CONSUMERS BANCORP INC /OH/ - Quarter Report: 2020 March (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 March 31, 2020

 

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 Exchange 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 May 4, 2020.

 

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CONSUMERS BANCORP, INC. FORM 10-Q QUARTER ENDED March 31, 2020

Table of Contents

 

	Page Number (s)
Part I – Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2020 and June 30, 2019	1
Consolidated Statements of Income for the three and nine months ended March 31, 2020 and 2019	2
Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2020 and 2019	3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2020 and 2019	4
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2020 and 2019	5
Notes to the Consolidated Financial Statements	6-20
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-29
Item 3 – Not Applicable for Smaller Reporting Companies
Item 4 – Controls and Procedures	30
Part II – Other Information
Item 1 – Legal Proceedings	31
Item 1A – Not Applicable for Smaller Reporting Companies	31
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3 – Defaults Upon Senior Securities	31
Item 4 – Mine Safety Disclosure	31
Item 5 – Other Information	31
Item 6 – Exhibits	31
Signatures	32

 

 

 

(Dollars in thousands, except per share data)		March 31, 2020				June 30, 2019
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions		$	12,452			$	9,322
Federal funds sold and interest-bearing deposits in financial institutions			92				139
Total cash and cash equivalents			12,544				9,461
Certificates of deposit in other financial institutions			11,908				1,983
Securities, available-for-sale			139,383				144,010
Securities, held-to-maturity (fair value of $3,792 at March 31, 2020 and $3,821 at June 30, 2019)			3,580				3,786
Federal bank and other restricted stocks, at cost			2,472				1,723
Loans held for sale			1,830				1,657
Total loans			467,804				369,175
Less allowance for loan losses			(4,468	)			(3,788	)
Net loans			463,336				365,387
Cash surrender value of life insurance			9,376				9,606
Premises and equipment, net			15,154				14,155
Goodwill			836				—
Core deposit intangible, net			263				—
Accrued interest receivable and other assets			2,595				2,168
Total assets		$	663,277			$	553,936
LIABILITIES
Deposits
Noninterest-bearing demand		$	137,554			$	116,239
Interest bearing demand			84,273				81,469
Savings			212,613				162,261
Time			128,582				112,205
Total deposits			563,022				472,174
Short-term borrowings			6,386				3,686
Federal Home Loan Bank advances			27,079				22,700
Accrued interest and other liabilities			5,462				4,210
Total liabilities			601,949				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; 3,124,053 shares issued as of March 31, 2020 and 2,854,133 as of June 30, 2019)			19,974				14,656
Retained earnings			39,300				36,487
Treasury stock, at cost (108,475 and 120,288 common shares as of March 31, 2020 and June 30, 2019, respectively)			(1,454	)			(1,543	)
Accumulated other comprehensive income			3,508				1,566
Total shareholders’ equity			61,328				51,166
Total liabilities and shareholders’ equity		$	663,277			$	553,936

 

		Three Months ended March 31,								Nine Months ended March 31,
(Dollars in thousands, except per share amounts)		2020				2019				2020				2019
Interest and dividend income
Loans, including fees		$	5,654			$	4,115			$	15,277			$	12,123
Securities, taxable			488				566				1,478				1,641
Securities, tax-exempt			387				403				1,186				1,177
Federal bank and other restricted stocks			16				19				56				63
Federal funds sold and other interest-bearing deposits			61				16				103				73
Total interest and dividend income			6,606				5,119				18,100				15,077
Interest expense
Deposits			918				749				2,773				1,881
Short-term borrowings			14				10				38				38
Federal Home Loan Bank advances			80				118				218				243
Total interest expense			1,012				877				3,029				2,162
Net interest income			5,594				4,242				15,071				12,915
Provision for loan losses			445				105				760				(555	)
Net interest income after provision for loan losses			5,149				4,137				14,311				13,470
Noninterest income
Service charges on deposit accounts			355				298				1,088				935
Debit card interchange income			367				338				1,142				1,065
Bank owned life insurance death benefit			—				—				324				—
Bank owned life insurance income			65				66				199				203
Securities gains (losses), net			121				1				231				561
Other			199				157				617				535
Total noninterest income			1,107				860				3,601				3,299
Noninterest expenses
Salaries and employee benefits			2,760				2,129				7,140				6,203
Occupancy and equipment			655				543				1,782				1,546
Data processing expenses			206				154				732				461
Debit card processing expenses			204				182				599				565
Professional and director fees			414				140				804				481
FDIC assessments			54				38				52				114
Franchise taxes			106				89				296				266
Marketing and advertising			125				87				399				322
Telephone and network communications			79				65				223				201
Amortization of intangible			7				—				7				—
Other			464				385				1,280				1,217
Total noninterest expenses			5,074				3,812				13,314				11,376
Income before income taxes			1,182				1,185				4,598				5,393
Income tax expense			164				150				637				836
Net income		$	1,018			$	1,035			$	3,961			$	4,557
Basic and diluted earnings per share		$	0.34			$	0.38			$	1.40			$	1.67

 

(Dollars in thousands)
		Three Months ended March 31,								Nine Months ended March 31,
		2020				2019				2020				2019
Net income		$	1,018			$	1,035			$	3,961			$	4,557
Other comprehensive income, net of tax:
Net change in unrealized gains (losses) on securities available-for-sale:
Unrealized gains arising during the period			1,900				1,946				2,690				2,840
Reclassification adjustment for gains included in income			(121	)			(1	)			(231	)			(561	)
Net unrealized gains			1,779				1,945				2,459				2,279
Income tax effect			(373	)			(410	)			(517	)			(480	)
Other comprehensive income			1,406				1,535				1,942				1,799
Total comprehensive income		$	2,424			$	2,570			$	5,903			$	6,356

 

(Dollars in thousands, except per share data)		Common Stock				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
Balance, December 31, 2018		$	14,628			$	35,154			$	(1,515	)		$	(1,371	)		$	46,896
Net income							1,035												1,035
Other comprehensive income															1,535				1,535
Cash dividends declared ($0.13 per share)							(355	)											(355	)
Balance, March 31, 2019		$	14,628			$	35,834			$	(1,515	)		$	164			$	49,111
Balance, December 31, 2019		$	14,697			$	38,691			$	(1,454	)		$	2,102			$	54,036
Net income							1,018												1,018
Other comprehensive income															1,406				1,406
269,920 shares issued for the Peoples acquisition			5,277																5,277
Cash dividends declared ($0.135 per share)							(409	)											(409	)
Balance, March 31, 2020		$	19,974			$	39,300			$	(1,454	)		$	3,508			$	61,328

(Dollars in thousands, except per share data)		Common Stock				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
Balance, June 30, 2018		$	14,630			$	32,342			$	(1,576	)		$	(1,635	)		$	43,761
Net income							4,557												4,557
Other comprehensive income															1,799				1,799
3,997 shares associated with vested and expired stock awards			(2	)							61								59
Cash dividends declared ($0.39 per share)							(1,065	)											(1,065	)
Balance, March 31, 2019		$	14,628			$	35,834			$	(1,515	)		$	164			$	49,111
Balance, June 30, 2019		$	14,656			$	36,487			$	(1,543	)		$	1,566			$	51,166
Net income							3,961												3,961
Other comprehensive income															1,942				1,942
269,920 shares issued for the Peoples acquisition			5,277																5,277
11,813 shares associated with vested stock awards			41								89								130
Cash dividends declared ($0.405 per share)							(1,148	)											(1,148	)
Balance, March 31, 2020		$	19,974			$	39,300			$	(1,454	)		$	3,508			$	61,328

 

(Dollars in thousands)		Nine Months Ended March 31,
		2020				2019
Cash flows from operating activities
Net cash from operating activities		$	5,024			$	5,275
Cash flow from investing activities
Purchases of securities, available-for-sale			(18,610	)			(16,778	)
Maturities, calls and principal pay downs of securities, available-for-sale			17,575				13,721
Sale of securities, available-for-sale			11,841				7,670
Principal pay downs of securities, held-to-maturity			206				200
Net decrease in certificate of deposit in other financial institutions			1,914				990
Purchase of Federal Reserve Bank stock, at cost			(595	)			—
Net increase in loans			(43,405	)			(28,239	)
Acquisition, net of cash acquired			(4,295	)			—
Proceeds from BOLI death benefit			753				—
Premises and equipment purchases			(453	)			(1,528	)
Sale of other repossessed assets			39				—
Net cash from investing activities			(35,030	)			(23,964	)
Cash flow from financing activities
Net increase in deposit accounts			29,997				29,326
Net change in short-term borrowings			352				(9,342	)
Proceeds from Federal Home Loan Bank advances			17,500				2,400
Repayments of Federal Home Loan Bank advances			(13,612	)			(2,050	)
Dividends paid			(1,148	)			(1,065	)
Net cash from financing activities			33,089				19,269
Increase in cash or cash equivalents			3,083				580
Cash and cash equivalents, beginning of period			9,461				7,772
Cash and cash equivalents, end of period		$	12,544			$	8,352
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest		$	3,048			$	2,102
Federal income taxes			675				645
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				—
Acquisition of Peoples:
Consideration paid		$	10,405
Noncash assets acquired:
Certificates of deposit in other financial institutions			11,839
Securities, available-for-sale			4,051
Federal bank and other restricted stocks, at cost			154
Loans, net			55,320
Premises and equipment			818
Goodwill			836
Core deposit intangible			270
Accrued interest receivable and other assets			140
Total noncash assets acquired			73,428
Liabilities assumed:
Deposits			60,851
Federal funds purchased			2,348
Federal Home Loan Bank advances			491
Other liabilities			166
Total liabilities assumed			63,856
Net noncash assets acquired			9,572
Cash acquired			833

 

 

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.

 

Acquisition: At the date of acquisition the Corporation records the assets and liabilities of acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Corporation’s Consolidated Statements of Income beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Income during the periods incurred.

 

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. As of March 31, 2020, the Corporation had contractual operating lease commitments of $500.

 

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, the Corporation 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 the Corporation’s 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 assets and liabilities of Peoples were 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 are 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. The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the acquisition was $55,273 before considering Peoples’ allowance for loan losses, which was not carried over. The fair value disclosed above reflects a credit-related adjustment of $(890) and an adjustment for other factors of $937. Loans evidencing credit deterioration since origination, purchased credit impaired loans, included in loans receivable were immaterial. Acquisition costs of $433 were recorded during the third quarter of fiscal year 2020 and $755 for the nine-month period ended March 31, 2020. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

 

Note 3 – Securities

 

 

 

 

 

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

 

 

The income tax provision related to the net realized gains amounted to $26 and $49 for the three and nine months ended March 31, 2020. The income tax provision related to net realized gains amounted to $118 for the nine months ended March 31, 2019.

 

 

The amortized cost and fair values of debt securities at March 31, 2020, 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 March 31, 2020 and June 30, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

 

 

 

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 March 31, 2020 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 municipal and mortgage backed security spreads and the fair value is expected to recover. 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:

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020:

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2020:

 

 

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

 

 

 

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

 

 

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 March 31, 2020. Included in the recorded investment in loans is $1,045 of accrued interest receivable.

 

 

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 March 31, 2020 and for the nine months ended March 31, 2020:

 

 

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, 2020:

 

 

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 nine months ended March 31, 2019:

 

 

 

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, 2019:

 

 

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 March 31, 2020 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 March 31, 2020 by class of loans:

 

 

The above table of past due loans includes the recorded investment in non-accrual loans of $27 in the 60-89 days category, $663 in the 90 days or greater category and $407 in the loans not past due category.

 

 

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 that are classified as TDRs. A modified loan is usually classified as a TDR if, for economic reasons, management grants a concession to the original terms and conditions of the loan to a borrower who is experiencing financial difficulties that it would not have otherwise considered. In response to COVID-19, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by the virus. The program is available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as TDRs. As of March 31, 2020, there were 32 commercial loans with an outstanding balance of $16,116, five mortgage loans with an outstanding balance of $307 and 16 consumer loans with an outstanding balance of $252 that were granted 90 days of payment deferrals under the loan modification program that was adopted in response to COVID-19 that are not classified as TDRs.

 

As of March 31, 2020 and June 30, 2019, the Corporation had $673 and $725, respectively, of loans classified as TDRs which are included in impaired loans above. As of March 31, 2020, 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. As of March 31, 2020 and June 30, 2019, the Corporation had $9 of specific reserves allocated to these loans.

 

During the three and nine-month periods ended March 31, 2020, 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 nine-month periods ended March 31, 2020.

 

During the three-month period ended March 31, 2019, the terms of a loan to one borrower were modified as a troubled debt restructuring. The modification of the terms of the loan included a combination of forgiveness of a portion of the principal amount owed, which resulted in a reduction in the monthly payment amount. The following table presents loans by class modified as troubled debt restructurings that occurred during the period ended March 31, 2019:

 

 

The troubled debt restructuring described above increased the allowance for loan losses and resulted in a charge-off of $80 during the period ended March 31, 2019.

 

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 nine-month periods ended March 31, 2020 and 2019. 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.

 

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 pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Generally, 1-4 Family Residential and Consumer loans are not risk rated, except when collateral is used for a business purpose. 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: