UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.
FNCB BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| | | |
| (Address of Principal Executive Offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| | Smaller reporting company | |
|
|
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
Part I - Financial Information
| CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands, except share data) | (Unaudited) | (Audited) | ||||||
| Assets | ||||||||
| Cash and cash equivalents: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits in other banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Available-for-sale debt securities, at fair value | ||||||||
| Equity securities, at fair value | ||||||||
| Restricted stock, at cost | ||||||||
| Loans and leases, net of allowance for credit losses of $and $ | ||||||||
| Bank premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Bank-owned life insurance | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Demand (non-interest-bearing) | $ | $ | ||||||
| Interest-bearing | ||||||||
| Total deposits | ||||||||
| Borrowed funds: | ||||||||
| Federal Reserve Discount Window advances | ||||||||
| Federal Home Loan Bank of Pittsburgh advances | ||||||||
| Junior subordinated debentures | ||||||||
| Total borrowed funds | ||||||||
| Accrued interest payable | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders' equity | ||||||||
| Preferred shares ($par) | ||||||||
| Authorized: shares at March 31, 2024 and December 31, 2023 | ||||||||
| Issued and outstanding: shares at March 31, 2024 and December 31, 2023 | ||||||||
| Common shares ($par) | ||||||||
| Authorized: shares at March 31, 2024 and December 31, 2023 | ||||||||
| Issued and outstanding: shares at March 31, 2024 and shares at December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF INCOME |
|||||||
| (unaudited) |
| Three Months Ended March 31, | ||||||||
| (in thousands, except share data) | 2024 | 2023 | ||||||
| Interest income | ||||||||
| Interest and fees on loans and leases |
|
| ||||||
| Interest and dividends on securities: | ||||||||
| Taxable | | | ||||||
| Tax-exempt | | | ||||||
| Dividends | | | ||||||
| Total interest and dividends on securities | | | ||||||
| Interest on interest-bearing deposits in other banks | | | ||||||
| Total interest income | | | ||||||
| Interest expense | ||||||||
| Interest on deposits | | | ||||||
| Interest on borrowed funds: | ||||||||
| Federal Reserve Discount Window advances |
| - | ||||||
| Federal Home Loan Bank of Pittsburgh advances | | | ||||||
| Junior subordinated debentures | | | ||||||
| Total interest on borrowed funds | | | ||||||
| Total interest expense | | | ||||||
| Net interest income before provision for credit losses - loans and leases | | | ||||||
| Provision for credit losses - loans and leases | | | ||||||
| Net interest income after provision for credit losses - loans and leases | | | ||||||
| Non-interest income | ||||||||
| Deposit service charges | | | ||||||
| Net gain on the sale of available-for-sale debt securities | - |
| ||||||
| Net loss on equity securities |
|
| ||||||
| Income from cash surrender value of bank-owned life insurance | | | ||||||
| Wealth management services revenue | | | ||||||
| Other | | | ||||||
| Total non-interest income | | | ||||||
| Non-interest expense | ||||||||
| Salaries and employee benefits | | | ||||||
| Occupancy expense | | | ||||||
| Equipment expense | | | ||||||
| Advertising expense | | | ||||||
| Data processing expense | | | ||||||
| Regulatory assessments | | | ||||||
| Bank shares tax | | | ||||||
| Professional fees | | | ||||||
| Credit to provision for unfunded commitments |
|
| ||||||
| Contributions | | | ||||||
| Merger and acquisition expenses |
| - | ||||||
| Other operating expenses | | | ||||||
| Total non-interest expense | | | ||||||
| Income before income tax expense | | | ||||||
| Income tax expense | | | ||||||
| Net income |
|
| ||||||
| Earnings per share | ||||||||
| Basic |
|
| ||||||
| Diluted |
|
| ||||||
| Cash dividends declared per common share |
|
| ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: | ||||||||
| Basic | | | ||||||
| Diluted | | | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
|||||
| (unaudited) |
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive loss: | ||||||||
| Unrealized (losses) gains on available-for-sale debt securities | ( | ) | ||||||
| Taxes | ( | ) | ||||||
| Net of tax amount | ( | ) | ||||||
| Reclassification adjustment gains included in net income | ( | ) | ||||||
| Taxes | ||||||||
| Net of tax amount | ( | ) | ||||||
| Derivative adjustments | ( | ) | ||||||
| Taxes | ( | ) | ||||||
| Net of tax amount | ( | ) | ||||||
| Total other comprehensive income | ||||||||
| Comprehensive income | $ | $ | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
|||||||||||||||
| For the Three Months Ended March 31, 2024 and 2023 |
|||||||||||||||
| (unaudited) |
| (in thousands, except per share data) | Number of Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders' Equity | ||||||||||||||||||
| For the three months ended: | ||||||||||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Cumulative effect adjustment due to adoption of ASU 2016-13 | - | |||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax of $ | - | |||||||||||||||||||||||
| Balances, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balances, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Common shares issued in consideration of an asset purchase | ||||||||||||||||||||||||
| Common shares issued under long-term incentive compensation plan | ( | ) | ||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ( | ) | ||||||||||||||||||||
| Other comprehensive income, net of tax of $ | - | |||||||||||||||||||||||
| Balances, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||
| (unaudited) |
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Investment securities amortization, net | ||||||||
| Equity in trust | ( | ) | ( | ) | ||||
| Depreciation of bank premises and equipment | ||||||||
| Amortization of loan origination costs | ||||||||
| Stock-based compensation expense | ||||||||
| Provision for credit losses - loans and leases | ||||||||
| Credit to provision for unfunded commitments | ( | ) | ( | ) | ||||
| Net gain on the sale of available-for-sale debt securities | ( | ) | ||||||
| Net loss on equity securities | ||||||||
| Net gain on the sale of mortgage loans held for sale | ( | ) | ||||||
| Net loss on sale of other assets | ||||||||
| Bank-owned life insurance settlement | ( | ) | ||||||
| Income from cash surrender value of bank-owned life insurance | ( | ) | ( | ) | ||||
| Proceeds from the sale of mortgage loans held for sale | ||||||||
| Increase in accrued interest receivable | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| (Decrease) increase in accrued interest payable | ( | ) | ||||||
| Increase (decrease) in other liabilities | ( | ) | ||||||
| Total adjustments | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Maturities, calls and principal payments of available-for-sale debt securities | ||||||||
| Proceeds from the sale of available-for-sale debt securities | ||||||||
| Purchases of available-for-sale debt securities | ( | ) | ( | ) | ||||
| Purchases of equity securities | ( | ) | ||||||
| (Purchase) redemption of restricted stock | ( | ) | ||||||
| Net increase in loans and leases to customers | ( | ) | ( | ) | ||||
| Proceeds received from bank-owned life insurance settlement | ||||||||
| Investment in low-income housing tax credit program | ( | ) | ||||||
| Proceeds from the sale of other assets | ||||||||
| Purchases of bank premises and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net (decrease) increase in deposits | ( | ) | ||||||
| Net increase (decrease) in Federal Home Loan Bank of Pittsburgh advances - overnight | ( | ) | ||||||
| Proceeds from Federal Home Loan Bank of Pittsburgh advances - term | ||||||||
| Repayment of Federal Home loan Bank of Pittsburgh advances - term | ( | ) | ( | ) | ||||
| Proceeds from Federal Reserve Discount Window advances | ||||||||
| Repayment of Federal Reserve Discount Window advances | ( | ) | ||||||
| Net (discount) proceeds from issuance of common shares under dividend reinvestment/optional cash purchase plan | ( | ) | ||||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | ||||||||
| Other transactions: | ||||||||
| Common shares issued in consideration of an asset purchase | ||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The consolidated financial statements of FNCB Bancorp, Inc. are comprised of the accounts of FNCB Bancorp, Inc., a registered bank holding company under the Bank Holding Company Act of 1956, its wholly owned subsidiary, FNCB Bank (the “Bank”), and the Bank's wholly-owned subsidiary, 1st Equipment Finance, Inc. (and collectively, “FNCB”). The accounting and reporting policies of FNCB conform to accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Prior period amounts have been reclassified when necessary to conform to the current period’s presentation. Such reclassifications did not have an impact on the operating results or financial position of FNCB. The operating results and financial position of FNCB for the three months ended March 31, 2024 may not be indicative of future results of operations and financial position.
In addition, the preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term are the allowance for credit losses (“ACL”), securities’ valuation and evaluation for credit impairment and income taxes.
On June 5, 2023, the Bank filed a Bank Subsidiary Notice with the Pennsylvania Department of Banking and Securities ("PADOBS") to inform the PADOBS that the Bank planned to establish 1st Equipment Finance, Inc. as a wholly-owned subsidiary for the purpose of providing commercial equipment loans and leases to customers. The Bank began offering these products to customers in 2021 under the brand, 1st Equipment Finance. On July 5, 2023, the Bank received written notification from the PADOBS that it did not object to the establishment of the subsidiary pursuant to Section 203(d) of the Pennsylvania Banking Code of 1965. On October 1, 2023, 1st Equipment Finance Inc., was established as a wholly-owned subsidiary of the Bank. Upon establishment of the subsidiary, the Bank contributed capital to the new subsidiary which included the outstanding balance of loans and leases, net of deferred origination fees and costs and unearned income, previously originated under this brand, an ACL, accrued interest, premises and equipment, net deferred tax assets and other assets totaling $
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited consolidated financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2023 (the “2023 Annual Report”).
Agreement and Plan of Merger:
On September 27, 2023, FNCB entered into an Agreement and Plan of Merger (the "Merger Agreement") with Peoples Financial Services Corp. (“PFIS”) pursuant to which FNCB will merge with and into PFIS, with PFIS as the surviving entity. Immediately after such merger, the Bank will merge with and into Peoples Security Bank and Trust Company ("Peoples Bank"), with Peoples Bank as the surviving bank and a wholly-owned subsidiary of PFIS. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, shareholders of FNCB will be entitled to receive a fixed exchange ratio of
The Merger Agreement provides certain termination rights for both PFIS and FNCB and further provides that a termination fee of $
Subsequent Events:
FNCB has evaluated events and transactions occurring subsequent to March 31, 2024, the balance sheet date, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements. See Note 12, "Regulatory Matters" of the Notes to Consolidated Financial Statements to this Quarterly Report on Form 10-Q for information about events and transactions that have occurred subsequent to the balance sheet date.
Note 2. Summary of Significant Accounting Policies/New Authoritative Accounting Guidance
New Authoritative Accounting Guidance
There were no changes to FNCB's significant accounting policies nor was there any new material accounting guidance applicable to FNCB that had a material effect on FNCB's results of operations or financial condition at March 31, 2024. Refer to Note 2, "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in the 2023 Annual Report on Form 10-K for a discussion of FNCB's significant accounting policies and new accounting guidance applicable to FNCB that will be adopted in future periods.
Note 3. Securities
Available-for-Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains and losses, and the fair value of FNCB’s available-for-sale debt securities at March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Unrealized | |||||||||||||||
| Amortized | Holding | Holding | Fair | |||||||||||||
| (in thousands) | Cost | Gains | Losses | Value | ||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | ||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Unrealized | |||||||||||||||
| Amortized | Holding | Holding | Fair | |||||||||||||
| (in thousands) | Cost | Gains | Losses | Value | ||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | ||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
Except for securities of U.S. government and government-sponsored agencies, there were
The following table presents the maturity information of FNCB’s available-for-sale debt securities at March 31, 2024. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because collateralized mortgage obligations ("CMOs"), mortgage-backed securities and asset-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.
| March 31, 2024 | ||||||||
| Amortized | Fair | |||||||
| (in thousands) | Cost | Value | ||||||
| Amounts maturing in: | ||||||||
| One year or less | $ | $ | ||||||
| After one year through five years | ||||||||
| After five years through ten years | ||||||||
| After ten years | ||||||||
| Collateralized mortgage obligations | ||||||||
| Mortgage-backed securities | ||||||||
| Asset-backed securities | ||||||||
| Total available-for-sale debt securities | $ | $ | ||||||
The following table presents the gross proceeds received, and gross realized gains and losses, on sales of available-for-sale debt securities for the three months ended March 31, 2024 and 2023. Gains and losses realized on sales of available-for-sale debt securities are included in non-interest income in the consolidated statements of income.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Available-for-sale debt securities: | ||||||||
| Gross proceeds received on sales | $ | $ | ||||||
| Gross realized gains | ||||||||
| Gross realized losses | ||||||||
The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities in an unrealized loss position at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time the securities have been in an unrealized loss position.
| March 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||
| Number | Gross | Number | Gross | Number | Gross | |||||||||||||||||||||||||||||||
| of | Fair | Unrealized | of | Fair | Unrealized | of | Fair | Unrealized | ||||||||||||||||||||||||||||
| (dollars in thousands) | Securities | Value | Losses | Securities | Value | Losses | Securities | Value | Losses | |||||||||||||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||
| Number | Gross | Number | Gross | Number | Gross | |||||||||||||||||||||||||||||||
| of | Fair | Unrealized | of | Fair | Unrealized | of | Fair | Unrealized | ||||||||||||||||||||||||||||
| (dollars in thousands) | Securities | Value | Losses | Securities | Value | Losses | Securities | Value | Losses | |||||||||||||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Evaluation for Credit Impairment
Quarterly, or more frequently if market conditions warrant, management evaluates securities for impairment where there has been a decline in fair value of a security below its amortized cost basis to determine whether the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit related factors. At March 31, 2024, there were 362 available-for-sale debt securities in an unrealized loss position. As part of its quarterly evaluation of these securities for impairment at March 31, 2024, management first determined that FNCB did not intend to sell, nor was it more likely than not that it would be required to sell, any security in an unrealized loss position prior to recovery of its amortized cost. Management then considered, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any adverse conditions related to the security, an industry or geographic area, any adverse changes to the rating of any security by a rating agency, whether or not any issuer has failed to make contractual principal and interest payments, or if there are any indications that an issuer would not be able to make future contractual principal and interest payments. Management also noted that there was no material change in the credit quality of any of the issuers or any other event or circumstance that may cause a significant adverse effect on the fair value of these securities. FNCB has received all scheduled principal and interest payments and expects to fully collect all future contractual principal and interest payments on all securities in an unrealized loss position at March 31, 2024. Based on the results of its review and considering the attributes of these debt securities, management concluded that changes in the fair values of the securities were consistent with movements in market interest rates and spreads relative to when the securities were purchased and not due to the credit quality of the securities or issuers. Accordingly, management determined that FNCB was not required to establish an ACL on available-for-sale debt securities in an unrealized loss position at March 31, 2024.
Equity Securities
Included in equity securities with readily determinable fair values at March 31, 2024 and December 31, 2023 were investments in the common or preferred stock of publicly traded bank holding companies and an investment in a mutual fund comprised of 1-4 family residential mortgage-backed securities collateralized by properties within FNCB’s market area. Equity securities with readily determinable fair values are reported at fair value with net unrealized gains and losses recognized in the consolidated statements of income.
