10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to       

Commission File No. 001-38408

FNCB BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	23-2900790
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
102 E. Drinker St., Dunmore, PA	18512
(Address of Principal Executive Offices)	(Zip Code)

(570) 346-7667

Registrant’s telephone number, including area code 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1.25 par value	FNCB	Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 20,168,533 shares as of August 5, 2019

1

Contents
PART I. Financial Information	3
Item 1. Financial Statements (unaudited)	3
Consolidated Statements of Financial Condition	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income (Loss)	5
Consolidated Statements of Changes in Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	48
Item 4. Controls and Procedures	49
PART II.  Other Information	49
Item 1. Legal Proceedings.	49
Item 1A. Risk Factors.	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	49
Item 3. Defaults upon Senior Securities.	49
Item 4. Mine Safety Disclosures.	50
Item 5. Other Information.	50
Item 6. Exhibits.	50

2

Part I - Financial Information

Item 1 - Financial Statements

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(unaudited)

	June 30,		December 31,
(in thousands, except share data)	2019		2018
Assets
Cash and cash equivalents:
Cash and due from banks	$	24,277	$	26,673
Interest-bearing deposits in other banks		5,627		9,808
Total cash and cash equivalents		29,904		36,481
Available-for-sale debt securities, at fair value		285,855		296,032
Equity securities, at fair value		917		891
Restricted stock, at cost		4,618		3,123
Loans held for sale		419		820
Loans, net of allowance for loan and lease losses of $8,945 and $9,519		805,475		829,581
Bank premises and equipment, net		15,923		14,425
Accrued interest receivable		3,640		3,614
Bank-owned life insurance		31,275		31,015
Other real estate owned		560		919
Net deferred tax assets		7,537		10,693
Other assets		12,671		10,138
Total assets	$	1,198,794	$	1,237,732
Liabilities
Deposits:
Demand (non-interest-bearing)	$	157,856	$	156,600
Interest-bearing		803,208		939,029
Total deposits		961,064		1,095,629
Borrowed funds:
Federal Home Loan Bank of Pittsburgh advances		87,223		18,930
Subordinated debentures		-		5,000
Junior subordinated debentures		10,310		10,310
Total borrowed funds		97,533		34,240
Accrued interest payable		389		338
Other liabilities		10,102		10,306
Total liabilities		1,069,088		1,140,513
Shareholders' equity
Preferred shares ($1.25 par)
Authorized: 20,000,000 shares at June 30, 2019 and December 31, 2018
Issued and outstanding: 0 shares at June 30, 2019 and December 31, 2018		-		-
Common shares ($1.25 par)
Authorized: 50,000,000 shares at June 30, 2019 and December 31, 2018
Issued and outstanding: 20,148,017 shares at June 30, 2019 and 16,821,371 shares at December 31, 2018		25,184		21,026
Additional paid-in capital		80,864		63,547
Retained earnings		20,345		17,186
Accumulated other comprehensive income (loss)		3,313		(4,540	)
Total shareholders' equity		129,706		97,219
Total liabilities and shareholders’ equity	$	1,198,794	$	1,237,732

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

3

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands, except share data)	2019		2018			2019		2018
Interest income
Interest and fees on loans	$	9,418	$	9,031		$	18,825	$	17,319
Interest and dividends on securities:
U.S. government agencies		906		886			1,799		1,776
State and political subdivisions, tax free		38		38			75		58
State and political subdivisions, taxable		811		1,027			1,832		2,051
Other securities		210		240			415		435
Total interest and dividends on securities		1,965		2,191			4,121		4,320
Interest on interest-bearing deposits in other banks		79		12			125		35
Total interest income		11,462		11,234			23,071		21,674
Interest expense
Interest on deposits		2,144		1,134			4,382		2,201
Interest on borrowed funds:
Interest on Federal Home Loan Bank of Pittsburgh advances		253		707			540		1,059
Interest on subordinated debentures		-		57			24		113
Interest on junior subordinated debentures		111		99			225		186
Total interest on borrowed funds		364		863			789		1,358
Total interest expense		2,508		1,997			5,171		3,559
Net interest income before provision for loan and lease losses		8,954		9,237			17,900		18,115
Provision for loan and lease losses		347		880			193		1,600
Net interest income after provision for loan and lease losses		8,607		8,357			17,707		16,515
Non-interest income
Deposit service charges		721		747			1,406		1,449
Net gain (loss) on the sale of available-for-sale debt securities		163		(4	)		323		(4	)
Net gain (loss) on equity securities		14		(7	)		26		(26	)
Net gain on the sale of mortgage loans held for sale		73		51			129		100
Net gain on the sale of SBA guaranteed loans		-		71			-		322
Net gain (loss) on the sale of other real estate owned		9		(7	)		9		31
Loan-related fees		72		76			151		160
Income from bank-owned life insurance		129		138			260		272
Other		397		464			789		744
Total non-interest income		1,578		1,529			3,093		3,048
Non-interest expense
Salaries and employee benefits		3,824		3,485			7,723		7,151
Occupancy expense		444		526			994		1,129
Equipment expense		329		323			636		637
Advertising expense		154		213			351		326
Data processing expense		789		647			1,570		1,295
Regulatory assessments		76		196			244		397
Bank shares tax		277		222			555		489
Expense of other real estate owned		14		55			65		100
Professional fees		203		196			535		492
Insurance expense		120		133			246		268
Other losses		1		86			10		127
Other operating expenses		891		884			1,618		1,787
Total non-interest expense		7,122		6,966			14,547		14,198
Income before income tax expense		3,063		2,920			6,253		5,365
Income tax expense		514		508			1,069		934
Net income	$	2,549	$	2,412		$	5,184	$	4,431
Earnings per share
Basic	$	0.13	$	0.14		$	0.27	$	0.26
Diluted	$	0.13	$	0.14		$	0.27	$	0.26
Cash dividends declared per common share	$	0.05	$	0.04		$	0.10	$	0.08
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic		20,129,150		16,792,812			19,428,717		16,778,188
Diluted		20,133,850		16,819,286			19,435,076		16,801,426

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

4

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Net income	$	2,549		$	2,412		$	5,184		$	4,431
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale debt securities		5,608			(1,840	)		10,263			(6,816	)
Taxes		(1,177	)		387			(2,155	)		1,431
Net of tax amount		4,431			(1,453	)		8,108			(5,385	)
Reclassification adjustment for (gains) losses included in net income		(163	)		4			(323	)		4
Taxes		34			(1	)		68			(1	)
Net of tax amount		(129	)		3			(255	)		3
Total other comprehensive income (loss)		4,302			(1,450	)		7,853			(5,382	)
Comprehensive income (loss)	$	6,851		$	962		$	13,037		$	(951	)

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

5

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2019 and 2018

(unaudited)

(in thousands, except per share data)	Number of Common Shares		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders' Equity
Balances, December 31, 2017		16,757,963	$	20,947	$	63,210		$	6,779		$	(1,745	)	$	89,191
Net income for the period		-		-		-			4,431			-			4,431
Cash dividends paid, $0.08 per share		-		-		-			(1,343	)		-			(1,343	)
Reclassification of unrealized loss on equity securities, net of tax		-		-		-			(65	)		65			-
Restricted stock awards		-		-		137			-			-			137
Common shares issued under long-term incentive compensation plan		46,358		58		(58	)		-			-			-
Common shares issued through dividend reinvestment / optional cash purchase plan		12,776		16		85			(10	)		-			91
Other comprehensive loss, net of tax of $1,430		-		-		-			-			(5,382	)		(5,382	)
Balances, June 30, 2018		16,817,097	$	21,021	$	63,374		$	9,792		$	(7,062	)	$	87,125
Balances, December 31, 2018		16,821,371	$	21,026	$	63,547		$	17,186		$	(4,540	)	$	97,219
Net income for the period		-		-		-			5,184			-			5,184
Cash dividends paid, $0.10 per share		-		-		-			(2,013	)		-			(2,013	)
Common shares issued for capital raise, net		3,285,550		4,107		17,201			-			-			21,308
Restricted stock awards		-		-		140			-			-			140
Common shares issued under long-term incentive compensation plan		37,558		47		(47	)		-			-			-
Common shares issued through dividend reinvestment / optional cash purchase plan		3,538		4		23			(12	)		-			15
Other comprehensive income, net of tax of $2,087		-		-		-			-			7,853			7,853
Balances, June 30, 2019		20,148,017	$	25,184	$	80,864		$	20,345		$	3,313		$	129,706

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

6

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	5,184		$	4,431
Adjustments to reconcile net income to net cash provided by operating activities:
Investment securities amortization, net		429			398
Equity in trust		(7	)		(6	)
Depreciation and amortization		1,543			1,341
Valuation adjustment for loan servicing rights		7			-
Stock-based compensation expense		140			137
Provision for loan and lease losses		193			1,600
Valuation adjustment for off-balance sheet commitments		78			(55	)
Net (gain) loss on the sale of available-for-sale debt securities		(323	)		4
Net (gain) loss on equity securities		(26	)		26
Loss on the disposition of bank premises and equipment		-			30
Net gain on the sale of mortgage loans held for sale		(129	)		(100	)
Net gain on the sale of SBA guaranteed loans		-			(322	)
Net gain on the sale of other real estate owned		(9	)		(31	)
Valuation adjustment of other real estate owned		-			17
Income from bank-owned life insurance		(260	)		(272	)
Proceeds from the sale of mortgage loans held for sale		4,233			5,032
Funds used to originate mortgage loans held for sale		(3,703	)		(4,466	)
Decrease in net deferred tax assets		1,069			934
Increase in accrued interest receivable		(26	)		(420	)
(Increase) decrease in prepaid expenses and other assets		(2,551	)		1,271
Increase in accrued interest payable		51			90
Decrease in director indemnification liability		-			(2,553	)
Decrease in accrued expenses and other liabilities		(349	)		(512	)
Total adjustments		360			2,143
Net cash provided by operating activities		5,544			6,574
Cash flows from investing activities:
Maturities, calls and principal payments of available-for-sale debt securities		3,196			3,160
Proceeds from the sale of available-for-sale debt securities		61,352			4,559
Purchases of available-for-sale debt securities		(44,537	)		(16,337	)
Purchase of stock in Federal Home Loan Bank of Pittsburgh		(1,495	)		(5,201	)
Net decrease (increase) in loans to customers		23,069			(92,242	)
Proceeds from the sale of SBA guaranteed loans		-			6,032
Proceeds from the sale of other real estate owned		420			470
Purchases of bank premises and equipment		(2,164	)		(4,463	)
Net cash provided by (used in) investing activities		39,841			(104,022	)
Cash flows from financing activities:
Net decrease in deposits		(134,565	)		(47,205	)
Net proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight		29,750			72,590
Proceeds from Federal Home Loan Bank of Pittsburgh advances - term		47,192			73,929
Repayment of Federal Home Loan Bank of Pittsburgh advances - term		(8,649	)		(17,236	)
Principal reduction on subordinated debentures		(5,000	)		-
Proceeds from issuance of common shares, net of discount		21,323			91
Cash dividends paid		(2,013	)		(1,343	)
Net cash (used in) provided by financing activities		(51,962	)		80,826
Net decrease in cash and cash equivalents		(6,577	)		(16,622	)
Cash and cash equivalents at beginning of period		36,481			37,746
Cash and cash equivalents at end of period	$	29,904		$	21,124
Supplemental cash flow information
Cash paid during the period for:
Interest	$	5,119		$	3,469
Income taxes		-			18
Other transactions:
Lease liabilities arising from obtaining right-of-use assets		15			-
Loans transferred to other real estate owned and repossessed assets		-			220
Investor loans transferred to OREO		52			-

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

7

FNCB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1.   Basis of Presentation

The consolidated financial statements of FNCB are comprised of the accounts of FNCB Bancorp, Inc., and its wholly owned subsidiary, FNCB Bank (the “Bank”), as well as the Bank’s wholly owned subsidiaries (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 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 six months ended June 30, 2019, may not be indicative of future results of operations and financial position.

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 loan and lease losses (“ALLL”), securities’ valuation and impairment evaluation, the valuation of other real estate owned (“OREO”), and income taxes.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2018.

Note 2.   New Authoritative Accounting Guidance

Accounting Guidance to be Adopted in Future Periods

Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” replaces the current loss impairment methodology under GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. Specifically, the amendments in this ASU will require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in this update affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. On June 17, 2016, the four, federal financial institution regulatory agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency), issued a joint statement to provide information about ASU 2016-13 and the initial supervisory views regarding the implementation of the new standard. The joint statement applies to all banks, savings associations, credit unions and financial institution holding companies, regardless of asset size. The statement details the key elements of, and the steps necessary for, the successful transition to the new accounting standard. In addition, the statement notifies financial institutions that because the appropriate allowance levels are institution-specific amounts, the agencies will not establish benchmark targets or ranges for the change in institutions’ allowance levels upon adoption of the ASU, or for allowance levels going forward. Due to the importance of ASU 2016-13, the agencies encourage financial institutions to begin planning and preparing for the transition and state that senior management, under the oversight of the board of directors, should work closely with staff in their accounting, lending, credit risk management, internal audit, and information technology functions during the transition period leading up to, and well after, adoption. ASU 2016-13 was originally effective for public business entities that are registered with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended, including smaller reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this ASU earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On July 17, 2019, the FASB voted for a proposal to extend the effective date for implementation for smaller reporting companies, private companies and not-for-profits to fiscal years and interim periods within those years, beginning after December 15, 2022. Under the new proposal FNCB would adopt this guidance on January 1, 2023. FNCB has created a Current Expected Credit Loss (“CECL”) task group comprised of members of its finance, credit administration, lending, internal audit, loan operations and information systems units. The CECL task group has become familiar with the provisions of ASU 2016-13 and is currently in the process of implementing the new guidance, which includes, but is not limited to: (1) identifying segments and sub-segments within the loan portfolio that have similar risk characteristics; (2) determining the appropriate methodology for each segment; (3) implementing changes that are necessary to its core operating system and interfaces to be able to capture appropriate data requirements; and (4) evaluating  qualitative factors and economic data to develop appropriate forecasts for integration into the model.  FNCB is currently evaluating the effect this guidance may have on its operating results and/or financial position, including assessing any potential impact on its capital.

Refer to Note 2 to FNCB’s consolidated financial statements included in the 2018 Annual Report on Form 10-K for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.

8

Note 3. 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 June 30, 2019 and December 31, 2018:

	June 30, 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	$	114,815	$	2,513	$	83	$	117,245
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,331		504		108		66,727
Collateralized mortgage obligations - commercial		57,062		803		-		57,865
Mortgage-backed securities		20,552		392		4		20,940
Private collateralized mortgage obligations		10,640		57		-		10,697
Corporate debt securities		6,000		128		7		6,121
Asset-backed securities		3,833		1		2		3,832
Negotiable certificates of deposit		2,428		-		-		2,428
Total available-for-sale debt securities	$	281,661	$	4,398	$	204	$	285,855

	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 securities		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 no securities of any individual issuer that exceeded 10.0% of shareholders’ equity at June 30, 2019.

At June 30, 2019 and December 31, 2018, securities with a carrying amount of $264.2 million and $286.4 million, respectively, were pledged as collateral to secure public deposits and for other purposes.

9

The following table presents the maturity information of FNCB’s available-for-sale debt securities at June 30, 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.

	June 30, 2019
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	2,735	$	2,738
After one year through five years		50,428		51,269
After five years through ten years		66,064		67,778
After ten years		4,016		4,009
Collateralized mortgage obligations		134,033		135,289
Mortgage-backed securities		20,552		20,940
Asset-backed securities		3,833		3,832
Total	$	281,661	$	285,855

Gross proceeds from the sale of available-for-sale debt securities were $36.3 million and $61.4 million for the three and six months ended June 30, 2019, respectively. For the three months ended June 30, 2019 gross gains and losses realized upon the sales were $173 thousand and $10 thousand, respectively. Gross gains and losses realized upon the sales for the six months ended June 30, 2019 totaled $349 thousand and $26 thousand, respectively. Gross proceeds from the sale of available-for-sale debt securities were $4.6 million for the three and six months ended June 30, 2018, with gross losses of $4 thousand realized upon the sales. There were no gross gains realized upon the sales for the three and six months ended June 30, 2018.  

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities with unrealized losses at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time the securities have been in an unrealized loss position.

	June 30, 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 political subdivisions		-	$	-	$	-		11	$	14,510	$	83		11	$	14,510	$	83
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		2		13,059		80		3		7,034		28		5		20,093		108
Collateralized mortgage obligations - commercial		-		-		-		-		-		-		-		-		-
Mortgage-backed securities		-		-		-		2		2,095		4		2		2,095		4
Private collateralized mortgage obligations		-		-		-		-		-		-		-		-		-
Corporate debt securities		1		993		7		-		-		-		1		993		7
Asset-backed securities		-		-		-		1		1,069		2		1		1,069		2
Negotiable certificates of deposit		-		-		-		5		1,239		-		5		1,239		-
Total available-for-sale debt securities		3	$	14,052	$	87		22	$	25,947	$	117		25	$	39,999	$	204

10

	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 political 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 25 securities in an unrealized loss position at June 30, 2019, including eleven obligations of state and political subdivisions, seven securities issued by a U.S. government or government-sponsored agency, five negotiable certificates of deposit, one asset-backed security and one corporate debt security. Management performed a review of all securities in an unrealized loss position as of June 30, 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 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 June 30, 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 June 30, 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 June 30, 2019, this mutual fund had an amortized cost of $1.0 million and an unrealized loss of $83 thousand, resulting in a fair value of $917 thousand. In accordance with ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): “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 six months ended June 30, 2019 and 2018.

	Six Months Ended June 30,
(in thousands)	2019		2018
Net gains (losses) recognized on equity securities	$	26	$	(26	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains (losses) on equity securities held	$	26	$	(26	)

11

Restricted Securities

The following table presents FNCB's investment in restricted securities at June 30, 2019 and December 31, 2018.  Restricted securities have limited marketability and are carried at cost.

	June 30,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	4,608	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,618	$	3,123

Management noted no indicators of impairment for the Federal Home Loan Bank of Pittsburgh or Atlantic Community Banker’s Bank stock at June 30, 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 June 30, 2019 and December 31, 2018. As part of its qualitative assessment, management engaged an independent third party to provide a valuation of this investment as of June 30, 2019, which indicated that the investment was not impaired.  Management determined that no adjustment for impairment was required at June 30, 2019.

Note 4. Loans

The following table summarizes loans receivable, net, by category at June 30, 2019 and December 31, 2018:

	June 30,			December 31,
(in thousands)	2019			2018
Residential real estate	$	161,572		$	164,833
Commercial real estate		263,781			262,778
Construction, land acquisition and development		31,686			20,813
Commercial and industrial		159,707			150,962
Consumer		157,878			176,784
State and political subdivisions		36,705			59,037
Total loans, gross		811,329			835,207
Unearned income		(61	)		(70	)
Net deferred loan costs		3,152			3,963
Allowance for loan and lease losses		(8,945	)		(9,519	)
Loans, net	$	805,475		$	829,581

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 6, “Related Party Transactions” to these consolidated financial statements.

FNCB originates one- to four-family mortgage loans for sale in the secondary market. During the three months and six months ended June 30, 2019, one-to four-family mortgages sold on the secondary market were $2.3 million and $4.2 million, respectively. One- to four-family residential mortgages sold on the secondary market for the three months and six months ended June 30, 2018 were $2.1 million and $5.0 million, respectively. Net gains on the sale of residential mortgage loans for the three and six months ended June 30, 2019 were $73 thousand and $129 thousand, respectively and $51 thousand and $100 thousand, respectively, for the comparable periods of 2018. FNCB retains servicing rights on mortgages sold on the secondary market. At June 30, 2019 and December 31, 2018, there were $419 thousand and $820 thousand in one-to four-family residential mortgage loans held for sale, respectively.

12

During the three and six months ended June 30, 2018, FNCB sold the guaranteed principal balance of loans that were guaranteed by the Small Business Administration (“SBA”) totaling $0.8 million and $5.7 million, respectively. Net gains realized upon the sales, included in non-interest income, for the three and six months ended June 30, 2018 were $71 thousand and $322 thousand, respectively. FNCB retained the servicing rights on these loans. There were no sales of SBA-guaranteed loans during the three and  six months ended June 30, 2019. The unpaid principal balance of loans serviced for others, including residential mortgages and SBA-guaranteed loans, were $106.2 million at June 30, 2019 and $108.4 million at December 31, 2018.

FNCB does not have any lending programs commonly referred to as "subprime lending". Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, and bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

There were no material changes to the risk characteristics of FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL during the six months ended June 30, 2019. Refer to Note 2, “Summary of Significant Accounting Policies” to FNCB’s consolidated financial statements included in the 2018 Annual Report on Form 10-K for information about the risk characteristics related to FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL.

Management evaluates the credit quality of the loan portfolio on an ongoing basis, and performs a formal review of the adequacy of the ALLL on a quarterly basis. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the established ALLL, which could have a material negative effect on FNCB’s operating results or financial condition. While management uses the best information available to make its evaluations, future adjustments to the ALLL may be necessary if conditions differ substantially from the information used in making the evaluations. Banking regulators, as an integral part of their examination of FNCB, also review the ALLL, and may require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ALLL.

The following table summarizes activity in the ALLL by loan category for the three and six months ended June 30, 2019 and 2018.

							Construction,
							Land									State and
	Residential			Commercial			Acquisition and			Commercial						Political
(in thousands)	Real Estate			Real Estate			Development			and Industrial			Consumer			Subdivisions			Unallocated		Total
Three months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, April 1, 2019	$	1,155		$	3,051		$	106		$	2,499		$	1,963		$	423		$	56	$	9,253
Charge-offs		(27	)		-			(18	)		(621	)		(457	)		-			-		(1,123	)
Recoveries		2			14			-			123			329			-			-		468
Provisions (credits)		22			364			90			70			4			(212	)		9		347
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Three months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, April 1, 2018	$	1,249		$	3,342		$	256		$	2,505		$	1,822		$	388		$	-	$	9,562
Charge-offs		-			(1,126	)		-			(4	)		(180	)		-			-		(1,310	)
Recoveries		121			2			-			75			129			-			-		327
Provisions (credits)		(169	)		889			(5	)		(121	)		235			51			-		880
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459
Six months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, January 1, 2019	$	1,175		$	3,107		$	188		$	2,552		$	2,051		$	417		$	29	$	9,519
Charge-offs		(27	)		-			(18	)		(760	)		(772	)		-			-		(1,577	)
Recoveries		6			14			81			207			502			-			-		810
Provisions (credits)		(2	)		308			(73	)		72			58			(206	)		36		193
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Six months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, January 1, 2018	$	1,236		$	3,499		$	209		$	2,340		$	1,395		$	355		$	-	$	9,034
Charge-offs		(63	)		(1,126	)		-			(81	)		(440	)		-			-		(1,710	)
Recoveries		127			3			30			147			228			-			-		535
Provisions (credits)		(99	)		731			12			49			823			84			-		1,600
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459

13

The following table represents the allocation of the ALLL and the related loan balance, by loan category, disaggregated based on the impairment methodology at June 30, 2019 and December 31, 2018:

					Construction,
					Land						State and
	Residential		Commercial		Acquisition and		Commercial				Political
(in thousands)	Real Estate		Real Estate		Development		and Industrial		Consumer		Subdivisions		Unallocated		Total
June 30, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	12	$	41	$	-	$	248	$	1	$	-	$	-	$	302
Collectively evaluated for impairment		1,140		3,388		178		1,823		1,838		211		65		8,643
Total	$	1,152	$	3,429	$	178	$	2,071	$	1,839	$	211	$	65	$	8,945
Loans receivable:
Individually evaluated for impairment	$	1,976	$	9,192	$	80	$	935	$	199	$	-	$	-	$	12,382
Collectively evaluated for impairment		159,596		254,589		31,606		158,772		157,679		36,705		-		798,947
Total	$	161,572	$	263,781	$	31,686	$	159,707	$	157,878	$	36,705	$	-	$	811,329
December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	14	$	41	$	-	$	600	$	2	$	-	$	-	$	657
Collectively evaluated for impairment		1,161		3,066		188		1,952		2,049		417		29		8,862
Total	$	1,175	$	3,107	$	188	$	2,552	$	2,051	$	417	$	29	$	9,519
Loans receivable:
Individually evaluated for impairment	$	1,847	$	9,408	$	82	$	697	$	383	$	-	$	-	$	12,417
Collectively evaluated for impairment		162,986		253,370		20,731		150,265		176,401		59,037		-		822,790
Total	$	164,833	$	262,778	$	20,813	$	150,962	$	176,784	$	59,037	$	-	$	835,207

Credit Quality Indicators – Commercial Loans

Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s 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 Quality Indicators – 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 Quality Indicators – Commercial Loans.” The grading system contains the following basic risk categories:

1.	Minimal Risk
2.	Above Average Credit Quality
3.	Average Risk
4.	Acceptable Risk
5.	Pass - Watch
6.	Special Mention
7.	Substandard - Accruing
8.	Substandard - Non-Accrual
9.	Doubtful
10.	Loss

14

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 show no current or potential problems and are considered fully collectible. All such loans are evaluated collectively for ALLL calculation purposes. However, accruing loans restructured under a troubled debt restructuring (“TDRs”) that have been performing for an extended period, do not represent a higher risk of loss, and have been upgraded to a pass rating are evaluated individually for impairment.

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 Quality Indicators – Other Loans

Certain residential real estate loans, consumer loans, and commercial 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 accruing versus non-accrual status as the credit quality indicator for these loan pools.

15

The following tables present the recorded investment in loans receivable by loan category and credit quality indicator at June 30, 2019 and December 31, 2018:

	Credit Quality Indicators
	June 30, 2019
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	31,731	$	216	$	232	$	-	$	-	$	32,179	$	128,480	$	913	$	129,393	$	161,572
Commercial real estate		246,471		6,395		10,916		-		-		263,781		-		-		-		263,781
Construction, land acquisition and development		29,200		-		-		-		-		29,200		2,486		-		2,486		31,686
Commercial and industrial		149,598		2,396		2,109		-		-		154,103		5,604		-		5,604		159,707
Consumer		2,685		-		-		-		-		2,685		154,730		463		155,193		157,878
State and political subdivisions		36,679		-		-		-		-		36,679		26		-		26		36,705
Total	$	496,364	$	9,007	$	13,257	$	-	$	-	$	518,627	$	291,326	$	1,376	$	292,702	$	811,329

	Credit Quality Indicators
	December 31, 2018
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	33,573	$	291	$	154	$	-	$	-	$	34,018	$	130,132	$	683	$	130,815	$	164,833
Commercial real estate		250,674		1,858		10,246		-		-		262,778		-		-		-		262,778
Construction, land acquisition and development		17,704		-		757		-		-		18,461		2,352		-		2,352		20,813
Commercial and industrial		137,888		4,193		2,448		-		-		144,529		6,421		12		6,433		150,962
Consumer		2,024		-		-		-		-		2,024		174,373		387		174,760		176,784
State and political subdivisions		57,345		1,665		27		-		-		59,037		-		-		-		59,037
Total	$	499,208	$	8,007	$	13,632	$	-	$	-	$	520,847	$	313,278	$	1,082	$	314,360	$	835,207

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment in these non-accrual loans was $5.3 million and $4.7 million at June 30, 2019 and December 31, 2018, respectively. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent. Once a loan is placed on non-accrual status, it remains on non-accrual status until it has been brought current, has six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accrual status. There were no loans past due 90 days or more and still accruing at June 30, 2019 and December 31, 2018.

16

The following tables present the delinquency status of past due and non-accrual loans at June 30, 2019 and December 31, 2018:

	June 30, 2019
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	159,991	$	556	$	25	$	-	$	160,572
Commercial real estate		260,713		194		-		-		260,907
Construction, land acquisition and development		31,686		-		-		-		31,686
Commercial and industrial		158,679		63		-		-		158,742
Consumer		155,568		1,482		365		-		157,415
State and political subdivisions		36,705		-		-		-		36,705
Total performing (accruing) loans		803,342		2,295		390		-		806,027
Non-accrual loans:
Residential real estate		743		-		-		257		1,000
Commercial real estate		791		-		-		2,083		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		686		-		-		279		965
Consumer		175		83		70		135		463
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,395		83		70		2,754		5,302
Total loans receivable	$	805,737	$	2,378	$	460	$	2,754	$	811,329

	December 31, 2018
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	163,690	$	319	$	136	$	-	$	164,145
Commercial real estate		259,904		-		-		-		259,904
Construction, land acquisition and development		20,813		-		-		-		20,813
Commercial and industrial		150,108		87		20		-		150,215
Consumer		173,890		2,221		286		-		176,397
State and political subdivisions		59,037		-		-		-		59,037
Total performing (accruing) loans		827,442		2,627		442		-		830,511
Non-accrual loans:
Residential real estate		443		-		136		109		688
Commercial real estate		1,061		-		-		1,813		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		677		50		-		20		747
Consumer		91		61		74		161		387
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,272		111		210		2,103		4,696
Total loans receivable	$	829,714	$	2,738	$	652	$	2,103	$	835,207

17

The following tables present a distribution of the recorded investment, unpaid principal balance and the related allowance for FNCB’s impaired loans, which have been analyzed for impairment under ASC 310, at June 30, 2019 and December 31, 2018. Non-accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold are not evaluated individually for impairment and accordingly, are not included in the following tables. However, these loans are evaluated collectively for impairment as homogeneous pools in the general allowance under ASC Topic 450. Total non-accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold that were evaluated under ASC Topic 450 amounted to $0.8 million at June 30, 2019 and $0.7 million at December 31, 2018.

	June 30, 2019
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	538	$	606	$	-
Commercial real estate		6,806		8,838		-
Construction, land acquisition and development		80		80		-
Commercial and industrial		266		865		-
Consumer		25		27		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,715		10,416		-
With a related allowance recorded:
Residential real estate		1,438		1,438		12
Commercial real estate		2,386		2,386		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		669		677		248
Consumer		174		174		1
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,667		4,675		302
Total impaired loans:
Residential real estate		1,976		2,044		12
Commercial real estate		9,192		11,224		41
Construction, land acquisition and development		80		80		-
Commercial and industrial		935		1,542		248
Consumer		199		201		1
State and political subdivisions		-		-		-
Total impaired loans	$	12,382	$	15,091	$	302

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	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	313	$	375	$	-
Commercial real estate		7,149		8,795		-
Construction, land acquisition and development		82		82		-
Commercial and industrial		-		-		-
Consumer		26		28		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,570		9,280		-
With a related allowance recorded:
Residential real estate		1,534		1,534		14
Commercial real estate		2,259		2,259		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		697		697		600
Consumer		357		357		2
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,847		4,847		657
Total impaired loans:
Residential real estate		1,847		1,909		14
Commercial real estate		9,408		11,054		41
Construction, land acquisition and development		82		82		-
Commercial and industrial		697		697		600
Consumer		383		385		2
State and political subdivisions		-		-		-
Total impaired loans	$	12,417	$	14,127	$	657

The following table presents the average balance and interest income by loan category recognized on impaired loans for the three and six months ended June 30, 2019 and 2018:

	Three months ended June 30,								Six months ended June 30,
	2019				2018				2019				2018
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
(in thousands)	Balance		Income (1)		Balance		Income (1)		Balance		Income (1)		Balance		Income (1)
Residential real estate	$	1,878	$	20	$	1,805	$	21	$	1,858	$	41	$	1,837	$	42
Commercial real estate		9,229		76		7,826		75		9,430		153		7,833		152
Construction, land acquisition and development		80		2		84		1		81		3		84		2
Commercial and industrial		1,337		1		794		1		1,192		1		794		1
Consumer		200		2		389		3		290		7		391		7
State and political subdivisions		-		-		-		-		-		-		-		-
Total impaired loans	$	12,724	$	101	$	10,898	$	101	$	12,851	$	205	$	10,939	$	204

(1) Interest income represents income recognized on performing TDRs.  

The additional interest income that would have been earned on non-accrual and restructured loans had these loans performed in accordance with their original terms approximated $95 thousand and $177 thousand for the three and six months ended June 30, 2019 and $45 thousand and $85 thousand for the three and six months ended June 30, 2018, respectively.

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Troubled Debt Restructured Loans

TDRs at June 30, 2019 and December 31, 2018 were $8.1 million and $9.2 million, respectively. Accruing and non-accruing TDRs were $7.9 million and $0.2 million, respectively, at June 30, 2019, and $8.5 million and $0.7 million, respectively, at December 31, 2018. Approximately $50 thousand and $650 thousand in specific reserves have been established for TDRs as of June 30, 2019 and December 31, 2018, respectively. FNCB was not committed to lend additional funds to any loan classified as a TDR at June 30, 2019.

The modification of the terms of loans classified as TDRs may include one or a combination of the following, among others: a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, a payment modification under a forbearance agreement, or a permanent reduction of the recorded investment in the loan.

There was one residential mortgage loan modified as a TDR during the three and six months ended June 30, 2019. The modification involved an extension of terms and the loan had a pre- and post-modification balance of $24 thousand. There were no loans modified as TDRs during the three and six months ended June 30, 2018. There was one consumer TDR that was modified within the previous 12 months in the amount of $103 thousand that defaulted (defined as past due 90 days or more) during the three and six months ended June 30, 2019. There were no TDRs modified within the previous 12 months that defaulted during the three and six months ended June 30, 2018.

Residential Real Estate Loan Foreclosures

There were two consumer mortgage loans secured by residential real estate properties in the process of foreclosure at June 30, 2019.  There was no aggregate recorded investment to FNCB for these two loans at June 30, 2019.  The balance of one loan was previously charged-off in its entirety and the other loan was sold to an investor on the secondary market.  There was one investor-owned residential real estate property with a carrying value of $52 thousand that was foreclosed upon during the three and six months ended June 30, 2019, and included in OREO at June 30, 2019.

There were three consumer mortgage loans secured by residential real estate properties with no aggregate recorded investment in the process of foreclosure at June 30, 2018.  For the three and six months ended June 30, 2018, there were no residential real estate properties foreclosed upon, and there was one residential real estate property with a carrying value of $63 thousand included in OREO at June 30, 2018.

Note 5. Income Taxes

The following table presents a reconciliation between the effective income tax expense and the income tax expense that would have been provided at the federal statutory tax rate of 21.0% for the three and six months ended June 30, 2019 and 2018, respectively.

	For the Three Months Ended June 30,												For the Six Months Ended June 30,
	2019						2018						2019						2018
(dollars in thousands)	Amount			%			Amount			%			Amount			%			Amount			%
Provision at statutory tax rates	$	643			21.00	%	$	613			21.00	%	$	1,313			21.00	%	$	1,126			21.00	%
Add (deduct):
Tax effects of tax free interest income		(78	)		(2.55	)%		(92	)		(3.16	)%		(184	)		(2.94	)%		(170	)		(3.18	)%
Non-deductible interest expense		2			0.06	%		4			0.13	%		7			0.11	%		6			0.11	%
Bank-owned life insurance		(27	)		(0.88	)%		(29	)		(1.00	)%		(55	)		(0.88	)%		(57	)		(1.06	)%
Other items, net		(26	)		(0.85	)%		12			0.43	%		(12	)		(0.19	)%		29			0.54	%
Income tax provision	$	514			16.78	%	$	508			17.40	%	$	1,069			17.10	%	$	934			17.41	%

FNCB had net deferred tax assets of $7.5 million at June 30, 2019, of which $5.2 million was related to approximately $30.0 million in net operating loss carryovers. At December 31, 2018, FNCB’s net deferred tax assets were $10.7 million.

Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently if necessary, in accordance with guidance set forth in ASC Topic 740 “Income Taxes,” and applies the criteria in the guidance to determine whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. In evaluating available evidence, management considers, among other factors, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. In assessing the need for a valuation allowance, management carefully weighs both positive and negative evidence currently available. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified. If management determines, based on available evidence, both positive and negative, that it is more likely than not that some portion or all of the deferred tax asset will not be realized in future periods, a valuation allowance is calculated and recorded. These determinations are inherently subjective and depend upon management’s estimates and judgments used in their evaluation of both positive and negative evidence.

Management performed an evaluation of FNCB’s deferred tax assets at June 30, 2019 taking into consideration all available positive and negative evidence at that time. Based on this evaluation, management believes that FNCB’s future taxable income will be sufficient to utilize deferred tax assets. Accordingly, a valuation allowance for deferred tax assets was not required at June 30, 2019 and December 31, 2018.

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Note 6.  Related Party Transactions

In conducting its business, FNCB has engaged in, and intends to continue to engage in, banking and financial transactions with directors, executive officers and their related parties.

FNCB has granted loans, letters of credit and lines of credit to directors, executive officers and their related parties. The following table summarizes the changes in the total amounts of such outstanding loans, advances under lines of credit, net of any participations sold, as well as repayments during the three and six months ended June 30, 2019 and 2018.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	72,150		$	65,884		$	64,634		$	55,576
Additions, new loans and advances		12,004			11,946			29,093			43,115
Repayments		(5,402	)		(8,004	)		(14,975	)		(28,865	)
Balance, end of period	$	78,752		$	69,826		$	78,752		$	69,826

At June 30, 2019, there were no loans made to directors, executive officers and their related parties that were not performing in accordance with the terms of the loan agreements.

Deposits from directors, executive officers and their related parties held by the Bank at June 30, 2019 and December 31, 2018 amounted to $90.5 million and $115.5 million, respectively, a decrease of $25.0 million. The decrease was due to cyclical outflows from several large commercial deposit relationships that are owned by, or a related party to, certain directors. Interest paid on the deposits amounted to $241 thousand and $157 thousand for the six months ended June 30, 2019 and 2018, respectively.

In the course of its operations, FNCB acquires goods and services from, and transacts business with, various companies of related parties, which include, but are not limited to, employee health insurance, fidelity bond and errors and omissions insurance, legal services, and repair of repossessed automobiles for resale. FNCB recorded payments to related parties for goods and services of $0.5 million and $1.0 million for the three and six months ended June 30, 2019, respectively, and $0.6 million and $1.0 million for the respective periods of 2018.

On February 8, 2019, FNCB accelerated the final $5.0 million principal repayment, which was due and payable on September 1, 2019, along with all accrued interest, of which $3.1 million was paid to directors and/or their related interests.  Subordinated notes (the “Notes”) held by directors and/or their related parties totaled $3.1 million at December 31, 2018. Interest expense recorded and paid on the Notes for directors and/or their related parties through February 8, 2019, the date of final payment, was $27 thousand. Regular quarterly interest payments on the Notes paid by FNCB to its directors and/or their related parties totaled $35 thousand and $70 thousand for the three and six months ended June 30, 2018, respectively. 

On January 28, 2019, FNCB commenced a public offering of shares of its common stock in a firm commitment underwritten offering. The offering closed on February 8, 2019 and FNCB issued 3,285,550 shares of its common stock at an offering price of $7.00 per share. Shares acquired by directors, executive officers and their related parties as part of this offering were 340,600, or 10.4%, of the total common shares issued. For more information about the public offering, refer to Note 9, “Regulatory Matters/Subsequent Event” to these consolidated financial statements.

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Note 7. 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 June 30, 2019 ROU assets and lease liabilities were $ 3.2 million and $3.5 million, respectively. There were no new operating leases that have not yet commenced as of June 30, 2019.

The following table summarizes the components of FNCB's operating lease expense for the three and six months ended June 30, 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 June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost - bank branches	$	86	$	171
Operating lease cost - automobiles		6		8
Short-term lease cost - office space		9		24
Short-term lease cost - automobiles		2		5
Variable lease cost		-		-
Total lease cost	$	103	$	208

The following table summarizes the maturity of remaining operating lease liabilities as of June 30, 2019:

(in thousands)	June 30, 2019
2019	$	171
2020		371
2021		337
2022		316
2023		312
2024 and thereafter		3,095
Total lease payments		4,602
Less: imputed interest		1,071
Present value of operating lease liabilities	$	3,531

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

(dollars in thousands)	June 30, 2019
Weighted average remaining lease term	14.7 years
Weighted average discount rate		3.45	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	202

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Litigation

On 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. On 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.

On 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 no changes in the status of the other litigation disclosed in FNCB’s Annual Report on Form 10-K for the year ended December 31, 2018.

Note 8. Stock Compensation Plans/Subsequent Event

FNCB has a Long-Term Incentive Compensation Plan (“LTIP”) for directors, executives and key employees. The LTIP authorizes up to 1,200,000 shares of common stock for issuance and provides the Board of Directors with the authority to offer several different types of long-term incentives, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares. During the six months ended June 30, 2019 and 2018, the Board of Directors granted 57,684 and 57,829 shares of restricted stock, respectively, under the LTIP. At June 30, 2019, there were 865,783 shares of common stock available for award under the LTIP. For the six months ended June 30, 2019 and 2018, stock-based compensation expense, which is included in salaries and benefits expense in the consolidated statements of income, totaled $140 thousand and $137 thousand, respectively. Total unrecognized compensation expense related to unvested restricted stock awards was $970 thousand and $819 thousand at June 30, 2019 and 2018, respectively. Unrecognized compensation expense related to unvested shares of restricted stock is expected to be recognized over a weighted-average period of 4.2 years.

On July 1, 2019, 1,956 shares of  FNCB's common stock were granted, under the LTIP, to ten of FNCB Bank's directors, excluding the President and CEO, or 19,560 shares in the aggregate. The shares of common stock immediately vested to each director upon grant, and the fair value of the shares on the grant date was $7.67 per share. Directors fees totaling $150 thousand will be recognized as part of this grant on July 1, 2019.

23

The following table summarizes the activity related to FNCB’s unvested restricted stock awards during the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
				Weighted-					Weighted-					Weighted-					Weighted-
				Average					Average					Average					Average
	Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date
(dollars in thousands)	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Unvested restricted stock awards:
Total outstanding, beginning of period		172,386		$	7.55		162,679		$	7.05		114,702		$	7.50		106,129		$	6.23
Awards granted		-			-		-			-		57,684			7.64		57,829			8.54
Forfeitures		(781	)		7.68		-			-		(781	)		7.68		(1,279	)		6.88
Vestings		(37,558	)		6.80		(46,358	)		5.93		(37,558	)		6.80		(46,358	)		5.93
Total outstanding, end of period		134,047		$	7.75		116,321		$	7.50		134,047		$	7.75		116,321		$	7.50

Note 9. Regulatory Matters/Subsequent Event

On January 28, 2019, FNCB announced that it had commenced a public offering of shares of its common stock in a firm commitment underwritten offering. The offering closed on February 8, 2019 and FNCB issued 3,285,550 shares of its common stock, which included 428,550 shares issued upon the exercise in full of the option to purchase additional shares granted to underwriters, at an offering price of $7.00 per share, less an underwriting discount of $0.35 per share. FNCB received net proceeds after deducting the underwriting discount and offering expenses of $21.3 million. Following the receipt of the proceeds, during the first quarter of 2019, FNCB made a capital investment in FNCB Bank, its wholly-owned subsidiary of $17.8 million.

FNCB’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to FNCB. Bank regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agency. For the three and six months ended June 30, 2019, cash dividends declared and paid by FNCB were $0.05 per share and $0.10 per share, respectively, and $0.04 per share and $0.08 per share, respectively, for the three and six months ended June 30, 2018. FNCB offers a Dividend Reinvestment and Stock Purchase Plan (“DRP”) to its shareholders. For the three and six months ended June 30, 2019 and 2018, dividend reinvestment shares were purchased in open market transactions, however shares under the optional cash purchase feature of the DRP were issued from authorized but unissued common shares. Common shares issued under the DRP for the three and six months ended June 30, totaled 1,899 and 3,538, respectively in 2019 and 4,139 and 12,776, respectively in 2018. Subsequent to June 30, 2019, on July 25, 2019, FNCB declared a cash dividend for the third quarter of 2019 of $0.05 per share, which is payable on September 16, 2019 to shareholders of record as of September 3, 2019.

FNCB and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on FNCB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNCB and the Bank must meet specific capital guidelines that involve quantitative measures of FNCB's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. FNCB's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Management believes, as of June 30, 2019, that FNCB and the Bank meet all applicable capital adequacy requirements.

Current quantitative measures established by regulation to ensure capital adequacy require FNCB to maintain minimum amounts and ratios (set forth in the tables below) of Total capital, Tier I capital, and Tier I common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).

24

The following tables present summary information regarding FNCB’s and the Bank’s risk-based capital and related ratios at June 30, 2019 and December 31, 2018:

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
June 30, 2019
Total capital (to risk-weighted assets)	$	140,425		15.71	%	$	135,998		15.25	%		8.00	%		10.500	%		10.00	%
Tier I capital (to risk-weighted assets)		131,147		14.67	%		126,720		14.21	%		6.00	%		8.500	%		8.00	%
Tier I common equity (to risk-weighted assets)		121,147		13.56	%		126,720		14.21	%		4.50	%		7.000	%		6.50	%
Tier I capital (to average assets)		131,147		11.02	%		126,720		10.69	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		893,705					891,578
Total average assets		1,190,442					1,185,645

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
December 31, 2018
Total capital (to risk-weighted assets)	$	117,213		12.69	%	$	112,128		12.17	%		8.00	%		9.875	%		10.00	%
Tier I capital (to risk-weighted assets)		105,439		11.42	%		102,354		11.11	%		6.00	%		7.875	%		8.00	%
Tier I common equity (to risk-weighted assets)		96,692		10.47	%		102,354		11.11	%		4.50	%		6.375	%		6.50	%
Tier I capital (to average assets)		105,439		8.50	%		102,354		8.27	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		923,441					921,126
Total average assets		1,239,898					1,238,347

*Applies to the Bank only.

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Note 10. Fair Value Measurements

In determining fair value, FNCB uses various valuation approaches, including market, income and cost approaches. Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from sources independent of FNCB. Unobservable inputs reflect FNCB’s knowledge about the assumptions the market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). A financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

● Level 1 valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets;

● Level 2 valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data; and

● Level 3 valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

A description of the valuation methodologies used for assets recorded at fair value is set forth below.

Available-for-Sale Debt Securities

The estimated fair values for FNCB’s investments in obligations of U.S. government agencies, obligations of state and political subdivisions, government-sponsored agency CMOs and mortgage-backed securities, private collateralized mortgage obligations, asset-backed securities and negotiable certificates of deposit are obtained by FNCB from a nationally-recognized pricing service.  This pricing service develops estimated fair values by analyzing like securities and applying available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing (Level 2 inputs), to prepare valuations. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.  The fair value measurements consider observable data that may include, among other things, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, and are based on market data obtained from sources independent from FNCB.  The Level 2 investments in FNCB’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing service, reflect the assumptions that market participants would use to price the assets.  Management has determined that the Level 2 designation is appropriate for these securities because, as with most fixed-income securities, those in FNCB’s portfolio are not exchange-traded, and such non-exchange-traded fixed income securities are typically priced by correlation to observed market data.  FNCB has reviewed the pricing service’s methodology to confirm its understanding that such methodology results in a valuation based on quoted market prices for similar instruments traded in active markets, quoted markets for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which the significant assumptions can be corroborated by market data as appropriate to a Level 2 designation.

For those securities for which the inputs used by an independent pricing service were derived from unobservable market information, FNCB evaluated the appropriateness and quality of each price.  Management reviewed the volume and level of activity for all classes of securities and attempted to identify transactions which may not be orderly or reflective of a significant level of activity and volume.  For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value (fair values based on Level 3 inputs).  If applicable, the adjustment to fair value was derived based on present value cash flow model projections obtained from third party providers using assumptions similar to those incorporated by market participants.

At June 30, 2019, FNCB owned five corporate debt securities with an aggregate amortized cost and fair value of $6.0 million and $6.1 million, respectively. The market for four of the five corporate debt securities at June 30, 2019 was not active and markets for similar securities are also not active.  FNCB obtained valuations for these securities from third-party service providers that prepared the valuations using a discounted cash flow approach.  Management takes measures to validate the service providers’ analysis and is actively involved in the valuation process, including reviewing and verifying the assumptions used in the valuation calculations. Results of a discounted cash flow test are significantly affected by variables such as the estimate of the probability of default, estimates of future cash flows, discount rates, prepayment rates and the creditworthiness of the underlying issuers.  FNCB considers these inputs to be unobservable Level 3 inputs because they are based on estimates about the assumptions market participants would use in pricing this type of asset and developed based on the best information available in the circumstances rather than on observable inputs. As it relates to fair value measurements, once each issuer is categorized and the forecasted default rates have been applied, the expected cash flows are modeled using the variables described above. Discount rates ranging from 5.73% to 6.23% were applied to the expected cash flows to estimate fair value. Management will continue to monitor the market for these securities to assess the market activity and the availability of observable inputs and will continue to apply these controls and procedures to the valuations received from its third-party service provider for the period it continues to use an outside valuation service.

Equity Securities

The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs).

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Assets Measured at Fair Value on a Recurring Basis

The following tables present the financial assets that are measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018, and the fair value hierarchy of the respective valuation techniques utilized by FNCB to determine the fair value:

	Fair Value Measurements at June 30, 2019
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	117,245	$	-	$	117,245	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,727		-		66,727		-
Collateralized mortgage obligations - commercial		57,865		-		57,865		-
Mortgage-backed securities		20,940		-		20,940		-
Private collateralized mortgage obligations		10,697		-		10,697		-
Corporate debt securities		6,121		-		1,040		5,081
Asset-backed securities		3,832		-		3,832		-
Negotiable certificates of deposit		2,428		-		2,428		-
Total available-for-sale debt securities	$	285,855	$	-	$	280,774	$	5,081
Equity securities:
Mutual fund	$	917	$	917	$	-	$	-

	Fair Value Measurements at December 31, 2018
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	152,187	$	-	$	152,187	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		34,207		-		34,207		-
Collateralized mortgage obligations - commercial		73,640		-		73,640		-
Mortgage-backed securities		23,934		-		23,934		-
Private collateralized mortgage obligations		2,913		-		2,913		-
Corporate debt securities		4,936		-		1,007		3,929
Asset-backed securities		1,802		-		1,802		-
Negotiable certificates of deposit		2,413		-		2,413		-
Total available-for-sale debt securities	$	296,032	$	-	$	292,103	$	3,929
Equity securities:
Mutual fund	$	891	$	891	$	-	$	-

There were no transfers between levels within the fair value hierarchy during the six months ended June 30, 2019 and 2018.

The following table presents a reconciliation and statement of operations classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which consisted entirely of corporate debt securities, for the six months ended June 30, 2019 and 2018.

Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)
	Corporate Debt Securities
	For the Six Months Ended June 30,
(in thousands)	2019		2018
Balance at January 1,	$	3,929	$	4,058
Additions		1,000		-
Payments Received		-		-
Sales		-		-
Total gains or losses (realized/unrealized):
Included in earnings		-		-
Included in other comprehensive income (loss)		152		(101	)
Balance at June 30,	$	5,081	$	3,957

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Assets Measured at Fair Value on a Non-Recurring Basis

The following tables present assets and liabilities measured at fair value on a non-recurring basis at June 30, 2019 and December 31, 2018, and additional quantitative information about the valuation techniques and inputs utilized by FNCB to determine fair value. All assets were measured using Level 3 inputs.

	June 30, 2019
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	7,849	$	4	$	7,845	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,533		298		4,235	Discounted cash flows	Discount rate		4.0%-7.5	%
Other real estate owned		52		-		52	Appraisal of collateral	Selling cost		10.0	%

	December 31, 2018
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	8,020	$	606	$	7,414	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,397		51		4,346	Discounted cash flows	Discount rate		3.7%-7.5	%
Other real estate owned		919		-		919	Appraisal of collateral	Selling cost		10.0	%

The fair value of collateral-dependent impaired loans is determined through independent appraisals or other reasonable offers, which generally include various Level 3 inputs which are not identifiable. Management reduces the appraised value by the estimated costs to sell the property and may make adjustments to the appraised values as necessary to consider any declines in real estate values since the time of the appraisal. For impaired loans that are not collateral-dependent, fair value is determined using the discounted cash flow method. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance or is charged off. The amount shown is the balance of impaired loans, net of any charge-offs and the related allowance for loan losses.

OREO properties are recorded at fair value less the estimated cost to sell at the date of FNCB’s acquisition of the property. Subsequent to acquisition of the property, the balance may be written down further. It is FNCB’s policy to obtain certified external appraisals of real estate collateral underlying impaired loans and OREO, and estimate fair value using those appraisals. Other valuation sources may be used, including broker price opinions, letters of intent and executed sale agreements.

The following table summarizes the estimated fair values of FNCB’s financial instruments using an exit price notion at June 30, 2019 and at December 31, 2018. FNCB discloses fair value information about financial instruments, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. The fair value of financial instruments that are not measured at fair value in the financial statements were based on the exit price notion. The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, management judgment is required to interpret data and develop fair value estimates. Accordingly, the estimates below are not necessarily indicative of the amounts FNCB could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	Fair Value	June 30, 2019				December 31, 2018
(in thousands)	Measurement	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Cash and short term investments	Level 1	$	29,904	$	29,904	$	36,481	$	36,481
Available-for-sale debt securities	See previous table		285,855		285,855		296,032		296,032
Equity securities, at fair value	Level 1		917		917		891		891
Restricted stock	Level 2		4,618		4,618		3,123		3,123
Loans held for sale	Level 2		419		419		820		820
Loans, net	Level 3		805,475		796,141		829,581		816,234
Accrued interest receivable	Level 2		3,640		3,640		3,614		3,614
Equity securities without readily determinable fair values	Level 3		1,658		1,658		1,658		1,658
Servicing rights	Level 3		347		836		350		878
Financial liabilities
Deposits	Level 2		961,064		960,855		1,095,629		1,093,797
Borrowed funds	Level 2		97,533		97,679		34,240		34,108
Accrued interest payable	Level 2		389		389		338		338

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Note 11. Earnings per Share

For FNCB, the numerator of both the basic and diluted earnings per share of common stock is net income available to common shareholders. The weighted average number of common shares outstanding used in the denominator for basic earnings per common share is increased to determine the denominator used for diluted earnings per common share by the effect of potentially dilutive common share equivalents utilizing the treasury stock method. Common share equivalents are outstanding stock options to purchase FNCB’s shares of common stock and unvested restricted stock.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2019		2018		2019		2018
Net income	$	2,549	$	2,412	$	5,184	$	4,431
Basic weighted-average number of common shares outstanding		20,129,150		16,792,812		19,428,717		16,778,188
Plus: Common share equivalents		4,700		26,474		6,359		23,238
Diluted weighted-average number of common shares outstanding		20,133,850		16,819,286		19,435,076		16,801,426
Income per common share:
Basic	$	0.13	$	0.14	$	0.27	$	0.26
Diluted	$	0.13	$	0.14	$	0.27	$	0.26

For the three and six months ended June 30, 2019 and 2018, common stock equivalents reflected in the table above were related entirely to the incremental shares of unvested restricted stock. As of June 30, 2019, there were no outstanding stock options. Stock options of 19,200 outstanding at June 30, 2018 were excluded from common stock equivalents for the three and six months ended June 30, 2018. The exercise prices of stock options exceeded the average market price of FNCB’s common shares at June 30, 2018; therefore, inclusion of these common stock equivalents would be anti-dilutive to the diluted earnings per common share calculation. The stock options expired on January 5, 2019. 

Note 12. Other Comprehensive Income

The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2019 and 2018, comprised entirely of unrealized gains and losses on available-for-sale debt securities:

	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net gains reclassified into net income	$	(163	)	Net gain (loss) on the sale of available-for-sale debt securities	$	(323	)	Net gain (loss) on the sale of available-for-sale debt securities
Taxes		34		Income taxes		68		Income taxes
Net of tax amount	$	(129	)		$	(255	)

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net loss reclassified into net income	$	4		Net gain (loss) on the sale of available-for-sale debt securities	$	4		Net gain (loss) on the sale of available-for-sale debt securities
Taxes		(1	)	Income taxes		(1	)	Income taxes
Net of tax amount	$	3			$	3

The following table summarizes the changes in accumulated other comprehensive (loss) income, net of tax for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	(989	)	$	(5,612	)	$	(4,540	)	$	(1,745	)
Other comprehensive income (loss) before reclassifications		4,431			(1,453	)		8,108			(5,385	)
Amount reclassified from accumulated other comprehensive income (loss)		(129	)		3			(255	)		3
Net other comprehensive income (loss) during the period		4,302			(1,450	)		7,853			(5,382	)
Reclassification of net loss on equity securities upon adoption of ASU 2016-1		-			-			-			65
Balance, end of period	$	3,313		$	(7,062	)	$	3,313		$	(7,062	)

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

This Quarterly Report should be read in conjunction with the more detailed and comprehensive disclosures included in the Annual Report on Form 10-K for the year ended December 31, 2018 for FNCB Bancorp, Inc. In addition, please read this section in conjunction with the consolidated financial statements and notes to consolidated financial statements contained elsewhere herein.

FNCB Bancorp, Inc. and its subsidiaries ("FNCB") are in the business of providing customary retail and commercial banking services to individuals, businesses and local governments and municipalities through its wholly-owned subsidiary, FNCB Bank, at its 17 full-service branch offices within its primary market area, Northeastern Pennsylvania, and a LPO based in Allentown, Lehigh County, Pennsylvania.

FORWARD-LOOKING STATEMENTS

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 our reports to shareholders, and in our 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,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “future” 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 ability of FNCB to manage credit risk; weakness in the economic environment, in general, and within FNCB’s market area; the deterioration of one or a few of the commercial real estate loans with relatively large balances contained in FNCB’s loan portfolio; greater risk of loan defaults and losses from concentration of loans held by FNCB, including those to insiders and related parties; if FNCB’s ALLL is not sufficient to absorb actual losses or if increases to the ALLL were required; if management concludes that the decline in value of any of FNCB’s investment securities is other-than-temporary; if FNCB’s risk management framework is ineffective in mitigating risks or losses to the Company; if FNCB’s portfolio of loans to small and mid-sized community-based businesses increases its credit risk; FNCB is subject to interest rate risk; changes in interest rates; if FNCB is unable to successfully compete with others for business; a loss of depositor confidence resulting from changes in either FNCB’s financial condition or in the general banking industry; if FNCB is unable to retain or grow its core deposit base; inability or insufficient dividends from its subsidiary, FNCB Bank; if FNCB loses access to wholesale funding sources; interruptions or security breaches of FNCB’s information systems; any systems failures or interruptions in information technology and telecommunications systems of third parties on which FNCB depends; security breaches; if FNCB’s information technology is unable to keep pace with growth or industry developments or if technological developments result in higher costs or less advantageous pricing; the loss of management and other key personnel; dependence on the use of data and modeling in both its management’s decision-making generally and in meeting regulatory expectations in particular; additional risk arising from new lines of business, products, product enhancements or services offered by FNCB; inaccuracy of appraisals and other valuation techniques FNCB uses in evaluating and monitoring loans secured by real property and other real estate owned; unsoundness of other financial institutions; damage to FNCB’s reputation; defending litigation and other actions; dependence on the accuracy and completeness of information about customers and counterparties; risks arising from future expansion or acquisition activity; environmental risks and associated costs on its foreclosed real estate assets; any remediation ordered, or adverse actions taken, by federal and state regulators, including requiring FNCB  to act as a source of financial and managerial strength for the FNCB Bank in times of stress;  costs arising from extensive government regulation, supervision and possible regulatory enforcement actions; new or changed legislation or regulation and regulatory initiatives; noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations; failure to comply with numerous "fair and responsible banking" laws; any violation of laws regarding privacy, information security and protection of personal information or another incident involving personal, confidential or proprietary information of individuals; any rulemaking changes implemented by the Consumer Financial Protection Bureau; inability to attract and retain its highest performing employees due to potential limitations on incentive compensation contained in proposed federal agency rulemaking; any future increases in FNCB Bank’s FDIC deposit insurance premiums and assessments; 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 SEC, including its Form 10-K for the year ended December 31, 2018.

CRITICAL ACCOUNTING POLICIES

In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates.

FNCB’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. Management has identified the policies on the determination of the allowance for loan and lease losses (“ALLL”), securities’ valuation and impairment evaluation, the valuation of other real estate owned (“OREO”) and income taxes to be critical, as management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available.

The judgments used by management in applying the critical accounting policies discussed below may be affected by changes and/or deterioration in the economic environment, which may impact future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the ALLL in future periods, and the inability to collect on outstanding loans could result in increased loan losses. In addition, the valuation of certain securities in FNCB’s investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to impairment losses.

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Allowance for Loan and Lease Losses

Management evaluates the credit quality of FNCB’s loan portfolio on an ongoing basis, and performs a formal review of the adequacy of the ALLL on a quarterly basis. The ALLL is established through a provision for loan losses charged to earnings and is maintained at a level management considers adequate to absorb estimated probable losses inherent in the loan portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ALLL, while recoveries of amounts previously charged off are credited to the ALLL.

Determining the amount of the ALLL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, qualitative factors, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their examination of FNCB, also review the ALLL, and may require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ALLL. Additionally, the ALLL is determined, in part, by the composition and size of the loan portfolio.

The ALLL consists of two components, a specific component and a general component. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted by qualitative factors. The general reserve component of the ALLL is based on pools of unimpaired loans segregated by loan segment and risk rating categories of “Pass”, “Special Mention” or “Substandard and Accruing.” Historical loss factors and various qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans. Substandard loans on non-accrual status above the $100 thousand loan relationship threshold and all loans considered troubled debt restructurings (“TDRs”) are classified as impaired.

See Note 4, “Loans” of the notes to consolidated financial statements included in Item 1 hereof for additional information about the ALLL.

Securities Valuation and Evaluation for Impairment

Management utilizes various inputs to determine the fair value of its investment portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or quoted prices for similar assets or models using inputs that are observable, either directly or indirectly (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence of observable inputs or if markets are illiquid, valuation techniques are used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement (Level 3). For Level 3 inputs, valuation techniques are based on various assumptions, including, but not limited to, cash flows, discount rates, adjustments for nonperformance and liquidity, and liquidation values. A significant degree of judgment is involved in valuing investments using Level 3 inputs. The use of different assumptions could have a positive or negative effect on FNCB’s financial condition or results of operations. See Note 3, “Securities” and Note 10, “Fair Value Measurements” of the notes to consolidated financial statements included in Item 1 hereof for additional information about FNCB’s securities valuation techniques.

On a quarterly basis, management evaluates individual investment securities in an unrealized loss position for other than temporary impairment (“OTTI”). The evaluation for OTTI requires the use of various assumptions, including but not limited to, the length of time an investment’s fair value is less than book value, the severity of the investment’s decline, any credit deterioration of the issuer, whether 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 basis. Debt investment securities deemed to have OTTI are written down by the impairment related to the estimated credit loss, and the non-credit related impairment loss is recognized in other comprehensive income. FNCB did not recognize any OTTI charges on investment securities for the three and six months ended June 30, 2019 and 2018 within the consolidated statements of income.

Refer to Note 3, “Securities,” of the notes to consolidated financial statements included in Item 1 hereof for additional information about valuation of securities.

Other Real Estate Owned

OREO consists of property acquired by foreclosure, abandonment or conveyance of deed in-lieu of foreclosure of a loan, and bank premises that are no longer used for operation or for future expansion. OREO is held for sale and is initially recorded at fair value less costs to sell at the date of acquisition or transfer, which establishes a new cost basis. Upon acquisition of the property through foreclosure or deed-in-lieu of foreclosure, any adjustment to fair value less estimated selling costs is recorded to the ALLL. The determination is made on an individual asset basis. Bank premises no longer used for operations or future expansion are transferred to OREO at fair value less estimated selling costs with any related write-down included in non-interest expense. Subsequent to acquisition, valuations are periodically performed and the assets are carried at the lower of cost or fair value less cost to sell. Fair value is determined through external appraisals, current letters of intent, broker price opinions or executed agreements of sale, unless management determines that conditions exist that warrant an adjustment to the value. Costs relating to the development and improvement of the OREO properties may be capitalized; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in FNCB’s consolidated financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations.

FNCB records an income tax provision or benefit based on the amount of tax currently payable or receivable and the change in deferred tax assets and liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. Management conducts quarterly assessments of all available positive and negative evidence to determine the amount of deferred tax assets that will more likely than not be realized. FNCB establishes a valuation allowance for deferred tax assets and records a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management considers past operating results, estimates of future taxable income based on approved business plans, future capital requirements and ongoing tax planning strategies. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period depending on the related circumstances. The recognition of deferred tax assets requires management to make significant assumptions and judgments about future earnings, the periods in which items will impact taxable income, future corporate tax rates, and the application of inherently complex tax laws. The use of different estimates can result in changes in the amounts of deferred tax items recognized, which may result in equity and earnings volatility because such changes are reported in current period earnings.

31

In connection with determining the income tax provision or benefit, management considers maintaining liabilities for uncertain tax positions and tax strategies that it believes contain an element of uncertainty. Periodically, management evaluates each of FNCB’s tax positions and strategies to determine whether a liability for uncertain tax benefits is required. As of June 30, 2019 and December 31, 2018, management determined that FNCB did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded.

Refer to Note 5, “Income Taxes,” of the notes to consolidated financial statements included in Item 1 hereof for additional information about income taxes.

New Authoritative Accounting Guidance and Accounting Guidance to be Adopted in Future Periods

Refer to Note 2, “New Authoritative Accounting Guidance,” of the notes to consolidated financial statements included in Item 1 hereof for information about new authoritative accounting guidance adopted by FNCB during the three months ended June 30, 2019, as well as new accounting guidance issued, but not previously reported, that will be adopted by FNCB in future periods.

Executive Summary

The following overview should be read in conjunction with this MD&A in its entirety.

FNCB recorded consolidated net income of $2.5 million, or $0.13 per basic and diluted common share, for the three months ended June 30, 2019, an increase of $137 thousand, or 5.7%, compared to $2.4 million, or $0.14 per basic and diluted common share, for the three months ended June 30, 2018. Net income for the six months ended June 30, 2019 totaled $5.2 million, or $0.27 per basic and diluted share, an increase of $753 thousand, or 17.0%, from $4.4 million, or $0.26 per basic and diluted share, for the same six months of 2018. The earnings improvement for both the three months and six months ended June 30, 2019 was largely due to a reduction in the provision for loan and lease losses, coupled with an increase in non-interest income. Partially offsetting these positive factors was a decrease in net interest income and an increase in non-interest expense.

For the three months and six months ended June 30, 2019, the annualized return on average assets was 0.85% and 0.86%, respectively, and 0.79% and 0.75%, respectively, for the same periods of 2018. The annualized return on average equity was 8.19% and 8.89%, respectively, for the three- and six-month periods ended June 30, 2019, compared to 11.23% and 10.34%, respectively, for the comparable periods of 2018. FNCB declared and paid dividends to holders of common stock of $0.05 per share for the second quarter and $0.10 per share for the six months ended June 30, 2019, a 25.0% increase compared to $0.04 per share and $0.08 per share for the same periods of 2018. 

Total assets decreased $38.9 million, or 3.1%, to $1.199 billion at June 30, 2019 from $1.238 billion at December 31, 2018. The change in total assets primarily reflected a $24.7 million, or 2.9%, decrease in loans, net of deferred costs and unearned income to $814.4 million at June 30, 2019 from $839.1 million at December 31, 2018. The planned runoff of indirect automobile loans, coupled with the anticipated payoff of two municipal loans were the primary factors leading to the declines in loans. Also contributing to the balance sheet contraction was a $10.2 million, or 3.4%, decrease in available-for-sale debt securities to $285.8 million at June 30, 2019 from $296.0 million at December 31, 2018.  Total deposits decreased by $134.6 million, or 12.3%, to $961.1 million at June 30, 2019 from $1.096 billion at December 31, 2018. The decline in deposits was primarily attributable to cyclical net outflows of public funds. Borrowed funds increased $63.3 million, or 185.0%, to $97.5 million at June 30, 2019 from $34.2 million at December 31, 2018. 

Total shareholders’ equity increased $32.5 million, or 33.4%, to $129.7 million at June 30, 2019 from $97.2 million at December 31, 2018.  FNCB successfully completed a public offering of its common stock in February 2019, which resulted in a net increase to capital after offering expenses of $21.3 million. Also contributing to the increase in capital was net income for the six months ended June 30, 2019 of $5.2 million and a $7.9 million increase in accumulated other comprehensive income related to appreciation in the fair value of FNCB’s available-for-sale securities, net of income taxes. Partially offsetting these increases were dividends declared and paid of $2.0 million for the six months ended June 30, 2019. 

During the second quarter of 2019, FNCB opened a de novo branch in Mountain Top, Luzerne County, Pennsylvania in a facility that was purchased in the fourth quarter of 2018. Also, in the second quarter of 2019, FNCB completed the construction and relocation of its main office into a new state-of-the-art facility. The new main office is located directly across the street from the former main office at 100 S. Blakely Street, Dunmore, Lackawanna County, Pennsylvania. Both the Mountain Top community office and the new Main Office feature the personal banker model and a relaxed, cafe-like atmosphere designed to enhance the customer's in-branch banking experience. The cost of the main office relocation project approximated $2.0 million and was funded by cash generated from operations. The former main office is currently being renovated and will house members of FNCB's Commercial Lending and Retail Banking Units.

Following the close of the U.S. Stock Market on June 28, 2019, FNCB was added as a member of the Russell 3000^® Index, when FTSE Russell reconstituted its comprehensive set of U.S. and global equity indexes. The annual Russell indexes reconstitution captures the 4,000 largest U.S. stock and ranks them by total market capitalization. Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. As such, management believes that inclusion in Russell 3000^® Index will continue to increase the visibility and liquidity of FNCB's common stock, as well as provide exposure to leading institutional investors.

For the remainder of 2019, management is focused on strategic business market opportunities that would enhance shareholder value, diversify revenue, grow revenues and asset size, create operating efficiencies and enhance profitability. In order to assist in these initiatives, at the beginning of 2019, FNCB appointed a Chief Banking Officer to its Executive Management Team. The Chief Banking Officer, who has extensive retail financial sales and managerial experience oversees FNCB's commercial lending and retailing lending and banking units. Additionally, FNCB will be enhancing its mobile-banking platforms and will begin offering electronic payment alternatives including Apple Pay, Samsung Pay and Google Pay to customers in the second half of 2019, and electronic money transfer through Zelle scheduled for the first half of 2020.

32

Summary of Performance

Net Interest Income

Net interest income is the difference between (i) interest income, interest and fees on interest-earning assets, and (ii) interest expense, interest paid on deposits and borrowed funds. Net interest income represents the largest component of FNCB’s operating income and, as such, is the primary determinant of profitability. Net interest income is impacted by variations in the volume, rate and composition of earning assets and interest-bearing liabilities, changes in general market rates and the level of non-performing assets. Interest income is shown on a fully tax-equivalent basis using the corporate statutory tax rate of 21.0%.

During the first half of 2019, the Federal Open Market Committee (“FOMC”) left the federal funds target rate unchanged at 2.50%, which was 50 basis points higher than 2.00% at June 30, 2018. The FOMC raised the target rate a total of  100 basis points through four 25-basis point increases in 2018. Correspondingly, the national prime rate was 5.50% at June 30, 2019, 50 basis points higher than 5.00% at June 30, 2018. FNCB continued to experience increases in loan yields throughout the first half of 2019, as variable- and adjustable-rate loans continue to reprice upward and new loans are consummated at higher interest rates. However, the increase in market interest rates led to substantial cost increases across all funding sources, including retail deposits, which more than offset the positive effects on earning asset yields. 

Net interest income on a tax-equivalent basis decreased $300 thousand, or 3.2%, to $9.1 million for the three months ended June 30, 2019 from $9.4 million for the comparable period of 2018.  Tax-equivalent interest income increased $211 thousand, or 1.9%, to $11.6 million for the three months ended June 30, 2019 from $11.4 million for the same period of 2018.  However, for the three months ended June 30, 2019, interest expense increased $511 thousand, or 25.6%, to $2.5 million from $2.0 million for the same period of 2018, which primarily reflected the significant increase in funding costs. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Despite the reduction in tax-equivalent net interest income, FNCB’s tax-equivalent net interest margin contracted only 1 basis points to 3.25% for the second quarter of 2019 from 3.26% for the same quarter of 2018, due largely to a reduction in average earning asset levels of $33.6 million, or 2.9%. Rate spread, the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities shown on a fully tax-equivalent basis, contracted to a greater extent, by 8 basis points to 3.04% for the three months ended June 30, 2019 from 3.12% for the same period of 2018. FNCB’s tax-equivalent net interest margin for the six months ended June 30, 2019 decreased by 7 basis points to 3.19%, as compared to 3.26% the same period of 2018, while the tax-equivalent rate spread contracted 14 basis points to 3.00% from 3.14% comparing the six months ended June 30, 2019 and 2018.

For the three months ended June 30, 2019, the $511 thousand, or 25.5%, increase in interest expense was largely due to an increase in deposit costs, coupled with an increase in average interest-bearing deposits. Partially offsetting the effects of the increase in deposit costs and balances was a decrease in the average balance of borrowed funds. The cost of interest-bearing deposits increased 44 basis points to 1.01% for the second quarter of 2019 from 0.57% for the same period of 2018, resulting in an increase to interest expense of $842 thousand. Specifically, the cost of interest-bearing demand deposits and certificates of deposit increased 36 basis points and 65 basis points comparing the three months ended June 30, 2019 and 2018. With regard to deposit volumes, average interest-bearing deposits increased $61.5 million, or 7.8% to $851.7 million for the three months ended June 30, 2019 from $790.2 million for the same three months of 2018, resulting in an increase in interest expense due to volume of $168 thousand. The increase in interest expense due to changes in deposit volumes and rates was partially offset by a reduction in average borrowed funds of $111.2 million, or 68.0%, to $52.3 million for the second quarter of 2019 from $163.5 million for the same quarter of 2018. The reduction in utilization of borrowed funds resulted in a corresponding reduction in interest expense of $460 thousand comparing the second quarters of 2019 and 2018.

Partially mitigating the higher amount of interest expense was a $211 thousand increase in tax-equivalent interest income due primarily to an increase in the tax-equivalent yield on earning assets, partially offset by a reduction in average earning asset levels. The tax-equivalent yield on earning assets increased to 4.15% for the second quarter of 2019 from 3.96% for the same quarter of 2018, which resulted in an increase in tax-equivalent interest income of $537 thousand. Specifically, the tax-equivalent yield on the loan portfolio increased 26 basis points to 4.64% for the three months ended June 30, 2019 from 4.38% for the same three months of 2018, which caused a corresponding increase in tax-equivalent interest income of $519 thousand, accounting for 96.6% of the total increase in tax-equivalent interest income due to changes in rate. Average earning assets decreased $33.6 million, or 2.9%, comparing the three months ended June 30, 2019 and 2018, which resulted in a decrease to tax-equivalent interest income of $326 thousand. Planned runoff of indirect automobile loans and the payoffs of two large tax-free loans were the predominant factors causing a decrease in average loans of $14.3 million, or 1.7%, to $820.0 million for the second quarter of 2019 from $834.3 million for the same quarter of 2018. Additionally, comparing the second quarters of 2019 and 2018, average securities decreased $31.1 million, or 10.0%, as proceeds from security sales were not fully reinvested back into the portfolio. 

For the six months ended June 30, 2019, net interest income on a tax-equivalent basis decreased $197 thousand, or 1.1%, to $18.1 million from $18.3 million for the comparable period in 2018.  Comparing the year-to-date periods of 2019 and 2018, a  $1.4 million or 6.5% increase in tax-equivalent interest income was more than entirely offset by a $1.6 million, or 45.3% increase in interest expense.  The increase in year-to-date tax-equivalent interest income was due primarily to an increase in the tax-equivalent yield on earning assets, coupled with an increase in the average balance of earning assets. Due to higher market rates, the tax-equivalent yield on earning assets increased 21 basis points to 4.11% for the six months ended June 30, 2019 from 3.90% for the same period of 2018 and resulted in additional tax-equivalent interest income of $1.1 million. Specifically, increases in loan yields accounted for the majority of the rate variance, as the tax-equivalent yield on loans increased 27 basis points to 4.58% from 4.31% comparing the six months ended June 30, 2019 and 2018, respectively. Additionally, an $11.6 million, or 1.0%, increase in average earning assets resulted in additional interest income of $285 thousand. Specifically, comparing the six months ended June 30, 2019 and 2018, the average balance of total loans increased $18.1 million, or 2.2%, while average interest-bearing deposits in other banks increased $8.7 million, or 271.4%, resulting in increases in tax-equivalent interest income of $391 thousand and $99 thousand respectively. Partially offsetting the growth in loans and interest-bearing deposits in other banks was a decrease in average securities of $15.3 million, or 5.0%, which caused a corresponding reduction in tax-equivalent interest income of $205 thousand. 

Interest expense increased $1.6 million, or 45.3%, to $5.2 million for the six months ended June 30, 2019 from $3.6 million for the same six months of 2018. Similar to the second quarter, the year-to-date increase in interest expense was largely due to an increase in deposit costs, coupled with an increase in average interest-bearing deposits, partially offset by a decrease in the average balance of borrowed funds. The cost of interest-bearing deposits increased 45 basis points to 1.00% for the six months ended June 30, 2019 from 0.55% for the same period of 2018, resulting in an increase to interest expense of $1.8 million. Specifically, comparing the six months ended June 30, 2019 and 2018, the cost of interest-bearing demand deposits rose 35 basis points resulting in an increase in interest expense of $894 thousand,  while the cost for certificates of deposit increased 69 basis points, which caused a corresponding increase in interest expense of $857 thousand. With regard to deposit volumes, average interest-bearing deposits increased $79.2 million, or 9.9% to $877.5 million for the six months ended June 30, 2019 from $798.3 million for the same six months of 2018, resulting in an increase in interest expense due to volume of $427 thousand.  Partially offsetting the increase in average interest-bearing deposit volumes was a reduction in average borrowed funds of $77.9 million, or 58.5%, to $55.3 million for the first half of 2019 from $133.3 million for the same period of 2018. The reduction in utilization of borrowed funds resulted in a corresponding decrease in interest expense of $606 thousand comparing the six months ended June 30, 2019 and 2018.

33

Net interest income depends upon the relative amount of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables present certain information about FNCB’s consolidated statements of financial condition and consolidated statements of income for the three and six-month periods ended June 30, 2019 and 2018, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are calculated by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.

	Three Months Ended
	June 30, 2019									June 30, 2018
	Average						Yield/			Average						Yield/
(dollars in thousands)	Balance			Interest			Cost			Balance			Interest			Cost
Assets
Earning assets (2)(3)
Loans-taxable (4)	$	778,540		$	9,084			4.67	%	$	784,427		$	8,631			4.40	%
Loans-tax free (4)		41,436			423			4.08	%		49,855			506			4.06	%
Total loans (1)(2)		819,976			9,507			4.64	%		834,282			9,137			4.38	%
Securities-taxable		274,552			1,927			2.81	%		305,627			2,153			2.82	%
Securities-tax free		4,624			48			4.15	%		4,677			48			4.11	%
Total securities (1)(5)		279,176			1,975			2.83	%		310,304			2,201			2.84	%
Interest-bearing deposits in other banks		14,420			79			2.19	%		2,629			12			1.83	%
Total earning assets		1,113,572			11,561			4.15	%		1,147,215			11,350			3.96	%
Non-earning assets		94,709									83,903
Allowance for loan and lease losses		(9,280	)								(9,715	)
Total assets	$	1,199,001								$	1,221,403
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits	$	502,973			1,053			0.84	%	$	483,519			582			0.48	%
Savings deposits		93,447			33			0.14	%		100,939			34			0.13	%
Time deposits		255,306			1,058			1.66	%		205,775			518			1.01	%
Total interest-bearing deposits		851,726			2,144			1.01	%		790,233			1,134			0.57	%
Borrowed funds and other interest-bearing liabilities		52,313			364			2.78	%		163,547			863			2.11	%
Total interest-bearing liabilities		904,039			2,508			1.11	%		953,780			1,997			0.84	%
Demand deposits		158,413									173,037
Other liabilities		11,698									8,444
Shareholders' equity		124,851									86,142
Total liabilities and shareholder's equity	$	1,199,001								$	1,221,403
Net interest income/interest rate spread (6)					9,053			3.04	%					9,353			3.12	%
Tax equivalent adjustment					(99	)								(116	)
Net interest income as reported				$	8,954								$	9,237
Net interest margin (7)								3.25	%								3.26	%

34

	Six Months Ended
	June 30, 2019									June 30, 2018
	Average						Yield/			Average						Yield/
(dollars in thousands)	Balance			Interest			Cost			Balance			Interest			Cost
Assets
Earning assets (2)(3)
Loans-taxable (4)	$	781,434		$	18,024			4.61	%	$	766,501		$	16,565			4.32	%
Loans-tax free (4)		50,279			1,014			4.03	%		47,134			954			4.05	%
Total loans (1)(2)		831,712			19,038			4.58	%		813,635			17,519			4.31	%
Securities-taxable		286,956			4,046			2.82	%		303,342			4,262			2.81	%
Securities-tax free		4,631			95			4.10	%		3,507			73			4.19	%
Total securities (1)(5)		291,586			4,141			2.84	%		306,849			4,335			2.83	%
Interest-bearing deposits in other banks		11,971			125			2.09	%		3,224			35			2.17	%
Total earning assets		1,135,270			23,304			4.11	%		1,123,708			21,889			3.90	%
Non-earning assets		93,136									84,557
Allowance for loan and lease losses		(9,477	)								(9,411	)
Total assets	$	1,218,929								$	1,198,854
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits	$	515,280			2,084			0.81	%	$	489,845			1,134			0.46	%
Savings deposits		92,651			65			0.14	%		102,810			68			0.13	%
Time deposits		269,561			2,233			1.66	%		205,664			999			0.97	%
Total interest-bearing deposits		877,491			4,382			1.00	%		798,319			2,201			0.55	%
Borrowed funds and other interest-bearing liabilities		55,341			789			2.85	%		133,280			1,358			2.04	%
Total interest-bearing liabilities		932,832			5,171			1.11	%		931,599			3,559			0.76	%
Demand deposits		156,777									171,254
Other liabilities		11,749									9,547
Shareholders' equity		117,571									86,454
Total liabilities and shareholder's equity	$	1,218,929								$	1,198,854
Net interest income/interest rate spread (6)					18,133			3.00	%					18,330			3.14	%
Tax equivalent adjustment					(233	)								(215	)
Net interest income as reported				$	17,900								$	18,115
Net interest margin (7)								3.19	%								3.26	%

(1)	Interest income is presented on a tax equivalent basis using a 21% rate.
(2)	Loans are stated net of unearned income.
(3)	Non-accrual loans are included in loans within earning assets
(4)	Loan fees included in interest income are not significant
(5)	The yields for securities that are classified as available for sale is based on the average historical amortized cost.
(6)	Interest rate spread represents the difference between the average yield on interest earning assets and the cost of interest bearing liabilities and is presented on a tax equivalent basis.
(7)	Net interest income as a percentage of total average interest earning assets.

35

Rate Volume Analysis

The most significant impact on net income between periods is derived from the interaction of changes in the volume and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning assets, specifically loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in net interest income between periods. Components of interest income and interest expense are presented on a tax-equivalent basis using the corporate federal income tax rate of 21%.

The following table summarizes the effect that changes in volumes of earning assets and interest-bearing liabilities and the interest rates earned and paid on these assets and liabilities have on net interest income. The net change or mix component attributable to the combined impact of rate and volume changes has been allocated proportionately to the change due to volume and the change due to rate.

	Three Months Ended June 30,									Six Months Ended June 30,
	2019 vs. 2018									2019 vs. 2018
	Increase (Decrease)									Increase (Decrease)
	Due to			Due to			Total			Due to			Due to			Total
(dollars in thousands)	Volume			Rate			Change			Volume			Rate			Change
Interest income:
Loans - taxable	$	(64	)	$	517		$	453		$	328		$	1,131		$	1,459
Loans - tax free		(85	)		2			(83	)		63			(3	)		60
Total loans		(149	)		519			370			391			1,128			1,519
Securities - taxable		(220	)		(6	)		(226	)		(229	)		13			(216	)
Securities - tax free		(1	)		1			-			24			(2	)		22
Total securities		(221	)		(5	)		(226	)		(205	)		11			(194	)
Interest-bearing deposits in other banks		44			23			67			99			(9	)		90
Total interest income		(326	)		537			211			285			1,130			1,415
Interest expense:
Interest-bearing demand deposits		24			447			471			56			894			950
Savings deposits		(3	)		2			(1	)		(6	)		3			(3	)
Time deposits		147			393			540			377			857			1,234
Total interest-bearing deposits		168			842			1,010			427			1,754			2,181
Borrowed funds and other interest-bearing liabilities		(460	)		(39	)		(499	)		(606	)		37			(569	)
Total interest expense		(292	)		803			511			(179	)		1,791			1,612
Net interest income	$	(34	)	$	(266	)	$	(300	)	$	464		$	(661	)	$	(197	)

Provision for Loan and Lease Losses

Management closely monitors the loan portfolio and the adequacy of the ALLL by considering the underlying financial performance of the borrower, collateral values and associated credit risks. Future material adjustments may be necessary to the provision for loan and lease losses and the ALLL if economic conditions or loan performance differ substantially from the assumptions management considered in its evaluation of the ALLL. The provision for loan and lease losses is an expense charged against net interest income to provide for probable losses attributable to uncollectible loans and is based on management’s analysis of the adequacy of the ALLL. A credit to loan and lease losses reflects the reversal of amounts previously charged to the ALLL.

FNCB recorded a provision for loan and lease losses of $347 thousand for the three-month period ended June 30, 2019, a decrease of $533 thousand, or 60.6%, compared to a provision of $880 thousand for the three months ended June 30, 2018. The provision for loan losses amounted to $193 thousand for the six months ended June 30, 2019, a decrease of $1.4 million, or 87.9%, from $1.6 million for the same six months of 2018. The reduction in the provision for loan losses for the quarter and year-to-date periods primarily reflected a decrease in loan balances, coupled with a decrease in historical net charge-off rates.

36

Non-interest Income

Non-interest income increased $49 thousand, or 3.2%, to $1.6 million for the three months ended June 30, 2019 from  $1.5 million for the same three months of 2018. For the six months ended June 30, 2019, non-interest income increased $45 thousand, or 1.5%, to $3.1 million from $3.0 million for the same six-month period of 2018. An increase in net gains realized on the sale of available-for-sale debt securities, coupled with a net gain on equity securities, partially offset by reductions in net gains on the sale of SBA-guaranteed loans and deposit service charges were the predominant factors leading to the modest increase in non-interest income comparing the quarter and year-to-date periods ending June 30, 2019 and 2018. FNCB realized net gains on the sale of available-for-sale debt securities of $163 thousand and $323 thousand for the three months and six months ended June 30, 2019, respectively, compared to a net loss of $4 thousand for both respective periods of 2018. Additionally, FNCB realized net gains on equity securities of $14 thousand and $26 thousand for the three and six months ended June 30, 2019, respectively, compared to net losses of $7 thousand and $26 thousand for the respective periods of 2018. For the three and six months ended June 30, 2018, FNCB realized net gains on the sale of SBA-guaranteed loans of $71 thousand and $322 thousand. FNCB did not sell any SBA-guaranteed loans in the respective periods of 2019. Deposit service charges decreased $26 thousand, or 3.5%, comparing the second quarters of 2019 and 2018, and $43 thousand, or 3.0%, comparing the six months ended June 30, 2019 and 2018. FNCB implemented a tiered structure for NSF charges for consumer checking accounts during the first quarter of 2019, which was the primary factor causing the reduction in deposit service charges. 

Non-interest Expense

Non-interest expense increased $156 thousand, or 2.2%, to $7.1 million for the three months ended June 30, 2019 from $7.0 million for the same three months of 2018. The change primarily reflected an increase of $339 thousand, or 9.7%, in salaries and employee benefits expense related to recent staff additions, coupled with an increase in data processing expenses of $142 thousand, or 22.0%, attributable to recent technology enhancements. Partially offsetting these increases were reductions in regulatory assessments, other losses and occupancy expense. For the three months ended June 30, 2019, regulatory assessments decreased $120 thousand, or 61.4% to $76 thousand in 2019 from $196 thousand for the same period of 2018. The decrease  reflected a reduction in the FDIC deposit insurance assessment rate due to FNCB's improved capital position. For the second quarter of 2018, FNCB recorded other losses of  $86 thousand related primarily to the abandonment of fixed assets as part of a branch consolidation and an ATM skimming event. Other losses recorded during the second quarter of 2019 were $1 thousand. Comparing the second quarters of 2019 and 2018, occupancy expense decreased $82 thousand, or 15.7%, due to reductions in depreciation on leasehold improvements, building maintenance and utility expenses.

For the six months ended June 30, 2019, non-interest expense increased $349 thousand, or 2.5%, to $14.5 million from $14.2 million for the same six months of 2018. Similar to the second quarter comparison, the increase for the year-to-date period was largely due to increases in salaries and employee benefits of $572 thousand, or 8.0%, and data processing expenses of $275 thousand, or 21.2%, partially offset by reductions in regulatory assessments of $153 thousand, or 38.5%, and occupancy expense of $135 thousand or 12.0%. Additionally, for the year-to-date period other operating expenses decreased $169 thousand, or 9.5%, comparing the six months ended June 30, 2019 and 2018. The decrease in other operating expense included a reduction in telecommunications expense related to network enhancements completed in 2018, coupled with a one-time application fee for FNCB's transition to the Nasdaq Capital Market for listing its shares of common stock paid in 2018.

Provision for Income Taxes

FNCB recorded income tax expense of $1.1 million for the six months ended June 30, 2019, an increase of $135 thousand, or 14.4%, compared to income tax expense of $934 thousand for the same period of 2018. The increase in income tax expense primarily reflected an increase in pre-tax net income of $888 thousand, or 16.6%, when comparing the six months ended June 30, 2019 and 2018.

Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently, if necessary, in accordance with guidance set forth in ASC Topic 740 “Income Taxes,” and applies the criteria in the guidance to determine whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. If management determines based on available evidence, both positive and negative, that it is more likely than not that some portion or all of the deferred tax asset will not be realized in future periods, a valuation allowance is calculated and recorded. These determinations are inherently subjective and depend upon management’s estimates and judgments used in their evaluation of both positive and negative evidence.

In evaluating available evidence, management considers, among other factors, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. In assessing the need for a valuation allowance, management carefully weighs both positive and negative evidence currently available.

Management performed an evaluation of FNCB’s deferred tax assets at June 30, 2019 taking into consideration both positive and negative evidence that existed as of that date. Based on this evaluation, management believes that FNCB’s future taxable income will be sufficient to utilize deferred tax assets. Accordingly, management concluded that no valuation allowance for deferred tax assets was required at June 30, 2019.

37

FINANCIAL CONDITION

Assets

Total assets decreased $38.9 million, or 3.1%, to $1.199 billion at June 30, 2019 from $1.238 billion at December 31, 2018. The change in total assets primarily reflected decreases in loans, available-for sale debt securities and cash and cash equivalents, partially offset by an increase in other assets. Loans, net of deferred costs and unearned income, decreased $24.7 million, or 2.9%, to $814.4 million at June 30, 2019 from $839.1 million at December 31, 2018, which primarily reflected the planned runoff of indirect automobile loan balances and the anticipated payoff of two large municipal loans, partially offset by growth in construction, land acquisition and development loans. Available-for-sale debt securities decreased  $10.2 million, or 3.4%, to $285.8 million at June 30, 2019 from $296.0 million at December 31, 2018.  Market opportunities allowed for the sale of securities to supplement cyclical deposit trends, minimize wholesale funding utilization and record additional non-interest income. Other assets increased $2.6 million, or 25.0%, to $12.7 million at June 30, 2019 from $10.1 million at December 31, 2018, which was largely due to the capitalization of the right of use assets associated with FNCB's operating leases upon the adoption of new accounting guidance for leases that became effective on January 1, 2019.  Total deposits decreased by $134.6 million, or 12.3%, to $961.1 million at June 30, 2019 from $1.096 billion at December 31, 2018. The deposit decrease was primarily attributable to cyclical net outflows of municipal deposits and a reduction in the utilization of wholesale brokered deposits. Conversely, borrowed funds increased $63.3 million, or 185.0%, to $97.5 million at June 30, 2019 as compared to $34.2 million at December 31, 2018.

Cash and Cash Equivalents

Cash and cash equivalents declined $6.6 million, or 18.0%, to $29.9 million at June 30, 2019 from $36.5 million at December 31, 2018. The reduction was due primarily to cyclical reductions in deposits, partially offset by an increase in borrowed funds and reduction in loan balances. FNCB paid dividends of $0.05 per share and $0.10 per share for the three months and six months ended June 30, 2019, respectively, an increase of 25.0% compared to dividends of $0.04 per share and $0.08 per share for the respective periods of 2018. 

Securities

FNCB’s investment securities portfolio provides a source of liquidity needed to meet expected loan demand and interest income to increase profitability. Additionally, the investment securities portfolio is used to meet pledging requirements to secure public deposits and for other purposes. Debt securities are classified as either held-to-maturity or available-for-sale at the time of purchase based on management's intent. Held-to-maturity securities are carried at amortized cost, while available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a component of shareholders’ equity in accumulated other comprehensive income (loss), net of tax. At June 30, 2019 and December 31, 2018, all debt securities were classified as available-for-sale. Equity securities with readily determinable fair values are carried at fair value, with gains and losses due to fluctuations in market value included in the consolidated statements of income. Securities with limited marketability and/or restrictions, such as FHLB of Pittsburgh stock, are carried at cost. Decisions to purchase or sell investment securities are based upon management’s current assessment of long- and short-term economic and financial conditions, including the interest rate environment and asset/liability management, liquidity and tax-planning strategies.

At June 30, 2019, the investment portfolio was comprised principally of fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include mortgage-backed securities and residential and commercial collateralized mortgage obligations (“CMOs”), fixed-rate taxable obligations of state and political subdivisions and corporate debt securities. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of shareholders’ equity at June 30, 2019.

The following table presents the carrying value of debt securities, all of which were classified as available-for-sale and carried at fair value at June 30, 2019 and December 31, 2018:

Composition of the Investment Portfolio

	June 30,		December 31,
(in thousands)	2019		2018
Available-for-sale debt securities
Obligations of state and political subdivisions	$	117,245	$	152,187
U.S. government/ government-sponsored agencies:
Collateralized mortgage obligations - residential		66,727		34,207
Collateralized mortgage obligations - commercial		57,865		73,640
Mortgage-backed securities		20,940		23,934
Private collateralized mortgage obligations		10,697		2,913
Corporate debt securities		6,121		4,936
Asset-backed securities		3,832		1,802
Negotiable certificates of deposit		2,428		2,413
Total available-for-sale debt securities	$	285,855	$	296,032

Management monitors the investment portfolio regularly and adjusts the investment strategy to reflect changes in liquidity needs, asset/liability strategy and tax planning requirements. FNCB currently has $30.0 million in net operating loss carryovers, which it uses to offset any taxable income. Because of this tax position, there is no benefit from holding tax-exempt obligations of state and political subdivisions. Accordingly, management actions during recent periods have reflected current tax planning initiatives focused on generating sustained taxable income to be able to reduce NOL carryovers.

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FNCB's December 31, 2018 and March 31, 2019 ALCO model indicated that FNCB was liability sensitive for the first 18 to 24 months of the model. Market opportunities during the first half of 2019 allowed management to utilize FNCB's security portfolio to employ asset/liability strategies designed to shorten the liability sensitivity. During the six months ended June 30, 2019, FNCB sold 40 available-for-sale debt securities, including 32 taxable obligations of state and political subdivisions and one agency security and seven U.S. government- sponsored agency CMOs. The securities sold had an aggregate amortized cost of $60.9 million and a weighted average yield 2.58%.  Gross proceeds received totaled $61.3 million, with net gains of $323 thousand realized upon the sales, which was included in non-interest income for the six months ended June 30, 2019. For the six months ended June 30, 2019, FNCB purchased nine securities with an aggregate amortized cost of $44.5 million and a weighted-average yield of 3.02%. The purchases included six U.S. government agency CMOs, one private CMO, one asset-backed security and one corporate bond. In order to mitigate some of FNCB's liability sensitivity, five of the six U.S. government agency bonds purchased with an aggregate cost of $26.8 million were floating-rate securities issued by GNMA.

The following table presents the maturities of available-for-sale debt securities, based on carrying value at June 30, 2019 and the weighted average yields of such securities calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. The yields on tax-exempt obligations of state and political subdivisions are presented on a tax-equivalent basis using the federal corporate income tax rate of 21.0%. Because residential, commercial and private 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 summary.

Maturity Distribution of the Investment Portfolio

	June 30, 2019
(dollars in thousands)	Within One Year			>1 - 5 Years			6 - 10 Years			Over 10 Years			Collateralized Mortgage Obligations, Mortgage-Backed and Asset-Backed Securities			Total
Available-for-sale debt securities
Obligations of state and political subdivisions	$	1,004		$	50,575		$	61,657		$	4,009		$	-		$	117,245
Yield		2.30	%		2.64	%		2.88	%		3.58	%					2.79	%
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		-			-			-			-			66,727			66,727
Yield														2.90	%		2.90	%
Collateralized mortgage obligations - commercial		-			-			-			-			57,865			57,865
Yield														2.47	%		2.47	%
Mortgage-backed securities		-			-			-			-			20,940			20,940
Yield														2.97	%		2.97	%
Private collateralized mortgage obligations		-			-			-			-			10,697			10,697
Yield														3.13	%		3.13	%
Corporate debt securities		-			-			6,121			-			-			6,121
Yield								6.46	%								6.46	%
Asset-backed securities		-			-			-			-			3,832			3,832
Yield														3.18	%		3.18	%
Negotiable certificates of deposit		1,734			694			-			-			-			2,428
Yield		2.08	%		2.31	%											2.14	%
Total available-for-sale debt securities	$	2,738		$	51,269		$	67,778		$	4,009		$	160,061		$	285,855
Weighted average yield		2.16	%		2.63	%		3.20	%		3.58	%		2.78	%		2.86	%

OTTI Evaluation

There was no OTTI recognized during the six months ended June 30, 2019 or 2018. For additional information regarding management’s evaluation of securities for OTTI, see Note 3, “Securities” of the notes to consolidated financial statements included in Item 1 hereof.

The following table presents the investment in FNCB’s restricted securities, which have limited marketability and are carried at cost:

	June 30,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	4,608	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,618	$	3,123

Management noted no indicators of impairment for the Federal Home Loan Bank of Pittsburgh or Atlantic Community Banker’s Bank stock at June 30, 2019 and December 31, 2018.

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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, with a fair value less than its carrying value. The $1.7 million investment is included in other assets in the consolidated statements of financial condition at June 30, 2019 and December 31, 2018. As part of its qualitative assessment, management engaged an independent third party to provide a valuation of this investment as of June 30, 2019, which indicated that the investment was not impaired. Management determined that no adjustment for impairment was required at June 30, 2019.

Loans

FNCB's loan portfolio contracted during the first half of 2019, due largely to the planned runoff of indirect automobile loans and the anticipated payoffs of two large municipal loans, which more than entirely offset new loan originations. Total loans, gross decreased $23.9 million, or 2.9%, to $811.3 million at June 30, 2019 from $835.2 million at December 31, 2018. FNCB did experience moderate to strong growth in its construction, land acquisition and development, commercial real estate and commercial and industrial portfolios, which was overshadowed by reductions in the consumer, residential real estate and state and political subdivision portfolios.

Historically, commercial lending activities represent a significant portion of FNCB’s loan portfolio. Commercial lending includes commercial and industrial loans, commercial real estate loans and construction, land acquisition and development loans, and represented 56.1% and 52.0% of total loans at June 30, 2019 and December 31, 2018.

From a collateral standpoint, a majority of FNCB’s loan portfolio consists of loans secured by real estate. Real estate secured loans, which include commercial real estate, construction, land acquisition and development, residential real estate loans and home equity lines of credit (“HELOCs”), increased $7.2 million, or 1.5%, to $475.3 million at June 30, 2019 from $468.1 million at December 31, 2018. The increase was concentrated in commercial real estate loans. Real estate secured loans represented 56.2% and 56.0% of total loans at June 30, 2019 and December 31, 2018, respectively.

Construction, land acquisition and development loans increased $10.9 million, or 52.2%, to $31.7 million at June 30, 2019 from $20.8 million at December 31, 2018, while commercial and industrial loans grew $8.7 million, or 5.8%, to $159.7 million at June 30, 2019 from $151.0 million at December 31, 2018. Commercial and industrial loans consist primarily of equipment loans, working capital financing, revolving lines of credit and loans secured by cash and marketable securities. Additionally, loans secured by commercial real estate increased $1.0 million, or 0.4%, to $263.8 million at June 30, 2019 from $262.8 million at December 31, 2018. Commercial real estate loans include long-term commercial mortgage financing and are primarily secured by first or second lien mortgages. 

Residential real estate loans totaled $161.6 million at June 30, 2019, a decrease of $3.2 million, or 2.0%, from $164.8 million at December 31, 2018. The components of residential real estate loans include fixed-rate and variable-rate, amortizing mortgage loans. HELOCs are not included in this category but are included in consumer loans. FNCB primarily underwrites fixed-rate residential mortgage loans for sale in the secondary market to reduce interest rate risk and provide funding for additional loans. Additionally, FNCB offers its proprietary “WOW” mortgage product, which is a non-saleable mortgage with maturity terms of 7.5 to 19.5 years that provides customers with an attractive fixed interest rate, low closing costs and a guaranteed 30-day close.

Consumer loans, which are primarily comprised of indirect automobile loans and HELOCs, decreased by $18.9 million, or 10.7%, to $157.9 million at June 30, 2019 from $176.8 million at December 31, 2018.The majority of this decrease was concentrated within the indirect auto loan portfolio, as FNCB did not aggressively compete for these loans during the first half of 2019. The balance of indirect automobile loans decreased $17.7 million, or 11.4%, to $137.4 million at June 30, 2019 from $155.1 million at December 31, 2018. Following the anticipated payoff of two large municipal loan relationships, loans to state and political subdivisions decreased $22.3 million, or 37.8%, to $36.7 million at June 30, 2019 from $59.0 million at December 31, 2018.

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The following table presents loans receivable, net by major category at June 30, 2019 and December 31, 2018:

Loan Portfolio Detail

	June 30,			December 31,
(in thousands)	2019			2018
Residential real estate	$	161,572		$	164,833
Commercial real estate		263,781			262,778
Construction, land acquisition and development		31,686			20,813
Commercial and industrial		159,707			150,962
Consumer		157,878			176,784
State and political subdivisions		36,705			59,037
Total loans, gross		811,329			835,207
Unearned income		(61	)		(70	)
Net deferred loan costs		3,152			3,963
Allowance for loan and lease losses		(8,945	)		(9,519	)
Loans, net	$	805,475		$	829,581

Under industry regulations, a concentration is considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. Typically, industry guidelines require disclosure of concentrations of loans exceeding 10.0% of total loans outstanding. FNCB had no such concentrations at June 30, 2019 or December 31, 2018. In addition to industry guidelines, FNCB’s internal policy considers a concentration to exist in its loan portfolio if an aggregate loan balance outstanding to borrowers within a specific industry exceeds 25.0% of capital. However, management regularly reviews loans by all industry categories to determine if a potential concentration exists.

The following table presents industry concentrations within FNCB’s loan portfolio at June 30, 2019 and December 31, 2018:

Loan Concentrations

	June 30, 2019					December 31, 2018
(dollars in thousands)	Amount		% of Gross Loans			Amount		% of Gross Loans
Retail space/shopping centers	$	39,923		4.92	%	$	48,021		5.75	%
1-4 family residential investment properties		39,900		4.92	%		38,756		4.64	%
Physicians		26,142		3.22	%		25,379		3.04	%

Asset Quality

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, net of unearned interest, deferred loan fees and costs, and reduced by the ALLL. The ALLL is established through a provision for loan and lease losses charged to earnings.

FNCB has established and consistently applies loan policies and procedures designed to foster sound underwriting and credit monitoring practices. Credit risk is managed through the efforts of loan officers, the Chief Credit Officer, the loan review function, and the Credit Risk Management, ALLL, Officers Loan and Directors Loan Committees, as well as through oversight of the Board of Directors. Management continually evaluates its credit risk management practices to ensure it is reacting to problems in the loan portfolio in a timely manner, although, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions that are beyond management’s control.

Under FNCB’s risk rating system, loans that are rated pass, special mention, substandard, doubtful, or loss are reviewed regularly as part of the risk management practices. The Credit Risk Management Committee, which consists of key members of management, from finance, legal, retail lending and credit administration, meet monthly or more often as necessary to review individual problem credits and workout strategies and provides monthly reports to the Board of Directors.

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A loan is considered impaired when it is probable that FNCB will be unable to collect all amounts due (including principal and interest) according to the contractual terms of the note and loan agreement. For purposes of the analysis, all TDRs, loan relationships with an aggregate outstanding balance greater than $100 thousand rated substandard and non-accrual, and loans that are identified as doubtful or loss are considered impaired. Impaired loans are analyzed individually to determine the amount of impairment. For collateral-dependent loans, impairment is measured based on the fair value of the collateral supporting the loans. A loan is determined to be collateral dependent when repayment of the loan is expected to be provided through the liquidation of the collateral held. For impaired loans that are secured by real estate, external appraisals are obtained annually, or more frequently as warranted, to ascertain a fair value so that the impairment analysis can be updated. Should a current appraisal not be available at the time of impairment analysis, other sources of valuation may be used, including current letters of intent, broker price opinions or executed agreements of sale. For non-collateral-dependent loans, impairment is measured based on the present value of expected future cash flows, net of any deferred fees and costs, discounted at the loan’s original effective interest rate.

Loans to borrowers that are experiencing financial difficulty that are modified and result in the granting of concessions to the borrowers are classified as TDRs. Such concessions generally involve an extension of a loan’s stated maturity date, a reduction of the stated interest rate, payment modifications, capitalization of property taxes with respect to mortgage loans or a combination of these modifications. Non-accrual TDRs are returned to accrual status if principal and interest payments, under the modified terms, are brought current, are performing under the modified terms for six consecutive months, and management believes that collection of the remaining interest and principal is probable. FNCB conservatively considers all TDRs to be impaired.

Non-performing loans are monitored on an ongoing basis as part of FNCB’s loan review process. Additionally, work-out for non-performing loans and OREO are actively monitored through the Credit Risk Management Committee. A potential loss on a non-performing asset is generally determined by comparing the outstanding loan balance to the fair market value of the pledged collateral, less cost to sell.

Loans are placed on non-accrual when a loan is specifically determined to be impaired or when management believes that the collection of interest or principal is doubtful. This generally occurs when a default of interest or principal has existed for 90 days or more, unless the loan is well secured and in the process of collection, or when management becomes aware of facts or circumstances that the loan would default before 90 days. FNCB determines delinquency status based on the number of days since the date of the borrower’s last required contractual loan payment. When the interest accrual is discontinued, all unpaid interest income is reversed and charged back against current earnings. Any subsequent cash payments received are applied, first to the outstanding loan amounts, then to the recovery of any charged-off loan amounts, with any excess treated as a recovery of lost interest. A non-accrual loan is returned to accrual status when the loan is current as to principal and interest payments, is performing according to contractual terms for six consecutive months and future payments are reasonably assured.

Management actively manages impaired loans in an effort to mitigate loss to FNCB by working with customers to develop strategies to resolve borrower difficulties, through sale or liquidation of collateral, foreclosure, and other appropriate means. In addition, management monitors employment and economic conditions within FNCB’s market area, as weakening of conditions could result in real estate devaluations and an increase in loan delinquencies, which could negatively impact asset quality and cause an increase in the provision for loan and lease losses.

Under the fair value of collateral method, the impaired amount of the loan is deemed to be the difference between the loan amount and the fair value of the collateral, less the estimated costs to sell. For real estate secured loans, management generally estimates selling costs using a factor of 10%, which is based on typical cost factors, such as a 6% broker commission, 1% transfer taxes, and 3% various other miscellaneous costs associated with the sales process. If the valuation indicates that the fair value has deteriorated below the carrying value of the loan, the difference between the fair value and the principal balance is charged off. For impaired loans for which the value of the collateral less costs to sell exceeds the loan value, the impairment is determined to be zero.

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The following table presents information about non-performing assets and accruing TDRs at June 30, 2019 and December 31, 2018:

Non-performing Assets and Accruing TDRs

	June 30,			December 31,
(dollars in thousands)	2019			2018
Non-accrual loans	$	5,302		$	4,696
Loans past due 90 days or more and still accruing		-			-
Total non-performing loans		5,302			4,696
Other real estate owned		560			919
Other non-performing assets		1,900			1,900
Total non-performing assets	$	7,762		$	7,515
Accruing TDRs	$	7,897		$	8,457
Non-performing loans as a percentage of gross loans		0.65	%		0.56	%

Total non-performing assets increased $247 thousand, or 3.2%, to $7.8 million at June 30, 2019 from $7.5 million at December 31, 2018. The increase was attributable to an increase in non-accrual loans, partially offset by a decrease in OREO. The increase in non accrual loans resulted primarily from two commercial relationships that were placed on non-accrual status during the first quarter of 2019, which were partially offset by the charge off of one commercial and industrial loan in the second quarter of 2019. FNCB’s ratio of non-performing loans to total gross loans increased to 0.65% at June 30, 2019 from 0.56% at December 31, 2018. FNCB’s ratio of non-performing assets as a percentage of shareholders’ equity improved to 6.0% at June 30, 2019 from 8.7% at December 31, 2018, due to increases in FNCB's capital position following the capital raise completed in the first quarter of 2019 and net income generation. Management actively manages problem credits through workout efforts focused on developing strategies to resolve borrower difficulties through liquidation of collateral and other appropriate means. Additionally, management continues to monitor non-accrual loans, delinquency trends and economic conditions within FNCB’s market area on an on-going basis in order to proactively address any collection-related issues and mitigate any potential losses.

Other non-performing assets at June 30, 2019 and December 31, 2018 is comprised solely of a classified account receivable secured by an evergreen letter of credit in the amount of $1.9 million, received in 2011 as part of a settlement agreement for a large construction, land acquisition and development loan for a residential development project in the Pocono region of Monroe County, Pennsylvania. The agreement provides for payment to FNCB as real estate building lots are sold. The project was stalled due to a decline in real estate values in this area following the financial crisis of 2008. In 2016, management classified this receivable as substandard due to the length of holding time. Recently, economic development in this market area has improved. Management continues to monitor this project closely and has confirmed that the developer for this project has resumed construction activity, including the completion of substantial infrastructure for the development, and has increased marketing and sales initiatives related to the project. As of June 30, 2019, no single-unit lots have been sold.

There was one residential mortgage loan modified as a TDR during the three and six months ended June 30, 2019. The modification involved an extension of terms and the loan had a pre- and post-modification balance of $24 thousand. There were no loans modified as TDRs during the three and six months ended June 30, 2018. There was one consumer TDR that was modified within the previous 12 months in the amount of $103 thousand that defaulted (defined as past due 90 days or more) during the three and six months ended June 30, 2019. There were no TDRs modified within the previous 12 months that defaulted during the three and six months ended June 30, 2018. TDRs at June 30, 2019 and December 31, 2018 were $8.1 million and $9.2 million, respectively. Accruing and non-accruing TDRs were $7.9 million and $0.2 million, respectively at June 30, 2019 and $8.5 million and $0.7 million, respectively at December 31, 2018. FNCB was not committed to lend additional funds to any loan classified as a TDR at June 30, 2019.

The average balance of impaired loans was $12.9 million and $10.9 million for the six months ended June 30, 2019 and 2018, respectively. FNCB recognized $101 thousand and $205 thousand of interest income on impaired loans for the three and six months ended June 30, 2019, respectively and $101 thousand and $204 thousand for the respective periods of 2018.

The following table presents the changes in non-performing loans for the three and six months ended June 30, 2019 and 2018. Loan foreclosures represent recorded investment at time of foreclosure not including the effect of any guarantees. There was one residential mortgage loan foreclosed upon during the three and six months ended June 30, 2019. The loan was 100.0% sold to a third-party investor and had no recorded investment outstanding at time of foreclosure.

Changes in Non-Performing Loans

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	6,175		$	2,403		$	4,696		$	2,578
Loans newly placed on non-accrual		816			2,680			3,094			3,064
Loans returned to performing status		(4	)		(25	)		(27	)		(25	)
Loan foreclosures		-			-			-			-
Loans charged-off		(1,120	)		(1,305	)		(1,567	)		(1,694	)
Loan payments received		(565	)		(284	)		(894	)		(454	)
Balance, end of period	$	5,302		$	3,469		$	5,302		$	3,469

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The additional interest income that would have been earned on non-accrual and restructured loans had the loans been performing in accordance with their original terms for the three months and six months ended June 30, 2019 approximated $95 thousand and $177 thousand, respectively and $45 thousand and $85 thousand for the respective period of 2018.

The following table presents accruing loan delinquencies and non-accrual loans as a percentage of gross loans at June 30, 2019 and December 31, 2018:

Loan Delinquencies and Non-Accrual Loans

	June 30,			December 31,
	2019			2018
Accruing:
30-59 days		0.28	%		0.32	%
60-89 days		0.05	%		0.05	%
90+ days		0.00	%		0.00	%
Non-accrual		0.65	%		0.56	%
Total delinquencies		0.98	%		0.93	%

Total delinquencies as a percent of gross loans were 0.98% at June 30, 2019 compared to 0.93% at December 31, 2018.  The increase in total delinquent loans was primarily due to an increase in non-accrual loans of $0.6 million, partially offset by reductions in loans past due 30-89 days.

Allowance for Loan and Lease Losses

The ALLL represents management’s estimate of probable loan losses inherent in the loan portfolio. The ALLL is analyzed in accordance with GAAP and is maintained at a level that is based on management’s evaluation of the adequacy of the ALLL in relation to the risks inherent in the loan portfolio.

As part of its evaluation, management considers qualitative and environmental factors, including, but not limited to:

• changes in national, local, and business economic conditions and developments, including the condition of various market segments;

• changes in the nature and volume of the loan portfolio;

• changes in lending policies and procedures, including underwriting standards, collection, charge-off and recovery practices and results;

• changes in the experience, ability and depth of lending management and staff;

• changes in the quality of the loan review system and the degree of oversight by the Board of Directors;

• changes in the trend of the volume and severity of past due and classified loans, including trends in the volume of non-accrual loans, TDRs and other loan modifications;

• the existence and effect of any concentrations of credit and changes in the level of such concentrations;

• the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current loan portfolio; and

• analysis of customers’ credit quality, including knowledge of their operating environment and financial condition.

Evaluations are intrinsically subjective, as the results are estimated based on management knowledge and experience and are subject to interpretation and modification as information becomes available or as future events occur. Management monitors the loan portfolio on an ongoing basis with emphasis on weakness in both the real estate market and the economy in general and its effect on repayment. Adjustments to the ALLL are made based on management’s assessment of the factors noted above.

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For purposes of management’s analysis of the ALLL, all loan relationships with an aggregate balance greater than $100 thousand that are rated substandard and non-accrual, identified as doubtful or loss, and all TDRs are considered impaired and are analyzed individually to determine the amount of impairment. Circumstances such as construction delays, declining real estate values, and the inability of the borrowers to make scheduled payments have resulted in these loan relationships being classified as impaired. FNCB utilizes the fair value of collateral method for collateral-dependent loans and TDRs for which repayment depends on the sale of collateral. For non-collateral-dependent loans and TDRs, FNCB measures impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. With regard to collateral-dependent loans, appraisals are received at least annually to ensure that impairment measurements reflect current market conditions. Should a current appraisal not be available at the time of impairment analysis, other valuation sources including current letters of intent, broker price opinions or executed agreements of sale may be used. Only downward adjustments are made based on these supporting values. Included in all impairment calculations is a cost to sell adjustment of approximately 10%, which is based on typical cost factors, including a 6% broker commission, 1% transfer taxes and 3% various other miscellaneous costs associated with the sales process. Sales costs are periodically reviewed and revised based on actual experience. The ALLL analysis is adjusted for subsequent events that may arise after the end of the reporting period but before the financial reports are filed.

The ALLL equaled $8.9 million at June 30, 2019, a decrease of $0.6 million from $9.5 million at December 31, 2018. The decrease resulted from net loans charged-off of $0.8 million for the six months ended June 30, 2019, partially offset by a $0.2 million provision for loan and lease losses for the same time period.

The ALLL consists of both specific and general components. The component of the ALLL that is related to impaired loans that are individually evaluated for impairment, the guidance for which is provided by ASC 310 “Impairment of a Loan” (“ASC 310”), was $0.3 million, or 3.4%, of the total ALLL at June 30, 2019, compared to $0.7 million, or 6.9%, of the total ALLL at December 31, 2018. A general allocation of $8.6 million was calculated for loans analyzed collectively under ASC 450 “Contingencies” (“ASC 450”), which represented 96.6% of the total ALLL of $8.9 million. Comparatively, at December 31, 2018, the general allocation for loans collectively analyzed for impairment amounted to $8.9 million, or 93.1%, of the total ALLL. The ratio of the ALLL to total loans at June 30, 2019 and December 31, 2018 was 1.10% and 1.13%, respectively, based on loans, net of net deferred loan costs and unearned income of $814.4 million and $839.1 million, respectively.

The following table presents an allocation of the ALLL by major loan category and percent of loans in each category to total loans at June 30, 2019 and December 31, 2018:

Allocation of the ALLL

	June 30, 2019					December 31, 2018
			Percentage					Percentage
			of Loans					of Loans
			in Each					in Each
			Category					Category
	Allowance		to Total			Allowance		to Total
(dollars in thousands)	Amount		Loans			Amount		Loans
Residential real estate	$	1,152		19.93	%	$	1,175		19.74	%
Commercial real estate		3,429		32.51	%		3,107		31.46	%
Construction, land acquisition and development		178		3.90	%		188		2.49	%
Commercial and industrial		2,071		19.68	%		2,552		18.07	%
Consumer		1,839		19.46	%		2,051		21.17	%
State and political subdivision		211		4.52	%		417		7.07	%
Unallocated		65		0.00	%		29		0.00	%
Total	$	8,945		100.00	%	$	9,519		100.00	%

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The following table presents an analysis of the ALLL by loan category for the three and six months ended June 30, 2019 and 2018:

Reconciliation of the ALLL

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	9,253		$	9,562		$	9,519		$	9,034
Charge-offs:
Residential real estate		27			-			27			63
Commercial real estate		-			1,126			-			1,126
Construction, land acquisition and development		18			-			18			-
Commercial and industrial		621			4			760			81
Consumer		457			180			772			440
State and political subdivisions		-			-			-			-
Total charge-offs		1,123			1,310			1,577			1,710
Recoveries of charged-off loans:
Residential real estate		2			121			6			127
Commercial real estate		14			2			14			3
Construction, land acquisition and development		-			-			81			30
Commercial and industrial		123			75			207			147
Consumer		329			129			502			228
State and political subdivisions		-			-			-			-
Total recoveries		468			327			810			535
Net charge-offs		655			983			767			1,175
Provision for loan and lease losses		347			880			193			1,600
Balance at end of period	$	8,945		$	9,459		$	8,945		$	9,459
Net charge-offs as a percentage of average loans		0.08	%		0.12	%		0.09	%		0.14	%
Allowance for loan and lease losses as a percentage of gross loans outstanding at period end		1.10	%		1.11	%		1.10	%		1.11	%

Other Real Estate Owned

OREO consisted of four properties with an aggregate carrying value of $0.6 million at June 30, 2019 and six properties with an aggregate carrying value of $0.9 million at December 31, 2018. There was one property with a fair value less cost to sell of $52 thousand that was foreclosed upon during the six months ended June 30, 2019. The property foreclosed upon was the collateral supporting an investor-owned residential mortgage loan. The agreement with the investor requires FNCB to take title to the property upon foreclosure and FNCB is responsible for the property liquidation on behalf of the investor after foreclosure. There were three OREO properties, with an aggregate carrying value of $411 thousand, sold during the six months ended June 30, 2019. FNCB realized a net gain of $9 thousand upon the sales, which is including in non-interest income for the six months ended June 30, 2019. There were no properties foreclosed upon during the six months ended June 30, 2018. There were two OREO properties, with an aggregate carrying value of $439 thousand, that were sold during the six months ended June 30, 2018, which resulted in a net gain on the sales of $31 thousand. 

The expenses related to maintaining OREO, not including adjustments to property values subsequent to foreclosure, and net of any income from operation of the properties, amounted to $14 thousand and $65 thousand for the three months and six months ended June 30, 2019, respectively, compared to $55 thousand and $83 thousand for the respective periods of 2018.

FNCB actively markets OREO properties for sale through a variety of channels including internal marketing and the use of outside brokers/realtors. The carrying value of OREO is generally calculated at an amount not greater than 90% of the most recent fair market appraised value unless specific conditions warrant an exception. A 10% factor is generally used to estimate costs to sell, which is based on typical cost factors, such as 6% broker commission, 1% transfer taxes, and 3% various other miscellaneous costs associated with the sales process. This fair value is updated on an annual basis or more frequently if new valuation information is available. Deterioration in the real estate market could result in additional losses on these properties. There were no valuation adjustments related to OREO properties for the six months ended June 30, 2019.  FNCB recorded a valuation adjustment of $17 thousand related to OREO properties for the six months ended June 30, 2018. 

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The following table presents the activity in OREO for the three and six months ended June 30, 2019 and 2018:

Activity in OREO

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	919		$	579		$	919		$	1,023
Property foreclosures		52			-			52			-
Transfer from bank premises		-			220			-			220
Valuation adjustments		-			-			-			(17	)
Carrying value of OREO sold		(411	)		(12	)		(411	)		(439	)
Balance, end of period	$	560		$	787		$	560		$	787

The following table presents a distribution of OREO at June 30, 2019 and December 31, 2018:

Distribution of OREO

	June 30,		December 31,
(in thousands)	2019		2018
Land / lots	$	436	$	436
Commercial real estate		72		438
Residential real estate		52		45
Total other real estate owned	$	560	$	919

Liabilities

Total liabilities were $1.069 billion at June 30, 2019, a decrease of $71.4 million, or 6.3%, from $1.141 billion at December 31, 2018. The decrease was primarily attributable to a decrease in total deposits, partially offset by an increase in borrowed funds. Total deposits decreased $134.6 million, or 12.3%, to $961.1 million at June 30, 2019 from $1.096 billion at December 31, 2018. Specifically, interest-bearing deposits decreased $135.8 million, or 14.5%, to $803.2 million at June 30, 2019 from $939.0 million at December 31, 2018, while non-interest-bearing demand deposits increased $1.2 million, or 0.8%, to $157.8 million at June 30, 2019 from $156.6 million at December 31, 2018. The decrease in total deposits primarily reflected cyclical net outflows of municipal deposits, coupled with a decrease in the utilization of brokered deposits as a wholesale source of funding. Conversely, borrowed funds increased $63.3 million, or 185.1%, to $97.5 million at June 30, 2019 from $34.2 million at December 31, 2018. Management regularly monitors wholesale funding sources taking into consideration the cost of funds, diversification between funding sources and asset/liability management strategies. FNCB utilizes brokered deposits, including one-way purchases through the Promontory Interfinancial Network, deposits acquired through a national listing service, as well as overnight and term advances through the FHLB of Pittsburgh as wholesale sources of funds to supplement its deposit gathering initiatives.

Equity

Total shareholders’ equity increased $32.5 million, or 33.4%, to $129.7 million at June 30, 2019 from $97.2 million at December 31, 2018. The improvement in capital resulted primarily from the completion of a public offering of FNCB's common stock in the first quarter of 2019, which resulted in a net increase to capital after offering expenses of $21.3 million. Also factoring into the capital improvement was net income for the six months ended June 30, 2019 of $5.2 million and a $7.9 million increase in accumulated other comprehensive income related to appreciation in the fair value of available-for-sale debt securities, net of deferred taxes. These improvements were partially offset by dividends declared and paid for the six months ended June 30, 2019 of $2.0 million. Book value per common share was $6.44 at June 30, 2019, an increase of $0.66, or 11.4%, compared to $5.78 at December 31, 2018.

FNCB's total regulatory capital increased $23.2 million to $140.4 million at June 30, 2019 from $117.2 million at December 31, 2018. FNCB's total risk-based capital and Tier 1 leverage ratios improved to 15.71% and 11.02%, respectively at June 30, 2019 from 12.69% and 8.50%, respectively, at December 31, 2018. FNCB's and the Bank's risk-based capital ratios exceeded the minimum regulatory capital ratios required for well capitalized under prompt corrective action regulations. Based on the most recent notification from its primary regulator, the Bank was considered well capitalized at June 30, 2019 and December 31, 2018. There are not conditions or events since that notification that management believes would have changed this capital designation.

Liquidity

The term liquidity refers to the ability to generate sufficient amounts of cash to meet cash flow needs. Liquidity is required to fulfill the borrowing needs of FNCB’s credit customers and the withdrawal and maturity requirements of its deposit customers, as well as to meet other financial commitments. FNCB’s liquidity position is impacted by several factors, which include, among others, loan origination volumes, loan and investment maturity structure and cash flows, deposit demand and time deposit maturity structure and retention. FNCB has liquidity and contingent funding policies in place that are designed with controls in place to provide advanced detection of potentially significant funding shortfalls, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate a potential liquidity crisis. Management monitors FNCB’s liquidity position and fluctuations daily, forecasts future liquidity needs, performs periodic stress tests on its liquidity levels and develops strategies to ensure adequate liquidity at all times.

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The statements of cash flows present the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are FNCB’s most liquid assets. At June 30, 2019, cash and cash equivalents totaled $29.9 million, a decrease of $6.6 million compared to $36.5 million at December 31, 2018, as net cash provided by operating and investing activities for the six months ended June 30, 2019 was more than entirely offset by cash used in financing activities during that same time frame. Operating activities for the six months ended June 30, 2019 provided net cash of $5.5 million.  FNCB's investing activities provided a net cash inflow of $39.8 million for the six months ended June 30, 2019, which resulted primarily from a net decrease in loans to customers of $23.1 million, coupled with net proceeds received from transactions related to available-for-sale debt securities of $20.0 million. Financing activities used $52.0 million in net cash for the six months ended June 30, 2019, which resulted primarily from a decrease in deposits of $134.6 million, partially offset by net proceeds from the issuance of common shares of $21.3 million and net proceeds from FHLB term and overnight advances of $68.3 million.

Interest Rate Risk

Interest Rate Sensitivity

Market risk is the risk to earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. FNCB’s exposure to market risk is primarily interest rate risk associated with our lending, investing and deposit gathering activities, all of which are other than trading. Changes in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. In addition, variations in interest rates affect the underlying economic value of our assets, liabilities and off-balance sheet items.

Asset and Liability Management

FNCB manages these objectives through its Asset and Liability Management Committee (“ALCO”) and its Rate and Liquidity and Investment Committees, which consist of certain members of management and certain members of the finance unit. Members of the committees meet regularly to develop balance sheet strategies affecting the future level of net interest income, liquidity and capital.  The major objectives of ALCO are to:

● manage exposure to changes in the interest rate environment by limiting the changes in net interest margin to an acceptable level within a reasonable range of interest rates;

● ensure adequate liquidity and funding;

● maintain a strong capital base; and

● maximize net interest income opportunities.

ALCO monitors FNCB’s exposure to changes in net interest income over both a one-year planning horizon and a longer-term strategic horizon. ALCO uses net interest income simulations and economic value of equity (“EVE”) simulations as the primary tools in measuring and managing FNCB’s position and considers balance sheet forecasts, FNCB's liquidity position, the economic environment, anticipated direction of interest rates and FNCB’s earnings sensitivity to changes in these rates in its modeling. In addition, ALCO has established policy tolerance limits for acceptable negative changes in net interest income. Furthermore, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions used in the modeling techniques.

Earnings at Risk and Economic Value at Risk Simulations

Earnings at Risk

Earnings-at-risk simulation measures the change in net interest income and net income under various interest rate scenarios. Specifically, given the current market rates, ALCO looks at “earnings at risk” to determine anticipated changes in net interest income from a base case scenario with scenarios of +200, +400, and -200 basis points for simulation purposes. The simulation takes into consideration that not all assets and liabilities re-price equally and simultaneously with market rates (i.e., savings rate). 

Economic Value at Risk

While earnings-at-risk simulation measures the short-term risk in the balance sheet, economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from FNCB’s existing assets and liabilities. ALCO examines this ratio regularly, and given the current rate environment, has utilized rate shocks of +200, +400, and -200 basis points for simulation purposes. Management recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.

While ALCO regularly performs a wide variety of simulations under various strategic balance sheet and treasury yield curve scenarios, the following results reflect FNCB’s sensitivity over the subsequent twelve months based on the following assumptions:

● asset and liability levels using June 30, 2019 as a starting point;

● cash flows are based on contractual maturity and amortization schedules with applicable prepayments derived from internal historical data and external sources; and

● cash flows are reinvested into similar instruments so as to keep interest-earning asset and interest-bearing liability levels constant.

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The following table illustrates the simulated impact of parallel and instantaneous interest rate shocks of +400 basis points, +200 basis points, and -200 basis points on net interest income and the change in economic value over a one-year time horizon from the June 30, 2019 levels:

	Rates +200						Rates +400						Rates -200
	Simulation Results			Policy Limit			Simulation Results			Policy Limit			Simulation Results			Policy Limit
Earnings at risk:
Percent change in net interest income		(5.0	)%		(12.5	)%		(10.5	)%		(20.0	)%		(3.7	)%		(12.5	)%
Economic value at risk:
Percent change in economic value of equity		0.6	%		(20.0	)%		(2.0	)%		(35.0	)%		(24.4	)%		(20.0	)%

Model results at June 30, 2019 indicated that FNCB was liability rate sensitive over a one-year time horizon moving to an asset sensitive position in approximately months 15 though 18, and then continuing in an asset-sensitive position for the remaining periods of the model. The shift from liability sensitivity to asset sensitivity shortened by approximately three months from 18-24 months exhibited in the model results at March 31, 2019. During the second quarter of 2019, management took actions designed to shorten FNCB's liability sensitive position including reinvesting $26.2 million in proceeds from the sale of fixed-rate investments into floating-rate investments and converting $38.7 million in overnight FHLB advances into term borrowings with maturities of 9 and 24 months. Under the model, FNCB’s net interest income is expected to decrease 5.0% under a +200-basis point interest rate shock. Additionally, model results indicated that FNCB's economic value of equity is expected to decrease 0.6% under a parallel shift in interest rates of +200 basis points. Under a -200-basis point interest rate shock, model results indicated that FNCB's net interest income and economic value of equity would decrease 3.7% and 24.4%, respectively. Management does not believe that the modeled decrease in the economic value of equity of 24.4%, which is outside current policy limits, poses any undue interest rate risk at June 30, 2019. Comparatively, model results at March 31, 2019 indicated net interest income and economic value of equity were expected to decrease 7.4% and 2.5%, respectively, given a +200-basis point rate shock and would decrease 2.4% and 16.5%, respectively, given a -200-basis point rate shock. 

This analysis does not represent a forecast for FNCB and should not be relied upon as being indicative of expected operating results. These simulations are based on numerous assumptions, including but not limited to: the nature and timing of interest rate levels, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacements of asset and liability cash flows, and other factors. While assumptions reflect current economic and local market conditions, FNCB cannot make any assurances as to the predictive nature of these assumptions, including changes in interest rates, customer preferences, competition and liquidity needs, or what actions ALCO might take in responding to these changes.

As previously mentioned, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions used in the modeling techniques. As part of its quarterly review, management compared tax-equivalent net interest income recorded for the three months ended June 30, 2019 with tax-equivalent net interest income that was projected for the same three-month period. The variance between actual and projected tax-equivalent net interest income for the three-month period ended June 30, 2019 was $9 thousand, or 0.1%. ALCO performs a detailed rate/volume analysis between actual and projected results in order to continue to improve the accuracy of its simulation models.

Off-Balance Sheet Arrangements

In the ordinary course of operations, FNCB engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in our consolidated financial statements or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions may be used for general corporate purposes or for customer needs. Corporate purpose transactions would be used to help manage credit, interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding.

For the three and six months ended June 30, 2019, FNCB did not engage in any off-balance sheet transactions that would have or would be reasonably likely to have a material effect on its consolidated financial condition.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in FNCB’s exposure to market risk during the six months ended June 30, 2019.  For discussion of FNCB’s exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in FNCB’s Form 10-K for the year ended December 31, 2018.

49

Item 4 — Controls and Procedures

FNCB’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of FNCB’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, FNCB’s Chief Executive Officer and Chief Financial Officer concluded FNCB’s disclosure controls and procedures were effective as of June 30, 2019.

There were no changes made to FNCB’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, FNCB’s internal control over financial reporting.

PART II Other Information

Item 1 — Legal Proceedings.

On 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. On 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.

On 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 no changes in the status of the other litigation disclosed in FNCB’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 1A — Risk Factors.

Management of FNCB does not believe there have been any material changes in the risk factors that were previously disclosed in FNCB’s Form 10-K for the year ending December 31, 2018.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3 - Defaults upon Senior Securities.

None.

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Item 4 — Mine Safety Disclosures.

Not applicable.

Item 5 - Other Information.

None.

Item 6 — Exhibits.

The following exhibits are filed or furnished herewith or incorporated by reference.

EXHIBIT 31.1*	Certification of Chief Executive Officer
EXHIBIT 31.2*	Certification of Chief Financial Officer
EXHIBIT 32.1**	Section 1350 Certification —Chief Executive Officer and Chief Financial Officer
EXHIBIT 101.INS	XBRL INSTANCE DOCUMENT
EXHIBIT 101.SCH	XBRL TAXONOMY EXTENSION SCHEMA
EXHIBIT 101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EXHIBIT 101.DEF	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EXHIBIT 101.LAB	XBRL TAXONOMY EXTENSION LABEL LINKBASE
EXHIBIT 101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* Filed herewith

** Furnished herewith

51

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Registrant:  FNCB BANCORP, INC.

