Note

14.

REGULATORY MATTERS/SUBSEQUENT EVENT

January 28, 2019,

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

February 8, 2019,

FNCB issued

3,285,550

shares of its common stock, which included

428,550

shares of common stock issued upon the exercise in full of the option to purchase additional shares granted to underwriters, at a public offering price of

$7.00

per share, less an underwriting discount of

$0.35

per share. FNCB received net proceeds after deducting underwriting discounts 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, it's 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. Cash dividends declared and paid by FNCB during

2019

and

2018

were $

0.20

per share and

$0.17

per share, respectively. FNCB offers a Dividend Reinvestment and Stock Purchase plan ("DRP") to its shareholders. For the years ended December

31,

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. Shares of common stock issued under the DRP totaled

7,369

and

17,050

for the years ended

December 31, 2019

and

2018,

respectively. Subsequent to

December 31, 2019,

January 22, 2020,

FNCB declared a

$0.055

per share dividend payable on

March 16, 2020

to shareholders of record on

March 2, 2020

2018,

the Federal Reserve increased the asset limit to qualify as a small bank holding company from

billion to

billion. As a result, the Company met the eligibility criteria for a small bank holding company and was exempt from risk-based capital and leverage rules, including Basel III. 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

December 31, 2019,

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

Basel III Transitional rules became effective for FNCB Bank on

January 1, 2015

with all of the requirements being phased in over a multi-year schedule, and fully phased in by

January 1, 2019.

The Regulatory Capital Rules include new risk-based capital and leverage ratios and refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Bank under the Regulatory Capital Rules are:

●

a total capital ratio of

8.00%

(unchanged from previous rules);

●

a Tier I risk-based capital ratio of

6.00%

(increased from

4.00%

);

●

a new common equity Tier I risk-based capital ratio of

4.50%;

and

●

a Tier I capital to average assets (“Tier I leverage ratio”) of

4.00%

for all institutions.

The Bank is required to maintain a "capital conservation buffer," composed entirely of common equity Tier I capital, in addition to minimum risk-based capital ratios, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers). The required capital conservation buffer was

2.500

for

2019

and

1.875%

2018.

The Regulatory Capital Rules also included revisions and clarifications consistent with Basel III regarding the various components of Tier I capital, including common equity, unrealized gains and losses, as well as certain instruments that will

longer qualify as Tier I capital, some of which will be phased out over time. Implementation of the deductions and other adjustments to common equity Tier I capital began on

January 1, 2015

and were phased-in over a

four

-year period: i.)

40%

January 1, 2015; ii.)

60%

January 1, 2016;

and iii.) an additional

20%

per year thereafter. On

November 21, 2017,

the Federal Reserve, the OCC and the FDIC approved a revision to the Regulatory Capital Rules to suspend the phase-in of certain deductions and other adjustments to common equity Tier I capital. The updated final rule applies to non-advanced approaches banking organizations and is effective on

January 1, 2018. Management believes

the Bank was in full compliance with the additional capital conservation buffer requirement at

December 31, 2019.

Additionally,

under the prompt corrective action requirements, which complement the capital conservation buffer, insured depository institutions are required to meet the following increased capital level requirements in order to qualify as “well capitalized”:

●

a total risk-based capital ratio of

10.00%

(unchanged from current rules);

●

a Tier I risk-based capital ratio of

8.00%

(increased from

6.00%

);

●

a new common equity Tier I risk-based capital ratio of

6.50%;

and

●

a Tier I leverage ratio of

5.00%.

Current quantitative measures established by regulation to ensure capital adequacy require FNCB Bank to maintain minimum amounts and ratios (set forth in the table 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 the Bank’s risk-based capital and related ratios at

December 31, 2019

and

2018:

	FNCB Bank					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
(dollars in thousands)	Amount		Ratio			Ratio			Ratio			Ratio
December 31, 2019

Total capital (to risk-weighted assets)	$	133,406		14.77	%		8.00	%		10.50	%		10.00	%

Tier I capital (to risk-weighted assets)		123,753		13.70	%		6.00	%		8.50	%		8.00	%

Tier I common equity (to risk-weighted assets)		123,753		13.70	%		4.50	%		7.00	%		6.50	%

Tier I capital (to average assets)		123,753		10.36	%		4.00	%		4.000	%		5.00	%

Total risk-weighted assets		903,172

Total average assets		1,194,789

	FNCB Bank					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
(dollars in thousands)	Amount		Ratio			Ratio			Ratio			Ratio
December 31, 2018

Total capital (to risk-weighted assets)	$	112,128		12.17	%		8.00	%		9.875	%		10.00	%

Tier I capital (to risk-weighted assets)		102,354		11.11	%		6.00	%		7.875	%		8.00	%

Tier I common equity (to risk-weighted assets)		102,354		11.11	%		4.50	%		6.375	%		6.50	%

Tier I capital (to average assets)		102,354		8.27	%		4.00	%		4.00	%		5.00	%

Total risk-weighted assets		921,126

Total average assets		1,238,347