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

December 31, 2019

and

2018:

	December 31, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	115,428	$	2,694	$	359	$	117,763
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		79,606		780		92		80,294
Collateralized mortgage obligations - commercial		17,414		320		11		17,723
Mortgage-backed securities		18,142		343		-		18,485
Private collateralized mortgage obligations		25,069		49		43		25,075
Corporate debt securities		7,000		182		-		7,182
Asset-backed securities		5,618		4		1		5,621
Negotiable certificates of deposit		694		2		-		696
Total available-for-sale debt securities	$	268,971	$	4,374	$	506	$	272,839

	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

December 31, 2019

2018.

The following table

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

December 31, 2019.

Expected maturities will differ from contractual maturity because issuers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Because collateralized mortgage obligations, mortgage-backed securities and asset-backed securities are

not

due at a single maturity date, they are

not

included in the maturity categories in the following maturity summary.

	December 31, 2019
	Available-for-Sale
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	2,195	$	2,201
After one year through five years		49,724		50,936
After five years through ten years		51,056		52,525
After ten years		20,147		19,979
Asset-backed securities		5,618		5,621
Collateralized mortgage obligations		122,089		123,092
Mortgage-backed securities		18,142		18,485
Total	$	268,971	$	272,839

The following table presents the gross proceeds received and gross realized gains and losses on sales of available-for-sale debt securities for the years ended

December 31, 2019 and

2018

	Year Ended December 31,
(in thousands)	2019			2018
Available-for-sale debt securities:
Gross proceeds received on sales	$	128,233		$	4,559
Gross realized gains		1,257			-
Gross realized losses		(30	)		(4	)

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

December 31,

2019

and

2018,

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

	December 31, 2019
	Less than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
Obligations of state and political subdivisions		10	$	19,436	$	359		-	$	-	$	-		10	$	19,436	$	359
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		4		19,934		92		-		-		-		4		19,934		92
Collateralized mortgage obligations - commercial		1		2,500		11		-		-		-		1		2,500		11
Mortgage-backed securities		-		-		-		-		-		-		-		-		-
Private collateralized mortgage obligations		4		18,990		43		-		-		-		4		18,990		43
Corporate debt securities		-		-		-		-		-		-		-		-		-
Asset-backed securities		2		888		1		-		-		-		2		888		1
Negotiable certificates of deposit		-		-		-		-		-		-		-		-		-
Total		21	$	61,748	$	506		-	$	-	$	-		21	$	61,748	$	506

	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		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 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

December 31, 2019,

including

obligations of state and political subdivisions,

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

non-agency mortgage-backed securities

and

asset-backed securities. Management performed a review of all securities in an unrealized loss position as of

December 31, 2019

and determined that movements in the fair values of the securities were consistent with changes 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

December 31, 2019.

FNCB does

not

intend to sell the securities, nor is it more likely than

not

that it will be required to sell the securities, prior to recovery of their amortized cost. Based on the results of its review and considering the attributes of these debt securities, management concluded that the individual unrealized losses were temporary and OTTI did

not

exist at

December 31, 2019.

Equity Securities

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

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

December 31, 2019

and

2018,

this mutual fund had a cost of

$1.0

million. The unrealized loss on the mutual fund was

$80

thousand and

$109

thousand, respectively, resulting in a fair value of

$920

thousand and

$891

thousand, respectively, at

December 31, 2019

and

2018.

FNCB adopted ASU

2016

01,

Financial Instruments – Overall (Subtopic

825

): “Recognition and Measurement of Financial Assets and Financial Liabilities” on

January 1, 2018.

Upon adoption 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. Under the new guidance, any changes in the fair value of equity securities is recognized in the consolidated statements of income.

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

December 31, 2019

and

2018.

	Year Ended December 31,
(in thousands)	2019		2018
Net gain (loss) recognized on equity securities	$	29	$	(27	)
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gain (loss) recognized on equity securities held	$	29	$	(27	)

Restricted Securities

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

December 31,

2019

and

2018

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

	December 31,
(in thousands)	2019		2018
Stock in Federal Home Loan Bank of Pittsburgh	$	3,794	$	3,113
Stock in Atlantic Community Bankers Bank		10		10
Total restricted securities, at cost	$	3,804	$	3,123

Management noted

indicators of impairment for the Federal Home Loan Bank ("FHLB") of Pittsburgh or Atlantic Community Bankers Bank stock at

December 31, 2019

and

2018.

Equity Securities without Readily Determinable Fair Values

FNCB owns

201,000

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

2017

for

$8.25

per share, or

$1.7

million in aggregate, 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. The

$1.7

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

December 31, 2019

and

2018.

FNCB has elected to account for this transaction as an investment in an equity security without a readily determinable fair value. Under GAAP, an equity security without a readily determinable fair value shall be written down to its fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value.

On  December 18, 2019, 
management became aware that this privately held bank holding company had entered into an Agreement and Plan of Merger (“Merger Agreement”) with a publicly traded bank holding company. Pursuant to the Merger Agreement, this privately held bank holding company will merge with and into the publicly traded bank holding company with that company surviving the merger (“surviving company”). At the effective time of the merger, anticipated to be sometime in the third
 quarter of 2020,
 each share of the privately held bank holding company’s common stock issued and outstanding prior to the effective time of merger will be converted into the right to receive 0.6212
 shares of common stock of the surviving company or $16.50
 in cash, at the election of holder; provided, however, individual shareholder elections of consideration will be prorated as necessary to ensure that, in aggregate, 25%
 of the privately held bank holding company’s stock will be converted into the cash consideration with the remaining 75%
 converted into the stock consideration. Based on this event, management determined that no
 adjustment for impairment was required at  December 31, 2019.