CONSUMERS BANCORP INC /OH/ Management’s Report of Financial Condition and Results of Operations (Form 10-Q)
(in thousands of dollars, except per share data)
General
The following is management's analysis of the Corporation's results of operations for the three- and six-month periods endedDecember 31, 2021 , compared to the same periods in 2020, and the consolidated balance sheet atDecember 31, 2021 , compared toJune 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 theState of Ohio (the Corporation), owns all the issued and outstanding common shares ofConsumers National Bank , a bank chartered under the laws ofthe 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 ofCarroll ,Columbiana ,Jefferson ,Stark ,Summit ,Wayne and contiguous counties inOhio ,Pennsylvania , andWest Virginia . The Bank also invests in securities consisting primarily ofU.S. government sponsored entities, municipal obligations, mortgage-backed and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac andGinnie Mae . OnJuly 16, 2021 , the Corporation completed its acquisition of two branches located inCalcutta andWellsville, Ohio fromCFBank , National Association. 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 ofDecember 31, 2021 , there were$12,692 of PPP loans outstanding. Additionally, onMarch 22, 2020 the Corporation adopted a loan modification program to assist borrowers impacted by COVID-19. The program is available to most borrowers whose loan was not past due onMarch 22, 2020 , the date this loan modification program was adopted. The program offers principal and interest payment deferrals for up to 90 days or interest only payments for up to 90 days. Borrowers are eligible for an additional 90 days of payment deferrals if situations warrant a need for an extension. Interest will be deferred but will continue to accrue during the deferment period and the maturity date on amortizing loans will be extended by the number of months the payment was deferred. Consistent with issued regulatory guidance, modifications made under this program in response to COVID-19 will not be classified as troubled debt restructurings. As ofDecember 31, 2021 , three borrowers with an outstanding balance of$68 in the aggregate are in payment deferral status under this loan modification program. 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. Additionally, travel for business has been restricted. 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. 23 --------------------------------------------------------------------------------
CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Results of Operations
Three and six month periods ended
Net income for the second quarter of fiscal year 2022 was$3,162 , or$1.04 per common share, compared to$2,507 , or$0.83 per common share for the three months endedDecember 31, 2020 . The following are key highlights of our results of operations for the three months endedDecember 31, 2021 , compared to the prior fiscal year comparable period:
? net interest income increased by
quarter of fiscal 2022 compared to the same period of the previous year, mainly as
resulting from growth in average interest-earning assets as well as a reduction
in the cost of funds;
? a
financial year 2022 compared to
? non-interest income increased by
the year 2022 compared to the same period of the previous year mainly due to a
increase in debit card interchange revenue and a
service charges on deposit accounts that were partially offset by a
decline in mortgage banking business; and
? non-interest expense increased by
2022 compared to the same period of the previous year mainly due to salary increases
and benefits; occupancy and equipment costs; and federal filing
Insurance Corporation (FDIC) assessments. In the first six months of fiscal year 2022, net income was$5,827 , or$1.92 per common share, compared to$4,908 , or$1.63 per common share, for the six months endedDecember 31, 2020 . The following are key highlights of our results of operations for the six months endedDecember 31, 2021 , compared to the prior fiscal year-to-date comparable period:
? net interest income increased by
six months of the 2022 financial year from the same period of the previous year;
? a provision for loan losses of
of the 2022 financial year compared to
? non-interest income increased by
the 2022 financial year mainly due to a
exchange income and a
deposit accounts that have been partially cleared by a
the sale of mortgages; and
? non-interest expense increased by
fiscal 2022 compared to the same period of the prior fiscal year, mainly due to an increase
in salaries and employee benefit expenses. The annualized return on average equity and return on average assets were 16.03% and 1.23%, respectively, for the six months endedDecember 31, 2021 compared to 14.83% and 1.31%, 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. As a result of theFederal Open Market Committee establishing a near-zero target range for the federal funds rate, earnings could be negatively affected if the interest we receive on loans and securities falls more quickly than interest we pay on deposits and borrowings. 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.
The Company’s net interest margin was 3.77% for the three months ended
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Tax-equivalent interest income for the three months endedDecember 31, 2021 increased by$1,487 , or 19.8%, from the same prior year period. Interest income was positively impacted by the recognition of origination fees on PPP loans that were forgiven during the quarter. The PPP loans had an average balance of$17,803 in the second quarter of fiscal year 2022 and, during this same period,$1,055 of interest and fee income was recognized on the PPP loans. This compares with an average balance of$61,633 for the three-month period endedDecember 31, 2020 and the recognition of$912 of interest and fee income on the PPP loans during the three-month period endedDecember 31, 2020 . Interest income was also positively impacted by a$195,418 , or 27.2%, 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 fromCFBank . The yield on average interest-earning assets declined to 3.92% for the three months endedDecember 31, 2021 compared with 4.18% for the same period last year. We believe a reduction in the accretion of origination fees from PPP loans as these loans are forgiven combined with the continued low level of interest rates, will continue to impact the yield on interest-earning assets and could ultimately result in a decline in interest income. Interest expense for the three months endedDecember 31, 2021 decreased by$221 , or 39.5%, 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 endedDecember 31, 2021 compared with 0.46% for the same prior year period.
