FNCB Bancorp, Inc. - Quarter Report: 2023 September (Form 10-Q)

Part I - Financial Information

Item 1 - Financial Statements

The accompanying notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

The accompanying notes to consolidated financial statements are an integral part of these statements.

FNCB BANCORP, INC.

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”), (and collectively, “FNCB”). The accounting and reporting policies of FNCB conform to accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Prior period amounts have been reclassified when necessary to conform to the current period’s presentation. Such reclassifications did not have an impact on the operating results or financial position of FNCB. The operating results and financial position of FNCB for the three and nine months ended September 30, 2023  may not be indicative of future results of operations and financial position.

In addition, the preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term are the allowance for credit losses (“ACL”), securities’ valuation and evaluation for credit impairment and income taxes.

Since 2021, the Bank has provided commercial equipment financing under the brand 1st Equipment Finance. On June 5, 2023, the Bank filed a Bank Subsidiary Notice with the Pennsylvania Department of Banking and Supervision (“PADOBS”) to inform the PADOBS that the Bank plans to establish 1^st Equipment Finance, Inc. as a wholly-owned subsidiary for the purpose of providing commercial equipment loans and leases to customers. On July 5, 2023, the Bank received written notification from the PADOBS that it does not object to the establishment of the subsidiary pursuant to Section 203(d) of the Pennsylvania Banking Code of 1965, and the establishment of the subsidiary must be completed by January 2, 2024. On October 1, 2023, 1st Equipment Finance, Inc. was established as a wholly-owned subsidiary of the Bank. Upon establishment of the subsidiary, the Bank contributed capital to the new subsidiary which included the outstanding balance of loans and leases previously originated under this brand, accrued interest and furniture and equipment totaling $160.5 million. 

Agreement and Plan of Merger:

On September 27, 2023, FNCB entered into an Agreement and Plan of Merger (the "Merger Agreement") with Peoples Financial Services Corp. (“PFIS”) pursuant to which FNCB will merge with and into PFIS, with PFIS as the surviving entity. Immediately after such merger, the Bank will merge with and into Peoples Security Bank and Trust Company ("Peoples Bank"), with Peoples Bank as the surviving bank and a wholly-owned subsidiary of PFIS. Under the terms of the Merger Agreement, which has been unanimously approved by the boards of directors of both companies, shareholders of FNCB will be entitled to receive a fixed exchange ratio of 0.1460 shares of PFIS common stock for each share of the FNCB’s common stock. On October 27, 2023, FNCB filed a Federal Deposit Insurance Corporation ("FDIC") Interagency Bank Merger Application with the FDIC New York and a Pennsylvania Bank Merger Application with the Pennsylvania Department of Banking and Securities. Completion of the merger requires, among other things, the approval from these regulatory authorities, as well as FNCB’s shareholders. 

The Merger Agreement provides certain termination rights for both PFIS and FNCB and further provides that a termination fee of $4.8 million will be payable by either PFIS or FNCB, as applicable, upon termination of the Merger Agreement under certain circumstances. The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the Definitive Merger Agreement filed by FNCB as Exhibit 2.1 to the Current Report on Form 8-K on September 27, 2023. Pending regulatory and shareholder approvals, FNCB expects the merger to be consummated by April 1, 2024, however, there can be no assurance that the transaction will be consummated by such date, or at all.

Subsequent Events:

In addition to the establishment of 1st Equipment Finance, Inc. as a subsidiary of the Bank mentioned above, FNCB has evaluated events and transactions occurring subsequent to September 30, 2023, the balance sheet date, for items that could potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements. See Note 12, “Regulatory Matters” for information about events and transactions that have occurred subsequent to the balance sheet date.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited consolidated financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2022 (the “2022 Annual Report”).

Note 2.   Summary of Significant Accounting Policies/New Authoritative Accounting Guidance

The disclosures below update and supplement the accounting policies previously disclosed in Note 2, "Summary of Significant Accounting Policies" included in the 2022 Annual Report and reflect the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” by FNCB on January 1, 2023. ASU 2016-13 is also commonly referred to as Accounting Standards Codification ("ASC") 326 or Current Expected Credit Losses ("CECL").

ACL on Debt Securities: The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. At September 30, 2023, FNCB had no securities classified as held-to-maturity.

