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 |
|||||||
| (unaudited) |
| September 30, | December 31, | |||||||
| (in thousands, except share data) | 2022 | 2021 | ||||||
| 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 | ||||||||
| Equity securities, at fair value | ||||||||
| Restricted stock, at cost | ||||||||
| Loans held for sale | ||||||||
| Loans and leases, net of allowance for loan and lease 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 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 September 30, 2022 and December 31, 2021 | ||||||||
| Issued and outstanding: shares at September 30, 2022 and December 31, 2021 | ||||||||
| Common shares ($ par) | ||||||||
| Authorized: shares at September 30, 2022 and December 31, 2021 | ||||||||
| Issued and outstanding: shares at September 30, 2022 and shares at December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| 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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands, except share data) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Interest income |
||||||||||||||||
| Interest and fees on loans and leases |
$ | $ | $ | $ | ||||||||||||
| Interest and dividends on securities: |
||||||||||||||||
| Taxable |
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| Tax-exempt |
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| Dividends |
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| Total interest and dividends on securities |
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| Interest on interest-bearing deposits in other banks |
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| Total interest income |
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| Interest expense |
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| Interest on deposits |
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| Interest on borrowed funds: |
||||||||||||||||
| Federal Home Loan Bank of Pittsburgh advances |
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| Junior subordinated debentures |
||||||||||||||||
| Total interest on borrowed funds |
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| Total interest expense |
||||||||||||||||
| Net interest income before provision (credit) for loan and lease losses |
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| Provision (credit) for loan and lease losses |
( |
) | ( |
) | ||||||||||||
| Net interest income after provision (credit) for loan and lease losses |
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| Non-interest income |
||||||||||||||||
| Deposit service charges |
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| Net (loss) gain on the sale of available-for-sale debt securities |
( |
) | ||||||||||||||
| Net gain (loss) on equity securities |
( |
) | ||||||||||||||
| Net gain on the sale of mortgage loans held for sale |
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| Loan-related fees |
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| Income from bank-owned life insurance |
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| Bank-owned life insurance settlement |
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| Merchant services revenue |
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| Other |
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| Total non-interest income |
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| Non-interest expense |
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| Salaries and employee benefits |
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| Occupancy expense |
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| Equipment expense |
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| Advertising expense |
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| Data processing expense |
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| Regulatory assessments |
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| Bank shares tax |
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| Professional fees |
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| Insurance expense |
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| Directors fees |
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| Provision (credit) for off-balance sheet commitments |
( |
) | ( |
) | ||||||||||||
| Other operating expenses |
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| 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 (LOSS) INCOME |
|||||
| (unaudited) |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive loss: |
||||||||||||||||
| Unrealized losses on available-for-sale debt securities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Taxes |
||||||||||||||||
| Net of tax amount |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Reclassification adjustment for losses (gains) included in net income |
( |
) | ||||||||||||||
| Taxes |
( |
) | ||||||||||||||
| Net of tax amount |
( |
) | ||||||||||||||
| Derivative adjustments |
||||||||||||||||
| Taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net of tax amount |
||||||||||||||||
| Total other comprehensive loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
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| For the Three and Nine Months Ended September 30, 2022 and 2021 |
|||||||||||||||
| (unaudited) |
| (in thousands, except per share data) | Number of Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity | ||||||||||||||||||
| For the three months ended: | ||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $ per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued under long-term incentive compensation plan | ||||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $ per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued under long-term incentive compensation plan | ||||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the nine months ended: | ||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $ per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued under long-term incentive compensation plan | ||||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Cash dividends paid, $ per share | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock awards | - | |||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued under long-term incentive compensation plan | ||||||||||||||||||||||||
| Common shares issued through dividend reinvestment/optional cash purchase plan | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||
| (unaudited) |
| Nine Months Ended September 30, |
||||||||
| (in thousands) |
2022 |
2021 |
||||||
| 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 fees |
( |
) | ( |
) | ||||
| Valuation adjustment for loan servicing rights |
( |
) | ( |
) | ||||
| Stock-based compensation expense |
||||||||
| Provision (credit) for loan and lease losses |
( |
) | ||||||
| Valuation adjustment for other real estate owned |
( |
) | ||||||
| Valuation adjustment for off-balance sheet commitments |
( |
) | ||||||
| Net loss (gain) on the sale of available-for-sale debt securities |
( |
) | ||||||
| Net loss (gain) on equity securities |
( |
) | ||||||
| Net gain on the sale of mortgage loans held for sale |
( |
) | ( |
) | ||||
| Net gain on the sale of other real estate owned |
( |
) | ||||||
| Bank-owned life insurance settlement |
( |
) | ||||||
| Income from bank-owned life insurance |
( |
) | ( |
) | ||||
| Proceeds from the sale of mortgage loans held for sale |
||||||||
| Funds used to originate mortgage loans held for sale |
( |
) | ( |
) | ||||
| Decrease in net deferred tax assets |
||||||||
| Increase in accrued interest receivable |
( |
) | ( |
) | ||||
| Decrease in other assets |
( |
) | ( |
) | ||||
| Increase (decrease) in accrued interest payable |
( |
) | ||||||
| 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 of restricted stock |
( |
) | ( |
) | ||||
| Net increase in loans and leases to customers |
( |
) | ( |
) | ||||
| Proceeds from the sale of other real estate owned |
||||||||
| Proceeds from bank-owned life insurance settlement |
||||||||
| Purchase of bank-owned life insurance |
( |
) | ( |
) | ||||
| Purchases of bank premises and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Net increase in deposits |
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| Proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight |
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| Proceeds from Federal Home Loan Bank of Pittsburgh advances - term |
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| Repayment of Federal Home loan Bank of Pittsburgh advances - term |
( |
) | ||||||
| Repurchase of common shares |
( |
) | ( |
) | ||||
| Proceeds from issuance of common shares, net of discount |
||||||||
| Cash dividends paid |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| 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 |
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| Cash paid during the period for: |
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| Interest |
$ | $ | ||||||
| Taxes |
||||||||
| Other transactions: |
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| Loans transferred to OREO |
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| Lease liabilities arising from obtaining right-of-use assets |
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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, and its wholly owned subsidiary, FNCB Bank (the “Bank”), as well as the Bank’s wholly owned subsidiaries (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 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 and nine months ended September 30, 2022 may not be indicative of future results of operations and financial position.
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 loan and lease losses (“ALLL”), securities’ valuation and impairment evaluation and income taxes.
FNCB has evaluated events and transactions occurring subsequent to September 30, 2022, 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 9, "Commitments and Contingencies" and Note 11, "Regulatory Matters" for information about events and transactions that have occurred subsequent to the balance sheet date.
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2021.
Note 2. New Authoritative Accounting Guidance
Accounting Guidance to be Adopted in Future Periods
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” replaces 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 is commonly referred to as Current Expected Credit Losses ("CECL") and will require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in this update affect entities holding 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. On June 17, 2016, the four federal financial institution regulatory agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency), issued a joint statement to provide information about ASU 2016-13 and the initial supervisory views regarding the implementation of the new standard. The joint statement applies to all banks, savings associations, credit unions and financial institution holding companies, regardless of asset size. The statement details the key elements of, and the steps necessary for, the successful transition to the new accounting standard. In addition, the statement notifies financial institutions that because the appropriate allowance levels are institution-specific amounts, the agencies will not establish benchmark targets or ranges for the change in institutions’ allowance levels upon adoption of the ASU, or for allowance levels going forward. Due to the importance of ASU 2016-13, the agencies encourage financial institutions to begin planning and preparing for the transition and state that senior management, under the oversight of the board of directors, should work closely with staff in their accounting, lending, credit risk management, internal audit, and information technology functions during the transition period leading up to, and well after, adoption. ASU 2016-13 was originally effective for public business entities that are registered with the U.S. Securities and Exchange Commission (“SEC”) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), including smaller reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this ASU earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On November 15, 2019, the FASB issued ASU 2019-10, "Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates," which finalized various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies. Specifically, under ASU 2019-10, the effective date for implementation of CECL for smaller reporting companies, private companies and not-for-profits was extended to fiscal years, and interim periods within those years, beginning after December 15, 2022. FNCB is a smaller reporting company, and accordingly, will adopt this guidance on January 1, 2023. FNCB has a CECL task group comprised of members of its finance, credit administration, lending, internal audit, loan operations and information systems units. The CECL task group understands the provisions of ASU 2016-13 and is currently in the process of implementing the new guidance. FNCB engaged a third-party consultant to assist and provide guidance to the task group in determining the appropriate methodology for each segment and evaluating qualitative factors and economic data to develop appropriate forecasts for integration into the model. As of September 30, 2022, the CECL task group has completed loan portfolio segmentation, has established loss methodologies using a discounted cash flow approach for quantitative pool reserves for each portfolio segment and is in the final stages of developing a scorecard framework for the qualitative adjustment. FNCB engaged another third-party consultant that has performed an independent validation of the model. Management is reviewing and implementing recommendations arising from the validation as appropriate, and evaluating the effect this guidance may have on its operating results and/or financial position, including assessing any potential impact on its capital.
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): "Troubled Debt Restructurings and Vintage Disclosures," eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross charge-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, which an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU No. 2016-13, including adoption in an interim period. If an entity elects to early adopt ASU No. 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. FNCB will adopt ASU 2022-02 simultaneously with the adoption of CECL on January 1, 2023 and is currently evaluating theeffect this guidance may have on its operating results and/or financial position, including assessing any potential impact on its capital.
Refer to Note 2 to FNCB’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.
Note 3. Securities
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 September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||
| 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, 2021 | ||||||||||||||||
| 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 September 30, 2022. 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, 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.
| September 30, 2022 | ||||||||
| 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 | ||||||||
| Mortgage-backed securities | ||||||||
| Collateralized mortgage obligations | ||||||||
| 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 and nine months ended September 30, 2022 and 2021. 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| 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 with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time the securities have been in an unrealized loss position.
| September 30, 2022 | ||||||||||||||||||||||||||||||||||||
| 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, 2021 | ||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Management evaluates individual securities in an unrealized loss position quarterly for other than temporary impairment (“OTTI”). 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 credit deterioration of the issuer, whether management intends to sell the security, and whether it is more likely than not that FNCB will be required to sell the security prior to recovery of its amortized cost.
Management performed a review of all securities in an unrealized loss position as of September 30, 2022 and determined that changes in the fair values of the securities were consistent with movements in market interest rates and spreads or general market conditions. In addition, as part of its review, management 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 September 30, 2022. FNCB does not intend to sell the securities, nor is it more likely than not that it will be required to sell the securities, prior to recovery of their amortized cost. Based on the results of its review and considering the attributes of these debt securities, management concluded that the individual unrealized losses were temporary and OTTI did not exist at September 30, 2022.
Equity Securities
Included in equity securities with readily determinable fair values at September 30, 2022 and December 31, 2021 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 and nine months ended September 30, 2022 and 2021.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net gains (losses) recognized on equity securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Less: net gains recognized on equity securities sold/acquired | ||||||||||||||||
| Unrealized gains (losses) on equity securities | $ | $ | $ | ( | ) | $ | ||||||||||
Equity Securities without Readily Determinable Fair Values
At September 30, 2022 and December 31, 2021, equity securities without readily determinable fair values consisted of a $
Restricted Stock
The following table presents FNCB's investment in restricted stock at September 30, 2022 and December 31, 2021. 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 or Atlantic Community Banker’s Bank stock at September 30, 2022 and December 31, 2021.
| September 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Stock in Federal Home Loan Bank of Pittsburgh | $ | $ | ||||||
| Stock in Atlantic Community Banker's Bank | ||||||||
| Total restricted securities, at cost | $ | $ | ||||||
Note 4. Loans and Leases
The following table summarizes loans and leases receivable, net, by major category at September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Residential real estate | $ | $ | ||||||
| Commercial real estate | ||||||||
| Construction, land acquisition and development | ||||||||
| Commercial and industrial | ||||||||
| Consumer | ||||||||
| State and political subdivisions | ||||||||
| Total loans and leases, gross | ||||||||
| Unearned income | ( | ) | ( | ) | ||||
| Net deferred loan origination fees (costs) | ( | ) | ||||||
| Allowance for loan and lease losses | ( | ) | ( | ) | ||||
| Loans and leases, net | $ | $ | ||||||
Included in commercial and industrial loans and leases at September 30, 2022 and December 31, 2021 were $
In 2021, management expanded FNCB's commercial credit product offerings to include commercial equipment financing, through simple interest loans, direct finance leases and municipal leases. Simple interest loans and direct finance leases originated under this initiative are included in commercial and industrial loans, tax-free municipal leases originated under this initiative are included in state and political subdivision loans. Simple interest loans and direct finance leases originated under this initiated and included in commercial and industrial loans were $
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 8, “Related Party Transactions” to these consolidated financial statements.
The unpaid principal balance of loans serviced for others, which includes residential mortgages and SBA-guaranteed loans, was $
There were no material changes to the risk characteristics of FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL during the three and nine months ended September 30, 2022. Refer to Note 2, “Summary of Significant Accounting Policies” to FNCB’s consolidated financial statements included in the 2021 Annual Report on Form 10-K for information about the risk characteristics related to FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL.
Management evaluates the credit quality of the loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ALLL at the end of each quarter. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. However, actual loan losses may be significantly more than the established ALLL, which could have a material negative effect on FNCB’s operating results or financial condition. Management continues to monitor the loan portfolio for any potential adverse impact to asset quality related to the current economic environment, including rising interest rates, elevated inflation and any lingering effects of the COVID-19 pandemic. While management uses the best information available to make its evaluations, future adjustments to the ALLL may be necessary if conditions differ substantially from the information used in making the evaluations. Banking regulators, as an integral part of their examination of FNCB, also review the ALLL, 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 ALLL.