Date: August 5, 2019	By:	/s/ Gerard A. Champi
	Gerard A. Champi
	President and Chief Executive Officer
Date: August 5, 2019	By:	/s/ James M. Bone, Jr.
	James M. Bone, Jr., CPA
	Executive Vice President and Chief Financial Officer
	Principal Financial Officer
Date: August 5, 2019	By:	/s/ Stephanie A. Westington
	Stephanie A. Westington, CPA
	Senior Vice President and Controller
	Principal Accounting Officer

51

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Gerard A. Champi, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of FNCB Bancorp, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2019	By:	/s/ Gerard A. Champi
	Gerard A. Champi,
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, James M. Bone, Jr., certify that:

1.      I have reviewed this quarterly report on Form 10-Q of FNCB Bancorp, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2019	By:	/s/ James M. Bone, Jr.
	James M. Bone, Jr., CPA
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of FNCB Bancorp, Inc. (“FNCB”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Gerard A. Champi, President and Chief Executive Officer, and James M. Bone, Jr., Executive Vice President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FNCB.

Date: August 5, 2019	By:	/s/ Gerard A. Champi
	Gerard A. Champi,
	President and Chief Executive Officer
Date: August 5, 2019	By:	/s/ James M. Bone, Jr.
	James M. Bone, Jr., CPA
	Executive Vice President and Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 05, 2019
Document Information [Line Items]
Entity Registrant Name	FNCB BANCORP, INC.
Entity Central Index Key	0001035976
Trading Symbol	fncb
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		20,168,533
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Consolidated Statements of Financial Condition (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 24,277	$ 26,673
Interest-bearing deposits in other banks	5,627	9,808
Total cash and cash equivalents	29,904	36,481
Available-for-sale debt securities, at fair value	285,855	296,032
Equity securities, at fair value	917	891
Restricted stock, at cost	4,618	3,123
Loans held for sale	419	820
Loans, net of allowance for loan and lease losses of $8,945 and $9,519	805,475	829,581
Bank premises and equipment, net	15,923	14,425
Accrued interest receivable	3,640	3,614
Bank-owned life insurance	31,275	31,015
Other real estate owned	560	919
Net deferred tax assets	7,537	10,693
Other assets	12,671	10,138
Total assets	1,198,794	1,237,732
Liabilities
Demand (non-interest-bearing)	157,856	156,600
Interest-bearing	803,208	939,029
Total deposits	961,064	1,095,629
Borrowed funds:
Federal Home Loan Bank of Pittsburgh advances	87,223	18,930
Subordinated debentures		5,000
Junior subordinated debentures	10,310	10,310
Total borrowed funds	97,533	34,240
Accrued interest payable	389	338
Other liabilities	10,102	10,306
Total liabilities	1,069,088	1,140,513
Shareholders' equity
Preferred shares ($1.25 par) Authorized: 20,000,000 shares at June 30, 2019 and December 31, 2018 Issued and outstanding: 0 shares at June 30, 2019 and December 31, 2018
Common shares ($1.25 par) Authorized: 50,000,000 shares at June 30, 2019 and December 31, 2018 Issued and outstanding: 20,148,017 shares at June 30, 2019 and 16,821,371 shares at December 31, 2018	25,184	21,026
Additional paid-in capital	80,864	63,547
Retained earnings	20,345	17,186
Accumulated other comprehensive income (loss)	3,313	(4,540)
Total shareholders' equity	129,706	97,219
Total liabilities and shareholders’ equity	$ 1,198,794	$ 1,237,732

XML

Consolidated Statements of Financial Condition (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans, allowance for loan and lease losses	$ 8,945	$ 9,519
Preferred shares, par value (in dollars per share)	$ 1.25	$ 1.25
Preferred shares, authorized (in shares)	20,000,000	20,000,000
Preferred shares, issued (in shares)	0	0
Preferred shares, outstanding (in shares)	0	0
Common shares, par value (in dollars per share)	$ 1.25	$ 1.25
Common shares, authorized (in shares)	50,000,000	50,000,000
Common shares, issued (in shares)	20,148,017	16,821,371
Common shares, outstanding (in shares)	20,148,017	16,821,371

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest income
Interest and fees on loans	$ 9,418	$ 9,031	$ 18,825	$ 17,319
Interest and dividends on securities:
U.S. government agencies	906	886	1,799	1,776
State and political subdivisions, tax free	38	38	75	58
State and political subdivisions, taxable	811	1,027	1,832	2,051
Other securities	210	240	415	435
Total interest and dividends on securities	1,965	2,191	4,121	4,320
Interest on interest-bearing deposits in other banks	79	12	125	35
Total interest income	11,462	11,234	23,071	21,674
Interest expense
Interest on deposits	2,144	1,134	4,382	2,201
Interest on borrowed funds:
Interest on Federal Home Loan Bank of Pittsburgh advances	253	707	540	1,059
Interest on subordinated debentures		57	24	113
Interest on junior subordinated debentures	111	99	225	186
Total interest on borrowed funds	364	863	789	1,358
Total interest expense	2,508	1,997	5,171	3,559
Net interest income before provision for loan and lease losses	8,954	9,237	17,900	18,115
Provision for loan and lease losses	347	880	193	1,600
Net interest income after provision for loan and lease losses	8,607	8,357	17,707	16,515
Non-interest income
Deposit service charges	721	747	1,406	1,449
Net gain (loss) on the sale of available-for-sale debt securities	163	(4)	323	(4)
Net gain (loss) on equity securities	14	(7)	26	(26)
Net gain on the sale of mortgage loans held for sale	73	51	129	100
Net gain on the sale of SBA guaranteed loans		71		322
Net gain (loss) on the sale of other real estate owned	9	(7)	9	31
Loan-related fees	72	76	151	160
Income from bank-owned life insurance	129	138	260	272
Other	397	464	789	744
Total non-interest income	1,578	1,529	3,093	3,048
Non-interest expense
Salaries and employee benefits	3,824	3,485	7,723	7,151
Occupancy expense	444	526	994	1,129
Equipment expense	329	323	636	637
Advertising expense	154	213	351	326
Data processing expense	789	647	1,570	1,295
Regulatory assessments	76	196	244	397
Bank shares tax	277	222	555	489
Expense of other real estate owned	14	55	65	100
Professional fees	203	196	535	492
Insurance expense	120	133	246	268
Other losses	1	86	10	127
Other operating expenses	891	884	1,618	1,787
Total non-interest expense	7,122	6,966	14,547	14,198
Income before income tax expense	3,063	2,920	6,253	5,365
Income tax expense	514	508	1,069	934
Net income	$ 2,549	$ 2,412	$ 5,184	$ 4,431
Earnings per share
Basic (in dollars per share)	$ 0.13	$ 0.14	$ 0.27	$ 0.26
Diluted (in dollars per share)	0.13	0.14	0.27	0.26
Cash dividends declared per common share (in dollars per share)	$ 0.05	$ 0.04	$ 0.10	$ 0.08
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic (in shares)	20,129,150	16,792,812	19,428,717	16,778,188
Diluted (in shares)	20,133,850	16,819,286	19,435,076	16,801,426

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income	$ 2,549	$ 2,412	$ 5,184	$ 4,431
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale debt securities	5,608	(1,840)	10,263	(6,816)
Taxes	(1,177)	387	(2,155)	1,431
Net of tax amount	4,431	(1,453)	8,108	(5,385)
Reclassification adjustment for (gains) losses included in net income	(163)	4	(323)	4
Taxes	34	(1)	68	(1)
Net of tax amount	(129)	3	(255)	3
Total other comprehensive income (loss)	4,302	(1,450)	7,853	(5,382)
Comprehensive income (loss)	$ 6,851	$ 962	$ 13,037	$ (951)

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	16,757,963
Balance at Dec. 31, 2017	$ 20,947	$ 63,210	$ 6,779	$ (1,745)	$ 89,191
Net income for the period			4,431		4,431
Cash dividends			(1,343)		(1,343)
Reclassification of unrealized loss on equity securities, net of tax			(65)	65
Restricted stock awards		137			137
Common shares issued under long-term incentive compensation plan (in shares)	46,358
Common shares issued under long-term incentive compensation plan	$ 58	(58)
Common shares issued through dividend reinvestment / optional cash purchase plan (in shares)	12,776				12,776
Common shares issued through dividend reinvestment / optional cash purchase plan	$ 16	85	(10)		$ 91
Other comprehensive income (loss), net of tax				(5,382)	(5,382)
Balance (in shares) at Jun. 30, 2018	16,817,097
Balance at Jun. 30, 2018	$ 21,021	63,374	9,792	(7,062)	87,125
Balance at Mar. 31, 2018				(5,612)
Net income for the period					$ 2,412
Reclassification of unrealized loss on equity securities, net of tax
Common shares issued through dividend reinvestment / optional cash purchase plan (in shares)					4,139
Other comprehensive income (loss), net of tax				(1,450)	$ (1,450)
Balance (in shares) at Jun. 30, 2018	16,817,097
Balance at Jun. 30, 2018	$ 21,021	63,374	9,792	(7,062)	87,125
Balance (in shares) at Dec. 31, 2018	16,821,371
Balance at Dec. 31, 2018	$ 21,026	63,547	17,186	(4,540)	97,219
Net income for the period			5,184		5,184
Cash dividends			(2,013)		(2,013)
Reclassification of unrealized loss on equity securities, net of tax
Restricted stock awards		140			140
Common shares issued under long-term incentive compensation plan (in shares)	37,558
Common shares issued under long-term incentive compensation plan	$ 47	(47)
Common shares issued through dividend reinvestment / optional cash purchase plan (in shares)	3,538				3,538
Common shares issued through dividend reinvestment / optional cash purchase plan	$ 4	23	(12)		$ 15
Other comprehensive income (loss), net of tax				7,853	7,853
Common shares issued for capital raise, net (in shares)	3,285,550
Common shares issued for capital raise, net	$ 4,107	17,201			21,308
Balance (in shares) at Jun. 30, 2019	20,148,017
Balance at Jun. 30, 2019	$ 25,184	80,864	20,345	3,313	129,706
Balance at Mar. 31, 2019				(989)
Net income for the period					$ 2,549
Reclassification of unrealized loss on equity securities, net of tax
Common shares issued through dividend reinvestment / optional cash purchase plan (in shares)					1,899
Other comprehensive income (loss), net of tax				4,302	$ 4,302
Balance (in shares) at Jun. 30, 2019	20,148,017
Balance at Jun. 30, 2019	$ 25,184	$ 80,864	$ 20,345	$ 3,313	$ 129,706

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash dividends declared, per share (in dollars per share)	$ 0.10	$ 0.08
Other comprehensive income (loss), tax	$ 2,087	$ 1,430

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 5,184	$ 4,431
Adjustments to reconcile net income to net cash provided by operating activities:
Investment securities amortization, net	429	398
Equity in trust	(7)	(6)
Depreciation and amortization	1,543	1,341
Valuation adjustment for loan servicing rights	7
Stock-based compensation expense	140	137
Provision for loan and lease losses	193	1,600
Valuation adjustment for off-balance sheet commitments	78	(55)
Net (gain) loss on the sale of available-for-sale debt securities	(323)	4
Net (gain) loss on equity securities	(26)	26
Loss on the disposition of bank premises and equipment		30
Net gain on the sale of mortgage loans held for sale	(129)	(100)
Net gain on the sale of SBA guaranteed loans		(322)
Net gain on the sale of other real estate owned	(9)	(31)
Valuation adjustment of other real estate owned		17
Income from bank-owned life insurance	(260)	(272)
Proceeds from the sale of mortgage loans held for sale	4,233	5,032
Funds used to originate mortgage loans held for sale	(3,703)	(4,466)
Decrease in net deferred tax assets	1,069	934
Increase in accrued interest receivable	(26)	(420)
(Increase) decrease in prepaid expenses and other assets	(2,551)	1,271
Increase in accrued interest payable	51	90
Decrease in director indemnification liability		(2,553)
Decrease in accrued expenses and other liabilities	(349)	(512)
Total adjustments	360	2,143
Net cash provided by operating activities	5,544	6,574
Cash flows from investing activities:
Maturities, calls and principal payments of available-for-sale debt securities	3,196	3,160
Proceeds from the sale of available-for-sale debt securities	61,352	4,559
Purchases of available-for-sale debt securities	(44,537)	(16,337)
Purchase of stock in Federal Home Loan Bank of Pittsburgh	(1,495)	(5,201)
Net decrease (increase) in loans to customers	23,069	(92,242)
Proceeds from the sale of SBA guaranteed loans		6,032
Proceeds from the sale of other real estate owned	420	470
Purchases of bank premises and equipment	(2,164)	(4,463)
Net cash provided by (used in) investing activities	39,841	(104,022)
Cash flows from financing activities:
Net decrease in deposits	(134,565)	(47,205)
Net proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight	29,750	72,590
Proceeds from Federal Home Loan Bank of Pittsburgh advances - term	47,192	73,929
Repayment of Federal Home Loan Bank of Pittsburgh advances - term	(8,649)	(17,236)
Principal reduction on subordinated debentures	(5,000)
Proceeds from issuance of common shares, net of discount	21,323	91
Cash dividends paid	(2,013)	(1,343)
Net cash (used in) provided by financing activities	(51,962)	80,826
Net decrease in cash and cash equivalents	(6,577)	(16,622)
Cash and cash equivalents at beginning of period	36,481	37,746
Cash and cash equivalents at end of period	29,904	21,124
Supplemental cash flow information
Interest	5,119	3,469
Income taxes		18
Other transactions:
Lease liabilities arising from obtaining right-of-use assets	15
Loans transferred to other real estate owned and repossessed assets		220
Investor loans transferred to OREO	$ 52

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1.

  Basis of Presentation

The consolidated financial statements of FNCB are comprised of the accounts of FNCB Bancorp, Inc., and its wholly owned subsidiary, FNCB Bank (the “Bank”), as well as the Bank’s wholly owned subsidiaries (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 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

six

months ended

June 30, 2019

, may

not

be indicative of future results of operations and financial position.

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 loan and lease losses (“ALLL”), securities’ valuation and impairment evaluation, the valuation of other real estate owned (“OREO”), and income taxes.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited financial statements, included in the Annual Report filed on Form

10

-K as of and for the year ended

December 31, 2018

.

XML

Note 2 - New Authoritative Accounting Guidance

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

2.

New Authoritative Accounting Guidance

Accounting Guidance to be Adopted in Future Periods

Accounting Standards Update ("ASU") 

2016

-

13,

 Financial Instruments – Credit Losses (Topic 

326

): “Measurement of Credit Losses on Financial Instruments,” replaces the current loss impairment methodology under GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. Specifically, the amendments in this ASU will require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in this update affect entities holding financial assets and net investment in leases that are 

not

 accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets 

not

excluded from the scope that have the contractual right to receive cash. On 

June 17, 2016, 

the four, federal financial institution regulatory agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency), issued a joint statement to provide information about ASU 

2016

-

13

 and the initial supervisory views regarding the implementation of the new standard. The joint statement applies to all banks, savings associations, credit unions and financial institution holding companies, regardless of asset size. The statement details the key elements of, and the steps necessary for, the successful transition to the new accounting standard. In addition, the statement notifies financial institutions that because the appropriate allowance levels are institution-specific amounts, the agencies will 

not

 establish benchmark targets or ranges for the change in institutions’ allowance levels upon adoption of the ASU, or for allowance levels going forward. Due to the importance of ASU 

2016

-

13,

 the agencies encourage financial institutions to begin planning and preparing for the transition and state that senior management, under the oversight of the board of directors, should work closely with staff in their accounting, lending, credit risk management, internal audit, and information technology functions during the transition period leading up to, and well after, adoption. ASU 

2016

-

13

 was originally effective for public business entities that are registered with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of

1934,

as amended, including smaller reporting companies, for fiscal years beginning after 

December 15, 2019, 

including interim periods within those fiscal years. All entities 

may 

adopt the amendments in this ASU earlier as of the fiscal years beginning after 

December 15, 2018, 

including interim periods within those fiscal years. On

July 17, 2019,

the FASB voted for a proposal to extend the effective date for implementation for smaller reporting companies, private companies and

not

-for-profits to fiscal years and interim periods within those years, beginning after

December 15, 2022.

Under the new proposal FNCB would adopt this guidance on 

January 1, 2023. 

FNCB has created a Current Expected Credit Loss (“CECL”) task group comprised of members of its finance, credit administration, lending, internal audit, loan operations and information systems units. The CECL task group has become familiar with the provisions of ASU 

2016

-

13

 and is currently in the process of implementing the new guidance, which includes, but is 

not

 limited to: (

1

) identifying segments and sub-segments within the loan portfolio that have similar risk characteristics; (

2

) determining the appropriate methodology for each segment; (

3

) implementing changes that are necessary to its core operating system and interfaces to be able to capture appropriate data requirements; and (

4

) evaluating  qualitative factors and economic data to develop appropriate forecasts for integration into the model.  FNCB is currently evaluating the effect this guidance 

may 

have on its operating results and/or financial position, including assessing any potential impact on its

capital.

Refer to Note

2

to FNCB’s consolidated financial statements included in the

2018

 Annual Report on Form

10

-K for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.

XML

Note 3 - Securities

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

3.

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

June 30, 2019

and

December 31, 2018

:

	June 30, 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	$	114,815	$	2,513	$	83	$	117,245
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,331		504		108		66,727
Collateralized mortgage obligations - commercial		57,062		803		-		57,865
Mortgage-backed securities		20,552		392		4		20,940
Private collateralized mortgage obligations		10,640		57		-		10,697
Corporate debt securities		6,000		128		7		6,121
Asset-backed securities		3,833		1		2		3,832
Negotiable certificates of deposit		2,428		-		-		2,428
Total available-for-sale debt securities	$	281,661	$	4,398	$	204	$	285,855

	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 securities		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

no

securities of any individual issuer that exceeded

10.0%

of shareholders’ equity at

June 30, 2019

.

At

June 30, 2019

 and

December 31, 2018

, securities with a carrying amount of

$264.2

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

June 30, 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.

	June 30, 2019
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	2,735	$	2,738
After one year through five years		50,428		51,269
After five years through ten years		66,064		67,778
After ten years		4,016		4,009
Collateralized mortgage obligations		134,033		135,289
Mortgage-backed securities		20,552		20,940
Asset-backed securities		3,833		3,832
Total	$	281,661	$	285,855

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

$36.3

million and

$61.4

million for the

three

and

six

months ended

June 30, 2019

, respectively. For the

three

months 

ended

June 30, 2019

gross gains and losses realized upon the sales were 

$173

thousand and

$10

 

thousand, respectively. Gross gains and losses realized upon the sales for the

six

months ended

June 30, 2019

totaled

$349

thousand and

$26

thousand, respectively. Gross proceeds from the sale of available-for-sale debt securities were

$4.6

million for the

three

and

six

months ended

June 30, 2018,

with gross losses of

$4

thousand realized upon the sales.

There were

no

gross gains realized upon the sales for the

three

and

six

months ended

June 30, 2018.

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

June 30, 2019

and

December 31, 2018

,

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

	June 30, 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 political subdivisions		-	$	-	$	-		11	$	14,510	$	83		11	$	14,510	$	83
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		2		13,059		80		3		7,034		28		5		20,093		108
Collateralized mortgage obligations - commercial		-		-		-		-		-		-		-		-		-
Mortgage-backed securities		-		-		-		2		2,095		4		2		2,095		4
Private collateralized mortgage obligations		-		-		-		-		-		-		-		-		-
Corporate debt securities		1		993		7		-		-		-		1		993		7
Asset-backed securities		-		-		-		1		1,069		2		1		1,069		2
Negotiable certificates of deposit		-		-		-		5		1,239		-		5		1,239		-
Total available-for-sale debt securities		3	$	14,052	$	87		22	$	25,947	$	117		25	$	39,999	$	204

	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 political 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

25

 securities in an unrealized loss position at

June 30, 2019

,

including

eleven

obligations of state and political subdivisions,

seven

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

five

negotiable certificates of deposit,

one

 asset-backed security and 

one

corporate debt security. Management performed a review of all securities in an unrealized loss position as of

June 30, 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

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

June 30, 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

June 30, 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

June 30, 2019

,

this mutual fund had an amortized cost of

$1.0

million and an unrealized loss of

$83

 thousand, resulting in a fair value of

$917

thousand. In accordance with ASU

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

): “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

six

months ended

June 30, 2019

 and

2018

.

	Six Months Ended June 30,
(in thousands)	2019		2018
Net gains (losses) recognized on equity securities	$	26	$	(26	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains (losses) on equity securities held	$	26	$	(26	)

Restricted Securities

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

June 30, 2019

and

December 31, 2018

.  Restricted securities have limited marketability and are carried at cost.

	June 30,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	4,608	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,618	$	3,123

Management noted

no

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

June 30, 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

June 30, 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

June 30, 2019

, which indicated that the 

investment was 

not

 impaired.  Management determined that 

no

 adjustment for impairment was required at

June 30, 2019

.

XML

Note 4 - Loans

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4.

Loans

The following table summarizes loans receivable, net, by category at

June 30, 2019

and

December 31, 2018

:

	June 30,			December 31,
(in thousands)	2019			2018
Residential real estate	$	161,572		$	164,833
Commercial real estate		263,781			262,778
Construction, land acquisition and development		31,686			20,813
Commercial and industrial		159,707			150,962
Consumer		157,878			176,784
State and political subdivisions		36,705			59,037
Total loans, gross		811,329			835,207
Unearned income		(61	)		(70	)
Net deferred loan costs		3,152			3,963
Allowance for loan and lease losses		(8,945	)		(9,519	)
Loans, net	$	805,475		$	829,581

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

6

, “Related Party Transactions” to these consolidated financial statements.

FNCB originates

one

- to

four

-family mortgage loans for sale in the secondary market. During the

three

months and

six

months ended

June 30, 2019

,

one

-to

four

-family mortgages sold on the secondary market were

$2.3

million and 

$4.2

million, respectively. One- to

four

-family residential mortgages sold on the secondary market for the

three

months and

six

months ended June

30,

2018

were

$2.1

million and

$5.0

million, respectively. Net gains on the sale of residential mortgage loans for the

three

and

six

months ended June

30,

2019

were

$73

 thousand and

$129

 thousand, respectively and

$51

thousand and

$100

thousand, respectively, for the comparable periods of

2018.

FNCB retains servicing rights on mortgages sold on the secondary market. At

June 30, 2019

and

December 31, 2018

,

there were

$419

thousand and

$820

thousand in

one

-to

four

-family residential mortgage loans held for sale, respectively.

During th

e three and six months ended June 30, 2018

,

FNCB sold the guaranteed principal balance of loans that were guaranteed by the Small Business Administration (“SBA”) totaling

$0.8

million and

$5.7

million, respectively. Net gains realized upon the sales, included in non-interest income, for the

three

and

six

months ended June

30,

2018

were

$71

thousand and

$322

thousand, respectively. FNCB retained the servicing rights on these loans. There were

no

sales of SBA-guaranteed loans during the

three

and  

six

months ended

June 30, 2019

.

 The unpaid principal balance of loans serviced for others, including residential mortgages and SBA-guaranteed loans, were

$106.2

million at

June 30, 2019

and

$108.4

 million at

December 31, 2018

.

FNCB does

not

have any lending programs commonly referred to as "subprime lending". Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, and bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

There were

no

material changes to the risk characteristics of FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL during the

six

months ended

June 30, 2019

.

Refer to Note

2,

“Summary of Significant Accounting Policies” to FNCB’s consolidated financial statements included in the

2018

Annual Report on Form

10

-K for information about the risk characteristics related to FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL.

Management evaluates the credit quality of the loan portfolio on an ongoing basis, and performs a formal review of the adequacy of the ALLL on a quarterly basis. This evaluation is inherently subjective, as it requires material estimates that

may

be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses

may

be significantly more than the established ALLL, which could have a material negative effect on FNCB’s operating results or financial condition. While management uses the best information available to make its evaluations, future adjustments to the ALLL

may

be necessary if conditions differ substantially from the information used in making the evaluations. Banking regulators, as an integral part of their examination of FNCB, also review the ALLL, and

may

require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ALLL.

The following table summarizes activity in the ALLL by loan category for the

three

and

six

months ended

June 30, 2019

and

2018

.

							Construction,
							Land									State and
	Residential			Commercial			Acquisition and			Commercial						Political
(in thousands)	Real Estate			Real Estate			Development			and Industrial			Consumer			Subdivisions			Unallocated		Total
Three months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, April 1, 2019	$	1,155		$	3,051		$	106		$	2,499		$	1,963		$	423		$	56	$	9,253
Charge-offs		(27	)		-			(18	)		(621	)		(457	)		-			-		(1,123	)
Recoveries		2			14			-			123			329			-			-		468
Provisions (credits)		22			364			90			70			4			(212	)		9		347
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Three months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, April 1, 2018	$	1,249		$	3,342		$	256		$	2,505		$	1,822		$	388		$	-	$	9,562
Charge-offs		-			(1,126	)		-			(4	)		(180	)		-			-		(1,310	)
Recoveries		121			2			-			75			129			-			-		327
Provisions (credits)		(169	)		889			(5	)		(121	)		235			51			-		880
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459
Six months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, January 1, 2019	$	1,175		$	3,107		$	188		$	2,552		$	2,051		$	417		$	29	$	9,519
Charge-offs		(27	)		-			(18	)		(760	)		(772	)		-			-		(1,577	)
Recoveries		6			14			81			207			502			-			-		810
Provisions (credits)		(2	)		308			(73	)		72			58			(206	)		36		193
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Six months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, January 1, 2018	$	1,236		$	3,499		$	209		$	2,340		$	1,395		$	355		$	-	$	9,034
Charge-offs		(63	)		(1,126	)		-			(81	)		(440	)		-			-		(1,710	)
Recoveries		127			3			30			147			228			-			-		535
Provisions (credits)		(99	)		731			12			49			823			84			-		1,600
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459

The following table represents the allocation of the ALLL and the related loan balance, by loan category, disaggregated based on the impairment methodology at

June 30, 2019

and

December 31, 2018

:

					Construction,
					Land						State and
	Residential		Commercial		Acquisition and		Commercial				Political
(in thousands)	Real Estate		Real Estate		Development		and Industrial		Consumer		Subdivisions		Unallocated		Total
June 30, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	12	$	41	$	-	$	248	$	1	$	-	$	-	$	302
Collectively evaluated for impairment		1,140		3,388		178		1,823		1,838		211		65		8,643
Total	$	1,152	$	3,429	$	178	$	2,071	$	1,839	$	211	$	65	$	8,945
Loans receivable:
Individually evaluated for impairment	$	1,976	$	9,192	$	80	$	935	$	199	$	-	$	-	$	12,382
Collectively evaluated for impairment		159,596		254,589		31,606		158,772		157,679		36,705		-		798,947
Total	$	161,572	$	263,781	$	31,686	$	159,707	$	157,878	$	36,705	$	-	$	811,329
December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	14	$	41	$	-	$	600	$	2	$	-	$	-	$	657
Collectively evaluated for impairment		1,161		3,066		188		1,952		2,049		417		29		8,862
Total	$	1,175	$	3,107	$	188	$	2,552	$	2,051	$	417	$	29	$	9,519
Loans receivable:
Individually evaluated for impairment	$	1,847	$	9,408	$	82	$	697	$	383	$	-	$	-	$	12,417
Collectively evaluated for impairment		162,986		253,370		20,731		150,265		176,401		59,037		-		822,790
Total	$	164,833	$	262,778	$	20,813	$	150,962	$	176,784	$	59,037	$	-	$	835,207

Credit Quality Indicators – Commercial Loans

Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s 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 Quality Indicators – 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 Quality Indicators – Commercial Loans.” The grading system contains the following basic risk categories:

1.	Minimal Risk
2.	Above Average Credit Quality
3.	Average Risk
4.	Acceptable Risk
5.	Pass - Watch
6.	Special Mention
7.	Substandard - Accruing
8.	Substandard - Non-Accrual
9.	Doubtful
10.	Loss

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 show

no

current or potential problems and are considered fully collectible. All such loans are evaluated collectively for ALLL calculation purposes. However, accruing loans restructured under a troubled debt restructuring (“TDRs”) that have been performing for an extended period, do

not

represent a higher risk of loss, and have been upgraded to a pass rating are evaluated individually for impairment.

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 Quality Indicators – Other Loans

Certain residential real estate loans, consumer loans, and commercial 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 accruing versus non-accrual status as the credit quality indicator for these loan pools.

The following tables present the recorded investment in loans receivable by loan category and credit quality indicator at

June 30, 2019

and

December 31, 2018

:

	Credit Quality Indicators
	June 30, 2019
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	31,731	$	216	$	232	$	-	$	-	$	32,179	$	128,480	$	913	$	129,393	$	161,572
Commercial real estate		246,471		6,395		10,916		-		-		263,781		-		-		-		263,781
Construction, land acquisition and development		29,200		-		-		-		-		29,200		2,486		-		2,486		31,686
Commercial and industrial		149,598		2,396		2,109		-		-		154,103		5,604		-		5,604		159,707
Consumer		2,685		-		-		-		-		2,685		154,730		463		155,193		157,878
State and political subdivisions		36,679		-		-		-		-		36,679		26		-		26		36,705
Total	$	496,364	$	9,007	$	13,257	$	-	$	-	$	518,627	$	291,326	$	1,376	$	292,702	$	811,329

	Credit Quality Indicators
	December 31, 2018
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	33,573	$	291	$	154	$	-	$	-	$	34,018	$	130,132	$	683	$	130,815	$	164,833
Commercial real estate		250,674		1,858		10,246		-		-		262,778		-		-		-		262,778
Construction, land acquisition and development		17,704		-		757		-		-		18,461		2,352		-		2,352		20,813
Commercial and industrial		137,888		4,193		2,448		-		-		144,529		6,421		12		6,433		150,962
Consumer		2,024		-		-		-		-		2,024		174,373		387		174,760		176,784
State and political subdivisions		57,345		1,665		27		-		-		59,037		-		-		-		59,037
Total	$	499,208	$	8,007	$	13,632	$	-	$	-	$	520,847	$	313,278	$	1,082	$	314,360	$	835,207

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment in these non-accrual loans was

$5.3

million and

$4.7

million at

June 30, 2019

and

December 31, 2018

,

respectively. Generally, loans are placed on non-accrual status when they become

90

days or more delinquent. Once a loan is placed on non-accrual status, it remains on non-accrual status until it has been brought current, has 

six

months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments

no

longer exist. Therefore, loans

may

be current in accordance with their loan terms, or

may

be less than

90

days delinquent and still be on a non-accrual status. There were

no

loans past due

90

days or more and still accruing at

June 30, 2019

and

December 31, 2018

.

The following tables present the delinquency status of past due and non-accrual loans at

June 30, 2019

and

December 31, 2018

:

	June 30, 2019
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	159,991	$	556	$	25	$	-	$	160,572
Commercial real estate		260,713		194		-		-		260,907
Construction, land acquisition and development		31,686		-		-		-		31,686
Commercial and industrial		158,679		63		-		-		158,742
Consumer		155,568		1,482		365		-		157,415
State and political subdivisions		36,705		-		-		-		36,705
Total performing (accruing) loans		803,342		2,295		390		-		806,027
Non-accrual loans:
Residential real estate		743		-		-		257		1,000
Commercial real estate		791		-		-		2,083		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		686		-		-		279		965
Consumer		175		83		70		135		463
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,395		83		70		2,754		5,302
Total loans receivable	$	805,737	$	2,378	$	460	$	2,754	$	811,329

	December 31, 2018
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	163,690	$	319	$	136	$	-	$	164,145
Commercial real estate		259,904		-		-		-		259,904
Construction, land acquisition and development		20,813		-		-		-		20,813
Commercial and industrial		150,108		87		20		-		150,215
Consumer		173,890		2,221		286		-		176,397
State and political subdivisions		59,037		-		-		-		59,037
Total performing (accruing) loans		827,442		2,627		442		-		830,511
Non-accrual loans:
Residential real estate		443		-		136		109		688
Commercial real estate		1,061		-		-		1,813		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		677		50		-		20		747
Consumer		91		61		74		161		387
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,272		111		210		2,103		4,696
Total loans receivable	$	829,714	$	2,738	$	652	$	2,103	$	835,207

The following tables present a distribution of the recorded investment, unpaid principal balance and the related allowance for FNCB’s impaired loans, which have been analyzed for impairment under ASC

310,

at

June 30, 2019

and

December 31, 2018

.

Non-accrual loans, other than TDRs, with balances less than the

$100

thousand loan relationship threshold are

not

evaluated individually for impairment and accordingly, are

not

included in the following tables. However, these loans are evaluated collectively for impairment as homogeneous pools in the general allowance under ASC Topic

450.

Total non-accrual loans, other than TDRs, with balances less than the

$100

thousand loan relationship threshold that were evaluated under ASC Topic

450

amounted to

$0.8

 million at

June 30, 2019

and

$0.7

 million at

December 31, 2018

.

