Note

BORROWED FUNDS

Short-term borrowings available to FNCB include overnight FHLB of Pittsburgh advances, federal funds

lines of credit

and the Federal Reserve Discount Window, which generally represent overnight or less than

-day borrowings. FNCB

’s maximum borrowing capacity under federal funds lines of credit and the Federal Reserve Discount Window was

$40.0

million and

$11.4

million, respectively at

December 31, 2019.

Federal funds lines of credit are unsecured, while any borrowings through the Federal Reserve Discount Window are fully collateralized by certain pledged loans in the amount of

$22.9

million at

December 31, 2019.

FNCB has an agreement with the FHLB of Pittsburgh which allows for borrowings, either overnight or term, up to a maximum borrowing capacity based on a percentage of qualifying loans pledged under a blanket pledge agreement. Loans of

$475.3

million and

$492.3

million, at

December 31, 2019

and

2018,

respectively, were pledged to collateralize borrowings under this agreement. FNCB’s maximum borrowing capacity was

$333.3

million at

December 31, 2019,

of which

$32.8

million in fixed-rate advances having original maturities between

nine

months and

two

years,

$14.1

million in overnight funds and

$60.0

million in letters of credit to secure municipal deposits, were outstanding. In addition to pledging loans, FNCB is required to purchase FHLB of Pittsburgh stock based upon the amount of advances and letters of credit

outstanding

	As of and for the Year Ended December 31, 2019
							Weighted			Weighted
					Maximum		Average			Average
	Ending		Average		Month-End		Rate for			Rate at
(dollars in thousands)	Balance		Balance		Balance		the Year			Period End
FHLB of Pittsburgh advances - overnight	$	14,100	$	14,971	$	59,825		2.58	%		1.80	%
FHLB of Pittsburgh advances - term		32,809		37,831		65,171		2.26	%		1.86	%
Federal funds		-		8		-		-			-
Federal reserve discount window advances		-		-		-		-			-
Subordinated debentures		-		520		5,000		4.50	%		-	%
Junior subordinated debentures		10,310		10,310		10,310		4.17	%		3.56	%

	As of and for the Year Ended December 31, 2018
							Weighted			Weighted
					Maximum		Average			Average
	Ending		Average		Month-End		Rate for			Rate at
(dollars in thousands)	Balance		Balance		Balance		the Year			Period End
FHLB of Pittsburgh advances - overnight	$	6,600	$	45,066	$	103,250		2.05	%		2.65	%
FHLB of Pittsburgh advances - term		12,330		59,197		101,661		1.86	%		1.77	%
Federal funds		-		-		-		-			-
Federal reserve discount window advances		-		-		-		-			-
Subordinated debentures		5,000		5,000		5,000		4.50	%		4.50	%
Junior subordinated debentures		10,310		10,310		10,310		3.88	%		4.46	%

December 14, 2006,

the Issuing Trust issued

$10.0

million of trust preferred securities (the “Trust Securities”) at a variable interest rate of

7.02%,

with a scheduled maturity of

December 15, 2036.

FNCB owns

100.0%

of the ownership interest in the

Issuing Trust. The proceeds from the issue were invested in

$10.3

million,

7.02%

Junior Subordinated Debentures (the “Debentures”) issued by FNCB. The interest rate on the Trust Securities and the Debentures resets quarterly at a spread of

1.67%

above the current

-month LIBOR rate. The average interest rate paid on the Debentures was

4.17

% in

2019

and

3.88

% in

2018

. The Debentures are unsecured and rank subordinate and junior in right to all indebtedness, liabilities and obligations of FNCB. The Debentures represent the sole assets of the Trust. Interest on the Trust Securities is deferrable until a period of

twenty

consecutive quarters has elapsed. FNCB has the option to prepay the Trust Securities beginning

December 15, 2011.

FNCB has, under the terms of the Debentures and the related Indenture, as well as the other operative corporate documents, agreed to irrevocably and unconditionally guarantee the Trust’s obligations under the Debentures. FNCB has reflected this investment on a deconsolidated basis. As a result, the Debentures totaling

$10.3

million, have been reflected in borrowed funds in the consolidated statements of financial condition at

December 31, 2019

and

2018

under the caption “Junior Subordinated Debentures”. FNCB records interest expense on the Debentures in its consolidated statements of income. FNCB also records its common stock investment issued by First National Community Statutory Trust I in other assets in its consolidated statements of financial condition at

December 31, 2019

and

2018.

December 31, 2019

and

2018,

accrued and unpaid interest associated with the Debentures amounted to

$16

thousand and

$19

thousand, respectively.

September 1, 2009,

FNCB offered only to accredited investors up to

$25.0

million principal amount of unsecured subordinated debentures due

September 1, 2019 (

the “Notes”). Prior to

July 1, 2015,

the Notes had a fixed interest rate of

per annum. Payments of interest are payable to registered holders of the Notes (the “Noteholders”) quarterly on the

first

of every

third

month, subject to the right of FNCB to defer such payment. On

June 30, 2015,

pursuant to approval from all of the Noteholders and the Reserve Bank, FNCB amended the original terms of the Notes to reduce the interest rate payable from

9.00%

4.50%

effective

July 1, 2015

and to accelerate a partial repayment of principal amount under the Notes. Pursuant to the approved amendment, on

June 30, 2015,

FNCB repaid

44%

of the original principal amount, or

$11.0

million, of the Notes outstanding to the holders on

June 30, 2015,

with the remaining

$14.0

million in principal to be repaid as follows: (a)

16%

of the original principal amount, or

$4.0

million, payable on

September 1, 2017; (

20%

of the original principal amounts, or

$5.0

million, payable on

September 1, 2018;

and (c) the final

20%

of the original principal amount, or

$5.0

million, payable on

September 1, 2019,

the maturity date of the Notes. On

October 28, 2016,

the Board of Directors of FNCB approved the acceleration of a

$4.0

million partial repayment of principal on the Notes. The

$4.0

million principal repayment, which was due and payable on

September 1, 2017,

was paid to Noteholders on

December 1, 2016.

July 27, 2017,

the Board of Directors of FNCB approved the acceleration of a

$5.0

million partial repayment of principal on the Notes. The

$5.0

million principal repayment, which was due and payable on

September 1, 2018,

was paid to Noteholders on

September 1, 2017.

The principal balance outstanding was

$5.0

million

December 31,

2018.

The accrued and unpaid interest associated with the Notes amounted to

$19

thousand at

December 31,

2018

. Subsequent to December

31,

2018,

on January

30,

2019,

the Board of Directors of FNCB approved the acceleration of the final

$5.0

million repayment of principal on the Notes. The

$5.0

million principal repayment, which was due and payable on September

2019,

along with all outstanding accrued interest for the period December

2018

through February

2019,

was paid to Noteholders on February

2019.

The following table presents

maturities of borrowed funds and the weighted-average rate by contractual maturity date at

December 31, 2019:

	December 31, 2019
			Weighted
			Average
(in thousands)	Amount		Interest Rate
2020	$	21,387		1.73	%
2021		25,522		1.93	%
2022		-		-
2023		-		-
2024		-		-
2025 and thereafter		10,310		3.56	%
Total	$	57,219		2.15	%