Upon adoption of ASU 2016-13, management no longer evaluates securities for other than temporary impairment ("OTTI"), as ASC Subtopic 326-30, "Financial Instruments—Credit Losses—Available-for-Sale Debt Securities," changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party credit support, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow ("DCF")

method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance on available-for-sale debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive (loss) income.

FNCB’s estimate of expected credit losses includes a measure of the expected risk of credit loss even if that risk is remote. However, FNCB does not measure expected credit losses on an investment security in which historical credit loss information adjusted for current conditions and reasonable and supportable forecast results in an expectation that nonpayment of the amortized cost basis is zero. Management does not expect nonpayment of the amortized cost basis to be zero solely on the basis of the current value of collateral securing the security but, instead, also considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral. FNCB performed an analysis that determined that the following securities have a zero expected credit loss: U.S. government agencies, mortgage-backed securities of U.S. government and government-sponsored agencies, as all of the U.S. government agencies and U.S. government agency backed securities have the full faith and credit backing of the United States Government or one of its agencies. 

The allowance on available-for-sale debt securities may be in full or a portion hereof and is recorded as an expense (credit) within the provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale debt security is confirmed based on the above-described analysis. As of September 30, 2023 and January 1, 2023 (i.e. ASU 2016-13 adoption), there was no allowance established for FNCB's available-for-sale debt securities.

Loans and Leases:  FNCB reports loans and leases held in the portfolio at amortized cost.  Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased through third-party originators.  

Generally, for originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using the level-yield method over the estimated lives of the related loans. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status.  

For purchased loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income.

ACL on Loans and Leases: The ACL on the loan portfolio is a significant accounting estimate used in the preparation of the FNCB's consolidated financial statements. Upon adoption of ASU 2016-13, FNCB replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.  The allowance is comprised of reserves measured on a collective or pool basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis.  Arriving at an appropriate level of ACL involves a high degree of judgment. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.

FNCB estimates expected credit losses using the DCF method for all loan portfolio segments measured on a collective or pool basis. For each loan segment, a cash flow projection is generated at the instrument level. A default rate and loss given default assumption are applied to the pool’s projective model of cash flows taking into consideration the effects of prepayments and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (default rates and prepayment speeds).

Management has determined that peer loss experience provides the best basis for its assessment of expected credit losses to determine the ACL. FNCB utilizes peer call report data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle. Management reviews the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Management also considered further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information was evaluated. For all segment models for collectively evaluated loans, FNCB incorporates one macroeconomic driver, the national unemployment rate, using a statistical regression modeling methodology. Management determined that four quarters currently represents a reasonable and supportable forecast period. For the contractual term that extend beyond the reasonable and supportable forecast period, FNCB reverts to historical loss information within eight quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique.

Management also considers certain qualitative factors in its evaluation of expected credit losses, these factors include: (i) changes in the credit quality trends of a respective segment which may be measured by risk ratings, FICO scores, delinquency rates, and payment performance, (ii) changes in independent third-party loan reviews and regulatory exam ratings, (iii) changes in local unemployment rates, (iv) portfolio segment growth rates and concentrations, and (v) other external factors that may affect bank lending and operations such as a pandemic, natural disaster, or loss of a major employer, among others.

Individually Evaluated Loans:  Prior to the adoption of ASU 2016-13 on January 1, 2023, a loan was individually evaluated when the loan was considered impaired.  A loan was considered to be impaired when based on current information and events, it was probable that FNCB would not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments.

With the adoption of ASU 2016-13, loans that do not share risk characteristics with existing pools are evaluated on an individual basis.  FNCB considers a loan to be collateral dependent when management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset to expected to be provided substantially through the operation or sale of the collateral.  When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.  The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Accrued Interest: Upon adoption of ASU 2016-13 on January 1, 2023, FNCB made the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances separately on the consolidated statements of condition; (ii) exclude accrued interest from the measurement of the ACL, including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income when a loan is placed on non-accrual. FNCB's policy is to write-off accrued interest when a loan is placed on non-accrual.  Historically, FNCB has not experienced uncollectible accrued interest receivable on investment debt securities.

