CONSUMERS BANCORP INC /OH/ - Quarter Report: 2021 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
☐	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2021

 

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 3,028,100 shares of Registrant’s common stock, no par value, outstanding as of May 12, 2021.

 

 

 

CONSUMERS BANCORP, INC. FORM 10-Q QUARTER ENDED March 31, 2021

Table of Contents

 

Page Number (s)

Part I – Financial Information
Item 1 – Financial Statements
Consolidated Balance Sheets at March 31, 2021 and June 30, 2020	1
Consolidated Statements of Income for the three and nine months ended March 31, 2021 and 2020 (unaudited)	2
Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2021 and 2020 (unaudited)	3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2021 and 2020 (unaudited)	4
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2021 and 2020 (unaudited)	5
Notes to the Consolidated Financial Statements (unaudited)	6-22
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-32
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)		March 31, 2021 (unaudited)				June 30, 2020
ASSETS
Cash on hand and noninterest-bearing deposits in financial institutions		$	8,541			$	8,429
Federal funds sold and interest-bearing deposits in financial institutions			32,491				1,230
Total cash and cash equivalents			41,032				9,659
Certificates of deposit in other financial institutions			7,335				11,635
Securities, available-for-sale			169,059				143,918
Securities, held-to-maturity (fair value of $8,483 at March 31, 2021 and $3,868 at June 30, 2020)			8,036				3,541
Equity securities, at fair value			412				—
Federal bank and other restricted stocks, at cost			2,472				2,472
Loans held for sale			561				3,507
Total loans			553,137				542,861
Less allowance for loan losses			(6,076	)			(5,678	)
Net loans			547,061				537,183
Cash surrender value of life insurance			9,637				9,442
Premises and equipment, net			15,345				14,901
Goodwill			836				836
Core deposit intangible, net			236				256
Accrued interest receivable and other assets			3,470				3,470
Total assets		$	805,492			$	740,820
LIABILITIES
Deposits
Noninterest-bearing demand		$	215,828			$	190,233
Interest bearing demand			124,046				99,173
Savings			275,636				228,567
Time			88,478				115,382
Total deposits			703,988				633,355
Short-term borrowings			9,419				6,943
Federal Home Loan Bank advances			18,067				31,161
Accrued interest and other liabilities			6,445				6,121
Total liabilities			737,919				677,580
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, 2021 and June 30, 2020)			20,011				19,974
Retained earnings			46,154				40,460
Treasury stock, at cost (95,953 and 108,475 common shares as of March 31, 2021 and June 30, 2020, respectively)			(1,324	)			(1,454	)
Accumulated other comprehensive income			2,732				4,260
Total shareholders’ equity			67,573				63,240
Total liabilities and shareholders’ equity		$	805,492			$	740,820

 

		Three Months ended March 31,								Nine Months ended March 31,
(Dollars in thousands, except per share amounts)		2021				2020				2021				2020
Interest and dividend income
Loans, including fees		$	5,840			$	5,654			$	18,912			$	15,277
Securities, taxable			368				488				1,084				1,478
Securities, tax-exempt			428				387				1,275				1,186
Equity securities			8				—				8				—
Federal bank and other restricted stocks			19				16				58				56
Federal funds sold and other interest-bearing deposits			41				61				130				103
Total interest and dividend income			6,704				6,606				21,467				18,100
Interest expense
Deposits			299				918				1,363				2,773
Short-term borrowings			2				14				8				38
Federal Home Loan Bank advances			67				80				208				218
Total interest expense			368				1,012				1,579				3,029
Net interest income			6,336				5,594				19,888				15,071
Provision for loan losses			185				445				445				760
Net interest income after provision for loan losses			6,151				5,149				19,443				14,311
Noninterest income
Service charges on deposit accounts			290				355				911				1,088
Debit card interchange income			467				367				1,368				1,142
Gain on sale of mortgage loans			149				121				631				397
Bank owned life insurance death benefit			—				—				—				324
Bank owned life insurance income			64				65				195				199
Securities gains, net			6				121				14				231
Other			78				78				229				220
Total noninterest income			1,054				1,107				3,348				3,601
Noninterest expenses
Salaries and employee benefits			2,527				2,760				7,978				7,140
Occupancy and equipment			662				655				1,938				1,782
Data processing expenses			182				206				544				732
Debit card processing expenses			242				204				696				599
Professional and director fees			188				414				674				804
FDIC assessments			76				54				224				52
Franchise taxes			132				106				349				296
Marketing and advertising			114				125				364				399
Telephone and network communications			84				79				247				223
Amortization of intangible			6				7				20				7
Other			452				464				1,261				1,280
Total noninterest expenses			4,665				5,074				14,295				13,314
Income before income taxes			2,540				1,182				8,496				4,598
Income tax expense			424				164				1,472				637
Net income		$	2,116			$	1,018			$	7,024			$	3,961
Basic and diluted earnings per share		$	0.70			$	0.34			$	2.33			$	1.40

 

(Dollars in thousands)		Three Months ended March 31,								Nine Months ended March 31,
		2021				2020				2021				2020
Net income		$	2,116			$	1,018			$	7,024			$	3,961
Other comprehensive income, net of tax:
Net change in unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period			(2,269	)			1,900				(1,921	)			2,690
Reclassification adjustment for gains included in income			(6	)			(121	)			(14	)			(231	)
Net unrealized gains (losses)			(2,275	)			1,779				(1,935	)			2,459
Income tax effect			478				(373	)			407				(517	)
Other comprehensive income (loss)			(1,797	)			1,406				(1,528	)			1,942
Total comprehensive income		$	319			$	2,424			$	5,496			$	5,903

 

(Dollars in thousands, except per share data)		Common Stock				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
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
Balance, December 31, 2020		$	20,011			$	44,492			$	(1,324	)		$	4,529			$	67,708
Net income							2,116												2,116
Other comprehensive loss															(1,797	)			(1,797	)
Cash dividends declared ($0.15 per share)							(454	)											(454	)
Balance, March 31, 2021		$	20,011			$	46,154			$	(1,324	)		$	2,732			$	67,573

(Dollars in thousands, except per share data)		Common Stock				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
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
Balance, June 30, 2020		$	19,974			$	40,460			$	(1,454	)		$	4,260			$	63,240
Net income							7,024												7,024
Other comprehensive loss															(1,528	)			(1,528	)
12,522 shares associated with vested and expired stock awards			37								130								167
Cash dividends declared ($0.44 per share)							(1,330	)											(1,330	)
Balance, March 31, 2021		$	20,011			$	46,154			$	(1,324	)		$	2,732			$	67,573

 

(Dollars in thousands)		Nine Months Ended March 31,
		2021				2020
Cash flows from operating activities
Net cash from operating activities		$	11,421			$	5,024
Cash flow from investing activities
Purchases of securities, available-for-sale			(63,825	)			(18,610	)
Maturities, calls and principal pay downs of securities, available-for-sale			30,890				17,575
Sale of securities, available-for-sale			5,545				11,841
Purchase of securities, held-to-maturity			(4,700	)			—
Principal pay downs of securities, held-to-maturity			205				206
Purchase of equity securities			(400	)			—
Net decrease in certificate of deposit in other financial institutions			4,300				1,914
Purchase of Federal Reserve stock, at cost			—				(595	)
Net increase in loans			(10,332	)			(43,405	)
Acquisition, net cash acquired			—				(4,295	)
Proceeds from BOLI death benefit			—				753
Premises and equipment purchases			(433	)			(453	)
Sale of other repossessed assets			17				39
Net cash from investing activities			(38,733	)			(35,030	)
Cash flow from financing activities
Net increase in deposit accounts			70,633				29,997
Net change in short-term borrowings			2,476				352
Proceeds from Federal Home Loan Bank advances			1,300				17,500
Repayments of Federal Home Loan Bank advances			(14,394	)			(13,612	)
Dividends paid			(1,330	)			(1,148	)
Net cash from financing activities			58,685				33,089
Increase in cash or cash equivalents			31,373				3,083
Cash and cash equivalents, beginning of period			9,659				9,461
Cash and cash equivalents, end of period		$	41,032			$	12,544
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest		$	1,627			$	3,048
Federal income taxes			1,930				675
Non-cash items:
Transfer of loans to other repossessed assets			9				—
Issuance of treasury stock for stock awards			167				89
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, 2020. 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 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.

 

Recently Issued Accounting Pronouncements Not Yet Effective: 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 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.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR, or other reference rates that may be discontinued, and provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria. The ASU also provides for a one-time sale and/or transfer to AFS or trading to be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. The Corporation does not expect ASU 2020-04 to have a material impact on its financial statements and disclosures.

 

Note 2 – Acquisition

 

On December 29, 2020, the Bank entered into a Branch Purchase and Assumption Agreement (P&A Agreement) with CFBank National Association (CFBank) to acquire two branches of CFBank in Columbiana County, Ohio. The P&A Agreement provides for the sale and transfer by CFBank to the Bank the land, buildings and other associated assets of CFBank’s drive-up branch location in Wellsville, Ohio and CFBank’s branch location in Calcutta, Ohio (the Branches); approximately $100 million in deposits attributable to the Branches; $15 million in aggregate principal amount of subordinated debt securities issued by unrelated financial institutions; all performing loans attributable to the Branches which are outstanding at closing (totaling approximately $3.1 million in aggregate principal amount as of November 30, 2020); and up to $13.5 million in aggregate principal amount of single family residential mortgage loans and home equity lines of credit to be identified by the parties prior to the closing principally from CFBank’s Northeast Ohio loan portfolio. In addition, CFBank will provide the opportunity for the Corporation to purchase at par at least $15 million in aggregate principal amount of participation interests in commercial and commercial real estate loans originated by and held in CFBank’s portfolio. In exchange, Consumers will pay to CFBank the net book value of the land, building and associated assets of the Branches, a deposit premium equal to 1.75% of the average daily deposits of the Branches for the 30 days preceding the closing, and the par value of the subordinated debt securities and loans acquired by Consumers. The transaction is expected to close in July 2021, pending the completion of customary closing conditions. All necessary regulatory approvals have been received.

 

On January 1, 2020, Consumers completed the acquisition by merger of Peoples Bancorp of Mt. Pleasant, Inc. (Peoples) and its wholly owned subsidiary, The Peoples National Bank of Mount Pleasant (Peoples Bank) 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.

 

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. As of the date of acquisition of Peoples, the estimated fair value of loans received was $55,320 and the estimated fair value of deposits assumed was $60,851.

 

 

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 and $3 for the three- and nine-month periods ended March 31, 2021, respectively. The income tax provision related to the net realized gains amounted to $26 and $49 for the three- and nine-month periods ended March 31, 2020, respectively.

 

The amortized cost and fair values of debt securities at March 31, 2021, 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, 2021 and June 30, 2020, 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.

 

At March 31, 2021, there were a total of 44 available-for-sale securities in the portfolio with unrealized losses mainly due to an increase in market rates when compared to the time of purchase. The unrealized losses within the securities portfolio as of March 31, 2021 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 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.

 

The following table presents the net unrealized gains and losses on equity securities recognized in earnings for the three and nine months ended March 31, 2021 and 2020. There were no realized gains or losses on the sale of equity securities during the periods presented.

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

Note 4 – Loans

 

Major classifications of loans were as follows:

 

 

The commercial loan category in the above table includes PPP loans of $65,492 as of March 31, 2021 and $66,606 as of June 30, 2020 and a mortgage loan warehouse line of credit to another financial institution with an outstanding balance of $7,121 as of March 31, 2021 and $32,869 as of June 30, 2020. The outstanding balance of the warehouse line of credit can fluctuate significantly based on the other financial institution’s funding needs.

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021:

 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2021:

 

 

 

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 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 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, 2021. Included in the recorded investment in loans is $1,289 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, 2020. Included in the recorded investment in loans is $1,936 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, 2021 and for the nine months ended March 31, 2021:

 

 

 

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 March 31, 2021:

 

 

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

 

 

 

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 March 31, 2020:

 

 

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, 2021 and June 30, 2020:

 

 

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.

 

 

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 March 31, 2021 by class of loans:

 

 

The above table of past due loans includes the recorded investment in non-accrual loans of $867 in the 90 days or greater category and $1,016 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, 2020 by class of loans:

 

 

The above table of past due loans includes the recorded investment in non-accrual loans of $2 in the 60-89 days, $792 in the 90 days or greater category and $391 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. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. 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, 2021, 7 borrowers with an aggregate outstanding balance of $89 are in payment deferral status under this loan modification program.

 

As of March 31, 2021 and June 30, 2020, the Corporation had $706 and $974, respectively, of loans classified as TDRs which are included in impaired loans above. As of March 31, 2021 and June 30, 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 March 31, 2021 and June 30, 2020, the Corporation had $1 and $12, respectively, of specific reserve allocated to these loans.

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

During the three- and nine-month periods ended March 31, 2021 and 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, 2021 and 2020.

 

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, 2021 and 2020. 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:

 

 

 

CONSUMERS BANCORP, INC.

Notes to the Consolidated Financial Statements

(Unaudited) (continued)

 

(Dollars in thousands, except per share amounts)

 

As of June 30, 2020, and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows: