Note

. Commitments and Contingencies

Leases

FNCB is obligated under operating leases for certain bank branches, office space and automobiles. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating liabilities represent our 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

March 31, 2019

ROU assets and lease liabilities were

3.2

million and

$3.6

million, respectively. There were

new operating leases that have

not

yet commenced as of

March 31, 2019.

The following table summarizes the components of FNCB's operating lease expense for the

three

months ended

March 31, 2019.

Operating lease expense associated with bank branches and office space is included in occupancy expense, while operating lease expense associated with automobiles is included in equipment expense in the consolidated statements of income.

(in thousands)	Three Months Ended March 31, 2019
Operating lease cost - bank branches	$	85
Operating lease cost - automobiles		2
Short-term lease cost - office space		15
Short-term lease cost - automobiles		3
Variable lease cost		-
Total lease cost	$	105

The following table summarizes the maturity of remaining operating lease liabilities as of

March 31, 2019:

(in thousands)	March 31, 2019
2019	$	251
2020		363
2021		335
2022		316
2023		312
2024 and thereafter		3,095
Total lease payments		4,672
Less: imputed interest		1,096
Present value of operating lease liabilities	$	3,576

The following table presents other information related to our operating leases:

(dollars in thousands)	March 31, 2019
Weighted average remaining lease term	14.9 years
Weighted average discount rate		3.44	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116

Litigation

May 24, 2012,

a putative shareholder filed a complaint in the Court of Common Pleas for Lackawanna County (“Shareholder Derivative Suit”) against certain present and former directors and officers of FNCB (the “Individual Defendants”) alleging, inter alia, breach of fiduciary duty, abuse of control, corporate waste, and unjust enrichment. FNCB was named as a nominal defendant. On

February 4, 2014,

the Court issued a Final Order and Judgment for the matter granting approval of a Stipulation of Settlement (the “Settlement”) and dismissing all claims against FNCB and the Individual Defendants. As part of the Settlement, without admitting any fault, wrongdoing or liability, the Individual Defendants agreed to settle the derivative litigation for

$5.0

million. The

$5.0

million Settlement payment was made to FNCB on

March 28, 2014.

The Individual Defendants reserved their rights to indemnification under FNCB’s Articles of Incorporation and Bylaws, resolutions adopted by the Board, the Pennsylvania Business Corporation Law and any and all rights they have against FNCB’s and the Bank’s insurance carriers. In addition, in conjunction with the Settlement, FNCB accrued

$2.5

million related to fees and costs of the plaintiff’s attorneys, which was included in non-interest expense in the consolidated statements of income for the year ended

December 31, 2013.

April 1, 2014,

FNCB paid the

$2.5

million related to fees and costs of the plaintiff’s attorneys and partial indemnification of the Individual Defendants in the amount of

$2.5

million. Commencing on

July 1, 2017,

FNCB made partial indemnifications to the Individual Defendants through monthly principal payments, made on behalf of the Individual Defendants, of

$25,000

plus accrued interest to First Northern Bank and Trust Co. On

April 11, 2018,

FNCB indemnified the Individual Defendants by paying in full the

$2.5

million, plus accrued interest to First Northern Bank & Trust Co.

September 5, 2012,

Fidelity and Deposit Company of Maryland (“F&D”) filed an action against FNCB and the Bank, as well as several current and former officers and directors of FNCB, in the United States District Court for the Middle District of Pennsylvania. F&D asserted a claim for the rescission of a directors’ and officers’ insurance policy and a bond that it had issued to FNCB. On

November 9, 2012,

FNCB and the Bank answered the claim and asserted counterclaims for the losses and expenses already incurred by FNCB and the Bank. FNCB and the other defendants defended the claims and opposed F&D’s requested relief by way of counterclaims. On

December 21, 2018,

FNCB, the Bank and F&D resolved the dispute by entering into a mutual release of all claims. FNCB recognized a gain of

$6.0

million after expenses in the

fourth

quarter of

2018

in connection with this insurance recovery.

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

changes in the status of the other litigation disclosed in FNCB’s Annual Report on Form

-K for the year ended

December 31, 2018.