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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002.
Commission file number
033-79130
CONSUMERS BANCORP, INC.
-----------------------
(Exact name of Issuer as specified in its charter)
OHIO 34-1771400
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
614 E. Lincoln Way
Minerva, Ohio 44657
- ------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 330-868-7701
------------
Indicate by check mark whether the issuer (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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value Outstanding at February 12, 2003
2,146,281 Common Shares
CONSUMERS BANCORP, INC
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2002
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Interim financial information required by Item 310(b) of Regulation S-B is
included in this Form 10-Q as referenced below:
Page
Number(s)
---------
Consolidated Balance Sheets
December 31, 2002 and June 30, 2002 1
Consolidated Statements of Income
Three and six months ended December 31, 2002 and 2001 2
Consolidated Statement of Comprehensive Income 3
Condensed Consolidated Statements of Changes in Shareholders' Equity
Three and six months ended December 31, 2002 and 2001 3
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 2002 and 2001 4
Notes to the Consolidated Financial Statements 5-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 11-22
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 23
Item 4 - Controls and Procedures 23
PART II - OTHER
Item 1 - Legal Proceedings 24
Item 2 - Changes in Securities and Use of Proceeds 24
Item 3 - Defaults upon Senior Securities 24
Item 4 - Submission of Matters to a Vote of Security Holders 24
Item 5 - Other Information 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 28
CONSUMERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in thousands except per share data)
December 31, 2002 June 30, 2002
----------------- -------------
ASSETS
Cash and cash equivalents $ 7,673 $ 7,851
Federal funds sold 5,245 7,710
Securities, available for sale 31,772 34,122
Loans, net 123,421 123,454
Cash surrender value of life insurance 3,597 3,499
Premises and equipment, net 5,777 5,334
Intangible assets 1,458 1,538
Accrued interest receivable and other assets 1,071 1,196
--------- ---------
Total assets $ 180,014 $ 184,704
========= =========
LIABILITIES
Deposits
Non-interest bearing demand $ 31,309 $ 31,044
Interest bearing demand 13,251 12,948
Savings 59,351 58,137
Time 51,123 57,939
--------- ---------
Total Deposits 155,034 160,068
--------- ---------
Securities sold under agreements to repurchase 4,569 5,133
Federal Home Loan Bank advance 1,865 2,153
Accrued interest and other liabilities 1,779 1,530
--------- ---------
Total liabilities 163,247 168,884
SHAREHOLDERS' EQUITY
Common stock (no par value, 2,500,000 shares
authorized; 2,160,000 issued) 4,869 4,869
Retained earnings 11,680 10,830
Treasury stock, at cost (13,719 shares at
December 31, 2002 and June 30, 2002) (204) (204)
Accumulated other comprehensive income 422 325
--------- ---------
Total shareholders' equity 16,767 15,820
--------- ---------
Total liabilities and shareholders' equity $ 180,014 $ 184,704
========= =========
See accompanying notes to consolidated financial statements
1
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
------ ------ ------ ------
Interest income
Loans, including fees $2,621 $3,157 $5,348 $6,356
Securities
Taxable 302 293 665 565
Tax-exempt 33 28 64 57
Federal funds sold 27 55 71 119
------ ------ ------ ------
Total interest income 2,983 3,533 6,148 7,097
Interest expense
Deposits 677 1,111 1,419 2,412
Federal Home Loan Bank advances 27 34 61 68
Other 20 21 43 40
------ ------ ------ ------
Total interest expense 724 1,166 1,523 2,520
Net interest income 2,259 2,367 4,625 4,577
Provision for loan losses 99 312 217 500
------ ------ ------ ------
Net interest income after
Provision for loan losses 2,160 2,055 4,408 4,077
Other income
Service charges on deposit accounts 374 254 729 501
Other 201 192 388 349
------ ------ ------ ------
Total other income 575 446 1,117 850
Other expenses
Salaries and employee benefits 930 837 1,842 1,697
Occupancy 316 291 612 561
Directors' fees 59 58 106 102
Professional fees 100 37 182 78
Franchise taxes 45 45 90 90
Printing and supplies 40 58 82 104
Telephone 56 46 107 93
Amortization of intangible 40 40 80 80
Other 324 303 641 581
------ ------ ------ ------
Total other expenses $1,910 $1,715 $3,742 $3,386
------ ------ ------ ------
Income before income taxes 825 786 1,783 1,541
Income tax expense 230 246 546 478
------ ------ ------ ------
Net Income $ 595 $ 540 $1,237 $1,063
====== ====== ====== ======
Basic earnings per share $ .28 $ .25 $ .58 $ .49
See accompanying notes to consolidated financial statements
2
CONSUMERS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands, except per share data)
Three Months ended Six Months ended
December 31, December 31,
2002 2001 2002 2001
-------- -------- -------- --------
Balance at beginning of period $ 16,423 $ 14,700 $ 15,820 $ 14,217
Comprehensive income:
Net Income 595 540 1,237 1,063
Other comprehensive income (loss) (36) (180) 97 (67)
-------- -------- -------- --------
Total comprehensive income 559 360 1,334 996
Common cash dividends (215) (192) (387) (351)
Treasury shares issued 6
-------- -------- -------- --------
Balance at the end of the period $ 16,767 $ 14,868 $ 16,767 $ 14,868
======== ======== ======== ========
Common cash dividends per share $ 0.10 $ 0.09 $ 0.18 $ 0.16
See accompanying notes to consolidated financial statements.
3
CONSUMERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Six Months Ended
December 31,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,237 $ 1,063
Adjustments to reconcile net income to net cash
from operating activities 537 357
-------- --------
Net cash from operating activities 1,774 1,420
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (7,992) (12,033)
Maturities and principal pay downs 10,300 4,389
Net decrease (increase) in federal funds sold 2,465 (2,325)
Net decrease (increase) in loans 300 (373)
Acquisition of premises and equipment (752) (140)
Purchase of life insurance policies (365)
-------- --------
Net cash from investing activities 4,321 (10,847)
CASH FLOW FROM FINANCING
Net (decrease) increase in deposit accounts (5,034) 9,867
Net (decrease) increase in repurchase agreements (564) 1,308
Repayments of FHLB advances (288) (49)
Dividends paid (387) (351)
Sale of treasury stock 6
-------- --------
Net cash from financing activities (6,273) 10,781
-------- --------
Change in cash or cash equivalents (178) 1,354
Cash and cash equivalents, beginning of year 7,851 6,626
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,673 $ 7,980
======== ========
See accompanying notes to consolidated financial statements.
4
CONSUMERS BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
NOTE 1 - PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of Consumers Bancorp, Inc. (Corporation) and its wholly
owned subsidiary, Consumers National Bank (Bank). The Bank has a title company,
Community Title Agency, Inc. as part of its business. During December 2002,
Consumers National Bank purchased the assets and assumed the liabilities of its
wholly owned finance company. The Finance Company's Salem, Ohio office was
closed. All significant intercompany transactions have been eliminated in the
consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated balance sheets of the
Corporation at December 31, 2002, and its income and cash flows for the periods
presented. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by accounting
principles generally accepted in the United States of America that might
otherwise be necessary in the circumstances. The Annual Report for the
Corporation for the year ended June 30, 2002, contains consolidated financial
statements and related notes that should be read in conjunction with the
accompanying consolidated financial statements.
Segment Information: Consumers Bancorp, Inc. is a financial holding company
engaged in the business of commercial and retail banking, which accounts for
substantially all of the revenues, operating income, and assets.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles generally accepted in the United States of
America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, fair values of financial instruments, and
status of contingencies are particularly subject to change.
Cash Reserves: Consumers National Bank is required by the Federal Reserve Bank
to maintain reserves consisting of cash on hand and noninterest-bearing balances
on deposit with the Federal Reserve Bank. The required reserve balance at
December 31, 2002 was $1,082 and at June 30, 2002 was $1,181. .
Securities: Securities are classified only as available-for-sale.
Held-to-maturity securities are those that the Bank has the positive intent and
ability to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are those that the Bank may decide to sell if
needed for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax.
5
CONSUMERS BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(Dollars in thousands, except per share amounts)
NOTE 1 - CONTINUED
Realized gains or losses on sales are determined based on the amortized cost of
the specific security sold. Amortization of premiums and accretion of discount
are computed under a system materially consistent with the level yield method
and are recognized as adjustments to interest income. Prepayment activity on
mortgage-backed securities is affected primarily by changes in interest rates.
Yields on mortgage-backed securities are adjusted as prepayments occur through
changes to premium amortized or discount accreted.
Loans: Loans are reported at the principal balance outstanding, net of deferred
loan fees. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days. Payments received on such loans are
reported as principal reductions.
Concentrations of Credit Risk: The Bank grants consumer, real estate and
commercial loans primarily to borrowers in Stark, Columbiana and Carroll
counties. Automobiles and other consumer assets, business assets and residential
and commercial real estate secure most loans.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values.
Allocations of the allowance maybe made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans, and on an individual
loan basis for other loans. If a loan is impaired, a portion of the allowance is
allocated so the loan is reported, net, at the present value of estimated future
cash flows using the loan's existing rate or at the fair value of collateral if
repayment is expected from the collateral. Loans are evaluated for impairment
when payments are delayed, typically 90 days or more, or when it is probable
that not all principal and interest amounts will be collected according to the
original terms of the loan. No loans were determined to be impaired, as of and
for the periods ended December 31, 2002 and June 30, 2002.
Cash Surrender Value of Life Insurance: The Bank has purchased single-premium
life insurance policies to insure the lives of the participants in the salary
continuation plan. As of December 31, 2002, the Bank has total purchased
policies of $2,885
6
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(Dollars in thousands, except per share amounts)
NOTE 1- CONTINUED
(total death benefit $9,358) with a cash surrender value of $3,597. As of June
30, 2002, the Bank had total purchased policies of $ 2,885 (total death benefit
$9,358) with a cash surrender value of $3,499. The amount included in income
(net of policy commissions and mortality costs) was approximately, $47 and $38
for the three month periods ended and $98 and $75 for the six month periods
ended December 31, 2002 and 2001.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the assets' useful lives
on an accelerated basis, except for building for which the straight-line basis
is used.
Intangible Assets: Purchased intangible, core deposit value, is recorded at cost
and amortized over the estimated life. Core deposit value amortization is
straight-line over 12 years.
Other Real Estate Owned: Real estate properties, other than Company premises,
acquired through, or in lieu of, loan foreclosure are initially recorded at fair
value at the date of acquisition. Any reduction to fair value from the carrying
value of the related loan at the time of acquisition is accounted for as a loan
loss. After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell. Expenses,
gains and losses on disposition, and changes in the valuation allowance are
reported in other expenses. There were no properties held as other real estate
owned at December 31, 2002 and June 30, 2002.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Profit Sharing Plan: The Company maintains a 401(k) profit sharing plan covering
substantially all employees. Contributions are made and expensed annually.
Income Taxes: The Company files a consolidated federal income tax return. Income
tax expense is the sum of the current-year income tax due or refundable and the
change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
7
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(Dollars in thousands, except per share amounts)
NOTE 1- CONTINUED
Earnings and Dividends Declared per Share: Earnings per common share are
computed based on the weighted average common shares outstanding. The number of
outstanding shares used was 2,146,281 and 2,150,781 for the quarters and
2,146,281 and 2,150,730 for the six month periods ended December 31, 2002 and
December 31, 2001. The Company's capital structure contains no dilutive
securities. As of December 31, 2002 the Company has 2,500,000 shares of common
stock authorized and 2,160,000 issued.
Statement of Cash Flows: For purpose of reporting cash flows, cash and cash
equivalents include the Company's cash on hand and due from banks. The company
reports net cash flows for customer loan transactions and deposit transactions.
For the six months ended December 31, 2002 and 2001, the Corporation paid $1,602
and $2,698 in interest and $554 and $474 in income taxes.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of the securities available for
sale, as presented on the consolidated balance sheet at December 31, 2002 and
June 30, 2002 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
DECEMBER 31, 2002 Cost Gains Losses Value
------- ------- ------- -------
Securities available for sale:
U.S. Treasury and Federal Agencies $ 9,853 $ 169 $ $10,022
Obligations of states and
political subdivisions 2,876 102 2,978
Mortgage-backed securities 17,293 382 (1) 17,674
Other securities 1,113 (15) 1,098
------- ------- ------- -------
Total Securities $31,135 $ 653 $ (16) $31,772
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized Fair
JUNE 30, 2002 Cost Gains Losses Value
------- ------- ------- -------
Securities available for sale
U.S. Treasury an Federal Agencies $11,067 $ 100 $ $11,167
Obligations of states and
political subdivisions 3,040 73 (9) 3,104
Mortgage-backed securities 18,481 335 (10) 18,806
Other securities 1,042 3 1,045
------- ------- ------- -------
Total Securities $33,630 $ 511 $ (19) $34,122
======= ======= ======= =======
8
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(Dollars in thousands, except per share amounts)
NOTE 2 - SECURITIES AVAILABLE FOR SALE
There were no sales or transfer of securities classified as available for sale
for the three or six month periods ended December 31, 2002 and December 31,
2001.
The estimated fair value of debt securities at December 31, 2002, by contractual
maturity, are shown below. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated Fair
Value
--------------
Securities for sale:
Due in one year or less $ 5,889
Due after one year through five years 6,079
Due after five years through ten years 1,032
Due after ten years
Total 13,000
Mortgage-backed securities 17,674
Other Securities 1,098
-------
Total $31,772
=======
At December 31, 2002, there were no holdings of securities of any one issuer,
other than the U.S. government and its agencies and corporations, with an
aggregate book value, which exceeds 10% of shareholders' equity.
NOTE 3 - LOANS
Total loans as presented on the balance sheets are comprised of the following
classifications:
December 31, 2002 June 30, 2002
----------------- -------------
Real-estate - residential mortgage $ 57,561 $ 56,716
Real-estate - construction 1,372 2,107
Commercial, financial and agriculture 54,007 53,535
Personal and other 12,413 13,029
--------- ---------
Total 125,353 125,387
Unearned fees and costs (225) (265)
Allowance for loan losses (1,707) (1,668)
--------- ---------
Loans, net $ 123,421 $ 123,454
========= =========
9
CONSUMERS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
(Dollars in thousands)
NOTE 3 - LOANS (CONTINUED)
No loans were determined to be impaired at either December 31, 2002, or June 30,
2002, nor were there any such loans during the period then ended. At December
31, 2002, loans in non-accrual status totaled $796 and at June 30, 2002, totaled
$829.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the six months ended
December 31, 2002, and December 31, 2001 are as follows:
2002 2001
---- ----
Balance at June 30, $ 1,668 $ 1,552
Provision 217 500
Charge-offs (271) (527)
Recoveries 93 33
------- -------
Balance at December 31, $ 1,707 $ 1,558
======= =======
10
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following is management's analysis of the Corporation's results of
operations as of and for the three month period and six month period ending
December 31, 2002, compared to the same period in 2001, and the consolidated
balance sheets at December 31, 2002 compared to June 30, 2002. This discussion
is designed to provide a more comprehensive review of the operating results and
financial condition than could be obtained from an examination of the financial
statements alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the selected
financial data included elsewhere in this report.
RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
NET INCOME Net income was $595 for the second quarter of 2002, an increase of
$55 compared to the second quarter of 2001 net income of $540. Earnings per
common share for the second quarter of 2002 were $0.28 as compared to $0.25 for
the second quarter of 2001. Return on average equity (ROE) and return on average
assets (ROA) were 14.08% and 1.29%, respectively, for the second quarter of 2002
compared to 14.31% and 1.16%, respectively, in 2001.
