023 and 2022 were as follows:
| 2023 |
2022 |
|||||||
| Demand |
$ | $ | ||||||
| Savings and money market |
||||||||
| Time: |
||||||||
| $250 and over |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
Scheduled maturities of time deposits at June 30, 2023 were as follows:
| Twelve Months Ending June 30 |
||||
| 2024 |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| $ |
NOTE 8—SHORT-TERM BORROWINGS
Short-term borrowings consisted of federal funds purchased, repurchase agreements, and a line of credit for the Corporation. Information concerning all short-term borrowings at June 30, 2023 and 2022, maturing in less than one year is summarized as follows:
| 2023 | 2022 | |||||||
| Balance at June 30 | $ | $ | ||||||
| Average balance during the year | ||||||||
| Maximum month-end balance | ||||||||
| Average interest rate during the year | % | % | ||||||
| Weighted average rate, June 30 | % | % | ||||||
In fiscal year 2022, the Corporation obtained an unsecured $
| Overnight and Continuous | ||||||||
| 2023 | 2022 | |||||||
| U.S. government-sponsored entities and agencies pledged | $ | $ | ||||||
| Residential mortgage-backed securities pledged | ||||||||
| Commercial mortgage-backed securities | ||||||||
| Total pledged | $ | $ | ||||||
| Repurchase agreements | $ | $ | ||||||
Total interest expense on short-term borrowings was $
NOTE 9—FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances were as follows:
| June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||
| Stated Interest Rate Range | Weighted Average | Weighted Average | ||||||||||||||||||||||
| Advance Type | From | To | Amount | Rate | Amount | Rate | ||||||||||||||||||
| Fixed rate, amortizing | % | % | $ | % | $ | % | ||||||||||||||||||
| Fixed rate | ||||||||||||||||||||||||
| Variable rate | ||||||||||||||||||||||||
Each fixed rate advance has a prepayment penalty equal to the present value of
| Twelve Months Ending June 30 | Principal | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Pursuant to collateral agreements with the FHLB, advances are secured by all the stock invested in the FHLB and certain qualifying first mortgage and multi-family loans. The advances were collateralized by $
NOTE 10—EMPLOYEE BENEFIT PLANS
The Bank maintains a 401(k) savings and retirement plan that permits eligible employees to make before- or after-tax contributions to the plan, subject to the dollar limits from Internal Revenue Service regulations. The Bank matches
The Bank maintains a nonqualified Salary Continuation Plan (SCP) to reward and encourage certain Bank executives to remain employees of the Bank. The SCP is considered an unfunded plan for tax and Employee Retirement Income Security Act (ERISA) purposes and all obligations arising under the SCP are payable from the general assets of the Corporation. The estimated present value of future benefits to be paid to certain current and former executives totaled $
The Amended and Restated 2010 Omnibus Incentive Plan (2010 Plan) is a nonqualified share-based compensation plan. The 2010 Plan was established to promote alignment between key employees’ performance and the Corporation’s shareholder interests by motivating performance through the award of stock-based compensation. The purpose of the 2010 Plan was to attract, retain, and motivate talented employees and compensate outside directors for their service to the Corporation. The 2010 Plan was approved by the Corporation’s shareholders. The Compensation Committee of the Corporation’s Board of Directors has sole authority to select the employees, establish the awards to be issued, and approve the terms and conditions of each award contract.
Under the 2010 Plan, the Corporation could grant, among other things, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, or any combination thereof to any employee and outside director. Each award was evidenced by an award agreement that specifies the number of shares awarded, the vesting period, the performance requirements, and such other provisions as the Compensation Committee determines. Upon a change-in-control of the Corporation, as defined in the 2010 Plan, all outstanding awards immediately vest.
The Corporation has granted restricted stock awards and restricted stock units to certain employees and directors. Restricted stock units and awards are issued at no cost to the recipient and can be settled in shares or cash at the end of the vesting period depending on the type of award. Restricted stock awards are made at the end of the measurement period once certain specified performance targets as established by the Compensation Committee are achieved with some awards fully vesting on the date of grant and others vesting
The following table summarizes the status of the restricted stock awards and restricted stock units:
| Restricted Stock Awards | Weighted- Average Grant Date Fair Value Per Share | Restricted Stock Units | Weighted- Average Grant Date Fair Value Per Share | |||||||||||||
| Outstanding at June 30, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||
| Non-vested at June 30, 2023 | $ | $ | ||||||||||||||
There was $
NOTE 11—INCOME TAXES
The provision for income taxes consisted of the following for the years ended June 30, calculated utilizing a statutory federal income tax rate of
| 2023 | 2022 | |||||||
| Current income taxes | $ | $ | ||||||
| Deferred income tax expense (benefit) | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
The net deferred income tax asset (liability) consisted of the following components at June 30:
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for loan losses | $ | $ | ||||||
| Deferred compensation | ||||||||
| Deferred income | ||||||||
| Non-accrual loan interest income | ||||||||
| Net unrealized securities loss | ||||||||
| Other | ||||||||
| Gross deferred tax asset | ||||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Loan fees | ( | ) | ( | ) | ||||
| FHLB stock dividends | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Intangible assets | ( | ) | ( | ) | ||||
| Gross deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred asset | $ | $ | ||||||
The difference between the provision for income taxes and amounts computed by applying the statutory income tax rate of 21.0% to income before taxes consisted of the following for the years ended June 30:
| 2023 | 2022 | |||||||
| Income taxes computed at the statutory rate on pretax income | $ | $ | ||||||
| Tax exempt income | ( | ) | ( | ) | ||||
| Cash surrender value income | ( | ) | ( | ) | ||||
| Tax credit | ( | ) | ( | ) | ||||
| Other non-deductible expenses | ||||||||
| Total income tax expense | $ | $ | ||||||
The effective tax rate was
The Corporation and the Bank are subject to U.S. federal income tax as an income-based tax and a capital-based financial institutions tax in the State of Ohio. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before
NOTE 12—RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain executive officers, directors, and their affiliates. A summary of activity during the year ended June 30, 2023 of related party loans were as follows:
| Principal balance, July 1 | $ | |||
| New loans, net of refinancing | ||||
| Repayments | ( | ) | ||
| Principal balance, June 30 | $ |
Deposits from executive officers, directors and their affiliates totaled $
NOTE 13—REGULATORY MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.
As of fiscal year-end 2023 and 2022, the Corporation met the definition of a Small Bank Holding Company and, therefore, was exempt from maintaining consolidated regulatory capital ratios. Instead, regulatory capital ratios only apply at the subsidiary bank level. The Basel III Capital Rules include a capital conservation buffer of
The following table presents actual and required capital ratios as of June 30, 2023 and June 30, 2022 for the Bank:
| Actual | Minimum Capital Required – Basel III (1) | Minimum Required To Be Considered Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| June 30, 2023 | ||||||||||||||||||||||||
| Common equity Tier 1 to risk-weighted assets | $ | % | $ | % | $ | % | ||||||||||||||||||
| Tier 1 capital to risk weighted assets | ||||||||||||||||||||||||
| Total capital to risk weighted assets | ||||||||||||||||||||||||
| Tier 1 capital to average assets | ||||||||||||||||||||||||
| Actual | Minimum Capital Required - Basel III (1) | Minimum Required To Be Considered Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| June 30, 2022 | ||||||||||||||||||||||||
| Common equity Tier 1 to risk-weighted assets | $ | % | $ | % | $ | % | ||||||||||||||||||
| Tier 1 capital to risk weighted assets | ||||||||||||||||||||||||
| Total capital to risk weighted assets | ||||||||||||||||||||||||
| Tier 1 capital to average assets | ||||||||||||||||||||||||
| (1) | These amounts exclude the capital conservation buffer. |
As of the latest regulatory examination, the Bank was categorized as well capitalized. There are no conditions or events since that examination that management believes may have changed the Bank’s category.
The Corporation’s principal source of funds for dividend payment is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. As of June 30, 2023 the Bank could, without prior approval, declare a dividend of approximately $
NOTE 14—COMMITMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to commitments to extend credit in the normal course of business to meet the financing needs of its customers. Commitments are agreements to lend to customers providing that there are no violations of any condition established in the contract. Commitments to extend credit have a fixed expiration date or other termination clause. These instruments involve elements of credit and interest rate risk more than the amount recognized in the statements of financial position. The Bank uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments.
The Bank evaluates each customer’s credit on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. The amount of commitments to extend credit and the exposure to credit loss for non-performance by the customer (before considering collateral) was $
NOTE 15—FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Financial assets and financial liabilities measured at fair value on a recurring basis include the following:
Securities available-for-sale and equity securities: When available, the fair values of available-for-sale and equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).
Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| Fair Value Measurements at June 30, 2023 Using | ||||||||||||||||
|
| Balance at June 30, 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
| Obligations of U.S. treasury | $ | $ | ||||||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| U.S. government-sponsored mortgage-backed securities - residential | ||||||||||||||||
| U.S. government-sponsored mortgage-backed securities - commercial | ||||||||||||||||
| U.S. government-sponsored collateralized mortgage obligations | ||||||||||||||||
| Other debt securities | ||||||||||||||||
| Equity securities | ||||||||||||||||
|
| Balance at June 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
| Obligations of U.S. treasury | $ | $ | ||||||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| U.S. government-sponsored mortgage-backed securities - residential | ||||||||||||||||
| U.S. government-sponsored mortgage-backed securities – commercial | ||||||||||||||||
| U.S. government-sponsored collateralized mortgage obligations | ||||||||||||||||
| Other debt securities | ||||||||||||||||
| Equity securities | ||||||||||||||||
There were no transfers between Level 1 and Level 2 during the 2023 or the 2022 fiscal year.
Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets and liabilities measured at fair value on a non-recurring basis include the following:
Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate and Repossessed Assets Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned or other repossessed assets being carried at fair value as of June 30, 2023 or June 30, 2022. As of June 30, 2023, the balance of other real estate owned was $
There were
The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| 2023 | 2022 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Level 1 inputs: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Level 2 inputs: | ||||||||||||||||
| Certificates of deposit in other financial institutions | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Accrued interest receivable | ||||||||||||||||
| Level 3 inputs: | ||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||
| Loans, net | ||||||||||||||||
| Financial Liabilities: | ||||||||||||||||
| Level 2 inputs: | ||||||||||||||||
| Demand and savings deposits | ||||||||||||||||
| Time deposits | ||||||||||||||||
| Short-term borrowings | ||||||||||||||||
| Federal Home Loan Bank advances | ||||||||||||||||
| Accrued interest payable | ||||||||||||||||
The assumptions used to estimate fair value are described as follows:
Cash and cash equivalents: The carrying value of cash and deposits in other financial institutions were considered to approximate fair value resulting in a Level 1 classification.
Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification.
Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification.
Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level 3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated using a spread to the applicable municipal fair market curve resulting in a Level 3 classification.
Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at June 30, 2023 and 2022 for deposits of similar remaining maturities, resulting in Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at June 30, 2023 and 2022 for similar financing resulting in a Level 2 classification.
Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability, and, therefore, are not subject to the fair value disclosure requirements.
Off-balance sheet commitments: The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.
NOTE 16—AFFORDABLE TAX CREDIT PARTNERSHIP
In April 2023, the Corporation invested in a limited partnership that will in turn invest in qualified affordable housing projects that will generate tax benefits for the limited partner investors, including federal low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code. This partnership investment is an unconsolidated Variable Interest Entity (VIE) for which the Corporation holds an interest in but is not the primary beneficiary of the VIE. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.
