Note

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

March 31, 2019

and

December 31, 2018:

	March 31, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	132,165	$	807	$	848	$	132,124
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		34,365		83		496		33,952
Collateralized mortgage obligations - commercial		75,948		8		813		75,143
Mortgage-backed securities		21,104		113		105		21,112
Private collateralized mortgage obligations		2,782		28		3		2,807
Corporate debt securities		5,000		49		56		4,993
Asset-backed securities		1,573		-		13		1,560
Negotiable certificates of deposit		2,428		-		5		2,423
Total available-for-sale debt securities	$	275,365	$	1,088	$	2,339	$	274,114

	December 31, 2018
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	154,268	$	214	$	2,295	$	152,187
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		35,147		6		946		34,207
Collateralized mortgage obligations - commercial		76,038		-		2,398		73,640
Mortgage-backed securities		24,165		47		278		23,934
Private collateralized mortgage obligations		2,908		7		2		2,913
Corporate debt securities		5,000		14		78		4,936
Asset-backed securites		1,825		-		23		1,802
Negotiable certificates of deposit		2,428		-		15		2,413
Total available-for-sale debt securities	$	301,779	$	288	$	6,035	$	296,032

Except for securities of U.S. government and government-sponsored agencies, there were

securities of any individual issuer that exceeded

10.0%

of shareholders’ equity at

March 31, 2019.

March

31,

2019

and

December

31,

2018,

securities with a carrying amount of

$264.8

million and

$286.4

million, respectively, were pledged as collateral to secure public deposits and for other purposes.

The following table presents the maturity information of FNCB’s available-for-sale debt securities at

March 31, 2019.

Expected maturities will differ from contractual maturity 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.

	March 31, 2019
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	1,734	$	1,731
After one year through five years		56,360		56,370
After five years through ten years		77,470		77,490
After ten years		4,029		3,949
Collateralized mortgage obligations		113,095		111,902
Mortgage-backed securities		21,104		21,112
Asset-backed securities		1,573		1,560
Total	$	275,365	$	274,114

Gross proceeds from the sale of available-for-sale debt securities were

$25.1

million for the

three

months ended

March 31, 2019,

with gross gains and losses of

$176

thousand and

$16

thousand, respectively realized upon the sale. There were

sales of available-for-sale debt securities during the

three

months ended

March 31, 2018.

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities with unrealized losses at

March 31, 2019

and

December 31, 2018,

aggregated by investment category and length of time the securities have been in an unrealized loss position.

	March 31, 2019
	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
Obligations of state and policitical subdivisions		2	$	761	$	10		54	$	63,226	$	838		56	$	63,987	$	848
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		-		-		-		11		24,424		496		11		24,424		496
Collateralized mortgage obligations - commercial		-		-		-		23		71,655		813		23		71,655		813
Mortgage-backed securities		-		-		-		6		10,453		105		6		10,453		105
Private collateralized mortgage obligations		1		874		3		-		-		-		1		874		3
Corporate debt securities		1		998		2		1		1,946		54		2		2,944		56
Asset-backed securities		-		-		-		2		1,560		13		2		1,560		13
Negotiable certificates of deposit		-		-		-		10		2,423		5		10		2,423		5
Total available-for-sale debt securities		4	$	2,633	$	15		107	$	175,687	$	2,324		111	$	178,320	$	2,339

	December 31, 2018
	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
Obligations of state and policitical subdivisions		3	$	7,154	$	205		109	$	112,563	$	2,090		112	$	119,717	$	2,295
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		-		-		-		14		31,414		946		14		31,414		946
Collateralized mortgage obligations - commercial		-		-		-		25		73,640		2,398		25		73,640		2,398
Mortgage-backed securities		1		52		-		6		10,294		278		7		10,346		278
Private collateralized mortgage obligations		1		950		2		-		-		-		1		950		2
Corporate debt securities		2		2,922		78		-		-		-		2		2,922		78
Asset-backed securities		1		369		2		1		1,433		21		2		1,802		23
Negotiable certificates of deposit		3		740		3		7		1,673		12		10		2,413		15
Total available-for-sale debt securities		11	$	12,187	$	290		162	$	231,017	$	5,745		173	$	243,204	$	6,035

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 or

not

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.

There were

111

securities in an unrealized loss position at

March 31, 2019,

including

obligations of state and political subdivisions,

securities issued by a U.S. government or government-sponsored agency,

negotiable certificates of deposit, two asset-backed securities,

corporate debt securities and

one

private collateralized mortgage obligation. Management performed a review of all securities in an unrealized loss position as of

March 31, 2019

and determined that changes in the fair values of the securities were consistent with movements in market interest rates. In addition, as part of its review, management noted that there was

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

March 31, 2019.

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

March 31, 2019.

Equity Securities

FNCB’s investment in equity securities consists entirely of a mutual fund investment comprised of

one

- to

four

-family residential mortgage-backed securities collateralized by properties within FNCB’s geographical market. At

March 31, 2019,

this mutual fund had an amortized cost of

$1.0

million and an unrealized loss of

$96

thousand, resulting in a fair value of

$903

thousand. In accordance with ASU

2016

01,

Financial Instruments – Overall (Subtopic

825

): “Recognition and Measurement of Financial Assets and Financial Liabilities” which became effective

January 1, 2018,

FNCB recognizes any changes in the fair value of this equity security in the consolidated statements of income on a prospective basis. Upon the adoption of this new accounting guidance on

January 1, 2018,

FNCB recorded a

one

-time reclassification between retained earnings and accumulated other comprehensive loss for the unrealized loss on this mutual fund, net of taxes, of

$65

thousand. The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the

three

months ended

March 31, 2019 and 2018.

	March 31,		March 31,
(in thousands)	2019		2018
Net gains (losses) recognized on equity securities	$	12	$	(19	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains (losses) on equity securities held	$	12	$	(19	)

Restricted Securities

The following table presents FNCB's investment in restricted securities at

March 31, 2019

and

December 31, 2018.

Restricted securities have limited marketability and are carried at cost.

	March 31,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	3,110	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	3,120	$	3,123

Management noted

indicators of impairment for the Federal Home Loan Bank of Pittsburgh or Atlantic Community Banker’s Bank stock at

March 31, 2019

and

December 31, 2018.

Equity Securities without Readily Determinable Fair Values

FNCB owns a

$1.7

million investment in the common stock of a privately-held bank holding company. The common stock was purchased during

2017

as part of a private placement pursuant to an exemption from the registration requirements of the Securities Act of

1933,

as amended for offerings

not

involving any public offering. The common stock of such bank holding company is

not

currently traded on any established market and is

not

expected to be traded in the near future on any securities exchange or established over-the-counter market. FNCB has elected to account for this transaction as an investment in an equity security without a readily determinable fair value. 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. The

$1.7

million investment is included in other assets in the consolidated statements of financial condition at

March 31, 2019 and December 31, 2018. As part of its qualitative assessment, m

anagement engaged an independent

third

party to provide a valuation of this investment as of

March 31, 2019, which indicated that the

investment was

not

impaired. Management determined that

adjustment for impairment was required at

March 31, 2019.