The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the three months ended March 31, 2024 and 2023.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Net losses recognized on equity securities | $ | ( | ) | $ | ( | ) | ||
| Less: net (losses) gains realized on equity securities sold | ||||||||
| Unrealized losses on equity securities | $ | ( | ) | $ | ( | ) | ||
Equity Securities without Readily Determinable Fair Values
At March 31, 2024 and December 31, 2023, equity securities without readily determinable fair values consisted of a $
Restricted Stock
The following table presents FNCB's investment in restricted stock at March 31, 2024 and December 31, 2023. Restricted stock has limited marketability and is carried at cost. Management noted no indicators of impairment for the Federal Home Loan Bank ("FHLB") of Pittsburgh and Atlantic Community Bankers Bank stock at either March 31, 2024 or December 31, 2023.
| March 31, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Stock in Federal Home Loan Bank of Pittsburgh | $ | $ | ||||||
| Stock in Atlantic Community Bankers Bank | ||||||||
| Total restricted securities, at cost | $ | $ | ||||||
Note 4. Loans and Leases and allowance for credit losses
The following table presents the amortized cost basis of loans and leases summarized by portfolio segment at March 31, 2024 and December 31, 2023.
| March 31, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Residential real estate | $ | $ | ||||||
| Commercial real estate | ||||||||
| Construction, land acquisition and development | ||||||||
| Commercial and industrial | ||||||||
| Commercial equipment financing | ||||||||
| Consumer | ||||||||
| State and political subdivisions | ||||||||
| Total loans and leases | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans and leases | $ | $ | ||||||
| March 31, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Unamortized net loan origination costs | $ | $ | ||||||
| Unearned income | ( | ) | ( | ) | ||||
| Unamortized premiums on purchased loans | ||||||||
| Net loans and leases | $ | $ | |
| ||||
FNCB has granted loans, letters of credit and lines of credit to certain of its executive officers and directors as well as to certain of their related parties. For more information about related party transactions, refer to Note 9, “Related Party Transactions” to these consolidated financial statements.
The unpaid principal balance of loans serviced for others, which includes residential mortgages sold on the secondary market and SBA-guaranteed loans, was $
Credit Risk Profiles – Commercial Loans
Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing certain credit risk profiles. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s commercial loan receivables.
FNCB’s loan rating system assigns a degree of risk to commercial loans based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Management analyzes these non-homogeneous loans individually by grading the loans as to credit risk and probability of collection for each type of loan. Commercial and industrial loans include commercial indirect auto loans which are not individually risk rated, and construction, land acquisition and development loans include residential construction loans which are also not individually risk rated. These loans are monitored on a pool basis due to their homogeneous nature as described in “Credit Risk Profile – Other Loans” below. FNCB risk rates certain residential real estate loans and consumer loans that are part of a larger commercial relationship using a credit grading system as described in “Credit Risk Profiles – Commercial Loans.” The grading system contains the following basic risk categories:
| 1. | Minimal Risk |
| 2. | Above Average Credit Quality |
| 3. | Average Risk |
| 4. | Acceptable Risk |
| 5. | Pass - Watch |
| 6. | Special Mention |
| 7. | Substandard - Accruing |
| 8. | Substandard - Non-Accrual |
| 9. | Doubtful |
| 10. | Loss |
This analysis is performed on a quarterly basis using the following definitions for risk ratings:
Pass – Assets rated 1 through 5 are considered pass ratings. These assets are contractually current as to principal and interest, are otherwise in compliance with the contractual terms of their respective loan agreement and are considered fully collectible. Management believes there is a low risk of loss related to pass-rated loans.
Special Mention – Assets classified as special mention do not currently expose FNCB to a sufficient degree of risk to warrant an adverse classification but do possess credit deficiencies or potential weaknesses deserving close attention. Special mention assets have a potential weakness or pose an unwarranted financial risk which, if not corrected, could weaken the asset and increase risk in the future.
Substandard – Assets classified as substandard have well defined weaknesses based on objective evidence and are characterized by the distinct possibility that FNCB will sustain some loss if the deficiencies are not corrected.
Doubtful – Assets classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that such weaknesses make collection or liquidation in full highly questionable and improbable based on current circumstances.
Loss – Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.
Credit Risk Profiles – Other Loans
Certain residential real estate loans, consumer loans, commercial and municipal indirect auto loans are monitored on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are placed on non-accrual status unless collection of the loan is in process and reasonably assured. FNCB utilizes performing (accruing) versus non-performing (non-accrual) status as the credit quality indicator for these loan pools.
Collateral Dependent Loans
Loans that do not share risk characteristics are evaluated on an individual basis. Such loans include loans where management has determined that foreclosure or repossession of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of collateral. The ACL for collateral dependent loans is measured based on the difference between the fair value of the collateral, less estimated selling costs, and the amortized cost basis of the asset as of the measurement date.
The following tables present the credit risk profile of loans and leases summarized by portfolio segment and year of origination at March 31, 2024 and December 31, 2023:
| Credit Risk Profiles | ||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Term Loans By Origination Fiscal Year | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving | Loans | ||||||||||||||||||||||||
| Credit Risk Profiles - Commercial Loans and Leases | ||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial real state | ||||||||||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total construction, land acquisition and development | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial and industrial | ||||||||||||||||||||||||||||||||
| Commercial equipment financing | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial equipment financing | ||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total state and political subdivisions | ||||||||||||||||||||||||||||||||
| Credit Risk Profiles - Other Loans | ||||||||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||
| Performing | ||||||||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||
| Total residential real estate | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Performing | ||||||||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||
| Total loans and leases | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Credit Risk Profiles | ||||||||||||||||||||||||||||||||
| For the Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Term Loans By Origination Fiscal Year | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Loans | ||||||||||||||||||||||||
| Credit Risk Profiles - Commercial Loans and Leases | ||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial real state | ||||||||||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total construction, land acquisition and development | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial and industrial | ||||||||||||||||||||||||||||||||
| Commercial equipment financing | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total commercial equipment financing | ||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||
| Total state and political subdivisions | ||||||||||||||||||||||||||||||||
| Credit Risk Profiles - Other Loans | ||||||||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||
| Performing | ||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||
| Total residential real estate | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Performing | ||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||
| Total loans and leases | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table presents gross charge-offs by portfolio segment and year of origination for the three months ended March 31, 2024
| Gross Charge-Offs by Origination Year | ||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Construction land acquisition and development | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Commercial equipment financing | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| State and political subdivision loans | ||||||||||||||||||||||||||||||||
| Total gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table summarizes activity in the ACL by major category for the three months ended March 31, 2024 and 2023.
| Construction, | ||||||||||||||||||||||||||||||||||||
| Land | Commercial | State and | ||||||||||||||||||||||||||||||||||
| Residential | Commercial | Acquisition and | Commercial | Equipment | Political | |||||||||||||||||||||||||||||||
| (in thousands) | Real Estate | Real Estate | Development | and Industrial | Financing (1) | Consumer | Subdivisions | Unallocated | Total | |||||||||||||||||||||||||||
| Three months ended March 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ||||||||||||||||||||||||||||||||||
| Ending balance, March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Impact of ASU-2016-13 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Ending balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1) On October 1, 2023, 1st Equipment Finance, Inc was established as a wholly owned subsidiary of the Bank. Prior to this date, loans and leases were originated under the brand 1st Equipment Finance with the outstanding loans balances, and related ACL activity included in the commercial and industrial loan category.
The following tables present ending loan and lease balances and related ACL by portfolio segment and impairment methodology at March 31, 2024 and December 31, 2023:
| Residential | Commercial | Construction, Land Acquisition and | Commercial | Commercial Equipment | State and Political | |||||||||||||||||||||||||||
| (in thousands) | Real Estate | Real Estate | Development | and Industrial | Financing | Consumer | Subdivisions | Total | ||||||||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans and leases receivable: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Residential | Commercial | Construction, Land Acquisition and | Commercial | Commercial Equipment | State and Political | |||||||||||||||||||||||||||
| (in thousands) | Real Estate | Real Estate | Development | and Industrial | Financing | Consumer | Subdivisions | Total | ||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans and leases receivable: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following tables present the amortized cost of collateral-dependent loans and leases by portfolio segment and type of collateral as of March 31, 2024 and December 31, 2023;
| March 31, 2024 | ||||||||||||||||
| Type of Collateral | ||||||||||||||||
| (in thousands) | Residential Property | Commercial Property | Business Assets | Total | ||||||||||||
| Loans and leases: | ||||||||||||||||
| Residential real estate | $ | $ | $ | $ | ||||||||||||
| Commercial real estate | ||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||
| Commercial and industrial | ||||||||||||||||
| Commercial equipment financing | ||||||||||||||||
| Consumer | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Total collateral dependent loans and leases | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Type of Collateral | ||||||||||||||||
| (in thousands) | Residential Property | Commercial Property | Business Assets | Total | ||||||||||||
| Loans and leases: | ||||||||||||||||
| Residential real estate | $ | $ | $ | $ | ||||||||||||
| Commercial real estate | ||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||
| Commercial and industrial | ||||||||||||||||
| Commercial equipment financing | ||||||||||||||||
| Consumer | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Total collateral dependent loans and leases | $ | $ | $ | $ | ||||||||||||
The following tables present the delinquency status of past due and non-accrual loans and leases at March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||||||||||||
| Delinquency Status | ||||||||||||||||||||||||
| 30-89 Days | >/= 90 Days | Nonaccrual | Total | |||||||||||||||||||||
| (in thousands) | Past Due | Past Due | Loans | Past Due | Current | Total | ||||||||||||||||||
| Loans and leases: | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||
| Commercial equipment financing | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||
| Total loans and leases | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| Delinquency Status | ||||||||||||||||||||||||
| 30-89 Days | >/= 90 Days | Nonaccrual | Total | |||||||||||||||||||||
| (in thousands) | Past Due | Past Due | loans | Past Due | Current | Total | ||||||||||||||||||
| Loans and leases: | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||
| Commercial equipment financing | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||
| Total loans and leases | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Included in loans and leases receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment in these non-accrual loans was $
Loan Modifications to Borrowers Experiencing Financial Difficulty
ASU 2022-02 eliminated the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In accordance with the new guidance, FNCB no longer evaluates loans with modifications made to borrowers experiencing financial difficulty individually for impairment, nor establishes a related specific reserve for such loans, but rather these loans are included in their respective portfolio segment and evaluated collectively for impairment to establish an ACL.
There was one modification made to commercial and industrial loan with a borrower experiencing financial difficulty during the three months ended March 31, 2024, which involved the deferral of a portion of the initial principal payment until the loan's maturity on December 11, 2025. The loan, which was originated under the Federal Reserve Bank's Main Street Lending Program ("MSLP") had an outstanding principal balance of $
Residential Real Estate Loan Foreclosures
There were
Note 5. Deposits
The following table presents deposits by major category at March 31, 2024 and December 31, 2023:
| March 31, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| Demand (non-interest bearing) | $ | $ | ||||||
| Interest-bearing: | ||||||||
| Interest-bearing demand | ||||||||
| Savings | ||||||||
| Time ($250,000 and over) | ||||||||
| Other time | ||||||||
| Total interest-bearing | ||||||||
| Total deposits | $ | $ | ||||||
Included in other time deposits were brokered deposits of $
The aggregate amount of deposits reclassified as loans was $
Note 6. Borrowed Funds
FNCB has an agreement with the FHLB of Pittsburgh which allows for borrowings, either overnight or term, up to a maximum borrowing capacity based on a percentage of qualifying loans pledged under a blanket pledge agreement. In addition to pledging loans, FNCB is required to purchase FHLB of Pittsburgh stock based upon the amount of credit extended. Loans that were pledged to collateralize borrowings under this agreement were $
Advances through the Federal Reserve Bank Discount Window generally include short-term advances which are fully collateralized by certain pledged loans under the Federal Reserve Bank's Borrower-in-Custody ("BIC") program. At December 31, 2023, FNCB had loans pledged under the BIC program of $
The following table presents borrowings, by type, outstanding, at March 31, 2024 and December 31, 2023.
| March 31, | December 31, | |||||||
| (in thousands) | 2024 | 2023 | ||||||
| FHLB of Pittsburgh advances: | ||||||||
| FHLB of Pittsburgh - overnight | $ | $ | ||||||
| FHLB of Pittsburgh - term | ||||||||
| Subtotal FHLB of Pittsburgh advances | ||||||||
| Federal Reserve discount window BTFP advances | ||||||||
| Junior subordinated debentures | ||||||||
| Total borrowed funds | $ | $ | ||||||
Note 7. Derivative and Hedging Transactions
Risk Management Objective of Using Derivatives
FNCB is exposed to certain risks arising from both its business operations and economic conditions. It principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. FNCB manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, FNCB enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future unknown and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments are used to manage differences in the amount, timing, and duration of known or expected cash payments primarily related to FNCB's borrowings. FNCB's existing credit derivatives result from loan participations arrangements and, therefore, are not used to manage interest rate risk in FNCB's assets or liabilities.
Cash Flow Hedges of Interest Rate Risk
FNCB's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, FNCB primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for FNCB making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with forecasted issuances of debt in 2024 and 2023.
For derivatives that are designated and qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on FNCB's variable-rate debt. During the next twelve months, it is estimated that an additional $
Fair Value Hedges of Interest Rate Risk
FNCB is exposed to changes in the fair value of pools of fixed-rate assets due to changes in benchmark interest rates. FNCB uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for FNCB receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.
For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
The following table presents amounts recorded in the consolidated statements of financial condition related to the carrying amount of hedged assets and cumulative basis adjustment for fair value hedges at March 31, 2024 and December 31, 2023:
| Line Item in the Statement of Financial Condition in Which the Hedged Item is Included | Carrying Amount of the Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities) | ||||||||||||||
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Fixed-rate securities | $ | $ | ( | ) | ||||||||||||
| Fixed-rate loans (1) | ||||||||||||||||
| Total | $ | $ | ( | ) | ||||||||||||
| Interest rate swaps notional amounts | $ | |||||||||||||||
|
| ||||||||||||||||
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service FNCB provides to certain customers. FNCB executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that FNCB executes with a third party, such that FNCB minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. FNCB's existing credit derivatives result from participations out of interest rate swaps provided to external lenders as part of loan participation arrangements, and therefore, are not used to manage interest rate risk in FNCB's assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service FNCB provides to certain lenders which participate in loans.
Fair Values of Derivative Instruments on the Consolidated Statements of Financial Condition
The following table presents the fair value of FNCB's derivative financial instruments and the classification on the consolidated statements of financial condition at March 31, 2024 and December 31, 2023:
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| (in thousands) | Notional Amount | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Notional Amount | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||
| Interest rate products | $ | Other assets | $ | Other assets | $ | $ | Other liabilities | $ | Other liabilities | $ | ||||||||||||||||||
| Total derivatives designated as hedging instruments | ||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||
| Interest rate swaps | $ | Other assets | $ | Other assets | $ | $ | Other liabilities | $ | Other liabilities | $ | ||||||||||||||||||
| Risk participation transaction | ||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||
| Net Derivatives on the statements of financial condition | ||||||||||||||||||||||||||||
| Gross amounts not offset in the statements of financial condition | ||||||||||||||||||||||||||||
| Financial instruments | ||||||||||||||||||||||||||||
| Cash collateral (1) | ||||||||||||||||||||||||||||
| Net derivative amounts | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.
Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
The following table presents the effect of fair value and cash flow hedge accounting on AOCL for the three months ended March 31, 2024 and 2023. Amounts disclosed are gross and not net of taxes:
| For the Three Months Ended March 31, 2024 | |||||||||||||||||||||||||
| (in thousands) | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Derivative | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Included Component | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Excluded Component | Location of Gain or (Loss) Recognized from AOCL into Income | Amount of Gain or (Loss) Reclassified from AOCL into Income | Amount of Gain or (Loss) Reclassified from AOCL into Income Included Component | Amount of Gain or (Loss) Reclassified from AOCL into Income Excluded Component | ||||||||||||||||||
| Derivatives in cash flow hedging relationships | |||||||||||||||||||||||||
| Interest rate products | $ | $ | $ | Interest expense | $ | $ | $ | ||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Derivatives in fair value hedging relationships | |||||||||||||||||||||||||
| Interest rate products | $ | $ | $ | Interest expense | $ | $ | $ | ||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ |
| ||||||||||||||||||
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||
| (in thousands) | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Derivative | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Included Component | Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) Excluded Component | Location of Gain or (Loss) Recognized from AOCL into Income | Amount of Gain or (Loss) Reclassified from AOCL into Income | Amount of Gain or (Loss) Reclassified from AOCL into Income Included Component | Amount of Gain or (Loss) Reclassified from AOCL into Income Excluded Component | ||||||||||||||||||
| Derivatives in cash flow hedging relationships | |||||||||||||||||||||||||
| Interest rate products | $ | $ | $ | Interest expense | $ | $ | $ | ||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
The following table presents the effect of the FNCB's derivative financial instruments on the consolidated statements of income for the three months ended March 31, 2024 and 2023:
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships | ||||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||||
| (in thousands) | Interest Income | Interest Expense | Interest Income | Interest Expense | ||||||||||||
| Total amounts of income and expense line items presented in the consolidated statements of financial performance in which the effects of fair value or cash flow hedges are recorded | $ | $ | $ | $ | ||||||||||||
| The effects of fair value and cash flow hedging: | ||||||||||||||||
| Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 | ||||||||||||||||
| Interest contracts: | ||||||||||||||||
| Amount of gain or (loss) reclassified from accumulated other comprehensive income into income | $ | ( | ) | $ | $ | $ | ||||||||||
| Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring | $ | $ | $ | $ | ||||||||||||
| Amount of gain or (loss) reclassified from accumulated OCI into income - included component | $ | $ | $ | $ | ||||||||||||
| Amount of gain or (loss) reclassified from accumulated OCI into income - excluded component | $ | $ | $ | $ | ||||||||||||
Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
Derivative financial instruments that are not designated as hedging instruments had no effect on the consolidated statements of income for the three months ended March 31, 2024 and 2023.
Credit-risk-related Contingent Features
FNCB has agreements with each of its derivative counterparties that contain a provision where if FNCB defaults or is capable of being declared in default on any of its indebtedness, then it could also be declared in its derivative obligations.
FNCB has agreements with certain of its derivatives counterparties that contain a provision where if it fails to maintain its status as a well-capitalized institution, then it could be required to post additional collateral.
FNCB has minimum collateral posting thresholds with certain of its derivative counterparties for derivatives in a net liability position. As of March 31, 2024 and December 31, 2023, FNCB had
Note 8. Income Taxes
The following table presents a reconciliation between the effective income tax expense and the income tax expense that would have been provided at the federal statutory tax rate of
| For the Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| (dollars in thousands) | Amount | % | Amount | % | ||||||||||||
| Provision at statutory tax rates | $ | % | $ | % | ||||||||||||
| Add (deduct): | ||||||||||||||||
| Tax effects of tax-free interest income | ( | ) | ( | )% | ( | ) | ( | )% | ||||||||
| Non-deductible interest expense | % | % | ||||||||||||||
| Bank-owned life insurance | ( | ) | ( | )% | ( | ) | ( | )% | ||||||||
| Unrealized losses on equity securities | % | % | ||||||||||||||
| Other items, net | ( | ) | ( | )% | % | |||||||||||
| Income tax provision | $ | % | $ | % | ||||||||||||
Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently, if necessary, in accordance with guidance set forth in ASC Topic 740 “Income Taxes” and applies the criteria in the guidance to determine whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. Management performed an evaluation of FNCB’s deferred tax assets at March 31, 2024 taking into consideration all available positive and negative evidence at that time. Based on this evaluation, management believes that FNCB’s future taxable income will be sufficient to utilize its deferred tax assets. There was
Note 9. Related Party Transactions
In conducting its business, FNCB has engaged in, and intends to continue to engage in, banking and financial transactions with directors, executive officers and their related parties.
FNCB has granted loans, letters of credit and lines of credit to directors, executive officers and their related parties. The following table summarizes the changes in the total amounts of such outstanding loans, advances under lines of credit, net of any participations sold, as well as repayments during the three months ended March 31, 2024 and 2023.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions, new loans and advances | ||||||||
| Repayments | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
At March 31, 2024 and December 31, 2023, there were
Deposits from directors, executive officers and their related parties held by the Bank at March 31, 2024 and December 31, 2023 were $
In the course of its operations, FNCB acquires goods and services from, and transacts business with, various companies of related parties, which include, but are not limited to, legal services, vehicle repair services, dealer reserve payments and rent. FNCB recorded payments to related parties for goods and services of $
Note 10. Commitments and Contingencies
Leases
FNCB is obligated under operating leases for certain bank branches, office space, automobiles and equipment. Operating lease right of use ("ROU") assets represent FNCB's right to use an underlying asset during the lease term, and operating liabilities represent FNCB's obligation to make lease payments under the lease agreement. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents FNCB's incremental borrowing rate at the commencement date. ROU assets are included in and operating lease liabilities are included in in the consolidated statements of financial condition. As of March 31, 2024, ROU assets and lease liabilities were $
Operating lease expense associated with bank branches and office space is included in occupancy expense, while operating lease expenses associated with automobiles and office equipment are included in equipment expense in the consolidated statements of income. Rental expense incurred for each of the three months ended March 31, 2024 and 2023 totaled $
The following table summarizes the maturity of remaining operating lease liabilities as of March 31, 2024:
| (in thousands) | March 31, 2024 | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
The following table presents other information related to our operating leases:
| (dollars in thousands) | March 31, 2024 | March 31, 2023 | ||||||
| Weighted-average remaining lease term (in years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
FNCB has been subject to tax audits, and is also a party to routine litigation involving various aspects of its business, such as employment practice claims, workers compensation claims, claims to enforce liens, condemnation proceedings on properties in which FNCB holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business, none of which has or is expected to have a material adverse impact on the consolidated financial condition, results of operations or liquidity of FNCB.
Note 11. Stock Compensation Plans
FNCB had a Long-Term Incentive Compensation Plan (“LTIP”) for directors, executive officers and key employees that authorized up to
On March 22, 2023, the Board of Directors formally approved and adopted the FNCB Bancorp, Inc. 2023 Equity Incentive Plan ("Equity Plan"), which replaced the LTIP. The Equity Plan authorizes
At March 31, 2024, there were
The following table summarizes the activity related to FNCB’s unvested restricted stock awards during the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Weighted- | Weighted- | |||||||||||||||
| Average | Average | |||||||||||||||
| Restricted | Grant Date | Restricted | Grant Date | |||||||||||||
| (dollars in thousands) | Shares | Fair Value | Shares | Fair Value | ||||||||||||
| Unvested restricted stock awards: | ||||||||||||||||
| Total outstanding, beginning of period | $ | $ | ||||||||||||||
| Awards granted | ||||||||||||||||
| Forfeitures | ( | ) | ||||||||||||||
| Shares vested | ( | ) | ||||||||||||||
| Total outstanding, end of period | $ | $ | ||||||||||||||
Note 12. Regulatory Matters
FNCB’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to FNCB. Regulations with respect to the banking industry limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agency. FNCB declared and paid cash dividends of $
The holding company is considered a small bank holding company and is exempt from risk-based capital and leverage rules, including Basel III. FNCB and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on FNCB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNCB and the Bank must meet specific capital guidelines that involve quantitative measures of FNCB's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. FNCB's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Management believes, as of March 31, 2024 and December 31, 2023, that FNCB and the Bank met all applicable capital adequacy requirements.
Current quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total capital, Tier I capital, and Tier I common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The following tables present summary information regarding the Bank’s risk-based capital and related ratios at March 31, 2024 and December 31, 2023:
| FNCB Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||||||
| March 31, 2024 | ||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | % | % | % | |||||||||||||||
| Tier I capital (to risk-weighted assets) | % | % | % | % | ||||||||||||||||
| Tier I common equity (to risk-weighted assets) | % | % | % | % | ||||||||||||||||
| Tier I capital (to average assets) | % | % | % | % | ||||||||||||||||
| Total risk-weighted assets | ||||||||||||||||||||
| Total average assets | ||||||||||||||||||||
| FNCB Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | % | % | % | |||||||||||||||
| Tier I capital (to risk-weighted assets) | % | % | % | % | ||||||||||||||||
| Tier I common equity (to risk-weighted assets) | % | % | % | % | ||||||||||||||||
| Tier I capital (to average assets) | % | % | % | % | ||||||||||||||||
| Total risk-weighted assets | ||||||||||||||||||||
| Total average assets | ||||||||||||||||||||
Note 13. Fair Value Measurements
In determining fair value, FNCB uses various valuation approaches, including market, income and cost approaches. Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from sources independent of FNCB. Unobservable inputs reflect FNCB’s knowledge about the assumptions the market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). A financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
| ● | Level 1 valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets; |
| ● | Level 2 valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data; and |
| ● | Level 3 valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value. |
A description of the valuation methodologies used for assets recorded at fair value is set forth below.
Available-for-Sale Debt Securities
The estimated fair values for FNCB’s investments in obligations of U.S Treasury securities, U.S. government agencies, obligations of state and political subdivisions, government-sponsored agency CMOs and mortgage-backed securities, private collateralized mortgage obligations, asset-backed securities and negotiable certificates of deposit are obtained by FNCB from a nationally recognized pricing service. This pricing service develops estimated fair values by analyzing like securities and applying available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing (Level 2 inputs), to prepare valuations. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The fair value measurements consider observable data that may include, among other things, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, and are based on market data obtained from sources independent from FNCB. The Level 2 investments in FNCB’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing service, reflect the assumptions that market participants would use to price the assets. Management has determined that the Level 2 designation is appropriate for these securities because, as with most fixed-income securities, those in FNCB’s portfolio are not exchange-traded, and such non-exchange-traded fixed income securities are typically priced by correlation to observed market data. FNCB has reviewed the pricing service’s methodology to confirm its understanding that such methodology results in a valuation based on quoted market prices for similar instruments traded in active markets, quoted markets for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which the significant assumptions can be corroborated by market data as appropriate to a Level 2 designation.
For those securities for which the inputs used by an independent pricing service were derived from unobservable market information, FNCB evaluated the appropriateness and quality of each price. Management reviewed the volume and level of activity for all classes of securities and attempted to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value (fair values based on Level 3 inputs). If applicable, the adjustment to fair value was derived based on present value cash flow model projections obtained from third party providers using assumptions similar to those incorporated by market participants.
At March 31, 2024, FNCB owned
Equity Securities
The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs).
Derivative Contracts
FNCB's derivative liabilities are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, interest rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the financial assets and liabilities that were measured at fair value on a recurring basis at March 31, 2024, and December 31, 2023, and the fair value hierarchy of the respective valuation techniques utilized by FNCB to determine the fair value:
| Fair Value Measurements at March 31, 2024 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | ||||||||||||||
| (in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Financial assets: | ||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | ||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||
| Subtotal available-for-sale debt securities | ||||||||||||||||
| Equity securities, at fair value | ||||||||||||||||
| Derivative assets | ||||||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total financial liabilities | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | ||||||||||||||
| (in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Financial assets: | ||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| U.S. treasuries | $ | $ | $ | $ | ||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| U.S. government/government-sponsored agencies: | ||||||||||||||||
| Collateralized mortgage obligations - residential | ||||||||||||||||
| Collateralized mortgage obligations - commercial | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Private collateralized mortgage obligations | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Negotiable certificates of deposit | ||||||||||||||||
| Subtotal available-for-sale debt securities | ||||||||||||||||
| Equity securities, at fair value | ||||||||||||||||
| Derivative assets | ||||||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total financial liabilities | $ | $ | $ | $ | ||||||||||||
There were no securities transferred between hierarchy levels during the three months ended March 31, 2024 and 2023.
The following table presents a reconciliation and consolidated statement of operations classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which consisted entirely of corporate debt securities, for the three and three months ended March 31, 2024 and 2023.
| Fair Value Measurements | ||||||||
| Using Significant Unobservable Inputs (Level 3) | ||||||||
| Corporate Debt Securities | ||||||||
| For the Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Redemptions | ||||||||
| Transfer to Level 2 | ||||||||
| Sales | ||||||||
| Total gains (losses) (realized/unrealized): | ||||||||
| Included in earnings | ||||||||
| Included in other comprehensive loss | ||||||||
| Balance at March 31, | $ | $ | ||||||
Assets Measured at Fair Value on a Non-Recurring Basis
The following tables present assets and liabilities measured at fair value on a non-recurring basis at March 31, 2024 and December 31, 2023, with additional quantitative information about the valuation techniques and inputs utilized by FNCB to determine fair value. All assets were measured using Level 3 inputs.
| March 31, 2024 | |||||||||||||||||||
| Fair Value Measurement | Quantitative Information | ||||||||||||||||||
| Recorded | Valuation | Fair | Valuation | Unobservable | Value/ | ||||||||||||||
| (in thousands) | Investment | Allowance | Value | Technique | Inputs | Range | |||||||||||||
| Individually evaluated loans - collateral dependent | $ | $ | $ | Appraisal of collateral | Selling costs | % | |||||||||||||
| Individually evaluated loans - other | Discounted cash flows | Discount rate | |||||||||||||||||
| Repossessed assets | Discounted cash flows | Discount rate | % | ||||||||||||||||
| December 31, 2023 | |||||||||||||||||||
| Fair Value Measurement | Quantitative Information | ||||||||||||||||||
| Recorded | Valuation | Fair | Valuation | Unobservable | Value/ | ||||||||||||||
| (in thousands) | Investment | Allowance | Value | Technique | Inputs | Range | |||||||||||||
| Individually evaluated loans - collateral dependent | $ | $ | $ | Appraisal of collateral | Selling costs | % | |||||||||||||
| Individually evaluated loans - other | Discounted cash flows | Discount rate | |||||||||||||||||
| Repossessed assets | Discounted cash flows | Discount rate | % | ||||||||||||||||
The fair value of collateral-dependent impaired loans is determined through independent appraisals or other reasonable offers, which generally include various Level 3 inputs which are not identifiable. Management reduces the appraised value by the estimated costs to sell the property and may adjust the appraised values as necessary to consider any declines in collateral values since the time of the appraisal. For impaired loans that are not collateral-dependent, fair value is determined using the discounted cash flow method. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance or is charged off. The amount shown is the balance of impaired loans, net of any charge-offs and the related allowance for credit losses.
The following table summarizes the estimated fair values of FNCB’s financial instruments using an exit price notion at March 31, 2024 and at December 31, 2023. FNCB discloses fair value information about financial instruments, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. The fair value of financial instruments that are not measured at fair value in the financial statements were based on the exit price notion. The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, management judgment is required to interpret data and develop fair value estimates. Accordingly, the estimates below are not necessarily indicative of the amounts FNCB could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
| Fair Value | March 31, 2024 | December 31, 2023 | ||||||||||||||||
| (in thousands) | Measurement | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| Financial assets: | ||||||||||||||||||
| Cash and cash equivalents | Level 1 | $ | $ | $ | $ | |||||||||||||
| Available-for-sale debt securities | See previous table | |||||||||||||||||
| Equity securities | Level 1 | |||||||||||||||||
| Restricted stock | Level 2 | |||||||||||||||||
| Loans and leases, net | Level 3 | |||||||||||||||||
| Accrued interest receivable | Level 2 | |||||||||||||||||
| Servicing rights | Level 3 | |||||||||||||||||
| Derivative assets | Level 2 | |||||||||||||||||
| Financial liabilities: | ||||||||||||||||||
| Deposits | Level 2 | |||||||||||||||||
| Borrowed funds | Level 2 | |||||||||||||||||
| Accrued interest payable | Level 2 | |||||||||||||||||
| Derivative liabilities | Level 2 | |||||||||||||||||
Note 14. Earnings per Share
For FNCB, the numerator of both the basic and diluted earnings per share of common stock is net income available to common shareholders. The weighted-average number of common shares outstanding used in the denominator for basic earnings per common share is increased to determine the denominator used for diluted earnings per common share by the effect of potentially dilutive common share equivalents utilizing the treasury stock method. For the three months ended March 31, 2024 and 2023, common share equivalents consisted entirely of incremental shares of unvested restricted stock.
The following table presents the calculation of both basic and diluted earnings per share of common stock for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| (in thousands, except share data) | 2024 | 2023 | ||||||
| Net income | $ | $ | ||||||
| Basic weighted-average number of common shares outstanding | ||||||||
| Plus: Common share equivalents | ||||||||
| Diluted weighted-average number of common shares outstanding | ||||||||
| Income per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
Note 15. Other Comprehensive Income
The following tables summarize the reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2024 and 2023, comprised entirely of unrealized gains and losses on available-for-sale debt securities:
| Three Months Ended March 31, 2024 | |||||
| (in thousands) | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in the Consolidated Statements of Income | |||
| Available-for-sale debt securities: | |||||
| Reclassification adjustment for net gains reclassified into net income | $ | Net gain on the sale of available-for-sale debt securities | |||
| Taxes | Income taxes | ||||
| Net of tax amount | $ | ||||
| Three Months Ended March 31, 2023 | |||||
| (in thousands) | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in the Consolidated Statements of Income | |||
| Available-for-sale debt securities: | |||||
| Reclassification adjustment for net gains reclassified into net income |
| Net gain on the sale of available-for-sale debt securities | |||
| Taxes | | Income taxes | |||
| Net of tax amount |
| ||||
The following table summarizes the changes in accumulated other comprehensive loss, net of tax for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2024 | 2023 | ||||||
| Balance, beginning of period | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income before reclassifications | ||||||||
| Amount reclassified from accumulated other comprehensive income | ( | ) | ||||||
| Net other comprehensive income during the period | ||||||||
| Balance, end of period | $ | ( | ) | $ | ( | ) | ||
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in the Annual Report on Form 10-K for the year ended December 31, 2023 for FNCB Bancorp, Inc. In addition, please read this section in conjunction with the consolidated financial statements and notes to consolidated financial statements contained elsewhere herein.
FNCB Bancorp, Inc. and its subsidiaries ("FNCB") are in the business of providing customary retail and commercial banking services to individuals, businesses and local governments and municipalities through its wholly-owned subsidiary, FNCB Bank, at its 16 full-service branch offices within its primary market area, Northeastern Pennsylvania.
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
FNCB may from time to time make written or oral “forward-looking statements,” including statements contained in its filings with the Securities and Exchange Commission (“SEC”), in its reports to shareholders, and in its other communications, which are made in good faith by us pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to FNCB’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, including statements with respect to future changes in monetary policy or interest rates, or new product offerings and the anticipated merger between FNCB and Peoples Financial Services Corp. (“PFIS”) under the Agreement and Plan of Merger, dated September 27, 2023 (the “Merger Agreement”) pursuant to which FNCB will merge with and into PFIS, with PFIS as the surviving entity, along with the transaction occurring immediately after such merger, whereby FNCB’s wholly owned subsidiary, FNCB Bank (the “Bank”) will merge with and into Peoples Security Bank and Trust Company (“Peoples Bank”), with Peoples Bank as the surviving bank and a wholly-owned subsidiary of PFIS, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond our control). The words “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “future” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause FNCB’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: government intervention in the U.S. financial system including the effects of recent legislative, tax, accounting and regulatory actions and reforms; political instability; acts of world terrorism; global unrest; the ability of FNCB to manage credit risk; weakness in the economic environment, in general, and within FNCB’s market area; the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Merger Agreement between FNCB and PFIS; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate operations of FNCB and FNCB Bank and those of PFIS and Peoples Bank, its wholly-owned subsidiary, which may be more difficult, time consuming or costly than expected; diversion of management's attention from ongoing business operations and opportunities; effects of the announcement, pendency or completion of the proposed transaction on the ability of FNCB and PFIS to retain customers and retain and hire key personnel and maintain relationships with their vendors, and on their operating results and businesses generally; the deterioration of one or a few of the large balance commercial and/or commercial real estate loans contained in FNCB’s loan portfolio; greater risk of loan defaults and losses from concentration of loans held by FNCB, including those to insiders and related parties; if FNCB’s portfolio of loans to small and mid-sized community-based businesses increases its credit risk; if FNCB’s allowance for credit losses ("ACL") is not sufficient to absorb actual losses or if increases to the ACL were required; FNCB is subject to interest-rate risk and any changes in interest rates could negatively impact net interest income or the fair value of FNCB's financial assets; if management concludes that the decline in value of any of FNCB’s investment securities is caused by a credit-related event could result in FNCB recording an impairment loss; if FNCB’s risk management framework is ineffective in mitigating risks or losses to FNCB; if FNCB is unable to successfully compete with others for business; a loss of depositor confidence resulting from changes in either FNCB’s financial condition or in the general banking industry; if FNCB is unable to retain or grow its core deposit base; inability or insufficient dividends from its subsidiary, FNCB Bank; if FNCB loses access to wholesale funding sources; interruptions or security breaches of FNCB’s information systems; any systems failures or interruptions in information technology and telecommunications systems of third parties on which FNCB depends; security breaches; if FNCB’s information technology is unable to keep pace with growth or industry developments or if technological developments result in higher costs or less advantageous pricing; the loss of management and other key personnel; dependence on the use of data and modeling in both its management’s decision-making generally and in meeting regulatory expectations in particular; additional risk arising from new lines of business, products, product enhancements or services offered by FNCB; inaccuracy of appraisals and other valuation techniques FNCB uses in evaluating and monitoring loans secured by real property and other real estate owned; unsoundness of other financial institutions; damage to FNCB’s reputation; defending litigation and other actions; dependence on the accuracy and completeness of information about customers and counterparties; risks arising from future expansion or acquisition activity; environmental risks and associated costs on its foreclosed real estate assets; any remediation ordered, or adverse actions taken, by federal and state regulators, including requiring FNCB to act as a source of financial and managerial strength for the FNCB Bank in times of stress; costs arising from extensive government regulation, supervision and possible regulatory enforcement actions; new or changed legislation or regulation and regulatory initiatives; noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations; failure to comply with numerous "fair and responsible banking" laws; any violation of laws regarding privacy, information security and protection of personal information or another incident involving personal, confidential or proprietary information of individuals; any rulemaking changes implemented by the Consumer Financial Protection Bureau; inability to attract and retain its highest performing employees due to potential limitations on incentive compensation contained in proposed federal agency rulemaking; any future increases in FNCB Bank’s FDIC deposit insurance premiums and assessments; and the success of FNCB at managing the risks involved in the foregoing and other risks and uncertainties, including those detailed in FNCB’s filings with the SEC.
FNCB cautions that the foregoing list of important factors is not all inclusive. Readers are also cautioned not to place undue reliance on any forward-looking statements, which reflect management’s analysis only as of the date of this report, even if subsequently made available by FNCB on its website or otherwise. Except as required by applicable law, FNCB does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of FNCB to reflect events or circumstances occurring after the date of this report.
Readers should carefully review the risk factors described in the documents that FNCB periodically files with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2023.
Any references to FNCB's website, www.fncb.com or any variation thereof, shall not incorporate the contents of such website into this Report.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates.
FNCB’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. Management has identified the policies on the determination of the ACL, the valuation of securities and evaluation of securities for credit impairment, and income taxes to be critical, as management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available.
The judgments used by management in applying the critical accounting policies discussed below may be affected by changes and/or deterioration in the economic environment, which may impact future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACL in future periods, and the inability to collect on outstanding loans could result in increased loan losses. In addition, the valuation of certain securities in FNCB’s investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to impairment losses.
Allowance for Credit Losses
As of January 1, 2023, FNCB adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Upon adoption of ASU 2016-13 on January 1, 2023, FNCB recorded an incremental decrease in the ACL through a cumulative effect adjustment to equity with subsequent adjustments charged to earnings through a provision for credit losses.
Management evaluates the credit quality of FNCB’s loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ACL on a quarterly basis. The ACL is established through a provision for credit losses charged to earnings and is maintained at a level that management considers to be an estimate of the lifetime expected credit losses of the portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ACL, while recoveries of amounts previously charged off are credited to the ACL.
Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows, estimated losses on pools of homogeneous loans based on peer-based historical loss experience, reasonable and supportable forecasts and qualitative factors, as well as consideration of current economic trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their examination of FNCB, also review the ACL, and may require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ACL. Additionally, the ACL is determined, in part, by the composition and size of the loan portfolio.
See Note 4, “Loans and Leases” of the Notes to Consolidated Financial Statements included in Item 1 hereof for additional information about the ACL.
Securities Valuation and Evaluation for Impairment
Management utilizes various inputs to determine the fair value of its investment portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or quoted prices for similar assets or models using inputs that are observable, either directly or indirectly (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence of observable inputs or if markets are illiquid, valuation techniques are used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement (Level 3). For Level 3 inputs, valuation techniques are based on various assumptions, including, but not limited to, cash flows, discount rates, adjustments for nonperformance and liquidity, and liquidation values. A significant degree of judgment is involved in valuing investments using Level 3 inputs. The use of different assumptions could have a positive or negative effect on FNCB’s financial condition or results of operations. See Note 3, “Securities” and Note 13, “Fair Value Measurements” of the notes to consolidated financial statements included in Item 1 hereof for additional information about FNCB’s securities valuation techniques.
Quarterly, or more frequently if market conditions warrant, management evaluates securities for impairment where there has been a decline in fair value of a security below its amortized cost basis to determine whether the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors. As part of its evaluation, management first considers whether FNCB intends to sell, or if it more likely than not that it would be required to sell, any security in an unrealized loss position prior to recovery of its amortized cost. If either of those selling events is expected, FNCB would be required to write down the amortized cost basis of the security to its fair value. If either of those selling events is not expected, FNCB must determine whether any of the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors. As part of its evaluation, management considers, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any adverse conditions related to the security, an industry or geographic area, any adverse changes to the rating of any security by a rating agency, whether or not any issuer has failed to make contractual principal and interest payments, or if there are any indications that an issuer would not be able to make future contractual principal and interest payments. Based on the results of its review as of March 31, 2024, management concluded that changes in the fair values of the securities were consistent with movements in market interest rates and spreads relative to when the securities were purchased and not due to the credit quality of the securities or issuers. Accordingly, management determined that FNCB was not required to establish an ACL for any security in an unrealized loss position at March 31, 2024.
See Note 3, “Securities,” of the Notes to Consolidated Financial Statements included in Item 1 hereof for additional information about valuation of securities.
Income Taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in FNCB’s consolidated financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations.
FNCB records an income tax provision or benefit based on the amount of tax currently payable or receivable and the change in deferred tax assets and liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. Management conducts quarterly assessments of all available positive and negative evidence to determine the amount of deferred tax assets that will more likely than not be realized. FNCB establishes a valuation allowance for deferred tax assets and records a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management considers past operating results, estimates of future taxable income based on approved business plans, future capital requirements and ongoing tax planning strategies. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period depending on the related circumstances. The recognition of deferred tax assets requires management to make significant assumptions and judgments about future earnings, the periods in which items will impact taxable income, future corporate tax rates, and the application of inherently complex tax laws. The use of different estimates can result in changes in the amounts of deferred tax items recognized, which may result in equity and earnings volatility because such changes are reported in the current period earnings.
In connection with determining the income tax provision or benefit, management considers maintaining liabilities for uncertain tax positions and tax strategies that it believes contain an element of uncertainty. Periodically, management evaluates each of FNCB’s tax positions and strategies to determine whether a liability for uncertain tax benefits is required. As of March 31, 2024 and December 31, 2023, management determined that FNCB did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded.
Refer to Note 8, “Income Taxes,” of the Notes to Consolidated Financial Statements included in Item 1 hereof for additional information about income taxes.
New Authoritative Accounting Guidance and Accounting Guidance to be Adopted in Future Periods
Refer to Note 2, “New Authoritative Accounting Guidance,” of the Notes to Consolidated Financial Statements included in Item 1 hereof for information about new authoritative accounting guidance adopted by FNCB as of March 31, 2024, as well as new accounting guidance issued, but not previously reported, that will be adopted by FNCB in future periods.
Executive Summary
The following overview should be read in conjunction with this MD&A in its entirety.
Overview
On September 27, 2023, FNCB entered into the Merger Agreement with PFIS pursuant to which FNCB will merge with and into PFIS, with PFIS as the surviving entity. Immediately after such merger, the Bank will merge with and into Peoples Bank, with Peoples Bank as the surviving bank and a wholly owned subsidiary of PFIS. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, shareholders of FNCB will be entitled to receive a fixed exchange ratio of 0.1460 shares of PFIS common stock for each share of FNCB’s common stock. Completion of the merger requires, among other things, customary regulatory approvals. The Merger Agreement provides certain termination rights for both PFIS and FNCB and further provides that a termination fee of $4.8 million will be payable by either PFIS or FNCB, as applicable, upon termination of the Merger Agreement under certain circumstances. The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the definitive Merger Agreement filed by FNCB as Exhibit 2.1 to the Current Report on Form 8-K on September 27, 2023. FNCB held a special meeting of shareholders on March 22, 2024 at which time FNCB's shareholders approved the Merger Agreement and the transactions contemplated thereunder. Pending regulatory approval, FNCB expects the merger to be consummated in the second half of 2024; however, there can be no assurance that the transaction will be consummated by such date, or at all.
FNCB recorded net income of $3.5 million, or $0.18 per basic and diluted common share, for the three months ended March 31, 2024, an increase of $0.8 million, or 32.6%, compared to $2.7 million, or $0.14 per basic and diluted common share, for the three months ended March 31, 2023. The increase in the first quarter 2024 earnings primarily resulted from an increase in net interest income, partially offset by increases in the provision for credit losses and non-interest expense. Net interest income increased $1.6 million, or 14.2%, to $13.2 million for the three months ended March 31, 2024 from $11.6 million for the same three months of 2023, as a $4.2 million increase in interest income was offset by a $2.6 million increase in interest expense. For the three months ended March 31, 2024, FNCB recorded a provision for credit losses of $1.5 million, compared to a provision of $975 thousand for the same three months of 2023. Non-interest expense increased $266 thousand, or 3.0%, to $9.2 million for the three months ended March 31, 2024, from $8.9 million for the same three-month period of 2023, which was primarily due to the recognition of merger and acquisition expenses of $284 thousand for the three months ended March 31, 2024. There were no merger and acquisition expenses recognized for the three months ended March 31, 2023. Income tax expense totaled $652 thousand for the three months ended March 31, 2024, a decrease of $45 thousand, or 6.4%, from $697 thousand for the same three months of 2023.
For the three months ended March 31, 2024, the annualized return on average assets and the return on average equity was 0.78% and 10.58%, respectively, compared to 0.62% and 8.84% for the respective periods of 2023. FNCB declared and paid dividends to holders of common stock of $0.090 per share for the first quarters of 2024 and 2023.
Total assets decreased $15.0 million, or 0.8%, to $1.866 billion at March 31, 2024 from $1.881 billion at December 31, 2023. The change in total assets primarily reflected decreases in cash and cash equivalents and available-for-sale debt securities, partially offset by an increase in loans and leases. Cash and cash equivalents decreased $37.3 million, or 34.6%, to $70.6 million at March 31, 2024, from $107.9 million at December 31, 2023. Available-for-sale debt securities decreased $8.7 million, or 1.9%, to $442.1 million at March 31, 2024 from $450.8 million at December 31, 2023. Loans and leases, net of the ACL, increased $29.5 million, or 2.4%, to $1.238 billion at March 31, 2024 from $1.208 billion at December 31, 2023. The increase in loans and leases reflected moderate demand within the commercial and industrial, commercial equipment financing and state and political subdivision loan categories. Meanwhile, total deposits decreased $47.7 million, or 3.1%, to $1.481 billion at March 31, 2024 from $1.529 billion at December 31, 2023. Total borrowed funds outstanding at March 31, 2024, were $229.9 million, an increase of $29.6 million, or 14.8%, from $200.3 million at December 31, 2023.
Total shareholders’ equity increased $3.1 million, or 2.3%, to $137.7 million at March 31, 2024 from $134.6 million at December 31, 2023. The increase in shareholders' equity was primarily due to a $1.2 million, or 3.1%, reduction in the accumulated other comprehensive loss to $38.9 million at March 31, 2024, from $40.1 million at December 31, 2023, coupled with net income for the three months ended March 31, 2024, of $3.5 million. Partially offsetting these increases to capital were dividends declared and paid of $1.8 million for the three months ended March 31, 2024. FNCB Bank was considered well capitalized with total risk-based capital and Tier 1 leverage ratios were 13.45% and 9.47% at March 31, 2024, respectively.
Management Focus in 2024
Management focused on executing the necessary steps to satisfy the remaining conditions to closing the merger with PFIS and is working with PFIS' team in accordance with the Merger Agreement including seeking the required regulatory approvals, and integration of our businesses to ensure a smooth transition. In the meantime, management continues to concentrate on prudent balance sheet and liquidity management, managing interest rate risk and controlling funding costs.
Summary of Performance
Net Interest Income
Net interest income, defined as the difference between (i) interest income, interest and fees on interest-earning assets, and (ii) interest expense, interest paid on deposits and borrowed funds, is the primary source of earnings for commercial banks. As such, it is the primary determinant of profitability for FNCB. Net interest income is impacted by variations in the volume, rate and composition of earning assets and interest-bearing liabilities, changes in general market rates and the level of non-performing assets. Interest income is presented on a fully tax-equivalent basis using the statutory corporate tax rate of 21.0% in 2024 and 2023.
Supply chain constraints, rising commodity prices, the war in Ukraine and conflict in the Middle East, as well as increasing tension and unrest worldwide, has resulted in continued price inflation and could drive further inflation, placing additional strain on economic conditions in the United States, the banking industry and global markets. Thus far, as a result, the Federal Open Market Committee ("FOMC"), in an effort to lower inflation to its 2.0% objective, began tightening U.S. monetary policy in 2022. Specifically, the FOMC increased the federal funds target range 525 basis points from 0.25% to 5.50% in a series of eleven tightening actions during the period of March 15, 2022 through July 26, 2023. The increases in federal funds target rate resulted in a corresponding total 525-basis point increase in the national prime rate which was 8.50% at March 31, 2024. This dramatic shift to tighten monetary policy has resulted in a rapid rise in general market interest rates. Additionally, competition for deposits within FNCB's market area has intensified, reflecting industry-wide liquidity pressures and rate sensitivity of depositors. FNCB responded to competition within our market area and rate sensitivity of depositors mentioned above, by offering various promotional deposit products including certificates of deposit and money market products having promotional rates. Additionally, FNCB increased its utilization of wholesale funding, including brokered deposits and borrowing arrangements with the FHLB of Pittsburgh and the Federal Reserve Bank of Philadelphia ("FRB") as deposit gathering has been pressured by industry-wide liquidity constraints. FNCB had experienced margin compression in 2023, as higher interest rates and increased competition caused deposit and whole funding costs to increase at a faster pace and greater magnitude than earning asset yields. Throughout the second half of 2023 and into 2024, management has been focused on stabilizing FNCB's tax-equivalent net interest margin and rate spread. While recent indicators suggest that economic activity is expanding at a solid pace, inflation remains elevated. With the recent escalation of conflict in the Middle East, as well as increasing tension and unrest worldwide, and the bridge collapse in the Port of Baltimore, Maryland, could drive further inflation, increased supply constraints and place additional strain on economic conditions in the United States, the banking industry and global markets. At its meeting on March 20, 2024, the FOMC decided to maintain the target range for the federal funds rate at 5.25%-5.50% and indicated that it would not reduce the target range until there is greater certainty that inflation is moving toward its goal of 2.0%. Should inflationary pressures persist, the FOMC may need to continue to increase interest rates which could result in higher funding costs and further contraction of FNCB's tax-equivalent net interest margin and rate spread. Management monitors FNCB's interest rate risk and sensitivity to changes in market interest rates through the Asset Liability Committee ("ALCO") and is committed to prudent and proactive balance sheet management with a focus on controlling funding costs in relation to funding needs and yields on earning assets in order to mitigate any potential unfavorable impact to FNCB's earnings and profitability.
Net interest income on a tax-equivalent basis increased $1.7 million, or 14.4%, to $13.6 million for the three months ended March 31, 2024 from $11.9 million for the comparable period of 2023, as tax-equivalent interest income increased by a greater magnitude than interest expense. Tax-equivalent interest income increased $4.3 million, or 22.5%, to $23.2 million for the first quarter of 2024 from $18.9 million for the same quarter of 2023. The increase in tax-equivalent interest income was partially offset by a $2.6 million, or 36.1%, increase in interest expense to $9.7 million for the three months ended March 31, 2024 from $7.1 million for the same three months of 2023. The tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. FNCB’s tax-equivalent net interest margin increased 28 basis points to 3.06% for the first quarter of 2024 from 2.78% for the same quarter of 2023. Factoring into the margin improvement was an 18-basis point increase in interest rate spread to 2.48% for the three months ended March 31, 2024 from 2.30% for the same three months of 2023, coupled with strong growth in average earning assets.
The $4.3 million, or 22.5%, increase in tax-equivalent interest income comparing the three months ended March 31, 2024 and 2023 largely reflected an increase in the tax-equivalent yield on average earning assets, coupled with growth in average earning assets. The tax-equivalent yield on average earning assets increased 79 basis points to 5.24% for the first quarter of 2024 from 4.45% for the same quarter of 2023, which resulted in a corresponding $3.1 million increase to tax-equivalent interest income. Specifically, the tax-equivalent yield on the loan portfolio increased 77 basis points to 5.93% from 5.16% comparing the first quarters of 2024 and 2023. Additionally, the tax-equivalent yield on the investment portfolio increased 57 basis points to 3.55% for the first quarter of 2024 from 2.98% for the same quarter of 2023. Tax equivalent yield on interest-bearing balances in other banks increased 103 basis points to 5.18% from 4.15% comparing the three months ended March 31, 2024 and 2023, respectively. The yield increases for loans, investments and interest-bearing deposits in other banks resulted in corresponding increases in tax-equivalent interest income of $2.4 million, $714 thousand, and $32 thousand, respectively. Additionally, total average earning assets increased $68.8 million, or 4.0%, to $1.772 billion for the three months ended March 31, 2024, from $1.703 billion for the same three months of 2023, which resulted in a corresponding increase in tax-equivalent interest income of $1.2 million. Specifically, average total loans and leases increased $111.4 million, or 9.8%, to $1.248 billion for the first quarter of 2024 from $1.137 billion for the same quarter of 2023, which largely reflected strong organic loan demand concentrated in commercial and industrial and commercial equipment financing. The increase in the average loan and lease balances resulted in a corresponding increase to tax-equivalent interest income of $1.5 million comparing the three months ended March 31, 2024, and 2023. Meanwhile, total securities averaged $509.9 million for the first quarter of 2024, a decrease of $39.3 million, or 7.2%, from $549.2 million for the same quarter of 2023, which caused a corresponding decrease to tax-equivalent interest income of $278 thousand.
The increase in interest expense of $2.6 million was primarily due to an increase in funding costs. FNCB increased deposit rates and offered several certificate of deposit specials in response to rising market rates and increased competition. Additionally, liquidity pressures and competition for deposits caused FNCB to rely more heavily on wholesale funding. FNCB experienced a 61-basis point increase in the cost of funds to 2.76% for the three months ended March 31, 2024, from 2.15% for the same three months of 2023, which resulted in a corresponding increase in interest expense of $2.3 million. The average rate paid for interest-bearing deposits increased 86 basis points to 2.46% for the first quarter of 2024 from 1.60% for the same period of 2023. Costs for all major deposit categories increased and resulted in a combined corresponding increase to interest expense of $2.2 million. Specifically, the average rate paid on interest bearing demand deposits increased 56 basis points to 2.27% for the first quarter of 2024 from 1.71% for the same quarter of 2023, which resulted in a corresponding increase to interest expense of $1.0 million. Comparing the first quarters of 2024 and 2023, the average rates paid for time deposits and savings deposits, increased 151 basis points and 12 basis points, respectively, resulting in corresponding increases to interest expense of $1.0 million and $40 thousand, respectively. Additionally, FOMC tightening actions resulted in an increase in wholesale borrowing costs. Comparing the three months ended March 31, 2024 and 2023, the average rate paid for borrowed fund increased 9 basis points to 4.95% from 4.86%, respectively, which caused a corresponding increase to interest expense of $29 thousand. Average interest-bearing liabilities increased $77.1 million, or 5.8%, to $1.398 billion for the three months ended March 31, 2024, from $1.320 billion for the same three months of 2023, which resulted in a corresponding increase to interest expense of $287 thousand. Specifically, average interest-bearing deposits increased $130.2 million, or 11.9%, to $1.227 billion from $1.097 billion comparing the first quarters of 2024 and 2023, respectively. The increase in average interest-bearing deposits resulted in a corresponding increase to interest expense of $920 thousand. Accounting for the majority of the increase, was an increase in average time deposits of $127.1 million, or 53.0%, to $366.8 million for the three months ended March 31, 2024, from $239.7 million for the same three months of 2023, which primarily reflected the utilization of brokered deposits to manage interest rate risk and for liquidity purposes. Brokered deposits averaged $165.9 million for the three months ended March 31, 2024, an increase of $94.5 million from $71.4 million for the same three months of 2023. The increase in average time deposit balances, including retail and brokered deposits, resulted in additional interest expense of $859 thousand. Average interest-bearing demand deposits increased $16.2 million, or 2.3%, to $730.2 million for the first quarter of 2024 compared to $714.0 million for the same quarter of 2023, while average savings deposits decreased $13.1 million, or 9.1%, to $130.0 million from $143.1 million comparing the first quarters of 2024 and 2023, respectively. Partially offsetting the increase in interest expense due to total higher deposit balances was a reduction in average borrowed fund balances, which decreased $53.0 million, or 23.7%, to $170.7 million for the three months ended March 31, 2024, from $223.7 million for the same three-month period in 2023, resulting in a corresponding decrease to interest expense of $633 thousand.
The following tables present the average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid for the three months ended March 31, 2024 and 2023. Average balances are derived from average daily balances. The loan and lease yields include amortization of deferred origination fees and costs which are considered adjustments to yields.
| Three Months Ended |
||||||||||||||||||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||||||||||||||||||
| Average |
Yield/ |
Average |
Yield/ |
|||||||||||||||||||||
| (dollars in thousands) |
Balance |
Interest |
Cost |
Balance |
Interest |
Cost |
||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Earning assets (2)(3) |
||||||||||||||||||||||||
| Loans and leases - taxable (4) |
$ | 1,173,876 | $ | 17,600 | 6.00 | % | $ | 1,082,830 | $ | 14,145 | 5.23 | % | ||||||||||||
| Loans and leases - tax free (4) |
74,371 | 911 | 4.90 | % | 54,045 | 532 | 3.94 | % | ||||||||||||||||
| Total loans (1)(2) |
1,248,247 | 18,511 | 5.93 | % | 1,136,875 | 14,677 | 5.16 | % | ||||||||||||||||
| Securities-taxable |
416,290 | 3,853 | 3.70 | % | 449,351 | 3,350 | 2.98 | % | ||||||||||||||||
| Securities-tax free |
93,602 | 676 | 2.89 | % | 99,836 | 743 | 2.98 | % | ||||||||||||||||
| Total securities (1)(5) |
509,892 | 4,529 | 3.55 | % | 549,187 | 4,093 | 2.98 | % | ||||||||||||||||
| Interest-bearing deposits in other banks and federal funds sold |
13,748 | 178 | 5.18 | % | 17,069 | 177 | 4.15 | % | ||||||||||||||||
| Total earning assets |
1,771,887 | 23,218 | 5.24 | % | 1,703,130 | 18,947 | 4.45 | % | ||||||||||||||||
| Non-earning assets |
71,747 | 65,291 | ||||||||||||||||||||||
| Allowance for credit losses |
(12,140 | ) | (13,362 | ) | ||||||||||||||||||||
| Total assets |
$ | 1,831,494 | $ | 1,755,060 | ||||||||||||||||||||
| Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Interest-bearing demand deposits |
$ | 730,154 | 4,143 | 2.27 | % | $ | 714,001 | 3,057 | 1.71 | % | ||||||||||||||
| Savings deposits |
129,996 | 114 | 0.35 | % | 143,070 | 81 | 0.23 | % | ||||||||||||||||
| Time deposits |
366,768 | 3,286 | 3.58 | % | 239,687 | 1,239 | 2.07 | % | ||||||||||||||||
| Total interest-bearing deposits |
1,226,918 | 7,543 | 2.46 | % | 1,096,758 | 4,377 | 1.60 | % | ||||||||||||||||
| Borrowed funds and other interest-bearing liabilities |
170,668 | 2,113 | 4.95 | % | 223,694 | 2,717 | 4.86 | % | ||||||||||||||||
| Total interest-bearing liabilities |
1,397,856 | 9,656 | 2.76 | % | 1,320,452 | 7,094 | 2.15 | % | ||||||||||||||||
| Demand deposits |
279,760 | 287,975 | ||||||||||||||||||||||
| Other liabilities |
19,843 | 24,487 | ||||||||||||||||||||||
| Shareholders' equity |
134,305 | 122,146 | ||||||||||||||||||||||
| Total liabilities and shareholder's equity |
$ | 1,831,494 | $ | 1,755,060 | ||||||||||||||||||||
| Net interest income/interest rate spread (6) |
13,562 | 2.48 | % | 11,853 | 2.30 | % | ||||||||||||||||||
| Tax equivalent adjustment |
(333 | ) | (268 | ) | ||||||||||||||||||||
| Net interest income as reported |
$ | 13,229 | $ | 11,585 | ||||||||||||||||||||
| Net interest margin (7) |
3.06 | % | 2.78 | % | ||||||||||||||||||||
| (1) |
Interest income is presented on a tax equivalent basis using a 21% rate. |
|
| (2) |
Loans and leases are stated net of unearned income. |
|
| (3) |
Non-accrual loans are included in loans within earning assets. |
|
| (4) |
Interest income on loans and leases include the amortization of loan costs of $368 thousand and $251 thousand for the three months ended March 31, 2024 and 2023, respectively. |
|
| (5) |
The yields for securities that are classified as available for sale is based on the average historical amortized cost. |
|
| (6) |
Interest rate spread represents the difference between the average yield on interest earning assets and the cost of interest-bearing liabilities and is presented on a tax equivalent basis. |
|
| (7) |
Net interest income as a percentage of total average interest earning assets. |
Rate Volume Analysis
The most significant impact on net income between periods is derived from the interaction of changes in the volume and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning assets, specifically loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in net interest income between periods. Components of interest income and interest expense are presented on a tax-equivalent basis using the corporate federal income tax rate of 21%.
The following table summarizes the effect that changes in volumes of earning assets and interest-bearing liabilities and the interest rates earned and paid on these assets and liabilities have on net interest income. The net change or mix component attributable to the combined impact of rate and volume changes has been allocated proportionately to the change due to volume and the change due to rate.
| Three Months Ended March 31, |
||||||||||||
| 2024 vs. 2023 |
||||||||||||
| Increase (Decrease) |
||||||||||||
| Due to |
Due to |
Total |
||||||||||
| (in thousands) |
Volume |
Rate |
Change |
|||||||||
| Interest income: |
||||||||||||
| Loans and leases - taxable |
$ | 1,253 | $ | 2,202 | $ | 3,455 | ||||||
| Loans and leases - tax free |
230 | 149 | 379 | |||||||||
| Total loans |
1,483 | 2,351 | 3,834 | |||||||||
| Securities - taxable |
(233 | ) | 736 | 503 | ||||||||
| Securities - tax free |
(45 | ) | (22 | ) | (67 | ) | ||||||
| Total securities |
(278 | ) | 714 | 436 | ||||||||
| Interest-bearing deposits in other banks and federal funds sold |
(31 | ) | 32 | 1 | ||||||||
| Total interest income |
1,174 | 3,097 | 4,271 | |||||||||
| Interest expense: |
||||||||||||
| Interest-bearing demand deposits |
68 | 1,018 | 1,086 | |||||||||
| Savings deposits |
(7 | ) | 40 | 33 | ||||||||
| Time deposits |
859 | 1,188 | 2,047 | |||||||||
| Total interest-bearing deposits |
920 | 2,246 | 3,166 | |||||||||
| Borrowed funds and other interest-bearing liabilities |
(633 | ) | 29 | (604 | ) | |||||||
| Total interest expense |
287 | 2,275 | 2,562 | |||||||||
| Net interest income |
$ | 887 | $ | 822 | $ | 1,709 | ||||||
Provision for Credit Losses - Loans and Leases
The provision for credit losses is an expense charged against net interest income to provide for probable losses attributable to uncollectible loans and leases and is based on management’s analysis of the adequacy of the ACL. A release of reserves, resulting in a credit to the provision for credit losses, reflects the reversal of amounts previously charged to the ACL. Management closely monitors the loan portfolio and the adequacy of the ACL by considering the underlying financial performance of the borrower, collateral values and associated credit risks. Future material adjustments may be necessary to the provision for credit losses and the ACL if economic conditions or loan performance differ substantially from the assumptions management considered in its evaluation of the ACL. Management will continue to closely monitor FNCB's asset quality and adjust credit provisioning as appropriate. FNCB recorded a provision for credit losses of $1.5 million for the three-month period ended March 31, 2024, an increase of $511 thousand compared to $975 thousand for the three months ended March 31, 2023. The increase was primarily attributable to an increase in credit provisioning related to the commercial equipment financing portfolio.
Non-interest Income
For the three months ended March 31, 2024, non-interest income slightly decreased by $43 thousand, or 2.6%, to $1.63 million from $1.67 million for the three months ended March 31, 2023. The revenue decrease was largely due to a reduction in net gains on the sale of available-for-sale securities and other income, partially offset by a decrease in the net loss on equity securities, coupled with increases in wealth management services revenue and income from bank-owned life insurance. For the three months ended March 31, 2023, FNCB recorded a net gain on the sale of available-for-sale securities of $162 thousand. There were no net gains on the sale of available-for sale debt securities for the three months ended March 31, 2024. Other non-interest income decreased $77 thousand, or 14.9%, to $441 thousand from $518 thousand comparing the first quarters of 2024 and 2023. Factoring into the decrease in other income were reductions in loan referral fees, loan-related fees and merchant services revenue. Loan referral fees, which include commissions received from loan swap transactions and brokered mortgages, decreased $56 thousand to $15 thousand for the three months ended March 31, 2024 from $71 thousand for the same three months of 2023. Loan-related fees decreased $50 thousand to $69 thousand from $119 thousand comparing the first quarters of 2024 and 2023, respectively, which largely reflected a reduction in loan servicing fees. For the three months ended March 31, 2024, merchant services revenue decreased $31 thousand to $129 thousand from $161 thousand for the same three months of 2023, due primarily to a reduction in FNCB's customer base. Partially offsetting these negative variances was a $95 thousand, or 18.6%, decrease on the net loss recognized on equity securities, of $413 thousand for the three months ended March 31, 2024, compared to the $508 thousand recognized for the three months ended March 31, 2023. FNCB's holdings of equity securities are comprised primarily of the common stock of publicly traded bank holding companies. Volatility within the financial services industry continued to negatively impact equity prices within this sector during the first quarter of 2024, but to a lesser extent in comparison to the same period of 2023. In addition, wealth management services revenue generated from 1st Investment Services increased $66 thousand, or 27.6%, to $304 thousand for the three months ended March 31, 2024, compared to $238 thousand for the comparable period of 2023, which reflected expansion of this line of business. Income from bank-owned life insurance increased $29 thousand, or 14.6%, to $226 thousand from $197 thousand comparing the first quarters of 2024 and 2023.
Non-interest Expense
Non-interest expense increased $266 thousand, or 3.0%, to $9.2 million for the three months ended March 31, 2024, from $8.9 million for the three months ended March 31, 2023, which was primarily due to the recognition of merger and acquisition expenses that totaled $284 thousand for the three months ended March 31, 2024. Also factoring to the increase in non-interest expense was an increase in contributions made to non-for-profit organizations as part of neighborhood assistance tax credit programs. Contributions, which are presented in non-interest expense net of tax credits, were $253 thousand in 2024, an increase $234 thousand from $19 thousand for the same quarter of 2023. These negative variances were partially offset by $202 thousand, or 3.7%, decreases in salaries and employee benefits to $5.2 million for the three months ended March 31, 2024, compared to $5.4 million for the same three-month period of 2023. The reduction in salaries and benefits reflected a reduction in the number of full-time equivalent employees coupled with a decrease in retirement plan contributions.
Provision for Income Taxes
FNCB recorded income tax expense of $652 thousand for the three months ended March 31, 2024, a decrease of $45 thousand, or 6.4%, compared to income tax expense of $697 thousand for the same period of 2023. FNCB's effective tax rate decreased to 15.58% at March 31, 2024, compared to 20.74% for the same period of 2023, which was primarily caused by an increase in tax-exempt income.
FINANCIAL CONDITION
Assets
Total assets decreased $15.0 million, or 0.8%, to $1.866 billion at March 31, 2024 from $1.881 billion at December 31, 2023. The change in total assets primarily reflected decreases in cash and cash equivalents and available-for-sale debt securities, partially offset by an increase in loans and leases. Cash and cash equivalents decreased $37.3 million, or 34.6%, to $70.6 million at March 31, 2024, from $107.9 million at December 31, 2023. Available-for-sale debt securities decreased $8.7 million, or 1.9%, to $442.1 million at March 31, 2024 from $450.8 million at December 31, 2023. Loans and leases, net of the ACL, increased $29.5 million, or 2.4%, to $1.238 billion at March 31, 2024 from $1.208 billion at December 31, 2023. The increase in loans and leases, reflected increases in the commercial and industrial, commercial equipment financing and state and political subdivision loan categories. While, total deposits decreased $47.7 million, or 3.1%, to $1.481 billion at March 31, 2024 from $1.529 billion at December 31, 2023. Total borrowed funds outstanding at March 31, 2024, were $229.9 million, an increase of $29.6 million, or 14.8%, from $200.3 million at December 31, 2023.
Cash and Cash Equivalents
Cash and cash equivalents decreased $37.3 million, or 34.6%, to $70.6 million at March 31, 2024 from $107.9 million at December 31, 2023. As presented in the statements of cash flows, the decrease in cash and cash equivalents resulted primarily from a decrease of $47.7 million in total deposits, an increase in loans and leases of $32.2 million and $1.8 million in dividends paid at March 31, 2024. These decreases were partially offset by net activity related to available-for-sale debt securities of $7.6 million, a net increase of $29.6 million in advances through the FHLB of Pittsburgh and net income adjusted for the first quarter of 2024, net of non-cash adjustments, of $7.4 million.
Securities
FNCB’s investment securities portfolio provides a source of liquidity needed to meet expected loan demand and interest income to increase profitability. Additionally, the investment securities portfolio is used to meet pledging requirements to secure public deposits and for other purposes. Debt securities are classified as either held-to-maturity or available-for-sale at the time of purchase based on management's intent. Held-to-maturity securities are carried at amortized cost, while available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a component of shareholders’ equity in accumulated other comprehensive income (loss), net of tax. At March 31, 2024 and December 31, 2023, all debt securities were classified as available-for-sale. Equity securities with readily determinable fair values are carried at fair value, with gains and losses due to fluctuations in market value included in non-interest income in the consolidated statements of income. Securities with limited marketability and/or restrictions, such as FHLB of Pittsburgh stock, are carried at cost. Management monitors the investment portfolio regularly. Decisions to purchase or sell investment securities are based upon management’s current assessment of long-term and short-term economic and financial conditions, including the interest rate environment and asset/liability management, liquidity and tax-planning strategies.
At March 31, 2024, FNCB's investment portfolio was comprised principally of available-for-sale debt securities including, fixed-rate, taxable and tax-exempt obligations of state and political subdivisions, and fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include mortgage-backed securities and residential and commercial collateralized mortgage obligations (“CMOs”). FNCB also holds fixed- and floating-rate investments in private CMOs, corporate debt securities, asset-backed securities and U.S. Treasury securities. Additionally, FNCB holds equity investments in the common and preferred stock of certain publicly-traded and privately-held bank holding companies. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of shareholders’ equity at March 31, 2024.
The majority of FNCB's available-for-sale debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. U.S. Treasury rates continued to increase in 2024 reflecting elevated inflation amid strong economic indicators and an increase in supply of these securities. The 2-year U.S. Treasury rate increased 36 basis points to 4.59% at March 31, 2024 from 4.23% at December 31, 2023, while the 10-year U.S. Treasury rate increased 32 basis points to 4.20% at March 31, 2024 from 3.88% at December 31, 2023. Generally, a security's value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of shareholder's equity net of deferred income taxes. At March 31, 2024, FNCB reported a net unrealized holding loss, included in accumulated other comprehensive loss, of $40.5 million, net of deferred income taxes of $10.8 million, an increase of $0.5 million, or 1.3%, compared to a net unrealized holding loss of $40.0 million, net of deferred income taxes of $10.6 million, at December 31, 2023. Any further increase in interest rates could result in further depreciation in the fair value of FNCB's securities portfolio and capital position. However, changes in the fair value of available-for-sale securities does not have an impact on FNCB's regulatory capital ratios, as accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital.
The following table presents the composition of available-for-sale debt securities at March 31, 2024 and December 31, 2023:
Composition of Available-for-Sale Debt Securities
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||
| (dollars in thousands) |
Fair Value |
% of Portfolio |
Fair Value |
% of Portfolio |
||||||||||||
| Available-for-sale debt securities: |
||||||||||||||||
| U.S. treasuries |
$ | 32,914 | 7.45 | % | $ | 33,177 | 7.36 | % | ||||||||
| Obligations of state and political subdivisions |
195,740 | 44.27 | % | 199,796 | 44.32 | % | ||||||||||
| U.S. government/government-sponsored agencies: |
||||||||||||||||
| Collateralized mortgage obligations - residential |
72,803 | 16.47 | % | 74,207 | 16.46 | % | ||||||||||
| Collateralized mortgage obligations - commercial |
3,370 | 0.76 | % | 3,386 | 0.75 | % | ||||||||||
| Mortgage-backed securities |
15,531 | 3.51 | % | 16,446 | 3.65 | % | ||||||||||
| Private collateralized mortgage obligations |
66,302 | 15.00 | % | 70,152 | 15.56 | % | ||||||||||
| Corporate debt securities |
31,564 | 7.14 | % | 31,286 | 6.94 | % | ||||||||||
| Asset-backed securities |
23,214 | 5.25 | % | 21,690 | 4.81 | % | ||||||||||
| Negotiable certificates of deposit |
682 | 0.15 | % | 674 | 0.15 | % | ||||||||||
| Total available-for-sale debt securities |
$ | 442,120 | 100.00 | % | $ | 450,814 | 100.00 | % | ||||||||
Available-for-sale debt securities decreased $8.7 million, or 2.0%, to $442.1 million at March 31, 2024 from $450.8 million at December 31, 2023, as the majority of funds received from sales, maturities and repayments were redirected to fund loan demand. During the three months ended March 31, 2024, there were no sales of available-for-sale debt securities. Purchases of available-for-sale debt securities during the three months ended March 31, 2024 included one private asset-backed security with a principal balance of $2.0 million and a weighted-average yield of 7.41%.
Management continually monitors the investment portfolio for credit worthiness, value, and yield. Semi-annually, management engages a third-party consultant to review the municipal portfolio to determine if there is any undue credit risk within the portfolio. As part of the independent review, each security is compared to their "portfolio credit benchmark" to identify which securities may contain more than a minimal risk of payment default. Based on their semi-annual review as of December 31, 2023, the third-party consultant concluded that each municipal security held within the portfolio met or exceeded the benchmark and that none of the securities required further review. The next third-party review is scheduled for June 30, 2024. Management also monitors municipal securities monthly using a third-party Municipal Surveillance Report that identifies events related to the issuer that may indicate a deterioration in credit quality. Management noted no events that would indicate a deterioration in credit quality of any issuer during the first three months of 2024.
The following table presents the weighted-average yields of available-for-sale debt securities by major category and maturity period at March 31, 2024. Yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security. The yields on tax-exempt obligations of state and political subdivisions are presented on a tax-equivalent basis using the federal corporate income tax rate of 21.0%. Because residential, commercial and private collateralized mortgage obligations, mortgage-backed securities and asset-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following summary.
Maturity Distribution of Available-for-Sale Debt Securities
| March 31, 2024 |
||||||||||||||||||||||||
| Within One Year |
>1 - 5 Years |
6 - 10 Years |
Over 10 Years |
Collateralized Mortgage Obligations, Mortgage-Backed and Asset-Backed Securities |
Total |
|||||||||||||||||||
| Available-for-sale debt securities: |
||||||||||||||||||||||||
| U.S. treasuries |
- | 1.17 | % | - | - | - | 1.17 | % | ||||||||||||||||
| Obligations of state and political subdivisions |
3.04 | % | 2.91 | % | 2.30 | % | 2.31 | % | - | 2.46 | % | |||||||||||||
| U.S. government/government-sponsored agencies: |
||||||||||||||||||||||||
| Collateralized mortgage obligations - residential |
- | - | - | - | 2.67 | % | 2.67 | % | ||||||||||||||||
| Collateralized mortgage obligations - commercial |
- | - | - | - | 2.00 | % | 2.00 | % | ||||||||||||||||
| Mortgage-backed securities |
- | - | - | - | 2.56 | % | 2.56 | % | ||||||||||||||||
| Private collateralized mortgage obligations |
- | - | - | - | 3.84 | % | 3.84 | % | ||||||||||||||||
| Corporate debt securities |
8.50 | % | 9.15 | % | 4.68 | % | - | - | 5.29 | % | ||||||||||||||
| Asset-backed securities |
- | - | - | - | 7.22 | % | 7.22 | % | ||||||||||||||||
| Negotiable certificates of deposit |
- | 1.02 | % | - | - | - | 1.02 | % | ||||||||||||||||
| Weighted average yield |
3.45 | % | 2.32 | % | 3.07 | % | 2.31 | % | 3.58 | % | 3.02 | % | ||||||||||||
Evaluation for Credit Impairment
Management performed a review of all securities in an unrealized loss position as of March 31, 2024 and noted that there was no material change in the credit quality of any of the issuers or any other event or circumstance that may cause a significant adverse effect on the fair value of these securities. Moreover, to date, FNCB has received all scheduled principal and interest payments and expects to fully collect all future contractual principal and interest payments on all securities in an unrealized loss position at March 31, 2024. Based on the results of its review and considering the attributes of these debt securities, management concluded that changes in the fair values of the securities were consistent with movements in market interest rates and spreads relative to when the securities were purchased and not due to the credit quality of the securities or issuers. Accordingly, management determined that FNCB was not required to establish an ACL for any security in an unrealized loss position at March 31, 2024.
See Note 3, “Securities,” of the Notes to Consolidated Financial Statements included in Item 1 hereof for additional information about management's evaluation of securities for credit impairment.
Loans and Leases
Total loans and leases, net of deferred fees and costs and unearned income, increased $30.0 million, or 2.5%, to $1.250 billion at March 31, 2024 from $1.220 billion at December 31, 2023. The growth in the loan portfolio was concentrated in commercial and industrial, commercial equipment financing and municipal loans. Demand for residential real estate, commercial real estate and consumer loans declined as the current interest rate environment continues to challenge loan demand within these segments.
The majority of FNCB’s loan portfolio consists of loans secured by real estate. Real estate secured loans, which include commercial real estate, construction, land acquisition and development, and residential real estate loans, increased $4.7 million, or 0.6%, to $718.0 million at March 31, 2024 from $713.3 million at December 31, 2023. Despite the increase, the ratio of real estate secured loans to total loans and leases decreased to 57.4% of total loans at March 31, 2024 compared to 58.5% at December 31, 2023.
Commercial real estate loans decreased $3.3 million, or 0.8%, to $404.8 million at March 31, 2024 from $408.1 million at December 31, 2023. Commercial real estate loans include long-term commercial mortgage financing and are primarily secured by first or second lien mortgages. Commercial and industrial loans and leases consist primarily of working capital financing, revolving lines of credit and loans secured by cash and marketable securities. Commercial and industrial loans and leases increased $19.9 million, or 10.8%, to $203.7 million at March 31, 2024 from $183.8 million at December 31, 2023. Commercial equipment financing, which includes simple interest loans and direct finance leases increased $5.9 million, or 3.6%, to $169.5 million at March 31, 2024 from $163.6 million at December 31, 2023. The majority of equipment financing loans are transactional in nature and originated through indirect, third-party dealers. Construction, land acquisition and development loans increased $10.0 million, or 16.7%, to $69.9 million at March 31, 2024 from $59.9 million at December 31, 2023.
Residential real estate loans include fixed-rate and variable-rate, amortizing mortgage loans, home equity term loans and home equity lines of credit ("HELOCs") and HELOCs with a carve out feature. FNCB primarily underwrites fixed-rate purchase and refinancings of residential mortgage loans for sale in the secondary market to reduce interest rate risk and provide funding for additional loans. Additionally, FNCB offers a proprietary non-saleable mortgage product branded as the “WOW” mortgage. WOW mortgages have maturity terms ranging from 10.0 to 19.5 years and offers customers an attractive fixed interest rate and low closing costs. Due to the increase in market rates, demand for residential mortgages have declined significantly. As a result, during the three months ended March 31, 2024, residential real estate loans decreased $2.0 million, or 0.8%, to $243.3 million at March 31, 2024 from $245.3 million at December 31, 2023.
Consumer loans primarily include indirect automobile loans and secured and unsecured personal loans. Consumer loans decreased by $2.8 million, or 3.3%, to $82.9 million at March 31, 2024 from $85.7 million at December 31, 2023, largely due to the run-off of individual loans and pools of personal installment loans purchased through third-party originators in 2022. State and political subdivision loans, which include municipal leases originated through 1st Equipment Finance, Inc. increased $2.3 million, or 3.1%, to $76.1 million at March 31, 2024 from $73.8 million at December 31, 2023.
The following table presents loans and leases receivable, net by segment at March 31, 2024 and December 31, 2023:
Loan and Lease Portfolio Detail
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||
| (dollars in thousands) |
Amount |
% of Total Loans, Gross |
Amount |
% of Total Loans, Gross |
||||||||||||
| Residential real estate |
$ | 243,351 | 19.46 | % | $ | 245,282 | 22.28 | % | ||||||||
| Commercial real estate |
404,787 | 32.38 | % | 408,135 | 33.56 | % | ||||||||||
| Construction, land acquisition and development |
69,904 | 5.59 | % | 59,876 | 5.92 | % | ||||||||||
| Commercial and industrial |
203,682 | 16.29 | % | 183,794 | 24.22 | % | ||||||||||
| Commercial equipment financing |
169,469 | 13.56 | % | 163,605 | 13.41 | % | ||||||||||
| Consumer |
82,895 | 6.63 | % | 85,730 | 8.24 | % | ||||||||||
| State and political subdivisions |
76,137 | 6.09 | % | 73,843 | 5.78 | % | ||||||||||
| Total loans and leases |
1,250,225 | 100.00 | % | 1,220,265 | 100.00 | % | ||||||||||
| Allowance for credit losses |
(12,455 | ) | (11,986 | ) | ||||||||||||
| Loans and leases, net |
$ | 1,237,770 | $ | 1,208,279 | ||||||||||||
Asset Quality
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, net of unearned interest, deferred loan fees and costs, and reduced by the ACL. The ACL is established through a provision for credit losses charged to earnings.
FNCB has established and consistently applies loan policies and procedures designed to foster sound underwriting and credit monitoring practices. Credit risk is managed through the efforts of the Chief Banking Officer, Chief Lending Officer and loan officers, the Chief Credit Officer, the loan review function, and the Credit Risk Management, ACL, Officers Loan and Directors Loan Committees, as well as through oversight of the Board of Directors. Management continually evaluates its credit risk management practices to ensure it is reacting to problems within the loan portfolio in a timely manner. However, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions, among other factors, that are beyond management’s control.
Under FNCB’s risk rating system, loans that are rated pass, special mention, substandard, doubtful, or loss are reviewed regularly as part of the risk management practices. The Credit Risk Management Committee, which consists of key members of management fromfinance, legal, lending and credit administration, meet monthly or more often as necessary to review individual problem credits and workout strategies and provides monthly reports to the Board of Directors.
Non-performing loans are monitored on an ongoing basis as part of FNCB’s loan review process. Additionally, work-out efforts for non-performing loans and other real estate owned ("OREO") are actively monitored through the Credit Risk Management Committee. A potential loss on a non-performing loan is generally determined by comparing the outstanding loan balance to the fair market value of the pledged collateral, less cost to sell.
Management actively manages loans rated special mention and substandard in an effort to mitigate loss to FNCB by working with customers to develop strategies to resolve borrower difficulties, through sale or liquidation of collateral, foreclosure, and other appropriate means. In addition, management monitors employment and economic conditions within FNCB’s market area, as weakening of conditions could result in real estate devaluations and an increase in loan delinquencies, which could negatively impact asset quality and cause an increase in the provision for loan and lease losses.
The following table presents information about non-performing assets at March 31, 2024 and December 31, 2023:
Non-performing Assets
| March 31, |
December 31, |
|||||||
| (dollars in thousands) |
2024 |
2023 |
||||||
| Non-accrual loans |
$ | 5,980 | $ | 5,338 | ||||
| Loans past due 90 days or more and still accruing |
26 | 38 | ||||||
| Total non-performing loans |
6,006 | 5,376 | ||||||
| Other non-performing assets |
2,019 | 2,067 | ||||||
| Total non-performing assets |
$ | 8,025 | $ | 7,443 | ||||
| Non-performing loans as a percentage of total loans |
0.48 | % | 0.44 | % | ||||
| Non-performing assets as a percentage of total assets |
0.43 | % | 0.40 | % | ||||
| Allowance for credit losses as a percentage of total loans and lease, net |
1.00 | % | 0.98 | % | ||||
| Allowance for credit losses to non-accrual loans and leases |
208.28 | % | 224.54 | % | ||||
| Allowance for credit losses to non-performing loans and leases |
207.38 | % | 222.95 | % | ||||
| Allowance for credit losses to non-performing assets |
155.20 | % | 161.04 | % | ||||
Total non-performing assets increased $582 thousand, or 7.8%, to $8.0 million at March 31, 2024 from $7.4 million at December 31, 2023. The increase reflected an increase in non-performing loans, partially offset by a reduction in other non-performing assets. Non-performing loans, which include non-accrual loans and loans past due 90 days or more and still accruing, increased $630 thousand, or 11.7%, to $6.0 million at March 31, 2024 from $5.4 million at December 31, 2023, while other non-performing assets decreased $48 thousand, or 2.3%, to $2.02 million at March 31, 2024 from $2.07 million at December 31, 2023. FNCB’s ratio of non-performing loans to total gross loans increased to 0.48% at March 31, 2024 from 0.44% at December 31, 2023. FNCB experienced some asset quality stress as evidenced by an increase in total delinquent loan balances, of $38 thousand to $3.9 million at March 31, 2024, from $3.8 million at December 31, 2023. Total delinquencies as a percentage of total loans and leases, increased 4 basis points to 0.79% at March 31, 2024, compared to 0.75% at December 31, 2023. In addition, net loans charge-offs increased $764 thousand to $1.0 million, or 0.09% of average loans and leases, for the three months ended March 31, 2024, compared to net charge-offs of $253 thousand, or 0.08% of average loans and leases, for the same period of 2023. The majority of the increase in net charge-offs was concentrated in commercial equipment financing, specifically loans collateralized by tractor-trailers following notable weakness within the trucking industry. In response to this stress, FNCB has tightened underwriting criteria in originating commercial equipment financing loans and leases through 1st Equipment Finance, Inc.
Other non-performing assets include a classified account receivable secured by an evergreen letter of credit and repossessed assets. The classified accounts receivable had an outstanding balance of $1.5 million at March 31, 2024 and $1.6 million at December 31, 2023. This receivable was as part of a settlement agreement for a large construction, land acquisition and development loan for a residential development project in the Pocono region of Monroe County, Pennsylvania. The agreement provides for payment to FNCB as real estate building lots are sold to third parties or occupancy permits granted for use in a Timeshare development. The project was stalled due to a decline in real estate values in this area following the financial crisis of 2008. In 2019, economic development in this market area began improving and the developer for this project had resumed construction activity, including the completion of substantial infrastructure, and had increased marketing and sales initiatives related to the project. A multi-unit building was completed and occupied in 2020 resulting in a first payment of $127 thousand in the second quarter of 2021. A second payment was received in the amount of $127 thousand payment in the second quarter of 2023 and a third payment of $127 thousand was received in the first quarter of 2024. Management continues to closely monitor this project and has noted an increase in construction activity related to this project including the construction of additional multi-unit buildings and a pool/spa building. Repossessed assets are comprised commercial equipment, primarily tractor-trailers that were securing loans originated through 1st Equipment Finance, Inc. The outstanding balance of repossessed assets were $499 thousand at March 31, 2024 and $420 thousand at December 31, 2023.
While management believes FNCB's asset quality has remained favorable, continued economic uncertainty related to supply-chain constraints, global unrest, inflation, and the resulting increase in interest rates could affect borrowers' ability to repay loans, which may have a negative impact on asset quality including, increases in loan delinquencies, non-performing loans, loan charge-offs and foreclosures.
The following table presents the changes in non-performing loans for the three months ended March 31, 2024 and 2023.
Changes in Non-Performing Loans
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Balance, beginning of period |
$ | 5,376 | $ | 2,842 | ||||
| Loans newly placed on non-accrual |
2,243 | 988 | ||||||
| Change in loans past due 90 days or more and still accruing |
(12 | ) | (27 | ) | ||||
| Loans charged-off |
(1,342 | ) | (740 | ) | ||||
| Loan payments received |
(259 | ) | (410 | ) | ||||
| Balance, end of period |
$ | 6,006 | $ | 2,653 | ||||
The following table presents accruing loan delinquencies and non-accrual loans as a percentage of gross loans at March 31, 2024 and December 31, 2023:
Loan Delinquencies and Non-Accrual Loans
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Accruing: |
||||||||
| 30-59 days |
0.28 | % | 0.27 | % | ||||
| 60-89 days |
0.03 | % | 0.04 | % | ||||
| 90+ days |
0.00 | % | 0.00 | % | ||||
| Non-accrual |
0.48 | % | 0.44 | % | ||||
| Total delinquencies |
0.79 | % | 0.75 | % | ||||
Allowance for Credit Losses
The ACL equaled $12.5 million at March 31, 2024, compared to $12.0 million at December 31, 2023. The $0.5 million increase resulted from a provision for credit losses of $1.5 million, partially offset by net loans charged-off of $1.0 million for the three months ended March 31, 2024. The ratio of the ACL to total loans and leases increased to 1.00% of total loans and leases, net of net deferred loan origination fees and unearned income at March 31, 2024 from 0.98% of total loans at December 31, 2023.
The following table presents an allocation of the ACL by major loan category and percent of loans in each category to total loans at March 31, 2024 and December 31, 2023:
Allocation of the ACL
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||
| (dollars in thousands) |
Allowance |
Percentage |
Allowance |
Percentage |
||||||||||||
| Residential real estate |
$ | 1,138 | 19.46 | % | $ | 1,157 | 9.65 | % | ||||||||
| Commercial real estate |
3,005 | 32.38 | % | 2,831 | 23.62 | % | ||||||||||
| Construction, land acquisition and development |
1,204 | 5.59 | % | 1,154 | 9.63 | % | ||||||||||
| Commercial and industrial |
2,336 | 16.29 | % | 2,198 | 18.34 | % | ||||||||||
| Commercial equipment financing |
3,247 | 13.56 | % | 3,129 | 26.11 | % | ||||||||||
| Consumer |
1,089 | 6.63 | % | 1,118 | 9.32 | % | ||||||||||
| State and political subdivisions |
436 | 6.09 | % | 399 | 3.33 | % | ||||||||||
| Total |
$ | 12,455 | 100.00 | % | $ | 11,986 | 100.00 | % | ||||||||
The following table presents an analysis of the ACL by loan category for the three months ended March 31, 2024 and 2023:
Reconciliation of the ACL
| For the Three Months Ended March 31, |
||||||||
| (dollars in thousands) |
2024 |
2023 |
||||||
| Balance at beginning of period |
$ | 11,986 | $ | 14,193 | ||||
| Impact of ASU 2016-13 |
- | (2,636 | ) | |||||
| Charge-offs: |
||||||||
| Residential real estate |
- | - | ||||||
| Commercial real estate |
- | - | ||||||
| Construction, land acquisition and development |
- | - | ||||||
| Commercial and industrial |
57 | 53 | ||||||
| Commercial equipment financing |
907 | - | ||||||
| Consumer |
391 | 723 | ||||||
| State and political subdivisions |
- | - | ||||||
| Total charge-offs |
1,355 | 776 | ||||||
| Recoveries of charged-off loans: |
||||||||
| Residential real estate |
1 | - | ||||||
| Commercial real estate |
18 | 54 | ||||||
| Construction, land acquisition and development |
- | - | ||||||
| Commercial and industrial |
10 | 11 | ||||||
| Commercial equipment financing |
60 | - | ||||||
| Consumer |
249 | 458 | ||||||
| State and political subdivisions |
- | - | ||||||
| Total recoveries |
338 | 523 | ||||||
| Net charge-offs |
1,017 | 253 | ||||||
| Provision for credit losses |
1,486 | 975 | ||||||
| Balance at end of period |
$ | 12,455 | $ | 12,279 | ||||
| Net charge-offs as a percentage of average loans and leases (annualized) |
0.33 | % | 0.09 | % | ||||
Liabilities
Total liabilities, which consist primarily of total deposits and borrowed funds, decreased $18.2 million, or 1.0%, to $1.728 billion at March 31, 2024 from $1.746 billion at December 31, 2023. The decrease was due primarily to the decrease in deposits, slightly offset by an increase in borrowed funds. Total deposits were $1.481 billion at March 31, 2024, a decrease of $47.7 million, or 3.1%, from $1.529 billion at December 31, 2023, which reflected a decrease in interest-bearing deposits, partially offset by a modest increase in non-interest-bearing demand deposits. FNCB experienced normal seasonality within its municipal deposit base, and the need for greater utilization of wholesale funding, including brokered time deposits and advances through the FHLB of Pittsburgh and FRB. Total interest-bearing deposits decreased $48.4 million, or 3.9%, to $1.195 billion at March 31, 2024, from $1.243 billion at December 31, 2023. Specifically, interest bearing demand deposits decreased $53.0 million, or 7.0%, to $701.3 million at March 31, 2024, compared to $754.3 million at December 31, 2023. In addition, savings deposits decreased $3.0 million, or 2.3%, to $127.9 million, from $130.9 million at December 31, 2023. While time deposits increased $7.6 million, or 2.1%, to $365.8 million at March 31, 2024, from $358.2 million at December 31, 2023. The increase in total time deposits was primarily concentrated in brokered certificates of deposits, as FNCB utilized wholesale sources as an alternative to advances through the FHLB of Pittsburgh. Brokered deposits totaled $181.8 million at March 31, 2024, compared to $148.7 million at December 31, 2023. Non-interest-bearing demand deposits increased $738 thousand, or 0.26%, to $286.3 million at March 31, 2024, from $285.5 million at December 31, 2023. Total borrowed funds increased $29.6 million, or 14.8%, to $229.9 million at March 31, 2024, from $200.3 million at December 31, 2023, which was comprised of $194.5 million in FHLB of Pittsburgh advances, $25 million in BTFP advances and $10.3 million in junior subordinated debentures.
Equity
Total shareholders’ equity increased $3.1 million, or 2.3%, to $137.7 million at March 31, 2024 from $134.6 million at December 31, 2023. The increase in shareholders' equity was primarily due to a $1.2 million, or 3.1%, reduction in the accumulated other comprehensive loss to $38.9 million at March 31, 2024, from $40.1 million at December 31, 2023, coupled with net income for the three months ended March 31, 2024, of $3.5 million. Partially offsetting these increases to capital were dividends declared and paid of $1.8 million for the three months ended March 31, 2024. On a per share basis, dividends declared totaled $0.090 per share for each of the three months ended March 31, 2024 and 2023. On April 24, 2024, FNCB's Board of Directors declared a dividend of $0.090 per share for the second quarter of 2023, the same was declared for the second quarter of 2024.
The Bank's total regulatory capital increased $14.5 million, or 8.3%, to $189.8 million at March 31, 2024 from $175.3 million at December 31, 2023. FNCB Bank's total risk-based capital and Tier 1 leverage ratios were 13.45% and 9.47%, respectively, at March 31, 2024, compared to 12.66% and 8.76%, respectively, at December 31, 2023. The Bank's risk-based capital ratios exceeded the minimum regulatory capital ratios required for well capitalized under prompt corrective action regulations. Based on the most recent notification from its primary regulator, the Bank was considered well capitalized at March 31, 2024 and December 31, 2023. There were no conditions or events since that notification that management believes would have changed this capital designation.
Liquidity
The term liquidity refers to the ability to generate sufficient amounts of cash to meet cash flow needs. Liquidity is required to fulfill the borrowing needs of FNCB’s credit customers and the withdrawal and maturity requirements of its deposit customers, as well as to meet other financial commitments. FNCB’s liquidity position is impacted by several factors, which include, among others, loan origination volumes, loan and investment maturity structure and cash flows, deposit demand and time deposit maturity structure and retention. FNCB has liquidity and contingent funding policies in place that are designed with controls in place to provide advanced detection of potentially significant funding shortfalls, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate a potential liquidity crisis. Management monitors FNCB’s liquidity position and fluctuations daily, forecasts future liquidity needs, performs periodic stress tests on its liquidity levels and develops strategies to ensure adequate liquidity at all times. Additionally, management regularly monitors FNCB's wholesale funding sources taking into consideration the cost of funds, diversification between funding sources and asset/liability management strategies. FNCB utilizes brokered deposits, including one-way purchases through the IntraFi® Network, deposits acquired through a national listing service, as well as overnight and term advances through the FHLB of Pittsburgh as wholesale sources of funds to supplement its deposit gathering initiatives.
The consolidated statements of cash flows present the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are FNCB’s most liquid assets. At March 31, 2024, cash and cash equivalents totaled $70.6 million, a decrease of $37.3 million compared to $107.9 million at December 31, 2023, as net cash inflows provided by operating activities were entirely offset by net cash outflows used in investing and financing activities. Financing activities include deposit gathering, changes in utilization of borrowed funds and capital-related initiatives. During the first three months of 2024, financing activities utilized $19.9 million in net cash, which resulted primarily from a net decrease in deposits of $47.7 million and dividends paid to FNCB shareholders of $1.8 million, offset by the net proceeds from overnight and term advances through FHLB of Pittsburgh, of $29.6 million. In addition, cash used in investing activities totaled $24.3 million for the three months ended March 31, 2024. Specifically, FNCB's net lending activities used $31.2 million in net cash, which was slightly offset by $7.6 million in net investment proceeds. These cash outflows were slightly offset by net cash inflows from operating activities, that include net income, adjusted for the effects of non-cash transactions including, among others, depreciation and amortization and the provision for credit losses, and is the primary source of cash flows from operations. For the three months ended March 31, 2024, operating activities provided FNCB with $6.8 million in net cash, which reflected net income of $3.5 million, coupled with non-cash positive adjustments of $3.3 million.
Impact of Inflation and Changing Prices
The preparation of financial statements in conformity with GAAP requires management to measure FNCB’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on FNCB's operations is primarily related to increases in operating expenses. Management considers changes in interest rates have a far greater impact on FNCB's financial condition and results of operations than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. FNCB manages interest rate risk in several ways. Refer to “Interest Rate Risk” in Item 3 for further discussion. There can be no assurance that FNCB will not be materially and adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial condition of FNCB's borrowers and could impact their ability to repay their loans, which could negatively affect FNCB's asset quality through higher delinquency rates and increased charge-offs. Management will carefully consider the impact of inflation and rising interest rates on FNCB borrowers in managing credit risk related to the loan and lease portfolio.
Interest Rate Risk
Interest Rate Sensitivity
Market risk is the risk to earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. FNCB’s exposure to market risk is primarily interest rate risk associated with our lending, investing and deposit gathering activities, all of which are other than trading. Changes in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. In addition, variations in interest rates affect the underlying economic value of our assets, liabilities and off-balance sheet items.
Asset and Liability Management
The ALCO, comprised of members of the Bank's board of directors, executive management and other appropriate officers, oversees FNCB's interest rate risk management program. Members of ALCO meet quarterly, or more frequently as necessary, to develop balance sheet strategies affecting the future level of net interest income, liquidity and capital. The major objectives of ALCO are to:
The major objectives of ALCO are to:
| ● |
manage exposure to changes in the interest rate environment by limiting the changes in net interest margin to an acceptable level within a reasonable range of interest rates; |
| ● |
ensure adequate liquidity and funding; |
| ● |
maintain a strong capital base; and |
| ● |
maximize net interest income opportunities. |
FNCB utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and various derivative financial instruments to manage interest rate risk. Derivative financial instruments may include, among others, cash flow hedges, interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to the terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk.
See note 7, "Derivative and Hedging Transactions," of the notes to consolidated financial statements included in Item 1 hereof for additional information about FNCB's derivative financial instruments.
ALCO monitors FNCB’s exposure to changes in net interest income over both a one-year planning horizon and a longer-term strategic horizon. ALCO uses net interest income simulations and economic value of equity (“EVE”) simulations as the primary tools in measuring and managing FNCB’s position and considers balance sheet forecasts, FNCB's liquidity position, the economic environment, anticipated direction of interest rates and FNCB’s earnings sensitivity to changes in these rates in its modeling. In addition, ALCO has established policy tolerance limits for acceptable negative changes in net interest income. Furthermore, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions used in the modeling techniques.
Earnings at Risk and Economic Value at Risk Simulations
Earnings at Risk
Earnings-at-risk simulation measures the change in net interest income and net income under various interest rate scenarios. Specifically, given the current market rates, ALCO looks at “earnings at risk” to determine anticipated changes in net interest income from a base case scenario with scenarios of +200, +400, and -200 basis points for simulation purposes. The simulation takes into consideration that not all assets and liabilities re-price equally and simultaneously with market rates (i.e., savings rate).
Economic Value at Risk
While earnings-at-risk simulation measures the short-term risk in the balance sheet, economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from FNCB’s existing assets and liabilities. ALCO examines this ratio regularly, and given the current rate environment, has utilized rate shocks of +200, +400, and -200 basis points for simulation purposes. Management recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.
While ALCO regularly performs a wide variety of simulations under various strategic balance sheet and treasury yield curve scenarios, the following results reflect FNCB’s sensitivity over the subsequent twelve months based on the following assumptions:
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asset and liability levels using March 31, 2024 as a starting point; |
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cash flows are based on contractual maturity and amortization schedules with applicable prepayments derived from internal historical data and external sources; and |
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cash flows are reinvested into similar instruments so as to keep interest-earning asset and interest-bearing liability levels constant. |
The following table illustrates the simulated impact of parallel and instantaneous interest rate shocks of +400 basis points, +200 basis points, and -200 basis points on net interest income and the change in economic value over a one-year time horizon from the March 31, 2024 levels:
| Rates +200 |
Rates +400 |
Rates -200 |
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| Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
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| Earnings at risk: |
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| Percent change in net interest income |
4.7 | % | (12.5 | )% | 9.8 | % | (20.0 | )% | (8.0 | )% | (12.5 | )% | ||||||||||||
| Economic value at risk: |
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| Percent change in economic value of equity |
(1.2 | )% | (20.0 | )% | (2.9 | )% | (35.0 | )% | (5.0 | )% | (20.0 | )% | ||||||||||||
Model results from the simulation at March 31, 2024 indicated that FNCB was asset sensitive, with a positive correlation between movements in interest rates and their effect on net interest income. According to the model results at March 31, 2024, net interest income is expected to increase 4.7% under a +200-basis point interest rate shock from the base case. Additionally, under a parallel shift in interest rates of +200 basis points, FNCB's economic value of equity ("EVE") is expected to decrease 1.2%. In comparison, at December 31, 2023, model results indicated that FNCB was short-term liability sensitive moving to asset sensitive over the longer-term. December 31, 2023 indicated a decrease to net interest income 2.9% under a +200 basis point interest rate shock and a decrease of 1.7% under a +200 basis point interest rate shock. During the first quarter of 2024, management executed a $200.0 million fair value hedge of certain available-for-sale securities, which was the primary factor contributing to the shift from a short-term liability sensitive position to short-term asset sensitive position. Management reviews FNCB's ALCO position quarterly, or more frequently as necessary, and implements balance strategies to adjust exposure to changes in interest rates as appropriate. Strategies include, among others, adjusting terms on wholesale funding, utilizing interest rate swap transactions and implementing rate floors on lending arrangements, as appropriate. Model results at All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.
Despite FOMC actions, inflation, while improving, has remained elevated in 2024. Model results at March 31, 2024 indicate that FNCB's asset/liability position remains asset sensitive in Years 2-5 of the model, which would imply that net interest income would benefit from rising interest rates. This analysis does not represent a forecast for FNCB and should not be relied upon as being indicative of expected operating results. These simulations are based on numerous assumptions, including but not limited to, the nature and timing of interest rate levels, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacements of asset and liability cash flows, and other factors. While assumptions reflect current economic and local market conditions, FNCB cannot make any assurances as to the predictive nature of these assumptions, including changes in interest rates, customer preferences, competition and liquidity needs, or what actions ALCO might take in responding to these changes.
As previously mentioned, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions used in the modeling techniques. As part of its quarterly review, management compared tax-equivalent net interest income recorded for the three months ended March 31, 2024 with tax-equivalent net interest income that was projected for the same three-month period. There was a positive variance between actual and projected tax-equivalent net interest income for the three-month period ended March 31, 2024 of approximately $683 thousand, or 5.2%. The variance primarily reflected lower actual interest expense on wholesale borrowings than projected, coupled with higher actual interest income than projected. ALCO performs a detailed rate/volume analysis between actual and projected results in order to continue to improve the accuracy of its simulation models.
Off-Balance Sheet Arrangements
In the ordinary course of operations, FNCB engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in our consolidated financial statements or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions may be used for general corporate purposes or for customer needs. Corporate purpose transactions would be used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding.
For the three months ended March 31, 2024, FNCB did not engage in any off-balance sheet transactions that would have or would be reasonably likely to have a material effect on its consolidated financial condition.
Item 3 — Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in FNCB’s exposure to market risk during the three months ended March 31, 2024. For discussion of FNCB’s exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in FNCB’s Form 10-K for the year ended December 31, 2023.
Item 4 — Controls and Procedures
FNCB’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of FNCB’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, FNCB’s Chief Executive Officer and Chief Financial Officer concluded FNCB’s disclosure controls and procedures were effective as of March 31, 2024.
There were no changes made to FNCB’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, FNCB’s internal control over financial reporting.
FNCB has been subject to tax audits, and is also a party to routine litigation involving various aspects of its business, such as employment practice claims, workers compensation claims, claims to enforce liens, condemnation proceedings on properties in which FNCB holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business, none of which has or is expected to have a material adverse impact on the consolidated financial condition, results of operations or liquidity of FNCB.
There have been no changes in the status of the other litigation, if any, disclosed in FNCB’s 2023 Annual Report.
There have been no material changes in the risk factors previously disclosed in FNCB's Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
FNCB did not issue any unregistered equity securities during the three months ended March 31, 2024.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3 - Defaults upon Senior Securities.
None.
Item 4 — Mine Safety Disclosures.
Not applicable.
(a)
(b)
(c) During the three months ended March 31, 2024, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The following exhibits are filed or furnished herewith or incorporated by reference.
| EXHIBIT 3.2 | Articles of Amendment to the Amended and Restated Articles of Incorporation dated October 4, 2016 - filed as Exhibit 3.1 to FNCB's Current Report on Form 8-K on October 4, 2016, is hereby incorporated by reference. |
| EXHIBIT 3.3 | Amended and Restated Bylaws filed as Exhibit 3.3 to FNCB's Form 10-K for the year ended December 31, 2022, as filed on March 10, 2023, is hereby incorporated by reference. |
| EXHIBIT 31.1* |
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| EXHIBIT 31.2* |
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| EXHIBIT 32.1** |
Section 1350 Certification —Chief Executive Officer and Chief Financial Officer |
| EXHIBIT 101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| EXHIBIT 101.SCH | INLINE XBRL TAXONOMY EXTENSION SCHEMA |
| EXHIBIT 101.CAL | INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
| EXHIBIT 101.DEF | INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
| EXHIBIT 101.LAB | INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE |
| EXHIBIT 101.PRE |
INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
| EXHIBIT 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith |
| ** |
Furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant: FNCB BANCORP, INC.
| Date: May 3, 2024 | By: |
/s/ Gerard A. Champi |
| Gerard A. Champi |
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| President and Chief Executive Officer |
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| Date: May 3, 2024 | By: |
/s/ James M. Bone, Jr. |
| James M. Bone, Jr., CPA |
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| Executive Vice President and Chief Financial Officer |
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| Principal Financial Officer |
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| Date: May 3, 2024 | By: |
/s/ Stephanie A. Westington |
| Stephanie A. Westington, CPA |
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| Senior Vice President and Chief Accounting Officer |
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| Principal Accounting Officer |
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