Item 2 – 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 results of operations for the three-month period ended September 30, 2020, compared to the same period in 2019, and the consolidated balance sheet at September 30, 2020, compared to June 30, 2020. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.
Overview
Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Corporation), owns all of the issued and outstanding common shares of Consumers National Bank, a bank chartered under the laws of the United States of America (the Bank). The Corporation’s activities have been limited primarily to holding the common shares 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, Wayne and contiguous counties in Ohio. 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 January 1, 2020, the Corporation completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio.
COVID-19 Pandemic
In response to COVID-19, management is actively pursuing multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes two key SBA initiatives to assist small businesses. The first SBA program is the Paycheck Protection Program (PPP) that was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program if the borrower meets payroll and other requirements. A total of $68,788 of PPP loans for 607 customers were outstanding as of September 30, 2020. The second SBA program is the Subsidy for Certain Loan Payments in which the SBA will pay the principal, interest, and any associated fees the borrower owes on certain SBA loans for a six-month period. Over the course of the program, the Corporation had approximately $18,832 of SBA loans which were eligible for payment assistance from the SBA and for most borrowers the payment assistance ended in October 2020.
Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be 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 will not be classified as troubled debt restructurings. In response to the challenges of those facing hardship due to the pandemic, payment deferrals were granted on 438 loans which totaled $79,961. As of October 31, 2020, 11 loans with an outstanding principal balance of $473 remain in payment deferral status. The remaining loans that were in payment deferral have returned to making regular principal and interest payments and all except 9 of these loans, which have an outstanding balance of $37, were current as of October 31, 2020.
We are also assisting customers by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties for customers experiencing financial hardship due to COVID-19. The consumer reserve personal line of credit has been redesigned to provide easier access and a lower initial rate on this unsecured line of credit that is linked to a personal checking account. Commercial customers are encouraged to access available funds on their lines of credit and we expect to provide emergency commercial lines of credit to qualified borrowers in order to assist borrowers in meeting payroll and other recurring fixed expenses. Two emergency lines of credit with a committed liability of $400 with no principal balance drawn were outstanding as of September 30, 2020.
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data
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. Branch lobbies were closed for a six-week period but are now open for normal business. The Company is encouraging virtual meetings and conference calls in place of in-person meetings. Additionally, travel for business has been restricted. The Company is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces.
Results of Operations
Three-Month Periods Ended September 30, 2020 and 2019
Net income for the first quarter of fiscal year 2021 was $2,401, or $0.80 per common share, compared to $1,503, or $0.55 per common share for the three months ended September 30, 2019. The following are key highlights of our results of operations for the three months ended September 30, 2020 compared to the prior fiscal year comparable period:
|
●
|
net interest income increased $2,013 to $6,694, or 43.0%, in the first quarter of fiscal year 2021 from the same prior year period primarily as a result of an increase in average interest earning assets and a reduction in the cost of funds;
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|
●
|
a $130 provision for loans loss expense was recorded for the first quarter of fiscal year 2021 as well as for the prior year period;
|
|
●
|
noninterest income decreased by $328 in the first quarter of fiscal year 2021 from the same prior year period primarily since the prior year period included $324 of income recognized as a result of proceeds received from a bank owned life insurance policy claim and a $106 gain on the sale of securities. These reductions were partially offset by a $101 increase on gains from the sale of mortgage loans and a $65 increase in debit card interchange income; and
|
|
●
|
noninterest expenses increased by $494, or 11.5%, in the first quarter of fiscal year 2021 from the same prior year period and included a full quarter of expenses associated with the three new office locations and additional staff gained as a result of the merger with Peoples.
|
Return on average equity and return on average assets were 14.74% and 1.29%, respectively, for the three months ended September 30, 2020 compared to 11.42% and 1.07%, respectively, for the same prior year period.
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. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 2021 and 2020 fiscal years was 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances.
The Corporation’s net interest margin was 3.84% for the three months ended September 30, 2020, compared with 3.61% for the same period in 2019. FTE net interest income for the three months ended September 30, 2020 increased by $2,034, or 42.7%, to $6,792 from $4,758 for the same prior year period.
Tax-equivalent interest income for the three months ended September 30, 2020 increased by $1,651, or 28.5%, from the same prior year period. Interest income was positively impacted by a $181,732, or 34.6%, increase in average interest-earning assets from the same prior year period due to the assets acquired from the Peoples acquisition as well as organic loan growth. Additionally, interest income was positively impacted by a change in the earning asset mix, with higher yielding loans increasing faster than lower yielding securities and interest bearing deposits with other banks. The Corporation’s yield on average interest-earning assets was 4.21% for the three months ended September 30, 2020 compared with 4.40% for the same period last year.
Interest expense for the three months ended September 30, 2020 decreased by $383, or 37.0%, from the same prior year period primarily due to a reduction in deposit and borrowing costs as a result of lower market interest rates. The Corporation’s cost of funds was 0.54% for the three months ended September 30, 2020 compared with 1.08% for the same prior year period.
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended September 30,
(In thousands, except percentages)
|
|
|
2020
|
|
|
2019
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
$
|
78,430
|
|
|
$
|
372
|
|
|
|
1.94
|
%
|
|
$
|
83,631
|
|
|
$
|
510
|
|
|
|
2.44
|
%
|
Nontaxable securities (1)
|
|
|
66,475
|
|
|
|
514
|
|
|
|
3.23
|
|
|
|
60,783
|
|
|
|
474
|
|
|
|
3.19
|
|
Loans receivable (1)
|
|
|
544,164
|
|
|
|
6,493
|
|
|
|
4.73
|
|
|
|
373,362
|
|
|
|
4,763
|
|
|
|
5.06
|
|
Federal bank and other restricted stocks
|
|
|
2,472
|
|
|
|
18
|
|
|
|
2.89
|
|
|
|
1,723
|
|
|
|
20
|
|
|
|
4.61
|
|
Interest bearing deposits and federal funds sold
|
|
|
15,073
|
|
|
|
47
|
|
|
|
1.24
|
|
|
|
5,383
|
|
|
|
26
|
|
|
|
1.92
|
|
Total interest-earning assets
|
|
|
706,614
|
|
|
|
7,444
|
|
|
|
4.21
|
%
|
|
|
524,882
|
|
|
|
5,793
|
|
|
|
4.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
30,338
|
|
|
|
|
|
|
|
|
|
|
|
30,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
736,952
|
|
|
|
|
|
|
|
|
|
|
$
|
555,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
102,102
|
|
|
$
|
45
|
|
|
|
0.17
|
%
|
|
$
|
82,491
|
|
|
$
|
145
|
|
|
|
0.70
|
%
|
Savings
|
|
|
228,493
|
|
|
|
105
|
|
|
|
0.18
|
|
|
|
166,181
|
|
|
|
222
|
|
|
|
0.53
|
|
Time deposits
|
|
|
114,816
|
|
|
|
427
|
|
|
|
1.48
|
|
|
|
112,642
|
|
|
|
578
|
|
|
|
2.04
|
|
Short-term borrowings
|
|
|
7,881
|
|
|
|
4
|
|
|
|
0.20
|
|
|
|
3,929
|
|
|
|
11
|
|
|
|
1.11
|
|
FHLB advances
|
|
|
24,111
|
|
|
|
71
|
|
|
|
1.17
|
|
|
|
15,378
|
|
|
|
79
|
|
|
|
2.04
|
|
Total interest-bearing liabilities
|
|
|
477,403
|
|
|
|
652
|
|
|
|
0.54
|
%
|
|
|
380,621
|
|
|
|
1,035
|
|
|
|
1.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing checking accounts
|
|
|
189,134
|
|
|
|
|
|
|
|
|
|
|
|
118,256
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,797
|
|
|
|
|
|
|
|
|
|
|
|
4,638
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
672,334
|
|
|
|
|
|
|
|
|
|
|
|
503,515
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
64,618
|
|
|
|
|
|
|
|
|
|
|
|
52,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
736,952
|
|
|
|
|
|
|
|
|
|
|
$
|
555,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, interest rate spread (1)
|
|
|
|
|
|
$
|
6,792
|
|
|
|
3.67
|
%
|
|
|
|
|
|
$
|
4,758
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (net interest as a percent of average interest-earning assets) (1)
|
|
|
|
|
|
|
|
|
|
|
3.84
|
%
|
|
|
|
|
|
|
|
|
|
|
3.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax exemption on non-taxable securities and loans included in interest income
|
|
|
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to interest-bearing liabilities
|
|
|
148.01
|
%
|
|
|
|
|
|
|
|
|
|
|
137.90
|
%
|
|
|
|
|
|
|
|
|
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
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 incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. The provision for loan losses was $130 for both three-month periods ended September 30, 2020 and 2019. Net charge-offs of $41 were recorded during the three-month period ended September 30, 2020 compared with $9 during the three-month period ended September 30, 2019.
Non-performing loans were $1,369 as of September 30, 2020 compared with $1,226 as of June 30, 2020 and $444 as of September 30, 2019. The allowance for loan losses as a percentage of loans was 1.03% at September 30, 2020 and 1.05% at June 30, 2020. As of September 30, 2020, the ALLL as a percentage of total loans excluding PPP loans was 1.17%. The provision for loan losses for the period ended September 30, 2020 was considered sufficient by management for maintaining an appropriate allowance for probable incurred credit losses.
Noninterest Income
Noninterest income decreased by $328 for the first quarter of fiscal year 2021 from the same period last year primarily since the prior year period included $324 of income recognized as a result of proceeds received from a bank owned life insurance policy claim and a $106 gain on the sale of securities. These reductions were partially offset by a $101, or 74.8%, increase in gains from the sale of mortgage loans and a $65, or 16.6%, increase in debit card interchange income.
Noninterest Expenses
Total noninterest expenses increased by $494, or 11.5%, for the first quarter of fiscal year 2021 compared with the same period last year. Noninterest expenses for the three-month period ended September 30, 2020 include expenses associated with the three new office locations and additional staff gained as a result of the merger with Peoples that closed on January 1, 2020. In addition, incentive accruals and mortgage commissions also increased during the first quarter of fiscal year 2021.
Income Taxes
Income tax expense was $505 for the three-month period ended September 30, 2020 compared to $212 for the three-month period ended September 30, 2019. The effective tax rate was 17.4% for the three-month period ended September 30, 2020 compared with 12.4% for the three-month period ended September 30, 2019. The effective tax rate differed 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 and death benefit. The effective tax rate was lower during the three-month period ended September 30, 2019 primarily due to tax-free income being higher and representing a larger percentage of overall pre-tax income.
Financial Condition
Total assets as of September 30, 2020 were $751,270 compared to $740,820 at June 30, 2020, an increase of $10,450, or an annualized 5.6%.
Total loans increased by $19,277, or an annualized 14.2%, from $542,861 as of June 30, 2020 to $562,138 as of September 30, 2020. As of September 30, 2020, total loans include $68,788 of PPP loans, many of which are expected to be forgiven by March 2021.
As of September 30, 2020, total deposits increased by $6,743, or an annualized 4.3%, from June 30, 2020. The Corporation has been able to maintain a favorable deposit mix, with 29.4% in noninterest-bearing deposits, 16.4% in interest bearing demand deposits, 36.2% in savings and money market deposits, and 18.0% in time deposits.
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Non-Performing Assets
The following table presents the aggregate amounts of non-performing assets and respective ratios as of the dates indicated.
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
Non-accrual loans
|
|
$
|
1,369
|
|
|
$
|
1,185
|
|
|
$
|
444
|
|
Loans past due over 90 days and still accruing
|
|
|
—
|
|
|
|
41
|
|
|
|
—
|
|
Total non-performing loans
|
|
|
1,369
|
|
|
|
1,226
|
|
|
|
444
|
|
Other repossessed assets
|
|
|
9
|
|
|
|
7
|
|
|
|
—
|
|
Total non-performing assets
|
|
$
|
1,378
|
|
|
$
|
1,233
|
|
|
$
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
0.24
|
%
|
|
|
0.23
|
%
|
|
|
0.12
|
%
|
Allowance for loan losses to total non-performing loans
|
|
|
421.26
|
%
|
|
|
463.13
|
%
|
|
|
880.41
|
%
|
As of September 30, 2020, impaired loans totaled $2,099, of which $1,368 are included in non-accrual loans. 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. Impaired loans and 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 are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.
Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements
Liquidity
The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of our customers and provide adequate flexibility for the Corporation to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and, at times, to fund deposit outflows and operating activities. The Corporation’s principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’s earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and insure the soundness of the portfolio, as well as to provide funding for loan demand as needed.
For the three months ended September 30, 2020, net cash inflow from operating activities was $1,041, net cash outflows from investing activities was $9,707 and net cash inflows from financing activities was $7,515. A major source of cash was a $6,743 increase in deposits and $7,355 from maturities, calls or principal pay downs on available-for-sale securities. A major use of cash was a $19,327 increase in loans. Total cash and cash equivalents were $8,508 as of September 30, 2020, compared to $9,659 at June 30, 2020 and $12,502 at September 30, 2019.
The Bank offers several types of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $640,098 at September 30, 2020 compared with $633,355 at June 30, 2020.
To provide an additional source of liquidity, the Corporation has entered into an agreement with the FHLB of Cincinnati. At September 30, 2020, advances from the FHLB of Cincinnati totaled $30,899 compared with $31,161 at June 30, 2020. As of September 30, 2020, the Bank had the ability to borrow an additional $20,910 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.
Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and federal funds purchased from correspondent banks. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $8,414 at September 30, 2020 and $6,943 at June 30, 2020.
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Jumbo time deposits (those with balances of $250 and over) totaled $36,814 as of September 30, 2020 and $36,747 as of June 30, 2020. These deposits are monitored closely by the Corporation and are mainly 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. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.
Off-Balance Sheet Arrangements
In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were $104,493 as of September 30, 2020 and $101,026 as of June 30, 2020.
Capital Resources
Total shareholders’ equity increased to $65,427 as of September 30, 2020 from $63,240 as of June 30, 2020. The primary reason for the increase in shareholders’ equity was from net income of $2,401 for the first three months of fiscal year 2021 which was partially offset by cash dividends paid of $437.
The Bank is subject to various regulatory capital requirements administered by federal regulatory 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. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Corporation’s financial statements.
As of September 30, 2020, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.48% and the leverage and total risk-based capital ratios were 8.14% and 12.59%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.55% and leverage and total risk-based capital ratios of 8.04% and 12.69%, respectively, as of June 30, 2020. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to September 30, 2020 that would cause the Bank’s capital category to change.
CONSUMERS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(Dollars in thousands, except per share data)
Critical Accounting Policies
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 of Financial Condition and Results of Operations 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 Corporation has identified the appropriateness of the allowance for loan losses and the evaluation of goodwill for impairment as critical accounting policies and an understanding of these policies is necessary to understand the financial statements. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses and Goodwill and Other Intangible Assets), Note four (Loans), Note six (Goodwill and Intangible Assets) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2020 Form 10-K provide detail with regard to the Corporation’s accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies since June 30, 2020.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q, 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. The COVID-19 pandemic is affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other 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, among other things, high unemployment rates, a deterioration in credit quality of our assets or debtors being unable to meet their obligations;
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changes in the level of non-performing assets and charge-offs;
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declining asset values impacting the underlying value of collateral;
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rapid fluctuations in market interest rates could result in changes in fair market valuations and net interest income; pricing and liquidity pressures may result;
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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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changes in consumer spending, borrowing and savings habits;
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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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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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competitive pressures on product pricing and services;
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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 the reliability of our vendors, internal control systems or information systems; and
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our ability to attract and retain qualified employees.
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While the list of factors presented here is, and the Risk Factors starting on page 16 of the registration statement on Form S-4/A filed with the SEC on September 4, 2019 related to the merger of the Corporation/Peoples are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
CONSUMERS BANCORP, INC.