Note

10.

INCOME TAXES

The following table summarizes the current and deferred amounts of the provision for income tax expense (benefit) for each of the

two

years ended

December 31,

2019

and

2018

	For the Year Ended December 31,
(in thousands)	2019		2018
Current	$	-	$	(2,764	)
Deferred		2,326		5,835
Income tax expense	$	2,326	$	3,071

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 years ended

December 31, 2019

and

December 31, 2018

	For the Year Ended December 31,
(in thousands)	2019			2018
Provision at statutory tax rates	$	2,814		$	3,448
Add (deduct):
Tax effects of non-taxable income		(344	)		(378	)
Non-deductible interest expense		19			15
Bank-owned life insurance		(109	)		(117	)
Other items, net		(54	)		103
Income tax expense	$	2,326		$	3,071

The following table summarizes the components of the net deferred tax asset at

December 31,

2019

and

2018:

	December 31,
(in thousands)	2019			2018
Allowance for loan and lease losses	$	2,027		$	2,052
Deferred compensation		592			817
Unrealized holding losses on securities available-for-sale		-			1,207
Lease liability		729			-
Other real estate owned valuation		33			125
Deferred intangible assets		166			300
Employee benefits		192			102
Accrued rent expense		-			72
Accrued vacation		42			36
Deferred income		-			51
Depreciation		10			51
Net operating loss carryover		4,348			6,291
Gross deferred tax assets		8,139			11,104

Deferred loan origination costs		(143	)		(192	)
Unrealized holding gains on securities available-for-sale		(812	)		-
Right of use asset		(660	)		-
Deferred income		(22	)		-
Accrued interest		(224	)		(219	)
Gross deferred tax liabilities		(1,861	)		(411	)
Net deferred tax assets	$	6,278		$	10,693

December 31, 2019

FNCB had approximately

$20.7

million in federal net operating loss ("NOL") carryovers, which expire in

2035

not

used. Deferred taxes associated with these NOL carryovers were

$4.3

million at December

31,

2019.

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. Based on the most recent evaluation at

December 31, 2019,

management believes that FNCB’s future taxable income will be sufficient to utilize the deferred tax assets. Management anticipates that FNCB's core earnings will continue to support the utilization of NOL carryovers and recognition of deferred tax assets based on future growth projections.