FNCB Bancorp, Inc. Announces Second Quarter 2023 Results 

DUNMORE, Pa., July 28, 2023 (GLOBE NEWSWIRE) -- FNCB Bancorp, Inc. (NASDAQ: FNCB; www.fncb.com), the parent company of Dunmore-based FNCB Bank (the “Bank”), (collectively, "FNCB") today reported net income of $2.8 million, or $0.14 per basic and diluted share, for the three months ended June 30, 2023, a decrease of $2.9 million, or 51.1%, compared to $5.7 million, or $0.29 per share for the same period of 2022. Lower net interest income and non-interest income, coupled with an increase in the provision for credit losses, were the primary factors leading to the reduction in second quarter 2023 earnings. For the six months, ended June 30, 2023, net income totaled $5.5 million, or $0.28 per basic and diluted share, a decrease of $4.6 million, or 45.8%, from $10.1 million, or $0.51 per basic and diluted share, for the same six months of 2022.

For the three and six months ended June 30, 2023, the annualized return on average assets was 0.63% and 0.62%, respectively, compared to 1.37% and 1.23%, respectively, for the same period of 2022. The annualized return on average equity was 8.89% and 8.87%, respectively, for the three and six months ended June 30, 2023, compared to 17.57% and 14.18%, respectively, for the comparable periods of 2022. FNCB declared and paid dividends to shareholders of common stock of $0.090 per share for the second quarter of 2023 and $0.180 per share for the six months ended June 30, 2022, a 20.0% increase, compared to $0.075 per share and $0.150 per share for the same periods of 2022. 

Second quarter 2023 performance: 

Summary financial position at June 30, 2023 as compared to December 31, 2022:

"FNCB's second quarter earnings continued to be impacted by margin compression brought on by the challenging rate environment and increased competition for deposits in our market area," commented FNCB President and CEO, Gerard A. Champi. "Management is actively engaged in managing interest rate risk, controlling funding costs and non-interest expense. On a positive note, we are beginning to see our margins stabilize, while our asset quality and liquidity positions remain strong," concluded Champi.

Summary Results 

Net interest income on a tax-equivalent basis decreased $2.0 million, or 14.4%, to $11.9 million for the three months ended June 30, 2023, from $13.9 million for the comparable period of 2022, which resulted from an increase in interest expense, partially offset by an increase in tax-equivalent interest income. The increase in both interest expense and tax-equivalent interest income were largely due to changes in market rates stemming from the ten FOMC rate increases beginning March 17, 2022 through June 30, 2023.  FNCB's tax-equivalent net interest margin compressed 67 basis points to 2.75% for the second quarter of 2023 from 3.42% for the same quarter of 2022. Additionally, the net interest spread declined 114 basis points to 2.22% for the three months ended June 30, 2023, from 3.36% for the same three months of 2022. The reduction in margin and spread largely reflected the rapid increase in funding costs that outpaced the increase in yield on average earning assets. However, on a linked-quarter basis, margins have appeared to stabilize. The tax-equivalent net interest margin declined only 3 basis points from 2.78% for the first quarter of 2023. Interest expense increased $7.6 million, to $8.3 million for the second quarter of 2023 from $0.7 million for the same quarter of 2022. The increase was largely caused by higher deposit and borrowing costs, coupled with greater reliance on higher-costing wholesale funding. FNCB's average deposit costs increased 195 basis points to 2.08% for the second quarter of 2023 compared to 0.13% for the same quarter of 2022. Average borrowed funds, specifically advances through the FHLB of Pittsburgh and the Federal Reserve Bank's Bank Term Funding Program, increased $62.9 million to $176.8 million from $113.9 million comparing the three months ended June 30, 2023, and 2022, respectively. Moreover, the average cost of borrowed funds increased 379 basis points to 4.89% for the second quarter of 2023 from 1.10% for the same quarter of 2022.  Average interest-bearing deposits increased $77.3 million, or 7.0%, to $1.179 billion from $1.102 billion, comparing the second quarters of 2023 and 2022, respectively. However, FNCB experienced some deposit migration from non-maturity deposits and non-interest-bearing deposits into time deposits, as customers have become increasingly rate-sensitive. Average interest-bearing demand deposits decreased $112.9 million, or 14.2%, to $683.9 million for the second quarter of 2023 compared to $796.8 million for the same quarter of 2022, while average savings deposits decreased $6.6 million to $137.3 million from $143.9 million comparing the three months ended June 30, 2023 and 2022, respectively.  Additionally, non-interest-bearing demand deposits decreased $35.4 million, or 11.1%, to $284.1 million for the second quarter of 2023 from $319.5 million for the respective quarter of 2022. Conversely, average time deposits increased $196.8 million, or 122.1%, to $358.1 million for the three months ended June 30, 2023, from $161.3 million for the same three months of 2022, which reflected special certificate of deposit rate promotions offered during the first quarter of 2023. Tax-equivalent interest income increased $5.6 million, or 38.8%, to $20.2 million from $14.6 million comparing the second quarter of 2023 and 2022, respectively, which largely reflected higher earning-asset yields, coupled with an increase in average earning-asset volumes. The tax-equivalent yield on average earning assets increased 109 basis points to 4.67% for the three months ended June 30, 2023, from 3.58% for the same three months of 2022. Specifically, the tax-equivalent yield on the loan portfolio increased 122 basis points to 5.42% for the second quarter of 2023 from 4.20% for the same quarter of 2022. In addition, the tax-equivalent yield on the investment portfolio increased 56 basis points to 2.98% for the second quarter of 2023 from 2.42% for the same quarter of 2022. Regarding asset volumes, total average earning assets increased $106.5 million, or 6.6%, to $1.731 billion for the three months ended June 30, 2023, from $1.625 billion for the same three months of 2022. Specifically, average total loans and leases increased $110.2 million, or 10.3%, to $1.178 billion for the second quarter of 2023 from $1.067 billion for the same quarter of 2022, which was largely due to strong organic loan demand concentrated in commercial equipment financing. Conversely, total securities averaged $533.1 million for the second quarter of 2023, a decrease of $19.8 million, or 3.6%, from $552.9 million for the second quarter of 2022, as proceeds from sales and repayments of securities were redirected into higher-yielding loan products. 

On a year-to-date basis, tax equivalent net interest income decreased $3.2 million, or 11.8%, to $23.7 million for the six months ended June 30, 2023, from $26.9 million for the comparable period of 2022. Similar to the quarterly period, the decrease in tax-equivalent net interest income for the year-to-date period, reflected an increase in interest expense of $14.3 million, to $15.4 million, compared to $1.1 million for the same period of 2022.  Partially offsetting this was an $11.1 million, or 39.8%, increase in tax-equivalent interest income to $39.1 million for the six months ended June 30, 2023 from $28.0 million for the six months ended June 30, 2022. Tax equivalent yield on average earning assets increased 104 basis points, to 4.56% for the first half of 2023, from 3.52% for the same period in 2022. In addition, total average earning assets increased to $1.717 billion for the six months ended June 30, 2023, from $1.592 billion, for the same period of 2022, representing an increase of $125.3 million, or 7.9%. Similar to the quarterly period, this was primarily due to an increase in average total loans and leases that increased $123.3 million, or 11.9%, to $1.157 billion for the six months ended June 30, 2023, from $1.034 billion for the same comparable period of 2022. 

For the three months ended June 30, 2023, non-interest income decreased $709 thousand, or 42.8%, to $948 thousand from $1.6 million for the three months ended June 30, 2022. The reduction in non-interest revenue was largely due to unrealized net losses recognized on equity securities, coupled with a decrease in the net gains on the sale of mortgage loans held for sale. Continued stock volatility in the financial service sector during the first half of 2023 resulted in net unrealized losses of $1.0 million on holdings of equity securities, for the three months ended June 30, 2023, compared to $82 thousand in losses on equity securities recorded for the same quarter of 2022. Equity securities are comprised primarily of common and preferred stock of other financial institutions. There were no net gains on the sale of mortgage loans held for sale in the second quarter of 2023, compared to $32 thousand recognized for the three months ended June 30, 2022. These reductions were slightly offset by net gains on the sale of available-for-sale debt securities of $90 thousand for the three months ended June 30, 2023, an increase of $125 thousand compared to a $35 thousand loss on the sale of available-for-sale securities in the second quarter of 2022. Wealth management service revenue generated by 1st Investment Services increased $130 thousand, or 113.0%, to $245 thousand, compared to $115 thousand for the same three-month period of 2022, which resulted primarily from the purchase of Chiaro Investment Services, LLC at the end of the third quarter of 2022. For the six months ended June 30, 2023, non-interest income decreased $828 thousand, or 24.0%, to $2.6 million, compared to $3.4 million for the same period of 2022. FNCB recorded a net loss on equity securities of $1.5 million for the six months ended June 30, 2023, compared to a net loss of $207 thousand recorded for the same six months of 2022.  Partially offsetting the increase in loss recognized on equity securities was a net gain on the sale of available-for-sale debt securities of $252 thousand during the six months ended June 30, 2023, an increase of $287 thousand compared to a net loss on the sale of available-for-sale debt securities of $35 thousand for the same period of 2022. In addition, wealth management services and deposit service charges increased $247 thousand, or 104.7%, and $72 thousand, or 3.4%, respectively, comparing the six months ended June 30, 2023 and 2022.

Non-interest expense decreased $130 thousand, or 1.6%, to $8.1 million for the three months ended June 30, 2023, from $8.2 million for the three months ended June 30, 2022, which primarily reflected a credit for unfunded commitments of $225 thousand for the second quarter of 2023, compared to a provision of $75 thousand, for the respective quarter of 2022, coupled with decreases in bank shares tax, equipment expenses, data processing and advertising expenses. These expense reductions were partially offset by increases in occupancy expenses, regulatory assessments and other operating expenses.  For the second quarter of 2023, occupancy expenses, increased $103 thousand, or 23.0%, compared to the second quarter of 2022, while regulatory assessments and other operating expenses increased $312 thousand and $216 thousand, respectively, in comparing the three months ended June 30, 2023, and 2022. The increase in occupancy expense reflected higher utility costs, while the increase in regulatory assessments was due to higher FDIC insurance rates. Contributing to the increase in other operating expenses were loan-related costs associated with a no closing cost home equity line of credit promotion.  For the six months ended June 30, 2023, non-interest expense increased $247 thousand, or 1.5%, to $17.0 million compared to $16.8 million for the same period of 2022, primarily due to increases in salaries and employee benefits, regulatory assessments, occupancy expense and other operating expenses. Salaries and employee benefits increased $747 thousand, or 8.1%, to $9.9 million for the six months ended June 30, 2023, from $9.2 million for the same period of 2022, which primarily reflected higher full-time salaries and benefits associated with staff additions, in addition to increases in starting salaries and salary ranges, to stay competitive in attracting and retaining qualified staff. For the six months ended June 30, 2023, regulatory assessments increased $104 thousand, or 24.6%, compared to the same six-month period of 2022, while occupancy and other operating expenses increased $76 thousand, or 7.6%, and $452 thousand, or 31.8%, respectively, comparing the six months ended June 30, 2023, and 2022.The increase in other operating expenses, was largely due to increases in correspondent bank charges and servicing costs associated with purchased loan pools, coupled with costs associated with the home equity line of credit promotion. Similar to the quarterly period, these increases were slightly offset by decreases in the provision for unfunded commitments, bank shares tax, equipment and data processing expenses. Year-to-date, FNCB recorded a credit for unfunded commitments of $494 thousand, compared to a provision of $123 thousand for the six months ended June 2022.

Asset Quality

Total non-performing loans slightly increased $0.9 million, or 32.3%, to $3.8 million, representing 0.31% of total loans and leases, at June 30, 2023, from $2.8 million, or 0.25% of total loans and leases, at December 31, 2022. Year-over-year, non-performing loans increased $1.0 million, or 35.3%, from $2.8 million, or 0.26% of total loans, at June 30, 2022. FNCB’s loan delinquency rate (total delinquent loans as a percentage of total loans) slightly increased to 0.50% at June 30, 2023, compared to 0.45% at December 31, 2022, and 0.39% at June 30, 2022. FNCB recorded a provision for credit losses of $799 thousand for the second quarter of 2023 compared to a provision of $62 thousand for the same quarter of 2022. For the six months ended June 30, 2023, the provision for credit losses totaled $1.8 million, compared to $0.8 million provision for credit losses, for the same six-month period of 2022. The increases in the quarter and the year-to-date periods, were primarily attributable to increases in loan and lease volumes. The allowance for credit losses was $12.9 million, or 1.07% of total loans and leases, at June 30, 2023, which included a $2.6 million adjustment to the ACL on loans, related to the adoption of CECL. At December 31, 2022, allowance for loan and lease losses was $14.2 million, or 1.26% of total loans and leases.

Financial Condition

Total assets increased $116.3 million, or 6.7%, to $1.862 billion at June 30, 2023, from $1.746 billion at December 31, 2022. The change in total assets primarily reflected increases in loans and leases, net of the ACL, and cash and cash equivalents, partially offset by decreases in available-for-sale debt securities as security repayments were re-directed to fund loan originations. Loans and leases, net of the ACL, increased $77.6 million, or 7.0%, to $1.188 billion at June 30, 2023, from $1.110 billion at December 31, 2022. Increases were experienced across the commercial and industrial loans, construction, land and acquisition and development and state and political subdivision loans, which primarily reflected commercial equipment financing originations. Cash and cash equivalents increased $63.1 million, or 150.5%, to $105.0 million at June 30, 2023, from $41.9 million at December 31, 2022, while available-for-sale debt securities decreased $23.2 million, or 4.9%, to $452.9 million at June 30, 2023, from $476.1 million at December 31, 2022. Total deposits increased $55.4 million, or 3.9%, to $1.476 billion at June 30, 2023, from $1.421 billion at December 31, 2022. FNCB continued to utilize and secure liquidity through the brokered deposit market. Additionally, FNCB continued to experience migration from non-maturity deposits, non-interest-bearing and interest-bearing demand and savings deposits, into time deposits and increased utilization of brokered deposits. Total non-maturity deposits decreased $143.2 million, or 11.3%, to $1.120 billion at June 30, 2023 from $1.263 billion at December 31, 2022. Total time deposits increased $198.6 million, or 125.8%, to $356.5 million at the end of the second quarter of 2023 from $157.9 million at December 31, 2022. Included in time deposits at June 30, 2023 were brokered deposits of $126.2 million, an increase of $102.3 million from $23.9 million at December 31, 2022. Total borrowed funds increased $59.6 million to $242.0 million at June 30, 2023, from $182.4 million at December 31, 2022, which was due to additional advances through the FHLB of Pittsburgh and the Federal Reserve Discount Window Bank Term Funding Program. 

Total shareholders’ equity increased $5.1 million, or 4.3%, to $124.0 million at June 30, 2023, from $118.9 million at December 31, 2022. The increase in capital was primarily due to net income for the six months ended June 30, 2023 of $5.5 million. Also impacting capital was market value appreciation of FNCB's available-for-sale debt securities, net of deferred taxes, which was the primary cause of a $1.8 million reduction in the accumulated other comprehensive loss to $46.2 million at June 30, 2023, compared to an accumulated other comprehensive loss of $48.0 million at December 31, 2022.  Partially offsetting these capital increases were $3.5 million in dividends declared and paid for the six months ended June 30, 2023. Tangible book value was $6.28 per share at June 30, 2023, compared to $6.04 per share at December 31, 2022. FNCB Bank was considered well capitalized with total risk-based capital and Tier 1 leverage ratios of 12.97% and 8.98%, respectively, at June 30, and 13.10% and 8.77%, respectively, at December 31, 2022.

Availability of Filings

Copies of FNCB’s most recent Annual Report on Form 10-K and Quarterly Reports on form 10-Q will be provided upon request from: Shareholder Relations, FNCB Bancorp, Inc., 102 East Drinker Street, Dunmore, PA 18512 or by calling (570) 348-6419. FNCB’s SEC filings including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are also available free of charge on the Investor Relations page of FNCB’s website, www.fncb.com, and on the SEC website at: http://www.sec.gov/edgar/searchedgar/companysearch.html

About FNCB Bancorp, Inc.:

FNCB Bancorp, Inc. is the bank holding company of FNCB Bank. Locally-based for over 113 years, FNCB Bank continues as a premier community bank in Northeastern Pennsylvania – offering a full suite of personal, small business and commercial banking solutions with industry-leading mobile, online and in-branch products and services. FNCB currently operates through 16 community offices located in Lackawanna, Luzerne and Wayne Counties and remains dedicated to making its customers’ banking experience simply better. For more information about FNCB, visit www.fncb.com.

INVESTOR CONTACT:

James M. Bone, Jr., CPA
Executive Vice President and Chief Financial Officer               
FNCB Bank
(570) 348-6419
james.bone@fncb.com

FNCB may from time to time make written or oral “forward-looking statements,” including statements contained in our filings with the Securities and Exchange Commission (“SEC”), in our reports to shareholders, and in our 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 new product offerings, 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; the ability of FNCB to manage credit risk; weakness in the economic environment, in general, and within FNCB’s market area; the deterioration of one or a few of the commercial real estate loans with relatively large balances 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. 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 press release. Readers should carefully review the risk factors described in the Annual Report and other documents that FNCB periodically files with the SEC, including its Form 10-K for the year ended December 31, 2022 and Form 10-K for the quarter ended March 31, 2023.