FNCB Bancorp, Inc. Announces Increase in Third Quarter and Year-to-date 2019 Earnings

DUNMORE, Pa., Oct. 21, 2019 (GLOBE NEWSWIRE) -- FNCB Bancorp, Inc. FNCB, the parent company of Dunmore-based FNCB Bank (the "Bank"), today reported net income of $2.403 million, or $0.12 per basic and diluted share, for the three months ended September 30, 2019, an increase of $553 thousand, or 29.9%, compared to net income of $1.850 million, or $0.11 per basic and diluted share, for the three months ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $7.587 million, or $0.39 per basic and diluted share, an increase of $1.306 million, or 20.8%, from $6.281 million for the same year-to-date period of 2018. The increase in third quarter and year-to-date earnings primarily reflected a reduction in the provision loan and lease losses and an increase in non-interest income, partially offset by a decrease in net interest income and an increase in non-interest expense. 

For the three months and nine months ended September 30, 2019, the annualized return on average assets was 0.80% and 0.84%, respectively, and 0.59% and 0.69%, respectively, for the same periods of 2018. The annualized return on average equity was 7.30% and 8.32%, respectively, for the three- and nine-month periods ended September 30, 2019, and 8.41% and 9.68%, respectively, for the comparable periods of 2018. Dividends declared and paid were $0.05 per share for the third quarter and $0.15 per share for the year-to-date period of 2019, a 25.0% increase compared to $0.04 per share and $0.12 per share, respectively, for the three and nine months ended September 30, 2018. The dividend pay-out ratio for the nine months ended September 30, 2019, was 39.8%, compared to 30.3% for the comparable period of 2018.

Third Quarter 2019 Highlights:

• 29.9% increase in net income comparing the third quarters of 2019 and 2018;  
• Tax-equivalent yield on earning assets for the third quarter improved 18 basis points to 4.22% in 2019 from 4.04% in 2018;   
• Tax-equivalent net interest margin for the third quarter of 2019 improved 7 basis points from the second quarter of 2019, and 11 basis points over the third quarter of 2018; and
• Year-to-date 2019 dividend payout ratio of 39.8%.

"We are pleased with our Company's performance for the third quarter of 2019. Our ability to improve the tax-equivalent net interest margin for the second consecutive quarter, reflects positively on the asset/liability management employed," stated Gerard A. Champi, President and Chief Executive Officer. "Despite the challenging interest rate environment, we were able to increase the tax-equivalent yield on both the loan and investment portfolios, on a linked quarter basis, as well as comparing the third quarters of 2019 and 2018," continued Champi. "We realize there is more work to accomplish. For the remainder of 2019 and looking ahead to 2020, we are focused on furthering core deposit relationships within the personal and business sectors, enhancing non-interest revenue, and sustaining our asset quality," Champi concluded. 

Summary Results 

For the three months ended September 30, 2019, tax-equivalent net interest income decreased $0.2 million, or 2.5% to $9.2 million from $9.4 million for the same three months of 2018, which primarily reflected a $0.2 million reduction in tax-equivalent interest income. Total interest expense was relatively stable, increasing only $17 thousand comparing the third quarters of 2019 and 2018. Specifically, interest income decreased $0.2 million, or 1.9%, to $11.6 million for the third quarter of 2019 from $11.8 million for the same quarter of 2018. The decrease in third quarter tax-equivalent interest income resulted primarily from reductions in the average balances of total loans and total investment securities of $39.6 million, or 4.6%, and $36.4 million, or 11.8%, respectively. Partially offsetting the lower average balances was an 18 basis-point increase in the tax-equivalent yield on earning assets to 4.22% for the three months ended September 30, 2019 from 4.04% for the same three months of 2018. Specifically, the tax-equivalent yield on the loan portfolio improved 19 basis points to 4.67% for the third quarter of 2019 from 4.48% for the respective quarter of 2018, while the tax-equivalent yield on investment securities increased 11 basis points to 2.95% from 2.84% comparing the third quarters of 2019 and 2018, respectively. With respect to the quarter over quarter change in interest expense, reductions in the average balances of total interest-bearing deposits and borrowed funds were more than entirely offset by an increase in the cost of funds. For the nine months ended September 30, 2019, tax-equivalent net interest income decreased $0.4 million, or 1.6% to $27.3 million, from $27.7 million for the same nine months of 2018. The decrease in year-to-date tax-equivalent net interest income primarily reflected rising deposit and borrowing costs and higher average balances of interest-bearing deposits, partially offset by a reduction in the average balance of borrowed funds. A 25 basis-point increase in the tax-equivalent yield on loans, coupled with a 4 basis-point increase in the tax-equivalent yield on investment securities, also positively impacted net interest income levels comparing the year-to-date periods of 2019 and 2018. Despite the increase for the quarter over quarter and year-to-date periods, funding costs have appeared to stabilize and remained at 1.11% for the three consecutive quarters of 2019.  Additionally, FNCB's tax-equivalent net interest margin, which decreased in the third and fourth quarters of 2018 and the first quarter of 2019, increased 7 basis points to 3.32% for the third quarter of 2019 from 3.25% for the second quarter of 2019 and 18 basis points from 3.14% for the first quarter of 2019. For purposes of presenting net interest income, earning-asset yields and net interest margin information on a tax-equivalent basis, tax-free interest income is adjusted using the statutory federal corporate income tax rate of 21.0% for the three and nine months ended September 30, 2019 and 2018.

For the three months ended September 30, 2019, non-interest income increased $511 thousand, or 38.7%, to $1.8 million from $1.3 million for the same three months of 2018. The quarter over quarter increase in non-interest income primarily reflected an increase in net gains on the sale of available-for-sale securities, coupled with increases in deposit service charges and other income. Comparing the year-to-date periods, non-interest income increased $556 thousand, or 12.7%, to $4.9 million in 2019 from $4.4 million in 2018. Similar to the reasons for the quarterly increase, the year-to-date increase was largely due to net gains on the sale of available-for-sale securities, higher deposit service charges and other income. Partially offsetting these increases for the year-to-date periods was a reduction in net gains on the sale of SBA guaranteed loans.  FNCB realized net gains on the sale of available-for-sale debt securities of $379 thousand and $702 thousand for the third quarter and year-to-date periods of 2019, respectively. There were no gains realized on the sale of securities for the three months ended September 30, 2018 and a net loss of $4 thousand for the year-to-date period of 2018.

For the three months ended September 30, 2019, non-interest expense increased by $141 thousand, or 2.0%, to $7.3 million from $7.2 million for the comparable three months of 2018. Non-interest expense for the nine months ended September 30, 2019, increased $490 thousand, or 2.3%, to $21.9 million from $21.4 million for the same nine months of 2018. The increase for the three-months ended September 30,2 019 as compared to the same period of 2018 was primarily attributable to increases in salaries and employee benefits and other operating expenses, partially offset by a reduction in regulatory assessments. The increase comparing the year-to-date periods primarily reflected increases in salaries and employee benefits and data processing costs, which were partially offset by reductions in regulatory assessments, occupancy and other operating expenses. 

Asset Quality

Total non-performing loans increased $0.8 million to $6.1 million, or 0.73% of total loans, at September 30, 2019 from $5.3 million, or 0.65%, of total loans at June 30, 2019, and $1.4 million, or 30.3%, from $4.7 million, or 0.56% of total loans at December 31, 2018. Additionally, FNCB's loan delinquency rate (total delinquent loans as a percentage of total loans) increased to 1.16% at September 30, 2019 from 0.99% at June 30, 2019 and 0.93% at December 31, 2018.  The allowance for loan and lease losses was $9.3 million, or 1.11% of total outstanding loans, at September 30, 2019, compared to $8.9 million, or 1.10% of total loans outstanding, at June 30, 2019 and $9.5 million, or 1.13% of total loans outstanding, at December 31, 2018. Management actively manages problem credits and employs prudent, appropriate workout strategies to resolve borrower difficulties and minimize loss to FNCB. Net charge-offs were $267 thousand, or an annual rate of 0.13% of average loans, for the three months ended September 30, 2019 compared to $781 thousand, or an annual rate of 0.36% of average loans, for the same three months of 2018. 

Financial Condition

Total assets decreased $1.6 million, or 0.13%, to $1.197 billion at September 30, 2019, from $1.199 billion at June 30, 2019.  The change in the balance sheet primarily reflected a decrease in available-for-sale debt securities, partially offset by increases in loans, net of net deferred loan costs and unearned income, and cash and cash equivalents. Available-for-sale debt securities decreased $31.2 million, or 10.9%, to $254.7 million at September 30, 2019 from $285.9 million at June 30, 2019. Proceeds from the sale of available-for-sale debt securities, not re-invested back into the portfolio, were used to fund loan demand and pay down wholesale funds. Loans, net of net deferred loan costs and unearned income, grew $22.5 million, or 2.8%, to $836.9 million at September 30, 2019, from $814.4 million at June 30, 2019, which primarily reflected the strong demand for commercial real estate, construction, land acquisition and development, and commercial and industrial loans. Total deposits increased $3.0 million, or 0.31%, to $964.1 million at September 30, 2019 from $961.1 million at June 30, 2019. Non-interest-bearing demand deposits increased $21.1 million, or 13.4%, to $179.0 million at September 30, 2019 from $157.9 million at June 30, 2019. The increase in non-interest-bearing deposits was partially offset by a reduction in interest-bearing deposits of $18.1 million, or 2.3%, to $785.1 million at September 30, 2019 from $803.2 million at June 30, 2019, which largely reflected the runoff of retail certificates of deposit and a cyclical reduction in public funds. Total borrowed funds decreased $7.8 million to $89.7 million at September 30, 2019 from $97.5 million at June 30, 2019, which was entirely comprised of a decrease in FHLB of Pittsburgh advances. Total assets decreased $40.5 million, or 3.3%, from $1.238 billion at December 31, 2018.  The decrease from December 31, 2018 resulted primarily from a $41.4 million, or 14.0% decrease in available-for-sale debt securities, coupled with a $2.2 million, or 0.26%, reduction in loans net of net deferred costs and unearned income. Total deposits decreased $131.6 million, or 12.0%, from $1.096 billion at December 31, 2018, which included a $75.8 million, or 100.0%, reduction in brokered deposits. Conversely, total borrowed funds increased $55.5 million, or 162.2%, from $34.2 million at December 31, 2018. 

Total shareholders' equity increased $2.9 million, or 2.2%, to $132.6 million at September 30, 2019 from $129.7 million at June 30, 2019, which was predominantly due to net income for the third quarter of 2019, partially offset by dividends declared, coupled with a positive change in accumulated other comprehensive income. In comparison to $97.2 million at December 31, 2018, total shareholders' equity increased $35.3 million, or 36.4%. FNCB successfully completed a public offering of its common stock, which resulted in a net increase to capital after offering expenses of $21.3 million in the first quarter of 2019. Also factoring into the capital improvement was net income for the nine months ended September 30, 2019 of $7.6 million and a $9.1 million positive change in other comprehensive income related entirely to appreciation in the fair value of available-for-sale debt securities, net of deferred taxes, partially offset by dividends declared of $3.0 million. FNCB's total risk-based capital and Tier I leverage ratios improved to 15.72% and 11.27%, respectively, at September 30, 2019 from 12.69% and 8.50%, respectively, at December 31, 2018.

Availability of Filings

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

About FNCB Bancorp, Inc.:
FNCB Bancorp, Inc. is the bank holding company of FNCB Bank. Locally-based for over 100 years, FNCB Bank continues as a premier community bank in Northeastern Pennsylvania – offering a full suite of personal, small business and commercial banking solutions with industry-leading mobile, online and in-branch products and services. FNCB currently operates through 17 community offices located in Lackawanna, Luzerne and Wayne Counties and a limited purpose office in Lehigh County, and remains dedicated to making its customers' banking experience simply better. For more information about FNCB, visit www.fncb.com.

INVESTOR CONTACT:

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

FNCB may from time to time make written or oral "forward-looking statements," including statements contained in our filings with the Securities and Exchange Commission ("SEC"), in its reports to shareholders, and in 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," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" 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 strength of the United States economy in general and the strength of the local economies in our markets; the effects of, and changes in trade, monetary, fiscal and tax policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services; the ability of FNCB to compete with other institutions for business, including for deposit and loan growth: the composition and concentrations of FNCB's lending risk and the adequacy of FNCB's reserves to manage those risks; the valuation of FNCB's investment securities; the ability of FNCB to pay dividends or repurchase common shares; the ability of FNCB to retain key personnel; the impact of any pending or threatened litigation against FNCB; the marketability of shares of FNCB stock and fluctuations in the value of FNCB's share price; the effectiveness of FNCB's system of internal controls; the ability of FNCB to attract additional capital investment; the impact of changes in financial services' laws and regulations (including laws concerning capital adequacy, taxes, banking, securities and insurance); the ability of FNCB to identify future acquisition targets, complete acquisitions and integrate new teams into FNCB's operations; the impact of technological changes and security risks upon our information technology systems; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms, 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 Annual Report and other documents that FNCB periodically files with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2018.