Overview of Company’s Financial Performance

Consumers Bancorp is a bank holding company that owns Consumers National Bank. The Bank operates in Ohio, Pennsylvania, and West Virginia.

Financial Highlights

Revenue and Profits Down Due to Rising Interest Rates

In the first 9 months of fiscal year 2024, net income fell by $1.5 million or 19% compared to the same period last year. This was mainly caused by declining net interest income as interest rates rose rapidly.

Financial Metric	9 Months Ended March 31	Change
Net Interest Income	$23.9 million	-6%
Net Income	$6.5 million	-19%
Earnings Per Share	$2.09	-20%

Loans and Deposits Grew Modestly

Total loans grew 6% on an annualized basis, driven by commercial real estate and consumer loans. Total deposits increased 3% as the Bank worked to attract more deposits to fund lending activity.

Interest Income Under Pressure

The Company’s main source of revenue is net interest income, which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings.

Net interest income has declined because interest rates rose rapidly in 2022 and 2023. When interest rates rise quickly, the interest rates the Bank pays on deposits and borrowings increases faster than the interest rates earned on existing loans and securities. This compression in net interest margin reduces profits.

The Company expects net interest margin to remain under pressure as long as interest rates are volatile and the yield curve remains inverted.

Credit Quality Remains Strong

The quality of the Bank’s loan portfolio has remained strong, with non-performing loans at just 0.15% of total loans as of March 31, 2024. This is up slightly from 0.01% a year earlier but indicates most borrowers are still able to make loan payments.

The Company has increased its allowance for credit losses to 1.07% of total loans to guard against potential future loan losses if the economy deteriorates. But charge-offs remain low at just 0.04% of loans annualized.

Noninterest Income Helps Offset Pressure on Interest Income

Noninterest income from service charges on deposit accounts and debit card usage has increased moderately, helping offset declining net interest income. But noninterest income still remains a small portion of total revenue.

Expenses Rising

Noninterest expenses are up 4% compared to a year ago, driven by higher salaries, occupancy costs, technology investments, and regulatory assessments. The Company is focused on managing expenses prudently even as it continues investing in digital banking capabilities and compliance programs.

Solid Capital Levels

The Bank’s capital ratios remain above required regulatory minimums to be considered well-capitalized. The Bank’s common equity Tier 1 capital ratio was 11.13% as of March 31, 2024. This capital cushion helps protect the Bank from potential future losses.

Outlook

There is still uncertainty regarding how rapidly rising interest rates will impact borrowers and the broader economy. Slower economic growth could lead to higher loan losses. But so far, asset quality remains strong.

The key priority is protecting net interest margin in this volatile interest rate environment. This requires attracting lower-cost deposits to fund loan growth while also containing expenses.

If the yield curve remains inverted for an extended period, it will put significant pressure on profits. But the Bank has managed through challenging environments before while maintaining strong capital to support lending in the communities it serves.

The article summarizes the key points from the financial report in simple language for a general audience. It focuses on communicating the most important details related to financial performance, trends affecting profits, credit quality, capital strength, and the outlook. The article maintains an objective tone and avoids overly technical jargon. Relevant financial metrics are included in a table to help illustrate trends.