CONSUMERS BANCORP INC /OH/ - Quarter Report: 2019 December (Form 10-Q)

 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended December 31, 2019

 

Commission File No. 033-79130

 

CONSUMERS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

OHIO	34-1771400
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

 

614 East Lincoln Way, P.O. Box 256, Minerva, Ohio	44657
(Address of principal executive offices)	(Zip Code)

 

(330) 868-7701

(Registrant’s telephone number)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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. 

Yes ☒ No ☐

 

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).      

Yes ☒ No ☐

 

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 ☐
Non-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 Securities Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes ☐ No ☒

 

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

 

There were 3,015,578 shares of Registrant’s common stock, no par value, outstanding as of February 11, 2020.

 

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CONSUMERS BANCORP, INC. FORM 10-Q QUARTER ENDED December 31, 2019

Table of Contents

 

Page Number (s)

Part I – Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Balance Sheets at December 31, 2019 and June 30, 2019	1
Consolidated Statements of Income for the three and six months ended December 31, 2019 and 2018	2
Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2019 and 2018	3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended December 31, 2019 and 2018	4
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and 2018	5
Notes to the Consolidated Financial Statements	6-23
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-32
Item 3 – Not Applicable for Smaller Reporting Companies
Item 4 – Controls and Procedures	33
Part II – Other Information
Item 1 – Legal Proceedings	34
Item 1A – Not Applicable for Smaller Reporting Companies	34
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3 – Defaults Upon Senior Securities	34
Item 4 – Mine Safety Disclosure	34
Item 5 – Other Information	34
Item 6 – Exhibits	34
Signatures	35

 

 

 

 

(Dollars in thousands, except per share data)		December 31, 2019				June 30, 2019
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions		$	12,586			$	9,322
Federal funds sold and interest-bearing deposits in financial institutions			1,442				139
Total cash and cash equivalents			14,028				9,461
Certificates of deposit in other financial institutions			994				1,983
Securities, available-for-sale			133,082				144,010
Securities, held-to-maturity (fair value of $3,859 at December 31, 2019 and $3,821 at June 30, 2019)			3,580				3,786
Federal bank and other restricted stocks, at cost			1,723				1,723
Loans held for sale			3,220				1,657
Total loans			396,393				369,175
Less allowance for loan losses			(4,095	)			(3,788	)
Net loans			392,298				365,387
Cash surrender value of life insurance			9,311				9,606
Premises and equipment, net			14,422				14,155
Accrued interest receivable and other assets			1,914				2,168
Total assets		$	574,572			$	553,936
LIABILITIES
Deposits
Noninterest-bearing demand		$	121,061			$	116,239
Interest bearing demand			79,008				81,469
Savings			175,465				162,261
Time			112,111				112,205
Total deposits			487,645				472,174
Short-term borrowings			3,870				3,686
Federal Home Loan Bank advances			24,300				22,700
Accrued interest and other liabilities			4,721				4,210
Total liabilities			520,536				502,770
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY
Preferred stock (no par value, 350,000 shares authorized, none outstanding)			—				—
Common stock (no par value, 8,500,000 shares authorized; 2,854,133 shares issued as of December 31, 2019 and June 30, 2019)			14,697				14,656
Retained earnings			38,691				36,487
Treasury stock, at cost (108,475 and 120,288 common shares as of December 31, 2019 and June 30, 2019, respectively)			(1,454	)			(1,543	)
Accumulated other comprehensive income			2,102				1,566
Total shareholders’ equity			54,036				51,166
Total liabilities and shareholders’ equity		$	574,572			$	553,936

 

		Three Months ended December 31,								Six Months ended December 31,
(Dollars in thousands, except per share amounts)		2019				2018				2019				2018
Interest and dividend income
Loans, including fees		$	4,862			$	4,059			$	9,623			$	8,008
Securities, taxable			480				549				990				1,075
Securities, tax-exempt			400				399				799				774
Federal bank and other restricted stocks			20				22				40				44
Federal funds sold and other interest-bearing deposits			16				34				42				57
Total interest and dividend income			5,778				5,063				11,494				9,958
Interest expense
Deposits			910				618				1,855				1,132
Short-term borrowings			13				14				24				28
Federal Home Loan Bank advances			59				57				138				125
Total interest expense			982				689				2,017				1,285
Net interest income			4,796				4,374				9,477				8,673
Provision for loan losses			185				(775	)			315				(660	)
Net interest income after provision for loan losses			4,611				5,149				9,162				9,333
Noninterest income
Service charges on deposit accounts			360				321				733				637
Debit card interchange income			384				369				775				727
Bank owned life insurance death benefit			—				—				324				—
Bank owned life insurance income			66				68				134				137
Securities gains (losses), net			4				(27	)			110				560
Other			211				213				418				378
Total noninterest income			1,025				944				2,494				2,439
Noninterest expenses
Salaries and employee benefits			2,207				2,099				4,380				4,074
Occupancy and equipment			595				515				1,127				1,003
Data processing expenses			141				157				526				307
Debit card processing expenses			194				189				395				383
Professional and director fees			133				171				390				341
FDIC assessments			5				38				(2	)			76
Franchise taxes			95				88				190				177
Marketing and advertising			93				131				274				235
Telephone and network communications			70				64				144				136
Other			402				428				816				832
Total noninterest expenses			3,935				3,880				8,240				7,564
Income before income taxes			1,701				2,213				3,416				4,208
Income tax expense			261				364				473				686
Net income		$	1,440			$	1,849			$	2,943			$	3,522
Basic and diluted earnings per share		$	0.53			$	0.68			$	1.07			$	1.29

 

(Dollars in thousands)
		Three Months ended December 31,								Six Months ended December 31,
		2019				2018				2019				2018
Net income		$	1,440			$	1,849			$	2,943			$	3,522
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on securities available-for-sale:
Unrealized gains (losses) arising during the period			(28	)			1,787				790				894
Reclassification adjustment for (gains) losses included in income			(4	)			27				(110	)			(560	)
Net unrealized gains (losses)			(32	)			1,814				680				334
Income tax effect			6				(382	)			(144	)			(70	)
Other comprehensive income (loss)			(26	)			1,432				536				264
Total comprehensive income		$	1,414			$	3,281			$	3,479			$	3,786

 

(Dollars in thousands, except per share data)
		Three Months ended December 31,								Six Months ended December 31,
		2019				2018				2019				2018
Balance at beginning of period		$	52,993			$	43,970			$	51,166			$	43,761
Net income			1,440				1,849				2,943				3,522
Other comprehensive income (loss)			(26	)			1,432				536				264
11,813 and 4,201 shares issued associated with stock awards during the six months ended December 31, 2019 and 2018, respectively			—				—				130				59
Common cash dividends			(371	)			(355	)			(739	)			(710	)
Balance at the end of the period		$	54,036			$	46,896			$	54,036			$	46,896
Common cash dividends per share		$	0.135			$	0.13			$	0.27			$	0.26

 

(Dollars in thousands)		Six Months Ended December 31,
		2019				2018
Cash flows from operating activities
Net cash from operating activities		$	2,214			$	4,043
Cash flow from investing activities
Securities available-for-sale
Purchases			(6,678	)			(13,979	)
Maturities, calls and principal pay downs			11,902				9,746
Proceeds from sales			6,110				4,898
Securities held-to-maturity
Principal pay downs			206				200
Net decrease in certificate of deposit in other financial institutions			989				500
Net increase in loans			(27,226	)			(14,321	)
Proceeds from BOLI death benefit			753				(543	)
Acquisition of premises and equipment			(219	)			—
Net cash from investing activities			(14,163	)			(13,499	)
Cash flow from financing activities
Net increase in deposit accounts			15,471				12,567
Net change in short-term borrowings			184				(9,590	)
Proceeds from Federal Home Loan Bank advances			9,500				9,200
Repayments of Federal Home Loan Bank advances			(7,900	)			(34	)
Dividends paid			(739	)			(710	)
Net cash from financing activities			16,516				11,433
Increase in cash or cash equivalents			4,567				1,977
Cash and cash equivalents, beginning of period			9,461				7,772
Cash and cash equivalents, end of period		$	14,028			$	9,749
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest		$	2,022			$	1,261
Federal income taxes			350				395
Non-cash items:
Transfer from loans held for sale to portfolio			—				75
Issuance of treasury stock for stock awards			89				59
Right of use assets obtained in exchange for lease liabilities			582				—

 

Note 1 – Summary of Significant Accounting Policies:

 

Nature of Operations: Consumers Bancorp, Inc. (the Corporation) 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, Stark, Summit, Wayne and contiguous counties in Ohio. 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 Corporation’s Form 10-K for the year ended June 30, 2019. 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 Corporation and the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

Segment Information: The Corporation 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 of the Corporation’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 February 2016, FASB issued accounting standards update (ASU) 2016-02, Leases (Topic 842). This ASU requires all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures are required so users can understand more about the nature of an entity’s leasing activities. The new guidance was effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. The Corporation has several lease agreements, such as branch locations, which were previously considered operating leases, and therefore, not recognized on the Corporation’s consolidated condensed statements of financial condition. The new guidance requires these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease liability. As of July 1, 2019, the Corporation adopted ASU 2016-02 using the modified retrospective method. There was no cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. At December 31, 2019, the Corporation had contractual operating lease commitments of $527.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

Recently Issued Accounting Pronouncements Not Yet Effective: In June 2016, Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU adds a new Topic 326 to the codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. generally accepted accounting principles, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current loss recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the corporation expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined in the guidance, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. However, during July 2019, FASB unanimously voted for a proposal to delay this ASU to January 2023 for smaller reporting companies. On October 16, 2019, FASB approved a final ASU delaying the effective date. The new guidance is effective for annual and interim periods beginning after December 15, 2022 for certain entities, including smaller reporting companies. The Corporation is a smaller reporting company.

 

 

Note 2 – Acquisition

 

On June 14, 2019, Consumers entered into an Agreement and Plan of Merger with Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) and its wholly owned subsidiary, The Peoples National Bank of Mount Pleasant (Peoples Bank). On January 1, 2020, Consumers completed the acquisition by merger of Peoples in a stock and cash transaction for an aggregate consideration of approximately $10,405. In connection with the acquisition, the Corporation issued 269,920 shares of common stock and paid $5,128 in cash to the former shareholders of Peoples. Immediately following the merger, Peoples Bank, was merged into Consumers banking subsidiary, Consumers National Bank.

 

On December 31, 2019, Peoples had approximately $72,016 in total assets, $55,273 in loans and $60,826 in deposits at its three banking centers located in Mt. Pleasant, Adena, and Dillonvale, Ohio. The transaction will be recorded as a purchase and, accordingly, the operating results of Peoples will be included in the Corporation’s Consolidated Financial Statements beginning on January 1, 2020. The assets and liabilities of Peoples will be recorded on the Corporation’s Balance Sheet at their estimated fair values as of January 1, 2020, the acquisition date, and Peoples’ results of operations will be included in the Corporation’s Consolidated Statements of Income beginning on that date.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of Peoples. Core deposit intangible will be amortized over ten years on a straight-line basis. Goodwill will not be amortized, but instead will be evaluated for impairment.

 

 

The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgement in accounting for the acquisition.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

Note 3 – Securities

 

 

 

 

 

Proceeds from the sale and call of available-for-sale securities were as follows:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

The income tax provision related to the net realized gains amounted to $1 for the three months ended December 31, 2019. The income tax benefit related to net realized losses amounted to $6 for the three months ended December 31, 2018. The income tax provision related to the net realized gains amounted to $22 and $118 for the six-month periods ended December 31, 2019 and 2018, respectively.

 

The amortized cost and fair values of debt securities at December 31, 2019, 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. 

 

 

The following table summarizes the securities with unrealized losses at December 31, 2019 and June 30, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

 

Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities.

 

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

The unrealized losses within the securities portfolio as of December 31, 2019 have not been recognized into income because the decline in fair value is not attributed to credit quality and management does not intend to sell, and it is not likely that management will be required to sell, the securities prior to their anticipated recovery. The decline in fair value within the securities portfolio is largely due to changes in interest rates and the fair value is expected to recover as the securities approach maturity. The mortgage-backed securities and collateralized mortgage obligations were primarily issued by Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. The Corporation does not own any private label mortgage-backed securities.

 

Note 4 – Loans

 

Major classifications of loans were as follows:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2019:

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2019:

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2018:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2018:

 

 

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 December 31, 2019. Included in the recorded investment in loans is $862 of accrued interest receivable.

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

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, 2019. Included in the recorded investment in loans is $891 of accrued interest receivable.

 

 

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 December 31, 2019 and for the six months ended December 31, 2019:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

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 December 31, 2019:

 

 

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, 2019 and for the six months ended December 31, 2018:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

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 December 31, 2018:

 

 

The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2019 and June 30, 2019:

 

 

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2019 by class of loans:

 

 

The above table of past due loans includes the recorded investment in non-accrual loans of $9 in the 60-89 days category and $418 in the loans not past due category.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

The following table presents the aging of the recorded investment in past due loans as of June 30, 2019 by class of loans:

 

 

The above table of past due loans includes the recorded investment in non-accrual loans of $198 in the 30-59 days, $80 in the 90 days or greater category and $507 in the loans not past due category.

 

Troubled Debt Restructurings (TDR):

The Corporation has certain loans that have been modified in order to maximize collection of loan balances. A modified loan is classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered.

 

At December 31, 2019 and June 30, 2019, the Corporation had $689 and $725, respectively, of loans classified as TDRs which are included in impaired loans above. As of December 31, 2019, the Corporation had not committed to lend any additional funds to customers with outstanding loans that were classified as troubled debt restructurings. As of June 30, 2019, the Corporation had committed to lend an additional $9 to customers with outstanding loans that were classified as troubled debt restructurings. At December 31, 2019 and June 30, 2019, the Corporation had $9 of specific reserves allocated to these loans.

 

During the three and six-month periods ended December 31, 2019 and 2018, there were no loan modifications completed that were classified as troubled debt restructurings. There were no charge offs from troubled debt restructurings that were completed during the three and six-month periods ended December 31, 2019 and 2018.

 

There were no loans classified as troubled debt restructurings for which there was a payment default within 12 months following the modification during the three and six-month periods ended December 31, 2019 and 2018. A loan is considered in payment default once it is 90 days contractually past due under the modified terms.

 

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, current economic trends and other relevant information. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than $100 and non-homogeneous loans, such as commercial and commercial real estate loans. Management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt and affirms the risk ratings for the loans and leases in their respective portfolio on an annual basis. The Corporation uses the following definitions for risk ratings:

 

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.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

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.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which are disclosed in the previous table within this footnote. Based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans was as follows:

 

 

As of June 30, 2019, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows: