UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
OR
| | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
Commission File No.
CONSUMERS BANCORP, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction | (I.R.S. Employer Identification No.) |
| of incorporation or organization) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
CONSUMERS BANCORP, INC.
FORM 10-Q
QUARTER ENDED March 31, 2024
Table of Contents
| Page Number (s) |
| Part I – Financial Information |
|
| Item 1 – Financial Statements |
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| Consolidated Balance Sheets at March 31, 2024 and June 30, 2023 |
1 |
| Consolidated Statements of Income for the three and nine months ended March 31, 2024 and 2023 (unaudited) |
2 |
| Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2024 and 2023 (unaudited) |
3 |
| Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2024 and 2023 (unaudited) |
4-5 |
| Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2024 and 2023 (unaudited) |
6 |
| Notes to the Consolidated Financial Statements (unaudited) |
7-27 |
| Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28-36 |
| Item 3 – Not Applicable for Smaller Reporting Companies |
|
| Item 4 – Controls and Procedures |
37 |
| Part II – Other Information |
|
| Item 1 – Legal Proceedings |
38 |
| Item 1A – Not Applicable for Smaller Reporting Companies |
38 |
| Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
38 |
| Item 3 – Defaults Upon Senior Securities |
38 |
| , |
|
| Item 4 – Mine Safety Disclosure |
38 |
| Item 5 – Other Information |
38 |
| Item 6 – Exhibits |
38 |
| Signatures |
39 |
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands, except per share data) | March 31, 2024 (unaudited) | June 30, 2023 | ||||||
| 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 other financial institutions | ||||||||
| Securities, available-for-sale | ||||||||
| Securities, held-to-maturity (fair value of $ at March 31, 2024 and $ at June 30, 2023) | ||||||||
| Equity securities, at fair value | ||||||||
| Federal bank and other restricted stocks, at cost | ||||||||
| Loans held for sale | ||||||||
| Total loans | ||||||||
| Less allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| Cash surrender value of life insurance | ||||||||
| Premises and equipment, net | ||||||||
| Goodwill | ||||||||
| Core deposit intangible, net | ||||||||
| Other real estate owned and repossessed assets | ||||||||
| 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 and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock ( par value, shares authorized, none outstanding) | ||||||||
| Common stock ( par value, shares authorized; and shares issued as of March 31, 2024 and June 30, 2023, respectively) | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( common shares as of March 31, 2024 and June 30, 2023) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| Three Months ended March 31, |
Nine Months ended March 31, |
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| (Dollars in thousands, except per share amounts) |
2024 |
2023 |
2024 |
2023 |
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| Interest and dividend income |
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| Loans, including fees |
$ | $ | $ | $ | ||||||||||||
| Securities, taxable |
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| Securities, tax-exempt |
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| Equity securities |
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| Federal bank and other restricted stocks |
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| Federal funds sold and other interest-bearing deposits |
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| Total interest and dividend income |
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| Interest expense |
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| Deposits |
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| Short-term borrowings |
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| Federal Home Loan Bank advances |
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| Total interest expense |
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| Net interest income |
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| Provision for credit losses on loans |
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| Provision for credit losses on unfunded commitments |
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| Net interest income after provision for credit losses |
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| Noninterest income |
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| Service charges on deposit accounts |
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| Debit card interchange income |
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| Mortgage banking activity |
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| Bank owned life insurance income |
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| Securities losses, net |
( |
) | ( |
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| Net change in market value of equity securities |
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| Other |
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| Total noninterest income |
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| Noninterest expenses |
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| Salaries and employee benefits |
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| Occupancy and equipment |
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| Data processing expenses |
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| Debit card processing expenses |
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| Professional and director fees |
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| FDIC assessments |
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| Franchise taxes |
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| Marketing and advertising |
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| Telephone and network communications |
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| Amortization of intangible |
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| Other |
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| Total noninterest expenses |
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| Income before income taxes |
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| Income tax expense |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Basic and diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| (Dollars in thousands) |
Three Months ended March 31, |
Nine Months ended March 31, |
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| 2024 |
2023 |
2024 |
2023 |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax: |
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| Net change in unrealized losses on securities available-for-sale: |
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| Unrealized (losses) gains arising during the period |
( |
) | ( |
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| Reclassification adjustment for net losses included in income |
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| Net unrealized (losses) gains |
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| Income tax effect |
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) | ( |
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| Other comprehensive (loss) income |
( |
) | ( |
) | ||||||||||||
| Total comprehensive (loss) income |
$ | ( |
) | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| (Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| Restricted stock expense | — | — | — | |||||||||||||||||
| Issuance of shares associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| (Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Restricted stock expense | ||||||||||||||||||||
| Issuance of shares associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| (Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Adoption of ASU 2016-13 | ( | ) | ( | ) | ||||||||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Vesting of shares associated with restricted stock awards | ||||||||||||||||||||
| Issuance of stock-based incentive plan shares, net of forfeitures | ||||||||||||||||||||
| Restricted stock expense | — | |||||||||||||||||||
| Issuance of shares associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)
(Unaudited)
| (Dollars in thousands, except per share data) | Common Stock | Retained | Treasury | Accumulated | Total | |||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| Vesting of shares associated with restricted stock awards | ||||||||||||||||||||
| Restricted stock expense | — | |||||||||||||||||||
| Issuance of shares associated with dividend reinvestment plan and stock purchase plan | — | — | — | |||||||||||||||||
| Cash dividends declared ($ per share) | — | ( | ) | — | — | ( | ) | |||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| (Dollars in thousands) |
Nine Months Ended March 31, |
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| 2024 |
2023 |
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| Cash flows from operating activities |
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| Net cash from operating activities |
$ | $ | ||||||
| Cash flow from investing activities |
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| Purchases of securities, available-for-sale |
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| Maturities, calls and principal pay downs of securities, available-for-sale |
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| Sale of securities, available-for-sale |
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| Principal pay downs of securities, held-to-maturity |
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| Net decrease in certificates of deposit in other financial institutions |
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| Net change in Federal Home Loan Bank stock, at cost |
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| Net increase in loans |
( |
) | ( |
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| Premises and equipment purchases |
( |
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| Sale of other repossessed assets |
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| Net cash used in investing activities |
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| Cash flow from financing activities |
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| Net increase in deposit accounts |
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| Net change in short-term borrowings |
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| Proceeds from Federal Home Loan Bank advances |
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| Repayments of Federal Home Loan Bank advances |
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| Proceeds from dividend reinvestment and stock purchase plan |
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| Dividends paid |
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| Net cash from financing activities |
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| Increase in cash or cash equivalents |
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
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| Cash paid during the period: |
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| Interest |
$ | $ | ||||||
| Federal income taxes |
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| Non-cash items: |
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| Transfer from loans to repossessed assets |
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| Issuance of treasury stock for vested restricted stock awards |
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See accompanying notes to consolidated financial statements.
CONSUMERS BANCORP, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except per share amounts)
Note 1 – Summary of Significant Accounting Policies:
Nature of Operations: Consumers Bancorp, Inc. (the Company) is a bank holding company headquartered in Minerva, Ohio that provides, through its banking subsidiary, Consumers National Bank (the Bank), a broad array of products and services throughout its primary market area of Carroll, Columbiana, Jefferson, Mahoning, Stark, Summit, and contiguous counties in Ohio, Pennsylvania, and West Virginia. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its primary market area.
Basis of Presentation: The consolidated financial statements for interim periods are unaudited and reflect all adjustments (consisting of only normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended June 30, 2023. The results of operations for the interim period disclosed herein are not necessarily indicative of the results that may be expected for a full year.
The consolidated financial statements include the accounts of the Company and the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.
Segment Information: The Company is a bank holding company engaged in the business of commercial and retail banking, which accounts for substantially all the revenues, operating income, and assets. Accordingly, all the Company’s operations are recorded in one segment, banking.
Reclassifications: Certain items in prior financial statements have been reclassified to conform to the current presentation. Any reclassifications had no impact on prior year net income or shareholders’ equity.
Adoption of New Accounting Standards: In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss methodology for recognizing credit losses and requires companies to measure the current expected credit losses (CECL) on financial instruments measured at amortized cost, such as loans, held-to-maturity debt securities, and other receivables at the time the financial asset is originated or acquired and certain off-balance sheet credit exposures. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.
This guidance became effective for the Company on July 1, 2023 and was adopted using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company’s results for periods beginning after July 1, 2023 are presented under ASC 326 while results for prior periods are presented in accordance with previously applicable accounting standards.
At adoption, the Company recognized an incremental allowance for credit losses on loans of $
Allowance for Credit Losses (ACL)
Topic 326 eliminated the probable initial recognition threshold and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The allowance for credit losses is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Portfolio Segmentation
The allowance for credit losses consists of general and specific components. The general component covers loans within portfolio segments that are collectively evaluated for credit losses. Portfolio segmentation is the pooling of loans based upon similar risk characteristics so that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses can be applied to the pool of loans in each segment. The Company has identified six portfolio segments of loans including Commercial & Industrial, Commercial Real Estate, Farmland, Land Development, 1 – 4 Family Residential Real Estate, and Consumer loans. Each segment has a distinct set of risk characteristics that are monitored by management. Below are the risk characteristics of the loan segments.
Commercial & Industrial: 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 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 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, including agriculture, primarily in the areas where the Bank operates.
Commercial Real Estate: Commercial real estate loans include mortgage loans to owners of owner-occupied commercial properties, commercial investment properties, and multi-family investment properties as well as loans originated to finance the construction of owner occupied and investment properties. 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 or the business conducted on the property securing the loan. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Loans secured by existing commercial real estate have fixed or variable rates with amortization periods of up to 25 years.
Commercial construction loans generally adjust with the prime rate during the construction period and may convert to amortizing loans with maturities up to 25 years. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant, and regular inspections are required to monitor the progress of construction through completion. The property owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the property are considered during underwriting of construction loans. Construction financing is considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, there may not be sufficient funds to complete the project, or a completed project with an insufficient value to assure full repayment. We attempt to reduce such risks on construction loans by including a contingency amount in the financing package, through inspections of construction progress on the property, by reviewing the owner’s financial strength, the success of the owners’ and / or contractor’s past projects, and by requiring personal guarantees of the owners.
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 Company’s commercial real estate portfolio are diverse in terms of type and are primarily located in our immediate and surrounding market area. This diversity helps reduce the Company’s exposure to adverse economic events that may affect any single market or industry. The three largest collateral concentrations within the commercial real estate non-owner occupied portfolio are retail rental, office rental, and nursing home/assisted living facilities. The office rental segment includes a high percentage of medical facilities that require special build outs that would make it more costly for a tenant to change locations. Also, personal guarantees are typically obtained on commercial real estate loans. Commercial real estate loans are originated primarily in the area in which the bank operates. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.
Farmland: Farmland loans include loans to finance or refinance the acquisition or improvement of land used for agricultural purposes. The loans are secured by mortgages on the land and buildings, contain fixed and variable rates, and amortize over periods up to 30 years. The portfolio is concentrated within the bank’s primary market area and is diversified across a number of agricultural segments with grain, dairy, and beef cattle operations comprising the largest segments. Current and projected cash flows are evaluated to determine the ability of the borrower to repay their obligations as agreed. Agriculture lending is largely dependent on the successful management and operation of the farm and may be adversely affected by volatile commodity prices, weather, rising farm production costs, and fluctuating land value.
Land Development: Land Development loans include loans to finance the land acquisition and the infrastructure improvements necessary to develop saleable residential lots located within our primary market area. Land development loans are adjustable-rate loans with interest only periods generally up to three years. Principal payments are tied to the sale of the developed lots to related or third party residential builders, or individual borrowers. Loan proceeds are disbursed in increments as development progresses and as inspections warrant, and regular inspections are required to monitor the progress of development through completion. In underwriting construction loans, we consider the property owner’s and/or guarantor’s financial strength, expertise, credit history, and the projected cash flow of the saleable lots.
Land development financing is considered to involve a higher degree of credit risk than long-term financing on improved real estate. Risk of loss on a development loan is dependent largely upon the accuracy of the initial estimate of development costs and of the respective values of the completed lots. If the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value which is insufficient to assure full repayment. We attempt to reduce such risks on development loans by including a contingency amount in the financing package, through inspections of construction progress on the property, by reviewing the developers financial strength and past projects, and requiring personal guarantees.
1-4 Family Residential Real Estate: Residential real estate loans are secured by one to four family residential properties and include owner occupied, non-owner occupied, construction, 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 purchases private mortgage insurance. Residential mortgage loans to purchase or refinance existing homes are fixed or variable rate and contain amortization periods of up to thirty years. Residential construction loans are secured by mortgages on the subdivided lot, have a fixed rate interest only period of up to 18-months, and may convert to a fixed or variable rate loan with amortization periods of up to thirty years.
Consumer: The Company 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 as compared to real estate mortgage loans, and 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 and economic conditions. Consumer loans generally have fixed rates and amortization periods up to 84 months.
The allowance for credit losses for portfolio segments is evaluated based upon periodic quantitative review of the collectability of the loans that correlates historical loan experience with reasonable and supportable forecasts using forward looking information. The Company utilizes a discounted cash flow (loss rate, expected loss) method to estimate the quantitative portion of the allowance for credit losses for all portfolio segments.
For each portfolio segment, a loss driver analysis (LDA) is performed to identify appropriate loss indicators and create a regression model for use in forecasting cash flows. The LDA analysis utilizes peer data from the Federal Financial Institutions Examination Council’s (FFIEC) Call Report data for all segments. The Company has established a one-year reasonable and supportable forecast period with a one-year straight-line reversion to the long-term historical average. Key inputs into the discounted cash flow model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and forecasted loss drivers. Since the Company has had very limited loss experience, management elected to utilize benchmark peer loss history data to estimate historical loss rates. Management worked with a third-party advisory firm to identify an appropriate peer group for each loan segment that shares similar characteristics. The Company uses the central tendency seasonally adjusted civilian unemployment rate forecast from the FOMC for all portfolio segments. Other key assumptions include a maturity assumption for loans without maturity dates and prepayment / curtailment rates specific to each loan segment. Prepayment and curtailment rates are calculated based on the Company’s own data.
Adjustments may be made to the quantitative evaluation to account for differences in current or expected qualitative risk characteristics such as changes in underwriting standards, changes in the value of underlying collateral, the existence and effect of portfolio concentration, delinquency level, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.
Individually Evaluated Loans
Loans that do not share similar risk characteristics are evaluated on an individual basis and are excluded from the pooling approach discussed above for the forecasted allowance for credit losses. The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics. Individually evaluated loans include the third-party residential mortgage warehouse line-of-credit, nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and other loans deemed appropriate by management. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.
Reserve for Unfunded Commitments
The reserve for unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by the Company. Any reserve for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The reserve is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.
Available-for-Sale (AFS) and Held-to-Maturity (HTM) Debt Securities
For AFS securities in an unrealized loss position, management determines whether the Company intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis. If either of the criteria is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL. For AFS securities with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the allowance for credit losses under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the allowance when the collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.
Since the adoption of CECL, the Company monitors the credit quality of HTM debt securities primarily through the financial condition of the issuer. Any allowance for credit losses on HTM securities would be a contra asset valuation account that would be deducted from the carrying amount of HTM securities to present the net amount expected to be collected and would be charged off against the allowance for credit losses when deemed uncollectible. Adjustments to the allowance for credit losses would be reported in the Company’s Consolidated Statements of Income in the provision for credit losses. Since all the HTM securities are non-rated municipal securities to local customers, management considers the financial condition of the issuer and whether issuers continue to make timely principal and interest payments under the contractual terms of the securities.
At March 31, 2024 and at adoption of CECL on July 1, 2023, there was no allowance for credit losses related to AFS or HTM debt securities. Accrued interest receivable on debt securities was excluded from the estimate of credit losses.
Accrued Interest Receivable
Upon adoption of ASU 2016-13 and its related amendments on July 1, 2023, the Company elected to do the following regarding accrued interest receivable:
| • | Exclude accrued interest receivable that is included in the amortized cost of financing receivables and debt securities from related disclosure requirements. |
| • | Continue its policy to write off accrued interest receivable by reversing it from interest income. For commercial and real estate loans, accruing interest is typically discontinued and any balance is written off when the loan becomes 90 days past due. For consumer loans, accrued interest is typically written off no later than when the loan becomes 120 days past due. Due to the composition of the securities portfolio, uncollectible accrued interest receivable on the securities portfolio is rare. Any accrued interest receivable would be written off by reversing interest income if the Company does not reasonably expect to receive payments. Due to the timely manner in which accrued interest receivables are written off, the amounts of such write offs are immaterial. |
| • | Not measure an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above. |
On July 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. The ASU requires enhanced disclosures related to certain modifications of receivables made to borrowers experiencing financial difficulty and requires that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures. The adoption of the ASU did not have a significant impact on the Company’s financial statements.
Note 2 – Securities
Debt securities
The following tables summarize the amortized cost, fair value, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss on the Company’s debt securities available-for-sale and gross unrecognized losses on the Company’s debt securities held-to-maturity as of March 31, 2024 and June 30, 2023:
| Available –for-Sale | Amortized | Gross | Gross | Fair | ||||||||||||
| March 31, 2024 | ||||||||||||||||
| Obligations 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 securities available-for-sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-Maturity | Amortized | Gross | Gross Losses | Fair | ||||||||||||
| March 31, 2024 | ||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale | Amortized | Gross | Gross | Fair | ||||||||||||
| June 30, 2023 | ||||||||||||||||
| Obligation of U.S Treasury | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of U.S. government-sponsored entities and agencies | ( | ) | ||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - residential | ( | ) | ||||||||||||||
| U.S. Government-sponsored mortgage-backed securities - commercial | ( | ) | ||||||||||||||
| U.S. Government-sponsored collateralized mortgage obligations – residential | ( | ) | ||||||||||||||
| Other debt securities | ( | ) | ||||||||||||||
| Total securities available-for-sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity | Amortized | Gross | Gross Losses | Fair | ||||||||||||
| June 30, 2023 | ||||||||||||||||
| Obligations of state and political subdivisions | $ | $ | $ | ( | ) | $ | ||||||||||
Proceeds from the sale of available-for-sale securities were as follows:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Proceeds from sales | $ | $ | $ | $ | ||||||||||||
| Gross realized gains | ||||||||||||||||
| Gross realized losses | ||||||||||||||||
The income tax benefit related to the net realized losses for the three-month periods ended March 31, 2024 and 2023 were less than $
The amortized cost and fair values of debt securities as of March 31, 2024, 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, are shown separately.
| Available-for-Sale | Amortized Cost | Estimated 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 securities available-for-sale | $ | $ | ||||||
| Held-to-Maturity | ||||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Total securities held-to-maturity | $ | $ | ||||||
Securities with a carrying value of approximately $
The following table summarizes the debt securities with unrealized and unrecognized losses as of March 31, 2024 and June 30, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||||||||||
| Collateralized mortgage obligations - residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other debt securities | ( | ) | ( | ) | ||||||||||||||||||||
| Total temporarily impaired | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| Held to Maturity | Fair | Unrecognized | Fair | Unrecognized | Fair | Unrecognized | ||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||
| Obligations of state and political subdivisions | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Total temporarily impaired | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||
| Available-for-sale | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| June 30, 2023 | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||
| Held to Maturity | Fair | Unrecognized | Fair | Unrecognized | Fair | Unrecognized | ||||||||||||||||||
| June 30, 2023 | ||||||||||||||||||||||||
| Obligations of state and political subdivisions | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Total temporarily impaired | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
At March 31, 2024, the Company’s portfolio consisted of
The Company’s mortgage-backed securities and collateralized mortgage obligations were issued by U.S. government-sponsored entities and agencies. The Company does not own any private label mortgage-backed securities. The Company’s municipal bond portfolio consists of tax-exempt and taxable general obligation and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of March 31, 2024,
Equity Securities
The Company owned equity securities with an amortized cost of $
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Unrealized gain (loss) recognized on equity securities held at the end of the period | $ | $ | $ | $ | ( | ) | ||||||||||
Note 3 – Loans and Allowance for Credit Losses
The following table presents loans by major category.
| March 31, 2024 | June 30, 2023 | |||||||
| Commercial & Industrial | $ | $ | ||||||
| Commercial real estate: | ||||||||
| Owner occupied | ||||||||
| Non-owner occupied | ||||||||
| Farmland | ||||||||
| Land Development | ||||||||
| 1 – 4 family residential real estate | ||||||||
| Consumer | ||||||||
| Subtotal | ||||||||
| Unamortized deferred loan costs, net | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Net Loans | $ | $ | ||||||
The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024.
| 1-4 Family | ||||||||||||||||||||||||||||
| Commercial | Commercial | Residential | ||||||||||||||||||||||||||
| & | Real | Land | Real | |||||||||||||||||||||||||
| Industrial | Estate | Farmland | Development | Estate | Consumer | Total | ||||||||||||||||||||||
| ACL beginning balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Provision for expected credit losses | ( | ) | ( | ) | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| ACL ending balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended March 31, 2024.
| 1-4 Family | ||||||||||||||||||||||||||||
| Commercial | Commercial | Residential | ||||||||||||||||||||||||||
| & | Real | Land | Real | |||||||||||||||||||||||||
| Industrial | Estate | Farmland | Development | Estate | Consumer | Total | ||||||||||||||||||||||
| ACL beginning balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Cumulative effect of change in accounting principle | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Provision for expected credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| ACL ending balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023:
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for loan losses | ( | ) | ||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2023:
| 1-4 Family | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Real | Real | |||||||||||||||||||
| Commercial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | |||||||||||||||
| Provision for loan losses | ||||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Recoveries | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents the amortized cost of non-accrual loans by class as of March 31, 2024:
| March 31, 2024 | ||||||||||||
| Interest Income | ||||||||||||
| Non-accrual | Total | Recognized during | ||||||||||
| loans with | Non-accrual | the period on | ||||||||||
| no ACL | loans | non-accrual loans | ||||||||||
| Commercial & Industrial | $ | $ | $ | |||||||||
| Commercial real estate: | ||||||||||||
| Owner occupied | ||||||||||||
| 1 – 4 family residential real estate | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table presents the recorded investment of non-accrual loans by class as of June 30, 2023:
| June 30, 2023 Non-accrual | ||||
| Commercial Real Estate: | ||||
| Other | $ | |||
| 1 – 4 family residential: | ||||
| Non-owner occupied | ||||
| Total | $ | |||
The following table presents the aging of the amortized cost of past due loans as of March 31, 2024 by class of loans:
| Loans 90 | ||||||||||||||||||||||||||||
| Days Past Due | Days Past | |||||||||||||||||||||||||||
| 30 – 59 | 60 - 89 | 90 Days or | Total | Loans Not | Due and | |||||||||||||||||||||||
| Days | Days | Greater | Past Due | Past Due | Total | Accruing | ||||||||||||||||||||||
| Commercial & Industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||||||
| Land development | ||||||||||||||||||||||||||||
| 1 – 4 family residential real estate | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The following table presents the aging of the recorded investment in past due loans as of June 30, 2023 by class of loans:
| Loans 90 | ||||||||||||||||||||||||||||
| Days Past Due | Days Past | |||||||||||||||||||||||||||
| 30 – 59 | 60 - 89 | 90 Days or | Total | Loans Not | Due and | |||||||||||||||||||||||
| Days | Days | Greater | Past Due | Past Due | Total | Accruing | ||||||||||||||||||||||
| Commercial & Industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| 1-4 family residential: | ||||||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Credit Quality Indicators:
The Company 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, current economic trends and other relevant information. At the time of origination, the Company analyzes all commercial loans individually and classifies the loans by credit risk. Management regularly monitors commercial loans for any changes in the borrowers’ ability to service their debt and completes an annual review to confirm the risk rating for those loans with total outstanding loan relationships greater than $500. The Company uses the following definitions for risk ratings:
Pass. Loans classified as pass exhibit a wide array of characteristics but at a minimum represent minimal level of risk and are considered collectable. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity, and adequate cash flow. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk. Borrowers are generally capable of absorbing setbacks, financial and otherwise.
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, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Not Rated. Loans listed as not rated are included in groups of homogeneous loans. Past due information is the primary credit indicator for groups of homogenous loans.
Based on the most recent analysis performed, the following tables present the amortized cost by internal risk category and class of loans as of March 31, 2024:
| Revolving | Revolving | |||||||||||||||||||||||||||||||||||
| Loans | Loans | |||||||||||||||||||||||||||||||||||
| Term Loans by Origination Year | Amortized | Converted | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Cost Basis | To Term | Total | ||||||||||||||||||||||||||||
| Commercial & Industrial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total Commercial & Industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||||||
| Owner occupied: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-owner occupied: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total non-owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Farmland: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total Farmland | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Land Development: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total Land Development | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Management monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual are considered nonperforming. The following table presents the amortized cost of residential real estate and consumer loans based on payment status as of March 31, 2024:
| Revolving | Revolving | |||||||||||||||||||||||||||||||||||
| Loans | Loans | |||||||||||||||||||||||||||||||||||
| Term Loans by Origination Year | Amortized | Converted | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Cost Basis | To Term | Total | ||||||||||||||||||||||||||||
| 1 – 4 family residential real estate: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Total 1-4 family residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Total consumer | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current year-to-date gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Based on the most recent analysis performed, the following table presents the recorded investment by risk category and by class of loans as of June 30, 2023:
| Special | Not | |||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Rated | ||||||||||||||||
| Commercial & Industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty to maximize collection of loan balances by providing principal forgiveness, term extension, an other-than insignificant payment delay, or an interest rate reduction. In some cases, the Company may provide multiple types of concessions on one loan. If principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
There were no modifications of loans to borrowers in financial distress completed during the nine-month period ended March 31, 2024.
Impaired Loans
The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information.
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2023. Included in the recorded investment in loans is $
| 1-4 Family | ||||||||||||||||||||
| Commercial | Commercial | Residential | ||||||||||||||||||
| & | Real | Real | ||||||||||||||||||
| Industrial | Estate | Estate | Consumer | Total | ||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||
| Ending allowance balance attributable to loans: | ||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | |||||||||||||||
| Recorded investment in loans: | ||||||||||||||||||||
| Loans individually evaluated for impairment | $ | $ | $ | $ | $ | |||||||||||||||
| Acquired loans collectively evaluated for impairment | ||||||||||||||||||||
| Originated loans collectively evaluated for impairment | ||||||||||||||||||||
| Total ending loans balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, 2023 and for the nine months ended March 31, 2023:
| As of June 30, 2023 | Nine Months ended March 31, 2023 | |||||||||||||||||||||||
| Unpaid | Allowance for Loan | Average | Interest | Cash Basis | ||||||||||||||||||||
| Principal | Recorded | Losses | Recorded | Income | Interest | |||||||||||||||||||
| Balance | Investment | Allocated | Investment | Recognized | Recognized | |||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||||||
| Commercial & Industrial | $ | $ | $ | — | $ | $ | $ | |||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||
| 1-4 Family residential real estate: | ||||||||||||||||||||||||
| Owner occupied | — | |||||||||||||||||||||||
| Non-owner occupied | — | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended March 31, 2023:
| Average | Interest | Cash Basis | ||||||||||
| Recorded | Income | Interest | ||||||||||
| Investment | Recognized | Recognized | ||||||||||
| With no related allowance recorded: | ||||||||||||
| Commercial | $ | $ | $ | |||||||||
| Commercial real estate: | ||||||||||||
| Other | ||||||||||||
| 1-4 Family residential real estate: | ||||||||||||
| Owner occupied | ||||||||||||
| Non-owner occupied | ||||||||||||
| Total | $ | $ | $ | |||||||||
Note 4 - 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: When available, the fair values of available-for-sale 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:
| Balance at March 31, | Fair Value Measurements at March 31, 2024 | |||||||||||||||
| 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Obligations 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 | ||||||||||||||||
| Equity securities | ||||||||||||||||
| Balance at June 30, | Fair Value Measurements at June 30, 2023 | |||||||||||||||
| 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Obligations 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 | ||||||||||||||||
| Equity securities | ||||||||||||||||
There were no transfers between Level 1 and Level 2 during the three-month and nine month periods ended March 31, 2024.
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 that may be recorded at fair value on a nonrecurring basis include individually evaluated collateral dependent loans (or impaired loans prior to the adoption of ASC 326), other real estate owned, and other repossessed assets.
Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals. Collateral dependent individually evaluated loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. 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. There were no collateral dependent individually evaluated loans measured at fair value on a non-recurring basis at March 31, 2024. There were no impaired loans measured at fair value on a non-recurring basis at June 30, 2023.
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. Subsequent to their initial recognition, these assets are remeasured at fair value, which is the lower of cost or fair value less estimated costs to sell, through a write-down included in other non-interest expense. 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 were
The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| March 31, 2024 | June 30, 2023 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Level 1 inputs: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Level 2 inputs: | ||||||||||||||||
| Certificates of deposit in other financial institutions | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Accrued interest receivable | ||||||||||||||||
| Level 3 inputs: | ||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||
| Loans, net | ||||||||||||||||
| Financial Liabilities: | ||||||||||||||||
| Level 2 inputs: | ||||||||||||||||
| Demand and savings deposits | ||||||||||||||||
| Time deposits | ||||||||||||||||
| Short-term borrowings | ||||||||||||||||
| Federal Home Loan Bank advances | ||||||||||||||||
| Accrued interest payable | ||||||||||||||||
The assumptions used to estimate fair value are described as follows:
Cash and cash equivalents: The carrying value of cash and deposits in other financial institutions were considered to approximate fair value resulting in a Level 1 classification.
Certificates of deposits in other financial institutions: Fair value of certificates of deposit in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification.
Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification.
Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level 3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.
Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated using a spread to the applicable municipal fair market curve resulting in a Level 3 classification.
Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at March 31, 2024 and 2023 for deposits of similar remaining maturities, resulting in Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at March 31, 2024 and 2023 for similar financing resulting in a Level 2 classification.
Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability, and, therefore, are not subject to the fair value disclosure requirements.
Off-balance sheet commitments: The Company’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.
NOTE 5—AFFORDABLE HOUSING TAX CREDIT PARTNERSHIP
In April 2023, the Company invested in a limited partnership that will in turn invest in qualified affordable housing projects that will generate tax benefits for the limited partner investors, including federal low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code. This partnership investment is an unconsolidated Variable Interest Entity (VIE) for which the Company holds an interest in but is not the primary beneficiary of the VIE. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.
The Company uses the proportional amortization method to account for its investment. The investment is included in other assets and the unfunded commitment is included in other liabilities. As a limited partner, there is no recourse to the Company by the creditors of the limited partnership, however, the tax credits are generally subject to recapture should the partnership fail to comply with the applicable government regulations.
The following table summarizes the balances of the affordable housing tax credit investment and related unfunded commitment at March 31, 2024 and June 30, 2023.
| March 31, 2024 | June 30, 2023 | |||||||
| Affordable housing tax credit investment | $ | $ | ||||||
| Less: amortization | ( | ) | ||||||
| Net affordable housing tax credit investment | $ | $ | ||||||
| Unfunded commitments | $ | $ | ||||||
The following summarizes other information relating to the affordable housing tax credit investment for the three- and nine- month periods ended March 31, 2024 and 2023.
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Tax credits and other tax benefits recognized | $ | $ | $ | $ | ||||||||||||
| Proportional amortization expense included in provision for income taxes | ||||||||||||||||
Note 6 – 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 Three Months Ended March 31, | For the Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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 7 –Accumulated Other Comprehensive Income (Loss)
The components of other comprehensive income related to unrealized gains and losses on available-for-sale securities for the three- and nine- month periods ended March 31, 2024 and 2023, were as follows:
| Pretax | Tax Effect | After-tax | ||||||||||
| Balance as of December 31, 2023 | $ | ( | ) | $ | $ | ( | ) | |||||
| Unrealized holding losses on available-for-sale securities arising during the period | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive income | ||||||||||||
| Net current period other comprehensive loss | ( | ) | ( | ) | ||||||||
| Balance as of March 31, 2024 | $ | ( | ) | $ | $ | ( | ) | |||||
| Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
| Balance as of December 31, 2022 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Unrealized holding gains on available-for-sale securities arising during the period | ( | ) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income | (a)(b) | ||||||||||||
| Net current period other comprehensive income | ( | ) | |||||||||||
| Balance as of March 31, 2023 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
| Balance as of June 30, 2023 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Unrealized holding gains on available-for-sale securities arising during the period | ( | ) | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | (a)(b) | ||||||||||
| Net current period other comprehensive income | ( | ) | |||||||||||
| Balance as of March 31, 2024 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Pretax | Tax Effect | After-tax | Affected Line Item in Consolidated Statements of Income | ||||||||||
| Balance as of June 30, 2022 | $ | ( | ) | $ | $ | ( | ) | ||||||
| Unrealized holding losses on available-for-sale securities arising during the period | ( | ) | ( | ) | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | (a)(b) | ||||||||||
| Net current period other comprehensive loss | ( | ) | ( | ) | |||||||||
| Balance as of March 31, 2023 | $ | ( | ) | $ | $ | ( | ) | ||||||
(a) Securities (gains) losses, net
(b) Income tax expense
CONSUMERS BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Dollars in thousands, except per share data)
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 Company’s results of operations for the three- and nine- month periods ended March 31, 2024, compared to the same periods in fiscal year 2023, and the consolidated balance sheet at March 31, 2024, compared to June 30, 2023. 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 Company), owns all 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 Company’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, Mahoning, Stark, Summit, and contiguous counties in Ohio, Pennsylvania, and 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.
Results of Operations
Three- and Nine- Month Periods Ended March 31, 2024 and 2023
Net income for the third quarter of fiscal year 2024 was $2,052, or $0.66 per common share, compared to $2,636, or $0.86 per common share for the three months ended March 31, 2023. The following are key highlights of our results of operations for the three months ended March 31, 2024, compared with the prior fiscal year comparable period:
| ● |
net interest income decreased by $403 or 4.9%, to $7,826 in the third quarter of fiscal year 2024 from the same prior year period mainly because of the rapid increase in short-term market rates in 2022 and 2023 causing interest bearing liabilities to reprice faster than interest earning assets; |
|
| ● |
a $15 provision for credit losses on loans and a $23 provision for credit losses on unfunded commitments was recorded for the three-month period ended March 31, 2024 compared with a $160 provision for loan loss expense for the same prior year period; |
|
| ● |
noninterest income increased by $43, or 3.7%, in the third quarter of fiscal year 2024 from the same prior year period primarily as a result of an increase in debit card interchange income of $41, or 7.7% and service charges on deposit accounts of $16, or 4.1%. |
|
| ● |
noninterest expenses increased by $476, or 7.9%, in the third quarter of fiscal year 2024 from the same prior year period primarily due to increases in salaries, software expenses, occupancy cost, and the FDIC assessment. |
In the first nine months of fiscal year 2024, net income was $6,477, or $2.09 per common share, compared to $7,980, or $2.60 per common share for the nine months ended March 31, 2023. The following are key highlights of our results of operations for the nine months ended March 31, 2024, compared to the prior fiscal year comparable period:
| ● |
net interest income declined by $1,457, or 5.7%, to $23,944 in the first nine months of fiscal year 2024 from the same prior year period primarily as a result of the rapid increase in short-term market rates in 2022 and 2023 causing interest bearing liabilities to reprice faster than interest earning assets; |
|
| ● |
a $380 provision for credit losses on loans and a $102 provision for credit losses on unfunded commitments was recorded for the nine-month period ended March 31, 2024 compared with a $795 provision for loan losses for the same prior year period; |
|
| ● |
noninterest income increased by $156, or 4.5%, in the first nine months of fiscal year 2024 from the same prior year period primarily as a result of an increase in service charges on deposit accounts of $86, or 7.3%, an increase in debit card interchange income of $95, or 5.9%, which were partially offset by a $80 loss on the sale of available-for-sale securities so the proceeds could be reinvested at higher market rates; and |
|
| ● |
noninterest expenses increased by $774, or 4.2%, in the first nine months of fiscal year 2024 from the same prior year period primarily due to increases in salaries, occupancy costs, software expenses, and FDIC insurance assessments. |
The annualized return on average equity and return on average assets were 15.33% and 0.81%, respectively, for the nine months ended March 31, 2024 compared to 20.63% and 1.05%, 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 Company’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 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 2024 and 2023 fiscal years was 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.
The Company’s net interest margin was 2.92% for the three months ended March 31, 2024, compared with 3.27% for the same period in 2023. FTE net interest income for the three months ended March 31, 2024, decreased by $501, or 6.1%, to $7,743 from $8,244 for the same prior year period.
The yield on average interest-earning assets increased to 4.64% for the three months ended March 31, 2024, compared with 4.18% for the same period last year. Tax-equivalent interest income increased by $1,787, or 17.0%, for the three months ended March 31, 2024, from the same prior year period because of a $34,114, or 3.5%, increase in average interest-earning assets as well as the affect of the increase in market interest rates on new and repricing earning assets. However, the yield on nontaxable securities is being negatively impacted since the interest expense attributable to carrying tax exempt securities is not deductible. Interest expense for the three months ended March 31, 2024 increased by $2,288 from the same prior year period primarily due to an increase in deposit and short-term borrowing costs as a result of higher market interest rates and increased competition for deposits. The Company’s cost of funds increased to 2.35% for the three months ended March 31, 2024 compared with 1.30% for the same prior year period.
The Company’s net interest margin was 3.01% for the nine months ended March 31, 2024, compared with 3.43% for the same period in 2023. FTE net interest income for the nine months ended March 31, 2024, decreased by $1,881, or 7.3%, to $23,747 from $25,628 for the same prior year period. The net interest margin is expected to continue to be impacted by the rapid increase in the cost of funds because of the competition for deposits and because of the inverted yield curve.
The yield on average interest-earning assets increased to 4.58% for the nine months ended March 31, 2024, compared with 3.99% for the same period last year. Tax-equivalent interest income increased by $6,284, or 21.1%, for the nine months ended March 31, 2024 from the same prior year period because of a $49,707, or 5.2%, increase in average interest-earning assets as well as the affect of the increase in market interest rates on new and repricing earning assets. However, the yield on nontaxable securities is being negatively impacted since the interest expense attributable to carrying tax exempt securities is not deductible. For the nine months ended March 31, 2023, the federal tax benefit was $227 compared with a federal tax reduction of $197 for the nine months ended March 31, 2024.
Interest expense for the nine months ended March 31, 2024 increased by $8,165 from the same prior year period primarily due to an increase in deposit and short-term borrowing costs as a result of higher market interest rates and increased competition for deposits. The Company’s cost of funds increased to 2.17% for the nine months ended March 31, 2024 compared with 0.82% for the same prior year period.
| Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended March 31, (In thousands, except percentages) |
| 2024 |
2023 |
|||||||||||||||||||||||
| Average Balance |
Interest |
Yield/ Rate |
Average Balance |
Interest |
Yield/ Rate |
|||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Taxable securities |
$ | 205,757 | $ | 1,620 | 2.75 | % | $ | 208,735 | $ | 1,343 | 2.29 | % | ||||||||||||
| Nontaxable securities (1) |
69,972 | 253 | 1.33 | 84,009 | 579 | 2.57 | ||||||||||||||||||
| Loans receivable (1) |
733,569 | 10,287 | 5.58 | 680,944 | 8,477 | 5.05 | ||||||||||||||||||
| Federal bank and other restricted stocks |
2,580 | 45 | 6.94 | 2,617 | 34 | 5.27 | ||||||||||||||||||
| Equity securities |
386 | 8 | 8.25 | 374 | 8 | 8.67 | ||||||||||||||||||
| Interest bearing deposits and federal funds sold |
8,720 | 110 | 5.02 | 10,191 | 95 | 3.78 | ||||||||||||||||||
| Total interest-earning assets |
1,020,984 | 12,323 | 4.64 | % | 986,870 | 10,536 | 4.18 | % | ||||||||||||||||
| Noninterest-earning assets |
58,303 | 46,153 | ||||||||||||||||||||||
| Total Assets |
$ | 1,079,287 | $ | 1,033,023 | ||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| NOW |
$ | 140,886 | $ | 266 | 0.75 | % | $ | 150,914 | $ | 300 | 0.81 | % | ||||||||||||
| Savings |
332,818 | 1,306 | 1.56 | 353,037 | 843 | 0.97 | ||||||||||||||||||
| Time deposits |
257,926 | 2,710 | 4.18 | 174,460 | 941 | 2.19 | ||||||||||||||||||
| Short-term borrowings |
29,066 | 205 | 2.81 | 22,971 | 120 | 2.12 | ||||||||||||||||||
| FHLB advances |
13,126 | 93 | 2.82 | 14,222 | 88 | 2.51 | ||||||||||||||||||
| Total interest-bearing liabilities |
773,822 | 4,580 | 2.35 | % | 715,604 | 2,292 | 1.30 | % | ||||||||||||||||
| Noninterest-bearing liabilities: |
||||||||||||||||||||||||
| Noninterest-bearing checking accounts |
225,924 | 256,324 | ||||||||||||||||||||||
| Other liabilities |
17,229 | 7,370 | ||||||||||||||||||||||
| Total liabilities |
1,016,975 | 979,298 | ||||||||||||||||||||||
| Shareholders’ equity |
62,312 | 53,725 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 1,079,287 | $ | 1,033,023 | ||||||||||||||||||||
| Net interest income, interest rate spread (1) |
$ | 7,743 | 2.29 | % | $ | 8,244 | 2.88 | % | ||||||||||||||||
| Net interest margin (net interest as a percent of average interest-earning assets) (1) |
2.92 | % | 3.27 | % | ||||||||||||||||||||
| Federal tax exemption on non-taxable securities and loans included in interest income |
$ | (83 | ) | $ | 15 | |||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities |
131.94 | % | 137.91 | % | ||||||||||||||||||||
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%
| Average Balance Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31, (In thousands, except percentages) |
| 2024 |
2023 |
|||||||||||||||||||||||
| Average Balance |
Interest |
Yield/ Rate |
Average Balance |
Interest |
Yield/ Rate |
|||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Taxable securities |
$ | 205,770 | $ | 4,447 | 2.49 | % | $ | 208,588 | $ | 3,892 | 2.20 | % | ||||||||||||
| Nontaxable securities (1) |
69,341 | 1,176 | 2.02 | 86,328 | 1,970 | 2.77 | ||||||||||||||||||
| Loans receivable (1) |
726,361 | 30,147 | 5.52 | 650,353 | 23,566 | 4.83 | ||||||||||||||||||
| Federal bank and other restricted stocks |
2,334 | 128 | 7.30 | 2,408 | 104 | 5.75 | ||||||||||||||||||
| Equity securities |
386 | 25 | 8.62 | 383 | 25 | 8.70 | ||||||||||||||||||
| Interest bearing deposits and federal funds sold |
6,240 | 209 | 4.46 | 12,665 | 291 | 3.06 | ||||||||||||||||||
| Total interest-earning assets |
1,010,432 | 36,132 | 4.58 | % | 960,725 | 29,848 | 3.99 | % | ||||||||||||||||
| Noninterest-earning assets |
58,362 | 47,115 | ||||||||||||||||||||||
| Total Assets |
$ | 1,068,794 | $ | 1,007,840 | ||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| NOW |
$ | 145,852 | $ | 956 | 0.87 | % | $ | 156,844 | $ | 719 | 0.61 | % | ||||||||||||
| Savings |
335,094 | 3,717 | 1.48 | 358,642 | 1,557 | 0.58 | ||||||||||||||||||
| Time deposits |
240,619 | 6,971 | 3.86 | 140,868 | 1,532 | 1.45 | ||||||||||||||||||
| Short-term borrowings |
25,616 | 467 | 2.43 | 21,925 | 274 | 1.66 | ||||||||||||||||||
| FHLB advances |
13,164 | 274 | 2.77 | 10,448 | 138 | 1.76 | ||||||||||||||||||
| Total interest-bearing liabilities |
760,345 | 12,385 | 2.17 | % | 688,727 | 4,220 | 0.82 | % | ||||||||||||||||
| Noninterest-bearing liabilities: |
||||||||||||||||||||||||
| Noninterest-bearing checking accounts |
234,731 | 260,095 | ||||||||||||||||||||||
| Other liabilities |
17,497 | 7,484 | ||||||||||||||||||||||
| Total liabilities |
1,012,573 | 956,306 | ||||||||||||||||||||||
| Shareholders’ equity |
56,221 | 51,534 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 1,068,794 | $ | 1,007,840 | ||||||||||||||||||||
| Net interest income, interest rate spread (1) |
$ | 23,747 | 2.41 | % | $ | 25,628 | 3.17 | % | ||||||||||||||||
| Net interest margin (net interest as a percent of average interest-earning assets) (1) |
3.01 | % | 3.43 | % | ||||||||||||||||||||
| Federal tax exemption on non-taxable securities and loans included in interest income |
$ | (197 | ) | $ | 227 | |||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities |
132.89 | % | 139.49 | % | ||||||||||||||||||||
(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%
Provision for Credit Losses
On July 1, 2023, the Company adopted ASU 2016-13 CECL which caused an increase in the allowance for credit losses of $52 and the recording of a liability for expected credit losses on unfunded loans and other commitments of $308. The reserve for unfunded commitments is primarily related to 1 - 4 family home equity lines of credit and construction loans, land development loans, and commercial construction loans. The increase in the allowance and the recording of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes on our Consolidated Balance Sheet in accordance with FASB guidance.
The allowance for credit losses consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustments to the quantitative evaluation may be for trends in delinquencies, trends in the volume of loans, changes in underwriting standards, changes in the value of underlying collateral, the existence and effect of portfolio concentration, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.
The specific component includes loans that do not share similar risk characteristics that are evaluated on an individual basis and are excluded from the pooling approach. As of March 31, 2024, individually evaluated loans totaled $14,754 and included the $13,729 third-party residential mortgage warehouse line-of-credit and $1,025 of nonaccrual loans. The warehouse line-of-credit is included in individually evaluated loans because of the unique structure of the loan given the short-term nature of the advances, curtailment features provided by the financial institution that the line-of-credit is issued to, as well as being secured by individual residential properties. As of June 30, 2023, under the incurred loan loss methodology, individually evaluated loans totaled $405 and included $351 of performing loans classified as troubled debt restructurings and $54 of nonaccrual loans. There was no allowance for credit losses allocated to the individually evaluated loans as of March 31, 2024 and June 30, 2023.
For the nine month period ended March 31, 2024, the provision for credit losses was $482 and included a $380 provision for credit losses on loans and a $102 provision for credit losses on unfunded commitments. This compared with a provision for loan losses of $795 for the same period last year. The allowance for credit losses as a percentage of loans was 1.07% at March 31, 2024 and 1.09% at June 30, 2023. Net charge-offs of $245, or an annualized 0.04% of total loans, were recorded during the nine-month period ended March 31, 2024 compared with net charge offs of $132, or an annualized 0.03% of total loans, for the same period last year.
During the quarter ended March 31, 2024, the key CECL model assumption inputs (i.e. – peer data, forecasted loss drivers, prepayment rates and curtailment rates) were updated. The calculated loss rates are based upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. The peer data in the most recently completed analysis was from March 31, 2004 through December 31, 2019. The exclusion of data subsequent to December 31, 2019 was intentional to avoid inclusion of COVID-19 pandemic data in the modeling.
During the three- and nine- month periods ended March 31, 2024, the ACL for the commercial real estate and land development segments decreased primarily because of a decline in the calculated loss rates for these segments and the 1-4 family and commercial & industrial segments increased primarily because of an increase in the calculated loss rates for these segments.
Non-performing loans were $1,091 as of March 31, 2024, compared with $104 as of June 30, 2023. As of March 31, 2024, non-performing loans includes $589 that is guaranteed by the Small Business Administration. Non-performing loans to total loans were 0.15%, or 0.07% excluding the guaranteed portion, at March 31, 2024 and 0.01% at June 30, 2023. Due to the recent rapid increase in market interest rates uncertainty remains regarding future levels of criticized and classified loans, non-performing loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and will work with borrowers as needed to mitigate losses to the Company.
Noninterest Income
Noninterest income increased by $43, or 3.7%, for the third quarter of fiscal year 2024 from the same period last year. For the nine month period ended March 31, 2024, noninterest income increased by $156, or 4.5%, from the same period last year. The increase in noninterest income for the nine month period ended March 31, 2024 was primarily the result of an increase in service charges on deposit accounts of $86, or 7.3%, and an increase in debit card interchange income of $95, or 5.9%. These increases were partially offset by an $80 loss on the sale of available-for-sale securities recognized during the nine month period ended March 31, 2024 as lower yielding securities were sold in order to reinvest the proceeds into higher yielding loans.
Noninterest Expenses
Total noninterest expenses increased by $476, or 7.9%, for the third quarter of fiscal year 2024 and by $774, or 4.2%, for the nine month period end March 31, 2024 compared with the same periods last year. Salaries and employee benefits expenses increased by $244, or 2.3%, for the nine-month period ended March 31, 2024 compared to the same prior year period primarily due to merit and cost of living increases which were partially offset by a reduction in incentive expense accruals. FDIC assessments increased by $189, or 47.5%, for the nine-month period ended March 31, 2024 primarily because of an increase in the initial base deposit insurance assessment rate paid by all insured depository institutions. Debit card processing expenses increased by $94, or 11.4%, for the nine-month period ended March 31, 2024 compared to the same prior year period primarily due to an increase in customer card usage and an increase in the number of cards issued. These increases were partially offset by a decline of $65, or 17.2% in Ohio franchise tax expense for the nine-month period ended March 31, 2024 compared to the same prior year period due to the full year impact of the reduction in total shareholders’ equity because of the accumulated other comprehensive loss.
Income Taxes
Income tax expenses were $435 and $1,387 for the three- and nine- month periods ended March 31, 2024, respectively, compared to $565 and $1,646 for the three- and nine- month periods ended March 31, 2023. The effective tax rates were 17.6% and 17.1% for the nine-month periods ended March 31, 2024 and 2023, respectively. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, bank owned life insurance income, and the low-income housing tax credits.
Financial Condition
Total assets as of March 31, 2024 were $1,090,887 compared to $1,060,024 at June 30, 2023, an increase of $30,863, or an annualized 3.9%. From June 30, 2023 to March 31, 2024, total loans increased by $32,222, or an annualized 6.0%, and total deposits increased by $22,597, or an annualized 3.2%.
Available-for-sale securities decreased from $279,605 as of June 30, 2023, to $265,646 as of March 31, 2024. As of March 31, 2024, the portfolio had an unrealized loss of $35,813 as a result of the increase in market interest rates compared with the yields within the portfolio that were available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity or repricing dates or if market yields for such securities decline. The portfolio is primarily comprised of agency mortgage-backed securities, obligations of state and political subdivisions, other government agencies’ debt, corporate debt, and U.S. Treasury notes. The municipal bond portfolio consists of tax-exempt and taxable general obligations and revenue bonds to a broad range of counties, towns, school districts, and other essential service providers. As of March 31, 2024, 98.6 % of the municipal bonds held in the available-for-sale portfolio had an S&P or Moody’s investment grade rating, and 1.4% were non-rated issues. The other debt securities consist of subordinated notes issued by other bank holding companies. As of March 31, 2024, the projected cash flow from the portfolio over the next 12 months was approximately $39,375 which may be available to reinvest into loans or securities at the then current market rates.
Total loans increased by $32,222, or an annualized 6.0%, from June 30, 2023. The growth in loans was primarily within the commercial real estate and consumer loan portfolios. Consumer loan growth was primarily from indirect loans due to the expansion of consumer loan sales staff and an expanded dealer network.
Asset Quality
The following table presents the aggregate amounts of non-performing assets and select ratios as of the dates indicated.
| March 31, 2024 |
June 30, 2023 |
March 31, 2023 |
||||||||||
| Non-accrual loans |
$ | 1,025 | $ | 54 | $ | 45 | ||||||
| Loans past due over 90 days and still accruing |
66 | 50 | 153 | |||||||||
| Total non-performing loans |
1,091 | 104 | 198 | |||||||||
| Other real estate and repossessed assets |
175 | 124 | — | |||||||||
| Total non-performing assets |
$ | 1,266 | $ | 228 | $ | 198 | ||||||
| Non-performing loans to total loans |
0.15 | % | 0.01 | % | 0.03 | % | ||||||
As of March 31, 2024, non-accrual loans include $589 that is guaranteed by the Small Business Administration. Excluding the guaranteed portion, non-performing loans were $502, or 0.07% of total loans as of March 31, 2024.
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 Company 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 Company’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 Company to be sufficiently liquid to meet normal operating needs and conditions. The Company’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 ensure the soundness of the portfolio, as well as to provide funding for loan demand as needed.
For the nine months ended March 31, 2024, net cash inflow from operating activities was $7,732, net cash outflows from investing activities was $15,691 and net cash inflows from financing activities was $23,053. A major source of cash was $22,597 from the increase in deposits, $16,452 from maturity, calls, and principal pay downs of available-for-sale securities and $8,092 proceeds from the sales of available-for-sale securities. A major use of cash was a $32,519 increase in loans. Total cash and cash equivalents were $26,849 as of March 31,2024, compared to $11,755 at June 30, 2023 and $25,207 at March 31, 2023.
The Bank offers several types of deposit products to a diverse base of business, public fund, and personal 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 $975,130 at March 31, 2024, an increase of $22,597, or an annualized 3.2%, compared with $952,533 at June 30, 2023. As of March 31, 2024, the estimated percentage of uninsured deposits, excluding collateralized public fund deposits, was 17.4%.
Jumbo time deposits (those with balances of $250 and over) totaled $64,559 as of March 31, 2024 and $46,822 as of June 30, 2023 and are from local customers and businesses. These deposits are monitored closely by the Company and are mainly priced on an individual basis. The Company has the option to use a fee-paid broker or CD listing service to obtain deposits from outside its normal service area as an additional source of funding. The Company, however, does not rely upon these types of deposits as a primary source of funding. There were no brokered deposits or CDs that were obtained from a listing service as of March 31, 2024 or June 30, 2023. 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 monthly.
To provide additional sources of liquidity, the Company has lines of credit with other financial institutions and entered into agreements with the FHLB of Cincinnati and the Federal Reserve discount window. At March 31, 2024, advances from the FHLB of Cincinnati totaled $8,122 compared with $8,776 at June 30, 2023. As of March 31, 2024, the Bank had the ability to borrow an additional $105,276 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Company considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base. In addition, at March 31, 2024, the Company had approximately $94,595 in securities unencumbered by a pledge that could be used to support additional borrowings, as needed, through the Federal Reserve discount window.
Borrowings with original maturities of one year or less are classified as short-term and were comprised of the following:
| March 31, 2024 |
June 30, 2023 |
|||||||
| Repurchase agreements |
$ | 18,465 | $ | 23,783 | ||||
| Line of credit with another financial institution |
500 | 1,200 | ||||||
| Federal funds purchased |
— | 1,384 | ||||||
| Bank term funding program |
10,000 | — | ||||||
| Total short-term borrowings |
$ | 28,965 | $ | 26,367 | ||||
Repurchase agreements are financing arrangements with local customers that mature daily. The Bank pledges securities as collateral for the repurchase agreements. The Federal Reserve’s Bank Term Funding Program (BTFP) was a facility established in 2023 in response to liquidity concerns within the banking industry and the program ceased making new loans on March 11, 2024. The BTFP was designed to provide additional funding to eligible depository institutions in order to help assure that banks had the ability to meet the needs of all their depositors. Under the program, eligible depository institutions could obtain loans of up to one year in length by pledging certain U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. These assets were valued at par. A line of credit from another financial institution was established since the holding company does not conduct operations and its primary sources of liquidity are dividends upstreamed from the Bank and borrowings from outside sources. As of March 31, 2024, the available credit on the holding company’s line of credit was $4,500.
To meet the financial needs of our customers, we have issued commitments to originate mortgage, commercial, construction, and consumer loans and commitments for commercial, home equity, and consumer lines of credit. 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. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The same credit policies are used in making commitments and financial standby letters of credit as are used for on-balance sheet instruments. Total unused commitments were $153,572 as of March 31, 2024, and $143,945 as of June 30, 2023.
Capital Resources
Total shareholders’ equity increased by $6,613 to $62,097 as of March 31, 2024, from $55,484 as of June 30, 2023 because of a reduction of $1,669 in the accumulated other comprehensive loss from the mark-to-market of available-for-sale securities and from net income of $6,477 for the first nine months of fiscal year 2024 which was partially offset by cash dividends paid of $1,684. As market interest rates rise, the fair value of fixed-rate available-for-sale securities decline with a corresponding net of tax decline recorded in the accumulated other comprehensive loss portion of equity. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such securities decline.
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 Company’s financial statements.
As of March 31, 2024, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.13% and the leverage and total risk-based capital ratios were 7.97% and 12.15%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.05% and leverage and total risk-based capital ratios of 7.72% and 12.07%, respectively, as of June 30, 2023. 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 March 31, 2024 that would cause the Bank’s capital category to change.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported.
Critical accounting policies are those policies that 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. The Company has identified the appropriateness of the allowance for credit 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. Note one (Summary of Significant Accounting Policies – Adoption of New Accounting Standards) and Note three (Loans and Allowance for Credit Losses) of the Company’s Consolidated Financial Statements provide detail regarding the Company’s accounting for the allowance for credit losses. Note six (Goodwill and Acquired 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 2023 Form 10-K provide detail regarding the Company’s accounting for Goodwill.
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. Risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:
| ● |
changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in a deterioration in asset credit quality or debtors being unable to meet their obligations because of high unemployment rates and inflationary pressures; |
|
| ● |
rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income; |
|
| ● |
changes in the level of non-performing assets and charge-offs; |
|
| ● |
unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity, our ability to find alternative funding sources, and potential market reactions to the default or risk of default by other financial institutions; |
|
| ● |
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply; |
|
| ● |
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; |
|
| ● |
breaches of security or failures of our or our vendor’s technology systems due to technological or other factors and cybersecurity threats; |
|
| ● |
changes in consumer spending, borrowing and savings habits; |
|
| ● |
declining asset values impacting the underlying value of collateral; |
|
| ● |
changes in accounting policies, rules and interpretations; |
|
| ● |
our ability to attract and retain qualified employees; |
|
| ● |
competitive pressures on product pricing and services; and |
|
| ● |
changes in the reliability of our vendors, internal control systems or information systems. |
CONSUMERS BANCORP, INC.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Controls Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s last quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
None
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not Applicable
Item 5 – Other Information
Item 6 – Exhibits
| Exhibit Number |
Description |
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| Exhibit 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
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| Exhibit 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
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| Exhibit 32.1 | |
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| 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) |
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| (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 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. (Registrant) |
|
| Date: May 7, 2024 |
/s/ Ralph J. Lober Ralph J. Lober, II President & Chief Executive Officer (principal executive officer) |
| Date: May 7, 2024 |
/s/ Renee K. Wood Renee K. Wood Chief Financial Officer & Treasurer (principal financial officer) |