ACL for Unfunded Commitments:  The exposure is a component of other liabilities on FNCB’s consolidated statement of financial condition and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit.  Unfunded commitments to extend credit include unused portions of lines of credit, availability on construction and land development loans and standby and commercial letters of credit. The process used to determine the ACL for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors.  A charge (credit) to provision for unfunded commitments on the consolidated statements of income is made to account for the change in the ACL on unfunded commitment exposures between reporting periods.

New Authoritative Accounting Guidance

On January 1, 2023, FNCB adopted ASU 2016-13. ASU 2016-13 significantly changed the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. FNCB applied the new guidance using the modified-retrospective approach. Related to the implementation of ASU 2016-13, FNCB recorded a reduction in the ACL on loans and leases of $2.6 million, additional reserves for unfunded commitments of $1.3 million, a reduction in deferred tax assets of $287 thousand, and an increase to retained earnings of $1.1 million. The adoption of ASU 2013-16 did not have a material effect on FNCB's available-for-sale debt securities. 

The following table below presents the impact of ASU 2016-13 on the consolidated statements of financial condition:

On January 1, 2023, FNCB adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): "Troubled Debt Restructurings and Vintage Disclosures."  ASU 2022-02 eliminates the troubled debt restructuring ("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. 

Refer to Note 2 to FNCB’s consolidated financial statements included in the 2022 Annual Report for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.

Note 3. Securities

Available-for-Sale Debt Securities

The following tables present the amortized cost, gross unrealized gains and losses, and the fair value of FNCB’s available-for-sale debt securities at September 30, 2023 and December 31, 2022:

Except for securities of 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, 2023 and December 31, 2022.

The following table presents the maturity information of FNCB’s available-for-sale debt securities at September 30, 2023.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because collateralized mortgage obligations ("CMOs"), mortgage-backed securities and asset-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.

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, 2023 and 2022. Gains and losses realized on sales of available-for-sale debt securities are included in non-interest income in the consolidated statements of income.

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities in an unrealized loss position at September 30, 2023 and December 31, 2022, aggregated by investment category and length of time the securities have been in an unrealized loss position.

Evaluation for Credit Impairment

Quarterly, or more frequently if market conditions warrant, management evaluates securities for impairment where there has been a decline in fair value of a security below its amortized cost basis to determine whether the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit related factors.  At September 30, 2023, there were 380 securities in an unrealized loss position. FNCB expects to recover the amortized cost basis of all available-for-sale debt securities in an unrealized loss position at September 30, 2023. Furthermore, FNCB does not intend to sell, nor is it more likely than not that it would be required to sell, any security in an unrealized loss position prior to recovery of its amortized cost. As part of its evaluation, management considered, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any adverse conditions related to the security, an industry or geographic area, any adverse changes to the rating of any security by a rating agency, whether or not any issuer has failed to make contractual principal and interest payments, or if there are any indications that an issuer would not be able to make future contractual principal and interest payments. 

Management performed a review of all securities in an unrealized loss position as of September 30, 2023 and noted that there was no material change in the credit quality of any of the issuers or any other event or circumstance that may cause a significant adverse effect on the fair value of these securities. Moreover, to date, FNCB has received all scheduled principal and interest payments and expects to fully collect all future contractual principal and interest payments on all securities in an unrealized loss position at September 30, 2023. Based on the results of its review and considering the attributes of these debt securities, management concluded that changes in the fair values of the securities were consistent with movements in market interest rates and spreads relative to when the securities were purchased and not due to the credit quality of the securities or issuers. Accordingly, management determined that FNCB was not required to establish an ACL for any security in an unrealized loss position at September 30, 2023.

Equity Securities

Included in equity securities with readily determinable fair values at September 30, 2023 and December 31, 2022 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, 2023 and 2022.

Equity Securities without Readily Determinable Fair Values

At September 30, 2023 and  December 31, 2022, equity securities without readily determinable fair values consisted of a $500 thousand investment in a fixed-rate, non-cumulative perpetual preferred stock of a privately-held bank holding company, which is included in other assets in the consolidated statement of financial condition. The preferred stock pays quarterly dividends at an annual rate of 8.25%. The preferred stock of this bank holding company is not traded on any established market and is accounted for as an equity security without a determinable fair value. Under GAAP, an equity security without a readily determinable fair value shall be written down to its fair value if a qualitative assessment indicates that the investment is impaired, and the fair value of the investment is less than its carrying value.  As part of its qualitative assessment, management engaged an independent third party to provide valuations of this investment as of September 30, 2023 and December 31, 2022, which indicated that the investment was not impaired.  Accordingly, management determined that no adjustment for impairment was required at September 30, 2023 and  December 31, 2022.

