Executive Summary

Q4 results reflected continued funding cost pressure: EPS was $0.17 (vs $0.24 YoY; $0.21 in Q3), while net interest margin (FTE) improved sequentially for the second straight quarter to 2.87% (+2 bps QoQ; -45 bps YoY) as asset yields rose but were outpaced YoY by higher cost of funds .
Cost of funds rose to 2.76% (+10 bps QoQ; +157 bps YoY) as deposit mix shifted toward CDs and wholesale funding; yield on earning assets increased to 5.04% (+11 bps QoQ; +81 bps YoY) .
Noninterest expense rose 9.7% YoY on merger costs and higher FDIC assessments, pushing the efficiency ratio to 69.48% (vs 59.37% YoY) .
Management reiterated focus on interest rate risk and funding costs while progressing toward the Peoples Financial Services merger, now expected in 1H 2024; dividend was maintained at $0.09 for Q4 and lifted to $0.36 for FY23 (+9% YoY), offering a 5.3% yield on 12/31/23 price, a potential stock support/catalyst alongside merger closure .

What Went Well and What Went Wrong

What Went Well

Sequential NIM stabilization/expansion: NIM (FTE) rose to 2.87% in Q4 from 2.85% in Q3 and 2.75% in Q2, reflecting prudent balance sheet management despite rate headwinds .
Rising asset yields and loan growth: Yield on earning assets increased to 5.04% (+81 bps YoY), with loan yields at 5.83% (+92 bps YoY) and average loans +8.9% YoY, driven by commercial equipment financing .
Management discipline and focus: “Our focus on prudent balance sheet management has translated into margin improvement for the second consecutive quarter… [we are] focused on managing interest rate risk, controlling funding costs and non-interest expense” — CEO Gerard A. Champi .

What Went Wrong

Funding cost pressure: Cost of funds rose to 2.76% (+157 bps YoY; +10 bps QoQ), with increased reliance on brokered deposits and borrowings; average deposit costs increased to 2.46% (from 0.81% YoY) .
Higher expenses: Noninterest expense +9.7% YoY on $0.943M merger costs and higher regulatory assessments; efficiency ratio deteriorated to 69.48% (vs 59.37% YoY) .
Asset quality normalization: NPLs rose to 0.44% of loans (from 0.25% YoY), delinquencies increased to 0.75% (from 0.45% YoY), and annualized net charge-offs edged up to 0.18% (from 0.09% in Q4’22) .

Financial Results

Metric	Q4 2022	Q2 2023	Q3 2023	Q4 2023
Total Interest Income ($MM)	$17.53	$19.94	$21.32	$22.09
Noninterest Income ($MM)	$2.39	$0.95	$1.69	$2.33
Net Interest Income before Provision ($MM)	$13.70	$11.63	$12.21	$12.48
Provision for Credit Losses ($MM)	$0.63	$0.80	$(0.27)	$0.38
Noninterest Expense ($MM)	$9.67	$8.10	$9.30	$10.60
Net Income ($MM)	$4.92	$2.81	$4.16	$3.35
Diluted EPS ($)	$0.24	$0.14	$0.21	$0.17
Net Interest Margin (FTE) %	3.32%	2.75%	2.85%	2.87%
Yield on Earning Assets %	4.23%	4.67%	4.93%	5.04%
Cost of Funds %	1.19%	2.45%	2.66%	2.76%
Efficiency Ratio %	59.37%	68.11%	66.75%	69.48%

Notes:

Q4 2023 YoY: EPS down to $0.17 from $0.24 on higher funding costs and M&A/assessment expenses; QoQ: EPS down vs $0.21 in Q3 despite modest NIM improvement .
“Revenue” not disclosed as a single line; bank operating performance shown via interest/noninterest components and NIM.

Segment breakdown: Not applicable (community bank without disclosed operating segments) .

Key Banking KPIs and Balance Sheet

KPI	Dec 31, 2022	Jun 30, 2023	Sep 30, 2023	Dec 31, 2023
Total Assets ($MM)	$1,745.53	$1,861.87	$1,826.77	$1,880.99
Loans & Leases, Net ($MM)	$1,110.12	$1,187.72	$1,193.60	$1,208.28
Total Deposits ($MM)	$1,420.65	$1,476.06	$1,502.38	$1,528.98
Borrowed Funds ($MM)	$182.36	$242.02	$186.73	$200.27
Brokered Deposits in Time ($MM)	$23.9	$126.2	$123.1	$148.7
NPLs / Total Loans %	0.25%	0.31%	0.43%	0.44%
Delinquent Loans / Total Loans %	0.45%	0.50%	0.72%	0.75%
ACL / Total Loans %	1.26%	1.07%	1.01%	0.98%
Annualized Net Charge-offs / Avg Loans %	0.09%	0.07%	0.15%	0.18%
Tier 1 Leverage (Bank) %	8.77%	8.98%	9.11%	8.76%
Total Risk-Based Capital (Bank) %	13.11%	12.97%	13.21%	12.66%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Strategic Merger Timing (with PFIS)	2024	Expected consummation by April 1, 2024 (as of Q3)	Expected consummation in 1H 2024 (as of Q4 release)	Maintained/widened window
Quarterly Dividend per Share	Q4	$0.09 (Q4 2022)	$0.09 (Q4 2023)	Maintained
Total Dividends per Share	FY	$0.33 (FY 2022)	$0.36 (FY 2023)	Raised 9%

No quantitative revenue, margin, OpEx, OI&E, or tax rate guidance was provided in Q4 materials .

Earnings Call Themes & Trends

No Q4 2023 earnings call transcript was available in our document search window (Dec 2023–Mar 2024); themes below reflect management commentary in press releases.

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4)	Trend
Interest-rate environment & deposit competition	Q2: Margin compression from higher funding costs; active IRR/funding cost management . Q3: NIM stabilized and improved QoQ despite deposit competition .	NIM improved again QoQ; focus on managing rate risk and funding costs .	Improving NIM; funding costs still rising.
Deposit mix & liquidity	Shift from non-maturity/NIB to time and brokered deposits; brokered deposits used for ALCO/liquidity (Q2, Q3) .	Continued migration to time; brokered deposits $148.7MM (up from $23.9MM at YE22) .	Ongoing shift to CDs/brokered.
Asset quality	Low but rising delinquencies/NPLs through Q2–Q3 .	NPLs 0.44%; delinquencies 0.75%; higher net charge-offs .	Gradual normalization.
Expenses & regulatory assessments	Higher FDIC insurance; managing expenses (Q2–Q3) .	Noninterest expense up on merger costs and assessments .	Elevated near term (merger, FDIC).
Strategic actions	PFIS merger announced late Q3; cultural/strategic alignment touted .	Targeting consummation in 1H 2024 .	Merger progressing.

Management Commentary

“Our focus on prudent balance sheet management has translated into margin improvement for the second consecutive quarter… Management remains focused on managing interest rate risk, controlling funding costs and non-interest expense, as we continue to work towards the anticipated strategic merger with PFIS.” — Gerard A. Champi, President & CEO .
On Q3 trajectory: “We were pleased to see improvement in our net interest margin quarter over quarter, despite a continued challenging rate environment and strong competition for deposits…” — Gerard A. Champi .

Q&A Highlights

No Q4 2023 earnings call transcript was found in the document set for the period; therefore, there are no Q&A takeaways to report from this quarter.

Estimates Context

Wall Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable for FNCB; we were unable to retrieve estimates due to missing S&P Global CIQ mapping for this ticker, suggesting limited or no active analyst coverage at that time. As a result, we cannot present vs-consensus comparisons for Q4 2023.
Given the absence of estimates, investor focus should remain on sequential NIM stabilization, funding cost trajectory, and merger timing as the principal valuation drivers .

Key Takeaways for Investors

Sequential NIM improvement for a second quarter amid rising funding costs points to effective asset-liability management; further benefit could accrue as rates normalize or if deposit pricing pressures abate .
Funding costs remain the primary headwind (2.76% in Q4, +157 bps YoY); watch deposit mix, brokered deposit reliance, and pricing discipline into 2024 .
Asset quality is normalizing but remains manageable (NPLs 0.44%; delinquencies 0.75%); continued vigilance warranted given upticks in C&I/equipment finance .
Elevated expenses (merger, FDIC assessments) pressured efficiency; these should be transitory, with potential for cost rationalization post-merger .
Dividend support (FY23 $0.36; 5.3% yield on 12/31/23 close) provides carry while awaiting merger closure and improved NIM/earnings trajectory .
Primary catalysts: merger consummation in 1H 2024, sustained NIM expansion, and signs of easing funding costs; risks include prolonged deposit pricing pressure and further asset quality deterioration .

References:

Q4 2023 8-K earnings press release and exhibits .
Q3 2023 8-K earnings press release .
Q2 2023 8-K earnings press release .

FNCB Bancorp, Inc. (FNCB)·Q4 2023 Earnings Summary