Consumers Bancorp Inc 10-K for FY2022
Consumers Bancorp Inc (CBKM)
About this 10-K
Consumers Bancorp Inc filed this 10-K on September 15, 2022, covering the fiscal year ended June 30, 2022 (FY2022).
Headline figures
Fiscal year ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.86M
- up 13.1% from $3.42M a year earlier
- Net income
- $11.19M
- up 24.5% from net income of $8.99M a year earlier
- Diluted EPS
- $3.68
- up 23.5% from $2.98 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 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.
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, 2021, 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 15, 2022, for its 2022 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 |
56 |
| Item 9A—Controls and Procedures |
56 |
| Item 9B—Other Information |
56 |
| Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
56 |
| PART III. |
|
| Item 10—Directors, Executive Officers and Corporate Governance |
57 |
| Item 11—Executive Compensation |
57 |
| Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
57 |
| Item 13—Certain Relationships and Related Transactions, and Director Independence |
57 |
| Item 14—Principal Accounting Fees and Services |
57 |
| PART IV. |
|
| Item 15—Exhibit and Financial Statement Schedules |
58 |
| Item 16—Form 10-K Summary |
58 |
| Signatures |
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 the 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, Stark, Summit, and Wayne counties in Ohio. Its market includes these counties as well as the fourteen contiguous counties in northeast Ohio, western Pennsylvania, and northern West Virginia. As of June 30, 2022, 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 to its customers 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.
The Coronavirus Aid, Relief, and Economic Security Act of 2020: In response to the novel COVID-19 pandemic (COVID-19), the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the CARES Act), was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as the Corporation and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over the Corporation. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.
The CARES Act amended the loan program of the U.S. Small Business Administration (SBA), in which the Bank participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (PPP), to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of COVID-19, Congress enacted additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19. In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal was enacted to provide additional economic stimulus to individuals and businesses in response to the extended economic distress caused by the pandemic. This legislation included provisions for additional stimulus payments to individuals and their dependents, the extension of enhanced unemployment benefits, $284 billion of additional funds for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less. As a participating lender in the PPP, the Corporation continues to monitor legislative, regulatory, and supervisory developments related thereto.
Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by the pandemic. Under these provisions, loan modifications deemed to be COVID-19 related would not be considered a troubled debt restructuring (TDR) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of the termination of the COVID-19 national emergency or December 31, 2020. The banking regulators issued a similar guidance, which also clarified that a COVID-19 related modification should not be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered short-term. Section 541 of the Consolidated Appropriations Act, 2021, extended this relief to the earlier of 60 days after the end of the national emergency proclamation or January 1, 2022. The Corporation implemented a short-term modification program that offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers were eligible for an additional 90 days of payment deferrals if situations warranted a need for an extension. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 were not classified as troubled debt restructurings.
Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of disruption and volatility in the global markets. The above mentioned and other significant fiscal stimulus and monetary policy actions of the U.S. government and Federal Reserve have been contributing factors to an inflationary surge during most of 2021 and into 2022. Management continues to monitor the potential development of additional legislative, fiscal, or monetary policy developments taken by the U.S. government.
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 is required to adopt the CECL model by July 1, 2023 since it’s a smaller reporting company.
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, 2022, 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 of the following matters: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes.
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 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.
Employees
As of June 30, 2022, the Bank employed 171 full-time and 16 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 |
||||
| Wooster LPO |
146 East Liberty Street, Wooster, Ohio 44691 |
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 3,056,674 common shares outstanding on June 30, 2022, with 735 shareholders of record and an estimated 756 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 |
$ | 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 | ||||||||||||
| Quarter Ended |
September 30, |
December 31, |
March 31, |
June 30, |
||||||||||||
| High |
$ | 16.00 | $ | 19.50 | $ | 20.00 | $ | 19.76 | ||||||||
| Low |
14.40 | 15.50 | 19.12 | 19.11 | ||||||||||||
| Cash dividends paid per share |
0.145 | 0.145 | 0.15 | 0.15 | ||||||||||||
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 2022.
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, 2022 and 2021. 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:
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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; |
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rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income; |
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changes in the level of non-performing assets and charge-offs; |
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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; |
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the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply; |
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the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; |
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breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; |
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changes in consumer spending, borrowing and savings habits; |
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declining asset values impacting the underlying value of collateral; |
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changes in accounting policies, rules and interpretations that may come as a result of COVID-19 or otherwise; |
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our ability to attract and retain qualified employees; |
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competitive pressures on product pricing and services; and |
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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, Stark, Summit, and Wayne counties in Ohio. Its market includes these counties as well as the fourteen 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.
COVID-19 Pandemic
In response to COVID-19, management actively pursued multiple avenues to assist customers during these uncertain times. For commercial borrowers, the CARES Act included key SBA initiatives to assist small businesses. The PPP loans were designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Bank originated a total of $113,367 of PPP loans during the first and second rounds of assistance. As of June 30, 2022, there were $179 of PPP loans outstanding.
Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program was available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 were not classified as troubled debt restructurings. As of June 30, 2022, there were no loans in payment deferral status under this loan modification program. This modification program ended as of April 26, 2022.
We have assisted and may continue to assist customers who are experiencing financial hardship due to COVID-19 by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties. The consumer reserve personal line of credit, an unsecured line of credit that is linked to a personal checking account, has been redesigned to provide easier access and a lower initial rate.
Given the dynamic nature of the circumstances surrounding the pandemic, it is difficult to ascertain the full impact that the ongoing economic disruption will have on the Corporation. The Corporation has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. The branch lobbies were closed at various times throughout the pandemic but are now open for normal business. The Corporation is encouraging virtual meetings and conference calls in place of in-person meetings. The Corporation is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. The Corporation will continue to closely monitor situations arising from the pandemic and adjust operations accordingly.
Comparison of Results of Operations for the Years Ended June 30, 2022 and June 30, 2021
Net Income. Net income was $11,192 for fiscal year 2022 compared with $8,988 for fiscal year 2021. The following key factors summarize our results of operations for the year ended June 30, 2022 compared with the same prior year period:
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net interest income increased by $6,163, or 23.2%, in fiscal year 2022, primarily because of a $179,192, or 24.2%, increase in average interest-earning assets along with a reduction in the cost of funds; |
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a $735 provision for loan loss expense was recorded during fiscal year 2022 compared with $850 during fiscal year 2021; |
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total other income increased by $269, or 6.0%, in fiscal year 2022, primarily due to a $240, or 19.7%, increase in service charges on deposit accounts and a $178, or 9.4%, increase in debit card interchange income which were partially offset by a $121, or 16.1%, decline in mortgage banking activity; and |
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total other expenses increased by $3,854, or 19.9%, in fiscal year 2022 due to increases in salaries and employee benefits; occupancy and equipment expenses; and Federal Deposit Insurance Corporation (FDIC) assessments that was primarily driven by the growth in the organization from the branch acquisition. |
Return on average equity and return on average assets were 16.43% and 1.17%, respectively, for fiscal year 2022 compared with 13.36% and 1.16%, 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, |
2022 |
2021 |
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| Net interest income |
$ | 32,746 | $ | 26,583 | ||||
| Taxable equivalent adjustments to net interest |
513 | 419 | ||||||
| Net interest income, fully taxable equivalent |
$ | 33,259 | $ | 27,002 | ||||
| Net interest margin |
3.54 | % |
3.62 | % |
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| Taxable equivalent adjustment |
0.06 | 0.05 | ||||||
| Net interest margin, fully taxable equivalent |
3.60 | % |
3.67 | % |
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FTE net interest income for fiscal year 2022 was $33,259, an increase of $6,257 or 23.2%, from $27,002 in fiscal year 2021. The Corporation’s tax equivalent net interest margin was 3.60% for fiscal year 2022 and 3.67% for fiscal year 2021. FTE interest income for fiscal year 2022 was $34,673, an increase of $5,771, or 20.0%, from fiscal year 2021, primarily due to a $179,192, or 24.2%, increase in average interest-earning assets from fiscal year 2021. The growth in average interest-earning assets was primarily a result of a $112,149 increase in the average balance of available-for-sale securities and a $46,960, or 8.5%, increase in average loans. Interest income was positively impacted in both the current and prior year periods by the accretion of origination fees from PPP loans that were forgiven during those periods. The PPP loans had an average balance of $17,692 for fiscal year 2022, and during this same period, $2,612 of interest and fee income was recognized on the PPP loans. This compares with an average balance of $63,761 for fiscal year 2021, and the recognition of $2,549 of interest and fee income during fiscal year 2021. The Corporation’s yield on average interest-earning assets was 3.75% for the 2022 fiscal year compared with 3.93% for the same period last year.
Interest expense for fiscal year 2022 was $1,414, a decrease of $486, or 25.6%, from fiscal year 2021. The Corporation’s cost of funds was 0.22% for fiscal year 2022 compared with 0.38% for the same prior year period. The historically low market interest rates that were in place throughout much of fiscal year 2022 had an impact on the rates paid on interest-bearing deposit products. The cost of funds is expected to increase due to the recent increases in short-term market rates.
Average Balance Sheet and Net Interest Margin
| 2022 | 2021 | |||||||||||||||||||||||
| Average Balance |
Interest | Yield/ Rate |
Average Balance |
Interest | Yield/ Rate |
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| Interest earning assets: |
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| Taxable securities |
$ | 185,741 | $ | 3,572 | 1.87 | % |
$ | 89,424 | $ | 1,594 | 1.82 | % |
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| Nontaxable securities (1) |
86,710 | 2,580 | 3.00 | 70,878 | 2,148 | 3.18 | ||||||||||||||||||
| Loan receivables (1) |
596,850 | 28,216 | 4.73 | 549,890 | 24,901 | 4.53 | ||||||||||||||||||
| Federal bank and other restricted stocks |
2,489 | 82 | 3.29 | 2,472 | 76 | 3.07 | ||||||||||||||||||
| Equity securities |
427 | 33 | 7.73 | 202 | 17 | 8.42 | ||||||||||||||||||
| Interest bearing deposits and federal funds sold |
47,672 | 190 | 0.40 | 27,831 | 166 | 0.60 | ||||||||||||||||||
| Total interest earning assets |
919,889 | 34,673 | 3.75 | % |
740,697 | 28,902 | 3.93 | % |
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| Noninterest earning assets |
39,059 | 31,283 | ||||||||||||||||||||||
| Total assets |
$ | 958,948 | $ | 771,980 | ||||||||||||||||||||
| Interest bearing liabilities: |
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| Interest bearing demand |
$ | 147,312 | $ | 166 | 0.11 | % |
$ | 112,801 | $ | 149 | 0.13 | % |
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| Savings |
349,380 | 388 | 0.11 | 251,138 | 333 | 0.13 | ||||||||||||||||||
| Time deposits |
113,143 | 568 | 0.50 | 102,554 | 1,133 | 1.10 | ||||||||||||||||||
| Short-term borrowings |
12,960 | 47 | 0.36 | 8,895 | 9 | 0.10 | ||||||||||||||||||
| FHLB advances |
14,639 | 245 | 1.67 | 20,077 | 276 | 1.37 | ||||||||||||||||||
| Total interest-bearing liabilities |
637,434 | 1,414 | 0.22 | % |
495,465 | 1,900 | 0.38 | % |
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| Noninterest-bearing liabilities |
253,407 | 209,262 | ||||||||||||||||||||||
| Total liabilities |
890,841 | 704,727 | ||||||||||||||||||||||
| Shareholders’ equity |
68,107 | 67,253 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 958,948 | $ | 771,980 | ||||||||||||||||||||
| Net interest income, interest rate spread (1) |
$ | 33,259 | 3.53 | % |
$ | 27,002 | 3.55 | % |
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| Net interest margin (net interest as a percent of average interest earning assets) (1) |
3.60 | % |
3.67 | % |
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| Federal tax exemption on non-taxable securities and loans included in interest income |
$ | 513 | $ | 419 | ||||||||||||||||||||
| Average interest earning assets to interest bearing liabilities |
144.31 | % |
149.50 | % |
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| (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
| 2022 Compared to 2021 |
2021 Compared to 2020 |
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| Total |
Change |
Change |
Total |
Change |
Change |
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| (In thousands) |
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| Interest earning assets: |
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| Taxable securities |
$ | 1,978 | $ | 1,932 | $ | 46 | $ | (338 | ) |
$ | 162 | $ | (500 | ) |
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| Nontaxable securities (1) |
432 | 558 | (126 | ) |
234 | 269 | (35 | ) |
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| Loan receivables (2) |
3,315 | 2,188 | 1,127 | 3,348 | 5,376 | (2,028 | ) |
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| Federal bank and other restricted stocks |
6 | 1 | 5 | 1 | 17 | (16 | ) |
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| Interest bearing deposits and federal funds sold |
24 | 92 | (68 | ) |
9 | 144 | (135 | ) |
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| Equity securities |
16 | 17 | (1 | ) |
17 | 17 | — | |||||||||||||||||
| Total interest and dividend income |
5,771 | 4,788 | 983 | 3,271 | 5,985 | (2,714 | ) |
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| Interest bearing liabilities: |
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| Interest bearing demand |
17 | 41 | (24 | ) |
(279 | ) |
103 | (382 | ) |
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| Savings deposits |
55 | 115 | (60 | ) |
(466 | ) |
197 | (663 | ) |
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| Time deposits |
(565 | ) |
107 | (672 | ) |
(1,126 | ) |
(278 | ) |
(848 | ) |
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| Short-term borrowings |
38 | 6 | 32 | (34 | ) |
23 | (57 | ) |
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| FHLB advances |
(31 | ) |
(84 | ) |
53 | (16 | ) |
37 | (53 | ) |
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| Total interest expense |
(486 | ) |
185 | (671 | ) |
(1,921 | ) |
82 | (2,003 | ) |
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| Net interest income |
$ | 6,257 | $ | 4,603 | $ | 1,654 | $ | 5,192 | $ | 5,903 | $ | (711 | ) |
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| (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 $735 was recorded in fiscal year 2022 compared with $850 in fiscal year 2021. The loan loss provision expense recorded in fiscal year 2022 was primarily due to the organic growth within the loan portfolio. For fiscal year 2022, net charge offs of $46 were recorded compared with $57 for the same period last year. The allowance for loan losses as a percentage of loans was 1.17% at June 30, 2022 and 1.14% at June 30, 2021. As of June 30, 2021, the allowance for loan losses as a percentage of total loans, excluding the PPP loans, was 1.25%. The decline in the allowance for loan losses as a percentage of total loans excluding the PPP loans was due to the improvement in economic conditions that had been adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While vaccinations (including booster shots) have created optimism in the community, but some uncertainty remains due to the continued concern over increased infection rates from various variants of COVID-19.
Non-performing loans were $440 as of June 30, 2022 and represented 0.07% of total loans. This compared with $1,771, or 0.31% of total loans at June 30, 2021. Non-performing loans declined primarily due to the full payoff of three loans that had a balance of $949 as of June 30, 2021 that were on non-accrual for an extended period. 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 $269, or 6.0%, to $4,735 for fiscal year 2022. Service charges on deposit accounts increased by $240, or 19.7% primarily due to an increase in the number of overdraft charges as overdrafts increased from the lows that were experienced during the pandemic as many eligible individuals received economic stimulus payments and consumers changed their spending habits in 2020 and 2021. Effective March 1, 2022, the Bank made a small reduction to the non-sufficient funds/overdraft fee and eliminated many internal account transfer fees. The Bank may make future reductions to the non-sufficient funds/overdraft fee in response to the industry wide trend of reducing overdraft fees as large banks have announced a reduction in these types of fees in response to regulatory pressure. As a result, service charges on deposit accounts may be negatively impacted in future periods. Debit card interchange income increased by $178, or 9.4%, in fiscal year 2022 to $2,069 primarily as a result of increased debit card usage and an increase in the number of cards issued. Mortgage banking activity decreased by $121, or 16.1%, in fiscal year 2022 because of a decrease in volume due to the increase in mortgage rates.
Other Expenses. Total other expenses were $23,215 for the year ended June 30, 2022; an increase of $3,854, or 19.9%, from $19,361 for the year ended June 30, 2021.
Salaries and employee benefit expenses increased by $2,408, or 22.2%, during fiscal year 2022 primarily due to the addition of staff at three new office locations, the addition of lending staff, and increases in health care costs.
Occupancy and equipment expenses increased by $440, or 17.0%, during fiscal year 2022 from the same period last year primarily due to investments in new technology and computer equipment as well as higher real estate taxes, custodial, building upkeep, maintenance, lease and utility expenses for the additional office locations.
Data processing expenses increased by $67, or 9.2% and FDIC assessments increased by $278, or 92.1%, for fiscal year 2022 from the same prior year period due to the growth in the organization.
Debit card processing expenses increased by $75, or 7.9% primarily as a result of increased debit card usage. The increase in debit card usage is also reflected in debit card interchange income which increased by $178, or 9.4% from the prior year.
Income Tax Expense. Income tax expense totaled $2,339 and $1,850 and the effective tax rates were 17.3% and 17.1% for the fiscal years ended June 30, 2022 and 2021, respectively. Income tax expense was calculated utilizing a statutory federal income tax rate of 21.0% in fiscal years 2022 and 2021. 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 at June 30, 2022 were $977,313 compared with $833,804 at June 30, 2021, an increase of $143,509, or 17.2%. The growth in total assets is mainly attributable to an increase of $88,465, or 41.0%, in available-for-sale and held-to-maturity securities and a $45,416, or 8.0%, increase in total loans. These increases were primarily funded by a $159,713, or 22.0%, increase in total deposits and include $104,538 of deposits acquired as part of the branch acquisition. Total shareholders’ equity declined to $53,970 as of June 30, 2022, from $69,900 as of June 30, 2021. The primary reason for the decline in shareholders’ equity was a $25,656 net decrease in accumulated other comprehensive income due to a shift in unrealized gains on the mark-to-market of available-for-sale securities to a net unrealized loss.
Securities. Total securities were $304,221 at June 30, 2022, of which $296,347 were classified as available-for-sale and $7,874 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, 2022 and 2021 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income or loss:
| June 30, 2022 Available-for-sale |
Amortized |
Gross |
Gross |
Fair |
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| Obligation of 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 | |||||||
| June 30, 2021 Available-for-sale |
Amortized |
Gross |
Gross |
Fair |
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| U.S. Treasury |
$ | 14,746 | $ | 301 | $ | (14 | ) |
$ | 15,033 | |||||||
| Obligations of U.S. government-sponsored entities and agencies |
73,013 | 3,561 | (75 | ) |
76,499 | |||||||||||
| Obligations of state and political subdivisions |
90,065 | 1,136 | (684 | ) |
90,517 | |||||||||||
| U.S. government-sponsored mortgage-backed securities - residential |
8,641 | 204 | — | 8,845 | ||||||||||||
| U.S. government-sponsored mortgage-backed securities - commercial |
16,302 | 129 | (57 | ) |
16,374 | |||||||||||
| U.S. government-sponsored collateralized mortgage obligations – residential |
500 | — | (8 | ) |
492 | |||||||||||
| Total available-for-sale securities |
$ | 203,267 | $ | 5,331 | $ | (838 | ) |
$ | 207,760 | |||||||
The following tables summarize the amortized cost and fair value of held-to-maturity securities at June 30, 2022 and 2021 and the corresponding gross unrecognized gains and losses:
| June 30, 2022 Held-to-maturity |
Amortized |
Gross |
Gross Losses |
Fair |
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| Obligations of state and political subdivisions |
$ | 7,874 | $ | 47 | $ | (90 | ) |
$ | 7,831 | |||||||
| June 30, 2021 Held-to-maturity |
Amortized |
Gross Gains |
Gross |
Fair |
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| Obligations of state and political subdivisions |
$ | 7,996 | $ | 356 | $ | — | $ | 8,352 | ||||||||
The following tables summarize the amounts and distribution of the Corporation’s securities held and the weighted average yields as of June 30, 2022:
| Available-for-sale |
Amortized |
Fair |
Average |
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| Obligations of U.S. Treasury |
||||||||||||
| Over 1 year through 5 years |
$ | 8,909 | $ | 8,447 | 0.83 | % |
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| Total obligations of U.S. Treasury |
8,909 | 8,447 | 0.83 | |||||||||
| Obligations of government-sponsored entities: |
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| Over 3 months through 1 year |
250 | $ | 250 | 1.68 | % |
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| Over 1 year through 5 years |
7,489 | 7,220 | 2.22 | |||||||||
| Over 5 years through 10 years |
14,865 | 13,350 | 1.86 | |||||||||
| Over 10 years |
6,085 | 5,445 | 1.68 | |||||||||
| Total obligations of government-sponsored entities |
28,689 | 26,265 | 1.61 | |||||||||
| Obligations of state and political subdivisions: |
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| Over 3 months through 1 year |
600 | 601 | 3.94 | |||||||||
| Over 1 year through 5 years |
15,736 | 15,540 | 3.00 | |||||||||
| Over 5 years through 10 years |
20,926 | 19,988 | 2.91 | |||||||||
| Over 10 years |
68,715 | 61,228 | 3.09 | |||||||||
| Total obligations of state and political subdivisions |
105,977 | 97,357 | 3.05 | |||||||||
| Mortgage-backed securities - residential: |
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| Over 3 months through 1 year |
197 | 197 | 1.94 | |||||||||
| Over 1 year through 5 years |
32,680 | 30,931 | 1.99 | |||||||||
| Over 5 years through 10 years |
79,479 | 69,786 | 1.73 | |||||||||
| Over 5 years through 10 years |
1,456 | 1,269 | 1.99 | |||||||||
| Total mortgage-backed securities - residential |
113,812 | 102,183 | 1.81 | |||||||||
| Mortgage-backed securities – commercial: |
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| Over 5 years through 10 years |
4,267 | 3,706 | 1.84 | |||||||||
| Over 10 years |
4,356 | 3,595 | 2.13 | |||||||||
| Total mortgage-backed securities - commercial |
8,623 | 7,301 | 1.99 | |||||||||
| Amortized |
Fair |
Average |
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| Collateralized mortgage obligations: |
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| 3 months or less |
35 | 35 | 2.11 | |||||||||
| Over 3 months through 1 year |
2,185 | 2,169 | 3.21 | |||||||||
| Over 1 year through 5 years |
24,277 | 22,681 | 2.54 | |||||||||
| Over 5 years through 10 years |
10,614 | 9,918 | 2.43 | |||||||||
| Over 10 years |
3,841 | 3,376 | 1.60 | |||||||||
| Total collateralized mortgage obligations |
40,952 | 38,179 | 2.46 | |||||||||
| Other debt securities |
||||||||||||
| Over 1 year through 5 years |
5,281 | 5,059 | 2.90 | |||||||||
| Over 5 years through ten years |
12,086 | 11,556 | 3.80 | |||||||||
| Total other debt securities |
17,367 | 16,615 | 3.53 | |||||||||
| Total available-for-sale securities |
$ | 324,329 | $ | 296,347 | 2.33 | % |
||||||
| Held-to-maturity |
||||||||||||
| Obligations of state and political subdivisions: |
||||||||||||
| Over 1 year through 5 years |
$ | 212 | $ | 212 | 2.90 | % |
||||||
| Over 5 years through 10 years |
4,212 | 3,522 | 1.82 | |||||||||
| Over 10 years |
3,450 | 4,097 | 3.03 | |||||||||
| Total held-to-maturity securities |
$ | 7,874 | $ | 7,831 | 2.38 | % |
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 $45,416 to $611,843 at June 30, 2022 compared to $566,427 at June 30, 2021. Excluding PPP and acquired loan balances, core organic loan growth was $81,194, or 15.7% for the fiscal year ended June 30, 2022. Commercial loans included PPP loans of $179 and $50,686 as of June 30, 2022 and 2021, respectively. Consumer loans increased by $15,251, or 51.6%, 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:
| 2022 |
2021 |
|||||||
| Commercial |
$ | 87,080 | $ | 109,922 | ||||
| Commercial real estate: |
||||||||
| Construction |
15,095 | 10,462 | ||||||
| Other |
291,310 | 269,157 | ||||||
| 1-4 Family residential real estate: |
||||||||
| Owner occupied |
143,180 | 119,046 | ||||||
| Non-owner occupied |
25,988 | 19,114 | ||||||
| Construction |
4,369 | 9,156 | ||||||
| Consumer loans |
44,821 | 29,570 | ||||||
| Total loans |
$ | 611,843 | $ | 566,427 | ||||
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, 2022:
| Maturing |
||||||||||||||||||||
| After one year |
After five years |
|||||||||||||||||||
| Within |
but within |
But within |
After |
|||||||||||||||||
| one year |
five years |
Fifteen years |
Fifteen years |
Total |
||||||||||||||||
| Commercial |
$ | 12,957 | $ | 31,260 | $ | 42,194 | $ | 669 | $ | 87,080 | ||||||||||
| Commercial real estate: |
||||||||||||||||||||
| Construction |
83 | 10,359 | 3,368 | 1,285 | 15,095 | |||||||||||||||
| Other |
8,062 | 13,511 | 117,469 | 152,268 | 291,310 | |||||||||||||||
| 1-4 Family residential real estate: |
||||||||||||||||||||
| Owner occupied |
1,142 | 2,460 | 35,850 | 103,728 | 143,180 | |||||||||||||||
| Non-owner occupied |
1,399 | 1,021 | 15,534 | 8,034 | 25,988 | |||||||||||||||
| Construction |
763 | 90 | — | 3,516 | 4,369 | |||||||||||||||
| Consumer loans |
1,003 | 24,147 | 19,481 | 190 | 44,821 | |||||||||||||||
| Total loans |
$ | 25,409 | $ | 82,848 | $ | 233,896 | $ | 269,690 | $ | 611,843 | ||||||||||
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, 2022:
| Total due after one year: |
Fixed |
Variable |
||||||
| Commercial |
$ | 61,636 | $ | 12,487 | ||||
| Commercial real estate: |
||||||||
| Construction |
3,628 | 11,384 | ||||||
| Other |
157,013 | 126,235 | ||||||
| 1-4 Family residential real estate: |
||||||||
| Owner occupied |
116,957 | 25,081 | ||||||
| Non-owner occupied |
15,050 | 9,539 | ||||||
| Construction |
3,516 | 90 | ||||||
| Consumer loans |
43,814 | 4 | ||||||
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, 2022, impaired loans totaled $473, of which $431 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:
| 2022 |
2021 |
|||||||
| Non-accrual loans |
$ | 431 | $ | 1,771 | ||||
| Accruing loans past due 90 days or more |
9 | — | ||||||
| Total non-performing loans |
$ | 440 | $ | 1,771 | ||||
| Other real estate and repossessed assets owned |
— | — | ||||||
| Total non-performing assets |
$ | 440 | $ | 1,771 | ||||
| Impaired loans |
$ | 473 | $ | 1,954 | ||||
| Accruing restructured loans |
$ | 42 | $ | 183 | ||||
| Non-accrual to total loans |
0.07 | % |
0.31 | % |
||||
| ALLL to non-accrual loans |
1661.25 | % |
365.39 | % |
||||
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:
| 2022 |
2021 |
|||||||
| Allowance for loan losses at beginning of year |
$ | 6,471 | $ | 5,678 | ||||
| Loans charged off: |
||||||||
| Commercial |
— | 22 | ||||||
| 1-4 Family residential real estate |
41 | 4 | ||||||
| Consumer loans |
132 | 122 | ||||||
| Total charge offs |
173 | 148 | ||||||
| Recoveries: |
||||||||
| Commercial |
23 | — | ||||||
| Commercial real estate |
2 | 4 | ||||||
| 1-4 Family residential real estate |
20 | 3 | ||||||
| Consumer loans |
82 | 84 | ||||||
| Total recoveries |
127 | 91 | ||||||
| Net charge offs |
46 | 57 | ||||||
| Provision for loan losses charged to operations |
735 | 850 | ||||||
| Allowance for loan losses at end of year |
$ | 7,160 | $ | 6,471 | ||||
| Ratio of net charge offs to average loans outstanding |
0.01 | % |
0.01 | % |
||||
| ALLL to total loans |
1.17 | % |
1.14 | % |
||||
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, 2022 |
June 30, 2021 |
|||||||||||||||
| Commercial |
$ | 960 | 14.2 | % |
$ | 904 | 19.4 | % |
||||||||
| Commercial real estate loans |
3,927 | 50.1 | 3,949 | 49.4 | ||||||||||||
| 1-4 Family residential real estate |
1,645 | 28.4 | 1,307 | 26.0 | ||||||||||||
| Consumer loans |
628 | 7.3 | 311 | 5.2 | ||||||||||||
| Total |
$ | 7,160 | 100.0 | % |
$ | 6,471 | 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.
Goodwill: Goodwill was $2,452 as of June 30, 2022 and $836 as of June 30, 2021. In July 2021, goodwill of $1,616 was recorded from the branch acquisition. Goodwill represents the excess of the total purchase price paid for the acquisition over the fair value of the identifiable assets acquired, net of the fair value of the liabilities assumed. Goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. Management evaluated goodwill and concluded that no impairment existed during the year ended June 30, 2022.
Funding Sources. Total deposits increased by $159,713, or 22.0%, from $726,849 at June 30, 2021 to $886,562 at June 30, 2022. Total deposits include $104,538 of deposits acquired as part of the branch acquisition. For the fiscal year ended June 30, 2022, noninterest-bearing demand deposits increased by $28,563, or 12.5%, interest-bearing demand deposits increased by $30,015, or 23.6%, savings and money market deposits increased by $86,293, or 30.5%, and certificates and other time deposits increased by $14,842, or 17.0% from the same prior year period. As current market rates rise, it is anticipated that customers may choose to move funds from savings and money market deposit products to higher yielding certificates of 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, |
||||||||||||||||
| 2022 |
2021 |
|||||||||||||||
| Amount |
Rate |
Amount |
Rate |
|||||||||||||
| Noninterest-bearing demand deposit |
$ | 246,089 | — | $ | 203,181 | — | ||||||||||
| Interest-bearing demand deposit |
147,312 | 0.11 | % |
112,801 | 0.13 | % |
||||||||||
| Savings |
349,380 | 0.11 | 251,138 | 0.13 | ||||||||||||
| Certificates and other time deposits |
113,143 | 0.50 | 102,554 | 1.10 | ||||||||||||
| Total |
$ | 855,924 | 0.13 | % |
$ | 669,674 | 0.24 | % |
||||||||
Uninsured deposits at June 30, 2022 and 2021 were $266,902 and $229,071, respectively. Uninsured deposits as of June 30, 2022 and 2021 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, 2022 by time remaining until maturity:
| Maturing in: |
||||
| Under 3 months |
$ | 3,961 | ||
| Over 3 to 6 months |
3,230 | |||
| Over 6 to 12 months |
7,783 | |||
| Over 12 months |
2,190 | |||
| Total |
$ | 17,164 |
Short-term borrowings increased by $9,092, or 74.5%, to $21,295 at June 30, 2022 from $12,203 at June 30, 2021. This increase was primarily associated with large new deposits from an existing local commercial customer in this sweep repurchase agreement product. See Note 8—Short-Term Borrowings to the Consolidated Financial Statements, for information concerning short-term borrowings.
Capital Resources
Total shareholders’ equity decreased by $15,930 from $69,900 at June 30, 2021 to $53,970 at June 30, 2022. The primary reason for the decline in shareholders’ equity was a $25,656 net decrease in accumulated other comprehensive income due to a shift in unrealized gains on the mark-to-market of available-for-sale securities to a net unrealized loss and by cash dividends paid of $1,949. These reductions were partially offset by net income of $11,192 for the current fiscal year. For fiscal year 2022, the average equity to average total assets ratio was 7.10% and the dividend payout ratio was 17.4%. For fiscal year 2021, the average equity to average total assets ratio was 8.71% and the dividend payout ratio was 19.9%.
At June 30, 2022, 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, 2022, 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 2022, net cash inflows from operating activities were $14,947, net cash inflows from financing activities were $52,698 and net cash outflows from investing activities were $65,222. The major sources of cash were net cash received of $66,552 from the branch acquisition, $55,175 net increase in deposits, and a $34,306 increase from sales, maturities, or principal pay downs on available-for-sale securities. The major uses of cash were the $141,210 purchase of available-for-sale securities and a $25,602 net increase in loans. Total cash and cash equivalents were $20,952 as of June 30, 2022 compared to $18,529 at June 30, 2021.
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 the cost of funds being at a low level of 0.22% for fiscal year 2022.
Jumbo time deposits (those with balances of $250 and over) were $18,164 and $18,488 at June 30, 2022 and 2021, 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, 2022 or 2021.
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, 2022, the Bank could, without prior approval, declare a dividend of approximately $14,695.
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 Company 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 Company performs an evaluation of goodwill for impairment on an annual basis, 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 the Company to its carrying value. If the current estimated fair value 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. As of April 30, 2022, the measurement date, a qualitative assessment was performed to determine whether there is a more likely than not (greater than 50% likelihood) that the fair value of the Corporation was less than its carrying amount. The qualitative impairment test of goodwill indicated no impairment existed as of the measurement date. However, it is impossible to know the future impact of the 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, 2022, 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 |
2023 |
2024 |
2025 |
2026 |
2027 |
Thereafter |
Total |
||||||||||||||||||||||||
| Certificates of deposit |
7 | $ | 76,823 | $ | 13,656 | $ | 4,381 | $ | 3,258 | $ | 3,398 | $ | 865 | $ | 102,381 | ||||||||||||||||
| Short-term borrowings |
8 | 21,295 | — | — | — | — | — | 21,295 | |||||||||||||||||||||||
| Federal Home Loan advances |
9 | 84 | 67 | 4,056 | 46 | 3 | 4,000 | 8,256 | |||||||||||||||||||||||
| Salary continuation plan |
10 | 146 | 142 | 141 | 141 | 141 | 2,853 | 3,564 | |||||||||||||||||||||||
| Operating leases |
5 | 167 | 146 | 114 | 113 | 572 | — | 1,112 | |||||||||||||||||||||||
| Deposits without maturity |
— | — | — | — | — | — | 784,181 | ||||||||||||||||||||||||
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
Shareholders and the Board of Directors of Consumers Bancorp, Inc.
Minerva, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Consumers Bancorp, Inc. and subsidiaries (the “Company”) as of June 30, 2022 and 2021, 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, 2022 and 2021, and the results of its operations and its cash flows for 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 audit. 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 audit 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 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 audit 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 audit 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 audit 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 audit provides 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 non-impaired 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 adjustment. |
| ● |
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 was 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 15, 2022
CONSOLIDATED BALANCE SHEETS
As of June 30, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| 2022 | 2021 | |||||||
| 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 2022 $ and 2021 $) | ||||||||
| 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, 2022 and June 30, 2021, respectively | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( and common shares at June 30, 2022 and 2021, respectively) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| 2022 |
2021 |
|||||||
| 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 |
||||||||
| Franchise taxes |
||||||||
| 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, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| 2022 |
2021 |
|||||||
| 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, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| Common | Retained | Treasury | Accumulated | Total | ||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| shares associated with vested stock awards | ||||||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| shares issued associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| shares associated with vested stock awards | ||||||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2022 and 2021
(Dollar amounts in thousands, except per share data)
| 2022 |
2021 |
|||||||
| 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 |
||||||||
| (Gain) loss on disposition of other real estate and repossessed assets owned |
( |
) |
||||||
| Mortgage banking activity |
( |
) |
( |
) |
||||
| Deferred income tax expense (benefit) |
( |
) |
||||||
| 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 |
||||||||
| Purchase of equity security |
( |
) |
||||||
| 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 |
||||||||
| 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 held for sale to portfolio |
||||||||
| 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, 2022 and 2021
(Dollar amounts in thousands, except per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
During the 2020 and 2021 fiscal year, the Corporation funded PPP loans to provide liquidity to small businesses because of the COVID-19 pandemic. The loans are guaranteed by the SBA and are forgivable by the SBA if certain criteria are met. The Corporation originated PPP loans totaling $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 adds a new Topic 326 to the codification and removes 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 current U.S. generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require 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. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is 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 is 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 is currently evaluating the impact of adopting this new guidance on the consolidated financial statements, current systems and processes. At this time, the Corporation is reviewing potential methodologies for estimating expected credit losses using reasonable and supportable forecast information and has identified certain data and system requirements. Once adopted, we expect our allowance for loan losses to increase through a one-time adjustment to retained earnings; however, until our evaluation is complete, the estimated increase in allowance will be unknown. The Corporation is planning to adopt this new guidance within the time frame noted above.
In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR, or other reference rates that may be discontinued, and provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria. The ASU also provides for a one-time sale and/or transfer to available-for-sale or trading to be made for held-to-maturity (HTM) debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. The ASU requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. The Corporation does not expect ASU 2020-04 to have a material impact on its financial statements and disclosures.
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 | $ |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 and 2021 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, 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 | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale | Amortized | Gross | Gross | Fair | ||||||||||||
| June 30, 2021 | ||||||||||||||||
| 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, 2021 | ||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | $ | ||||||||||||
Proceeds from sales of available-for-sale securities during fiscal year 2022 and fiscal year 2021 were as follows:
| 2022 | 2021 | |||||||
| Proceeds from sales | $ | $ | ||||||
| Gross realized gains | ||||||||
| Gross realized losses | ( | ) | ( | ) | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision related to these net realized gains amounted to $
The amortized cost and fair values of debt securities at June 30, 2022 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, 2022 and 2021, 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, 2022 | 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, 2022 | 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, 2021 | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| Available-for-sale | ||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||||||||||
| Total temporarily impaired | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
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, 2022, the Corporation’s securities portfolio consisted of
As of June 30, 2022, the Corporation owned equity securities with an amortized cost of $
| 2022 | 2021 | |||||||
| Unrealized gain/(loss) recognized on equity securities held at the end of the period | $ | ( | ) | $ | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4—LOANS
Major classifications of loans were as follows as of June 30:
| 2022 | 2021 | |||||||
| 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 commercial loan category in the above table includes PPP loans of $
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 activity in the allowance for loan losses by portfolio segment for the year ended June 30, 2021:
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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, 2021. 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 | $ | $ | $ | $ | $ | |||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2021:
| 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 | ||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 and 2021:
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| 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, 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 $
The following table presents the aging of the recorded investment in past due loans as of June 30, 2021 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 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In response to COVID-19, on March 22, 2020, the Corporation adopted a loan modification program to assist borrowers impacted by the virus. The program was available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers were eligible for an additional 90 days of payment deferrals if situations warranted a need for an extension. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 were not classified as TDRs. As of June 30, 2022, there were loans in payment deferral status under this loan modification program. This modification program ended April 26, 2022.
On June 30, 2022, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 | $ | $ | $ | $ | $ | |||||||||||||||
As of June 30, 2021, 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:
| 2022 | 2021 | |||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Building and leasehold improvements | ||||||||
| Furniture, fixture and equipment | ||||||||
| Total premises and equipment | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Premises and equipment, net | $ | $ | ||||||
Depreciation expense was $
As of June 30, 2022, 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 three 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022:
| Period Ending June 30 | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 6 – GOODWILL AND ACQUIRED INTANGIBLE ASSETS
The change in goodwill was as follows:
| 2022 | 2021 | |||||||
| 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, 2022 and 2021.
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| 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 represents the excess of the total purchase price paid for the acquisition over the fair value of the identifiable assets acquired, net of the fair value of the liabilities assumed. 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 qualitative impairment test of the Corporation’s goodwill during the fourth quarter of the 2022 fiscal year. Based on this test, management concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in
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, 2022 and 2021 were as follows:
| 2022 | 2021 | |||||||
| Demand | $ | $ | ||||||
| Savings and money market | ||||||||
| Time: | ||||||||
| $250 and over | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled maturities of time deposits at June 30, 2022 were as follows:
| Twelve Months Ending June 30 | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
NOTE 8—SHORT-TERM BORROWINGS
Short-term borrowings consisted of repurchase agreements and a line of credit for the Corporation. Information concerning all short-term borrowings at June 30, 2022 and 2021, maturing in less than one year is summarized as follows:
| 2022 | 2021 | |||||||
| 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 acquired an unsecured $
| Overnight and Continuous | ||||||||
| 2022 | 2021 | |||||||
| 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 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9—FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances were as follows:
| June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||
| Stated Interest Rate Range | Weighted Average | Weighted Average | ||||||||||||||||||||||
| Advance Type | From | To | Amount | Rate | Amount | Rate | ||||||||||||||||||
| Fixed rate, amortizing | % | % | $ | % | $ | % | ||||||||||||||||||
| Fixed rate | ||||||||||||||||||||||||
Each fixed rate advance has a prepayment penalty equal to the present value of
| Twelve Months Ending June 30 | Principal | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 to certain employees and directors. Restricted stock awards are issued at no cost to the recipient and can be settled only in shares at the end of the vesting period. Awards are made at the end of the measurement period of certain specified performance targets once those performance targets as established by the Compensation Committee are achieved. Some awards, primarily the awards made to directors, vest on the date of grant. For other awards, primarily the awards made to executive management,
The following table summarizes the status of the restricted stock awards:
| Restricted Stock Awards | Weighted-Average Grant Date Fair Value Per Share | |||||||
| Outstanding at June 30, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Non-vested at June 30, 2022 | $ | |||||||
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
| 2022 | 2021 | |||||||
| Current income taxes | $ | $ | ||||||
| Deferred income tax expense (benefit) | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net deferred income tax asset (liability) consisted of the following components at June 30:
| 2022 | 2021 | |||||||
| 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 | ( | ) | ( | ) | ||||
| Net unrealized securities gain | ( | ) | ||||||
| Gross deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred asset (liability) | $ | $ | ( | ) | ||||
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:
| 2022 | 2021 | |||||||
| 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 franchise 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, 2022 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 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2022 and 2021, 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, 2022 and June 30, 2021 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, 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 | ||||||||||||||||||||||||
| Actual | Minimum Capital Required - Basel III (1) | Minimum Required To Be Considered Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||||||
| 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, 2022 the Bank could, without prior approval, declare a dividend of approximately $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 Using | ||||||||||||||||
| Assets: | Balance at June 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| 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 | ||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Fair Value Measurements at June 30, 2021 Using | ||||||||||||||||
| Assets: | Balance at June 30, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||
| 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 2022 or the 2021 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
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:
| 2022 | 2021 | |||||||||||||||
| 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 | ||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16—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: | ||||||||
| Purchase of equity securities | ( | ) | ||||||
| Disposal of premises and equipment | ||||||||
| Net cash flows from investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Dividend paid | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17—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. There were
| For the year Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 18–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, 2022 and June 30, 2021, were as follows:
| Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||||
| Balance as of June 30, 2020 | $ | $ | ( | ) | $ | ||||||||||
| 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, 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 | $ | ( | ) | $ | $ | ( | ) | ||||||||
(a) Securities gain, net
(b) Income tax expense
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – 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 year ended June 30, 2022 and 2021.
| For the year Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 | $ | $ | ||||||
Note 20 – COVID-19
In December 2019, a novel strain of coronavirus surfaced in Wuhan, China, and has spread around the world, resulting in business and social disruption. The coronavirus was declared a Pandemic by the World Health Organization on March 11, 2020. While vaccinations (including booster shots) have created optimism in the community, some uncertainty remains due to the continued concern over increased infection rates from various variants of COVID-19. The operations and business results of the Corporation could be materially adversely affected. The extent to which the coronavirus may impact future business activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain the coronavirus or treat its impact, among others. The economic impacts related to the COVID-19 pandemic continue to linger due to supply chain disruptions, additional employee costs, rising inflationary pressures and the prospects of recession, all which may impact the ability of our customers to make payments on loans, resulting in elevated loan losses and an increase in the Corporation’s allowance for loan losses.
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, 2022 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, 2022, 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 2022 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 15, 2022, 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 15, 2022 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, 2022. 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 |
— | — | — | |||||||||
| Plans not approved by shareholders |
— | — | — | |||||||||
| Total |
— | — | — | |||||||||
The remaining information required by this item is set forth in the Corporation’s Proxy Statement, dated September 15, 2022, 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 15, 2022, 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 15, 2022, 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 59 of this report. |
| (c) |
See Item 15(a)(2) above. |
Item 16—Form 10-K Summary
Not applicable.
EXHIBIT INDEX
| Exhibit Number |
Description of Document |
|
| 2.1 |
||
| 3.1 |
||
| 3.2 |
||
| 4 |
||
| 4.1 |
||
| 10.3 |
||
| 10.8 |
||
| 10.10 |
||
| 10.11 |
||
| 10.12 |
||
| 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 15, 2022 |
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 15, 2022.
| 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/ Bradley Goris |
/s/ Richard T. Kiko, Jr. |
|
| Bradley Goris Director |
Richard T. Kiko, Jr. Director |
|
| /s/ Shawna L’Italien |
/s/ Frank L. Paden |
|
| Shawna L’Italien Director |
Frank L. Paden Director |
|
| /s/ John W. Parkinson |
/s/ Harry W. Schmuck, Jr. |
|
| John W. Parkinson Director |
Harry W. Schmuck, Jr. Director |
|
| /s/ Michael A. Wheeler |
||
| Michael A. Wheeler Director |
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 15, 2022 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 15, 2022
EXHIBIT 31.1
I, Ralph J. Lober, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.; |
|
2. |
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; |
|
3. |
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; |
|
4. |
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: |
|
a. |
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; |
|
b. |
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; |
|
c. |
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 |
|
d. |
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 |
|
5. |
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: |
|
a. |
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 |
|
b. |
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. |
|
September 15, 2022 |
By: |
/s/ Ralph J. Lober, II |
|
|
Date |
Ralph J. Lober, II Chief Executive Officer |
EXHIBIT 31.2
I, Renee K. Wood, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Consumers Bancorp, Inc.; |
|
2. |
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; |
|
3. |
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; |
|
4. |
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: |
|
a. |
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; |
|
b. |
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; |
|
c. |
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 |
|
d. |
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 |
|
5. |
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: |
|
a. |
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 |
|
b. |
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. |
|
September 15, 2022 |
By: |
/s/ Renee K. Wood |
|
|
Date |
Renee K. Wood Chief Financial Officer & Treasurer |
EXHIBIT 32.1
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, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company do hereby certify that:
|
a) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
b) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: September 15, 2022 | |||
| /s/ Ralph J. Lober, II | |||
| Ralph J. Lober, II | |||
| Chief Executive Officer | |||
| /s/ Renee K. Wood | |||
| Renee K. Wood | |||
| Chief Financial Officer & Treasurer |