The Company’s net interest margin was 3.70% for the six months ended
Tax-equivalent interest income for the six months endedDecember 31, 2021 increased by$2,497 , or 16.7%, from the same prior year period. Interest income was positively impacted by a$190,434 , or 26.7%, increase in average interest-earning assets from the same prior year period primarily due to the assets acquired from theCFBank 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$30,269 for the six-month period endedDecember 31, 2021 and, during this same period,$2,052 of interest and fee income was recognized on the PPP loans. This compares with an average balance of$64,932 for the six-month period endedDecember 31, 2020 and the recognition of$1,769 of interest and fee income on the PPP loans during the six-month period endedDecember 31, 2020 . 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 3.85% for the six months endedDecember 31, 2021 compared with 4.20% for the same period last year. Interest expense for the six months endedDecember 31, 2021 decreased by$511 from the same prior year period. The Corporation's cost of funds was 0.22% for the six months endedDecember 31, 2021 compared with 0.50% for the same prior year period. The decline in short term market interest rates had an impact on the rates paid on all interest-bearing deposit products and short-term borrowings. 25
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Average Balance Sheets and Analysis of Net Interest Income for
three months ended
(In thousands, except percentages)
2021 2020
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Taxable securities $ 182,705 $ 806 1.75 % $ 74,051 $ 344 1.90 %
Nontaxable securities (1) 86,093 633 3.02 67,892 529 3.24
Loans receivable (1) 592,633 7,499 5.02 552,897 6,587 4.73
Federal bank and other
restricted stocks 2,472 20 3.21 2,472 21 3.37
Equity securities 424 9 8.42 - - -
Interest bearing deposits
and federal funds sold 50,145 43 0.34 21,742 42 0.77
Total interest-earning
assets 914,472 9,010 3.92 % 719,054 7,523 4.18 %
Noninterest-earning assets 37,425 30,865
Total Assets $ 951,897 $ 749,919
Interest-bearing
liabilities:
NOW $ 143,318 $ 35 0.10 % $ 107,191 $ 38 0.14 %
Savings 343,763 92 0.11 235,414 84 0.14
Time deposits 116,664 147 0.50 112,543 365 1.29
Short-term borrowings 8,910 1 0.04 8,596 2 0.09
FHLB advances 16,291 63 1.53 20,006 70 1.39
Total interest-bearing
liabilities 628,946 338 0.21 % 483,750 559 0.46 %
Noninterest-bearing
liabilities:
Noninterest-bearing
checking accounts 243,465 193,587
Other liabilities 6,998 5,907
Total liabilities 879,409 683,244
Shareholders' equity 72,488 66,675
Total liabilities and
shareholders' equity $ 951,897 $ 749,919
Net interest income,
interest rate spread (1) $ 8,672 3.71 % $ 6,964 3.72 %
Net interest margin (net
interest as a percent of
average interest-earning
assets) (1) 3.77 % 3.87 %
Federal tax exemption on
non-taxable securities and
loans included in interest
income $ 127 $ 106
Average interest-earning
assets to interest-bearing
liabilities 145.40 % 148.64 %
(1) calculated on a fully taxable equivalent basis using a federal statutory income tax rate of 21.0%
26
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Average Balance Sheets and Analysis of Net Interest Income for
six months ended
(In thousands, except percentages)
2021 2020
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Taxable securities $ 168,323 $ 1,517 1.79 % $ 76,240 $ 716 1.92 %
Nontaxable securities (1) 84,159 1,228 3.01 67,183 1,043 3.24
Loans receivable (1) 585,497 14,569 4.94 548,530 13,080 4.73
Federal bank and other
restricted stocks 2,472 40 3.21 2,472 39 3.13
Equity securities 424 17 7.95 - - -
Interest bearing deposits
and federal funds sold 62,393 93 0.30 18,409 89 0.96
Total interest-earning
assets 903,268 17,464 3.85 % 712,834 14,967 4.20 %
Noninterest-earning assets 36,269 30,600
Total Assets $ 939,537 $ 743,434
Interest-bearing
liabilities:
NOW $ 140,608 $ 68 0.10 % $ 104,646 $ 83 0.16 %
Savings 334,222 181 0.11 231,954 189 0.16
Time deposits 118,888 321 0.54 113,680 792 1.38
Short-term borrowings 10,239 3 0.06 8,238 6 0.14
FHLB advances 16,444 127 1.53 22,059 141 1.27
Total interest-bearing
liabilities 620,401 700 0.22 % 480,577 1,211 0.50 %
Noninterest-bearing
liabilities:
Noninterest-bearing
checking accounts 239,965 191,360
Other liabilities 7,081 5,851
Total liabilities 867,447 677,788
Shareholders' equity 72,090 65,646
Total liabilities and
shareholders' equity $ 939,537 $ 743,434
Net interest income,
interest rate spread (1) $ 16,764 3.63 % $ 13,756 3.70 %
Net interest margin (net
interest as a percent of
average interest-earning
assets) (1) 3.70 % 3.86 %
Federal tax exemption on
non-taxable securities and
loans included in interest
income $ 246 $ 204
Average interest-earning
assets to interest-bearing
liabilities 145.59 % 148.33 %
(1) calculated on a fully taxable equivalent basis using a federal statutory income tax rate of 21.0%
27
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Allowance 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 six-month period endedDecember 31, 2021 , the provision for loan losses was$460 compared with$260 for the same prior year period. Net recoveries of$1 were recorded during the six-month period endedDecember 31, 2021 , compared with net charge-offs of$26 during the six-month period endedDecember 31, 2020 . 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$744 as ofDecember 31, 2021 , compared with$1,771 as ofJune 30, 2021 and$1,940 as ofDecember 31, 2020 . Non-performing loans to total loans were 0.12% atDecember 31, 2021 and 0.31% atJune 30, 2021 . Non-performing loans declined primarily due to the full payoff of two loans that had a balance of$831 as ofJune 30, 2021 that were on non-accrual for an extended period. The allowance for loan losses as a percentage of loans was 1.11% atDecember 31, 2021 and 1.14% atJune 30, 2021 .
Non-interest income
Noninterest income increased by$68 , or 5.9%, for the second quarter of fiscal year 2022 from the same period last year. For the six-month perioded endedDecember 31, 2021 , noninterest income increased by$200 , or 8.7%, from the same period last year primarily due to a$130 , or 14.4%, increase in debit card interchange income and a$103 , or 16.6% increase in service charges on deposit accounts. 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 mortgage banking activity decreasing by$53 , or 11.0%, 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$818 , or 16.9%, for the second 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 endedDecember 31, 2021 . Total noninterest expenses increased by$1,851 , or 19.2%, for the six-month period endedDecember 31, 2021 compared with the same period last year. Salaries and employee benefit expenses increased by$1,065 , or 19.5%, 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$122 , or 82.4%, for the current fiscal year-to-date period endedDecember 31, 2021 primarily due to the growth within the organization.
Income taxes
Income tax expense was$685 and$1,244 for the three- and six-month periods endedDecember 31, 2021 , respectively, compared to$543 and$1,048 for the three- and six-month periods endedDecember 31, 2020 , respectively. The effective tax rates were 17.8% and 17.6% for the three- and six-month periods endedDecember 31, 2021 and 2020, 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 ofDecember 31, 2021 were$954,903 compared to$833,804 atJune 30, 2021 , an increase of$121,099 , or an annualized 29.0%. SinceJune 30, 2021 , total deposits increased by$121,371 , or an annualized 33.4% and includes$104,538 of deposits acquired as part of the acquisition of the branches fromCFBank . The Corporation has maintained a favorable deposit mix, with 28.2% in noninterest-bearing deposits, 16.9% in interest bearing demand deposits, 41.6% in savings and money market deposits, and 13.3% in time deposits as ofDecember 31, 2021 . Total loans increased by$56,580 , or an annualized 20.0%, fromJune 30, 2021 . The increase in loans included organic loan growth of$53,626 and loans acquired as part of the acquisition of the branches fromCFBank with an outstanding balance of$15,198 as ofDecember 31, 2021 . In addition, the mortgage loan warehouse line of credit to another financial institution had an outstanding balance of$25,750 as ofDecember 31, 2021 and was zero as ofJune 30, 2021 . These increases were partially offset by a$37,994 decline in PPP loans fromJune 30, 2021 , to$12,692 as ofDecember 31, 2021 , as the pace of PPP loan forgiveness remained high. 28
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
Non-performing assets
The following table presents the aggregate amounts of non-performing assets and certain ratios at the dates indicated.
December 31, June 30, December 31,
2021 2021 2020
Non-accrual loans $ 740 $ 1,771 $ 1,940
Loans past due over 90 days and still
accruing 4 - -
Total non-performing loans 744 1,771 1,940
Other real estate and repossessed assets 83 - -
Total non-performing assets $ 827 $
1,771
Non-performing loans to total loans 0.12 % 0.31 % 0.35 % Allowance for loan losses to total non-performing loans 931.72 % 365.39 % 304.74 % As ofDecember 31, 2021 , impaired loans totaled$908 , of which$740 are included in non-accrual loans. As ofJune 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 six months endedDecember 31, 2021 , net cash inflow from operating activities was$8,548 , net cash outflows from investing activities was$18,462 and net cash inflows from financing activities was$12,638 . A major source of cash was$66,552 from the acquisition of the branches fromCFBank , a$16,833 increase in organic deposits and$17,520 from maturity, calls, principal pay downs and sales of available-for-sale securities. A major use of cash included a$67,274 purchases of available-for-sale securities and a$36,719 increase in loans. Total cash and cash equivalents were$21,253 as ofDecember 31, 2021 , compared to$18,529 atJune 30, 2021 and$9,045 atDecember 31, 2020 . 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$848,220 atDecember 31, 2021 compared with$726,849 atJune 30, 2021 . To provide an additional source of liquidity, the Corporation has entered into an agreement with theFederal Home Loan Bank (FHLB) ofCincinnati . AtDecember 31, 2021 , advances from the FHLB ofCincinnati totaled$16,286 compared with$18,050 atJune 30, 2021 . As ofDecember 31, 2021 , the Bank had the ability to borrow an additional$91,341 from the FHLB ofCincinnati based on a blanket pledge of qualifying first mortgage and multi-family loans. The Corporation considers the FHLB ofCincinnati to be a reliable source of liquidity funding, secondary to its deposit base. 29 --------------------------------------------------------------------------------
CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
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$10,682 atDecember 31, 2021 and$13,275 atJune 30, 2021 . Jumbo time deposits (those with balances of$250 and over) totaled$19,715 as ofDecember 31, 2021 and$18,488 as ofJune 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.
Off-balance sheet arrangements
In the normal course of business, to meet the financial needs of our customers, we are a party to financial instruments with off-balance sheet risk. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets. The maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. 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. The same credit policies are used in making commitments as are used for on-balance sheet instruments and collateral is required in instances where deemed necessary. Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for home equity, commercial and consumer lines of credit. Financial standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Total unused commitments were$131,397 as ofDecember 31, 2021 and$119,299 as ofJune 30, 2021 . Capital Resources Total shareholders' equity increased to$73,158 as ofDecember 31, 2021 , from$69,900 as ofJune 30, 2021 . The primary reason for the increase in shareholders' equity was from net income of$5,827 for the first six months of fiscal year 2022 which was partially offset by a decrease of$1,968 in accumulated other comprehensive income due to a decline in the unrealized gain in the mark-to-market of available-for-sale securities and by cash dividends paid of$972 . During the second quarter of fiscal year 2022, the Corporation took out an unsecured$5,000 line of credit to provide capital support to the Bank and for other general corporate purposes. As ofDecember 31, 2021 , the outstanding balance on the line of credit was$2,500 . 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 ofDecember 31, 2021 , the Bank's common equity tier 1 capital and tier 1 capital ratios were 10.92% and the leverage and total risk-based capital ratios were 7.45% and 11.99%, 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 ofJune 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 toDecember 31, 2021 that would cause the Bank's capital category to change. Critical Accounting Policies The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations are, to a large degree, dependent upon the Corporation's accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change. 30
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CONSUMERS BANCORP, INC.
Managements's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
(in thousands of dollars, except per share data)
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. Critical accounting policies are those policies that require management's most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note one (Summary of Significant Accounting Policies - Allowance for Loan Losses andGoodwill 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 with regard to the Corporation's accounting for the allowance for loan losses. There have been no significant changes in the application of accounting policies sinceJune 30, 2021 .
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 expected, leading, among other things, to a high unemployment rate
rates, a deterioration in the credit quality of our assets or obligors unable
to fulfill its obligations;
? fluctuations in market interest rates may cause changes
valuations and a decline in net interest margin and net interest income;
? changes in the level of non-performing assets and charges;
? the effect of changes in laws and regulations (including laws and regulations
regarding taxes, banking, securities and insurance) with which we must
comply;
? decline in the value of assets impacting the underlying value of collateral;
? unforeseen changes in our liquidity position, including but not limited to
changes in the cost of liquidity and our ability to find alternatives
funding sources;
? the effects of and changes in commercial, monetary and fiscal policies and laws,
including interest rate policies
? changes in consumer spending, borrowing and saving habits;
? changes in accounting methods, rules and interpretations that may
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.
31
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CONSUMERS BANCORP, INC.
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