NET INTEREST INCOME
Net interest income for the second quarter of 2002 was $2,259, a decrease of
$108 or 4.6% from $2,367 in the second quarter of 2001. Net interest income, the
difference between interest income earned on interest-earning assets and
interest expense incurred on interest-bearing liabilities, is the most
significant component of the Corporation's earnings. Net interest income is
affected by changes in the volumes, rates and composition of interest-earning
assets and interest-bearing liabilities. Average earning assets decreased 1.4%
from the second quarter last year, with average loans, decreasing 6.5% from last
year due in part Average interest bearing deposits decreased 6.7% from the same
quarter last year. Consumer's net interest margin for the three months ended
December 31, 2002 was 5.41%, a decrease of 23 basis points from last quarter and
18 basis points from the second quarter a year ago. The decline in interest
rates as well as increased refinancings at lower rates in the second quarter
2002 caused the interest margin to decline.
11
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31
(In thousands except percentages)
2002 2001
---- ----
Average Yield/ Average Yield/
Balance Interest rate Balance Interest rate
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Taxable securities $ 30,755 $ 302 3.90% $ 22,137 $ 293 5.25%
Nontaxable securities 2,957 51 6.84 2,477 42 6.72
Loans receivable 125,879 2,624 8.27 134,647 3,163 9.32
Federal funds sold 7,593 27 1.41 10,255 55 2.72
-------- -------- ------ -------- -------- ------
Total Interest-Earning Assets $167,184 $ 3,004 7.13% $169,516 $ 3,553 8.32%
Noninterest-Earning Assets 15,888 15,460
-------- --------
Total Assets $183,072 $184,976
======== ========
Interest Bearing Liabilities
NOW $ 13,651 $ 43 1.25% $ 12,061 $ 40 1.32%
Savings 58,907 158 1.06 54,753 223 1.62
Time deposits 52,740 476 3.58 67,548 848 4.98
Repurchase agreements 4,838 20 1.63 3,194 21 2.61
FHLB advances 1,929 27 5.47 2,221 34 6.07
-------- -------- ------ -------- -------- ------
Total interest bearing 132,065 724 2.17% 139,777 1,166 3.31%
liabilities
Noninterest bearing liabilities 34,242 30,225
-------- --------
Total liabilities 166,307 170,002
Shareholders equity $ 16,765 $ 14,974
-------- --------
Total liabilities and
Shareholders equity $183,072 $184,976
======== ========
Net interest income, interest
rate spread (1) $ 2,280 4.96% $ 2,387 5.01%
Net interest margin (net
interest as a percent of
average interest-earning
assets (1) 5.41% 5.59%
Average interest-earning assets
to interest-bearing liabilities 126.59% 121.28%
(1) calculated on a fully taxable equivalent basis
12
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge to income necessary to
adjust the allowance for loan losses to an amount that represents management's
assessment of the estimated probable credit losses inherent in Consumers' loan
portfolio which have been incurred at each balance sheet date. The provision for
loan losses decreased $213 or 68.3% to $99 in the second quarter of 2002
compared to $312 in the second quarter of 2001. The decreased provision for loan
losses in the second quarter of 2002 was attributable to decline in both the
loan portfolio and net charge-offs. Net charge-offs were $88 or 0.28%
(annualized) of average loans during the three months ended December 31, 2002,
compared to $300 or 0.88% (annualized) for the same period in 2001.
December 31, June 30, December 31,
2002 2002 2001
------------ -------- ------------
Allowance for loan losses as a
percentage of loans 1.36% 1.33% 1.16%
Allowance for loan losses as a
percentage of non-performing
assets 119.62% 120.78% 180.32%
The impact of a weaker economy was reflected as the allowance for loan losses as
a percentage of non-performing loans for the second quarter of 2002 decreased
compared to the second quarter of 2001 as a result of non-performing loans
increasing from $760 at December 31, 2001 to $1,427 at December 31, 2002.
NON-INTEREST INCOME
Non-interest income was $575 for the second quarter increasing 28.9% from $446
in the same period last year. Service charges on deposits were $374, up $120, or
47.2% from last year, attributable mainly to the introduction of Overdraft
Privilege Program in April 2002 coupled with deposit growth in non-interest
bearing checking.
NON-INTEREST EXPENSE
Non-interest expense for the second quarter was $1,910, compared to $1,715 in
the second quarter last year. The increase in the second quarter was due
primarily to the increase in salary. Additionally, non-interest expense was
impacted by increased professional fees to support corporate governance issues
and payment of overdraft privilege fees to the originating vendor. The
efficiency ratio was 60.9% for the second quarter of 2002, compared to 60.5% for
the same quarter last year.
13
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INCOME TAXES
The provision for income taxes for the second quarter of 2002 decreased $16 to
$230 from $246 for the same period in 2001. The effective tax rate for the three
months ended December 31, 2002 was 27.9% as compared to 31.3% for the same
period in 2001.
SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
NET INCOME. The Corporation earned net income of $1,237 for the six months ended
December 31, 2002 compared to $1,063 for the six months ended December 31, 2001.
This increase was primarily due to increases of $48 in net interest income and
$267 in other income offset by an increase in other expenses.
NET INTEREST INCOME. Net interest income totaled $4,625 for the six months ended
December 31, 2002 compared to $4,577 for the six months ended December 31, 2001,
an increase of $48 or 1.0%. The additional net interest income was primarily due
to the decrease in interest expense.
Interest and fees on loans decreased $1,008, or 15.9%, to $5,348 for the six
months ended December 31, 2002 from $6,356 for the six months ended December 31,
2001. The decrease in interest income was due to decreases in both average
volume and yield. The yield on average loans outstanding for the six month
periods ended December 31, 2002, and December 31, 2001 was 8.48% and 9.41%
respectively.
Interest earned on taxable and tax-exempt securities totaled $729 for the six
month period ended December 31, 2002 compared to $622 for the six month period
ended December 31, 2001. The increase was primarily a result of an increase in
volume. Interest income on federal funds sold decreased by $48 for the six
months ended December 31, 2002, due to a decrease in yield.
14
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31
(In thousands except percentages)
2002 2001
---- ----
Average Yield/ Average Yield/
Balance Interest rate Balance Interest rate
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Taxable securities $ 30,030 $ 665 4.39% $ 19,963 $ 565 5.61%
Nontaxable securities 2,998 97 6.41 2,458 88 7.10
Loans receivable 125,314 5,355 8.48 134,119 6,365 9.41
Federal funds sold 9,106 71 1.55 9,395 119 2.51
-------- -------- ------ -------- -------- ------
Total Interest-Earning Assets $167,448 $ 6,188 7.33% $165,935 $ 7,137 8.53%
Noninterest-Earning Assets 15,912 15,541
-------- --------
Total Assets $183,360 $181,476
======== ========
Interest Bearing Liabilities
NOW $ 13,434 $ 90 1.33% $ 12,056 $ 89 1.47%
Savings 58,518 328 1.11 53,649 577 2.13
Time deposits 54,651 1,001 3.63 66,445 1,746 5.21
Repurchase agreements 4,725 43 1.80 2,577 40 3.08
FHLB advances 2,033 61 5.92 2,238 68 6.03
-------- -------- ------ -------- -------- ------
Total interest bearing 133,361 1,523 2.27% 136,965 2,520 3.65%
liabilities
Noninterest bearing liabilities 33,516 29,765
-------- --------
Total liabilities 166,877 166,730
Shareholders equity $ 16,483 $ 14,746
-------- --------
Total liabilities and
Shareholders equity $183,360 $181,476
======== ========
Net interest income, interest
rate spread (1) $ 4,665 5.06% $ 4,617 4.88%
Net interest margin (net
interest as a percent of
average interest-earning
assets (1) 5.53% 5.52%
Average interest-earning assets
to interest-bearing liabilities 125.56% 121.15%
(1) calculated on a fully taxable equivalent basis
15
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Interest expense on deposits decreased $993, or 41.2% for the six months ended
December 31, 2002 compared to the six months ended December 31, 2001. The
decrease was a result of rate decreases on savings and time deposits.
Interest paid on FHLB Advances totaled $61 for the six months ended December 31,
2002 and compared to $68 for the six months ended December 31, 2001.
PROVISION FOR LOAN LOSSES. The Corporation maintains an allowance for loan
losses in an amount, which, in management's judgment, is adequate to absorb
probable losses in the loan portfolio. While management utilizes specific
allocations and historical loss experience, the ultimate adequacy of the
allowance is dependent on a variety of factors, including the performance of the
Corporation's loan portfolio, the economy, changes in real estate values and
interest rates, and the view of the regulatory authorities toward loan
classifications. The provision for loan losses is determined by management as
the amount to be added to the allowance for loan losses, after net charge-offs
have been deducted, to bring the allowance to a level, which is considered
adequate to absorb probable losses in the loan portfolio. The amount of the
provision is based on management's monthly review of the loan portfolio and
consideration of such factors as historical loss experience, economic
conditions, changes in the size and composition of the loan portfolio, and
specific borrower considerations, including the ability to repay the loan and
estimated value of the underlying collateral.
The provision for loan losses for the six months ended December 31, 2002 totaled
$217 as compared to $500 for the six months ended December 31, 2001, a decrease
of $283 or 56.6%. Net charge-offs to average loans decreased to .28 % for the
six month period ended December 31, 2002 from .73% for the period ended December
31, 2001. The decrease in net charge-offs in 2002 compared to 2001 is primarily
attributed to the reduction of consumer lending at the former Finance Company
subsidiary and a tightening of consumer credit standards. Charge-offs have been
made in accordance with the Corporation's standard policy and have occurred
primarily in the consumer loan portfolio.
OTHER INCOME. Other income includes service charges on deposits and other
miscellaneous income. Service charges on deposit accounts of $729 for the six
months ended December 31, 2002 represented an increase of $228, or 45.5%
compared to the $501 of other income for the six months ended December 31, 2001.
The increases were primarily due to volume increases in overdraft and
non-sufficient funds fees attributable to an Overdraft Privilege program.
Increased income has also been realized from the increase in cash surrender
value of life insurance and interchange income from debit cards due to increased
volume of users in checking accounts.
16
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
OTHER EXPENSE. Other expense totaled $3,742 for the six months ended December
31, 2002 compared to $3,386 for the six months ended December 31, 2001, an
increase of $356, or 10.5%.
Salary and benefits expense increased $145 or 8.5% for the six month period
ended December 31, 2002 as compared to December 31, 2001. The increase is the
result of normal annual merit increases and the addition of new personnel within
loan review, compliance and loan operation areas. Occupancy expense increased
$51 for the six month period ended December 31, 2002, as compared to December
31, 2001.
INCOME TAX EXPENSE. The provision for income taxes totaled $546 for the six
months ended December 31, 2002 compared to $478 for the six months ended
December 31, 2001, an increase of $68 or 14.2%. The effective tax rate was 30.6%
and 31.0% for the six month periods ended December 31, 2002 and 2001
respectively.
FINANCIAL CONDITION
Total assets at December 31, 2002 were $180,014 compared to $184,704 at June 30,
2002, a decrease of $4,690 or 2.5%. Loan receivables decreased $33 from $123,454
at June 30, 2002 to $123,421 at December 31, 2002. Personal loan totals
decreased for the period while residential real estate loans increased $845 or
1.49%, real estate construction loans decreased $735 or 34.9%, and commercial
loans increased $472 or .9%. Loan growth is expected to continue to increase in
the near future as customers experience a decline in short-term interest rates
and longer-term mortgage rates. Available for sale securities have decreased
from $34,122 at June 30, 2002 to $31,772 at December 31, 2002, or 6.9%. The
portfolio reflects an increase in short-maturity and current cash flowing
instruments. The duration of the investment portfolio was 2.22 years at December
31, 2002 as compared to 2.71 years at June 30, 2002 and 3.26 years at December
31, 2001. Federal funds sold have decreased $2,465 resulting from time deposits
decreasing.
Total shareholders equity increased $947 at June 30, 2002, to $16,767 at
December 31, 2002. This increase is a combination of net income for the period,
offset by cash dividends paid and an increase in value of available for sale
securities.
17
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
NON-PERFORMING ASSETS
The following table presents the aggregate amounts of non-performing assets and
respective ratios on the dates indicated.
December 31, June 30, December 31,
2002 2002 2001
---- ---- ----
Non-accrual loans $796 $829 $530
Restructured loans 0 0 0
---- ---- ----
Total non-performing loans 796 829 530
Other real estate owned 0 0 104
---- ---- ----
Total non-performing assets $796 $829 $634
==== ==== ====
Loans 90 days or more past due
and not on non-accrual $631 $552 $230
Non-performing loans to total
loans 1.14% 1.10% .57%
Allowance for credit losses to
total non-performing loans 119.62 120.78 205.00
Loans 90 days or more past due
and not on non-accrual to total
loans .50 .44 .17
LIQUIDITY
Management considers the asset position of the Corporation to be sufficiently
liquid to meet normal operating needs and conditions. The Corporation's earning
assets are divided primarily between loans and investment securities, with any
excess funds placed in federal funds sold on a daily basis. Management
continually strives to obtain the best mix of loans and investments to both
maximize yield and insure the soundness of the portfolio, as well as to provide
funding for loan demand as needed.
The Corporation groups its loan portfolio into three major categories:
commercial loans, real estate loans, and personal loans. Commercial loans are
comprised of both variable rate notes subject to daily interest rate changes
based on the prime rate, and fixed rate notes having maturities of generally not
greater than five years. Commercial loans have shown growth recently, with
outstanding balances up by $472 or .9 % since June 30, 2002. This is mainly due
to the Corporation's ability to tailor loan programs to the specific
requirements of the business, professional, and agricultural customers in its
market area. The Corporation's real
18
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
estate loan portfolio consists of three basic segments: conventional mortgage
loans having fixed rates and maturities not exceeding fifteen years, variable
rate home equity lines of credit, and fixed rate loans having maturity or
renewal dates that are less than the scheduled amortization period. Competition
is very heavy in the Corporation's market for these types of loans, both from
local and national lenders. The Bank became affiliated with third parties, which
allow the Bank to offer very attractive mortgage loan options to its customers.
The personal loans offered by the Bank are generally written for periods up to
five years, based on the nature of the collateral. These may be either
installment loans having regular monthly payments, or demand type loans for
short periods of time. Personal loans have declined during the past quarter, as
automobile loans have been affected by the auto manufacturers' offerings of zero
and highly discounted rates through their financing subsidiaries.
Funds not allocated to the Corporation's loan portfolio are invested in various
securities having diverse maturity schedules. The majority of the Corporation's
investments are held in U.S. Treasury securities or other securities issued by
U.S. Government agencies, and to a lesser extent, investments in tax free
municipal bonds. Net interest yields for the investment account were 4.58% and
5.78% respectively for the six month periods ended December 31, 2002 and
December 31, 2001.
The Corporation offers several forms of deposit programs to its customers. The
rates offered by the Corporation and the fees charged for them are competitive
with others available currently in the market area. Time deposit interest rates
have decreased this period. The rate of loan growth has decreased with selected
deposit rates decreasing as well. Interest rates on demand deposits and savings
deposits continue to decline and are at historical low levels.
To provide an additional source of loan funds, the Corporation has entered into
an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati to obtain
matched funding for loans. Repayment is made either over a fifteen year period
or 2 year maturity. At December 31, 2002, these FHLB balances totaled $1,865.
The Corporation considers this agreement with the FHLB to be a good source of
liquidity funding, secondary to its deposit base.