	June 30, 2019
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	538	$	606	$	-
Commercial real estate		6,806		8,838		-
Construction, land acquisition and development		80		80		-
Commercial and industrial		266		865		-
Consumer		25		27		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,715		10,416		-
With a related allowance recorded:
Residential real estate		1,438		1,438		12
Commercial real estate		2,386		2,386		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		669		677		248
Consumer		174		174		1
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,667		4,675		302
Total impaired loans:
Residential real estate		1,976		2,044		12
Commercial real estate		9,192		11,224		41
Construction, land acquisition and development		80		80		-
Commercial and industrial		935		1,542		248
Consumer		199		201		1
State and political subdivisions		-		-		-
Total impaired loans	$	12,382	$	15,091	$	302

	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	313	$	375	$	-
Commercial real estate		7,149		8,795		-
Construction, land acquisition and development		82		82		-
Commercial and industrial		-		-		-
Consumer		26		28		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,570		9,280		-
With a related allowance recorded:
Residential real estate		1,534		1,534		14
Commercial real estate		2,259		2,259		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		697		697		600
Consumer		357		357		2
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,847		4,847		657
Total impaired loans:
Residential real estate		1,847		1,909		14
Commercial real estate		9,408		11,054		41
Construction, land acquisition and development		82		82		-
Commercial and industrial		697		697		600
Consumer		383		385		2
State and political subdivisions		-		-		-
Total impaired loans	$	12,417	$	14,127	$	657

The following table presents the average balance and interest income by loan category recognized on impaired loans for the

three

and

six

months ended

June 30, 2019

and

2018

:

	Three months ended June 30,								Six months ended June 30,
	2019				2018				2019				2018
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
(in thousands)	Balance		Income (1)		Balance		Income (1)		Balance		Income (1)		Balance		Income (1)
Residential real estate	$	1,878	$	20	$	1,805	$	21	$	1,858	$	41	$	1,837	$	42
Commercial real estate		9,229		76		7,826		75		9,430		153		7,833		152
Construction, land acquisition and development		80		2		84		1		81		3		84		2
Commercial and industrial		1,337		1		794		1		1,192		1		794		1
Consumer		200		2		389		3		290		7		391		7
State and political subdivisions		-		-		-		-		-		-		-		-
Total impaired loans	$	12,724	$	101	$	10,898	$	101	$	12,851	$	205	$	10,939	$	204

(

1

) Interest income represents income recognized on performing TDRs.  

The additional interest income that would have been earned on non-accrual and restructured loans had these loans performed in accordance with their original terms approximated

$95

thousand and

$177

thousand for the

three

and

six

months ended

June 30, 2019

and

$45

thousand and

$85

thousand for the

three

and

six

months ended

June 30, 

2018

, respectively.

Troubled Debt Restructured Loans

TDRs at

June 30, 2019

and

December 31, 2018

were

$8.1

 million and

$9.2

 million, respectively. Accruing and non-accruing TDRs were

$7.9

 million and

$0.2

 million, respectively, at

June 30, 2019

,

and

$8.5

 million and

$0.7

 million, respectively, at

December 31, 2018

.

Approximately

$50

thousand and 

$650

thousand in specific reserves have been established for TDRs as of

June 30, 2019

and

December 31, 2018

,

respectively. FNCB was

not

committed to lend additional funds to any loan classified as a TDR at

June 30, 2019

.

The modification of the terms of loans classified as TDRs 

may

include

one

or a combination of the following, among others: a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, a payment modification under a forbearance agreement, or a permanent reduction of the recorded investment in the loan.

There was

one

residential mortgage loan modified as a TDR during the

three

and

six

months ended

June 30, 2019.

The modification involved an extension of terms and the loan had a pre- and post-modification balance of

$24

thousand. There were

no

loans modified as TDRs during the

three

and

six

months ended June

30,

2018.

There was

one

consumer TDR that was modified within the previous

12

months in the amount of

$103

thousand that defaulted (defined as past due

90

days or more) during the

three

and

six

months ended June

30,

2019.

There were

no

TDRs modified within the previous

12

months that defaulted during the

three

and

six

months ended June

30,

2018.

Residential Real Estate Loan Foreclosures

There were

two

 consumer mortgage loans secured by residential real estate properties in the process of foreclosure at

June 30, 2019

.  There was no aggregate recorded investment to FNCB for these two loans at

June 30, 2019

.  The balance of one loan was previously charged-off in its entirety and the other loan was sold to an investor on the secondary market.  There was one investor-owned residential real estate property with a carrying value of $52 thousand that was foreclosed upon during the 

three

and

six

months ended

June 30, 2019

, and included in OREO at

June 30, 2019

.

There were

three

consumer mortgage loans secured by residential real estate properties with

no

aggregate recorded investment in the process of foreclosure at

June 30, 2018

.  For the

three

and

six

months ended

June 30, 2018,

there were

no

residential real estate properties foreclosed upon, and there was

one

 residential real estate property with a carrying value of

$63

thousand included in OREO at

June 30, 2018

.

XML

Note 5 - Income Taxes

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

5

. Income Taxes

The following table presents a reconciliation between the effective income tax expense and the income tax expense that would have been provided at the federal statutory tax rate of

21.0%

 for the

three

and

six

months ended

June 30, 2019

and

2018

, respectively.

	For the Three Months Ended June 30,												For the Six Months Ended June 30,
	2019						2018						2019						2018
(dollars in thousands)	Amount			%			Amount			%			Amount			%			Amount			%
Provision at statutory tax rates	$	643			21.00	%	$	613			21.00	%	$	1,313			21.00	%	$	1,126			21.00	%
Add (deduct):
Tax effects of tax free interest income		(78	)		(2.55	)%		(92	)		(3.16	)%		(184	)		(2.94	)%		(170	)		(3.18	)%
Non-deductible interest expense		2			0.06	%		4			0.13	%		7			0.11	%		6			0.11	%
Bank-owned life insurance		(27	)		(0.88	)%		(29	)		(1.00	)%		(55	)		(0.88	)%		(57	)		(1.06	)%
Other items, net		(26	)		(0.85	)%		12			0.43	%		(12	)		(0.19	)%		29			0.54	%
Income tax provision	$	514			16.78	%	$	508			17.40	%	$	1,069			17.10	%	$	934			17.41	%

FNCB had net deferred tax assets of

$7.5

million at

June 30, 2019

,

of which

$5.2

million was related to approximately 

$30.0

million in net operating loss carryovers. At

December 31, 2018

,

FNCB’s net deferred tax assets were

$10.7

million.

Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently if necessary, in accordance with guidance set forth in ASC Topic

740

“Income Taxes,” and applies the criteria in the guidance to determine whether it is more likely than

not

that some portion, or all, of the deferred tax asset will

not

be realized within its life cycle, based on the weight of available evidence. In evaluating available evidence, management considers, among other factors, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards

not

expiring unused, tax planning strategies and timing of reversals of temporary differences. In assessing the need for a valuation allowance, management carefully weighs both positive and negative evidence currently available. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified. If management determines, based on available evidence, both positive and negative, that it is more likely than

not

that some portion or all of the deferred tax asset will

not

be realized in future periods, a valuation allowance is calculated and recorded. These determinations are inherently subjective and depend upon management’s estimates and judgments used in their evaluation of both positive and negative evidence.

Management performed an evaluation of FNCB’s deferred tax assets at

June 30, 2019

taking into consideration all available positive and negative evidence at that time. Based on this evaluation, management believes that FNCB’s future taxable income will be sufficient to utilize deferred tax assets. Accordingly, a valuation allowance for deferred tax assets was

not

required at

June 30, 2019

and

December 31, 2018

.

XML

Note 6 - Related Party Transactions

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note

6

.  Related Party Transactions

In conducting its business, FNCB has engaged in, and intends to continue to engage in, banking and financial transactions with directors, executive officers and their related parties.

FNCB has granted loans, letters of credit and lines of credit to directors, executive officers and their related parties. The following table summarizes the changes in the total amounts of such outstanding loans, advances under lines of credit, net of any participations sold, as well as repayments during the

three

and

six

months ended

June 30, 2019

and

2018

.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	72,150		$	65,884		$	64,634		$	55,576
Additions, new loans and advances		12,004			11,946			29,093			43,115
Repayments		(5,402	)		(8,004	)		(14,975	)		(28,865	)
Balance, end of period	$	78,752		$	69,826		$	78,752		$	69,826

At

June 30, 2019

,

there were

no

loans made to directors, executive officers and their related parties that were

not

performing in accordance with the terms of the loan agreements.

Deposits from directors, executive officers and their related parties held by the Bank at

June 30, 2019

and

December 31, 2018

 amounted to

$90.5

 million and

$115.5

million, respectively, a decrease of

$25.0

million. The decrease was due to cyclical outflows from several large commercial deposit relationships that are owned by, or a related party to, certain directors. Interest paid on the deposits amounted to

$241

 thousand and

$157

thousand for the

six

months ended

June 30, 2019

and

2018

, respectively.

In the course of its operations, FNCB acquires goods and services from, and transacts business with, various companies of related parties, which include, but are

not

limited to, employee health insurance, fidelity bond and errors and omissions insurance, legal services, and repair of repossessed automobiles for resale. FNCB recorded payments to related parties for goods and services of

$0.5

million and

$1.0

 million for the

three

and

six

months ended June

30,

2019,

 respectively, and

$0.6

million and

$1.0

million for the respective periods of

2018.

On

February 8, 2019,

FNCB accelerated the final

$5.0

million principal repayment, which was due and payable on

September 1, 2019,

along with all accrued interest, of which

$3.1

million was paid to directors and/or their related interests.  Subordinated notes (the “Notes”) held by directors and/or their related parties totaled

$3.1

million at

December 31, 2018

. Interest expense recorded and paid on the Notes for directors and/or their related parties through February

8,

2019,

the date of final payment, was 

$27

thousand. Regular quarterly interest payments on the Notes paid by FNCB to its directors and/or their related parties totaled

$35

thousand and

$70

thousand for the

three

and

six

months ended June

30,

2018,

respectively. 

On

January 28, 2019,

FNCB commenced a public offering of shares of its common stock in a firm commitment underwritten offering. The offering closed on

February 8, 2019

and FNCB issued

3,285,550

shares of its common stock at an offering price of

$7.00

per share. Shares acquired by directors, executive officers and their related parties as part of this offering were

340,600,

or

10.4%,

of the total common shares issued. For more information about the public offering, refer to Note

9

, “Regulatory Matters/Subsequent Event” to these consolidated financial statements.

XML

Note 7 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

7

. 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

June 30, 2019

ROU assets and lease liabilities were

$

3.2

million and

$3.5

million, respectively. There were

no

new operating leases that have

not

yet commenced as of

June 30, 2019

.

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

three

and

six

months ended

June 30, 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 June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost - bank branches	$	86	$	171
Operating lease cost - automobiles		6		8
Short-term lease cost - office space		9		24
Short-term lease cost - automobiles		2		5
Variable lease cost		-		-
Total lease cost	$	103	$	208

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

June 30, 2019

:

(in thousands)	June 30, 2019
2019	$	171
2020		371
2021		337
2022		316
2023		312
2024 and thereafter		3,095
Total lease payments		4,602
Less: imputed interest		1,071
Present value of operating lease liabilities	$	3,531

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

(dollars in thousands)	June 30, 2019
Weighted average remaining lease term	14.7 years
Weighted average discount rate		3.45	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	202

Litigation

On

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.

On

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.

On

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

no

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

10

-K for the year ended

December 31, 2018

.

XML

Note 8 - Stock Compensation Plans & Subsequent Event

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

8

. Stock Compensation Plans/Subsequent Event

FNCB has a Long-Term Incentive Compensation Plan (“LTIP”) for directors, executives and key employees. The LTIP authorizes up to

1,200,000

shares of common stock for issuance and provides the Board of Directors with the authority to offer several different types of long-term incentives, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares. During the

six

months ended

June 30, 2019

and

2018

, the Board of Directors granted

57,684

 and

57,829

 shares of restricted stock, respectively, under the LTIP. At

June 30, 2019

,

there were

865,783

shares of common stock available for award under the LTIP. For the

six

months ended

June 30, 2019

and

2018

, stock-based compensation expense, which is included in salaries and benefits expense in the consolidated statements of income, totaled

$140

 thousand and

$137

 thousand, respectively. Total unrecognized compensation expense related to unvested restricted stock awards was

$970

thousand and

$819

 thousand at

June 30, 2019

and

2018

, respectively. Unrecognized compensation expense related to unvested shares of restricted stock is expected to be recognized over a weighted-average period of

4.2

 years.

On

July 1, 2019,

1,956

shares of  FNCB's common stock were granted, under the LTIP, to

ten

of FNCB Bank's directors, excluding the President and CEO, or

19,560

shares in the aggregate. The shares of common stock immediately vested to each director upon grant, and the fair value of the shares on the grant date was

$7.67

per share. Directors fees totaling

$150

thousand will be recognized as part of this grant on

July 1, 2019.

The following table summarizes the activity related to FNCB’s unvested restricted stock awards during the

three

and

six

months ended

June 30, 2019

and

2018

:

	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
				Weighted-					Weighted-					Weighted-					Weighted-
				Average					Average					Average					Average
	Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date
(dollars in thousands)	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Unvested restricted stock awards:
Total outstanding, beginning of period		172,386		$	7.55		162,679		$	7.05		114,702		$	7.50		106,129		$	6.23
Awards granted		-			-		-			-		57,684			7.64		57,829			8.54
Forfeitures		(781	)		7.68		-			-		(781	)		7.68		(1,279	)		6.88
Vestings		(37,558	)		6.80		(46,358	)		5.93		(37,558	)		6.80		(46,358	)		5.93
Total outstanding, end of period		134,047		$	7.75		116,321		$	7.50		134,047		$	7.75		116,321		$	7.50

XML

Note 9 - Regulatory Matters & Subsequent Event

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

9

. Regulatory Matters/Subsequent Event

On

January 28, 2019,

FNCB announced that it had commenced a public offering of shares of its common stock in a firm commitment underwritten offering. The offering closed on

February 8, 2019

and FNCB issued

3,285,550

shares of its common stock, which included

428,550

shares issued upon the exercise in full of the option to purchase additional shares granted to underwriters, at an offering price of

$7.00

per share, less an underwriting discount of

$0.35

per share. FNCB received net proceeds after deducting the underwriting discount and offering expenses of

$21.3

million. Following the receipt of the proceeds, during the

first

quarter of

2019,

FNCB made a capital investment in FNCB Bank, its wholly-owned subsidiary of

$17.8

million.

FNCB’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to FNCB. Bank regulations limit the amount of dividends that

may

be paid without prior approval of the Bank’s regulatory agency. For the

three

and

six

months ended

June 30, 2019,

cash dividends declared and paid by FNCB were

$0.05

 per share and

$0.10

 per share, respectively, and

$0.04

per share and

$0.08

per share, respectively, for the

three

and

six

months ended June

30,

2018.

FNCB offers a Dividend Reinvestment and Stock Purchase Plan (“DRP”) to its shareholders. For the

three

and

six

months ended June

30,

2019

and

2018,

 d

ividend reinvestment shares were purchased in open market transactions, however shares under the optional cash purchase feature of the DRP were issued from authorized but unissued common shares. Common shares issued under the DRP for the

three

and

six

months ended

June 30,

totaled

1,899

and

3,538

, respectively in

2019

and

4,139

and

12,776,

respectively in

2018.

Subsequent to June

30,

2019,

on

July 25, 2019,

FNCB declared a cash dividend for the

third

quarter of

2019

 of

$0.05

 per share, which is payable on

September 16, 2019

 

to shareholders of record as of

September 3, 2019

.

FNCB and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on FNCB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNCB and the Bank must meet specific capital guidelines that involve quantitative measures of FNCB's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. FNCB's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Management believes, as of

June 30, 2019

, that FNCB and the Bank meet all applicable capital adequacy requirements.

Current quantitative measures established by regulation to ensure capital adequacy require FNCB to maintain minimum amounts and ratios (set forth in the tables below) of Total capital, Tier I capital, and Tier I common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).

The following tables present summary information regarding FNCB’s and the Bank’s risk-based capital and related ratios at

June 30, 2019

and

December 31, 2018

:

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
June 30, 2019
Total capital (to risk-weighted assets)	$	140,425		15.71	%	$	135,998		15.25	%		8.00	%		10.500	%		10.00	%
Tier I capital (to risk-weighted assets)		131,147		14.67	%		126,720		14.21	%		6.00	%		8.500	%		8.00	%
Tier I common equity (to risk-weighted assets)		121,147		13.56	%		126,720		14.21	%		4.50	%		7.000	%		6.50	%
Tier I capital (to average assets)		131,147		11.02	%		126,720		10.69	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		893,705					891,578
Total average assets		1,190,442					1,185,645

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
December 31, 2018
Total capital (to risk-weighted assets)	$	117,213		12.69	%	$	112,128		12.17	%		8.00	%		9.875	%		10.00	%
Tier I capital (to risk-weighted assets)		105,439		11.42	%		102,354		11.11	%		6.00	%		7.875	%		8.00	%
Tier I common equity (to risk-weighted assets)		96,692		10.47	%		102,354		11.11	%		4.50	%		6.375	%		6.50	%
Tier I capital (to average assets)		105,439		8.50	%		102,354		8.27	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		923,441					921,126
Total average assets		1,239,898					1,238,347

*Applies to the Bank only.

XML

Note 10 - Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

10

. Fair Value Measurements

In determining fair value, FNCB uses various valuation approaches, including market, income and cost approaches. Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from sources independent of FNCB. Unobservable inputs reflect FNCB’s knowledge about the assumptions the market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level

1

measurement) and the lowest priority to unobservable inputs (Level

3

measurement). A financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is broken down into

three

levels based on the reliability of inputs as follows:

● Level 1 valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets;

● Level 2 valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data; and

● Level 3 valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

A description of the valuation methodologies used for assets recorded at fair value is set forth below.

Available-for-Sale Debt Securities

The estimated fair values for FNCB’s investments in obligations of U.S. government agencies, obligations of state and political subdivisions, government-sponsored agency CMOs and mortgage-backed securities, private collateralized mortgage obligations, asset-backed securities and negotiable certificates of deposit are obtained by FNCB from a nationally-recognized pricing service.  This pricing service develops estimated fair values by analyzing like securities and applying available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing (Level

2

inputs), to prepare valuations. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.  The fair value measurements consider observable data that

may

include, among other things, dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, and are based on market data obtained from sources independent from FNCB.  The Level

2

investments in FNCB’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing service, reflect the assumptions that market participants would use to price the assets.  Management has determined that the Level

2

designation is appropriate for these securities because, as with most fixed-income securities, those in FNCB’s portfolio are

not

exchange-traded, and such non-exchange-traded fixed income securities are typically priced by correlation to observed market data.  FNCB has reviewed the pricing service’s methodology to confirm its understanding that such methodology results in a valuation based on quoted market prices for similar instruments traded in active markets, quoted markets for identical or similar instruments traded in markets that are

not

active and model-based valuation techniques for which the significant assumptions can be corroborated by market data as appropriate to a Level

2

designation.

For those securities for which the inputs used by an independent pricing service were derived from unobservable market information, FNCB evaluated the appropriateness and quality of each price.  Management reviewed the volume and level of activity for all classes of securities and attempted to identify transactions which

may

not

be orderly or reflective of a significant level of activity and volume.  For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service

may

be adjusted, as necessary, to estimate fair value (fair values based on Level

3

inputs).  If applicable, the adjustment to fair value was derived based on present value cash flow model projections obtained from

third

party providers using assumptions similar to those incorporated by market participants.

At

June 30, 2019

, FNCB owned

five

corporate debt securities with an aggregate amortized cost and fair value of

$6.0

million and

$6.1

million, respectively. The market for

four

of the

five

corporate debt securities at

June 30, 2019

 was

not

active and markets for similar securities are also

not

active.  FNCB obtained valuations for these securities from

third

-party service providers that prepared the valuations using a discounted cash flow approach.  Management takes measures to validate the service providers’ analysis and is actively involved in the valuation process, including reviewing and verifying the assumptions used in the valuation calculations. Results of a discounted cash flow test are significantly affected by variables such as the estimate of the probability of default, estimates of future cash flows, discount rates, prepayment rates and the creditworthiness of the underlying issuers.  FNCB considers these inputs to be unobservable Level

3

inputs because they are based on estimates about the assumptions market participants would use in pricing this type of asset and developed based on the best information available in the circumstances rather than on observable inputs. As it relates to fair value measurements, once each issuer is categorized and the forecasted default rates have been applied, the expected cash flows are modeled using the variables described above. Discount rates ranging from

5.73%

to

6.23%

were applied to the expected cash flows to estimate fair value. Management will continue to monitor the market for these securities to assess the market activity and the availability of observable inputs and will continue to apply these controls and procedures to the valuations received from its

third

-party service provider for the period it continues to use an outside valuation service.

Equity Securities

The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level

1

inputs).

Assets Measured at Fair Value on a Recurring Basis

The following tables present the financial assets that are measured at fair value on a recurring basis at

June 30, 2019

and

December 31, 2018

,

and the fair value hierarchy of the respective valuation techniques utilized by FNCB to determine the fair value:

	Fair Value Measurements at June 30, 2019
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	117,245	$	-	$	117,245	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,727		-		66,727		-
Collateralized mortgage obligations - commercial		57,865		-		57,865		-
Mortgage-backed securities		20,940		-		20,940		-
Private collateralized mortgage obligations		10,697		-		10,697		-
Corporate debt securities		6,121		-		1,040		5,081
Asset-backed securities		3,832		-		3,832		-
Negotiable certificates of deposit		2,428		-		2,428		-
Total available-for-sale debt securities	$	285,855	$	-	$	280,774	$	5,081
Equity securities:
Mutual fund	$	917	$	917	$	-	$	-

	Fair Value Measurements at December 31, 2018
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	152,187	$	-	$	152,187	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		34,207		-		34,207		-
Collateralized mortgage obligations - commercial		73,640		-		73,640		-
Mortgage-backed securities		23,934		-		23,934		-
Private collateralized mortgage obligations		2,913		-		2,913		-
Corporate debt securities		4,936		-		1,007		3,929
Asset-backed securities		1,802		-		1,802		-
Negotiable certificates of deposit		2,413		-		2,413		-
Total available-for-sale debt securities	$	296,032	$	-	$	292,103	$	3,929
Equity securities:
Mutual fund	$	891	$	891	$	-	$	-

There were

no

transfers between levels within the fair value hierarchy during the

six

months ended

June 30, 2019

and

2018

.

The following table presents a reconciliation and statement of operations classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level

3

), which consisted entirely of corporate debt securities, for the

six

months ended

June 30, 2019

and

2018

.

Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)
	Corporate Debt Securities
	For the Six Months Ended June 30,
(in thousands)	2019		2018
Balance at January 1,	$	3,929	$	4,058
Additions		1,000		-
Payments Received		-		-
Sales		-		-
Total gains or losses (realized/unrealized):
Included in earnings		-		-
Included in other comprehensive income (loss)		152		(101	)
Balance at June 30,	$	5,081	$	3,957

Assets Measured at Fair Value on a Non-Recurring Basis

The following tables present assets and liabilities measured at fair value on a non-recurring basis at

June 30, 2019

and

December 31, 2018

,

and additional quantitative information about the valuation techniques and inputs utilized by FNCB to determine fair value. All assets were measured using Level

3

inputs.

	June 30, 2019
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	7,849	$	4	$	7,845	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,533		298		4,235	Discounted cash flows	Discount rate		4.0%-7.5	%
Other real estate owned		52		-		52	Appraisal of collateral	Selling cost		10.0	%

	December 31, 2018
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	8,020	$	606	$	7,414	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,397		51		4,346	Discounted cash flows	Discount rate		3.7%-7.5	%
Other real estate owned		919		-		919	Appraisal of collateral	Selling cost		10.0	%

The fair value of collateral-dependent impaired loans is determined through independent appraisals or other reasonable offers, which generally include various Level

3

inputs which are

not

identifiable. Management reduces the appraised value by the estimated costs to sell the property and

may

make adjustments to the appraised values as necessary to consider any declines in real estate values since the time of the appraisal. For impaired loans that are

not

collateral-dependent, fair value is determined using the discounted cash flow method. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance or is charged off. The amount shown is the balance of impaired loans, net of any charge-offs and the related allowance for loan losses.

OREO properties are recorded at fair value less the estimated cost to sell at the date of FNCB’s acquisition of the property. Subsequent to acquisition of the property, the balance

may

be written down further. It is FNCB’s policy to obtain certified external appraisals of real estate collateral underlying impaired loans and OREO, and estimate fair value using those appraisals. Other valuation sources

may

be used, including broker price opinions, letters of intent and executed sale agreements.

The following table summarizes the estimated fair values of FNCB’s financial instruments using an exit price notion at

June 30, 2019

and at

December 31, 2018

.

FNCB discloses fair value information about financial instruments, whether or

not

recognized in the statements of financial condition, for which it is practicable to estimate that value. The fair value of financial instruments that are

not

measured at fair value in the financial statements were based on the exit price notion. The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, management judgment is required to interpret data and develop fair value estimates. Accordingly, the estimates below are

not

necessarily indicative of the amounts FNCB could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies

may

have a material effect on the estimated fair value amounts.

	Fair Value	June 30, 2019				December 31, 2018
(in thousands)	Measurement	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Cash and short term investments	Level 1	$	29,904	$	29,904	$	36,481	$	36,481
Available-for-sale debt securities	See previous table		285,855		285,855		296,032		296,032
Equity securities, at fair value	Level 1		917		917		891		891
Restricted stock	Level 2		4,618		4,618		3,123		3,123
Loans held for sale	Level 2		419		419		820		820
Loans, net	Level 3		805,475		796,141		829,581		816,234
Accrued interest receivable	Level 2		3,640		3,640		3,614		3,614
Equity securities without readily determinable fair values	Level 3		1,658		1,658		1,658		1,658
Servicing rights	Level 3		347		836		350		878
Financial liabilities
Deposits	Level 2		961,064		960,855		1,095,629		1,093,797
Borrowed funds	Level 2		97,533		97,679		34,240		34,108
Accrued interest payable	Level 2		389		389		338		338

XML

Note 11 - Earnings Per Share

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

11

. Earnings per Share

For FNCB, the numerator of both the basic and diluted earnings per share of common stock is net income available to common shareholders. The weighted average number of common shares outstanding used in the denominator for basic earnings per common share is increased to determine the denominator used for diluted earnings per common share by the effect of potentially dilutive common share equivalents utilizing the treasury stock method. Common share equivalents are outstanding stock options to purchase FNCB’s shares of common stock and unvested restricted stock.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the

three

and

six

months ended

June 30, 2019

and

2018

:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2019		2018		2019		2018
Net income	$	2,549	$	2,412	$	5,184	$	4,431
Basic weighted-average number of common shares outstanding		20,129,150		16,792,812		19,428,717		16,778,188
Plus: Common share equivalents		4,700		26,474		6,359		23,238
Diluted weighted-average number of common shares outstanding		20,133,850		16,819,286		19,435,076		16,801,426
Income per common share:
Basic	$	0.13	$	0.14	$	0.27	$	0.26
Diluted	$	0.13	$	0.14	$	0.27	$	0.26

For the

three

and

six

months ended

June 30, 2019

and

2018

, common stock equivalents reflected in the table above were related entirely to the incremental shares of unvested restricted stock. As of

June 30, 2019

, there were

no

outstanding stock options. Stock options of

19,200

outstanding at June

30,

2018

were excluded from common stock equivalents for the

three

 and

six

months ended June

30,

2018.

The exercise prices of stock options exceeded the average market price of FNCB’s common shares at

June 30, 2018

; therefore, inclusion of these common stock equivalents would be anti-dilutive to the diluted earnings per common share calculation. The stock options expired on

January 5, 2019. 

XML

Note 12 - Other Comprehensive Income

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note

12

.

Other Comprehensive Income

The following table summarizes the reclassifications out of accumulated other comprehensive income (loss) for the

three

and

six

months ended

June 30, 2019

and

2018

,

comprised entirely of unrealized gains and losses on available-for-sale debt securities:

	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net gains reclassified into net income	$	(163	)	Net gain (loss) on the sale of available-for-sale debt securities	$	(323	)	Net gain (loss) on the sale of available-for-sale debt securities
Taxes		34		Income taxes		68		Income taxes
Net of tax amount	$	(129	)		$	(255	)

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net loss reclassified into net income	$	4		Net gain (loss) on the sale of available-for-sale debt securities	$	4		Net gain (loss) on the sale of available-for-sale debt securities
Taxes		(1	)	Income taxes		(1	)	Income taxes
Net of tax amount	$	3			$	3

The following table summarizes the changes in accumulated other comprehensive (loss) income, net of tax for the

three

and

six

months ended

June 30, 2019

and

2018

:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	(989	)	$	(5,612	)	$	(4,540	)	$	(1,745	)
Other comprehensive income (loss) before reclassifications		4,431			(1,453	)		8,108			(5,385	)
Amount reclassified from accumulated other comprehensive income (loss)		(129	)		3			(255	)		3
Net other comprehensive income (loss) during the period		4,302			(1,450	)		7,853			(5,382	)
Reclassification of net loss on equity securities upon adoption of ASU 2016-1		-			-			-			65
Balance, end of period	$	3,313		$	(7,062	)	$	3,313		$	(7,062	)

XML

Note 3 - Securities (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	June 30, 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	$	114,815	$	2,513	$	83	$	117,245
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,331		504		108		66,727
Collateralized mortgage obligations - commercial		57,062		803		-		57,865
Mortgage-backed securities		20,552		392		4		20,940
Private collateralized mortgage obligations		10,640		57		-		10,697
Corporate debt securities		6,000		128		7		6,121
Asset-backed securities		3,833		1		2		3,832
Negotiable certificates of deposit		2,428		-		-		2,428
Total available-for-sale debt securities	$	281,661	$	4,398	$	204	$	285,855

	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 securities		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

Investments Classified by Contractual Maturity Date [Table Text Block]

	June 30, 2019
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	2,735	$	2,738
After one year through five years		50,428		51,269
After five years through ten years		66,064		67,778
After ten years		4,016		4,009
Collateralized mortgage obligations		134,033		135,289
Mortgage-backed securities		20,552		20,940
Asset-backed securities		3,833		3,832
Total	$	281,661	$	285,855

Schedule of Unrealized Loss on Investments [Table Text Block]

	June 30, 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 political subdivisions		-	$	-	$	-		11	$	14,510	$	83		11	$	14,510	$	83
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		2		13,059		80		3		7,034		28		5		20,093		108
Collateralized mortgage obligations - commercial		-		-		-		-		-		-		-		-		-
Mortgage-backed securities		-		-		-		2		2,095		4		2		2,095		4
Private collateralized mortgage obligations		-		-		-		-		-		-		-		-		-
Corporate debt securities		1		993		7		-		-		-		1		993		7
Asset-backed securities		-		-		-		1		1,069		2		1		1,069		2
Negotiable certificates of deposit		-		-		-		5		1,239		-		5		1,239		-
Total available-for-sale debt securities		3	$	14,052	$	87		22	$	25,947	$	117		25	$	39,999	$	204

	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 political 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

Gain (Loss) on Securities [Table Text Block]

	Six Months Ended June 30,
(in thousands)	2019		2018
Net gains (losses) recognized on equity securities	$	26	$	(26	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains (losses) on equity securities held	$	26	$	(26	)

Investment [Table Text Block]

	June 30,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	4,608	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,618	$	3,123

XML

Note 4 - Loans (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	June 30,			December 31,
(in thousands)	2019			2018
Residential real estate	$	161,572		$	164,833
Commercial real estate		263,781			262,778
Construction, land acquisition and development		31,686			20,813
Commercial and industrial		159,707			150,962
Consumer		157,878			176,784
State and political subdivisions		36,705			59,037
Total loans, gross		811,329			835,207
Unearned income		(61	)		(70	)
Net deferred loan costs		3,152			3,963
Allowance for loan and lease losses		(8,945	)		(9,519	)
Loans, net	$	805,475		$	829,581

Financing Receivable, Allowance for Credit Loss [Table Text Block]

							Construction,
							Land									State and
	Residential			Commercial			Acquisition and			Commercial						Political
(in thousands)	Real Estate			Real Estate			Development			and Industrial			Consumer			Subdivisions			Unallocated		Total
Three months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, April 1, 2019	$	1,155		$	3,051		$	106		$	2,499		$	1,963		$	423		$	56	$	9,253
Charge-offs		(27	)		-			(18	)		(621	)		(457	)		-			-		(1,123	)
Recoveries		2			14			-			123			329			-			-		468
Provisions (credits)		22			364			90			70			4			(212	)		9		347
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Three months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, April 1, 2018	$	1,249		$	3,342		$	256		$	2,505		$	1,822		$	388		$	-	$	9,562
Charge-offs		-			(1,126	)		-			(4	)		(180	)		-			-		(1,310	)
Recoveries		121			2			-			75			129			-			-		327
Provisions (credits)		(169	)		889			(5	)		(121	)		235			51			-		880
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459
Six months ended June 30, 2019:
Allowance for loan losses:
Beginning balance, January 1, 2019	$	1,175		$	3,107		$	188		$	2,552		$	2,051		$	417		$	29	$	9,519
Charge-offs		(27	)		-			(18	)		(760	)		(772	)		-			-		(1,577	)
Recoveries		6			14			81			207			502			-			-		810
Provisions (credits)		(2	)		308			(73	)		72			58			(206	)		36		193
Ending balance, June 30, 2019	$	1,152		$	3,429		$	178		$	2,071		$	1,839		$	211		$	65	$	8,945
Six months ended June 30, 2018:
Allowance for loan losses:
Beginning balance, January 1, 2018	$	1,236		$	3,499		$	209		$	2,340		$	1,395		$	355		$	-	$	9,034
Charge-offs		(63	)		(1,126	)		-			(81	)		(440	)		-			-		(1,710	)
Recoveries		127			3			30			147			228			-			-		535
Provisions (credits)		(99	)		731			12			49			823			84			-		1,600
Ending balance, June 30, 2018	$	1,201		$	3,107		$	251		$	2,455		$	2,006		$	439		$	-	$	9,459

					Construction,
					Land						State and
	Residential		Commercial		Acquisition and		Commercial				Political
(in thousands)	Real Estate		Real Estate		Development		and Industrial		Consumer		Subdivisions		Unallocated		Total
June 30, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	12	$	41	$	-	$	248	$	1	$	-	$	-	$	302
Collectively evaluated for impairment		1,140		3,388		178		1,823		1,838		211		65		8,643
Total	$	1,152	$	3,429	$	178	$	2,071	$	1,839	$	211	$	65	$	8,945
Loans receivable:
Individually evaluated for impairment	$	1,976	$	9,192	$	80	$	935	$	199	$	-	$	-	$	12,382
Collectively evaluated for impairment		159,596		254,589		31,606		158,772		157,679		36,705		-		798,947
Total	$	161,572	$	263,781	$	31,686	$	159,707	$	157,878	$	36,705	$	-	$	811,329
December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	14	$	41	$	-	$	600	$	2	$	-	$	-	$	657
Collectively evaluated for impairment		1,161		3,066		188		1,952		2,049		417		29		8,862
Total	$	1,175	$	3,107	$	188	$	2,552	$	2,051	$	417	$	29	$	9,519
Loans receivable:
Individually evaluated for impairment	$	1,847	$	9,408	$	82	$	697	$	383	$	-	$	-	$	12,417
Collectively evaluated for impairment		162,986		253,370		20,731		150,265		176,401		59,037		-		822,790
Total	$	164,833	$	262,778	$	20,813	$	150,962	$	176,784	$	59,037	$	-	$	835,207

Financing Receivable Credit Quality Indicators [Table Text Block]

	Credit Quality Indicators
	June 30, 2019
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	31,731	$	216	$	232	$	-	$	-	$	32,179	$	128,480	$	913	$	129,393	$	161,572
Commercial real estate		246,471		6,395		10,916		-		-		263,781		-		-		-		263,781
Construction, land acquisition and development		29,200		-		-		-		-		29,200		2,486		-		2,486		31,686
Commercial and industrial		149,598		2,396		2,109		-		-		154,103		5,604		-		5,604		159,707
Consumer		2,685		-		-		-		-		2,685		154,730		463		155,193		157,878
State and political subdivisions		36,679		-		-		-		-		36,679		26		-		26		36,705
Total	$	496,364	$	9,007	$	13,257	$	-	$	-	$	518,627	$	291,326	$	1,376	$	292,702	$	811,329

	Credit Quality Indicators
	December 31, 2018
	Commercial Loans												Other Loans
			Special								Subtotal		Accruing		Non-accrual		Subtotal		Total
(in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Commercial		Loans		Loans		Other		Loans
Residential real estate	$	33,573	$	291	$	154	$	-	$	-	$	34,018	$	130,132	$	683	$	130,815	$	164,833
Commercial real estate		250,674		1,858		10,246		-		-		262,778		-		-		-		262,778
Construction, land acquisition and development		17,704		-		757		-		-		18,461		2,352		-		2,352		20,813
Commercial and industrial		137,888		4,193		2,448		-		-		144,529		6,421		12		6,433		150,962
Consumer		2,024		-		-		-		-		2,024		174,373		387		174,760		176,784
State and political subdivisions		57,345		1,665		27		-		-		59,037		-		-		-		59,037
Total	$	499,208	$	8,007	$	13,632	$	-	$	-	$	520,847	$	313,278	$	1,082	$	314,360	$	835,207

Financing Receivable, Past Due [Table Text Block]

	June 30, 2019
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	159,991	$	556	$	25	$	-	$	160,572
Commercial real estate		260,713		194		-		-		260,907
Construction, land acquisition and development		31,686		-		-		-		31,686
Commercial and industrial		158,679		63		-		-		158,742
Consumer		155,568		1,482		365		-		157,415
State and political subdivisions		36,705		-		-		-		36,705
Total performing (accruing) loans		803,342		2,295		390		-		806,027
Non-accrual loans:
Residential real estate		743		-		-		257		1,000
Commercial real estate		791		-		-		2,083		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		686		-		-		279		965
Consumer		175		83		70		135		463
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,395		83		70		2,754		5,302
Total loans receivable	$	805,737	$	2,378	$	460	$	2,754	$	811,329

	December 31, 2018
	Delinquency Status
	0-29 Days		30-59 Days		60-89 Days		>/= 90 Days
(in thousands)	Past Due		Past Due		Past Due		Past Due		Total
Performing (accruing) loans:
Residential real estate	$	163,690	$	319	$	136	$	-	$	164,145
Commercial real estate		259,904		-		-		-		259,904
Construction, land acquisition and development		20,813		-		-		-		20,813
Commercial and industrial		150,108		87		20		-		150,215
Consumer		173,890		2,221		286		-		176,397
State and political subdivisions		59,037		-		-		-		59,037
Total performing (accruing) loans		827,442		2,627		442		-		830,511
Non-accrual loans:
Residential real estate		443		-		136		109		688
Commercial real estate		1,061		-		-		1,813		2,874
Construction, land acquisition and development		-		-		-		-		-
Commercial and industrial		677		50		-		20		747
Consumer		91		61		74		161		387
State and political subdivisions		-		-		-		-		-
Total non-accrual loans		2,272		111		210		2,103		4,696
Total loans receivable	$	829,714	$	2,738	$	652	$	2,103	$	835,207

Impaired Financing Receivables [Table Text Block]

	June 30, 2019
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	538	$	606	$	-
Commercial real estate		6,806		8,838		-
Construction, land acquisition and development		80		80		-
Commercial and industrial		266		865		-
Consumer		25		27		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,715		10,416		-
With a related allowance recorded:
Residential real estate		1,438		1,438		12
Commercial real estate		2,386		2,386		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		669		677		248
Consumer		174		174		1
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,667		4,675		302
Total impaired loans:
Residential real estate		1,976		2,044		12
Commercial real estate		9,192		11,224		41
Construction, land acquisition and development		80		80		-
Commercial and industrial		935		1,542		248
Consumer		199		201		1
State and political subdivisions		-		-		-
Total impaired loans	$	12,382	$	15,091	$	302

	December 31, 2018
			Unpaid
	Recorded		Principal		Related
(in thousands)	Investment		Balance		Allowance
With no allowance recorded:
Residential real estate	$	313	$	375	$	-
Commercial real estate		7,149		8,795		-
Construction, land acquisition and development		82		82		-
Commercial and industrial		-		-		-
Consumer		26		28		-
State and political subdivisions		-		-		-
Total impaired loans with no related allowance recorded		7,570		9,280		-
With a related allowance recorded:
Residential real estate		1,534		1,534		14
Commercial real estate		2,259		2,259		41
Construction, land acquisition and development		-		-		-
Commercial and industrial		697		697		600
Consumer		357		357		2
State and political subdivisions		-		-		-
Total impaired loans with a related allowance recorded		4,847		4,847		657
Total impaired loans:
Residential real estate		1,847		1,909		14
Commercial real estate		9,408		11,054		41
Construction, land acquisition and development		82		82		-
Commercial and industrial		697		697		600
Consumer		383		385		2
State and political subdivisions		-		-		-
Total impaired loans	$	12,417	$	14,127	$	657

Schedule of Average Balance and Interest Income on Impaired Loans [Table Text Block]

	Three months ended June 30,								Six months ended June 30,
	2019				2018				2019				2018
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
(in thousands)	Balance		Income (1)		Balance		Income (1)		Balance		Income (1)		Balance		Income (1)
Residential real estate	$	1,878	$	20	$	1,805	$	21	$	1,858	$	41	$	1,837	$	42
Commercial real estate		9,229		76		7,826		75		9,430		153		7,833		152
Construction, land acquisition and development		80		2		84		1		81		3		84		2
Commercial and industrial		1,337		1		794		1		1,192		1		794		1
Consumer		200		2		389		3		290		7		391		7
State and political subdivisions		-		-		-		-		-		-		-		-
Total impaired loans	$	12,724	$	101	$	10,898	$	101	$	12,851	$	205	$	10,939	$	204

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Note 5 - Income Taxes (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	For the Three Months Ended June 30,												For the Six Months Ended June 30,
	2019						2018						2019						2018
(dollars in thousands)	Amount			%			Amount			%			Amount			%			Amount			%
Provision at statutory tax rates	$	643			21.00	%	$	613			21.00	%	$	1,313			21.00	%	$	1,126			21.00	%
Add (deduct):
Tax effects of tax free interest income		(78	)		(2.55	)%		(92	)		(3.16	)%		(184	)		(2.94	)%		(170	)		(3.18	)%
Non-deductible interest expense		2			0.06	%		4			0.13	%		7			0.11	%		6			0.11	%
Bank-owned life insurance		(27	)		(0.88	)%		(29	)		(1.00	)%		(55	)		(0.88	)%		(57	)		(1.06	)%
Other items, net		(26	)		(0.85	)%		12			0.43	%		(12	)		(0.19	)%		29			0.54	%
Income tax provision	$	514			16.78	%	$	508			17.40	%	$	1,069			17.10	%	$	934			17.41	%

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Note 6 - Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	72,150		$	65,884		$	64,634		$	55,576
Additions, new loans and advances		12,004			11,946			29,093			43,115
Repayments		(5,402	)		(8,004	)		(14,975	)		(28,865	)
Balance, end of period	$	78,752		$	69,826		$	78,752		$	69,826

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Note 7 - Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Lease, Cost [Table Text Block]

(in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost - bank branches	$	86	$	171
Operating lease cost - automobiles		6		8
Short-term lease cost - office space		9		24
Short-term lease cost - automobiles		2		5
Variable lease cost		-		-
Total lease cost	$	103	$	208

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(in thousands)	June 30, 2019
2019	$	171
2020		371
2021		337
2022		316
2023		312
2024 and thereafter		3,095
Total lease payments		4,602
Less: imputed interest		1,071
Present value of operating lease liabilities	$	3,531

Lease, Other Information Related to Operating Leases [Table Text Block]

(dollars in thousands)	June 30, 2019
Weighted average remaining lease term	14.7 years
Weighted average discount rate		3.45	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	202

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Note 8 - Stock Compensation Plans & Subsequent Event (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
				Weighted-					Weighted-					Weighted-					Weighted-
				Average					Average					Average					Average
	Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date
(dollars in thousands)	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Unvested restricted stock awards:
Total outstanding, beginning of period		172,386		$	7.55		162,679		$	7.05		114,702		$	7.50		106,129		$	6.23
Awards granted		-			-		-			-		57,684			7.64		57,829			8.54
Forfeitures		(781	)		7.68		-			-		(781	)		7.68		(1,279	)		6.88
Vestings		(37,558	)		6.80		(46,358	)		5.93		(37,558	)		6.80		(46,358	)		5.93
Total outstanding, end of period		134,047		$	7.75		116,321		$	7.50		134,047		$	7.75		116,321		$	7.50

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Note 9 - Regulatory Matters & Subsequent Event (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
June 30, 2019
Total capital (to risk-weighted assets)	$	140,425		15.71	%	$	135,998		15.25	%		8.00	%		10.500	%		10.00	%
Tier I capital (to risk-weighted assets)		131,147		14.67	%		126,720		14.21	%		6.00	%		8.500	%		8.00	%
Tier I common equity (to risk-weighted assets)		121,147		13.56	%		126,720		14.21	%		4.50	%		7.000	%		6.50	%
Tier I capital (to average assets)		131,147		11.02	%		126,720		10.69	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		893,705					891,578
Total average assets		1,190,442					1,185,645

	Consolidated					Bank Only					Minimum Required For Capital Adequacy Purposes			Minimum Required For Capital Adequacy Purposes with Conservation Buffer			Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*
(in thousands)	Amount		Ratio			Amount		Ratio			Ratio			Ratio			Ratio
December 31, 2018
Total capital (to risk-weighted assets)	$	117,213		12.69	%	$	112,128		12.17	%		8.00	%		9.875	%		10.00	%
Tier I capital (to risk-weighted assets)		105,439		11.42	%		102,354		11.11	%		6.00	%		7.875	%		8.00	%
Tier I common equity (to risk-weighted assets)		96,692		10.47	%		102,354		11.11	%		4.50	%		6.375	%		6.50	%
Tier I capital (to average assets)		105,439		8.50	%		102,354		8.27	%		4.00	%		4.000	%		5.00	%
Total risk-weighted assets		923,441					921,126
Total average assets		1,239,898					1,238,347

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Note 10 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Fair Value Measurements at June 30, 2019
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	117,245	$	-	$	117,245	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,727		-		66,727		-
Collateralized mortgage obligations - commercial		57,865		-		57,865		-
Mortgage-backed securities		20,940		-		20,940		-
Private collateralized mortgage obligations		10,697		-		10,697		-
Corporate debt securities		6,121		-		1,040		5,081
Asset-backed securities		3,832		-		3,832		-
Negotiable certificates of deposit		2,428		-		2,428		-
Total available-for-sale debt securities	$	285,855	$	-	$	280,774	$	5,081
Equity securities:
Mutual fund	$	917	$	917	$	-	$	-

	Fair Value Measurements at December 31, 2018
					Significant		Significant
			Quoted Prices		Other		Other
			in Active Markets		Observable		Unobservable
			for Identical Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	152,187	$	-	$	152,187	$	-
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		34,207		-		34,207		-
Collateralized mortgage obligations - commercial		73,640		-		73,640		-
Mortgage-backed securities		23,934		-		23,934		-
Private collateralized mortgage obligations		2,913		-		2,913		-
Corporate debt securities		4,936		-		1,007		3,929
Asset-backed securities		1,802		-		1,802		-
Negotiable certificates of deposit		2,413		-		2,413		-
Total available-for-sale debt securities	$	296,032	$	-	$	292,103	$	3,929
Equity securities:
Mutual fund	$	891	$	891	$	-	$	-

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)
	Corporate Debt Securities
	For the Six Months Ended June 30,
(in thousands)	2019		2018
Balance at January 1,	$	3,929	$	4,058
Additions		1,000		-
Payments Received		-		-
Sales		-		-
Total gains or losses (realized/unrealized):
Included in earnings		-		-
Included in other comprehensive income (loss)		152		(101	)
Balance at June 30,	$	5,081	$	3,957

Fair Value Measurements, Nonrecurring [Table Text Block]

	June 30, 2019
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	7,849	$	4	$	7,845	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,533		298		4,235	Discounted cash flows	Discount rate		4.0%-7.5	%
Other real estate owned		52		-		52	Appraisal of collateral	Selling cost		10.0	%

	December 31, 2018
	Fair Value Measurement						Quantitative Information
	Recorded		Valuation		Fair		Valuation	Unobservable	Value/
(in thousands)	Investment		Allowance		Value		Technique	Inputs	Range
Impaired loans - collateral dependent	$	8,020	$	606	$	7,414	Appraisal of collateral	Selling cost		10.0	%
Impaired loans - other		4,397		51		4,346	Discounted cash flows	Discount rate		3.7%-7.5	%
Other real estate owned		919		-		919	Appraisal of collateral	Selling cost		10.0	%

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Fair Value	June 30, 2019				December 31, 2018
(in thousands)	Measurement	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Cash and short term investments	Level 1	$	29,904	$	29,904	$	36,481	$	36,481
Available-for-sale debt securities	See previous table		285,855		285,855		296,032		296,032
Equity securities, at fair value	Level 1		917		917		891		891
Restricted stock	Level 2		4,618		4,618		3,123		3,123
Loans held for sale	Level 2		419		419		820		820
Loans, net	Level 3		805,475		796,141		829,581		816,234
Accrued interest receivable	Level 2		3,640		3,640		3,614		3,614
Equity securities without readily determinable fair values	Level 3		1,658		1,658		1,658		1,658
Servicing rights	Level 3		347		836		350		878
Financial liabilities
Deposits	Level 2		961,064		960,855		1,095,629		1,093,797
Borrowed funds	Level 2		97,533		97,679		34,240		34,108
Accrued interest payable	Level 2		389		389		338		338

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Note 11 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2019		2018		2019		2018
Net income	$	2,549	$	2,412	$	5,184	$	4,431
Basic weighted-average number of common shares outstanding		20,129,150		16,792,812		19,428,717		16,778,188
Plus: Common share equivalents		4,700		26,474		6,359		23,238
Diluted weighted-average number of common shares outstanding		20,133,850		16,819,286		19,435,076		16,801,426
Income per common share:
Basic	$	0.13	$	0.14	$	0.27	$	0.26
Diluted	$	0.13	$	0.14	$	0.27	$	0.26

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Note 12 - Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net gains reclassified into net income	$	(163	)	Net gain (loss) on the sale of available-for-sale debt securities	$	(323	)	Net gain (loss) on the sale of available-for-sale debt securities
Taxes		34		Income taxes		68		Income taxes
Net of tax amount	$	(129	)		$	(255	)

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Available-for-sale debt securities:
Reclassification adjustment for net loss reclassified into net income	$	4		Net gain (loss) on the sale of available-for-sale debt securities	$	4		Net gain (loss) on the sale of available-for-sale debt securities
Taxes		(1	)	Income taxes		(1	)	Income taxes
Net of tax amount	$	3			$	3

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Balance, beginning of period	$	(989	)	$	(5,612	)	$	(4,540	)	$	(1,745	)
Other comprehensive income (loss) before reclassifications		4,431			(1,453	)		8,108			(5,385	)
Amount reclassified from accumulated other comprehensive income (loss)		(129	)		3			(255	)		3
Net other comprehensive income (loss) during the period		4,302			(1,450	)		7,853			(5,382	)
Reclassification of net loss on equity securities upon adoption of ASU 2016-1		-			-			-			65
Balance, end of period	$	3,313		$	(7,062	)	$	3,313		$	(7,062	)

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Note 3 - Securities (Details Textual) $ in Thousands		3 Months Ended		6 Months Ended		12 Months Ended
	Jan. 01, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2018 USD ($)
Number of Non-government Securities of Any Individual Issuer Exceeding 10 Percent of Shareholders' Equity		0		0
Security Owned and Pledged as Collateral, Fair Value, Total		$ 264,200		$ 264,200			$ 286,400
Proceeds from Sale of Available-for-sale Securities, Total		36,300	$ 4,600	61,400	$ 4,600
Available-for-sale Securities, Gross Realized Gains		173,000	0	349,000
Available-for-sale Securities, Gross Realized Losses		$ 10,000	4,000	$ 26,000	4,000
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		25		25			173
Other than Temporary Impairment Losses, Investments, Total		$ 0		$ 0
Equity Securities, FV-NI		917		917			$ 891
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings
Other Assets [Member]
Equity Securities without Readily Determinable Fair Value, Amount		1,700		1,700			1,700
Federal Home Loan Bank of Pittsburgh [Member]
Impairment on Federal Home Loan Bank Stock		0		0			$ 0
Retained Earnings [Member]
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings					(65)
Retained Earnings [Member] | Accounting Standards Update 2016-01 [Member]
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings	$ (65)
AOCI Attributable to Parent [Member]
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings					$ 65
AOCI Attributable to Parent [Member] | Accounting Standards Update 2016-01 [Member]
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings	$ 65
Mutual Fund [Member]
Equity Securities, FV-NI, Cost		1,000		1,000
Equity Securities, FV-NI, Accumulated Unrealized Loss		83		83
Equity Securities, FV-NI		$ 917		$ 917
US States and Political Subdivisions Debt Securities [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		11		11			112
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		7		7
Negotiable Certificates of Deposit [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		5		5			10
Asset-backed Securities [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		1		1			2
Corporate Debt Securities [Member]
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions		1		1			2
Equity Security Without Readily Determinable Fair Value [Member]
Other than Temporary Impairment Losses, Investments, Total				$ 0
Payments to Acquire Other Investments						$ 1,700

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Note 3 - Securities - Available-for-sale Debt Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Available-for-sale debt securities, amortized cost	$ 281,661	$ 301,779
Available-for-sale debt securities, gross unrealized holding gains	4,398	288
Available-for-sale debt securities, gross unrealized holding losses	204	6,035
Available-for-sale debt securities	285,855	296,032
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale debt securities, amortized cost	114,815	154,268
Available-for-sale debt securities, gross unrealized holding gains	2,513	214
Available-for-sale debt securities, gross unrealized holding losses	83	2,295
Available-for-sale debt securities	117,245	152,187
Residential Mortgage Backed Securities [Member]
Available-for-sale debt securities, amortized cost	66,331	35,147
Available-for-sale debt securities, gross unrealized holding gains	504	6
Available-for-sale debt securities, gross unrealized holding losses	108	946
Available-for-sale debt securities	66,727	34,207
Commercial Mortgage Backed Securities [Member]
Available-for-sale debt securities, amortized cost	57,062	76,038
Available-for-sale debt securities, gross unrealized holding gains	803
Available-for-sale debt securities, gross unrealized holding losses		2,398
Available-for-sale debt securities	57,865	73,640
Collateralized Mortgage Backed Securities [Member]
Available-for-sale debt securities, amortized cost	20,552	24,165
Available-for-sale debt securities, gross unrealized holding gains	392	47
Available-for-sale debt securities, gross unrealized holding losses	4	278
Available-for-sale debt securities	20,940	23,934
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Available-for-sale debt securities, amortized cost	10,640	2,908
Available-for-sale debt securities, gross unrealized holding gains	57	7
Available-for-sale debt securities, gross unrealized holding losses		2
Available-for-sale debt securities	10,697	2,913
Corporate Debt Securities [Member]
Available-for-sale debt securities, amortized cost	6,000	5,000
Available-for-sale debt securities, gross unrealized holding gains	128	14
Available-for-sale debt securities, gross unrealized holding losses	7	78
Available-for-sale debt securities	6,121	4,936
Asset-backed Securities [Member]
Available-for-sale debt securities, amortized cost	3,833	1,825
Available-for-sale debt securities, gross unrealized holding gains	1
Available-for-sale debt securities, gross unrealized holding losses	2	23
Available-for-sale debt securities	3,832	1,802
Negotiable Certificates of Deposit [Member]
Available-for-sale debt securities, amortized cost	2,428	2,428
Available-for-sale debt securities, gross unrealized holding gains	0	0
Available-for-sale debt securities, gross unrealized holding losses		15
Available-for-sale debt securities	$ 2,428	$ 2,413

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Note 3 - Securities - Available-for-sale Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
One year or less, amortized cost	$ 2,735
One year or less, fair value	2,738
After one year through five years, amortized cost	50,428
After one year through five years, fair value	51,269
After five years through ten years, amortized cost	66,064
After five years through ten years, fair value	67,778
After ten years, amortized cost	4,016
After ten years, fair value	4,009
Total, amortized cost	281,661	$ 301,779
Available-for-sale debt securities	285,855	296,032
Collateralized Mortgage Obligations [Member]
Securities without a single maturity, amortized cost	134,033
Securities without a single maturity, fair value	135,289
Collateralized Mortgage Backed Securities [Member]
Securities without a single maturity, amortized cost	20,552
Securities without a single maturity, fair value	20,940
Total, amortized cost	20,552	24,165
Available-for-sale debt securities	20,940	23,934
Asset-backed Securities [Member]
Securities without a single maturity, amortized cost	3,833
Securities without a single maturity, fair value	3,832
Total, amortized cost	3,833	1,825
Available-for-sale debt securities	$ 3,832	$ 1,802

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Note 3 - Securities - Available-for-sale Debt Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Less than 12 months, number of securities	3	11
Less than 12 months, fair value	$ 14,052	$ 12,187
Less than 12 months, gross unrealized losses	$ 87	$ 290
12 months or longer, number of securities	22	162
12 months or longer, fair value	$ 25,947	$ 231,017
12 months or longer, gross unrealized losses	$ 117	$ 5,745
Total, number of securities	25	173
Total, fair value	$ 39,999	$ 243,204
Total, gross unrealized losses	$ 204	$ 6,035
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months, number of securities		3
Less than 12 months, fair value		$ 7,154
Less than 12 months, gross unrealized losses		$ 205
12 months or longer, number of securities	11	109
12 months or longer, fair value	$ 14,510	$ 112,563
12 months or longer, gross unrealized losses	$ 83	$ 2,090
Total, number of securities	11	112
Total, fair value	$ 14,510	$ 119,717
Total, gross unrealized losses	$ 83	$ 2,295
Residential Mortgage Backed Securities [Member]
Less than 12 months, number of securities	2
Less than 12 months, fair value	$ 13,059
Less than 12 months, gross unrealized losses	$ 80
12 months or longer, number of securities	3	14
12 months or longer, fair value	$ 7,034	$ 31,414
12 months or longer, gross unrealized losses	$ 28	$ 946
Total, number of securities	5	14
Total, fair value	$ 20,093	$ 31,414
Total, gross unrealized losses	$ 108	$ 946
Commercial Mortgage Backed Securities [Member]
Less than 12 months, number of securities
Less than 12 months, fair value
Less than 12 months, gross unrealized losses
12 months or longer, number of securities		25
12 months or longer, fair value		$ 73,640
12 months or longer, gross unrealized losses		$ 2,398
Total, number of securities		25
Total, fair value		$ 73,640
Total, gross unrealized losses		$ 2,398
Collateralized Mortgage Backed Securities [Member]
Less than 12 months, number of securities		1
Less than 12 months, fair value		$ 52
Less than 12 months, gross unrealized losses
12 months or longer, number of securities	2	6
12 months or longer, fair value	$ 2,095	$ 10,294
12 months or longer, gross unrealized losses	$ 4	$ 278
Total, number of securities	2	7
Total, fair value	$ 2,095	$ 10,346
Total, gross unrealized losses	$ 4	$ 278
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Less than 12 months, number of securities		1
Less than 12 months, fair value		$ 950
Less than 12 months, gross unrealized losses		$ 2
12 months or longer, number of securities
12 months or longer, fair value
12 months or longer, gross unrealized losses
Total, number of securities		1
Total, fair value		$ 950
Total, gross unrealized losses		$ 2
Corporate Debt Securities [Member]
Less than 12 months, number of securities	1	2
Less than 12 months, fair value	$ 993	$ 2,922
Less than 12 months, gross unrealized losses	$ 7	$ 78
12 months or longer, number of securities		0
12 months or longer, fair value		$ 0
12 months or longer, gross unrealized losses		$ 0
Total, number of securities	1	2
Total, fair value	$ 993	$ 2,922
Total, gross unrealized losses	$ 7	$ 78
Asset-backed Securities [Member]
Less than 12 months, number of securities		1
Less than 12 months, fair value		$ 369
Less than 12 months, gross unrealized losses		$ 2
12 months or longer, number of securities	1	1
12 months or longer, fair value	$ 1,069	$ 1,433
12 months or longer, gross unrealized losses	$ 2	$ 21
Total, number of securities	1	2
Total, fair value	$ 1,069	$ 1,802
Total, gross unrealized losses	$ 2	$ 23
Negotiable Certificates of Deposit [Member]
Less than 12 months, number of securities		3
Less than 12 months, fair value		$ 740
Less than 12 months, gross unrealized losses		$ 3
12 months or longer, number of securities	5	7
12 months or longer, fair value	$ 1,239	$ 1,673
12 months or longer, gross unrealized losses		$ 12
Total, number of securities	5	10
Total, fair value	$ 1,239	$ 2,413
Total, gross unrealized losses		$ 15

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Note 3 - Securities - Gains and Losses Recognized in Net Income on Equity Securities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net gains (losses) recognized on equity securities	$ 14	$ (7)	$ 26	$ (26)
Less: net gains (losses) recognized on equity securities sold
Unrealized gains (losses) on equity securities held			$ 26	$ (26)

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Note 3 - Securities - Restricted Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Stock in Atlantic Community Banker's Bank	$ 10	$ 10
Restricted stock, at cost	4,618	3,123
Federal Home Loan Bank of Pittsburgh [Member]
Stock in Federal Home Loan Bank of Pittsburgh	$ 4,608	$ 3,113

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Note 4 - Loans (Details Textual) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Gain (Loss) on Sales of Loans, Net, Total	$ 73	$ 51	$ 129	$ 100
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Ending Balance	419		$ 419		$ 820
Loans Still Classified as Non-accrual Status, Period of Past Due			90 days
Financing Receivable, Nonaccrual	5,300		$ 5,300		4,700
Financing Receivable, 90 Days or More Past Due, Still Accruing	0		0		0
Evaluated Individually for Impairment, Non-accrued Loans Other Than TDRs, Threshold	100		100		100
Financing Receivable, Collectively Evaluated for Impairment	798,947		798,947		822,790
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	95	$ 45	177	$ 85
Financing Receivable, Troubled Debt Restructuring	8,100		8,100		9,200
Loans and Leases Receivable, Allowance, Ending Balance	8,945		8,945		9,519
Financing Receivable, Troubled Debt Restructuring, Commitment to Lend	$ 0		$ 0
Financing Receivable, Modifications, Number of Contracts		0		0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts		0		0
Mortgage Loans in Process of Foreclosure, Number	2	3	2	3
Residential Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts	1		1
Financing Receivable, Troubled Debt Restructuring, Premodification	$ 24		$ 24
Mortgage Loans in Process of Foreclosure, Amount	$ 0	$ 0	$ 0	$ 0
Number of Real Estate Properties, Foreclosed	0		0
Number of Real Estate Properties in OREO		1		1
Real Estate Investment Property, Net, Total		$ 63		$ 63
Financing Receivable, Troubled Debt Restructuring, Postmodification	$ 24		$ 24
Residential Portfolio Segment [Member] | Investor-owned Real Estate Loan [Member]
Number of Real Estate Properties, Foreclosed	1		1
Real Estate Investment Property, Foreclosed	$ 52		$ 52
Consumer Portfolio Segment [Member]
Financing Receivable, Collectively Evaluated for Impairment	$ 157,679		$ 157,679		176,401
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	1		1
Financing Receivable, Troubled Debt Restructuring, Subsequent Default	$ 103		$ 103
Troubled Debt Restructuring [Member]
Loans and Leases Receivable, Allowance, Ending Balance	50		50		650
Nonaccrual Loans [Member]
Financing Receivable, Collectively Evaluated for Impairment	800		800		700
Performing Financial Instruments [Member]
Financing Receivable, Troubled Debt Restructuring	7,900		7,900		8,500
Nonperforming Financial Instruments [Member]
Financing Receivable, Troubled Debt Restructuring	200		200		700
Small Business Administration [Member]
Gain (Loss) on Sales of Loans, Net, Total		71		322
Loans Sold During Period, Principal Balance	0	800	0	5,700
Loans Serviced for Others, Unpaid Principal Balance	106,200		106,200		108,400
One- to Four-family Mortgages [Member]
Recorded Investment of Mortgage Loans Sold	2,300	2,100	4,200	5,000
Gain (Loss) on Sales of Loans, Net, Total	73	$ 51	129	$ 100
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Ending Balance	$ 419		$ 419		$ 820

XML

Note 4 - Loans - Loans Receivable, Net (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans, gross	$ 811,329	$ 835,207
Unearned income	(61)	(70)
Net deferred loan costs	3,152	3,963
Allowance for loan and lease losses	(8,945)	(9,519)
Loans, net	805,475	829,581
Residential Portfolio Segment [Member]
Loans, gross	161,572	164,833
Commercial Real Estate Portfolio Segment [Member]
Loans, gross	263,781	262,778
Construction, Land Acquisition and Development [Member]
Loans, gross	31,686	20,813
Commercial and Industrial [Member]
Loans, gross	159,707	150,962
Consumer Portfolio Segment [Member]
Loans, gross	157,878	176,784
State and Political Subdivisions [Member]
Loans, gross	$ 36,705	$ 59,037

XML

Note 4 - Loans - Activity in the Allowance for Loan Losses, by Loan Category (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Dec. 31, 2018
Balance	$ 9,253	$ 9,562	$ 9,519	$ 9,034
Charge-offs	(1,123)	(1,310)	(1,577)	(1,710)
Recoveries	468	327	810	535
Provision for loan and lease losses	347	880	193	1,600
Balance	8,945	9,459	8,945	9,459
Individually evaluated for impairment					$ 302	$ 657
Collectively evaluated for impairment					8,643	8,862
Total	9,253	9,562	8,945	9,459	8,945	9,519
Individually evaluated for impairment					12,382	12,417
Financing Receivable, Collectively Evaluated for Impairment					798,947	822,790
Total					811,329	835,207
Residential Portfolio Segment [Member]
Total					161,572	164,833
Residential Portfolio Segment [Member] | Real Estate Loan [Member]
Balance	1,155	1,249	1,175	1,236
Charge-offs	(27)		(27)	(63)
Recoveries	2	121	6	127
Provision for loan and lease losses	22	(169)	(2)	(99)
Balance	1,152	1,201	1,152	1,201
Individually evaluated for impairment					12	14
Collectively evaluated for impairment					1,140	1,161
Total	1,155	1,249	1,152	1,201	1,152	1,175
Individually evaluated for impairment					1,976	1,847
Financing Receivable, Collectively Evaluated for Impairment					159,596	162,986
Total					161,572	164,833
Commercial Real Estate Portfolio Segment [Member]
Total					263,781	262,778
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Balance	3,051	3,342	3,107	3,499
Charge-offs		(1,126)		(1,126)
Recoveries	14	2	14	3
Provision for loan and lease losses	364	889	308	731
Balance	3,429	3,107	3,429	3,107
Individually evaluated for impairment					41	41
Collectively evaluated for impairment					3,388	3,066
Total	3,051	3,342	3,429	3,107	3,429	3,107
Individually evaluated for impairment					9,192	9,408
Financing Receivable, Collectively Evaluated for Impairment					254,589	253,370
Total					263,781	262,778
Construction, Land Acquisition and Development [Member]
Total					31,686	20,813
Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member]
Balance	106	256	188	209
Charge-offs	(18)		(18)
Recoveries			81	30
Provision for loan and lease losses	90	(5)	(73)	12
Balance	178	251	178	251
Individually evaluated for impairment
Collectively evaluated for impairment					178	188
Total	106	256	178	251	178	188
Individually evaluated for impairment					80	82
Financing Receivable, Collectively Evaluated for Impairment					31,606	20,731
Total					31,686	20,813
Commercial and Industrial [Member]
Balance	2,499	2,505	2,552	2,340
Charge-offs	(621)	(4)	(760)	(81)
Recoveries	123	75	207	147
Provision for loan and lease losses	70	(121)	72	49
Balance	2,071	2,455	2,071	2,455
Individually evaluated for impairment					248	600
Collectively evaluated for impairment					1,823	1,952
Total	2,499	2,505	2,071	2,455	2,071	2,552
Individually evaluated for impairment					935	697
Financing Receivable, Collectively Evaluated for Impairment					158,772	150,265
Total					159,707	150,962
Consumer Portfolio Segment [Member]
Balance	1,963	1,822	2,051	1,395
Charge-offs	(457)	(180)	(772)	(440)
Recoveries	329	129	502	228
Provision for loan and lease losses	4	235	58	823
Balance	1,839	2,006	1,839	2,006
Individually evaluated for impairment					1	2
Collectively evaluated for impairment					1,838	2,049
Total	1,963	1,822	1,839	2,006	1,839	2,051
Individually evaluated for impairment					199	383
Financing Receivable, Collectively Evaluated for Impairment					157,679	176,401
Total					157,878	176,784
State and Political Subdivisions [Member]
Balance	423	388	417	355
Charge-offs	0
Recoveries	0
Provision for loan and lease losses	(212)	51	(206)	84
Balance	211	439	211	439
Individually evaluated for impairment					0
Collectively evaluated for impairment					211	417
Total	423	388	211	439	211	417
Individually evaluated for impairment
Financing Receivable, Collectively Evaluated for Impairment					36,705	59,037
Total					36,705	59,037
Unallocated Financing Receivables [Member]
Balance	56		29
Charge-offs	0
Recoveries	0
Provision for loan and lease losses	9		36
Balance	65		65
Individually evaluated for impairment					0
Collectively evaluated for impairment					65	29
Total	$ 56		$ 65		65	29
Individually evaluated for impairment
Financing Receivable, Collectively Evaluated for Impairment
Total

XML

Note 4 - Loans - Loans by Credit Quality Indicator (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans	$ 811,329	$ 835,207
Commercial Loans [Member]
Loans	518,627	520,847
Accruing Loans [Member]
Loans	291,326	313,278
Nonaccrual Loans [Member]
Loans	1,376	1,082
Subtotal, Other Loans [Member]
Loans	292,702	314,360
Pass [Member] | Commercial Loans [Member]
Loans	496,364	499,208
Special Mention [Member] | Commercial Loans [Member]
Loans	9,007	8,007
Substandard [Member] | Commercial Loans [Member]
Loans	13,257	13,632
Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
Residential Portfolio Segment [Member]
Loans	161,572	164,833
Residential Portfolio Segment [Member] | Commercial Loans [Member]
Loans	32,179	34,018
Residential Portfolio Segment [Member] | Accruing Loans [Member]
Loans	128,480	130,132
Residential Portfolio Segment [Member] | Nonaccrual Loans [Member]
Loans	913	683
Residential Portfolio Segment [Member] | Subtotal, Other Loans [Member]
Loans	129,393	130,815
Residential Portfolio Segment [Member] | Pass [Member] | Commercial Loans [Member]
Loans	31,731	33,573
Residential Portfolio Segment [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	216	291
Residential Portfolio Segment [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	232	154
Residential Portfolio Segment [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Residential Portfolio Segment [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
Commercial Real Estate Portfolio Segment [Member]
Loans	263,781	262,778
Commercial Real Estate Portfolio Segment [Member] | Commercial Loans [Member]
Loans	263,781	262,778
Commercial Real Estate Portfolio Segment [Member] | Accruing Loans [Member]
Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Nonaccrual Loans [Member]
Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Subtotal, Other Loans [Member]
Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Commercial Loans [Member]
Loans	246,471	250,674
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	6,395	1,858
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	10,916	10,246
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
Construction, Land Acquisition and Development [Member]
Loans	31,686	20,813
Construction, Land Acquisition and Development [Member] | Commercial Loans [Member]
Loans	29,200	18,461
Construction, Land Acquisition and Development [Member] | Accruing Loans [Member]
Loans	2,486	2,352
Construction, Land Acquisition and Development [Member] | Nonaccrual Loans [Member]
Loans	0	0
Construction, Land Acquisition and Development [Member] | Subtotal, Other Loans [Member]
Loans	2,486	2,352
Construction, Land Acquisition and Development [Member] | Pass [Member] | Commercial Loans [Member]
Loans	29,200	17,704
Construction, Land Acquisition and Development [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	0	0
Construction, Land Acquisition and Development [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	0	757
Construction, Land Acquisition and Development [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Construction, Land Acquisition and Development [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
Commercial and Industrial [Member]
Loans	159,707	150,962
Commercial and Industrial [Member] | Commercial Loans [Member]
Loans	154,103	144,529
Commercial and Industrial [Member] | Accruing Loans [Member]
Loans	5,604	6,421
Commercial and Industrial [Member] | Nonaccrual Loans [Member]
Loans	0	12
Commercial and Industrial [Member] | Subtotal, Other Loans [Member]
Loans	5,604	6,433
Commercial and Industrial [Member] | Pass [Member] | Commercial Loans [Member]
Loans	149,598	137,888
Commercial and Industrial [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	2,396	4,193
Commercial and Industrial [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	2,109	2,448
Commercial and Industrial [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Commercial and Industrial [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
Consumer Portfolio Segment [Member]
Loans	157,878	176,784
Consumer Portfolio Segment [Member] | Commercial Loans [Member]
Loans	2,685	2,024
Consumer Portfolio Segment [Member] | Accruing Loans [Member]
Loans	154,730	174,373
Consumer Portfolio Segment [Member] | Nonaccrual Loans [Member]
Loans	463	387
Consumer Portfolio Segment [Member] | Subtotal, Other Loans [Member]
Loans	155,193	174,760
Consumer Portfolio Segment [Member] | Pass [Member] | Commercial Loans [Member]
Loans	2,685	2,024
Consumer Portfolio Segment [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	0	0
Consumer Portfolio Segment [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	0	0
Consumer Portfolio Segment [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
Consumer Portfolio Segment [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	0	0
State and Political Subdivisions [Member]
Loans	36,705	59,037
State and Political Subdivisions [Member] | Commercial Loans [Member]
Loans	36,679	59,037
State and Political Subdivisions [Member] | Accruing Loans [Member]
Loans	26	0
State and Political Subdivisions [Member] | Nonaccrual Loans [Member]
Loans	0	0
State and Political Subdivisions [Member] | Subtotal, Other Loans [Member]
Loans	26	0
State and Political Subdivisions [Member] | Pass [Member] | Commercial Loans [Member]
Loans	36,679	57,345
State and Political Subdivisions [Member] | Special Mention [Member] | Commercial Loans [Member]
Loans	0	1,665
State and Political Subdivisions [Member] | Substandard [Member] | Commercial Loans [Member]
Loans	0	27
State and Political Subdivisions [Member] | Doubtful [Member] | Commercial Loans [Member]
Loans	0	0
State and Political Subdivisions [Member] | Unlikely to be Collected Financing Receivable [Member] | Commercial Loans [Member]
Loans	$ 0	$ 0

XML

Note 4 - Loans - Performing and Non-performing Loan Delinquency Status (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans past due	$ 811,329	$ 835,207
Performing Financial Instruments [Member]
Loans past due	806,027	830,511
Nonperforming Financial Instruments [Member]
Loans past due	5,302	4,696
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	160,572	164,145
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	1,000	688
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	260,907	259,904
Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	31,686	20,813
Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Commercial and Industrial [Member] | Performing Financial Instruments [Member]
Loans past due	158,742	150,215
Commercial and Industrial [Member] | Nonperforming Financial Instruments [Member]
Loans past due	965	747
Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans past due	157,415	176,397
Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans past due	463	387
State and Political Subdivisions [Member] | Performing Financial Instruments [Member]
Loans past due	36,705	59,037
State and Political Subdivisions [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	2,874	2,874
Financial Asset, 1 to 29 Days Past Due [Member]
Loans past due	805,737	829,714
Financial Asset, 1 to 29 Days Past Due [Member] | Performing Financial Instruments [Member]
Loans past due	803,342	827,442
Financial Asset, 1 to 29 Days Past Due [Member] | Nonperforming Financial Instruments [Member]
Loans past due	2,395	2,272
Financial Asset, 1 to 29 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	159,991	163,690
Financial Asset, 1 to 29 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	743	443
Financial Asset, 1 to 29 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	260,713	259,904
Financial Asset, 1 to 29 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	31,686	20,813
Financial Asset, 1 to 29 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 1 to 29 Days Past Due [Member] | Commercial and Industrial [Member] | Performing Financial Instruments [Member]
Loans past due	158,679	150,108
Financial Asset, 1 to 29 Days Past Due [Member] | Commercial and Industrial [Member] | Nonperforming Financial Instruments [Member]
Loans past due	686	677
Financial Asset, 1 to 29 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans past due	155,568	173,890
Financial Asset, 1 to 29 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans past due	175	91
Financial Asset, 1 to 29 Days Past Due [Member] | State and Political Subdivisions [Member] | Performing Financial Instruments [Member]
Loans past due	36,705	59,037
Financial Asset, 1 to 29 Days Past Due [Member] | State and Political Subdivisions [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 1 to 29 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	791	1,061
Financial Asset, 30 to 59 Days Past Due [Member]
Loans past due	2,378	2,738
Financial Asset, 30 to 59 Days Past Due [Member] | Performing Financial Instruments [Member]
Loans past due	2,295	2,627
Financial Asset, 30 to 59 Days Past Due [Member] | Nonperforming Financial Instruments [Member]
Loans past due	83	111
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	556	319
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	194	0
Financial Asset, 30 to 59 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial and Industrial [Member] | Performing Financial Instruments [Member]
Loans past due	63	87
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial and Industrial [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	50
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans past due	1,482	2,221
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans past due	83	61
Financial Asset, 30 to 59 Days Past Due [Member] | State and Political Subdivisions [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | State and Political Subdivisions [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member]
Loans past due	460	652
Financial Asset, 60 to 89 Days Past Due [Member] | Performing Financial Instruments [Member]
Loans past due	390	442
Financial Asset, 60 to 89 Days Past Due [Member] | Nonperforming Financial Instruments [Member]
Loans past due	70	210
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	25	136
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	136
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial and Industrial [Member] | Performing Financial Instruments [Member]
Loans past due	0	20
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial and Industrial [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans past due	365	286
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans past due	70	74
Financial Asset, 60 to 89 Days Past Due [Member] | State and Political Subdivisions [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | State and Political Subdivisions [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans past due	2,754	2,103
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Nonperforming Financial Instruments [Member]
Loans past due	2,754	2,103
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	257	109
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial and Industrial [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial and Industrial [Member] | Nonperforming Financial Instruments [Member]
Loans past due	279	20
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans past due	135	161
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | State and Political Subdivisions [Member] | Performing Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | State and Political Subdivisions [Member] | Nonperforming Financial Instruments [Member]
Loans past due	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Nonperforming Financial Instruments [Member]
Loans past due	$ 2,083	$ 1,813

XML

Note 4 - Loans - Impaired Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Recorded investment, with no allowance recorded	$ 7,715	$ 7,570
Unpaid principal balance, with no allowance recorded	10,416	9,280
Recorded investment, with a related allowance recorded	4,667	4,847
Unpaid principal balance, with a related allowance recorded	4,675	4,847
Related Allowance	302	657
Recorded Investment	12,382	12,417
Unpaid principal balance	15,091	14,127
Residential Portfolio Segment [Member] | Real Estate Loan [Member]
Recorded investment, with no allowance recorded	538	313
Unpaid principal balance, with no allowance recorded	606	375
Recorded investment, with a related allowance recorded	1,438	1,534
Unpaid principal balance, with a related allowance recorded	1,438	1,534
Related Allowance	12	14
Recorded Investment	1,976	1,847
Unpaid principal balance	2,044	1,909
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Recorded investment, with no allowance recorded	6,806	7,149
Unpaid principal balance, with no allowance recorded	8,838	8,795
Recorded investment, with a related allowance recorded	2,386	2,259
Unpaid principal balance, with a related allowance recorded	2,386	2,259
Related Allowance	41	41
Recorded Investment	9,192	9,408
Unpaid principal balance	11,224	11,054
Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member]
Recorded investment, with no allowance recorded	80	82
Unpaid principal balance, with no allowance recorded	80	82
Recorded investment, with a related allowance recorded	0	0
Unpaid principal balance, with a related allowance recorded	0	0
Related Allowance	0	0
Recorded Investment	80	82
Unpaid principal balance	80	82
Commercial and Industrial [Member]
Recorded investment, with no allowance recorded	266	0
Unpaid principal balance, with no allowance recorded	865	0
Recorded investment, with a related allowance recorded	669	697
Unpaid principal balance, with a related allowance recorded	677	697
Related Allowance	248	600
Recorded Investment	935	697
Unpaid principal balance	1,542	697
Consumer Portfolio Segment [Member]
Recorded investment, with no allowance recorded	25	26
Unpaid principal balance, with no allowance recorded	27	28
Recorded investment, with a related allowance recorded	174	357
Unpaid principal balance, with a related allowance recorded	174	357
Related Allowance	1	2
Recorded Investment	199	383
Unpaid principal balance	201	385
State and Political Subdivisions [Member]
Recorded investment, with no allowance recorded	0	0
Unpaid principal balance, with no allowance recorded	0	0
Recorded investment, with a related allowance recorded	0	0
Unpaid principal balance, with a related allowance recorded	0	0
Related Allowance	0	0
Recorded Investment	0	0
Unpaid principal balance	$ 0	$ 0

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Note 4 - Loans - Average Balance and Interest Income by Loan Category Recognized on Impaired Loans (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Average Balance		$ 12,724	$ 10,898	$ 12,851	$ 10,939
Interest Income	[1]	101	101	205	204
Residential Portfolio Segment [Member] | Real Estate Loan [Member]
Average Balance		1,878	1,805	1,858	1,837
Interest Income	[1]	20	21	41	42
Commercial Real Estate Portfolio Segment [Member] | Real Estate Loan [Member]
Average Balance		9,229	7,826	9,430	7,833
Interest Income	[1]	76	75	153	152
Construction, Land Acquisition and Development [Member] | Real Estate Loan [Member]
Average Balance		80	84	81	84
Interest Income	[1]	2	1	3	2
Commercial and Industrial [Member]
Average Balance		1,337	794	1,192	794
Interest Income	[1]	1	1	1	1
Consumer Portfolio Segment [Member]
Average Balance		200	389	290	391
Interest Income	[1]	2	3	7	7
State and Political Subdivisions [Member]
Average Balance		0	0	0	0
Interest Income	[1]	$ 0	$ 0	$ 0	$ 0

[1] Interest income represents income recognized on performing TDRs.

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Note 5 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%	21.00%	21.00%	21.00%
Net Deferred Tax Assets (Liabilities)	$ 7,500		$ 7,500		$ 10,700
Deferred Tax Assets, Operating Loss Carryforwards, Total	5,200		5,200
Operating Loss Carryforwards, Total	30,000		30,000
Deferred Tax Assets, Valuation Allowance, Total	$ 0		$ 0		$ 0

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Note 5 - Income Taxes - Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Provision at statutory tax rates	$ 643	$ 613	$ 1,313	$ 1,126
Provision at statutory tax rates, percentage	21.00%	21.00%	21.00%	21.00%
Tax effects of tax free interest income	$ (78)	$ (92)	$ (184)	$ (170)
Tax effects of tax free interest income, percentage	(2.55%)	(3.16%)	(2.94%)	(3.18%)
Non-deductible interest expense	$ 2	$ 4	$ 7	$ 6
Non-deductible interest expense, percentage	0.06%	0.13%	0.11%	0.11%
Bank-owned life insurance	$ (27)	$ (29)	$ (55)	$ (57)
Bank-owned life insurance, percentage	(0.88%)	(1.00%)	(0.88%)	(1.06%)
Other items, net	$ (26)	$ 12	$ (12)	$ 29
Other items, net, percentage	(0.85%)	0.43%	(0.19%)	0.54%
Income tax provision	$ 514	$ 508	$ 1,069	$ 934
Income tax provision, percentage	16.78%	17.40%	17.10%	17.41%

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Note 6 - Related Party Transactions (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
	Feb. 08, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Stock Issued During Period, Shares, New Issues	3,285,550
Shares Issued, Price Per Share	$ 7
Directors, Executive Officers and Their Related Parties [Member]
Related Party Deposit Liabilities		$ 90,500		$ 90,500		$ 115,500
Related Party Deposit Liabilities, Increase (Decrease)				(25,000)
Related Party Transactions, Interest Paid on Deposits				241	$ 157
Related Party Transaction, Expenses from Transactions with Related Party		500	$ 600	1,000	1,000
Related Party Transaction, Subordinated Debt, Accelerated Partial Principal Repayment	$ 5,000
Related Party Transaction, Interest Paid	3,100
Related Party Transactions, Subordinated Debt						$ 3,100
Interest Expense, Related Party	$ 27		$ 35		$ 70
Stock Issued During Period, Shares, New Issues	340,600
Shares Issued in Transaction as a Percentage of Total Shares Issued	10.40%
Directors, Executive Officers and Their Related Parties [Member] | Nonperforming Financial Instruments [Member]
Due from Related Parties, Total		$ 0		$ 0

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Note 6 - Related Party Transactions - Related Party Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Balance, beginning of period	$ 72,150	$ 65,884	$ 64,634	$ 55,576
Additions, new loans and advances	12,004	11,946	29,093	43,115
Repayments	(5,402)	(8,004)	(14,975)	(28,865)
Balance, end of period	$ 78,752	$ 69,826	$ 78,752	$ 69,826

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Note 7 - Commitments and Contingencies (Details Textual) - USD ($)					3 Months Ended	12 Months Ended
	Apr. 11, 2018	Jul. 01, 2017	Apr. 01, 2014	Mar. 28, 2014	Dec. 31, 2018	Dec. 31, 2016	Jun. 30, 2019	Feb. 04, 2014	Dec. 31, 2013
Operating Lease, Right-of-Use Asset							$ 3,200,000
Operating Lease, Liability, Total							$ 3,531,000
Derivative Liability, Total								$ 5,000,000
Shareholder Derivative Suit [Member]
Litigation Settlement, Amount Awarded to Other Party				$ 5,000,000
Accrued Liabilities and Other Liabilities, Total									$ 2,500,000
Litigation Settlement Fees and Costs			$ 2,500,000
Partial Indemnification, Individual Defendants Paid	$ 2,500,000					$ 2,500,000
Litigation Settlement, Monthly Payments		$ 25,000
Insurance-related Litigation [Member]
Gain (Loss) Related to Litigation Settlement, Total					$ 6,000,000

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Note 7 - Commitments and Contingencies - Lease Expense and Information (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Variable lease cost
Total lease cost	103	208
Occupancy, Net [Member]
Operating lease cost	86	171
Short-term lease cost	9	24
Equipment Expense [Member]
Operating lease cost	6	8
Short-term lease cost	$ 2	$ 5

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Note 7 - Commitments and Contingencies - Maturity of Remaining Operating Lease Liabilities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
2019	$ 171
2020	371
2021	337
2022	316
2023	312
2024 and thereafter	3,095
Total lease payments	4,602
Less: imputed interest	1,071
Present value of operating lease liabilities	$ 3,531

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Note 7 - Commitments and Contingencies - Other Information Related to Operating Leases (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Weighted average remaining lease term (Year)	14 years 255 days
Weighted average discount rate	3.45%
Operating cash flows from operating leases	$ 202

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Note 8 - Stock Compensation Plans & Subsequent Event (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
	Jul. 01, 2019	Jun. 30, 2019	Jun. 30, 2018	Feb. 08, 2019
Shares Issued, Price Per Share				$ 7
Long-Term Incentive Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		1,200,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		57,684	57,829
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		865,783
Share-based Payment Arrangement, Expense		$ 140	$ 137
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total		$ 970	$ 819
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition		4 years 73 days
Long-Term Incentive Compensation Plan [Member] | Subsequent Event [Member]
Directors Fee	$ 150
Long-Term Incentive Compensation Plan [Member] | Ten Directors [Member] | Subsequent Event [Member]
Stock Issued During Period, Shares, Share-based Compensation, Per Recipient	1,956
Shares Issued, Shares, Share-based Payment Arrangement, before Forfeiture	19,560
Shares Issued, Price Per Share	$ 7.67

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Note 8 - Stock Compensation Plans & Subsequent Event - Stock Compensation Plans (Details) - Restricted Stock [Member] - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Total outstanding, beginning of period (in shares)	172,386	162,679	114,702	106,129
Total outstanding, beginning of period, Weighted average grant date fair value (in dollars per share)	$ 7.55	$ 7.05	$ 7.50	$ 6.23
Awards granted (in shares)			57,684	57,829
Awards granted, Weighted average grant date fair value (in dollars per share)			$ 7.64	$ 8.54
Forfeitures (in shares)	(781)		(781)	(1,279)
Forfeitures, Weighted average grant date fair value (in dollars per share)	$ 7.68		$ 7.68	$ 6.88
Vestings (in shares)	(37,558)	(46,358)	(37,558)	(46,358)
Vestings, Weighted average grant date fair value (in dollars per share)	$ 6.80	$ 5.93	$ 6.80	$ 5.93
Total outstanding, end of period (in shares)	134,047	116,321	134,047	116,321
Total outstanding, end of period, Weighted average grant date fair value (in dollars per share)	$ 7.75	$ 7.50	$ 7.75	$ 7.50

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Note 9 - Regulatory Matters & Subsequent Event (Details Textual) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended			6 Months Ended
	Jul. 25, 2019	Feb. 08, 2019	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Stock Issued During Period, Shares, New Issues		3,285,550
Shares Issued, Price Per Share		$ 7
Shares Issued, Underwriting Discount Per Share		$ 0.35
Proceeds from Issuance of Common Stock		$ 21,300				$ 21,323	$ 91
Common Stock, Dividends, Per Share, Declared			$ 0.05		$ 0.04	$ 0.10	$ 0.08
Stock Issued During Period, Shares, Dividend Reinvestment Plan			1,899		4,139	3,538	12,776
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.05
Dividends Payable, Date to be Paid	Sep. 16, 2019
Dividends Payable, Date of Record	Sep. 03, 2019
FNCB Bank [Member]
Payments for Capital Investment in Wholly Owned Subsidiary				$ 17,800
Over-Allotment Option [Member]
Stock Issued During Period, Shares, New Issues		428,550

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Note 9 - Regulatory Matters Subsequent Event - Risk-based Capital and Related Ratios (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Total capital (to risk-weighted assets), Amount		$ 140,425	$ 117,213
Total capital (to risk-weighted assets), Ratio		15.71%	12.69%
Total capital (to risk-weighted assets), Minimum required for capital adequacy purposes		8.00%	8.00%
Total capital (to risk-weighted assets), Minimum required for capital adequacy purposes with conservation buffer		10.50%	9.875%
Total capital (to risk-weighted assets), To be well capitalized under prompt corrective action	[1]	10.00%	10.00%
Tier I capital (to risk-weighted assets), Amount		$ 131,147	$ 105,439
Tier I capital (to risk-weighted assets), Ratio		14.67%	11.42%
Tier I capital (to risk-weighted assets), Minimum required for capital adequacy purposes		6.00%	6.00%
Tier I capital (to risk-weighted assets), Minimum required for capital adequacy purposes with conservation buffer		8.50%	7.875%
Tier I capital (to risk-weighted assets), To be well capitalized under prompt corrective action	[1]	8.00%	8.00%
Tier I common equity (to risk-weighted assets), Amount		$ 121,147	$ 96,692
Tier I common equity (to risk-weighted assets), Ratio		13.56%	10.47%
Tier I common equity (to risk-weighted assets), Minimum required for capital adequacy purposes		4.50%	4.50%
Tier I common equity (to risk-weighted assets), Minimum required for capital adequacy purposes with conservation buffer		7.00%	6.375%
Tier I common equity (to risk-weighted assets), To be well capitalized under prompt corrective action	[1]	6.50%	6.50%
Tier I capital (to average assets), Amount		$ 131,147	$ 105,439
Tier I capital (to average assets), Ratio		11.02%	8.50%
Tier I capital (to average assets), Minimum required for capital adequacy purposes		4.00%	4.00%
Tier I capital (to average assets), Minimum required for capital adequacy purposes with conservation buffer		4.00%	4.00%
Tier I capital (to average assets), To be well capitalized under prompt corrective action	[1]	5.00%	5.00%
Total risk-weighted assets, Amount		$ 893,705	$ 923,441
Total average assets, Amount		1,190,442	1,239,898
Subsidiaries [Member]
Total capital (to risk-weighted assets), Amount		$ 135,998	$ 112,128
Total capital (to risk-weighted assets), Ratio		15.25%	12.17%
Tier I capital (to risk-weighted assets), Amount		$ 126,720	$ 102,354
Tier I capital (to risk-weighted assets), Ratio		14.21%	11.11%
Tier I common equity (to risk-weighted assets), Amount		$ 126,720	$ 102,354
Tier I common equity (to risk-weighted assets), Ratio		14.21%	11.11%
Tier I capital (to average assets), Amount		$ 126,720	$ 102,354
Tier I capital (to average assets), Ratio		10.69%	8.27%
Total risk-weighted assets, Amount		$ 891,578	$ 921,126
Total average assets, Amount		$ 1,185,645	$ 1,238,347

[1] Applies to the Bank only.

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Note 10 - Fair Value Measurements (Details Textual) $ in Thousands	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Securities, Available-for-sale, Amortized Cost, Total	$ 281,661	$ 301,779
Debt Securities, Available-for-sale, Total	285,855	296,032
Corporate Debt Securities [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	6,000	5,000
Debt Securities, Available-for-sale, Total	$ 6,121	$ 4,936
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Discount Rate [Member] | Minimum [Member]
Debt Securities, Available-for-sale, Measurement Input	0.0573
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Discount Rate [Member] | Maximum [Member]
Debt Securities, Available-for-sale, Measurement Input	0.0623

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Note 10 - Fair Value Measurements - Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Available-for-sale debt securities, at fair value	$ 285,855	$ 296,032
Equity Securities, FV-NI	917	891
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale debt securities, at fair value	117,245	152,187
Collateralized Mortgage Backed Securities [Member]
Available-for-sale debt securities, at fair value	20,940	23,934
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Available-for-sale debt securities, at fair value	10,697	2,913
Corporate Debt Securities [Member]
Available-for-sale debt securities, at fair value	6,121	4,936
Asset-backed Securities [Member]
Available-for-sale debt securities, at fair value	3,832	1,802
Negotiable Certificates of Deposit [Member]
Available-for-sale debt securities, at fair value	2,428	2,413
Fair Value, Recurring [Member]
Available-for-sale debt securities, at fair value	285,855	296,032
Equity Securities, FV-NI	917	891
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Equity Securities, FV-NI	917	891
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	280,774	292,103
Equity Securities, FV-NI
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value	5,081	3,929
Equity Securities, FV-NI
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale debt securities, at fair value	117,245	152,187
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	117,245	152,187
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Residential Mortgage [Member]
Available-for-sale debt securities, at fair value	66,727	34,207
Fair Value, Recurring [Member] | Residential Mortgage [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Residential Mortgage [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	66,727	34,207
Fair Value, Recurring [Member] | Residential Mortgage [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Commercial Loan [Member]
Available-for-sale debt securities, at fair value	57,865	73,640
Fair Value, Recurring [Member] | Commercial Loan [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Commercial Loan [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	57,865	73,640
Fair Value, Recurring [Member] | Commercial Loan [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale debt securities, at fair value	20,940	23,934
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	20,940	23,934
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Available-for-sale debt securities, at fair value	10,697	2,913
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	10,697	2,913
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale debt securities, at fair value	6,121	4,936
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	1,040	1,007
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value	5,081	3,929
Fair Value, Recurring [Member] | Asset-backed Securities [Member]
Available-for-sale debt securities, at fair value	3,832	1,802
Fair Value, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	3,832	1,802
Fair Value, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Negotiable Certificates of Deposit [Member]
Available-for-sale debt securities, at fair value	2,428	2,413
Fair Value, Recurring [Member] | Negotiable Certificates of Deposit [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale debt securities, at fair value
Fair Value, Recurring [Member] | Negotiable Certificates of Deposit [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale debt securities, at fair value	2,428	2,413
Fair Value, Recurring [Member] | Negotiable Certificates of Deposit [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale debt securities, at fair value

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Note 10 - Fair Value Measurements - Changes in Fair Value Assets (Details) - Corporate Debt Securities [Member] - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Balance	$ 3,929	$ 4,058
Additions	1,000
Payments Received
Sales
Included in earnings
Included in other comprehensive income (loss)	152	(101)
Balance	$ 5,081	$ 3,957

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Note 10 - Fair Value Measurements - Assets Measured At Fair Value on a Non-recurring Basis and Quantitative Information (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Recorded Investment	$ 12,382	$ 12,417
Related Allowance	302	657
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Valuation, Market Approach [Member] | Impaired Loans, Collateral Dependent [Member]
Recorded Investment	7,849	8,020
Related Allowance	4	606
Fair Value	$ 7,845	$ 7,414
Selling Cost	10.00%	10.00%
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Valuation, Market Approach [Member] | Other Real Estate Owned [Member]
Recorded Investment	$ 52	$ 919
Related Allowance
Fair Value	$ 52	$ 919
Selling Cost	10.00%	10.00%
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Valuation, Income Approach [Member] | Impaired Loans, Other [Member]
Recorded Investment	$ 4,533	$ 4,397
Related Allowance	298	51
Fair Value	$ 4,235	$ 4,346
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Valuation, Income Approach [Member] | Impaired Loans, Other [Member] | Minimum [Member]
Discount Rate		3.70%
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Valuation, Income Approach [Member] | Impaired Loans, Other [Member] | Maximum [Member]
Discount Rate		7.50%

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Note 10 - Fair Value Measurements - Estimated Fair Values of the Company's Financial Information (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financial assets
Available-for-sale debt securities	$ 285,855	$ 296,032
Equity securities, at fair value	917	891
Reported Value Measurement [Member]
Financial assets
Available-for-sale debt securities	285,855	296,032
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and short term investments	29,904	36,481
Equity securities, at fair value	917	891
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets
Restricted stock	4,618	3,123
Loans held for sale	419	820
Accrued interest receivable	3,640	3,614
Financial liabilities
Deposits	961,064	1,095,629
Borrowed funds	97,533	34,240
Accrued interest payable	389	338
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets
Loans, net	805,475	829,581
Equity securities without readily determinable fair values	1,658	1,658
Servicing rights	347	350
Estimate of Fair Value Measurement [Member]
Financial assets
Available-for-sale debt securities	285,855	296,032
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and short term investments	29,904	36,481
Equity securities, at fair value	917	891
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets
Restricted stock	4,618	3,123
Loans held for sale	419	820
Accrued interest receivable	3,640	3,614
Financial liabilities
Deposits	960,855	1,093,797
Borrowed funds	97,679	34,108
Accrued interest payable	389	338
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets
Loans, net	796,141	816,234
Equity securities without readily determinable fair values	1,658	1,658
Servicing rights	$ 836	$ 878

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Note 11 - Earnings Per Share (Details Textual) - shares	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	19,200	0	19,200

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Note 11 - Earnings Per Share - Calculation of Basic and Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income	$ 2,549	$ 2,412	$ 5,184	$ 4,431
Basic weighted-average number of common shares outstanding (in shares)	20,129,150	16,792,812	19,428,717	16,778,188
Plus: Common share equivalents (in shares)	4,700	26,474	6,359	23,238
Diluted weighted-average number of common shares outstanding (in shares)	20,133,850	16,819,286	19,435,076	16,801,426
Basic (in dollars per share)	$ 0.13	$ 0.14	$ 0.27	$ 0.26
Diluted (in dollars per share)	$ 0.13	$ 0.14	$ 0.27	$ 0.26

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Note 12 - Other Comprehensive Income - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Reclassification adjustment for (gains) losses included in net income	$ (163)	$ 4	$ (323)	$ 4
Income tax expense	514	508	1,069	934
Net of tax amount	129	(3)	255	(3)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification adjustment for (gains) losses included in net income	(163)	4	(323)	4
Income tax expense	34	(1)	68	(1)
Net of tax amount	$ (129)	$ 3	$ (255)	$ 3

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Note 12 - Other Comprehensive Income - Changes in Accumulated Other Comprehensive (Loss) Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Balance			$ 97,219	$ 89,191
Total other comprehensive income (loss)	$ 4,302	$ (1,450)	7,853	(5,382)
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings
Balance	129,706	87,125	129,706	87,125
AOCI Attributable to Parent [Member]
Balance	(989)	(5,612)	(4,540)	(1,745)
Other comprehensive income (loss) before reclassifications	4,431	(1,453)	8,108	(5,385)
Amount reclassified from accumulated other comprehensive income (loss)	(129)	3	(255)	3
Total other comprehensive income (loss)	4,302	(1,450)	7,853	(5,382)
Reclassification from Accumulated Other Comprehensive Income to Retained Earnings				65
Balance	$ 3,313	$ (7,062)	$ 3,313	$ (7,062)