The following table summarizes activity in the ALLL by major category for the three and nine months ended September 30, 2022 and 2021.
| Construction, | ||||||||||||||||||||||||||||||||
| Land | State and | |||||||||||||||||||||||||||||||
| Residential | Commercial | Acquisition and | Commercial | Political | ||||||||||||||||||||||||||||
| (in thousands) | Real Estate | Real Estate | Development | and Industrial | Consumer | Subdivisions | Unallocated | Total | ||||||||||||||||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Beginning balance, July 1, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Ending balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three months ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Beginning balance, July 1, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ||||||||||||||||||||||||||||||
| Ending balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions (credits) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Ending balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table presents, by major category, the allocation of the ALLL and the related loan balance disaggregated based on the impairment methodology at September 30, 2022 and December 31, 2021:
| Construction, | ||||||||||||||||||||||||||||||||
| Land | State and | |||||||||||||||||||||||||||||||
| Residential | Commercial | Acquisition and | Commercial | Political | ||||||||||||||||||||||||||||
| (in thousands) | Real Estate | Real Estate | Development | and Industrial | Consumer | Subdivisions | Unallocated | Total | ||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans and leases receivable: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| Allowance for loan and lease losses: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans and leases receivable: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Credit Quality Indicators – Commercial Loans
Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s 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 Quality Indicators – 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 Quality Indicators – 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 show no current or potential problems and are considered fully collectible. All such loans are evaluated collectively for ALLL calculation purposes. However, accruing loans restructured under a troubled debt restructuring (“TDRs”) that have been performing for an extended period, do not represent a higher risk of loss, and have been upgraded to a pass rating are evaluated individually for impairment.
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 Quality Indicators – 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
The following tables present the recorded investment in loans and leases receivable by major category and credit quality indicator at September 30, 2022 and December 31, 2021:
| Credit Quality Indicators | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Commercial Loans and Leases | Other Loans | |||||||||||||||||||||||||||||||||||||||
| Special | Subtotal | Accruing | Non-accrual | Subtotal | Total | |||||||||||||||||||||||||||||||||||
| (in thousands) | Pass | Mention | Substandard | Doubtful | Loss | Commercial | Loans | Loans | Other | Loans | ||||||||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Credit Quality Indicators | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Commercial Loans and Leases | Other Loans | |||||||||||||||||||||||||||||||||||||||
| Special | Subtotal | Accruing | Non-accrual | Subtotal | Total | |||||||||||||||||||||||||||||||||||
| (in thousands) | Pass | Mention | Substandard | Doubtful | Loss | Commercial | Loans | Loans | Other | Loans | ||||||||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
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 $
The following tables present the delinquency status of past due and non-accrual loans and leases at September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||||||
| Delinquency Status | ||||||||||||||||||||
| 0-29 Days | 30-59 Days | 60-89 Days | >/= 90 Days | |||||||||||||||||
| (in thousands) | Past Due | Past Due | Past Due | Past Due | Total | |||||||||||||||
| Performing (accruing) loans and leases: | ||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||
| Total performing (accruing) loans and leases | ||||||||||||||||||||
| Non-accrual loans and leases: | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||
| Total non-accrual loans and leases | ||||||||||||||||||||
| Total loans and leases receivable | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Delinquency Status | ||||||||||||||||||||
| 0-29 Days | 30-59 Days | 60-89 Days | >/= 90 Days | |||||||||||||||||
| (in thousands) | Past Due | Past Due | Past Due | Past Due | Total | |||||||||||||||
| Performing (accruing) loans and leases: | ||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||
| Total performing (accruing) loans and leases | ||||||||||||||||||||
| Non-accrual loans and leases: | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||
| Total non-accrual loans and leases | ||||||||||||||||||||
| Total loans and leases receivable | $ | $ | $ | $ | $ | |||||||||||||||
The following tables present a distribution of the recorded investment, unpaid principal balance and the related allowance for FNCB’s impaired loans, which have been analyzed for impairment under ASC 310, at September 30, 2022 and December 31, 2021. Non-accrual loans, other than TDRs, with balances less than the $
| September 30, 2022 | ||||||||||||
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| (in thousands) | Investment | Balance | Allowance | |||||||||
| With no allowance recorded: | ||||||||||||
| Residential real estate | $ | $ | $ | - | ||||||||
| Commercial real estate | - | |||||||||||
| Construction, land acquisition and development | - | |||||||||||
| Commercial and industrial | - | |||||||||||
| Consumer | - | |||||||||||
| State and political subdivisions | - | |||||||||||
| Total impaired loans with no related allowance recorded | - | |||||||||||
| With a related allowance recorded: | ||||||||||||
| Residential real estate | ||||||||||||
| Commercial real estate | ||||||||||||
| Construction, land acquisition and development | ||||||||||||
| Commercial and industrial | ||||||||||||
| Consumer | ||||||||||||
| State and political subdivisions | ||||||||||||
| Total impaired loans with a related allowance recorded | ||||||||||||
| Total impaired loans: | ||||||||||||
| Residential real estate | ||||||||||||
| Commercial real estate | ||||||||||||
| Construction, land acquisition and development | ||||||||||||
| Commercial and industrial | ||||||||||||
| Consumer | ||||||||||||
| State and political subdivisions | ||||||||||||
| Total impaired loans | $ | $ | $ | |||||||||
| December 31, 2021 | ||||||||||||
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| (in thousands) | Investment | Balance | Allowance | |||||||||
| With no allowance recorded: | ||||||||||||
| Residential real estate | $ | $ | $ | - | ||||||||
| Commercial real estate | - | |||||||||||
| Construction, land acquisition and development | - | |||||||||||
| Commercial and industrial | - | |||||||||||
| Consumer | - | |||||||||||
| State and political subdivisions | - | |||||||||||
| Total impaired loans with no related allowance recorded | - | |||||||||||
| With a related allowance recorded: | ||||||||||||
| Residential real estate | ||||||||||||
| Commercial real estate | ||||||||||||
| Construction, land acquisition and development | ||||||||||||
| Commercial and industrial | ||||||||||||
| Consumer | ||||||||||||
| State and political subdivisions | ||||||||||||
| Total impaired loans with a related allowance recorded | ||||||||||||
| Total impaired loans: | ||||||||||||
| Residential real estate | ||||||||||||
| Commercial real estate | ||||||||||||
| Construction, land acquisition and development | ||||||||||||
| Commercial and industrial | ||||||||||||
| Consumer | ||||||||||||
| State and political subdivisions | ||||||||||||
| Total impaired loans | $ | $ | $ | |||||||||
The following table presents the average balance and interest income by loan category recognized on impaired loans for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Average | Interest | Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||||||||
| (in thousands) | Balance | Income (1) | Balance | Income (1) | Balance | Income (1) | Balance | Income (1) | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Construction, land acquisition and development | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||
| Total impaired loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (1) Interest income represents income recognized on performing TDRs. |
The additional interest income that would have been earned on non-accrual and restructured loans had these loans performed in accordance with their original terms approximated $
Troubled Debt Restructured Loans
TDRs were $
The modification of the terms of loans classified as TDRs may include one or a combination of the following changes, among others: a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, a payment modification under a forbearance agreement, or a permanent reduction of the recorded investment in the loan.
There were
Residential Real Estate Loan Foreclosures
There were
During the nine months ended September 30, 2021, FNCB obtained a deed in lieu of foreclosure for a residential mortgage with a recorded investment of $
Note 5. Deposits
The following table presents deposits by major category at September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Demand (non-interest bearing) | $ | $ | ||||||
| Interest-bearing: | ||||||||
| Interest-bearing demand | ||||||||
| Savings | ||||||||
| Time ($250,000 and over) | ||||||||
| Other time | ||||||||
| Total interest-bearing | ||||||||
| Total deposits | $ | $ | ||||||
Note 6. Borrowings
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 of $
The following table presents borrowings, by type, outstanding, at September 30, 2022 and December 31, 2021.
| September 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| FHLB of Pittsburgh - overnight | $ | $ | ||||||
| FHLB of Pittsburgh - term | ||||||||
| Subtotal FHLB of Pittsburgh advances | ||||||||
| Junior subordinated debentures | ||||||||
| Total borrowed funds | $ | $ | ||||||
Note 7. 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 September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | % | Amount | % | 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 (gains) 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. Net deferred tax assets were $
Note 8. 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 and nine months ended September 30, 2022 and 2021.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Additions, new loans and advances | ||||||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (1) | ( | ) | ||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| (1) Other represents loans to related parties that ceased being related parties during the year | ||||||||||||||||
At September 30, 2022 there were
Deposits from directors, executive officers and their related parties held by the Bank at September 30, 2022 and December 31, 2021 amounted to $
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, fidelity bond and errors and omissions insurance, legal services, rent and repair of repossessed automobiles for resale. For 2021, goods and services acquired from related parties also included employee health insurance. FNCB recorded payments to related parties for goods and services of $
Note 9. 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 other assets and operating lease liabilities are included in other liabilities in the consolidated statements of financial condition. As of September 30, 2022, 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 the nine months ended September 30, 2022 and 2021 was $
The following table summarizes the maturity of remaining operating lease liabilities as of September 30, 2022:
| (in thousands) | September 30, 2022 | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 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) | September 30, 2022 | September 30, 2021 | ||||||
| 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 | $ | $ | ||||||
Commitment
On October 1, 2022, FNCB issued a signed letter of intent to make an equity investment of approximately $
Litigation
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 10. Stock Compensation Plans
FNCB has a Long-Term Incentive Compensation Plan (“LTIP”) for directors, executives and key employees. The LTIP authorizes up to
On July 1, 2022,
The following table summarizes the activity related to FNCB’s unvested restricted stock awards during the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Weighted- | Weighted- | Weighted- | Weighted- | |||||||||||||||||||||||||||||
| Average | Average | Average | Average | |||||||||||||||||||||||||||||
| Restricted | Grant Date | Restricted | Grant Date | Restricted | Grant Date | Restricted | Grant Date | |||||||||||||||||||||||||
| (dollars in thousands) | Shares | Fair Value | Shares | Fair Value | 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 11. Regulatory Matters
FNCB’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to FNCB. Bank regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agency. For the three and nine months ended September 30, 2022, cash dividends declared and paid by FNCB were $
On January 26, 2022, FNCB's Board of Directors authorized a stock repurchase program under which up to
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 September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021:
| 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 | |||||||||||||||
| September 30, 2022 | ||||||||||||||||||||
| 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, 2021 | ||||||||||||||||||||
| 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 12. 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 September 30, 2022, 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, LIBOR 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 September 30, 2022, and December 31, 2021, and the fair value hierarchy of the respective valuation techniques utilized by FNCB to determine the fair value:
| Fair Value Measurements at September 30, 2022 | ||||||||||||||||
| Significant | Significant | |||||||||||||||
| Quoted Prices | Other | Other | ||||||||||||||
| in Active Markets | Observable | Unobservable | ||||||||||||||
| for Identical Assets | Inputs | 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, 2021 | ||||||||||||||||
| Significant | Significant | |||||||||||||||
| Quoted Prices | Other | Other | ||||||||||||||
| in Active Markets | Observable | Unobservable | ||||||||||||||
| for Identical Assets | Inputs | 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
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 nine months ended September 30, 2022 and 2021.
| Fair Value Measurements | ||||||||||||||||
| Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||
| Corporate Debt Securities | Corporate Debt Securities | |||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Redemptions | ( | ) | ( | ) | ( | ) | ||||||||||
| Transfer to Level 2 | ( | ) | ( | ) | ( | ) | ||||||||||
| Sales | ||||||||||||||||
| Total gains or losses (realized/unrealized): | ||||||||||||||||
| Included in earnings | ||||||||||||||||
| Included in other comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at September 30, | $ | $ | $ | $ | ||||||||||||
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 September 30, 2022 and December 31, 2021, and additional quantitative information about the valuation techniques and inputs utilized by FNCB to determine fair value. All assets were measured using Level 3 inputs.
| September 30, 2022 | |||||||||||||||||||||
| Fair Value Measurement | Quantitative Information | ||||||||||||||||||||
| Recorded | Valuation | Fair | Valuation | Unobservable | Value/ | ||||||||||||||||
| (in thousands) | Investment | Allowance | Value | Technique | Inputs | Range | |||||||||||||||
| Impaired loans - collateral dependent | $ | $ | $ | Appraisal of collateral | Selling cost | % | |||||||||||||||
| Impaired loans - other | Discounted cash flows | Discount rate | - | ||||||||||||||||||
| Other real estate owned | Appraisal of collateral/Sales contract | Selling cost | % | ||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||
| Fair Value Measurement | Quantitative Information | ||||||||||||||||||||
| Recorded | Valuation | Fair | Valuation | Unobservable | Value/ | ||||||||||||||||
| (in thousands) | Investment | Allowance | Value | Technique | Inputs | Range | |||||||||||||||
| Impaired loans - collateral dependent | $ | $ | $ | Appraisal of collateral | Selling cost | % | |||||||||||||||
| Impaired loans - other | Discounted cash flows | Discount rate | |||||||||||||||||||
| Other real estate owned | Appraisal of collateral/Sales contract | Selling cost | % | ||||||||||||||||||
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 real estate 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 loan losses.
OREO properties are recorded at fair value less the estimated cost to sell at the date of FNCB’s acquisition of the property. Subsequent to acquisition of the property, the balance may be written down further. FNCB obtains certified external appraisals of real estate collateral underlying impaired loans and OREO and estimates fair value based on those appraisals. Other valuation sources may be used, including broker price opinions, letters of intent and executed sale agreements.
The following table summarizes the estimated fair values of FNCB’s financial instruments using an exit price notion at September 30, 2022 and at December 31, 2021. 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 | September 30, 2022 | December 31, 2021 | |||||||||||||||||
| (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 held for sale | 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 13. 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 and nine months ended September 30, 2022 and 2021, 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 and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| 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 14. Other Comprehensive Income
The following table summarizes the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2022 and 2021, comprised entirely of unrealized gains and losses on available-for-sale debt securities:
| For the Three Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2022 | |||||||||
| (in thousands) | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Consolidated Statements of Income | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Consolidated Statements of Income | ||||||
| Available-for-sale debt securities: | ||||||||||
| Reclassification adjustment for net losses reclassified into net income | $ | Net loss on the sale of available-for-sale debt securities | $ | Net loss on the sale of available-for-sale debt securities | ||||||
| Taxes | Income taxes | ( | ) | Income taxes | ||||||
| Net of tax amount | $ | $ | ||||||||
| For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2021 | |||||||||
| (in thousands) | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Consolidated Statements of Income | Amount Reclassified from Accumulated Other Comprehensive Income | 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 | $ | ( | ) | Net gain on the sale of available-for-sale debt securities | ||||
| Taxes | Income taxes | Income taxes | ||||||||
| Net of tax amount | $ | $ | ( | ) | ||||||
The following table summarizes the changes in accumulated other comprehensive (loss) income, net of tax for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Balance, beginning of period | $ | ( | ) | $ | $ | $ | ||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amount reclassified from accumulated other comprehensive income | ( | ) | ||||||||||||||
| Net other comprehensive (loss) 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, 2021 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, 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: the effect of the novel Coronavirus Disease 2019 ("COVID-19") pandemic on FNCB and its customers, the Commonwealth of Pennsylvania and the United States, related to the economy, overall financial stability and the global supply chain; the COVID-19 pandemic and measures taken to control its spread; government intervention in the U.S. financial system including the effects of interest rate actions taken by the Federal Open Market Committee ("FOMC"); legislative, tax, accounting and regulatory actions and reforms, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the Tax Cuts and Jobs Act; 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 ALLL is not sufficient to absorb actual losses or if increases to the allowance for loan and lease losses ("ALLL") 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 other-than-temporary 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; non-compliance with the Paycheck Protection Act and its rules and regulations; 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 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, 2021 and Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022.