Jumbo time deposits (those with balances of $100 and over) declined from $11,485
at June 30, 2002 to $8,069 at December 31, 2002. These deposits are monitored
closely by the Corporation, priced on an individual basis, and often matched
with a corresponding investment instrument. The Corporation has on occasion used
a fee paid broker to obtain these types of funds from outside its normal service
area as another alternative for its funding needs. These deposits are not relied
upon, as a primary source of funding however, and the Corporation can foresee no
dependence on these types of deposits for the near term. Although management
monitors interest rates on an ongoing basis, a quarterly rate sensitivity report
is used to determine the effect of interest rate changes on the financial
statements. In the opinion of
19
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
management, enough assets or liabilities could be repriced over the near term
(up to three years) to compensate for such changes. The spread on interest
rates, or the difference between the average earning assets and the average
interest bearing liabilities, is monitored quarterly. It is the Corporation's
goal to maintain this spread at better than 4.0%. The spread on a taxable
equivalent basis for the six month periods ended December 31, 2002 and 2001 were
5.06% and 4.88%, respectively and for the fiscal year ended June 30, 2002 was
5.03%.
CAPITAL RESOURCES
The following table presents the capital ratios of Consumers Bancorp, Inc.
December 31, 2002 June 30, 2002
----------------- -------------
Total adjusted average assets for
leverage ratio $181,901 $182,744
Risk-weighted assets and off-balance-
sheet financial instruments for
capital ratio 112,751 117,314
Tier I capital 14,887 13,957
Total risk-based capital 16,300 15,426
Leverage Ratio 8.2% 7.6%
Tier I capital ratio 13.2 11.9
Total capital ratio 14.5 13.2
Capital ratios applicable to Consumers National Bank at December 31, 2002 were
as follows:
Total
Tier I Risk-based
Leverage Capital Capital
-------- ------- ----------
Regulatory Capital Requirements
Minimum 4.0% 4.0% 8.0%
Well-capitalized 5.0 6.0 10.0
Bank Subsidiary
Consumers National Bank 8.1 13.0 14.3
The Company and subsidiary Bank are subject to various regulatory capital
requirements administered by federal regulatory agencies. Capital adequacy
guidelines and prompt corrective-action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated
under regulatory accounting practices. Failure to meet various capital
requirements can initiate regulatory action that could have a direct material
affect on the
20
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Company's financial statements. The Bank is considered well capitalized under
the Federal Deposit Insurance Act at December 31, 2002. Management is not aware
of any matters occurring subsequent to December 31, 2002 that would cause the
Bank's capital category to change.
IMPACT ON INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with accounting principles generally accepted in the Untied States of
America, which require the measurement of financial position and results of
operations primarily in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. Unlike
most industrial companies, virtually all of the assets and liabilities of the
Corporation are monetary in nature. Therefore, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. The
liquidity, maturity structure and quality of the Corporation's assets and
liabilities are critical to the maintenance of acceptable performance levels.
FORWARD LOOKING STATEMENTS
When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate", "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changed in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed herein. The Corporation is
not aware of any current recommendations by regulatory authorities, which would
have such effect if implemented.
NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS
No. 141 requires all business combinations to be accounted for using the
purchase method. The alternative pooling-of-interest method is no longer
permitted. The provisions of this Statement
21
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
apply to all business combinations initiated after June 30, 2001. The adoption
of this statement will only impact the Company's financial statements if it
enters into a business combination.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified.
Other identified intangible assets, such as core deposit intangible assets, will
continue to be amortized over their estimated useful lives. The Company adopted
this Statement on July 1, 2002. The Company has assessed the impact of this
statement on financial statements and continued amortization of premium totaling
$80 for the six months ended December 31, 2002 and 2001, which represents
amortization of the premium paid for a branch purchase described below.
In August 2001, the FASB issued Statement 144. Statement 144 covers the
accounting for the impairment or disposal of long-lived assets. This Statement
supersedes Statement 121 since it did not address the accounting for a segment
of a business accounted for as a discounted operation. This statement does not
have an effect on the Company.
The FASB recently issued Statements 145 and 146. Statement 145 covers debt
extinguishments and leases, and made some minor technical corrections. Gains and
losses on extinguishments of debt, always treated as an extraordinary item under
a previous standard, will now no longer be considered extraordinary, except
under very limited conditions. If a capital lease is modified to an operating,
then it will now be treated as a sale leaseback instead of a new lease.
Statement 146 covers accounting for costs associated with exit or disposal
activities, such as lease termination costs or employee severance costs. The
Statement EITF 94-3, and is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. It requires these costs to be
recognized when they are incurred rather than at the date of commitment to an
exit or disposal plan. Management does not expect the effects of adoption of
these statements to be material.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions," which amends and reconsiders certain provision of SFAS
No. 72. This statement addresses the financial accounting and reporting for the
acquisition of all or part of a financial institution. The statement provides
that unidentified intangible assets associated with branch acquisitions,
considered a business combination under the provisions of SFAS No. 141 "Business
Combination," should be reclassified as goodwill and accounted for under the
provisions of SFAS No. 142. This statement is effective on October 1, 2002 with
earlier application permitted.
At December 2002, the Corporation had $1,458 classified as premium paid for a
single branch office and approximately $19 million in deposits in January 2000.
As acquisition was not considered a business combination, the premium is
considered an amortizable intangible asset and will continue to be amortized
as described above.
22
CONSUMERS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank measures interest-rate risk from the perspectives of earnings at risk
and value at risk. The primary purpose of both the loan and investment
portfolios is the generation of income, but if credit risk is the principal
focus of risk analysis in the loan portfolio, interest-rate risk is the
principal focus in the investment portfolio. Because of the greater liquidity of
the investment portfolio, it is the vehicle for managing interest-rate risk in
the entire balance sheet. The Bank manages interest rate risk position using
simulation analysis of net interest income and net income over a two-year
period. The Bank also calculates the effect of an instantaneous change in market
interest rates on the economic value of equity or net portfolio value. Once
these analyses are complete, management reviews the results, with an emphasis on
the income-simulation results for purposes of managing interest-rate risk. The
rate sensitivity position is managed to avoid wide swings in net interest
margins. Measurement and identification of current and potential interest rate
risk exposures is conducted quarterly, with reporting and monitoring also
occurring quarterly. The Bank applies interest rate shocks to its financial
instruments up and down 50, 100, 150, and 200 basis points. The following table
presents an analysis of the potential sensitivity of the Bank's annual net
interest income and present value of the Bank's financial instruments to sudden
and sustained increase of 200 basis points and 100 basis points decrease change
in market interest rates:
Maximum Change
One Year Net interest Income Change 2002 Guidelines
----------------------------------- ---- ----------
+200 Basis Points 1% (16.0)%
-100 Basis Points 0% (16.0)%
Net Present Value of Equity Change
----------------------------------
+200 Basis Points (24)% (20.0)%
-100 Basis Points 14% (20.0)%
The projected volatility of net interest income and net present value of equity
rates to a +200 and -100 basis points change for all quarterly models during
2001 and 2002 fall within the Board of Directors guidelines for net interest
income change. The variance for net present value of equity change has been
addressed by continuing to reduce the maturity within the investment portfolio
as consumers reduce time maturities with in the deposit portfolio.
ITEM 4 - CONTROLS AND PROCEDURES
Within a 90-day period prior to the filing date of this report, an evaluation
was carried out under the supervision and with the participation of Consumers
Bancorp, Inc. management, including Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) under the Securities
Exchange Act of 1934). Based on their evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are, to the best of their knowledge, effective to ensure
that information required to be disclosed by Consumers Bancorp, Inc. in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported with in the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to the date of their evaluation,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
that there are no significant changes in the Company's internal controls or in
other factors that could significantly affect its internal controls, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There is no pending litigation, other than routine litigation incidental to
the business of Consumers Bancorp Inc. `the Corporation' and its affiliate,
or of a material nature involving or naming the Corporation or its
affiliate as a defendant. Further, there are no material legal proceedings
in which any director, executive officer, principal shareholder or
affiliate of the Corporation is a party or has a material interest which is
adverse to the Corporation or its affiliate. None of the routine litigation
in which the Corporation or its affiliate are involved is expected to have
a material adverse upon the financial position or results of operations of
the Corporation or its affiliate.
Item 2 - Changes in Securities
Not Applicable.
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Shareholders Meeting
Consumers Bancorp, Inc., held its annual meeting of shareholders on October
16, 2002, for the following purposes: 1) To elect four directors, each to serve
for a three year term expiring in 2005. 2) To elect one director to serve for a
one year term expiring in 2003. 3) To amend and restate the Regulations to
permit the removal of members of the Board of Directors for cause; and for the
transaction of any other business that may properly come before the meeting or
and adjournment thereof:
Election of Directors
John P. Furey Mark S. Kelly Laurie L. McClellan David W. Johnson
For 1,607,521 1,607,521 1,607,488 1,606,756
Withheld 11,655 11,655 11,688 12,420
The following directors were not up for election at the annual meeting and
their respective terms in office continued after the Annual Meeting.
J. V. Hanna Homer R. Unkefer
James R. Kiko, Sr. Walter J. Young
Thomas S. Kishman
Proposal to amend and restate the Regulations to permit the removal of members
of the Board of Directors for cause.
Shares For Shares Against Shares Abstained
1,468,300 2,565 30,209
24
PART II - OTHER INFORMATION (CONTINUED)
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 11 Statement regarding Computation of Per Share Earnings (included
in Note 1 to the Consolidated Financial Statements).
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 10 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act
of 2002.
Exhibit 99.2 Certification of Chief Financial Officer Pursuant to 10 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act
of 2002.
B. Reports on Form 8-K - Consumers Bancorp Inc. filed reports on Form 8-K
during the quarter ended December 31, 2002 as follows:
None
25
CERTIFICATIONS
I, Mark S. Kelly, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a). designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entitles, particularly during the period in which this quarterly
report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls;
b). any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 12, 2003 /s/ Mark S. Kelly
---------------------
Mark S. Kelly
President and Chief Executive Officer
26
CERTIFICATIONS
I, Paula J. Meiler, Treasurer and Chief Financial Officer certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a). designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entitles, particularly during the period in which this quarterly
report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls;
b). any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 12, 2003 /s/ Paula J. Meiler
-------------------------------
Paula J. Meiler
Treasurer and Chief Financial Officer
27
CONSUMERS BANCORP, INC.
10-Q
CONSUMERS BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSUMERS BANCORP, INC.
-----------------------
(Registrant)
Date: February 12, 2003 /s/ Mark S. Kelly
----------------- -------------------------
Mark S. Kelly
President and C.E.O.
Date: February 12, 2003 /s/ Paula J. Meiler
----------------- --------------------------
Paula J. Meiler
Chief Financial Officer
28