The Corporation uses the proportional amortization method to account for its investment. The investment is included in other assets and the unfunded commitment is included in other liabilities. As of June 30, 2023, the balance of the affordable housing tax credit investment was $
NOTE 17—PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial information of Consumers Bancorp. Inc. (parent company only) follows:
| Condensed Balance Sheets | June 30, | June 30, | ||||||
| Assets: | ||||||||
| Cash | $ | $ | ||||||
| Equity securities, at fair value | ||||||||
| Other assets | ||||||||
| Investment in subsidiary | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity: | ||||||||
| Short-term borrowings | $ | $ | ||||||
| Other liabilities | ||||||||
| Shareholders’ equity | ||||||||
| Total liabilities & shareholders’ equity | $ | $ | ||||||
| Condensed Statements of Income and Comprehensive Income | Year Ended | Year Ended | ||||||
| Cash dividends from Bank subsidiary | $ | $ | ||||||
| Dividend income | ||||||||
| Net change in market value of equity securities | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other expense | ( | ) | ( | ) | ||||
| Income (loss) before income taxes and equity in undistributed net income of subsidiary | ( | ) | ||||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Income (loss) before equity in undistributed net income of Bank subsidiary | ( | ) | ||||||
| Equity in undistributed net income of subsidiary | ||||||||
| Net income | $ | $ | ||||||
| Comprehensive income (loss) | $ | $ | ( | ) | ||||
| Condensed Statements of Cash Flows | Year Ended | Year Ended | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Equity in undistributed net income of Bank subsidiary | ( | ) | ( | ) | ||||
| Net change in market value of equity securities | ||||||||
| Change in other assets and liabilities | ( | ) | ||||||
| Net cash flows from operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Disposal of premises and equipment | ||||||||
| Net cash flows from investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Dividend paid | ( | ) | ( | ) | ||||
| Restricted stock units | ||||||||
| Net change in short-term borrowings | ( | ) | ||||||
| Proceeds from dividend reinvestment and stock purchase plan | ||||||||
| Issuance of treasury stock for stock awards | ||||||||
| Net cash flows from financing activities | ( | ) | ( | ) | ||||
| Change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Beginning cash and cash equivalents | ||||||||
| Ending cash and cash equivalents | $ | $ | ||||||
NOTE 18—EARNINGS PER SHARE
Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards and restricted stock units. There were
| For the year Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Basic: | ||||||||
| Net income available to common shareholders | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| Basic income per share | $ | $ | ||||||
| Diluted: | ||||||||
| Net income available to common shareholders | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| Dilutive effect of restricted stock | ||||||||
| Total common shares and dilutive potential common shares | ||||||||
| Dilutive income per share | $ | $ | ||||||
NOTE 19–ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income related to unrealized gains (losses) on available-for-sale securities for the periods ended June 30, 2023 and June 30, 2022, were as follows:
| Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | ) | $ | ||||||||
| Unrealized holding loss on available-for-sale securities arising during the period | ( | ) | ( | ) | |||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ) | ( | ) | (a)(b) | ||||||||
| Net current period other comprehensive loss | ( | ) | ( | ) | |||||||||
| Balance as of June 30, 2022 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Unrealized holding loss on available-for-sale securities arising during the period | $ | ( | ) | $ | $ | ( | ) | ||||||
| Amounts reclassified from accumulated other comprehensive income | ( | ) | ( | ) | (a)(b) | ||||||||
| Net current period other comprehensive loss | ( | ) | ( | ) | |||||||||
| Balance as of June 30, 2023 | $ | ( | ) | $ | $ | ( | ) | ||||||
(a) Securities gain, net
(b) Income tax expense
NOTE 20 – REVENUE RECOGNITION
The Corporation accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. Interest income, net securities gains (losses), gains from the sale of mortgage loans and bank-owned life insurance are not included within the scope of ASC 606. For the revenue streams in the scope of ASC 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All the Corporation's revenue from contracts with customers is recognized within noninterest income.
Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and other fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Interchange income: The Corporation earns interchange income from cardholder transactions conducted through the various payment networks. Interchange income from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees are processed through noninterest income.
Other income: Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers.
The following table presents the Corporation's sources of noninterest income for the years ended June 30, 2023 and 2022.
| For the year Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Noninterest income | ||||||||
| In scope of Topic 606: | ||||||||
| Service charges on deposit accounts | $ | $ | ||||||
| Debit card interchange income | ||||||||
| Other income | ||||||||
| Noninterest income (in scope of Topic 606) | ||||||||
| Noninterest income (out-of-scope of Topic 606) | ||||||||
| Total noninterest income | $ | $ | ||||||
Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A—Controls and Procedures
Evaluation of Disclosure Controls and Procedures
With the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Corporation’s disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
The management of Consumers Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by the board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023 based on the criteria for effective internal control over financial reporting established in “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in 2013. Based on that assessment, we have concluded that, as of June 30, 2023, our internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to rules of the SEC that permit the Corporation to provide only management’s report in this annual report.
Changes In Internal Control Over Financial Reporting
There were no changes in the Corporation’s internal controls over financial reporting that occurred during the fourth quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting.
Item 9B—Other Information
None.
Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10— Directors, Executive Officers and Corporate Governance
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 7, 2023, under the captions “Election of Directors,” “Directors and Executive Officers,” “The Board of Directors and its Committees,” “Delinquent Section 16(a) Reports,” and “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference.
The Corporation’s Code of Ethics Policy, which is applicable to all directors, officers and employees of the Corporation, and its Code of Ethics for Principal Financial Officers, which is applicable to the principal executive officer and the principal financial officer, are each available on the Investor Relations section under Governance Documents of the Corporation’s website (www.consumers.bank). Copies of either of the Code of Ethics Policies are also available in print to shareholders upon request, addressed to the Corporate Secretary at Consumers Bancorp, Inc., 614 East Lincoln Way, Minerva, Ohio 44657. The Corporation intends to post amendments to or waivers from either of its Code of Ethics Policies on its website.
Item 11—Executive Compensation
The information required by this item is set forth in the Corporation’s Proxy Statement dated September 7, 2023 under the captions “Director Compensation,” “Executive Compensation,” “Defined Contribution Plan,” “Outstanding Equity Awards at Fiscal Year-End,” and “Salary Continuation Program,” and is incorporated herein by reference.
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table sets forth information about common stock authorized for issuance, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders, as of June 30, 2023. Additional information regarding stock-based compensation plans is presented in Note 10 - Employee Benefit Plans to the Consolidated Financial Statements located elsewhere in this report.
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants, and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities issuable under outstanding options, warrants and rights) |
|||||||||
| Plans approved by shareholders |
— | — | 199,560 | |||||||||
| Plans not approved by shareholders |
— | — | — | |||||||||
| Total |
— | — | 199,560 | |||||||||
The remaining information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Security Ownership of Certain Beneficial Owners,” and is incorporated herein by reference.
Item 13—Certain Relationships and Related Transactions, and Director Independence
The information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Certain Transactions and Relationships and Legal Proceedings,” and is incorporated herein by reference.
Item 14— Principal Accounting Fees and Services
Our independent registered public accounting firm is
The information required by this item is set forth in the Corporation’s Proxy Statement, dated September 7, 2023, under the caption “Principal Accounting Fees and Services,” and is incorporated herein by reference.
PART IV
Item 15— Exhibit and Financial Statement Schedules
| (a) |
The following documents are filed as part of this report: |
| (1) |
The report of independent registered accounting firm and the consolidated financial statements appearing in Item 8. |
| (2) |
Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements. |
| (3) |
The exhibits required by this item are listed in the Exhibit Index of this Form 10-K. |
| (b) |
The exhibits to this Form 10-K begin on page 62 of this report. |
| (c) |
See Item 15(a)(2) above. |
Item 16—Form 10-K Summary
Not applicable.
EXHIBIT INDEX
| Number |
Description of Document |
|
| 2.1 |
||
| 3.1 |
||
| 3.2 |
||
| 4 |
||
| 4.1 |
||
| 10.3 |
||
| 10.8 |
||
| 10.10 |
||
| 10.11 |
||
| 10.12 |
||
| 10.13 |
||
| 19 |
Consumers Bancorp, Inc. Insider Trading and Section 16 Reporting Policy |
|
| 21 |
Subsidiaries of Consumers Bancorp, Inc. Filed with this Annual Report on Form 10-K. |
|
| 23 |
||
| 31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
| 31.2 |
||
| 32.1 |
||
| 101.INS |
Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document) (1) |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document (1) |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definitions Linkbase Document (1) |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |
|
| (1) |
These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CONSUMERS BANCORP, INC. |
||||
| Date: September 7, 2023 |
By: |
/s/ Ralph J. Lober, II |
||
| President and Chief Executive Officer (principal executive officer) |
||||
| By: |
/s/ Renee K. Wood |
|||
| Chief Financial Officer and Treasurer (principal financial officer) |
||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 7, 2023.
| Signatures |
Signatures |
||
| /s/ Laurie L. McClellan |
/s/ Ralph J. Lober, II |
||
| Laurie L. McClellan Chairman of the Board of Directors |
Ralph J. Lober, II President, Chief Executive Officer and Director (principal executive officer) |
||
| /s/ Renee K. Wood |
/s/ John P. Furey |
||
| Renee K. Wood Chief Financial Officer and Treasurer (principal financial officer) |
John P. Furey Director |
||
| /s/ Ann Gano |
/s/ Bradley Goris |
||
| Ann Gano Director |
Bradley Goris Director |
||
| /s/ Richard T. Kiko, Jr. |
/s/ Shawna L’Italien |
||
| Richard T. Kiko, Jr. Director |
Shawna L’Italien Director |
||
| /s/ Frank L. Paden |
/s/ John W. Parkinson |
||
| Frank L. Paden Director |
John W. Parkinson Director |
||
| /s/ Harry W. Schmuck, Jr. |
/s/ Michael A. Wheeler |
||
| Harry W. Schmuck, Jr. Director |
Michael A. Wheeler Director |
Exhibit 19
CONSUMERS BANCORP, INC.
Insider Trading
and
Section 16 Reporting Policy
Revision Date:
April 13, 2023
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
Table of Contents
|
OVERVIEW OF POLICY |
3 | |
|
INSIDER TRADING CONCEPTS |
4 |
|
|
What is "Inside" Information? |
4 | |
|
What is Material Information? |
4 | |
|
What is Non-public Information? |
4 | |
|
POLICY STATEMENT AND TRADING GUIDELINES |
5 | |
|
Prohibition Against Trading While In Possession of Material Non-Public Information |
5 | |
|
Transactions by Family Members |
5 | |
|
Transactions by Entities that You Influence or Control |
5 | |
|
This Policy applies to any entities that you control, including any corporations, partnerships or trusts, and transactions by these entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account. Pre-Clearance Policy for Trading While Not in Possession of Material Non-Public Information |
5 | |
|
Additional Prohibited Transactions |
6 | |
|
Exception for Trading Plans Implemented in Accordance with SEC Rule 10b5-1 |
6 | |
|
SECTION 16 REPORTING |
8 | |
|
Overview |
8 | |
|
Gifts |
9 | |
|
Consequences of Delinquent Filings |
9 | |
|
Section 16 Compliance Program |
9 | |
|
A. Designated Filing Coordinator |
9 | |
|
B. Preparation and Filing |
10 | |
|
C. The Ultimate Responsibility Rests on You |
10 | |
|
RISK IDENTIFICATION & THE CONTROL ENVIRONMENT |
10 | |
|
Review of Policy |
10 | |
|
Management Oversight/Authority & Responsibility |
10 | |
|
Training & Employee Awareness |
10 | |
|
Monitoring & Independent Reviews |
11 | |
|
Record Retention |
11 | |
|
ATTACHMENT A |
11 | |
|
Employee and Director Certification Form |
11 | |
|
Employee or Director Acknowledgment |
11 | |
|
ATTACHMENT B |
12 | |
|
Members of the Board of Directors |
12 | |
|
Section 16 Officers |
12 | |
|
Other individuals who may have material insider information due to their position: |
12 |
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
OVERVIEW OF POLICY
Consumers Bancorp, Inc. (“CNB” or the “Company”) is a public company, the common stock of which is registered under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Pursuant to the Exchange Act, CNB files periodic reports and proxy statements with the Securities and Exchange Commission (“SEC”). Investment by executive officers, directors and employees in CNB stock is generally desirable and encouraged. However, it is important that investing in the Company’s securities does not create the appearance of impropriety, and that all investment activities comply with applicable laws and regulations.
As a director, executive officer or employee of a public company, you have the responsibility not to participate in the market for CNB stock while in possession of material, non-public information about the Company. You also have the responsibility not to participate in the market for securities of any other publicly traded company while in possession of material non-public information that was obtained in the course of your involvement with the Company. There are harsh civil and criminal penalties if you trade securities while in possession of material, non-public information, or if you give that information to another person who uses it in buying or selling securities. If you buy or sell securities while in possession of material non-public information, you will not only have to pay back any money you made, but you could be found guilty of criminal charges, and face substantial fines or even prison. Additionally, CNB could be held liable for your violations of insider trading laws.
Our directors and executive officers also have the responsibility to comply with the “short-swing profit” rule in Section 16(b) and file periodic reports regarding changes in ownership of CNB stock pursuant to Section 16(a) of the Exchange Act. Violations or failure to comply with these Section 16 restrictions can also result in SEC enforcement action against those individuals.
In order to promote compliance with applicable laws and regulations, and to help avoid these harsh consequences, CNB has developed this Insider Trading and Section 16 Reporting Policy (the “Policy”) to briefly explain the insider trading laws and set forth the Company’s policies and guidelines with respect to transactions in Company securities. The Policy also sets forth pre-clearance requirements and procedures for executive officers, directors and designated individuals, and describes the procedures our executive officers and directors should follow to ensure the timely filing of their Section 16 reports with the SEC. However, it does not address all possible situations that you may face. In addition, you need to review and understand CNB’s Information Disclosure Policy that describes your obligations under the Exchange Act regarding the selective disclosure of confidential information to ensure compliance with SEC Regulation FD, which requires “fair disclosure” of material, non-public information.
This Policy applies to all directors, executive officers and employees of the Company and its direct and indirect subsidiaries, and to family members, other members of a person’s household and entities controlled by a person covered by this Policy (as more fully described below). The Company may also determine that other persons should be subject to this Policy, such as contractors who may have access to material non-public information.
This Policy applies to all trading or other transactions in the Company’s securities, including purchases, sales and bona fide gifts of Company securities. This Policy also prohibits trading or other transactions in the securities of any other publicly traded company while in possession of material non-public information that was obtained in the course of your involvement with the Company. When used in this Policy, the term “securities” should be interpreted broadly and includes, without limitation, the Company’s (or such other company’s) common stock, options to purchase common stock, or any other type of securities including but not limited to other equity awards, preferred stock, debt securities, convertible securities, warrants, as well as derivative securities such as exchange-traded put or call options or swaps relating to the Company’s securities (whether or not issued by the Company).
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
INSIDER TRADING CONCEPTS
What is "Inside" Information?
Inside information includes anything you become aware of because of your “special relationship” with the Company as an employee, executive officer or director, which has not been disclosed to the public. The information may be about the Company or any of its bank subsidiaries or other affiliates. It may also include information you learn about another company, for example, companies that are current or prospective customers or suppliers to a bank subsidiary or those with which the Company may be in negotiations regarding a potential transaction.
What is Material Information?
Information is material if a reasonable investor would think that it is important in deciding whether to buy, sell or hold securities. Information that could be expected to affect the market price of the stock should be considered material. Either good or bad information may be material. There is no bright-line standard for assessing materiality; rather, materiality is based on an assessment of all the facts and circumstances and is often evaluated by enforcement authorities with the benefit of hindsight. If you are unsure whether the information is material, assume it is material.
Examples of information that ordinarily would be regarded as material in particular situations include, but are not limited to:
Company financial performance;
estimates or projections of future earnings or losses;
events that could result in restating financial information;
a proposed merger, acquisition or sale;
beginning or settling a major lawsuit;
regulatory agency investigation;
management changes;
changes in dividend policies;
declaring a dividend or stock split;
a stock or bond offering; or
winning a large new contract (or losing a large contract).
What is Non-public Information?
Non-public information is information that has not yet been made public by the Company. Information only becomes public when the Company makes an official announcement (in a publicly accessible press release or in SEC filings, for example) and people have had an opportunity to see or hear it. Therefore, you should not buy or sell stocks or other securities before the public announcement of material information and the passage of sufficient time to allow the market to absorb the information. As a general rule, information should not be considered to be fully absorbed by the marketplace until after the second full trading day after the day on which the information is released.
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
POLICY STATEMENT AND TRADING GUIDELINES
Prohibition Against Trading While In Possession of Material Non-Public Information
No director, executive officer or employee of the Company (or other person designated as subject to this Policy) may, directly, or indirectly through family members or other persons or entities, engage or recommend others engage in transactions in, purchase or sell stocks or other securities of CNB or of any other company when aware of any material, non-public information about that company, no matter how you learned the information. You also must not “tip” or otherwise give material, non-public information to anyone, including people in your immediate family, friends or anyone acting for you (such as a stockbroker), and must not assist anyone engaged in the above activities.
In addition, it is the policy of the Company that no director, officer or other employee of the Company (or other person designated as subject to this Policy) who, in the course of working for the Company, learns of material nonpublic information about a company with which the Company does business, including a customer or supplier of the Company, may trade in, or suggest that others trade in, that company's securities until the information becomes public or is no longer material.
There are no exceptions to this Policy, except as specifically provided under the heading “Exception for Trading Plans Implemented in Accordance with SEC Rule 10b5-1.”
Transactions by Family Members
This Policy also applies to your family members who reside with you, anyone else who lives in your household, and any family members who do not live in your household but whose transactions in Company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in Company securities) (collectively, “Family Members”). You are responsible for the transactions of these other persons and therefore should make them aware of the need to confer with you before they trade in the Company's securities, and you should treat all such transactions for the purposes of this Policy and applicable securities laws as if the transactions were for your own account. This Policy does not, however, apply to personal securities transactions of family members where the purchase or sale decision is made by a third party not controlled by, influenced by or related to you or your Family Members.
Transactions by Entities that You Influence or Control
This Policy applies to any entities that you control, including any corporations, partnerships or trusts, and transactions by these entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account. Pre-Clearance Policy for Trading While Not in Possession of Material Non-Public Information
Directors, Section 16 Officers and other individuals listed on (or who become “insiders” as described in) Attachment B (“Designated Employees”), as well as the Family Members and entities controlled by such persons, may not trade at any time, without prior clearance. If you are a director, Section 16 Officer or Designated Employee, before trading in CNB stock you must contact the President/CEO or the CFO to inquire if a restricted trading period is in effect and to obtain pre-clearance of the contemplated trade. When practical, pre-clearance will be granted in a written format, otherwise it will be granted orally. “Trading” includes not only purchases and sales of stock, but also acquisitions and dispositions of equity derivative securities and stock swap agreements, the exercise of certain options, warrants, puts and calls, etc. In addition, gifts shall be subject to this Policy (including pre-clearance and blackout restrictions).
Restricted trading periods (commonly referred to as “black out” periods) are periods designated by CNB as times in which directors, Section 16 Officers and other Designated Employees, their Family Members and entities controlled by such persons may not trade in CNB stock regardless of your actual possession or non-possession of material, non-public information. These restricted trading periods are instituted by CNB for a variety of reasons. One such restricted trading period is instituted prior to CNB releasing its quarterly results. This restricted trading period begins one full calendar week prior to the end of every calendar quarter and lasts until two full trading days after CNB releases its results for that quarter.
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
The Sarbanes-Oxley Act of 2002 also requires the Company to absolutely prohibit all purchases, sales or transfers of CNB securities by directors and executive officers during a pension fund blackout period. A pension fund blackout period exists whenever 50% or more of the plan participants are unable to conduct transactions in their accounts for more than three consecutive days. These blackout periods typically occur when there is a change in the retirement plan’s trustee, record keeper or investment manager. You will be contacted when these or other restricted trading periods are instituted.
If, upon requesting clearance, you are advised that Company stock may be traded, you may buy or sell the stock within two business days after clearance is granted, but only if you are not otherwise in possession of material, non-public information. If for any reason the trade is not completed within two business days, pre-clearance must be obtained again before stock may be traded.
If, upon requesting clearance, you are advised that Company stock may not be traded, you may not engage in any trade of any type under any circumstances, nor may you inform anyone of the restriction. You may reapply for pre-clearance at a later date when trading restrictions may no longer be applicable. In sum, it is critical that our directors, Section 16 Officers and other Designated Employees obtain pre-clearance of any trading to prevent both inadvertent Section 16(b) or insider trading violations and to avoid even the appearance of an improper transaction (which could result, for example, when an officer engages in a trade while unaware of a pending major development).
Additional Prohibited Transactions
It is improper and inappropriate to engage in short-term or speculative transactions involving Company securities. It is the Company’s policy that no director, executive officer or employee of the Company or other person subject to this Policy shall engage in any of the following activities with respect to Company securities:
|
● |
Trading securities on a short-term basis. Any Company security purchased must be held for a minimum of six months and ideally longer. |
|
● |
Purchases of Company securities on margin/pledging of securities. |
|
● |
Buying or selling puts or calls |
|
● |
Hedging or options trading. |
Exception for Trading Plans Implemented in Accordance with SEC Rule 10b5-1
Definition of Trading Plan.
This Policy does not prohibit the purchase or sale of CNB stock made by you in accordance with a pre-existing written plan, contract or arrangement under Rule 10b5-1 under the Exchange Act, provided the procedures described in this section are complied with. Rule 10b5-1 provides a defense from insider trading liability under Rule 10b-5. Rule 10b5-1 provides that a person's purchase or sale is not “on the basis of” material non-public information if the person making the purchase or sale demonstrates that before becoming aware of the information, the person had:
|
● |
Entered into a binding contract to purchase or sell the security, |
|
● |
Instructed another person to purchase or sell the security for the instructing person's account, or |
|
● |
Adopted a written plan for trading securities (a “Trading Plan”) that satisfies certain requirements specified in the Rule. |
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
The Trading Plan must be documented in writing, entered into in good faith and established prior to the transaction(s) in question at a time when you are not aware of material inside information. The Trading Plan must specify the price, amount and date of trades or provide a formula or mechanism to be followed. The amount can be either a specified number of shares or dollar value of securities. The price can be the market price on a particular date, a “floor” price, or a particular dollar price. The Trading Plan cannot provide you with the ability to exercise any later influence over how, when and whether to conduct purchases or sales under the plan. The Trading Plan must include a cooling-off period before trading can commence that satisfies the requirements in the Rule as further explained below. A person may not enter into overlapping Rule 10b5-1 plans (subject to certain exceptions), and may only enter into one single-trade Rule 10b5-1 plan during any 12-month period (subject to certain exceptions). Certain representations must be included in director and Section 16 Officer plans. All persons entering into a Rule 10b5-1 plan must act in good faith with respect to the Trading Plan throughout its duration. Certain Trading Plan modifications would be treated as termination of an existing plan and entry into a new plan, and certain Trading Plan modifications and terminations may require Company disclosures. Accordingly, Trading Plan modifications and terminations also must be pre-approved in accordance with this Policy.
Procedures Applicable to Trading Plans.
No purchase or sale of CNB stock shall be treated as having been made pursuant to a Rule 10b5-1 Trading Plan under this Policy unless the following procedures and requirements are met:
|
● |
The Trading Plan complies with the requirements of Rule 10b5-1. |
|
● |
The Trading Plan is established when no blackout period is in effect. |
|
● |
The Trading Plan has been approved by the President/CEO or the CFO (the “Approving Officer”) and the Approving Officer has certified such approval in writing. This pre-clearance requirement applies to the establishment, modification or termination of any plan, arrangement or trading instructions, involving potential sales or purchases of shares, option exercises and sales or gifts, and applies even if you have been assured by a broker, personal attorney, financial advisor or other professional that the trading arrangement meets the requirements of Rule 10b5-1. |
|
● |
The person establishing the Trading Plan has certified to the Approving Officer in writing no earlier than two business days prior to the date that the Trading Plan is formally established, that: |
|
o |
Such person is not in possession of material non-public information concerning the Company and all such trades to be made pursuant to Trading Plan will be made strictly in accordance with the terms of the Trading Plan and Rule 10b5-1; |
|
o |
Such person has no other overlapping Rule 10b5-1 Trading Plans in place and, if the Trading Plan is for a single trade, has not had any other single-trade Trading Plan in place in the last 12 months; and |
|
o |
The Trading Plan complies with the requirements of Rule 10b5-1. |
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
In addition, Section 16 Officer and director Trading Plans must include representations at the time of adoption or modification that (i) the person is not aware of material non-public information about the Company or Company securities and (ii) the person is adopting the plan in good faith and not as part of plan or scheme to evade the prohibitions of Rule 10b-5.
|
● |
For Section 16 Officers and directors, no transaction may take place under the Trading Plan until the later of (a) 90 days after adoption or modification (as specified in Rule 10b5-1) of the Trading Plan or (b) two business days following the disclosure of the Company’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter (the Company’s fourth fiscal quarter in the case of a Form 10-K) in which the Trading Plan was adopted or modified (as specified in Rule 10b5-1), subject to a maximum cooling-off period of 120 days after adoption or modification of the plan. |
|
● |
For persons other than Section 16 Officers and directors, no transaction may take place under a Trading Plan until 30 days following the adoption or modification (as specified in Rule 10b5-1) of a Trading Plan. |
|
● |
Subject to certain limited exceptions specified in Rule 10b5-1, you may not enter into more than one Rule 10b5-1 Trading Plan at the same time. |
|
● |
Subject to certain limited exceptions specified in Rule 10b5-1, you are limited to only one Rule 10b5-1 Trading Plan designed to effect an open market purchase or sale of the total amount of securities subject to the Rule 10b-1 Trading Plan as a single transaction in any 12-month period. |
|
● |
You must act in good faith with respect to a Rule 10b5-1 Trading Plan. A Rule 10b5-1 Trading Plan cannot be entered into as part of a plan or scheme to evade the prohibition of Rule 10b-5. Therefore, although modifications to an existing Rule 10b5-1 Trading Plan are not prohibited, a Rule 10b5-1 Trading Plan should be adopted with the intention that it will not be amended or terminated prior to its expiration. In addition, certain plan modifications are treated under the Rule as the termination of a plan and entry into a new plan and may require the Company to make certain disclosures. Accordingly, any Trading Plan modifications or terminations must be pre-approved by an Approving Officer. |
|
● |
You may not enter into any transaction in Company securities while your Trading Plan is in effect. |
No approval of a Trading Plan by the Approving Officer shall be considered the Approving Officer's or the Company's confirmation that the Trading Plan satisfies the requirements of Rule 10b5-1. It shall be the sole responsibility of the person establishing the Trading Plan to ensure that such plan complies with the requirements of Rule 10b5-1.
The Company and the Company’s Section 16 Officers and directors must make certain disclosures in SEC filings concerning Rule 10b5-1 Plans. Section 16 Officers and directors of the Company must undertake to provide any information requested by the Company regarding Rule 10b5-1 Plans for the purpose of providing the required disclosures or any other disclosures that the Company deems to be appropriate under the circumstances. The approval or adoption of a pre-planned selling program in no way reduces or eliminates a Section 16 Officer’s or director’s obligations under Section 16 of the Exchange Act, including such person’s disclosure and short-swing trading liabilities thereunder.
SECTION 16 REPORTING
Overview
The SEC’s rules under Section 16(a) of the Exchange Act as well as Rule 144 under the Securities Act of 1933 impose reporting requirements on executive officers, directors and 10% shareholders. If there is any change in your ownership of CNB securities at any time, other than through certain exempt Company benefit plans, you will be required to file a Form 4 with the SEC reporting the change. In virtually all cases, the Form 4 must be filed no later than the second business day following the execution date of the transaction. For transactions under Rule 10b5-1 trading plans or certain discretionary transactions within exempt Company benefit plans (for example, fund switching transactions), the Form 4 may not be due until the second business day following the date your broker or plan administrator notifies you of the execution date, but in no event more than five business days after the execution date.
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
Sales of CNB securities by its “affiliates” are subject to specific regulations under the federal securities laws. Rule 144 under the Securities Act of 1933 provides a “safe harbor” procedure under which certain sales by affiliates are permitted. Each officer and director is deemed to be an “affiliate” and thus each officer and director need to comply with Rule 144 when selling common shares held either directly or beneficially.
Form 144 is required if more than 5,000 shares or shares valued at more than $50,000 are sold during any three-month period. Further, Rule 144 places limitations on the number of common shares that may be sold under the safe harbor rule. Generally, the number of common shares that may be sold in any three-month period is 1% of the outstanding shares of the same class being sold.
You are also required to report certain exempt transactions to the SEC at year-end on a Form 5. The number and types of transactions eligible for Form 5 reporting are very limited.
Gifts
As long as a gift of shares is bona fide, it is an exempt transaction for purposes of the Section 16 profit recovery provisions. However, you could be exposed to Section 16 liability if you make a gift of shares to a family member or related entity and that donee sells the shares within six months. Thus, except in the case of gifts of shares to a public charity, it is recommended that you have an understanding with the donee to obtain your clearance prior to a sale of any gifted shares. Although exempt from profit recovery under Section 16, gifts must be reported, and dispositions of securities by gift must be reported on Form 4 no later than two business days after the gift. In addition, gifts are subject to the Insider Trading Policy and Trading Guidelines as set forth above.
Consequences of Delinquent Filings
The consequences of a late filing or the failure to file required Section 16 reports are significant:
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public embarrassment to you and the Company from required disclosures in the proxy statement and Form 10-K; |
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potential SEC enforcement actions against you, such as a cease-and-desist order or injunction against further wrongdoing; and |
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for egregious or repeated violations, possible criminal penalties can be imposed which can include SEC fines of up to $5,000 per day for each filing violation and/or imprisonment. |
Section 16 Compliance Program
Under SEC rules, the preparation and filing of Section 16(a) reports is your sole responsibility. However, because of the complexities of compliance with the Section 16(a) filing requirements and to help prevent inadvertent violations of the short-swing profit rules, the Company has determined that it is prudent to provide you with assistance in preparing and filing your reports. In this regard, the following compliance procedures have been implemented:
Designated Filing Coordinator
The CFO and other select members of the Accounting Department can assist all executive officers and directors in preparing, reviewing and filing all Forms 3, 4 and 5. A Form 3 initial report has been filed for all current executive officers and directors.
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
Preparation and Filing
If you have any transaction or change in ownership in your Company stock or other equity securities (including derivative securities, and including any gifts), please report the transaction(s) to the Filing Coordinator no later than the execution date of the transaction. The Filing Coordinator will contact you each July to coordinate preparation of your Form 5 (if applicable).
Upon receiving the details of the transaction(s) from you, the Filing Coordinator will prepare each Form 4 and Form 5 on your behalf. Due to the short two-day period in which to file the reports, the Filing Coordinator may have the Form executed on your behalf using the power of attorney that you have granted to the Company for this purpose and will file the completed Form with the SEC. As discussed above, the SEC must receive the Form 4 no later than the second business day following almost any transaction (including for dispositions by gift), and Form 5 must be received by August 14th each year, so time is of the essence. The Filing Coordinator will send you a copy of the Form 4 or 5 as filed with the SEC promptly following the filing. Please contact the Filing Coordinator immediately if you believe there may be any errors in the filing. If so, the Filing Coordinator will promptly amend the Form. In most cases, the filing of an amendment to correct information will not result in the initial filing being deemed a late filing; so no proxy disclosure or other penalties should apply.
The Ultimate Responsibility Rests on You
While the Company has decided to assist executive officers and directors with Section 16 compliance, you should recognize that it will remain your legal obligation to ensure that your filings are made timely and correctly, and that you do not engage in unlawful short-swing transactions. The Company can only facilitate your compliance to the extent you provide the Company with the information required by this Policy. The Company does not assume any legal responsibility in this regard. If you would like more detailed information regarding your Section 16 obligations, please contact the Filing Coordinator.
RISK IDENTIFICATION & THE CONTROL ENVIRONMENT
Review of Policy
The board of directors, or its designee, shall approve this Policy at least annually, making such revisions and amendments as it deems appropriate.
Management Oversight/Authority & Responsibility
The Chief Financial Officer is responsible for the development, implementation and oversight of this policy and the procedures which support it as outlined above, including maintenance of the list of Directors and employees who are most likely to possess material non-public information (see Attachment B to this Policy); however, compliance with this policy is the shared responsibility of the CNB directors and employees, and all will be held accountable for protecting the Company’s reputation from damage which could be caused by a failure to abide by the provisions outlined herein.
Training & Employee Awareness
Training relative to Insider Trading and Section 16 Policy requirements, internal control objectives, and assigned responsibilities is achieved through the cooperative effort of the Chief Financial Officer, the Human Resource Department and the Chairman of the Board of Directors who are responsible for incorporating these objectives into routine procedures and department controls.
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
This Insider Trading & Section 16 Reporting Policy shall be presented to new members of the CNB Board of Directors, or those of its subsidiaries and/or affiliates, as applicable, and each new Director shall sign a certification form acknowledging that he/she has read the Policy, understands its provisions, and agrees to abide by them.
This Insider Trading & Section 16 Reporting Policy shall be presented to every new employee as part of the Human Resources Department's new employee orientation. The person conducting the orientation session shall provide the new employee with a brief explanation of the Code and its importance and shall answer any questions regarding the Code. Following this introduction, the employee shall read the Policy and sign a certification form acknowledging that they have done so, that they understand its provisions, and agree to abide by them.
On an annual basis, all employees shall review and recertify that they have read this Insider Trading & Section 16 Reporting Policy, understand its provisions, agree to abide by them, and have complied with them over the past year. The Directors affirmative vote to approve this Policy on an annual basis will be used as support that they have read and understand the provisions of this Insider Trading Policy.
Monitoring & Independent Reviews
Internal Audit will periodically test compliance with this Insider Trading and Section 16 Reporting policy based upon a schedule approved by the Audit Committee.
Record Retention
Original and revised copies of the Information Disclosure Policy will be kept on file in the Accounting Department. All related certification forms will be kept on file in the Human Resource Department.
Required filings pursuant to this policy will be kept in accordance with SEC Section 16 guidelines with the Filing Coordinator.
ATTACHMENT A
Employee and Director Certification Form
I hereby certify that I have received and read the Corporate Policy Regarding Insider Trading and Section 16 Reporting (Insider Trading Policy). I further certify that I understand the provisions of the Insider Trading Policy and that I agree to abide by and conform to the requirements of the policy at all times during my employment or tenure as a Director. I further certify that I had an opportunity to ask questions regarding the provisions of the Insider Trading Policy and that any questions which I had were answered to my satisfaction.
I understand that my failure to comply with the provisions of the Insider Trading Policy may be cause for dismissal or other disciplinary actions.
Employee or Director Acknowledgment
| Employee’s or Director’s Signature | Date | ||
| Employee’s or Director’s Name |
| Insider Trading and Section 16 Reporting Policy | Revision date: April 13, 2023 |
ATTACHMENT B
List of positions that are most likely to possess material non-public information.
Members of the Board of Directors
All outside and inside directors
Section 16 Officers
President / CEO
Chief Financial Officer
Senior Loan Officer
Chief Credit Officer
Chief People Officer
Chief Information Officer
SVP, Retail Operations and Sales
Other individuals who may have material insider information due to their position:
Controller
Staff Accountant
Executive Administrative Assistant
If at any time other CNB employees, not listed above are provided with material non-public information, they are to be advised that they are an insider and need to refrain from trading in CNB stock. It is the responsibility of the employee or director disclosing the material non-public information to inform the employee at the time they become an insider.
EXHIBIT 21
Subsidiaries of Consumers Bancorp, Inc.
Consumers National Bank, a nationally chartered bank
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-161023 on Form S-3 of Consumers Bancorp, Inc. of our report dated September 7, 2023 relating to the consolidated financial statements, appearing in this Annual Report on Form 10-K.
| /s/ Plante & Moran, PLLC | |
| Plante & Moran, PLLC | |
| Auburn Hills, Michigan | |
| September 7, 2023 |
EXHIBIT 31.1
I, Ralph J. Lober, certify that:
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I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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September 7, 2023 |
By: /s/ Ralph J. Lober, II |
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Ralph J. Lober, II Chief Executive Officer |
EXHIBIT 31.2
I, Renee K. Wood, certify that:
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I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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September 7, 2023 |
By: /s/ Renee K. Wood |
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Renee K. Wood Chief Financial Officer & Treasurer |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Consumers Bancorp, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company do hereby certify that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: September 7, 2023 |
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/s/ Ralph J. Lober, II |
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Ralph J. Lober, II |
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Chief Executive Officer |
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| /s/ Renee K. Wood | |||
| Renee K. Wood | |||
| Chief Financial Officer & Treasurer | |||