Note

Securities

Debt Securities

The following tables present the amortized cost, gross unrealized gains and losses, and the fair value of FNCB’s available-for-sale debt securities at

September 30, 2019

and

December 31, 2018

	September 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	$	98,358	$	3,332	$	7	$	101,683
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		66,087		873		120		66,840
Collateralized mortgage obligations - commercial		42,812		1,025		15		43,822
Mortgage-backed securities		18,230		515		-		18,745
Private collateralized mortgage obligations		9,993		70		-		10,063
Corporate debt securities		6,000		104		3		6,101
Asset-backed securities		5,227		3		1		5,229
Negotiable certificates of deposit		2,181		2		-		2,183
Total available-for-sale debt securities	$	248,888	$	5,924	$	146	$	254,666

	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

securities of any individual issuer that exceeded

10.0%

of shareholders’ equity at

September 30, 2019

and

December 31, 2018

, securities with a carrying amount of

$233.3

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

September 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.

	September 30, 2019
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	3,182	$	3,187
After one year through five years		40,529		41,666
After five years through ten years		58,826		61,041
After ten years		4,002		4,073
Collateralized mortgage obligations		118,892		120,725
Mortgage-backed securities		18,230		18,745
Asset-backed securities		5,227		5,229
Total	$	248,888	$	254,666

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

$40.9

million and

$102.3

million for the

three

and

nine

months ended

September 30, 2019

, respectively. For the

three

months

ended

September

30,

2019

gross gains and losses realized upon the sales were

$383

thousand and

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

nine

months ended

September

30,

2019

totaled

$732

thousand and

$30

thousand

respectively. There were

sales of available-for-sale debt securities for the

three

months ended

September 30,

201

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

$4.6

million for the

nine

months ended

September

30,

2018,

with gross losses of

thousand realized upon the sales.

There were

gross gains realized upon the sales for the

nine

months ended

September 30, 2018.

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

September 30, 2019

and

December 31, 2018

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

	September 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		2	$	2,590	$	7		-	$	-	$	-		2	$	2,590	$	7
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		5		25,193		120		-		-		-		5		25,193		120
Collateralized mortgage obligations - commercial		1		2,498		15		-		-		-		1		2,498		15
Mortgage-backed securities		-		-		-		-		-		-		-		-		-
Private collateralized mortgage obligations		-		-		-		-		-		-		-		-		-
Corporate debt securities		1		1,997		3		-		-		-		1		1,997		3
Asset-backed securities		-		-		-		1		894		1		1		894		1
Negotiable certificates of deposit		-		-		-		-		-		-		-		-		-
Total available-for-sale debt securities		9	$	32,278	$	145		1	$	894	$	1		10	$	33,172	$	146

	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

securities in an unrealized loss

position at

September 30, 2019

including

six

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

two

obligations of state and political subdivisions,

one

asset-backed security and

one

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

September 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

material change in the credit quality of any of the issuers or any other event or circumstance that

may

cause a significant adverse effect on the fair value of these securities. Moreover, to date, FNCB has received all scheduled principal and interest payments and expects to fully collect all future contractual principal and interest payments on all securities in an unrealized loss position at

September 30, 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

September 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

September 30, 2019

this mutual fund had an amortized cost of

million and an unrealized loss of $

thousand, resulting in a fair value of

$922

thousand. In accordance with ASU

2016

01,

Financial Instruments – Overall (Subtopic

825

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

January 1, 2018,

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

January 1, 2018,

FNCB recorded a

one

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

$65

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

nine

months ended

September 30, 2019

and

2018

	Nine Months Ended September 30,
(in thousands)	2019		2018
Net gains (losses) recognized on equity securities	$	31	$	(34	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains (losses) on equity securities held	$	31	$	(34	)

Restricted Securities

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

September 30, 2019

and

December 31, 2018

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

	September 30,		December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	4,184	$	3,113
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,194	$	3,123

Management noted

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

September 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

September 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

September 30, 2019

, which indicated that the

investment was

not

impaired. Management determined that

adjustment for impairment was required at

September 30, 2019