Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The consolidated financial statements of FNCB are comprised of the accounts of FNCB Bancorp, Inc., and its wholly-owned subsidiary, FNCB Bank, as well as the Bank’s wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The accounting and reporting policies of FNCB conform to accounting principles generally accepted in the United States of America (“GAAP”), Regulation S-

and general practices within the banking industry. Prior period amounts have been reclassified when necessary to conform to the current year’s presentation. Such reclassifications did

not

have a material impact on the operating results or financial position of FNCB.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term are the allowance for loan and lease losses (“ALLL”), securities’ valuation and impairment evaluation, the valuation of other real estate owned (“OREO”), and income taxes.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

For purposes of reporting cash flows, cash equivalents include cash on hand and amounts due from banks.

Marketable Securities, Policy [Policy Text Block]

Securities

Debt Securities

FNCB classifies its investments in debt securities as either held-to-maturity or available-for-sale at the time of purchase. Debt securities that are classified as held-to-maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities that are classified as available-for-sale are carried at fair value with unrealized holding gains and losses recognized as a component of shareholders’ equity in accumulated other comprehensive income (loss), net of tax. Amortization of premiums and accretion of discounts is recognized over the life of the related security as an adjustment to yield using the interest method. Realized gains and losses on sales of debt securities are based on amortized cost using the specific identification method on the trade date. All of FNCB's debt securities were classified as available-for-sale at

December 31, 2019

and

2018.

Equity Securities with Readily

Determinable Fair Value

FNCB's equity securities consist entirely of a mutual fund investment comprised of

family residential mortgage-backed securities collateralized by properties within FNCB's geographical market. Equity securities with readily determinable fair values are reported at fair value with net unrealized gains and losses recognized in the consolidated statements of income.

Fair values for debt securities and equity securities with readily determinable fair values are based upon quoted market prices, where available. If quoted market prices are

not

available, fair values are based upon quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility.

Restricted Securities

Investments in restricted securities have limited marketability, are carried at cost and are evaluated for impairment based on FNCB’s determination of the ultimate recoverability of the par value of the stock. FNCB’s investment in restricted securities, comprised of stock in the Federal Home Loan Bank of Pittsburgh and Atlantic Community Bankers Bank.

Equity Securities without Readily

Determinable Fair Value

Equity securities without readily determinable fair values consist entirely of FNCB's investment in the common stock of a privately-held bank holding company. Equity securities without readily determinable fair values are carried at cost and included in other assets in the consolidated statements of financial condition. On a quarterly basis, management performs a qualitative assessment to determine if the investment is impaired. If the qualitative assessment indicates impairment, the investment is written down to its fair value, with the charge for impairment included in net income.

Evaluation for Other Thank Temporary Impairment

On a quarterly basis, management evaluates all securities in an unrealized loss position for other than temporary impairment (“OTTI”). An individual security is considered impaired when its current fair value is less than its amortized cost basis. As part of its evaluation, management considers the following factors, among other things, in determining whether the security’s impairment is other than temporary:

●

the length of time and extent of the impairment;

●

the causes of the decline in fair value, such as credit deterioration, interest rate fluctuations, or market volatility;

●

adverse industry or geographic conditions;

●

historical implied volatility;

●

payment structure of the security and whether FNCB expects to receive all contractual cash flows;

●

failure of the issuer to make contractual interest or principal payments in the past; and

●

changes in the security’s rating.

Based on current authoritative guidance, when a held-to-maturity or available-for-sale security is

assessed for

OTTI, management must

first

consider (a) whether it intends to sell the security and (b) whether it is more likely than

not

the FNCB will be required to sell the security prior to recovery of its amortized cost. If

one

of these circumstances applies to a security, an OTTI loss is recognized in the statement of income equal to the full amount of the decline in fair value below amortized cost. If neither of these circumstances applies to a security, but FNCB does

not

expect to recover the entire amortized cost, an OTTI loss has occurred that must be separated into

two

categories: (a) the amount related to credit loss and (b) the amount related to other factors (such as market risk). In assessing the level of OTTI attributable to credit loss, management compares the present value of cash flows expected to be collected with the amortized cost of the security. The portion of the total OTTI related to credit loss is identified as the amount of principal cash flows

not

expected to be received over the remaining term of the security as estimated based on cash flow projections discounted at the applicable original yield of the security, and is recognized in earnings, while the amount related to other factors is recognized in other comprehensive income (loss). The total OTTI loss is presented in the statement of income less the portion recognized in other comprehensive income (loss). When a debt security becomes other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the total impairment related to credit loss. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment that is based on information available to management at a point in time.

Financing Receivable [Policy Text Block]

Loans and Loan Origination Fees and Costs

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balance, net of unamortized deferred loan fees and costs, any unearned income and partial charge-offs. Loans receivable are presented net of the allowance for loan and lease losses in the consolidated statements of financial condition. Interest income on all loans is recognized using the effective interest method. Nonrefundable loan origination fees, as well as certain direct loan origination costs, are deferred and the net amount amortized over the contractual life of the related loan as an adjustment to yield using the effective interest method. Amortization of deferred loan fees or costs is discontinued when a loan is placed on non-accrual status.

Loans are placed on non-accrual status when a loan is specifically determined to be impaired or when management believes that the collection of interest or principal is doubtful. This generally occurs when a default of interest or principal has existed for

days or more, unless the loan is well secured and in the process of collection, or when management becomes aware of facts or circumstances that the loan would default before

days. FNCB determines delinquency status based on the number of days since the date of the borrower’s last required contractual loan payment. When the interest accrual is discontinued, all unpaid interest income is reversed and charged back against current earnings. Any subsequent cash payments received are applied,

first

to the outstanding principal balance, then to the recovery of any previously charged-off principal, with any excess treated as a recovery of lost interest. A non-accrual loan is returned to accrual status when the loan is current as to principal and interest payments, is performing according to contractual terms for

six

consecutive months and factors indicating reasonable doubt about the timely collection of payments

longer exist.

In accordance with federal regulations, prior to making, extending, renewing or advancing additional funds in excess of

400

thousand on a loan secured by real estate, FNCB requires an appraisal of the property by an independent, state-certified or state-licensed appraiser (depending upon collateral type and loan amount) that is approved by the Board of Directors. Appraisals are reviewed internally or by an independent

third

party engaged by FNCB. Generally, management obtains a new appraisal when a loan is deemed impaired. These appraisals

may

be more limited in scope than those obtained at the initial underwriting of the loan.

Troubled Debt Restructuring [Policy Text Block]

Troubled Debt Restructurings

FNCB considers a loan to be a troubled debt restructuring (“TDR”) when it grants a concession to the borrower for legal or economic reasons related to the borrower’s financial difficulties that it would

not

otherwise consider. Such concessions granted generally involve a reduction of the stated interest rate, an extension of a loan’s stated maturity date, a payment modification under a forbearance agreement, a permanent reduction of the recorded investment in the loan, capitalization of real estate taxes, or a combination of these modifications. Non-accrual TDRs are returned to accrual status if principal and interest payments, under the modified terms, are brought current, are performing under the modified terms for

six

consecutive months, and management believes that collection of the remaining interest and principal is probable.

Impaired Financing Receivable, Policy [Policy Text Block]

Loan Impairment

A loan is considered impaired when it is probable that FNCB will be unable to collect all amounts due (including principal and interest) according to the contractual terms of the note and loan agreement. For purposes of the analysis, all TDRs, loan relationships with an aggregate outstanding balance greater than

$100

thousand rated substandard and non-accrual, and loans that are identified as doubtful or loss are considered impaired. Impaired loans are analyzed individually to determine the amount of impairment. For collateral-dependent loans, impairment is measured based on the fair value of the collateral supporting the loans. A loan is determined to be collateral dependent when repayment of the loan is expected to be provided through the operation or liquidation of the collateral held. For impaired loans that are secured by real estate, external appraisals are generally obtained annually, or more frequently as warranted, to ascertain a fair value so that the impairment analysis can be updated. Should a current appraisal

not

be available at the time of impairment analysis, other sources of valuation

may

be used including current letters of intent, broker price opinions or executed agreements of sale. For non-collateral dependent loans, impairment is measured based on the present value of expected future cash flows, net of any deferred fees and costs, discounted at the loan’s original effective interest rate.

Generally, all loans with balances of

$100

thousand or less are considered within homogeneous pools and are

not

individually evaluated for impairment. However, individual loans with balances of

$100

thousand or less are individually evaluated for impairment if that loan is part of a larger impaired loan relationship or the loan is a TDR.

Impaired loans, or portions thereof, are charged-off upon determination that all or a portion of the loan balance is uncollectible and exceeds the fair value of the collateral. A loan is considered uncollectible when the borrower is delinquent with respect to principal or interest repayment and it is unlikely that the borrower will have the ability to pay the debt in a timely manner, collateral value is insufficient to cover the outstanding indebtedness and the guarantors (if applicable) do

not

provide adequate support for the loan.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance

for Loan and Lease Losses

Management evaluates the credit quality of FNCB’s loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ALLL on a quarterly basis. The ALLL is established through a provision for loan losses charged to earnings and is maintained at a level that management considers adequate to absorb estimated probable losses inherent in the loan portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ALLL, while recoveries of amounts previously charged off are credited to the ALLL.

Determining the amount of the ALLL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, qualitative factors, and consideration of current economic trends and conditions, all of which

may

be susceptible to significant change. Banking regulators, as an integral part of their examination of FNCB, also review the ALLL, and

may

require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ALLL. Additionally, the ALLL is determined, in part, by the composition and size of the loan portfolio.

FNCB's allowance methodology consists primarily of

two

components, a specific component and a general component. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted by qualitative factors. The general reserve component of the ALLL is based on pools of unimpaired loans segregated by loan segment and risk rating categories of “Pass”, “Special Mention” or “Substandard and Accruing.” Historical loss factors and various qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans. Substandard loans on non-accrual status above the

$100

thousand loan relationship threshold and all loans considered TDRs are classified as impaired. Based on its evaluation, management

may

establish an

unallocated component

that is used to cover any inherent losses that exist as of the evaluation date, but which

may

not

have been identified under the methodology.

When establishing the ALLL, management categorizes loans into the following loan segments that are based generally on the nature of the collateral and basis of repayment. The risk characteristics of FNCB’s loan segments are as follows:

Construction, Land Acquisition and Development Loans

- These loans consist of loans secured by real estate, with the purpose of constructing

one

- to

four

-family homes, residential developments and various commercial properties including shopping centers, office complexes and single-purpose, owner-occupied structures. Additionally, loans in this category include loans for land acquisition, secured by raw land. FNCB’s construction program offers either short-term, interest-only loans that require the borrower to pay only interest during the construction phase with a balloon payment of the principal outstanding at the end of the construction period or only interest during construction with a conversion to amortizing principal and interest when the construction is complete. Loans for undeveloped real estate are subject to a loan-to-value ratio

not

to exceed

65%.

Construction loans are treated similarly to the developed real estate loans and are subject to a maximum loan to value ratio of

85%

based upon an “as-completed” appraised value. Construction loans generally yield a higher interest rate than other mortgage loans but also carry more risk.

Commercial Real Estate Loans

- These loans represent the largest portion of FNCB’s total loan portfolio and loans in this portfolio generally carry larger loan balances. The commercial real estate mortgage loan portfolio consists of owner-occupied and non-owner-occupied properties that are secured by a broad range of real estate, including but

not

limited to, office complexes, shopping centers, hotels, warehouses, gas stations, convenience markets, residential care facilities, nursing care facilities, restaurants and multifamily housing. FNCB offers commercial real estate loans at various rates and terms that do

not

exceed

years. These types of loans are subject to specific loan-to-value guidelines prior to the time of closing. The policy limits for developed real estate loans are subject to a maximum loan-to-value ratio of

85%.

Commercial mortgage loans must also meet specific criteria that include the capacity, capital, credit worthiness and cash flow of the borrower and the project being financed. Potential borrower(s) and guarantor(s) are required to provide FNCB with historical and current financial data. As part of the underwriting process for commercial real estate loans, management performs a review of the cash flow analysis of the borrower(s), guarantor(s) and the project in addition to considering the borrower’s expertise, credit history, net worth and the value of the underlying property.

Commercial and Industrial Loans

FNCB offers commercial loans at various rates and terms to businesses located in its primary market area. The commercial loan portfolio includes revolving lines of credit, automobile floor plans, equipment loans, vehicle loans, improvement loans and term loans. These loans generally carry a higher risk than commercial real estate loans by the nature of the underlying collateral, which can be machinery and equipment, inventory, accounts receivable, vehicles or marketable securities. Generally, a collateral lien is placed on the collateral supporting the loan. In order to reduce the risk associated with these loans, management

may

attempt to secure real estate as collateral and obtain personal guarantees of the borrower as deemed necessary.

State and Political Subdivision Loans

- FNCB originates general obligation notes and tax anticipation loans to state and political subdivisions, which are primarily municipalities in FNCB’s market area.

Residential Real Estate Loans

- FNCB offers fixed-rate

family residential loans. Residential

first

lien mortgages are generally subject to an

80%

loan to value ratio based on the appraised value of the property. FNCB will generally require the mortgagee to purchase Private Mortgage Insurance if the amount of the loan exceeds the

80%

loan to value ratio. Residential mortgage loans are generally smaller in size and are considered homogeneous as they exhibit similar characteristics. FNCB

may

sell loans and retain servicing when warranted by market conditions.

Consumer Loans

– FNCB offers both secured and unsecured installment loans, personal lines of credit and overdraft protection loans. FNCB is in the business of underwriting indirect auto loans which are originated through various auto dealers in northeastern Pennsylvania and dealer floor plan loans. FNCB offers home equity loans and home equity lines of credit (“HELOCs”) with a maximum combined loan-to-value ratio of

90%

based on the appraised value of the property. Home equity loans have fixed rates of interest and carry terms up to

years. HELOCs have adjustable interest rates and are based upon the national prime interest rate. Consumer loans are generally smaller in size and exhibit homogeneous characteristics.

Liability for Off-balance-sheet Credit Related Financial Instruments, Policy [Policy Text Block]

Off-Balance-Sheet Credit-Related Financial Instruments

FNCB is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing need of its customers. These financial instruments include commitments to extend credit, unused portions of lines of credit, including revolving HELOCs, and letters of credit. FNCB’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument is represented by the contractual notional amount of these instruments. FNCB uses the same credit policies in making these commitments as it does for on-balance sheet instruments. In order to provide for probable losses inherent in these instruments, FNCB records a reserve for unfunded commitments, included in other liabilities on the consolidated statements of financial condition, with the offsetting expense recorded in other operating expenses in the consolidated statements of income.

Mortgage Banking Activity [Policy Text Block]

Mortgage Banking Activities, Loan Sales and Servicing

Mortgage loans originated and held for sale are carried at the lower of aggregate cost or fair value determined on an individual loan basis. Net unrealized losses are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold and include the value assigned to the rights to service the loan.

FNCB

may

also elect to sell the guaranteed principal balance of loans that are guaranteed by the Small Business Administration (“SBA”) and retain the servicing on those loans.

Servicing rights are recorded at fair value upon sale of the loan and reported in other assets on the consolidated statements of financial condition. Servicing rights are amortized in proportion to and over the period during which estimated servicing income will be received.

Fair value is based on market prices for comparable servicing contracts, when available, or alternately, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.

Servicing rights are evaluated for impairment at each reporting date based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If management later determines that all or a portion of the impairment

longer exists for a particular tranche, a reduction of the allowance

may

be recorded as an increase to income.

Other Real Estate Owned, Policy [Policy Text Block]

Other Real Estate Owned

OREO consists of property acquired by foreclosure, abandonment or conveyance of deed in-lieu of foreclosure of a loan, and bank premises that are

longer used for operation or for future expansion. OREO is held for sale and is initially recorded at fair value less estimated costs to sell at the date of acquisition or transfer, which establishes a new cost basis. Upon acquisition of the property through foreclosure or deed in-lieu of foreclosure, any adjustment to fair value less estimated selling costs is recorded to the ALLL. The determination is made on an individual asset basis. Bank premises

longer used for operations or future expansion are transferred to OREO at fair value less estimated selling costs with any related write-down included in non-interest expense. Subsequent to acquisition, valuations are periodically performed, and the assets are carried at the lower of cost or fair value less estimated cost to sell. Fair value is determined through external appraisals, current letters of intent, broker price opinions or executed agreements of sale, unless management determines that conditions exist that warrant an adjustment to the value. Costs relating to the development and improvement of the OREO properties

may

be capitalized; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred.

Property, Plant and Equipment, Policy [Policy Text Block]

Bank Premises and Equipment

Land is stated at cost. Bank premises, equipment and leasehold improvements are stated at cost less accumulated depreciation. Costs for routine maintenance and repairs are expensed as incurred, while significant expenditures for improvements are capitalized. Depreciation expense is computed generally using the straight-line method over the following ranges of estimated useful lives, or in the case of leasehold improvements, to the expected terms of the leases, if shorter:

Buildings and improvements (years)	5	to	40
Furniture, fixtures and equipment (years)	3	to	20
Leasehold improvements (years)	3	to	35

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Long-lived Assets

Intangible assets and bank premises and equipment are reviewed by management at least annually for potential impairment and whenever events or circumstances indicate that carrying amounts

may

not

be recoverable.

Income Tax, Policy [Policy Text Block]

Income Taxes

FNCB recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-

not

that all or some portion of the deferred tax assets will

not

be realized.

FNCB files a consolidated Federal income tax return. Under tax sharing agreements, each subsidiary provides for and settles income taxes with FNCB as if it would have filed on a separate return basis. Interest and penalties, if any, as a result of a taxing authority examination are recognized within non-interest expense. FNCB is

not

currently subject to an audit by any of its tax authorities and with limited exception is

longer subject to federal and state income tax examinations by taxing authorities for years before

2016.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-

not

that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are

not

offset or aggregated with other positions. Tax positions that meet the more-likely-than-

not

recognition threshold are measured as the largest amount of tax benefit that is more than

50%

likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Management determined that FNCB had

liabilities for uncertain ta

positions at

December 31, 2019

and

2018.

Earnings Per Share, Policy [Policy Text Block]

Earnings per Share

Earnings per share is calculated on the basis of the weighted-average number of common shares outstanding during the year. Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per share reflect additional shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that

may

be issued by FNCB relate to shares of unvested restricted stock for which the dilutive effect is calculated using the treasury stock method.

Share-based Payment Arrangement [Policy Text Block]

Stock-Based Compensation

FNCB is required to measure and record compensation expense for stock-based payments based on the instrument’s fair value on the date of the grant. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of shares of restricted stock awarded under the Long Term Incentive Compensation Plan (“LTIP”) is determined using an average of the high and low prices for FNCB’s common stock for the

days preceding the grant date. Stock-based compensation expense for stock options and restricted stock is recognized ratably over the vesting period, adjusted for forfeitures during the period in which they occur.

Bank Owned Life Insurance, Policy [Policy Text Block]

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) represents the cash surrender value of life insurance policies on certain current and former directors and officers of FNCB. FNCB purchased the insurance as a tax-deferred investment and future source of funding for liabilities, including the payment of employee benefits such as health care. BOLI is carried in the consolidated statements of financial condition at its cash surrender value. Increases in the cash value of the policies, as well as proceeds received, are recorded in non-interest income. Under some of these policies, the beneficiaries receive a portion of the death benefit. The net present value of the future death benefits scheduled to be paid to the beneficiaries was

$113

thousand and

$111

thousand at

December 31, 2019

and

2018,

respectively, and is reflected in other liabilities on the consolidated statements of financial condition.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurement

FNCB uses fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available-for-sale debt securities are recorded at fair value on a recurring basis. Additionally, from time to time, FNCB

may

be required to recognize adjustments to other assets at fair value on a nonrecurring basis, such as impaired loans, other securities, and OREO.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is

not

a forced transaction.

Accounting standards define fair value, establish a framework for measuring fair value, establish a

three

-level hierarchy for disclosure of fair value measurement and provide disclosure requirements about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

The

three

levels of the fair value hierarchy are:

●

Level

valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets;

●

Level

valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are

not

active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data; and

●

Level

valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions

not

observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

January 1, 2018,

FNCB adopted Accounting Standards Update ("ASU")

2014

09,

Revenue from Contracts with Customers (Topic

606

): Section A, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic

606

) and Other Assets and Deferred Costs-Contract with Customers (Subtopic

340

);” Section B, “Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables;” and Section C, “Background Information and Basis for Conclusions,” provides a robust framework for addressing revenue recognition issues, and replaced almost all existing revenue recognition guidance, including industry specific guidance, in current GAAP. FNCB elected to implement the new guidance using the modified retrospective application, with the cumulative effect recorded as an adjustment to opening retained earnings upon adoption. The adoption of ASU

2014

did

not

have a material effect on the operating results or financial position of FNCB, and there was

cumulative effect adjustment required to be recorded.

FNCB recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. FNCB's primary source of revenue is interest income from the Bank's loans and investment securities. FNCB also earns non-interest income from various banking services offered by the Bank as follows:

●

Deposit service charges - include general service fees for monthly account maintenance, account analysis fees, non-sufficient funds fees, wire transfer fees and other deposit account related fees. Revenue is recognized when FNCB’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for service charges on deposit accounts is received immediately or in the following month through a direct charge to customers’ accounts. Also included in deposit service charges is income from ATM surcharges and debit card services income. ATM surcharges are generated when an

FNCB cardholder uses a an ATM that is

not

within the AllPoint ATM network

or a non-FNCB cardholder uses an FNCB ATM. Card services income is primarily comprised of interchange fees earned whenever a customer uses an FNCB debit card as payment for goods and/or services through a card payment network such as Mastercard/Visa. FNCB’s performance obligation is satisfied on a daily basis as transactions are processed. FNCB recognizes ATM surcharges and card services income as transactions with merchants are settled, generally on a daily basis.

●

Net gains on the sale of other real estate owned - FNCB records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When FNCB finances the sale of OREO to the buyer, FNCB assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, FNCB adjusts the transaction prices and related gain (loss) on sale if a significant financing component is present.

	●	Loan referral fees represent fees FNCB receives from a third party correspondent bank for referring certain qualified borrowers to their proprietary loan participation swap program. FNCB receives the referral fees at the time the loan closes. The fees are non-refundable and are not tied to the loan and FNCB has no future obligations to the correspondent under the participation agreement related to the referral fee. FNCB records referral fees in non-interest income upon receipt.
	●	Other income – primarily includes wealth management fee income, merchant services fee income and title insurance revenue. Wealth management fee income represents fees received from a third -party broker-dealer as part of a revenue-sharing agreement for fees earned from customers that we refer to the third party. Merchant services fees represent commissions received from the major payment networks such as VISA/Mastercard on activity generated by customers on their merchant account. Wealth management and merchant services fee income are transactional in nature and are recognized in income monthly when FNCB’s performance obligation is complete, which is generally the time that payment is received. With regard to title insurance revenue, FNCB is a member in a limited liability company that provides title insurance services to customers referred by member financial institutions. In accordance with an operating agreement, the title insurance company makes quarterly discretionary distributions to member institutions on a pro-rata basis based on their respective membership interest percentage at the time of distribution. FNCB’s performance obligation under the operating agreement was satisfied with its capital contribution. There are no future minimum referral quotas required under the operating agreement. FNCB records revenue from quarterly distributions at the time of receipt.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the shareholders’ equity section of the statement of financial condition, such items, along with net income, are components of comprehensive income.