Restricted Stock

The following table presents FNCB's investment in restricted stock at September 30, 2023 and  December 31, 2022.  Restricted stock has limited marketability and is carried at cost. Management noted no indicators of impairment for the Federal Home Loan Bank ("FHLB") of Pittsburgh and Atlantic Community Bankers Bank stock at either  September 30, 2023 or  December 31, 2022.

Note 4. Loans and Leases

The following table summarizes loans and leases by portfolio segment at September 30, 2023 and  December 31, 2022. In accordance with the adoption of ASU 2016-13, as of September 30, 2023, the table presents the amortized cost basis of each portfolio segment, which includes net deferred costs of $2.4 million, unearned income of $952 thousand and unamortized premiums on purchased loans of $199 thousand. FNCB does not include accrued interest receivable in amortized cost basis for loans disclosed throughout this footnote. As of September 30, 2023 and  December 31, 2022, accrued interest receivable for loans was $3.2 million and $2.1 million, respectively, and is included in "accrued interest receivable" in the consolidated statements of financial condition.

FNCB has granted loans, letters of credit and lines of credit to certain of its executive officers and directors as well as to certain of their related parties. For more information about related party transactions, refer to Note 9, “Related Party Transactions” to these consolidated financial statements.

The unpaid principal balance of loans serviced for others, which includes residential mortgages sold on the secondary market and SBA-guaranteed loans, was $73.0 million at September 30, 2023 and $78.7 million at December 31, 2022.

Credit Risk Profiles– Commercial Loans

Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing certain credit risk profiles. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s commercial loan receivables.

FNCB’s loan rating system assigns a degree of risk to commercial loans based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Management analyzes these non-homogeneous loans individually by grading the loans as to credit risk and probability of collection for each type of loan. Commercial and industrial loans include commercial indirect auto loans which are not individually risk rated, and construction, land acquisition and development loans include residential construction loans which are also not individually risk rated. These loans are monitored on a pool basis due to their homogeneous nature as described in “Credit Risk Profile – Other Loans” below. FNCB risk rates certain residential real estate loans and consumer loans that are part of a larger commercial relationship using a credit grading system as described in “Credit Risk Profiles – Commercial Loans.” The grading system contains the following basic risk categories:

This analysis is performed on a quarterly basis using the following definitions for risk ratings:

Pass – Assets rated 1 through 5 are considered pass ratings. These assets are contractually current as to principal and interest, are otherwise in compliance with the contractual terms of their respective loan agreement and are considered fully collectible. Management believes there is a low risk of loss related to pass-rated loans.

Special Mention – Assets classified as special mention do not currently expose FNCB to a sufficient degree of risk to warrant an adverse classification but do possess credit deficiencies or potential weaknesses deserving close attention.  Special mention assets have a potential weakness or pose an unwarranted financial risk which, if not corrected, could weaken the asset and increase risk in the future.

Substandard – Assets classified as substandard have well defined weaknesses based on objective evidence and are characterized by the distinct possibility that FNCB will sustain some loss if the deficiencies are not corrected.

Doubtful – Assets classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that such weaknesses make collection or liquidation in full highly questionable and improbable based on current circumstances.

Loss – Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.

Credit Risk Profiles – Other Loans

Certain residential real estate loans, consumer loans, commercial and municipal indirect auto loans are monitored on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are placed on non-accrual status unless collection of the loan is in process and reasonably assured. FNCB utilizes performing (accruing) versus non-performing (non-accrual) status as the credit quality indicator for these loan pools.

Collateral Dependent Loans

Loans that do not share risk characteristics are evaluated on an individual basis. Such loans include loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of collateral. The ACL for collateral dependent loans is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. 

The following table presents the credit risk profile of loans and leases summarized by portfolio segment and year of origination at September 30, 2023: