# Consumers Bancorp Inc: Form 10-Q for the period ended Mar 31, 2022

- Company: [Consumers Bancorp Inc](/companies/cbkm.md) (CIK 1006830)
- Form: 10-Q
- Filed: 2022-05-13
- Accepted by EDGAR: May 13, 2022, 12:49 ET
- Period: 2022-03-31
- Accession: 0001437749-22-012286
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1006830/000143774922012286/cbkm20220331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1006830/000143774922012286/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $337.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-07-01 to 2022-03-31 | $1.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $528.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-07-01 to 2022-03-31 | $1.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | $2.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-07-01 to 2022-03-31 | $8.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.85 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-07-01 to 2022-03-31 | $2.77 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.85 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-07-01 to 2022-03-31 | $2.77 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 3,039,552 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-07-01 to 2022-03-31 | 3,036,748 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-07-01 to 2022-03-31 | $11.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-07-01 to 2022-03-31 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2021-07-01 to 2022-03-31 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2022-03-31 | $987.5m | us-gaap:Assets |
| Total liabilities | at 2022-03-31 | $925.6m | us-gaap:Liabilities |
| Short-term borrowings | at 2022-03-31 | $11.8m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-03-31 | $62.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,077 characters.

### General

The following is management’s analysis of the Corporation’s results of operations for the three- and nine-month periods ended March 31, 2022, compared to the same periods in 2021, and the consolidated balance sheet at March 31, 2022, compared to June 30, 2021. This discussion is designed to provide a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

### Overview

Consumers Bancorp, Inc., a bank holding company incorporated under the laws of the State of Ohio (the Corporation), owns all the issued and outstanding common shares of Consumers National Bank, a bank chartered under the laws of the United States of America (the Bank). The Corporation’s activities have been limited primarily to holding the common shares of the Bank. The Bank’s business involves attracting deposits from businesses and individual customers and using such deposits to originate commercial, mortgage and consumer loans in its market area, consisting primarily of Carroll, Columbiana, Jefferson, Stark, Summit, Wayne and contiguous counties in Ohio, Pennsylvania, and West Virginia. The Bank also invests in securities consisting primarily of U.S. government sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae.

On July 16, 2021, the Corporation completed its acquisition of two branches located in Calcutta and Wellsville, Ohio from CFBank, National Association (CFBank). As part of the acquisition, the Corporation assumed $104,538 of branch deposits for a 1.75% deposit premium and purchased $15,602 in subordinated debt securities issued by unrelated financial institutions and $19,943 in loans. In relation to the acquisition, the Corporation recorded goodwill of $1,616.

### COVID-19 Pandemic

In response to COVID-19, management actively pursued multiple avenues to assist customers during these uncertain times. For commercial borrowers, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) includes key SBA initiatives to assist small businesses. The Paycheck Protection Program (PPP) was designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans obtained under this program if the borrower meets payroll and other requirements. The Bank originated a total of $113,367 of PPP loans during the first and second rounds of assistance. As of March 31, 2022, there were $5,238 of PPP loans outstanding.

Additionally, on March 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program was available to most borrowers whose loan was not past due on March 22, 2020, the date this loan modification program was adopted. The program offered principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers were eligible for an additional 90 days of payment deferrals if situations warranted a need for an extension. Interest was deferred but continued to accrue during the deferment period and the maturity date on amortizing loans was 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 were not classified as troubled debt restructurings. As of March 31, 2022, two borrowers with an outstanding balance of $38 in the aggregate were in payment deferral status under this loan modification program. This modification program was ended effective April 26, 2022.

We have assisted, and may continue to assist, customers who are experiencing financial hardship due to COVID-19 by waiving late charges, refunding NSF and overdraft fees, and waiving CD prepayment penalties. In addition, the consumer reserve personal line of credit, an unsecured line of credit that is linked to a personal checking account, was redesigned to provide easier access to credit and a lower initial rate.

Given the dynamic nature of the circumstances surrounding the pandemic, it is difficult to ascertain the full impact that the ongoing economic disruption will have on the Corporation. The Corporation has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. The branch lobbies were closed at various times throughout the pandemic but are now open for normal business. The Corporation is encouraging virtual meetings and conference calls in place of in-person meetings. The Corporation is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. The Corporation will continue to closely monitor situations arising from the pandemic and adjust operations accordingly.

### Results of Operations

### Three-and Nine-Month Periods Ended March 31, 2022 and 2021

Net income for the third quarter of fiscal year 2022 was $2,585, or $0.85 per common share, compared to $2,116, or $0.70 per common share for the three months ended March 31, 2021. The following are key highlights of our results of operations for the three months ended March 31, 2022, compared to the prior fiscal year comparable period:

- net interest income increased by $1,579 to $7,915, or 24.9%, in the third quarter of fiscal year 2022 from the same prior year period primarily as a result of the growth in average interest-earning assets along with a reduction in the cost of funds;
- an $85 provision for loans loss expense was recorded for the third quarter of fiscal year 2022 compared with $185 for the same prior year period;
- noninterest income increased by $66, or 6.3%, in the third quarter of fiscal year 2022 from the same prior year period primarily due to a $72, or 24.8%, increase in service charges on deposit accounts and a $25, or 5.4%, increase in debit card interchange income which were partially offset by a $27, or 18.1%, decline in mortgage banking activity; and
- noninterest expenses increased by $1,172, or 25.1%, in the third quarter of fiscal year 2022 from the same prior year period primarily due to increases in salaries and employee benefits; occupancy and equipment expenses; and Federal Deposit Insurance Corporation (FDIC) assessments that was primarily driven by the growth in the organization from the branch acquisition.

In the first nine months of fiscal year 2022, net income was $8,412, or $2.77 per common share, compared to $7,024, or $2.33 per common share, for the nine months ended March 31, 2021. The following are key highlights of our results of operations for the nine months ended March 31, 2022, compared to the prior fiscal year-to-date comparable period:

- net interest income increased by $4,545 to $24,433, or by 22.9%, in the first nine months of fiscal year 2022 from the same prior year period;
- a $545 provision for loan loss expense was recorded in the first nine months of fiscal year 2022 compared with $445 during the same prior year period;
- noninterest income increased by $266, or 7.9%, in the first nine months of fiscal year 2022 primarily due to a $175, or 19.2%, increase in service charges on deposit accounts and a $155, or 11.3%, increase in debit card interchange income which were partially offset by an $80, or 12.7%, decline in income from mortgage banking activity; and
- noninterest expenses increased by $3,023, or 21.1%, in the first nine months of fiscal year 2022 from the same prior year period primarily due to an increase in salaries and employee benefit expenses.

The annualized return on average equity and return on average assets were 15.63% and 1.18%, respectively, for the nine months ended March 31, 2022 compared to 14.05% and 1.24%, respectively, for the same prior year period.

### Net Interest Income

Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the largest component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. In addition, prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, can significantly affect net interest income. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total average interest-earning assets. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. The federal income tax rate in effect for the 2022 and 2021 fiscal years was 21.0%. All average balances are daily average balances. Non-accruing loans are included in average loan balances and average securities include unrealized gains and losses on securities available for sale, while yields are based on average amortized cost.

The Corporation’s net interest margin was 3.50% for the three months ended March 31, 2022, compared with 3.56% for the same period in 2021. FTE net interest income for the three months ended March 31, 2022 increased by $1,608, or 25.0%, to $8,043 from $6,435 for the same prior year period.

Tax-equivalent interest income for the three months ended March 31, 2022 increased by $1,577, or 23.2%, from the same prior year period. Interest income was positively impacted by a $190,390, or 25.8%, increase in average interest-earning assets from the same prior year period due to the additional assets acquired as part of the acquisition of the two branches from CFBank and as well as organic growth. The yield on average interest-earning assets declined to 3.65% for the three months ended March 31, 2022 compared with 3.76% for the same period last year.

Interest expense for the three months ended March 31, 2022 decreased by $31, or 8.4%, from the same prior year period primarily due to a reduction in deposit and borrowing costs as a result of lower market interest rates. The Corporation’s cost of funds was 0.21% for the three months ended March 31, 2022 compared with 0.30% for the same prior year period.

The Corporation’s net interest margin was 3.63% for the nine months ended March 31, 2022, compared with 3.76% for the same period in 2021. FTE net interest income for the nine months ended March 31, 2022 increased by $4,616, or 22.9%, to $24,807 from $20,191 for the same prior year period.

Tax-equivalent interest income for the nine months ended March 31, 2022 increased by $4,074, or 18.7%, from the same prior year period. Interest income was positively impacted by a $190,421, or 26.4%, increase in average interest-earning assets from the same prior year period primarily due to the assets acquired from the CFBank branch acquisition as well as organic growth. Additionally, interest income was positively impacted by the accretion of origination fees from the PPP loans. The PPP loans had an average balance of $22,968 for the nine-month period ended March 31, 2022 and, during this same period, $2,419 of interest and fee income was recognized on the PPP loans. This compares with an average balance of $64,761 for the nine-month period ended March 31, 2021 and the recognition of $2,205 of interest and fee income on the PPP loans during the nine-month period ended March 31, 2021. A reduction in the accretion of origination fees from PPP loans as these loans are forgiven could ultimately result in a decline in interest income. The Corporation’s yield on average interest-earning assets was 3.78% for the nine months ended March 31, 2022 compared with 4.05% for the same period last year.

Interest expense for the nine months ended March 31, 2022 decreased by $542 from the same prior year period. The Corporation’s cost of funds was 0.22% for the nine months ended March 31, 2022 compared with 0.43% for the same prior year period. The lower short-term market interest rates in fiscal year 2022 as compared with the fiscal year 2021 had an impact on the rates paid on all interest-bearing deposit products and short-term borrowings. Recent increases in short-term market rates are not expected to have a rapid increase in funding costs due to our current liquidity levels that have been impacted by significant deposit growth.

**Average Balance Sheets and Analysis of Net Interest Income for the Three Months Ended March 31,** (In thousands, except percentages)

| Interest-earning assets: | 2022 Average Balance | Interest | Yield/ Rate | 2021 Average Balance | Interest | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable securities | $195,650 | $903 | 1.83% | $87,488 | $368 | 1.74% |
| Nontaxable securities (1) | 88,734 | 642 | 3.00 | 70,195 | 523 | 3.18 |
| Loans receivable (1) | 606,363 | 6,777 | 4.53 | 544,669 | 5,844 | 4.35 |
| Federal bank and other restricted stocks | 2,489 | 19 | 3.10 | 2,472 | 19 | 3.12 |
| Equity securities | 432 | 8 | 7.51 | 400 | 8 | 8.11 |
| Interest bearing deposits and federal funds sold | 36,037 | 31 | 0.35 | 34,091 | 41 | 0.49 |
| Total interest-earning assets | 929,705 | 8,380 | 3.65% | 739,315 | 6,803 | 3.76% |
| Noninterest-earning assets | 39,501 |  |  | 31,129 |  |  |
| Total Assets | $969,206 |  |  | $770,444 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| NOW | $146,651 | $33 | 0.09% | $109,758 | $33 | 0.12% |
| Savings | 361,569 | 94 | 0.11 | 260,416 | 73 | 0.11 |
| Time deposits | 109,876 | 130 | 0.48 | 94,338 | 193 | 0.83 |
| Short-term borrowings | 10,521 | 18 | 0.69 | 8,426 | 2 | 0.10 |
| FHLB advances | 16,276 | 62 | 1.54 | 18,072 | 67 | 1.50 |
| Total interest-bearing liabilities | 644,893 | 337 | 0.21% | 491,010 | 368 | 0.30% |
| Noninterest-bearing liabilities: |  |  |  |  |  |  |
| Noninterest-bearing checking accounts | 246,005 |  |  | 204,716 |  |  |
| Other liabilities | 7,390 |  |  | 6,136 |  |  |
| Total liabilities | 898,288 |  |  | 701,862 |  |  |
| Shareholders’ equity | 70,918 |  |  | 68,582 |  |  |
| Total liabilities and shareholders’ equity | $969,206 |  |  | $770,444 |  |  |
| Net interest income, interest rate spread (1) |  | $8,043 | 3.44% |  | $6,435 | 3.46% |
| Net interest margin (net interest as a percent of average interest-earning assets) (1) |  |  | 3.50% |  |  | 3.56% |
| Federal tax exemption on non-taxable securities and loans included in interest income |  | $128 |  |  | $99 |  |
| Average interest-earning assets to interest-bearing liabilities | 144.16% |  |  | 150.57% |  |  |

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%

**Average Balance Sheets and Analysis of Net Interest Income for the Nine Months Ended March 31,** (In thousands, except percentages)

| Interest-earning assets: | 2022 Average Balance | Interest | Yield/ Rate | 2021 Average Balance | Interest | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable securities | $177,284 | $2,420 | 1.81% | $79,934 | $1,084 | 1.86% |
| Nontaxable securities (1) | 85,677 | 1,870 | 3.01 | 68,173 | 1,566 | 3.22 |
| Loans receivable (1) | 592,351 | 21,346 | 4.80 | 547,262 | 18,924 | 4.61 |
| Federal bank and other restricted stocks | 2,478 | 59 | 3.17 | 2,472 | 58 | 3.13 |
| Equity securities | 427 | 25 | 7.80 | 136 | 8 | 7.84 |
| Interest bearing deposits and federal funds sold | 53,736 | 124 | 0.31 | 23,555 | 130 | 0.74 |
| Total interest-earning assets | 911,953 | 25,844 | 3.78% | 721,532 | 21,770 | 4.05% |
| Noninterest-earning assets | 37,393 |  |  | 30,774 |  |  |
| Total Assets | $949,346 |  |  | $752,306 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| NOW | $142,593 | $101 | 0.09% | $106,365 | $116 | 0.15% |
| Savings | 343,204 | 275 | 0.11 | 241,302 | 262 | 0.14 |
| Time deposits | 115,928 | 451 | 0.52 | 107,326 | 985 | 1.22 |
| Short-term borrowings | 10,332 | 21 | 0.27 | 8,301 | 8 | 0.13 |
| FHLB advances | 16,389 | 189 | 1.54 | 20,750 | 208 | 1.34 |
| Total interest-bearing liabilities | 628,446 | 1,037 | 0.22% | 484,044 | 1,579 | 0.43% |
| Noninterest-bearing liabilities: |  |  |  |  |  |  |
| Noninterest-bearing checking accounts | 242,012 |  |  | 195,707 |  |  |
| Other liabilities | 7,183 |  |  | 5,945 |  |  |
| Total liabilities | 877,641 |  |  | 685,696 |  |  |
| Shareholders’ equity | 71,705 |  |  | 66,610 |  |  |
| Total liabilities and shareholders’ equity | $949,346 |  |  | $752,306 |  |  |
| Net interest income, interest rate spread (1) |  | $24,807 | 3.56% |  | $20,191 | 3.62% |
| Net interest margin (net interest as a percent of average interest-earning assets) (1) |  |  | 3.63% |  |  | 3.76% |
| Federal tax exemption on non-taxable securities and loans included in interest income |  | $374 |  |  | $303 |  |
| Average interest-earning assets to interest-bearing liabilities | 145.11% |  |  | 149.06% |  |  |

(1) calculated on a fully taxable equivalent basis utilizing a statutory federal income tax rate of 21.0%

### 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 incurred credit losses in the Bank’s loan portfolio that have been incurred at each balance sheet date. For the nine-month period ended March 31, 2022, the provision for loan losses was $545 compared with $445 for the same prior year period. Net charge-offs of $19 and $47 were recorded during the nine-month periods ended March 31, 2022 and 2021, respectively. The loan loss provision expense recorded in fiscal year 2022 was primarily due to the organic growth within the loan portfolio.

Non-performing loans were $544 as of March 31, 2022, compared with $1,771 as of June 30, 2021 and $1,883 as of March 31, 2021. Non-performing loans to total loans were 0.09% at March 31, 2022 and 0.31% at June 30, 2021. Non-performing loans declined primarily due to the full payoff of two loans that had a balance of $831 as of June 30, 2021 that were on non-accrual for an extended period. The allowance for loan losses as a percentage of loans was 1.16% at March 31, 2022 and 1.14% at June 30, 2021. Uncertainty remains regarding future levels of criticized and classified loans, non-performing loans and charge-offs. Management will continue to closely monitor changes in the loan portfolio and adjust the provision accordingly.

### Noninterest Income

Noninterest income increased by $66, or 6.3%, for the third quarter of fiscal year 2022 from the same period last year. For the nine-month period ended March 31, 2022, noninterest income increased by $266, or 7.9%, from the same period last year primarily due to a $175, or 19.2% increase in service charges on deposit accounts and a $155, or 11.3%, increase in debit card interchange income. Service charges on deposit accounts may be negatively impacted by an industry wide trend of reducing overdraft fees as large banks have announced a reduction in these types of fees in response to regulatory pressure. These increases were partially offset by income from mortgage banking activity decreasing by $80, or 12.7%, from the same prior year period. Gains from the sale of mortgage loans to the secondary market declined as refinancing of mortgages slowed as a result of the increase in mortgage rates from the record lows in the previous year.

### Noninterest Expenses

Total noninterest expenses increased by $1,172, or 25.1%, for the third quarter of fiscal year 2022 compared with the same period last year. Increases in salaries and employee benefits; FDIC assessments; and occupancy and equipment expenses contributed to the increase in noninterest expenses for the three-month period ended March 31, 2022.

Total noninterest expenses increased by $3,023, or 21.1%, for the nine-month period ended March 31, 2022 compared with the same period last year. Salaries and employee benefit expenses increased by $1,938, or 24.3%, due to the addition of staff at three new office locations, the addition of lending staff, and increases in health care costs. FDIC assessments increased by $205, or 91.5%, for the current fiscal year-to-date period ended March 31, 2022 primarily due to the growth within the organization.

### Income Taxes

Income tax expense was $528 and $1,772 for the three- and nine-month periods ended March 31, 2022, respectively, compared to $424 and $1,472 for the three- and nine-month periods ended March 31, 2021, respectively. The effective tax rates were 17.4% and 17.3% for the nine-month periods ended March 31, 2022 and 2021, respectively. The effective tax rates differed from the federal statutory rate because of tax-exempt income from obligations of state and political subdivisions, loans, and bank owned life insurance income.

### Financial Condition

Total assets as of March 31, 2022 were $987,549 compared to $833,804 at June 30, 2021, an increase of $153,745, or an annualized 24.6%. Since June 30, 2021, total deposits increased by $163,785, or an annualized 30.0% and includes $104,538 of deposits acquired as part of the acquisition of the branches from CFBank. The Corporation has maintained a favorable deposit mix, with 28.7% in noninterest-bearing deposits, 17.2% in interest bearing demand deposits, 42.1% in savings and money market deposits, and 12.0% in time deposits as of March 31, 2022.

Available-for-sale securities increased from $207,760 as of June 30, 2021, to $288,375 as of March 31, 2022 as excess liquidity was deployed from lower yielding interest-bearing deposits into the securities portfolio. The portfolio had an unrealized loss of $14,886 as of March 31, 2022 due to recent increases in market interest rates compared with the yields within the portfolio that were available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such securities decline. As of March 31, 2022, the projected cash flow from the portfolio over the next 12 months was approximately $25,700 that will be available to reinvest into loans or securities at the then current market rates.

Total loans increased by $37,168, or an annualized 8.7%, from June 30, 2021. The increase in loans included organic loan growth of $67,741 and loans acquired as part of the acquisition of the branches from CFBank with an outstanding balance of $14,875 as of March 31, 2022. These increases were partially offset by a $45,448 decline in PPP loans from June 30, 2021, to $5,238 as of March 31, 2022, as the pace of PPP loan forgiveness remained high.

### Non-Performing Assets

The following table presents the aggregate amounts of non-performing assets and select ratios as of the dates indicated.

|  | March 31, 2022 | June 30, 2021 | March 31, 2021 |
| --- | ---: | ---: | ---: |
| Non-accrual loans | $544 | $1,771 | $1,883 |
| Loans past due over 90 days and still accruing | — | — | — |
| Total non-performing loans | 544 | 1,771 | 1,883 |
| Other real estate and repossessed assets | — | — | — |
| Total non-performing assets | $544 | $1,771 | $1,883 |
| Non-performing loans to total loans | 0.09% | 0.31% | 0.34% |
| Allowance for loan losses to total non-performing loans | 1,286.21% | 365.39% | 322.68% |

As of March 31, 2022, impaired loans totaled $705, of which $544 are included in non-accrual loans. As of June 30, 2021, impaired loans totaled $1,954, of which $1,771 are included in non-accrual loans. Commercial and commercial real estate loans are classified as impaired if management determines that full collection of principal and interest, in accordance with the terms of the loan documents, is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses. Management and the Board of Directors are closely monitoring these loans and believe that the prospects for recovery of principal and interest, less identified specific reserves, are favorable.

### Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

### Liquidity

The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of our customers and provide adequate flexibility for the Corporation to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and, at times, to fund deposit outflows and operating activities. The Corporation’s principal sources of funds are deposits; amortization and prepayments of loans; maturities, sales and principal receipts from securities; borrowings; and operations. Management considers the asset position of the Corporation to be sufficiently liquid to meet normal operating needs and conditions. The Corporation’s earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and ensure the soundness of the portfolio, as well as to provide funding for loan demand as needed.

For the nine months ended March 31, 2022, net cash inflow from operating activities was $11,723, net cash outflows from investing activities was $34,679 and net cash inflows from financing activities was $55,755. A major source of cash was $66,552 from the acquisition of the branches from CFBank, a $59,247 increase in organic deposits and $25,473 from maturity, calls, principal pay downs and sales of available-for-sale securities. A major use of cash included $111,050 purchases of available-for-sale securities and a $17,327 increase in loans. Total cash and cash equivalents were $51,328 as of March 31, 2022, compared to $18,529 at June 30, 2021 and $41,032 at March 31, 2021.

The Bank offers several types of deposit products to its customers. We believe the rates offered by the Bank and the fees charged for them are competitive with the rates and fees charged by other banks for similar deposit products currently available in the market area. Deposits totaled $890,634 at March 31, 2022 compared with $726,849 at June 30, 2021.

To provide an additional source of liquidity, the Corporation has entered into an agreement with the Federal Home Loan Bank (FHLB) of Cincinnati. At March 31, 2022, advances from the FHLB of Cincinnati totaled $16,271 compared with $18,050 at June 30, 2021. As of March 31, 2022, the Bank had the ability to borrow an additional $86,892 from the FHLB of Cincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB of Cincinnati to be a reliable source of liquidity funding, secondary to its deposit base.

Short-term borrowings consisted of repurchase agreements, which are financing arrangements that mature daily, and a line of credit for the Corporation. The Bank pledges securities as collateral for the repurchase agreements. Short-term borrowings totaled $11,834 at March 31, 2022 and $12,203 at June 30, 2021.

Jumbo time deposits (those with balances of $250 and over) totaled $19,827 as of March 31, 2022 and $18,488 as of June 30, 2021. These deposits are monitored closely by the Corporation and are mainly priced on an individual basis. The Corporation has the option to use a fee-paid broker to obtain deposits from outside its normal service area as an additional source of funding. The Corporation, however, does not rely upon these deposits as a primary source of funding. Although management monitors interest rates on an ongoing basis, a quarterly rate sensitivity report is used to determine the effect of interest rate changes on the financial statements. In the opinion of management, enough assets or liabilities could be repriced over the near term (up to three years) to compensate for such changes. The spread on interest rates, or the difference between the average earning assets and the average interest-bearing liabilities, is monitored quarterly.

To meet the financial needs of our customers, commitments to originate mortgage, commercial, construction, and consumer loans and commitments for commercial, home equity, and consumer lines of credit have been issued. Since commitments to extend credit have a fixed expiration date or other termination clause, some commitments will expire without being drawn upon and the total commitment amounts do not necessarily represent future cash requirements. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The same credit policies are used in making commitments and financial standby letters of credit as are used for on-balance sheet instruments. Total unused commitments were $182,286 as of March 31, 2022 and $119,299 as of June 30, 2021.

### Capital Resources

Total shareholders’ equity declined to $61,966 as of March 31, 2022, from $69,900 as of June 30, 2021. The primary reason for the decline in shareholders’ equity was a net reduction of $15,311 in accumulated other comprehensive income due to a shift in unrealized gains on the mark-to-market of available-for-sale securities to a net unrealized loss and by cash dividends paid of $1,460. These declines were partially offset by net income of $8,412 for the first nine months of fiscal year 2022. During the second quarter of fiscal year 2022, the Corporation acquired an unsecured $5,000 line of credit to provide capital support to the Bank and for other general corporate purposes. As of March 31, 2022, the outstanding balance on the line of credit was $1,720.

The Bank is subject to various regulatory capital requirements administered by federal regulatory agencies. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the Corporation’s financial statements.

As of March 31, 2022, the Bank’s common equity tier 1 capital and tier 1 capital ratios were 11.27% and the leverage and total risk-based capital ratios were 7.45% and 12.36%, respectively. This compares with common equity tier 1 capital and tier 1 capital ratios of 11.87% and leverage and total risk-based capital ratios of 7.83% and 13.06%, respectively, as of June 30, 2021. The Bank exceeded minimum regulatory capital requirements to be considered well-capitalized for both periods. Management is not aware of any matters occurring subsequent to March 31, 2022 that would cause the Bank’s capital category to change.

### Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported.

Critical accounting policies are those policies that are highly dependent on subjective or complex judgments, estimates and assumptions and where changes in those estimates and assumptions could have a significant impact on the financial statements. The Corporation has identified the appropriateness of the allowance for loan losses and the evaluation of goodwill for impairment as critical accounting policies and an understanding of these policies is necessary to understand the financial statements. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses and Goodwill and Other Intangible Assets), Note four (Loans), Note six (Goodwill and Intangible Assets) and Management’s Discussion and Analysis of Financial Condition and Results of Operation (Critical Accounting Policies and Use of Significant Estimates) of the 2021 Form 10-K provide detail regarding the Corporation’s accounting for the critical accounting policies. There have been no significant changes in the application of accounting policies since June 30, 2021.

**Allowance for Loan Losses.** The determination of the allowance for loan losses involves considerable subjective judgment and estimation by management. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries, and losses. All these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods.

**Goodwill.** The Company accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. The Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The evaluation for impairment involves comparing the current estimated fair value of the Company to its carrying value. If the current estimated fair value exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. If the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of goodwill being recorded. As of April 30, 2021, the measurement date, a qualitative assessment was performed to determine whether there is a more likely than not (greater than 50% likelihood) that the fair value of the Corporation was less than its carrying amount. The impairment test of goodwill indicated no impairment existed as of the measurement date. However, it is impossible to know the future impact of the evolving economic conditions. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk-based capital ratios.

### Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “continue,” “estimate,” “intend,” “plan,” “seek,” “will,” “believe,” “project,” “expect,” “anticipate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control, and could cause actual results to differ materially from those described in such statements. Any such forward-looking statements are made only as of the date of this report or the respective dates of the relevant incorporated documents, as the case may be, and, except as required by law, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. The COVID-19 pandemic is affecting us, our customers, employees, and third-party service providers, and the ultimate extent of the impact on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other risks and uncertainties that could cause actual results for future periods to differ materially from those anticipated or projected include, but are not limited to:

- changes in local, regional and national economic conditions becoming less favorable than we expect, resulting in, among other things, high unemployment rates, a deterioration in credit quality of our assets or debtors being unable to meet their obligations;
- rapid fluctuations in market interest rates could result in changes in fair market valuations and a decline in net interest income;
- changes in the level of non-performing assets and charge-offs;
- unanticipated changes in our liquidity position, including, but not limited to, changes in the cost of liquidity and our ability to find alternative funding sources;
- the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we must comply;
- the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
- changes in consumer spending, borrowing and savings habits;
- declining asset values impacting the underlying value of collateral;
- changes in accounting policies, rules and interpretations that may come as a result of COVID-19 or otherwise;
- our ability to attract and retain qualified employees;
- competitive pressures on product pricing and services;
- breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; and
- changes in the reliability of our vendors, internal control systems or information systems.

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## Controls and procedures

As filed, 953 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2022.

### Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Corporation’s internal control over financial reporting that occurred during the Corporation’s last quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Filed May 13, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-012286. Last ingested by Listed: Oct 30, 2026, 09:19 ET. No prices; not investment advice.