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 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 ALLL, the valuation of securities and evaluation of securities for 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 ALLL 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 Loan and Lease 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 ALLL on a quarterly basis. The ALLL is established through a provision for loan losses charged to earnings and is maintained at a level management considers adequate to absorb estimated probable losses inherent in the loan portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ALLL, while recoveries of amounts previously charged off are credited to the ALLL.
Determining the amount of the ALLL 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 on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, qualitative factors, and 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 ALLL, 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 ALLL. Additionally, the ALLL is determined, in part, by the composition and size of the loan portfolio.
The ALLL consists of two components, a specific component and a general component. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted by qualitative factors. The general reserve component of the ALLL is based on pools of unimpaired loans segregated by loan segment and risk rating categories of “Pass,” “Special Mention” or “Substandard and Accruing.” Historical loss factors and various qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans. Substandard loans on non-accrual status above the $100 thousand loan relationship threshold and all loans considered troubled debt restructurings (“TDRs”) are classified as impaired.
See Note 4, “Loans and Leases” of the notes to consolidated financial statements included in Item 1 hereof for additional information about the ALLL.
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 12, “Fair Value Measurements” of the notes to consolidated financial statements included in Item 1 hereof for additional information about FNCB’s securities valuation techniques.
On a quarterly basis, management evaluates individual investment securities in an unrealized loss position for other than temporary impairment (“OTTI”). The evaluation for OTTI requires the use of various assumptions, including but not limited to, the length of time an investment’s fair value is less than book value, the severity of the investment’s decline, any credit deterioration of the issuer, whether management intends to sell the security, and whether it is more-likely-than-not that FNCB will be required to sell the security prior to recovery of its amortized cost basis. Debt investment securities deemed to have OTTI are written down by the impairment related to the estimated credit loss, and the non-credit related impairment loss is recognized in other comprehensive income. FNCB did not recognize any OTTI charges on investment securities for the three and nine months ended September 30, 2022 and 2021 within the consolidated statements of income.
Refer to 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 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 September 30, 2022 and December 31, 2021, 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 7, “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 September 30, 2022, as well as new accounting guidance issued, but not previously reported, that will be adopted by FNCB in future periods.
Overview of Operating Environment
Lingering effects of the COVID-19 pandemic, along with other factors such as the war in Ukraine, have resulted in pronounced price inflation beginning in 2021, which has escalated in 2022. As a result, the FOMC adjusted its accommodative monetary policy stance and began raising the target rate for federal funds in order to attempt to lower inflation. Policy actions to tighten the economy included a 25-basis point increase on March 17, 2022, a 50-basis point increase on May 5, 2022, a 75-basis point increase on June 16, 2022, a 75-basis point increase on July 27, 2022 and a 75-basis point increase on September 21, 2022 for a total increase of 300 basis points year-to-date. These increases resulted in a corresponding increase in the prime rate, which was 6.25% at September 30, 2022. These velocity of these actions to short-term interest rates has resulted in flattening of the U.S treasury curve, due to narrowing spreads. The FOMC also indicated that additional increases in the target range may be appropriate.
At September 30, 2022, FNCB had Paycheck Protection Program ("PPP") loans still outstanding of $1.4 million, net of $42 thousand in net deferred origination fees, compared to $21.0 million outstanding in loans at December 31, 2021, net of $0.9 million in net deferred origination fees. As of September 30, 2022, FNCB has received forgiveness for the majority of PPP loans, with the remaining balance of $1.4 million now amortizing. Regarding our banking operations, commercial activity within our market area, while improving, remains volatile and has not returned to pre-pandemic levels. Management expects the effects of COVID-19 pandemic, as well as other matters, on the economy, overall financial stability and global supply chains, as well as increased or decreased governmental intervention in the U.S. financial system, to continue to impact FNCB's operations. At this time, management cannot determine or estimate the full magnitude of the impact and cannot provide any assurances as to the effect on FNCB's results of operations or financial position. Management will continue to work diligently to address any issues related to this challenging operating environment in a safe and sound manner as they arise and believes that FNCB's balance sheet and capital position are strong and will allow FNCB to withstand any challenges that may be presented.
Executive Summary
The following overview should be read in conjunction with this MD&A in its entirety.
FNCB recorded consolidated net income of $5.4 million, or $0.28 per basic and diluted common share, for the three months ended September 30, 2022, a decrease of $1.0 million, or 14.4%, compared to $6.4 million, or $0.31 per basic and diluted common share, for the three months ended September 30, 2021. The decrease in the third quarter 2022 earnings reflected increases in non-interest expense and the provision for loan and lease losses, which were partially offset by increases in net interest income and non-interest income. Non-interest expense increased $1.5 million or 20.4% to $9.0 million for the three months ended September 30, 2022, compared to $7.5 million for the three months ended September 30, 2021. The provision for loan and lease losses was $0.5 million for the three months ended September 30, 2022, an increase of $1.0 million, or 200.0%, compared to a $0.5 million release of reserves for the same period of 2021. Partially offsetting these factors was a $1.2 million, or 9.4%, increase in net interest income to $13.9 million for the three months ended September 30, 2022 from $12.7 million for the same three months of 2021. In addition, non-interest income for the three months ended September 30, 2022, increased $0.3 million, or 16.2%, to $2.1 million from $1.8 million for the three months ended September 30, 2021.
Net income for the nine months ended September 30, 2022 totaled $15.5 million, or $0.79 per basic and diluted share, a decrease of $1.9 million, or 10.8%, compared to $17.4 million, or $0.86 per basic and diluted shares, for the same nine months of 2021. The decrease in year-to-date net income was caused primarily by increases in non-interest expense and the provision for loan and lease losses, coupled with a decrease in non-interest income, which were partially mitigated by an increase in net interest income. Non-interest expense increased $3.9 million, or 17.9%, to $25.8 million for the nine months ended September 30, 2022 from $21.9 million for the same period of 2021. For the nine months ended September 30, 2022, the provision for loan and lease losses was $1.3 million, an increase of $1.5 million, or 875.7%, compared to a release of reserves of $0.2 million for same period of 2021. Non-interest income for the nine months ended September 30, 2022 decreased $0.7 million, or 11.7%, to $5.6 million, compared to $6.3 million for the same nine months of 2021. Despite a $2.9 million reduction in net loan origination fees recognized on forgiven PPP loans, net interest income increased $4.2 million, or 11.5%, to $40.3 million for the nine months ended September 30, 2022 from $36.1 million for the comparable period of 2021.
For the three and nine months ended September 30, 2022, the annualized return on average assets was 1.26% and 1.24%, respectively, and 1.58% and 1.52%, respectively, for the same periods of 2021. The annualized return on average equity was 16.95% and 15.04%, respectively, for the three and nine months ended September 30, 2022, compared to 15.61% and 14.76%, for the comparable periods of 2021. FNCB declared and paid dividends to holders of common stock of $0.090 per share for the third quarter of 2022, an increase of $0.015 per share, or 20.0%, compared to $0.075 per share for the same period of 2021. Year-to-date dividends declared and paid totaled $0.240 per share in 2022, an increase of $0.045 per share, or 23.1%, from $0.195 per share in 2021.
Total assets increased $40.2 million, or 2.4%, to $1.705 billion at September 30, 2022 from $1.664 billion at December 31, 2021. The change in total assets primarily reflected increases in loans and leases, partially offset by decreases in cash and cash equivalents and available-for-sale debt securities. Loans and leases, net of the allowance for loan and lease losses, increased $130.4 million, or 13.5%, to $1.097 billion at September 30, 2022 from $967.0 million at December 31, 2021. FNCB experienced increases across all major loan categories due to strong organic demand, the new equipment finance product offering and the acquisition of third party originated loans and loan pools. Cash and cash equivalents decreased $64.9 million, or 65.5%, to $34.1 million at September 30, 2022 from $99.0 million at December 31, 2021. Available-for-sale debt securities decreased $50.1 million, or 9.6%, to $472.5 million at September 30, 2022 from $522.6 million at December 31, 2021. Total deposits increased $47.6 million, or 3.3%, to $1.503 billion at September 30, 2022 from $1.455 billion at December 31, 2021. Total borrowed funds increased $45.7 million, to $76.0 million, at September 30, 2022 from $30.3 million at December 31, 2021, due entirely to an increase in Federal Home Loan Bank ("FHLB") of Pittsburgh advances to $65.7 million at September 30, 2022 from $20.0 million at December 31, 2021.
On January 26, 2022, FNCB's Board of Directors authorized a stock repurchase program under which up to 750,000 shares of FNCB's outstanding common stock may be acquired in the open market commencing no earlier than March 4, 2022 and expiring December 31, 2022, pursuant to a trading plan that was adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under the program, shares are purchased from time to time at prevailing market prices, through open market transactions depending upon market conditions and administered through an independent broker. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the trading plan. Under the program, the purchases will be funded from available working capital presently available to FNCB, and the repurchased shares will be returned to the status of authorized but unissued shares of Common Stock. There is not a guarantee as to the exact number of shares that will be repurchased by FNCB, and FNCB may discontinue at any time that management determines additional repurchases are no longer warranted. As of September 30, 2022, FNCB repurchased 384,830 shares, at an average price per share of $9.45, or $3.6 million in aggregate.
Total shareholders’ equity decreased $50.9 million, or 31.3%, to $111.6 million at September 30, 2022 from $162.5 million at December 31, 2021. The decrease in capital was primarily due market value depreciation of FNCB's available-for-sale debt securities, net of deferred taxes, which resulted in an accumulated other comprehensive loss of $52.1 million at September 30, 2022, compared to accumulated other comprehensive income of $6.3 million at December 31, 2021. Also impacting capital were common share repurchases totaling $3.6 million and year-to-date dividends declared of $4.7 million for the nine months ended September 30, 2022. These reductions were partially offset by net income for the nine months ended September 30, 2022 of $15.5 million. FNCB Bank was considered well capitalized with total risk-based capital and Tier 1 leverage ratios were 14.16% and 9.38% at September 30, 2022, respectively.
Management remains focused on expanding FNCB's comprehensive digital strategy to respond to evolving customer demands and create operational and delivery channel efficiencies. Specifically, in the second quarter of 2022, FNCB implemented a full-service point of sale solution for the origination and underwriting of residential mortgages through a third-party, web-based platform. The new platform provides customers with secure, state-of-art technology that guides them through the entire mortgage origination process from application to closing and allows FNCB to focus on attracting new customers and deepening existing customer relationships. FNCB is also in the process of fully integrating a new business lending software, which is a fully digital infrastructure that supports future growth, allowing FNCB to expand market penetration, improve borrower response time, and enhance governance related to credit administration and underwriting. Lastly, FNCB has partnered with a FinTech company formed by veteran community bank executives and implemented its proprietary cloud-based data analytic platform. This analytic platform provides timely and unique insight into FNCB's deposit, loan and revenue demographics, allowing FNCB's management team to make informed decisions to drive revenue, manage risk and create operational efficiencies. During the third quarter of 2022, FNCB began integrating a new comprehensive budgetary application into this data analytic platform to build its 2023-2025 budget and assist management in the strategic and capital planning process.
Additionally, management executed several initiatives to generate future growth and enhance non-interest revenue streams. FNCB's 1st Equipment Finance division, launched in the fourth quarter of 2021, has generated meaningful organic loan growth within the commercial sector, which has surpassed initial expectations for 2022. During the third quarter of 2022, FNCB expanded its investment arm, FNCB Wealth Management Services through an asset purchase agreement with Chiaro Investment Services, LLC. Following the close of the transaction on September 30, 2022, FNCB Wealth Management Services was rebranded as 1st Investment Services, providing clients with a full suite of services including investment management, brokerage, insurance planning and retirement services. Additionally, in the third quarter of 2022, FNCB hired a commercial lender with extensive experience originating loans that are guaranteed through the United States Small Business Administration ("SBA") in order to expand its SBA lending program. Through these initiatives, FNCB continues to build on its legacy of providing exceptional service to its customers and communities it serves.
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 2022 and 2021.
In response to the economic uncertainty from the global COVID-19 pandemic, the FOMC lowered the federal funds target rate 150 basis points in two emergency actions in March 2020. As a result, the target range for federal funds fell from 1.50%-1.75% at December 31, 2019 to 0.00%-0.25% at March 31, 2020 and had remained at these historically low levels through March 15, 2022. Lingering effects from the COVID-19 pandemic, supply chain constraints and effects from the war in Ukraine, among others, have resulted in rapid rise in price inflation. As a result, the FOMC, in an effort to lower inflation to its 2.0% objective, began tightening economic policy in 2022. Specifically, the FOMC increased the target range for the federal funds rate a total of 300 basis points during the nine months ended September 30, 2022, which included an additional two 75-basis point increases in the third quarter of 2022, on July 27, 2022 and on September 21, 2022. The increases in the federal funds target rate resulted in a corresponding a total 300-basis point increase in the national prime rate, which was 6.25% at September 30, 2022. In addition to these actions, the FOMC has indicated additional rate increases may be required throughout the remainder of 2022. This dramatic shift in monetary policy has resulted in a rapid rise in general market interest rates. Additionally, net interest income, earning-asset yields and the net interest margin for the third quarter and year-to-date periods ending September 30, 2022 and 2021 were impacted by the activity related to PPP loans, including the timing of forgiveness and recognition of net loan origination fees. Management has noted that competition for deposits within FNCB's market area has started to increase in the third quarter of 2022. Management anticipates that further increases in market interest rates, combined with heightened competition for deposits, could result in further contraction of FNCB's tax-equivalent net interest margin and rate spread, as the velocity of funding cost increases may surpass that of earning asset yields.
Net interest income on a tax-equivalent basis increased $1.3 million, or 9.8%, to $14.3 million for the three months ended September 30, 2022 from $13.0 million for the comparable period of 2021. The improvement in tax-equivalent net interest income primarily reflected an increase in tax-equivalent interest income of $2.5 million, or 18.2%, to $16.1 million for the third quarter of 2022 from $13.6 million for the same quarter of 2021, partially offset by an increase in interest expense of $1.2 million, or 191.9%, to $1.8 million from $0.6 million, comparing the third quarters of 2022 and 2021, respectively. 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 decreased 3 basis points to 3.43% for the third quarter of 2022 from 3.46% for the same quarter of 2021. Additionally, rate spread, the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities shown on a fully tax-equivalent basis, declined 12 basis points to 3.28% for the three months ended September 30, 2022 from 3.40% for the same three months of 2021.
The $2.5 million, or 18.2%, increase in tax-equivalent interest income largely reflected growth in average earning assets, coupled with increases in the tax-equivalent yields on earning assets. Total average earning assets increased $159.6 million, or 10.6%, to $1.659 billion for the three months ended September 30, 2022 from $1.500 billion for the same three months of 2021, which resulted in a corresponding increase in tax-equivalent interest income of $2.2 million. Specifically, average total loans and leases increased $137.8 million, or 14.3%, to $1.103 billion for the third quarter of 2022 from $964.8 million for the same quarter of 2021, which largely reflected strong organic loan demand, the new commercial equipment financing product offering, and purchases of loan pools from third-party originators. In addition, total securities averaged $552.0 million for the third quarter of 2022, an increase of $111.6 million, or 25.3%, from $440.4 million for the third quarter of 2021. Increases in the average balances of loans and securities resulted in corresponding increases to tax-equivalent interest income of $1.5 million and $0.7 million, respectively, comparing the three months ended September 30, 2022 and 2021. The positive impact from higher earning asset volumes was coupled a 24-basis point increase in the tax-equivalent yield on average earning assets to 3.87% for the third quarter of 2022 from 3.63% for the same quarter of 2021, which resulted in a corresponding $0.3 million increase to tax-equivalent interest income.
The $1.2 million, or 191.9%, increase in interest expense was primarily due to an increase in average interest-bearing liabilities, specifically average borrowed funds, coupled with higher funding costs. Average interest-bearing liabilities increased $158.7 million, or 14.5%, to $1.249 billion for the three months ended September 30, 2022 from $1.091 billion for the same three months of 2021. The increase in average interest-bearing liabilities resulted in a corresponding increase to interest expense of $0.8 million, which was entirely due to a $120.1 million, or 1152.3%, increase in average borrowed funds to $130.5 million for the third quarter of 2022 from $10.4 million for the same quarter of 2021. Average interest-bearing deposits increased $38.6 million, or 3.6%, to $1.119 billion from $1.080 billion comparing the third quarters of 2022 and 2021, respectively. The growth average interest-bearing deposits had little impact on interest expense, as changing customer deposit preferences due to the economic and rate environment continued to result in deposit migration from higher-costing time deposits into non-maturity deposits. Average interest-bearing demand deposits increased $32.6 million, or 4.2%, to $807.5 million for the third quarter of 2022 compared to $774.9 million for the same quarter of 2021, coupled with average savings deposits increasing $16.7 million, or 12.9%, to $146.5 million from $129.8 million comparing the third quarters of 2022 and 2021, respectively. Conversely, average time deposits decreased $10.7 million, or 6.1%, to $164.9 million for the three months ended September 30, 2022 from $175.6 million for the same three months of 2021. As a result of rising market interest rates, FNCB experienced a 36-basis point increase in the cost of funds to 0.59% for the three months ended September 30, 2022 from 0.23% for the same three months of 2021, which resulted in a corresponding increase in interest expense of $0.4 million. Specifically, the average rate paid for interest-bearing deposits increased 14 basis points to 0.36% for the third quarter of 2022 from 0.22% for the same period of 2021, resulting in a corresponding increase to interest expense of $0.4 million. Comparing the third quarters of 2022 and 2021, the average rates paid for interest-bearing demand and savings deposits, increased 35 basis points and 7 basis points, respectively. Meanwhile, the cost of time deposits decreased 26 basis points, comparing the three months ended September 30, 2022 and 2021, resulting in a corresponding decrease to interest expense of $0.1 million.
On a year-to-date basis, tax-equivalent net interest income increased $4.3 million, or 11.7%, to $41.2 million for the nine months ended September 30, 2022 from $36.9 million for the comparable period of 2021. The improvement in tax-equivalent net interest income was due to a $5.0 million, or 12.7%, increase in tax-equivalent interest income, partially offset by a $0.7 million, or 29.4%, increase in interest expense. The increase in tax-equivalent interest income for the year-to-date period resulted primarily from the $212.8 million, or 15.2%, increase in average earning asset balances to $1.615 billion for the nine months ended September 30, 2022 from $1.402 billion for the same nine months of 2021. Average total security balances increased $143.4 million, or 35.4%, to $548.7 million for the nine months ended September 30, 2022 from $405.3 million for the same period of 2021, resulting in an increase of $2.0 million in interest income. In addition, average loan balances increased $110.4 million, or 11.7%, to $1.057 billion for the nine months ended September 30, 2022, compared to $946.7 million for the same nine months of 2021, resulting in an increase of $2.0 million in interest income. Partially offsetting the growth in average earning assets was a reduction in the tax-equivalent yield on average earning assets. For the nine months ended September 30, 2022 the tax-equivalent yield on earning assets decreased 8 basis points to 3.64% from 3.72% for the same nine-month period of 2021, which resulted in a $1.2 million decrease to tax-equivalent interest income. Specifically, the tax-equivalent yield on the loan portfolio decreased 11 basis points, while the tax-equivalent yield on the investment portfolio fell 16 basis points comparing the nine months ended September 30, 2022 and 2021.
The $0.7 million, or 29.4%, increase in interest expense comparing the year-to-date periods of 2022 and 2021 resulted primarily from an increase in average interest-bearing liabilities, partially offset by a reduction in funding costs. For the nine months ended September 30, 2022, interest-bearing liabilities averaged $1.208 billion, an increase of $164.8 million, or 15.8%, from $1.044 billion for the same nine months of 2021, which resulted in a corresponding increase to interest expense of $1.1 million. Accounting for the majority of the expense increase was a $87.3 million, or 842.9%, increase in average borrowed funds to $97.6 million for the nine months ended September 30, 2022 from $10.3 million for the same period of 2021. Total interest-bearing deposits averaged $1.111 billion for the nine months ended September 30, 2022, an increase of $77.6 million, or 7.5%, from $1.033 billion for the same period of 2021, reflecting increases in average interest-bearing demand deposits and savings deposits, partially offset by a reduction in time deposits. The increase in average deposit volumes had only a minor effect on interest expense, the impact of increases in lower-costing non-maturity deposits was almost entirely offset by a reduction in higher-costing time deposits. FNCB's cost of funds increased 3 basis points to 0.32% for the nine months ended September 30, 2022 from 0.29% for the same nine months of 2021. Despite the slight increase in funding costs, the dramatic change in mix of interest-bearing liabilities had a positive effect and resulted in a $0.4 million corresponding reduction to interest expense comparing the nine months ended September 30, 2022 and 2021. The cost of interest-bearing deposits decreased 7 basis points to 0.20% from 0.27%, respectively, comparing the nine months ended September 30, 2022 and 2021. Specifically, comparing the year-to-date periods of 2022 and 2021, the rates paid on time deposits, decreased 45 basis points. While interest-bearing demand deposits and savings deposits rates both increased 2 basis points, for the nine months ended September 30, 2022 as compared to same period of 2021. The cost of borrowed funds decreased 16 basis points to 1.68% for the nine months ended September 30, 2022 from 1.84% for the same nine months of 2021.
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 and nine months ended September 30, 2022 and 2021. Average balances are derived from average daily balances. The loan yields include amortization of deferred origination fees and costs which are considered adjustments to yields.
| Three Months Ended |
||||||||||||||||||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||||||||||||||||||
| Average |
Yield/ |
Average |
Yield/ |
|||||||||||||||||||||
| (dollars in thousands) |
Balance |
Interest |
Cost |
Balance |
Interest |
Cost |
||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Earning assets (2)(3) |
||||||||||||||||||||||||
| Loans and leases - taxable (4) |
$ | 1,045,474 | $ | 11,870 | 4.54 | % | $ | 921,648 | $ | 10,364 | 4.50 | % | ||||||||||||
| Loans and leases - tax free (4) |
57,099 | 506 | 3.54 | % | 43,091 | 420 | 3.90 | % | ||||||||||||||||
| Total loans (1)(2) |
1,102,573 | 12,376 | 4.49 | % | 964,739 | 10,784 | 4.47 | % | ||||||||||||||||
| Securities-taxable |
438,339 | 2,796 | 2.55 | % | 357,684 | 2,125 | 2.38 | % | ||||||||||||||||
| Securities-tax free |
113,629 | 875 | 3.08 | % | 82,706 | 654 | 3.16 | % | ||||||||||||||||
| Total securities (1)(5) |
551,968 | 3,671 | 2.66 | % | 440,390 | 2,779 | 2.52 | % | ||||||||||||||||
| Interest-bearing deposits in other banks and federal funds sold |
4,634 | 19 | 1.64 | % | 94,434 | 31 | 0.13 | % | ||||||||||||||||
| Total earning assets |
1,659,175 | 16,066 | 3.87 | % | 1,499,563 | 13,594 | 3.63 | % | ||||||||||||||||
| Non-earning assets |
65,524 | 105,912 | ||||||||||||||||||||||
| Allowance for loan and lease losses |
(13,677 | ) | (12,461 | ) | ||||||||||||||||||||
| Total assets |
$ | 1,711,022 | $ | 1,593,014 | ||||||||||||||||||||
| Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Interest-bearing demand deposits |
$ | 807,522 | 802 | 0.40 | % | $ | 774,906 | 290 | 0.15 | % | ||||||||||||||
| Savings deposits |
146,513 | 53 | 0.14 | % | 129,813 | 24 | 0.07 | % | ||||||||||||||||
| Time deposits |
164,874 | 146 | 0.35 | % | 175,593 | 268 | 0.61 | % | ||||||||||||||||
| Total interest-bearing deposits |
1,118,909 | 1,001 | 0.36 | % | 1,080,312 | 582 | 0.22 | % | ||||||||||||||||
| Borrowed funds and other interest-bearing liabilities |
130,481 | 835 | 2.56 | % | 10,419 | 47 | 1.80 | % | ||||||||||||||||
| Total interest-bearing liabilities |
1,249,390 | 1,836 | 0.59 | % | 1,090,731 | 629 | 0.23 | % | ||||||||||||||||
| Demand deposits |
318,656 | 325,571 | ||||||||||||||||||||||
| Other liabilities |
15,742 | 15,258 | ||||||||||||||||||||||
| Shareholders' equity |
127,234 | 161,454 | ||||||||||||||||||||||
| Total liabilities and shareholder's equity |
$ | 1,711,022 | $ | 1,593,014 | ||||||||||||||||||||
| Net interest income/interest rate spread (6) |
14,230 | 3.28 | % | 12,965 | 3.40 | % | ||||||||||||||||||
| Tax equivalent adjustment |
(290 | ) | (225 | ) | ||||||||||||||||||||
| Net interest income as reported |
$ | 13,940 | $ | 12,740 | ||||||||||||||||||||
| Net interest margin (7) |
3.43 | % | 3.46 | % | ||||||||||||||||||||
| (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 net loan (costs) fees of ($0.2) million and $1.3 million for the three months ended September 30, 2022 and 2021, 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. |
| Nine Months Ended |
||||||||||||||||||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||||||||||||||||||
| Average |
Yield/ |
Average |
Yield/ |
|||||||||||||||||||||
| (dollars in thousands) |
Balance |
Interest |
Cost |
Balance |
Interest |
Cost |
||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Earning assets (2)(3) |
||||||||||||||||||||||||
| Loans and leases - taxable (4) |
$ | 1,005,006 | $ | 32,368 | 4.29 | % | $ | 901,851 | $ | 26,662 | 4.39 | % | ||||||||||||
| Loans and leases - tax free (4) |
52,116 | 1,397 | 3.57 | % | 44,843 | 1,344 | 4.00 | % | ||||||||||||||||
| Total loans (1)(2) |
1,057,122 | 33,765 | 4.26 | % | 946,694 | 31,006 | 4.37 | % | ||||||||||||||||
| Securities-taxable |
439,765 | 7,778 | 2.36 | % | 324,971 | 6,132 | 2.52 | % | ||||||||||||||||
| Securities-tax free |
108,926 | 2,482 | 3.04 | % | 80,320 | 1,923 | 3.19 | % | ||||||||||||||||
| Total securities (1)(5) |
548,691 | 10,260 | 2.49 | % | 405,291 | 8,055 | 2.65 | % | ||||||||||||||||
| Interest-bearing deposits in other banks and federal funds sold |
8,815 | 34 | 0.51 | % | 49,833 | 35 | 0.09 | % | ||||||||||||||||
| Total earning assets |
1,614,628 | 44,059 | 3.64 | % | 1,401,818 | 39,096 | 3.72 | % | ||||||||||||||||
| Non-earning assets |
75,066 | 137,879 | ||||||||||||||||||||||
| Allowance for loan and lease losses |
(13,316 | ) | (12,344 | ) | ||||||||||||||||||||
| Total assets |
$ | 1,676,378 | $ | 1,527,353 | ||||||||||||||||||||
| Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Interest-bearing demand deposits |
$ | 810,220 | 1,212 | 0.20 | % | $ | 728,110 | 997 | 0.18 | % | ||||||||||||||
| Savings deposits |
143,649 | 99 | 0.09 | % | 122,531 | 66 | 0.07 | % | ||||||||||||||||
| Time deposits |
157,000 | 360 | 0.31 | % | 182,659 | 1,035 | 0.76 | % | ||||||||||||||||
| Total interest-bearing deposits |
1,110,869 | 1,671 | 0.20 | % | 1,033,300 | 2,098 | 0.27 | % | ||||||||||||||||
| Borrowed funds and other interest-bearing liabilities |
97,558 | 1,229 | 1.68 | % | 10,347 | 143 | 1.84 | % | ||||||||||||||||
| Total interest-bearing liabilities |
1,208,427 | 2,900 | 0.32 | % | 1,043,647 | 2,241 | 0.29 | % | ||||||||||||||||
| Demand deposits |
315,699 | 312,702 | ||||||||||||||||||||||
| Other liabilities |
14,244 | 13,234 | ||||||||||||||||||||||
| Shareholders' equity |
138,008 | 157,770 | ||||||||||||||||||||||
| Total liabilities and shareholder's equity |
$ | 1,676,378 | $ | 1,527,353 | ||||||||||||||||||||
| Net interest income/interest rate spread (6) |
41,159 | 3.32 | % | 36,855 | 3.43 | % | ||||||||||||||||||
| Tax equivalent adjustment |
(814 | ) | (686 | ) | ||||||||||||||||||||
| Net interest income as reported |
$ | 40,345 | $ | 36,169 | ||||||||||||||||||||
| Net interest margin (7) |
3.40 | % | 3.51 | % | ||||||||||||||||||||
| (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 net loan fees of $0.3 million and $3.4 million for the nine months ended September 30, 2022 and 2021, 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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
| 2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||||||||||||
| Increase (Decrease) |
Increase (Decrease) |
|||||||||||||||||||||||
| Due to |
Due to |
Total |
Due to |
Due to |
Total |
|||||||||||||||||||
| (in thousands) |
Volume |
Rate |
Change |
Volume |
Rate |
Change |
||||||||||||||||||
| Interest income: |
||||||||||||||||||||||||
| Loans and leases - taxable |
$ | 1,405 | $ | 101 | $ | 1,506 | $ | 3,333 | $ | (627 | ) | $ | 2,706 | |||||||||||
| Loans and leases - tax free |
127 | (41 | ) | 86 | 204 | (151 | ) | 53 | ||||||||||||||||
| Total loans |
1,532 | 60 | 1,592 | 3,537 | (778 | ) | 2,759 | |||||||||||||||||
| Securities - taxable |
506 | 165 | 671 | 2,051 | (405 | ) | 1,646 | |||||||||||||||||
| Securities - tax free |
239 | (18 | ) | 221 | 656 | (97 | ) | 559 | ||||||||||||||||
| Total securities |
745 | 147 | 892 | 2,707 | (502 | ) | 2,205 | |||||||||||||||||
| Interest-bearing deposits in other banks and federal funds sold |
(55 | ) | 43 | (12 | ) | (49 | ) | 48 | (1 | ) | ||||||||||||||
| Total interest income |
2,222 | 250 | 2,472 | 6,195 | (1,232 | ) | 4,963 | |||||||||||||||||
| Interest expense: |
||||||||||||||||||||||||
| Interest-bearing demand deposits |
13 | 499 | 512 | 118 | 97 | 215 | ||||||||||||||||||
| Savings deposits |
3 | 26 | 29 | 13 | 20 | 33 | ||||||||||||||||||
| Time deposits |
(15 | ) | (107 | ) | (122 | ) | (129 | ) | (546 | ) | (675 | ) | ||||||||||||
| Total interest-bearing deposits |
1 | 418 | 419 | 2 | (429 | ) | (427 | ) | ||||||||||||||||
| Borrowed funds and other interest-bearing liabilities |
760 | 28 | 788 | 1,100 | (14 | ) | 1,086 | |||||||||||||||||
| Total interest expense |
761 | 446 | 1,207 | 1,102 | (443 | ) | 659 | |||||||||||||||||
| Net interest income |
$ | 1,461 | $ | (196 | ) | $ | 1,265 | $ | 5,093 | $ | (789 | ) | $ | 4,304 | ||||||||||
Provision for Loan and Lease Losses
The provision for loan and lease 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 ALLL. A release of reserves, resulting in a credit for loan and lease losses, reflects the reversal of amounts previously charged to the ALLL. Management closely monitors the loan portfolio and the adequacy of the ALLL 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 loan and lease losses and the ALLL if economic conditions or loan performance differ substantially from the assumptions management considered in its evaluation of the ALLL. Despite continued economic uncertainty, global supply chain issues and inflationary pressures due to the COVID-19 pandemic, supply chain constraints and other factors such as the war in Ukraine, which have resulted in monetary policy tightening, FNCB's asset quality metrics have remained favorable throughout 2021 and the first nine months of 2022. Management will continue to closely monitor FNCB's asset quality and adjust credit provisioning as appropriate. FNCB recorded a provision for loan and lease losses of $513 thousand for the three-month period ended September 30, 2022 compared to a $513 thousand credit to the provision for loan and lease losses for the three months ended September 30, 2021. The provision for loan and lease losses totaled $1.3 million for the nine months ended September 30, 2022, an increase of $1.5 million, from $172 thousand credit to provision for loan and lease losses for the same nine months of 2021. The increase in credit provisioning for the quarter- and year-to-date periods of 2022 is primarily attributable to an increase in loan volumes.
Non-interest Income
For the three months ended September 30, 2022, non-interest income increased $299 thousand, or 16.2%, to $2.1 million from $1.8 million for the three months ended September 30, 2021. The increase was largely due to increases in deposit service charges, other non-interest income, income from bank-owned life insurance ("BOLI") and net gains on the sale of mortgage loans held for sale. Deposit service charges increased $124 thousand, or 12.3%, to $1.1 million for the three months ended September 30, 2022, compared to $1.0 million for the same three months of 2021. Other non-interest income increased $143 thousand, or 54.8%, to $404 thousand, compared to $261 thousand for the same three months of 2021, which was primarily due to an increase in referral fees from loan swap transactions. During the first quarter of 2022, FNCB purchased an additional $3.0 million in BOLI policies, which, along with an increase in market interest rates, contributed to a $61 thousand, or 43.9%, in BOLI income to $200 thousand for the three months ended September 30, 2022 from $139 thousand for the same three-month period of 2021. For the three months ended September 30, 2022, net gains on the sale of mortgages held for sale totaled $91 thousand, an increase of $50 thousand, or 121.9%, from $41 thousand recorded for the same quarter of 2021. These increases were partially offset by $70 thousand, or 44.9%, decline in net gains on equity securities to $86 thousand for the three months ended September 30 ,2022, compared to $156 thousand for the same three months of 2021.
For the nine months ended September 30, 2022, non-interest income decreased $737 thousand, or 11.7%, to $5.6 million from $6.3 million for the same period of 2021 due primarily to an unfavorable change in the market value of equity securities, reductions in net gains on the sale of available-for-sale securities and mortgage loans held for sale, and loan-related fees. Stock market volatility resulted in FNCB recording a net loss on equity securities of $121 thousand for the nine months ended September 30, 2022 compared to a net gain on equity securities of $556 thousand for the nine months ended September 30, 2021. Comparing the year-to-date periods ended September 30, 2022 and 2021, due to changing market conditions, FNCB also experienced reductions in the net gains on the sale of available-for-sale debt securities and mortgages held for sale, which decreased $248 thousand, or 116.4%, and $189 thousand, or 60.5%, respectively. Loan- related fees decreased $153 thousand, or 48.8%, to $161 thousand from $314 thousand comparing the nine months ended September 30, 2022 and 2021, respectively, which was largely due to a reduction in fees received on the servicing of loans under the Federal Reserve Bank's Main Street Lending Program. In addition, non-interest income for the nine-month period of 2021 included non-recurring income of $426 thousand from a bank-owned life insurance death benefit claim. These decreases in non-interest income were partially offset by a $409 thousand, or 14.4%, increase in deposit service charges, to $3.2 million for the nine months ended September 30, 2022 compared to $2.8 million for the same period of 2021.
Non-interest Expense
Non-interest expense increased $1.5 million, or 20.4%, to $9.0 million for the three months ended September 30, 2022 from $7.5 million for the three months ended September 30, 2021, which primarily reflected increases in salaries and employee benefits, the provision for off-balance sheet commitments, professional fees and other non-interest expenses. Salaries and employee benefits increased $559 thousand, or 13.9%, to $4.6 million for the third quarter of 2022 from $4.0 million for the same quarter of 2021, which primarily reflected additional personnel costs associated with the 1st Equipment Finance team of lending professionals. During the third quarter of 2022, FNCB recorded a provision for off-balance sheet commitments of $338 thousand, an increase of $423 thousand, or 497.6%, compared to a credit for off-balance sheet commitments of $85 thousand for the respective quarter of 2021, which primarily reflected high volumes of commercial construction commitments. Professional fees increased $144 thousand, or 94.1%, to $297 thousand from $153 thousand comparing the third quarters of 2022 and 2021, respectively. Comparing the three months ended September 30, 2022 and 2021, other operating expenses increased $167 thousand, or 26.1%, which was largely due to increases in correspondent bank charges and servicing costs associated with purchased loan pools.
For the nine months ended September 30, 2022, non-interest expense increased $3.9 million or 17.9%, to $25.8 million compared to $21.9 million for the same nine- month period of 2021, primarily due to similar increases experienced for the quarterly period. Salaries and employee benefits increased $2.0 million, or 16.6%, to $13.8 million for the nine months ended September 30, 2022, compared to $11.8 million for the nine months ended September 30, 2021. The provision for off-balance sheet commitments increased $674 thousand, or 316.4%, to $461 thousand for the nine months ended September 30, 2022, compared to a credit of $213 thousand recorded for the same nine-month period of 2021. Professional fees increased $313 thousand, or 59.7%, to $837 thousand for the nine months ended September 30, 2022 from $534 thousand for the same nine months of 2021, while other operating expenses increased $228 thousand, or 12.3%, to $2.1 million from $1.8 million, respectively, comparing the nine months ended September 30, 2022 and 2021. Additionally, for the year-to-date period, data processing expense increased $381 thousand, or 14.3%, to $3.0 million in 2022 from $2.6 million in 2021, which was largely due to additional costs associated with the new retail mortgage and commercial lending platforms.
Provision for Income Taxes
FNCB recorded income tax expense of $3.3 million for the nine months ended September 30, 2022, a decrease of $91 thousand, or 2.7%, compared to income tax expense of $3.4 million for the same period of 2021. FNCB's effective tax rate increased to 17.38% at September 30, 2022 compared to 16.16% for the same period of 2021. The increase in income tax expense and the effective tax rate primarily reflected a timing difference related to the loss on equity securities recorded in the first nine months of 2022, compared to a gain on equity securities recorded in the comparable period of 2021. The lower effective tax rate for 2021 also reflected the recognition of $426 thousand of non-taxable income from a BOLI settlement received on a death benefit claim.
FINANCIAL CONDITION
Assets
Total assets increased $40.2 million, or 2.4%, to $1.705 billion at September 30, 2022 from $1.664 billion at December 31, 2021. The change in total assets primarily reflected increases in loans and leases, partially offset by decreases in cash and cash equivalents and available-for-sale debt securities. Loans and leases, net of the allowance for loan and lease losses, increased $130.4 million, or 13.5%, to $1.097 billion at September 30, 2022 from $967.0 million at December 31, 2021. FNCB experienced increases across all major loan categories due to strong organic demand, the new equipment finance product offering and the acquisition of loans and loan pools from third-party originators. Cash and cash equivalents decreased $64.9 million, or 65.5%, to $34.1 million at September 30, 2022 from $99.0 million at December 31, 2021. Available-for-sale debt securities decreased $50.1 million, or 9.6%, to $472.5 million at September 30, 2022 from $522.6 million at December 31, 2021. Total deposits increased $47.6 million, or 3.3%, to $1.503 billion at September 30, 2022 from $1.455 billion at December 31, 2021. Total borrowed funds increased $45.7 million to $76.0 million at September 30, 2022 from $30.3 million at December 31, 2021. The increase in borrowed funds was entirely due to an increase in Federal Home Loan Bank ("FHLB") of Pittsburgh advances to $65.7 million at September 30, 2022 from $20.0 million at December 31, 2021.
Cash and Cash Equivalents
Cash and cash equivalents decreased $64.9 million, or 65.5%, to $34.1million at September 30, 2022 from $99.0 million at December 31, 2021. The decrease in cash and cash equivalents resulted primarily from cash used to fund earning asset growth. Additionally, FNCB paid cash dividends totaling $4.7 million, or $0.240 per share, for the nine months ended September 30, 2022, and $3.6 million for the purchase of common shares under the repurchase program.
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 September 30, 2022 and December 31, 2021, 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 September 30, 2022, 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 CMO's, 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 September 30, 2022.
The majority of FNCB's debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuate with changes in interest rates. U.S. Treasury rates continued to increase through the third quarter of 2022 as the FOMC continued to tighten monetary policy. Additionally, as short-term interest rates moved up sharply, the yield curve was inverted at September 30, 2022, due to a negative spread between the 2-year and 10-year U.S. Treasury rates. The 2-year U.S. Treasury rate increased 349 basis points to 4.22% at September 30, 2022 from 0.73% at December 31, 2021, while the 10-year U.S. Treasury rate increased 231 basis points to 3.83% at September 30, 2022 from 1.52% at December 31, 2021. These movements resulted in a negative spread of 39-basis points between the 2-year and 10-year U.S. Treasury, compared to a positive spread of 0.79% at December 31, 2021. 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 September 30, 2022, FNCB reported a net unrealized loss, included in accumulated other comprehensive loss, of $53.0 million, net of deferred income taxes of $14.1 million, a decrease of $59.1 million, or 968.9%, compared to a net unrealized holding gain of $6.1 million, net of deferred income taxes of $1.6 million, at December 31, 2021. Any further increase in interest rates could result in further depreciation in the fair value of FNCB's securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on FNCB's regulatory capital ratios.
The following table presents the composition of available-for-sale debt securities at September 30, 2022 and December 31, 2021:
Composition of Available-for-Sale Debt Securities
| September 30, 2022 |
December 31, 2021 |
|||||||||||||||
| (dollars in thousands) |
Fair Value |
% of Portfolio |
Fair Value |
% of Portfolio |
||||||||||||
| Available-for-sale debt securities: |
||||||||||||||||
| U.S. treasuries |
$ | 32,519 | 6.88 | % | $ | 36,355 | 6.96 | % | ||||||||
| Obligations of state and political subdivisions |
225,113 | 47.65 | % | 244,372 | 46.76 | % | ||||||||||
| U.S. government/government-sponsored agencies: |
||||||||||||||||
| Collateralized mortgage obligations - residential |
83,087 | 17.59 | % | 100,710 | 19.27 | % | ||||||||||
| Collateralized mortgage obligations - commercial |
3,323 | 0.70 | % | 3,727 | 0.71 | % | ||||||||||
| Mortgage-backed securities |
17,879 | 3.78 | % | 25,506 | 4.88 | % | ||||||||||
| Private collateralized mortgage obligations |
67,470 | 14.28 | % | 67,165 | 12.85 | % | ||||||||||
| Corporate debt securities |
30,694 | 6.50 | % | 32,063 | 6.14 | % | ||||||||||
| Asset-backed securities |
11,710 | 2.48 | % | 11,932 | 2.28 | % | ||||||||||
| Negotiable certificates of deposit |
656 | 0.14 | % | 736 | 0.14 | % | ||||||||||
| Total available-for-sale debt securities |
$ | 472,451 | 100.00 | % | $ | 522,566 | 100.00 | % | ||||||||
Activity related to available-for-sale debt securities during the nine months ended September 30, 2022 included the purchase of 63 debt securities with an aggregate principal balance of $61.4 million and a weighted-average yield of 3.29%. The purchases were diversified across all major investment categories. Principal repayments and a decrease in the fair value of the available-for-sale portfolio due to an increase in market interest rates entirely offset the increase due to the purchases. FNCB sold one private CMO available-for-sale debt security, with an amortized cost of $2.4 million with a weighted average yield of 4.19%, during the nine months ended September 30, 2022. FNCB received gross proceeds of $2.4 million and realized a net loss of $35 thousand upon the sale, which is included in non-interest income.
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 June 30, 2022, 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 December 31, 2022. 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 such events during the third quarter of 2022.
The following table presents the weighted-average yields of available-for-sale debt securities by major category and maturity period at September 30, 2022. 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
| September 30, 2022 |
||||||||||||||||||||||||
| 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 |
- | 1.18 | % | 1.20 | % | - | - | 1.19 | % | |||||||||||||||
| Obligations of state and political subdivisions |
2.93 | % | 3.00 | % | 2.37 | % | 2.90 | % | - | 2.81 | % | |||||||||||||
| U.S. government/government-sponsored agencies: |
||||||||||||||||||||||||
| Collateralized mortgage obligations - residential |
- | - | - | - | 2.00 | % | 2.00 | % | ||||||||||||||||
| Collateralized mortgage obligations - commercial |
- | - | - | - | 1.99 | % | 1.99 | % | ||||||||||||||||
| Mortgage-backed securities |
- | - | - | - | 2.30 | % | 2.30 | % | ||||||||||||||||
| Private collateralized mortgage obligations |
- | - | - | - | 2.96 | % | 2.96 | % | ||||||||||||||||
| Corporate debt securities |
- | - | 4.60 | % | - | - | 4.60 | % | ||||||||||||||||
| Asset-backed securities |
- | - | - | - | 4.16 | % | 4.16 | % | ||||||||||||||||
| Negotiable certificates of deposit |
- | 1.02 | % | - | - | - | 1.02 | % | ||||||||||||||||
| Weighted average yield |
2.93 | % | 2.62 | % | 2.78 | % | 2.90 | % | 2.51 | % | 2.69 | % | ||||||||||||
OTTI Evaluation
There was no OTTI recognized during the three or nine months ended September 30, 2022 or 2021. For additional information regarding management’s evaluation of securities for OTTI, see Note 3, “Securities” of the notes to consolidated financial statements included in Item 1 to this Quarterly Report on Form 10-Q.
Equity Securities
Equity securities with readily determinable fair values totaled $5.5 million at September 30, 2022 and $4.9 million at December 31, 2021 and were comprised of the common or preferred stock of publicly traded bank holding companies held at the holding company level and an investment in a mutual fund comprised of 1-4 family residential mortgage-backed securities collateralized by properties within FNCB’s market area held at the Bank. 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.
Restricted Securities
The following table presents the investment in FNCB’s restricted securities, which have limited marketability and are carried at cost, at September 30, 2022 and December 31, 2021. Management noted no indicators of impairment for the FHLB of Pittsburgh or Atlantic Community Banker’s Bank stock at September 30, 2022 and December 31, 2021.
| September 30, |
December 31, |
|||||||
| (in thousands) |
2022 |
2021 |
||||||
| Stock in Federal Home Loan Bank of Pittsburgh |
$ | 4,828 | $ | 1,901 | ||||
| Stock in Atlantic Community Banker's Bank |
10 | 10 | ||||||
| Total restricted securities, at cost |
$ | 4,838 | $ | 1,911 | ||||
Loans and Leases
Total loans and leases, gross, increased $129.0 million, or 13.1%, to $1.110 billion at September 30, 2022 from $981.4 million at December 31, 2021. The growth in the loan portfolio reflected increases in all major loan categories, which was primarily due to strong organic demand and the new commercial equipment financing product line. In addition, FNCB purchased individual loans and loan pools originated by third-party originators to enhance interest income revenue streams and diversify the loan portfolio. Loan purchases through 2022 included commercial equipment financing, residential mortgage loans and secured and unsecured consumer installment loans.
FNCB expanded its commercial credit product offerings to include commercial equipment financing, through simple interest loans, and direct finance and municipal leases, which is doing business under the name of 1st Equipment Finance. The majority of equipment financing is originated through indirect, third-party dealers. At September 30, 2022, simple interest loans and finance leases outstanding under this initiative were $60.3 million and $0.7 million, respectively. Municipal leases under this initiative were $4.0 million at September 30, 2022. Simple interest loans and direct finance leases are included in commercial and industrial loans and leases, while municipal leases are included in state and municipal subdivision loans and leases.
Also, included in commercial and industrial loans and leases at September 30, 2022 and December 31, 2021 were $1.4 million and $21.9 million, respectively, in outstanding balances of PPP loans, which are 100.0% guaranteed by the SBA. Accordingly, management excluded PPP loans in its evaluations of the ALLL and there was no ALLL established for PPP loans at September 30, 2022 and December 31, 2021.
From a collateral standpoint, a 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 $45.8 million, or 7.1%, to $687.5 million at September 30, 2022 from $641.7 million at December 31, 2021. Despite the increase, real estate secured loans represented 61.9% of gross loans at September 30, 2022 compared to 65.4% at December 31, 2021, which resulted from management's efforts to diversify the portfolio.
Commercial real estate loans increased $13.1 million, or 3.6%, to $379.1 million at September 30, 2022 from $366.0 million at December 31, 2021. 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 equipment loans, working capital financing, revolving lines of credit and loans secured by cash and marketable securities. In addition, commercial and industrial loans and leases include PPP loans. Commercial and industrial loans and leases increased $60.9 million, or 31.5%, to $254.0 million at September 30, 2022 from $193.1 million at December 31, 2021, which was primarily due to equipment loan and lease origination through 1st Equipment Finance and the purchase of loan pools through third-party originators during the nine months ended September 30, 2022, partially offset by forgiveness of PPP loans. Construction, land acquisition and development loans increased $15.3 million, or 36.8%, to $56.9 million at September 30, 2022 from $41.6 million at December 31, 2021.
Residential real estate loans include fixed-rate and variable-rate, amortizing mortgage loans, home equity term loans and home equity lines of credit ("HELOCs"). FNCB primarily underwrites fixed-rate residential mortgage loans for sale in the secondary market to reduce interest rate risk and provide funding for additional loans. Additionally, FNCB offers its proprietary “WOW” mortgage product, which is a non-saleable mortgage with maturity terms of 7.5 to 19.5 years that provides customers with an attractive fixed interest rate and low closing costs. Residential real estate loans totaled $251.5 million at September 30, 2022, an increase of $17.4 million, or 7.4%, from $234.1 million at December 31, 2021. In the first half of 2022, FNCB chose to hold saleable residential mortgages in the portfolio due to unfavorable market pricing. Additionally, the increase reflected $4.5 million in purchased third-party originated residential mortgage loans outstanding at September 30, 2022, and a $4.1 million, or 4.0%, increase in WOW mortgages to $105.0 million at September 30, 2022 from $100.9 million at December 31, 2021.
Consumer loans primarily include indirect automobile loans and secured and unsecured personal loans. Consumer loans increased by $10.6 million, or 12.4%, to $96.1 million at September 30, 2022 from $85.5 million at December 31, 2021. The increase in consumer loans was largely due to the purchase of individual loans and pools of personal installment loans of from third-party originators including unsecured loans and loans secured by chattel paper. Loans and leases to state and political subdivisions increased $11.7 million, or 19.2%, to $72.8 million at September 30, 2022 from $61.1 million at December 31, 2021.
The following table presents loans and leases receivable, net by major category at September 30, 2022 and December 31, 2021:
Loan and Lease Portfolio Detail
| September 30, 2022 |
December 31, 2021 |
|||||||||||||||
| (dollars in thousands) |
Amount |
% of Total Loans, Gross |
Amount |
% of Total Loans, Gross |
||||||||||||
| Residential real estate |
$ | 251,473 | 22.65 | % | $ | 234,113 | 23.86 | % | ||||||||
| Commercial real estate |
379,059 | 34.14 | % | 366,009 | 37.29 | % | ||||||||||
| Construction, land acquisition and development |
56,940 | 5.13 | % | 41,646 | 4.24 | % | ||||||||||
| Commercial and industrial |
253,977 | 22.87 | % | 193,086 | 19.67 | % | ||||||||||
| Consumer |
96,093 | 8.65 | % | 85,522 | 8.72 | % | ||||||||||
| State and political subdivisions |
72,827 | 6.56 | % | 61,071 | 6.22 | % | ||||||||||
| Total loans and leases, gross |
1,110,369 | 100.00 | % | 981,447 | 100.00 | % | ||||||||||
| Unearned income |
(763 | ) | (1,442 | ) | ||||||||||||
| Net deferred loan origination costs (fees) |
1,624 | (566 | ) | |||||||||||||
| Allowance for loan and lease losses |
(13,819 | ) | (12,416 | ) | ||||||||||||
| Loans and leases, net |
$ | 1,097,411 | $ | 967,023 | ||||||||||||
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 ALLL. The ALLL is established through a provision for loan and lease 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, ALLL, 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 in the loan portfolio in a timely manner, although, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions 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.
A loan is considered impaired when it is probable that FNCB will be unable to collect all amounts due (including principal and interest) according to the contractual terms of the note and loan agreement. For purposes of the analysis, all TDRs, loan relationships with an aggregate outstanding balance greater than $100 thousand rated substandard and non-accrual, and loans that are identified as doubtful or loss are considered impaired. Impaired loans are analyzed individually to determine the amount of impairment. For collateral-dependent loans, impairment is measured based on the fair value of the collateral supporting the loans. A loan is determined to be collateral dependent when repayment of the loan is expected to be provided through the liquidation of the collateral held. For impaired loans that are secured by real estate, collateral evaluations and external appraisals are obtained annually, or more frequently as warranted, to ascertain a fair value so that the impairment analysis can be updated. Should a collateral evaluation or current appraisal not be available at the time of impairment analysis, other sources of valuation may be used, including current letters of intent, broker price opinions or executed agreements of sale. Under the fair value of collateral method, the impaired amount of the loan is deemed to be the difference between the loan amount and the fair value of the collateral, less the estimated costs to sell. For real estate secured loans, management generally estimates selling costs using a factor of 10%, which is based on typical cost factors, such as a 6% broker commission, 1% transfer taxes, and 3% various other miscellaneous costs associated with the sales process. If the valuation indicates that the fair value has deteriorated below the carrying value of the loan, the difference between the fair value and the principal balance is charged off. For impaired loans for which the value of the collateral less costs to sell exceeds the loan value, the impairment is determined to be zero. For non-collateral-dependent loans, impairment is measured based on the present value of expected future cash flows, net of any deferred fees and costs, discounted at the loan’s original effective interest rate.
Loans to borrowers that are experiencing financial difficulty that are modified and result in the granting of concessions to the borrowers are classified as TDRs and are considered to be impaired. Such concessions generally involve an extension of a loan’s stated maturity date, a reduction of the stated interest rate, payment modifications, capitalization of property taxes with respect to mortgage loans or a combination of these modifications. Non-accrual TDRs are returned to accrual status if principal and interest payments, under the modified terms, are brought current, are performing under the modified terms for six consecutive months, and management believes that collection of the remaining interest and principal is probable.
Non-performing loans are monitored on an ongoing basis as part of FNCB’s loan review process. Additionally, work-out for non-performing loans and OREO are actively monitored through the Credit Risk Management Committee. A potential loss on a non-performing asset is generally determined by comparing the outstanding loan balance to the fair market value of the pledged collateral, less cost to sell.
Loans are placed on non-accrual when a loan is specifically determined to be impaired or when management believes that the collection of interest or principal is doubtful. This generally occurs when a default of interest or principal has existed for 90 days or more, unless the loan is well secured and in the process of collection, or when management becomes aware of facts or circumstances that the loan would default before 90 days. FNCB determines delinquency status based on the number of days since the date of the borrower’s last required contractual loan payment. When the interest accrual is discontinued, all unpaid interest income is reversed and charged back against current earnings. Any subsequent cash payments received are applied, first to the outstanding loan amounts, then to the recovery of any charged-off loan amounts, with any excess treated as a recovery of lost interest. A non-accrual loan is returned to accrual status when the loan is current as to principal and interest payments, is performing according to contractual terms for six consecutive months and future payments are reasonably assured.
Management actively manages impaired loans 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 and accruing TDRs at September 30, 2022 and December 31, 2021:
Non-performing Assets and Accruing TDRs
| September 30, |
December 31, |
|||||||
| (dollars in thousands) |
2022 |
2021 |
||||||
| Non-accrual loans |
$ | 2,654 | $ | 3,863 | ||||
| Loans past due 90 days or more and still accruing |
74 | - | ||||||
| Total non-performing loans |
2,728 | 3,863 | ||||||
| Other real estate owned |
228 | 920 | ||||||
| Other non-performing assets |
1,773 | 1,773 | ||||||
| Total non-performing assets |
$ | 4,729 | $ | 6,556 | ||||
| Accruing TDRs |
$ | 6,201 | $ | 6,666 | ||||
| Non-performing loans as a percentage of gross loans |
0.25 | % | 0.39 | % | ||||
FNCB's asset quality remained favorable through the third quarter of 2022. Total non-performing assets decreased $1.8 million, or 27.9%, to $4.7 million at September 30, 2022 from $6.5 million at December 31, 2021. The improvement reflected decreases in non-accrual loans and OREO. Non-performing loans, which include non-accrual loans and loans past due 90 days or more and still accruing, decreased $1.2 million, or 29.4%, to $2.7 million at September 30, 2022 from $3.9 million at December 31, 2021. The decrease in non-performing loans was primarily due to the sale of two non-accrual loans to one commercial borrower totaling $0.9 million during the second quarter of 2022. The sale was to another commercial bank with no gain or loss realized on the sale. The $0.7 million decrease in OREO resulted from sale of one bank-owned property that was held in OREO during the first quarter of 2022. FNCB’s ratio of non-performing loans to total gross loans improved to 0.25% at September 30, 2022 from 0.39% at December 31, 2021. Additionally, there were no loans modified as TDRs during the three and nine months ended September 30, 2022 and 2021.
The following table presents the changes in non-performing loans for the three and nine months ended September 30, 2022 and 2021. Loans transferred to OREO represent the recorded investment of loans at time of foreclosure not including the effect of any guarantees.
Changes in Non-Performing Loans
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Balance, beginning of period |
$ | 2,778 | $ | 4,555 | $ | 3,863 | $ | 5,581 | ||||||||
| Loans newly placed on non-accrual |
658 | 445 | 1,356 | 1,366 | ||||||||||||
| Change in loans past due 90 days or more and still accruing |
60 | - | 74 | - | ||||||||||||
| Loans returned to performing status |
- | - | - | (468 | ) | |||||||||||
| Loans transferred to OREO |
- | - | - | (138 | ) | |||||||||||
| Loans charged-off |
(394 | ) | (236 | ) | (760 | ) | (707 | ) | ||||||||
| Loans sold |
- | - | (925 | ) | - | |||||||||||
| Loan payments received |
(374 | ) | (289 | ) | (880 | ) | (1,159 | ) | ||||||||
| Balance, end of period |
$ | 2,728 | $ | 4,475 | $ | 2,728 | $ | 4,475 | ||||||||
The average balance of impaired loans was $8.3 million and $9.0 million, respectively, for the three and nine months ended September 30, 2022, and $10.5 million and $11.0 million, respectively for the three and nine months ended September 30, 2021. FNCB recognized $77 thousand and $229 thousand of interest income on impaired loans, respectively, for the three and nine months ended September 30, 2022, and $75 thousand and $230 thousand, respectively for the same periods of 2021.
The additional interest income that would have been earned on non-accrual and restructured loans had the loans been performing in accordance with their original terms for the three and nine months ended September 30, 2022 approximated $42 thousand and $128 thousand, respectively, compared to $52 thousand and $167 thousand, respectively, for the three and nine months ended September 30, 2021.
The following table presents accruing loan delinquencies and non-accrual loans as a percentage of gross loans at September 30, 2022 and December 31, 2021:
Loan Delinquencies and Non-Accrual Loans
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Accruing: |
||||||||
| 30-59 days |
0.12 | % | 0.13 | % | ||||
| 60-89 days |
0.06 | % | 0.03 | % | ||||
| 90+ days |
0.01 | % | 0.00 | % | ||||
| Non-accrual |
0.24 | % | 0.39 | % | ||||
| Total delinquencies |
0.43 | % | 0.55 | % | ||||
Total delinquent loans, including non-accrual loans, were $4.7 million, or 0.43% of gross loans, at September 30, 2022, and $5.4 million, or 0.55% of gross loans, at December 31, 2021. The decrease in delinquent loan balances, was primarily due to a $1.2 million, or 31.3% decrease in non-accrual loans. As previously mentioned, the sale of the $0.9 million non-performing commercial relationship was the primarily factor contributing to the decrease in non-accrual loans.
OREO consists of property acquired by foreclosure, abandonment or conveyance of deed in-lieu of foreclosure of a loan, and bank premises that are no longer used for operation or for future expansion. OREO is held for sale and is initially recorded at fair value less estimated costs to sell at the date of acquisition or transfer, which establishes a new cost basis. Upon acquisition of the property through foreclosure or deed-in-lieu of foreclosure, any adjustment to fair value less estimated selling costs is recorded to the ALLL. The determination is made on an individual asset basis. Bank premises no longer used for operations or future expansion are transferred to OREO at fair value less estimated selling costs with any related write-down included in non-interest expense. Subsequent to acquisition, valuations are periodically performed, and the assets are carried at the lower of cost or fair value less estimated cost to sell. Fair value is determined through external appraisals, current letters of intent, broker price opinions or executed agreements of sale, unless management determines that conditions exist that warrant an adjustment to the value. Costs relating to the development and improvement of the OREO properties may be capitalized; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred. At September 30, 2022, OREO consisted of one bank-owned commercial property with a carrying value of $228 thousand. At December 31, 2021, OREO consisted of two bank-owned properties with an aggregate carrying value of $920 thousand. In the first quarter of 2022, FNCB sold one of the properties, a parcel of land that was previously held for future expansion. FNCB realized a gain of $3 thousand on the sale, which is included in other income in the consolidated statements of income for the nine months ended September 30, 2022.
Other non-performing assets was comprised solely of a classified account receivable, the balance of which was $1.8 million at both September 30, 2022 and at December 31, 2021. The receivable is secured by an evergreen letter of credit that was received in 2011 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. 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. To date, no single-unit lots have been sold, however, the developer completed the construction of a seven-unit building that houses timeshare units and owners began occupying the units in the fourth quarter of 2020. In 2020, management negotiated a repayment plan with the developer. FNCB received the first payment of $127 thousand in the second quarter of 2021. Management continues to closely monitor this project and has noted an increase in construction activity related to this project including the construction of two additional six- or eight-unit buildings and further site development including building pads for a new six-seven unit building and pool/spa building during the first half of 2022. Additionally, the developer has increased marketing and sales initiatives for the project. However, the impact of economic uncertainty, supply-chain constraints, inflation and other factors are still unknown and could negatively affect the timing of future sales and payments.
While FNCB's asset quality has remained favorable, management believes continued economic uncertainty associated with the COVID-19 pandemic, supply-chain constraints and further increases in 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.
Allowance for Loan and Lease Losses
The ALLL represents management’s estimate of probable loan losses inherent in the loan portfolio. The ALLL is analyzed in accordance with GAAP and is maintained at a level that is based on management’s evaluation of the adequacy of the ALLL in relation to the risks inherent in the loan portfolio.
As part of its evaluation, management considers qualitative and environmental factors, including, but not limited to:
| • |
changes in national, local, and business economic conditions and developments, including the condition of various market segments; |
| • |
changes in the nature and volume of the loan portfolio; |
| • |
changes in lending policies and procedures, including underwriting standards, collection, charge-off and recovery practices and results; |
| • |
changes in the experience, ability and depth of lending management and staff; |
| • |
changes in the quality of the loan review system and the degree of oversight by the Board of Directors; |
| • |
changes in the trend of the volume and severity of past due and classified loans, including trends in the volume of non-accrual loans, TDRs and other loan modifications; |
| • |
the existence and effect of any concentrations of credit and changes in the level of such concentrations; |
| • |
the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current loan portfolio; and |
| • |
analysis of customers’ credit quality, including knowledge of their operating environment and financial condition. |
Evaluations are intrinsically subjective, as the results are estimated based on management knowledge and experience and are subject to interpretation and modification as information becomes available or as future events occur. Management monitors the loan portfolio on an ongoing basis with emphasis on weakness in both the real estate market and the economy in general and its effect on repayment. Adjustments to the ALLL are made based on management’s assessment of the factors noted above.
For purposes of management’s analysis of the ALLL, all loan relationships with an aggregate balance greater than $100 thousand that are rated substandard and non-accrual, identified as doubtful or loss, and all TDRs are considered impaired and are analyzed individually to determine the amount of impairment. Circumstances such as construction delays, declining real estate values, and the inability of the borrowers to make scheduled payments have resulted in these loan relationships being classified as impaired. FNCB utilizes the fair value of collateral method for collateral-dependent loans and TDRs for which repayment depends on the sale of collateral. For non-collateral-dependent loans and TDRs, FNCB measures impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. Regarding collateral-dependent loans, appraisals or collateral evaluations are received at least annually to ensure that impairment measurements reflect current market conditions. Should a current appraisal or collateral evaluation not be available at the time of impairment analysis, other valuation sources including current letters of intent, broker price opinions or executed agreements of sale may be used. Only downward adjustments are made based on these supporting values. Included in all impairment calculations is a cost to sell adjustment of approximately 10%, which is based on typical cost factors, including a 6% broker commission, 1% transfer taxes and 3% various other miscellaneous costs associated with the sales process. Sales costs are periodically reviewed and revised based on actual experience. The ALLL analysis is adjusted for subsequent events that may arise after the end of the reporting period but before the financial reports are filed.
The ALLL equaled $13.8 million at September 30, 2022, compared to $12.4 million at December 31, 2021. The increase resulted from a provision for loan and lease losses of $1.3 million, coupled with $69 thousand in net recoveries for the nine months ended September 30, 2022. The ALLL consists of both specific and general components. The component of the ALLL that is related to impaired loans that are individually evaluated for impairment, the guidance for which is provided by ASC 310 “Impairment of a Loan” (“ASC 310”), was $28 thousand at September 30, 2022 and $26 thousand at December 31, 2021. A general allocation of $13.8 million was calculated for loans analyzed collectively under ASC 450 “Contingencies” (“ASC 450”) at September 30, 2022. Comparatively, at December 31, 2021, the general allocation for loans collectively analyzed for impairment amounted to $12.4 million. At both September 30, 2022 and December 31, 2021, the general component represented 99.8% of the total ALLL. Included in the general component of the ALLL was an unallocated reserve of $1.1 million, at both September 30, 2022 and December 31, 2021. Based on its evaluations, management may establish an unallocated component to cover any inherent losses that exist as of the evaluation date, but which may not have been identified under the methodology. In 2020, management established an unallocated reserve for the potential effect of economic and employment uncertainty and disruption due to the global pandemic into its evaluation. Based on continued economic uncertainty related to the pandemic, global supply-chain issues, the war in Ukraine, monetary policy tightening, among other factors, management believes the level of the unallocated reserve continues to be appropriate at September 30, 2022. As of September 30, 2022, management is not aware of any asset quality deterioration and FNCB has not experienced an increase in credit losses related to these factors. Management continues to monitor the loan portfolio for any potential adverse impact to FNCB's asset quality. The ratio of the ALLL to total loans decreased to 1.24% of total loans, net of net deferred loan origination fees and unearned income at September 30, 2022 from 1.27% of total loans at December 31, 2021.
The following table presents an allocation of the ALLL by major loan category and percent of loans in each category to total loans at September 30, 2022 and December 31, 2021:
Allocation of the ALLL
| September 30, 2022 |
December 31, 2021 |
|||||||||||||||
| Percentage |
Percentage |
|||||||||||||||
| of Loans |
of Loans |
|||||||||||||||
| in Each |
in Each |
|||||||||||||||
| Category |
Category |
|||||||||||||||
| Allowance |
to Total |
Allowance |
to Total |
|||||||||||||
| (dollars in thousands) |
Amount |
Loans |
Amount |
Loans |
||||||||||||
| Residential real estate |
$ | 2,219 | 22.65 | % | $ | 2,081 | 23.86 | % | ||||||||
| Commercial real estate |
4,190 | 34.14 | % | 4,530 | 37.29 | % | ||||||||||
| Construction, land acquisition and development |
669 | 5.13 | % | 392 | 4.24 | % | ||||||||||
| Commercial and industrial |
3,753 | 22.87 | % | 2,670 | 19.67 | % | ||||||||||
| Consumer |
1,295 | 8.65 | % | 1,159 | 8.72 | % | ||||||||||
| State and political subdivisions |
564 | 6.56 | % | 455 | 6.22 | % | ||||||||||
| Unallocated |
1,129 | - | 1,129 | - | ||||||||||||
| Total |
$ | 13,819 | 100.00 | % | $ | 12,416 | 100.00 | % | ||||||||
The following table presents an analysis of the ALLL by loan category for the three and nine months ended September 30, 2022 and 2021:
Reconciliation of the ALLL
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Balance at beginning of period |
$ | 13,381 | $ | 12,285 | $ | 12,416 | $ | 11,950 | ||||||||
| Charge-offs: |
||||||||||||||||
| Residential real estate |
- | 8 | 3 | 14 | ||||||||||||
| Commercial real estate |
- | - | - | - | ||||||||||||
| Construction, land acquisition and development |
- | - | - | - | ||||||||||||
| Commercial and industrial |
17 | 178 | 49 | 208 | ||||||||||||
| Consumer |
394 | 69 | 757 | 530 | ||||||||||||
| State and political subdivisions |
- | - | - | - | ||||||||||||
| Total charge-offs |
411 | 255 | 809 | 752 | ||||||||||||
| Recoveries of charged-off loans: |
||||||||||||||||
| Residential real estate |
3 | - | 3 | 16 | ||||||||||||
| Commercial real estate |
18 | 392 | 242 | 438 | ||||||||||||
| Construction, land acquisition and development |
11 | 13 | 11 | 13 | ||||||||||||
| Commercial and industrial |
12 | 10 | 23 | 42 | ||||||||||||
| Consumer |
292 | 86 | 599 | 483 | ||||||||||||
| State and political subdivisions |
- | - | - | - | ||||||||||||
| Total recoveries |
336 | 501 | 878 | 992 | ||||||||||||
| Net charge-offs (recoveries) |
75 | (246 | ) | (69 | ) | (240 | ) | |||||||||
| Provision (credit) for loan and lease losses |
513 | (513 | ) | 1,334 | (172 | ) | ||||||||||
| Balance at end of period |
$ | 13,819 | $ | 12,018 | $ | 13,819 | $ | 12,018 | ||||||||
| Net charge-offs (recoveries) as a percentage of average loans |
0.01 | % | (0.03 | )% | (0.01 | )% | (0.03 | )% | ||||||||
| Allowance for loan and lease losses as a percentage of loans, net |
1.24 | % | 1.25 | % | 1.24 | % | 1.25 | % | ||||||||
| Allowance for loan and lease losses to nonaccrual loans |
520.69 | % | 268.56 | % | 520.69 | % | 268.56 | % | ||||||||
Liabilities
Total liabilities, which consist primarily of total deposits and borrowed funds, increased $91.1 million, or 6.1%, to $1.593 billion at September 30, 2022 from $1.502 billion at December 31, 2021. The increase was due primarily to deposit growth, coupled with an increase in FHLB of Pittsburgh advances. Total deposits were $1.503 billion at September 30, 2022, an increase of $47.6 million, or 3.3%, from $1.455 billion at December 31, 2021. The majority of the increase was in interest-bearing deposits which increased $46.8 million, or 4.1%, to $1.182 billion at September 30, 2022 from $1.135 billion at December 31, 2021. Specifically, interest-bearing demand deposits increased $12.7 million, or 1.5%, to $870.5 million at September 30, 2022, compared to $857.8 million at December 31, 2021, which primarily reflected cyclical deposit trends of FNCB's municipal customers. Savings deposits increased $12.7 million, or 9.5%, to $146.9 million at September 30, 2022, compared to $134.2 million at December 31, 2021. Additionally, total time deposits increased $21.4 million, or 15.0%, to $164.3 million at September 30, 2022 from $142.9 million at December 31, 2021. The increase in total time deposits was primarily concentrated in wholesale deposits originated through the IntraFi® Network, Qwickrate, a national listing service, and brokered certificates of deposit. FNCB utilized these wholesale sources as an alternative to additional advances through the FHLB of Pittsburgh. Additionally, in response to the general increase in interest rates and market demand, FNCB initiated several odd-term certificate of deposit specials in the third quarter of 2022, including a 13-month term and 25-month term. These specials contributed to a $3.8 million, or 2.9%, increase in retail time deposits to $134.8 million at September 30, 2022 from $131.0 million at December 31, 2021. Non-interest-bearing demand deposits increased $0.8 million, or 0.3%, to $320.9 million at September 30, 2022 from $320.1 million at December 31, 2021. Total borrowed funds increased $45.7 million, or 150.8%, to $76.0 million at September 30, 2022 from $30.3 million at December 31, 2021, which was comprised of $65.7 million in FHLB of Pittsburgh advances and $10.3 million in junior subordinated debentures.
Equity
On January 26, 2022, FNCB's Board of Directors authorized a stock repurchase program under which up to 750,000 shares of FNCB's outstanding common stock may be acquired in the open market. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the trading plan, and the repurchased shares will be returned to the status of authorized but unissued shares of Common Stock. During the nine months ended September 30, 2022, FNCB repurchased 384,830 shares at a weighted-average price per share of $9.45, or $3.6 million in aggregate. There is not a guarantee as to the exact number of shares that will be repurchased by FNCB, and FNCB may discontinue at any time that management determines additional repurchases are no longer warranted.
Total shareholders’ equity decreased $50.9 million, or 31.3%, to $111.6 million at September 30, 2022 from $162.5 million at December 31, 2021. The decrease in capital was primarily due to an accumulated other comprehensive loss of $52.1 million at September 30, 2022, compared to accumulated other comprehensive income of $6.3 million at December 31, 2021, which was principally caused by the depreciation in the fair value of FNCB's available-for-sale debt securities, net of deferred taxes, reflecting the increase in market interest rates. Also contributing to the reduction in capital was $3.6 million for the repurchase of common shares under the stock repurchase program and $4.7 million in dividends declared and paid for the nine months ended September 30, 2022. These reductions were partially offset by net income for the nine months ended September 30, 2022 of $15.5 million. On a per share basis, dividends declared totaled $0.240 per share for the nine months ended September 30, 2022, an increase of $0.045 per share, or 23.0%, compared to $0.195 for the nine months ended September 30, 2021. On October 26, 2022, FNCB's Board of Directors declared a dividend of $0.090 per share, an increase of $0.015 per share, or 20.0% from the $0.075 per share declared for the same quarter of 2021.
The Bank's total regulatory capital increased $17.7 million, or 10.9%, to $179.7 million at September 30, 2022 from $162.0 million at December 31, 2021. FNCB Bank's total risk-based capital and Tier 1 leverage ratios were 14.16% and 9.38%, respectively, at September 30, 2022, compared to 14.64% and 8.92%, respectively, at December 31, 2021. 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 September 30, 2022 and December 31, 2021. 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 September 30, 2022, cash and cash equivalents totaled $34.1 million, a decrease of $64.9 million compared to $99.0 million at December 31, 2021. For the nine months ended September 30, 2022, net cash outflows used in investing activities were only partially offset by net cash inflows provided by operating and financing activities. Net cash used in investing activities totaled $164.6 million for the nine months ended September 30, 2022. Specifically, FNCB's net lending activities used $131.0 million in net cash. This cash outflow was coupled with $62.1 million in cash used for purchases of available-for-sale debt and equity securities, $2.9 million of cash used to purchase of restricted stock and $3.0 million in cash used for the purchase of bank-owned life insurance. Partially offsetting these outflows were cash inflows received from sales, maturities, calls and repayments of available-for-sale debt securities totaling $34.3 million and $0.7 million from the proceeds from the sale of other real estate owned. Regarding FNCB's operating activities, net income of $15.5 million for the nine months ended September 30, 2022 was slightly offset by reconciling adjustments, providing net cash of $14.8 million. Financing activities for the nine months ended September 30, 2022 provided $64.9 million in net cash, which resulted primarily from a net increase in total deposits of $47.6 million, coupled with net proceeds from borrowed funds of $45.7 million. These inflows were slightly offset by $3.6 million in FNCB stock repurchases and $4.7 million in cash dividends paid.
Management is actively monitoring FNCB's liquidity position and capital adequacy in light of the changing circumstances related to economic uncertainty due to the ongoing pandemic, supply chain constraints, global implications from the war in Ukraine, higher levels of inflation, and rising interest rates. While FNCB's liquidity position is favorable, management is keenly aware that changes in general economic conditions, including inflation, rising interest rates and situations related to the pandemic, among others, could pose potential stress on liquidity should deposits begin exiting the Bank or FNCB's asset quality deteriorates. Additionally, FNCB could experience an increase in the utilization of existing lines of credit as customers manage their own liquidity needs during this time of economic uncertainty. Bank liquidity has returned to normal cyclical manner, placing the Bank in a borrowing position in 2022. Management believes FNCB's current liquidity position and available sources of liquidity were sufficient to meet its cash flow needs and fulfill its obligations at September 30, 2022. In addition to cash and cash equivalents of $34.1 million at September 30, 2022, FNCB had ample sources of additional liquidity including approximately $240.3 million in available borrowing capacity from the FHLB of Pittsburgh and $19.4 million under the borrower-in-custody program through the Federal Reserve Bank of Philadelphia. FNCB also has available unsecured federal funds lines of credit totaling $75.0 million at September 30, 2022, as well as access to various wholesale deposit markets.
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 to impact our financial condition and results of operations to a far greater degree 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.
LIBOR Replacement
The Alternative Reference Rates Committee ("ARRC") had proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR, with the transition to SOFR from USD-LIBOR to take place by the end of 2021. FNCB has various loans, investments, borrowings and interest rate swap contracts that are indexed to USD-LIBOR. On November 30, 2020 the ICE Benchmark Administration ("IBA"), which complies and oversees LIBOR, announced its intention to extend most of the USD-LIBOR tenors to June 30, 2023, with U.S. banking regulators supporting the extension. As of December 31, 2021, most LIBOR tenors, with the exception of the overnight, 1-,3-, 6- and 12-month LIBOR tenors which have been extended through June 30, 2023, have ceased to be published. Additionally, beginning January 1, 2022, no new financial instruments can be written with terms tied to LIBOR. FNCB has various loans, investments, borrowings and interest rate swap contracts that are indexed to USD-LIBOR, and management is actively monitoring its LIBOR exposures and evaluating any risks involved.
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 off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include 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 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.
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 -100 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 -100 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:
| ● |
asset and liability levels using September 30, 2022 as a starting point; |
| ● |
cash flows are based on contractual maturity and amortization schedules with applicable prepayments derived from internal historical data and external sources; and |
| ● |
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 September 30, 2022 levels:
| Rates +200 |
Rates +400 |
Rates -200 |
||||||||||||||||||||||
| Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
|||||||||||||||||||
| Earnings at risk: |
||||||||||||||||||||||||
| Percent change in net interest income |
(6.5 | )% | (12.5 | )% | (12.4 | )% | (20.0 | )% | (2.5 | )% | (12.5 | )% | ||||||||||||
| Economic value at risk: |
||||||||||||||||||||||||
| Percent change in economic value of equity |
(6.9 | )% | (20.0 | )% | (15.0 | )% | (35.0 | )% | (1.5 | )% | (10.0 | )% | ||||||||||||
Model results from the simulation at September 30, 2022 indicated that FNCB was liability sensitive in the near term, exhibiting some interest sensitivity to changes in interest rates over the next twelve months. According to the model results at September 30, 2022, in comparison to the base case, net interest income is expected to decrease 6.5% under a +200-basis point interest rate shock. Additionally, under a parallel shift in interest rates of +200 basis points, FNCB's economic value of equity ("EVE") is expected to decrease 6.9%. Comparatively, model results at June 30, 2022 were similar with estimated decreases in net interest income and EVE of 7.4% and 8.2%, respectively, under a +200-basis point interest rate shock. All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.
In response to the recent increase in inflation caused by continued economic uncertainty from the COVID-19 pandemic, global supply-chain constraints and the war in the Ukraine, among other factors, the FOMC raised the federal funds target rate 300 basis points during the nine months ended September 30, 2022, with additional 75-basis point increases on both July 27, 2022, and September 31, 2022. Additionally, the FOMC has indicated that additional rate increases would likely be necessary to control inflation. Model results at September 30, 2022 indicate that FNCB's asset/liability position becomes asset sensitive in Years 3-5 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 September 30, 2022 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 September 30, 2022 of approximately $264 thousand, or 1.87%. The variance primarily reflected higher actual interest income on the loan portfolio due to additional increases in the prime rate than modeled. This positive variance was partially offset by lower actual income recorded on the investment portfolio as compared to projections, coupled with higher actual interest expense on non-maturity deposits and borrowed funds than projections. 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 and nine months ended September 30, 2022, 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 nine months ended September 30, 2022. 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, 2021.
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 September 30, 2022.
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 Annual Report on Form 10-K for the year ended December 31, 2021.
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, 2021.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
On September 30, 2022, FNCB issued 25,384 shares of Common Stock, $1.25 par value (the “Earn-Out Shares”) having an aggregate value of $200,000. The Earn-Out Shares are subject to a lapsing right of forfeiture pursuant to the terms of an asset purchase agreement between FNCB, the seller and each of the other parties thereto. The Earn-Out Shares were issued pursuant to an exemption under Rule 506(b) of Regulation D promulgated under the Securities Act of 1933, as amended.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to the share repurchase program announced by FNCB on January 26, 2022, which expires on December 31, 2022, FNCB may repurchase up to 750,000 shares of its issued and outstanding common stock. The share repurchase program is intended to comply with the provisions of the safe harbor under Rule 10b-18 of the Exchange Act. The following table describes purchases by FNCB under the share repurchase program that settled during each period set forth in the table. Prices in column (b) include commissions. Cumulatively, as of September 30, 2022, FNCB had repurchased 384,830 of its shares under the program at a weighted average purchase price of $9.45 per share, or $3.6 million thousand in aggregate (including commissions). As of September 30, 2022, FNCB had the authority to repurchase an additional 365,170 shares under the stock repurchase program. Shares purchased during the nine months ended September 30, 2022 under the repurchase program are summarized by month in the table below:
| Total Number |
Maximum |
|||||||||||||||
| of Shares |
Number of |
|||||||||||||||
| Purchased as |
Shares that |
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| Total Number |
Part of Publicly |
May Yet be |
||||||||||||||
| of Shares |
Average Price |
Announced |
Purchased under |
|||||||||||||
| Purchased |
Paid Per Share |
Programs |
the Program |
|||||||||||||
| Period |
(a) |
(b) |
(c) |
(d) |
||||||||||||
| January 27, 2022 to January 31, 2022 |
- | $ | - | - | 750,000 | |||||||||||
| February 1, 2022 to February 28, 2022 |
- | - | - | 750,000 | ||||||||||||
| March 1, 2022 to March 31, 2022 |
307,514 | 9.69 | 307,514 | 442,486 | ||||||||||||
| April 1, 2022 to April 30, 2022 |
26,872 | 9.66 | 26,872 | 415,614 | ||||||||||||
| May 1, 2022 to May 31, 2022 |
18,000 | 7.94 | 18,000 | 397,614 | ||||||||||||
| June 1, 2022 to June 30, 2022 |
18,990 | 7.76 | 18,990 | 378,624 | ||||||||||||
| July 1, 2021 to July 31, 2021 |
4,428 | 7.78 | 4,428 | 374,196 | ||||||||||||
| August 1, 2021 to August 31, 2021 |
1,400 | 7.95 | 1,400 | 372,796 | ||||||||||||
| September 1, 2021 to September 30, 2021 |
7,626 | 7.92 | 7,626 | 365,170 | ||||||||||||
| Total |
384,830 | $ | 9.45 | 384,830 | 365,170 | |||||||||||
Item 3 - Defaults upon Senior Securities.
None.
Item 4 — Mine Safety Disclosures.
Not applicable.
None.
The following exhibits are filed or furnished herewith or incorporated by reference.
| * |
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: November 4, 2022 |
By: |
/s/ Gerard A. Champi |
| Gerard A. Champi |
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| President and Chief Executive Officer |
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| Date: November 4, 2022 | 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: November 4, 2022 | 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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