New Accounting Pronouncements, Policy [Policy Text Block]

New Authoritative Accounting Guidance

Accounting Standards Update ("ASU")

2016

02,

Leases (Topic

842

): “Leases” requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than

months. Consistent with prior GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by the lessee will primarily depend on its classification as a finance or operating lease. However, unlike prior GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU requires both finance and operating leases to be recognized on the balance sheet. ASU

2016

also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The new disclosures include both qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. ASU

2016

is effective with fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018

for public business entities. An entity could adopt the new guidance either by restating prior periods and recording a cumulative effect adjustment at the beginning of the earliest comparative period presented or by recording a cumulative effect adjustment at the beginning of the period of adoption. FNCB adopted this guidance on

January 1, 2019

and

applied the standard by recording a cumulative effect adjustment at that date.

Management performed a comprehensive evaluation of the effect this guidance

may

have on its operating results or financial position, including working with various business units within the organization and reviewing contractual arrangements for embedded leases in an effort to identify FNCB’s full lease population. Based on management's evaluation, the adoption of ASU

2016

resulted in FNCB recording an aggregate right of use asset and lease liability of

$3.2

million and

$3.7

million for its operating lease commitments. See Note

12,

"Commitments, Contingencies and Concentrations," in these notes to consolidated financial statements included in Item

"Financial Statements and Supplementary Data," to this Annual Report on Form

-K for required disclosure regarding FNCB's right of use assets and lease liabilities.

ASU

2017

08,

Receivables – Nonrefundable Fees and Other Costs (Topic

310

): “Premium Amortization on Purchased Callable Debt Securities” requires that the amortization period for certain callable debt securities be shortened to the earliest call date. The amortization of callable securities held at a discount is

not

affected. ASU

2017

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018

for public business entities. The adoption of this guidance on

January 1, 2019

did

not

have a material effect on the operating results or financial position of FNCB.

Accounting Guidance to be Adopted in Future Periods

ASU

2016

13,

Financial Instruments – Credit Losses (Topic

326

): “Measurement of Credit Losses on Financial Instruments,” replaces the current loss impairment methodology under GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU

2016

is commonly referred to as Current Expected Credit Losses ("CECL"). and will require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in this update affect entities holding financial assets and net investment in leases that are

not

accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets

not

excluded from the scope that have the contractual right to receive cash. On

June 17, 2016,

the four, federal financial institution regulatory agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency), issued a joint statement to provide information about ASU

2016

and the initial supervisory views regarding the implementation of the new standard. The joint statement applies to all banks, savings associations, credit unions and financial institution holding companies, regardless of asset size. The statement details the key elements of, and the steps necessary for, the successful transition to the new accounting standard. In addition, the statement notifies financial institutions that because the appropriate allowance levels are institution-specific amounts, the agencies will

not

establish benchmark targets or ranges for the change in institutions’ allowance levels upon adoption of the ASU, or for allowance levels going forward. Due to the importance of ASU

2016

13,

the agencies encourage financial institutions to begin planning and preparing for the transition and state that senior management, under the oversight of the board of directors, should work closely with staff in their accounting, lending, credit risk management, internal audit, and information technology functions during the transition period leading up to, and well after, adoption. ASU

2016

was originally effective for public business entities that are registered with the U.S. Securities and Exchange Commission (“SEC”) under the Securities and Exchange Act of

1934,

as amended, including smaller reporting companies, for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. All entities

may

adopt the amendments in this ASU earlier as of the fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. On

November 15, 2019,

the Financial Accounting Standards Board ("FASB") issued ASU

2019

10,

"Credit Losses (Topic

326

), Derivatives and Hedging (Topic

815

), and Leases (Topic

842

): Effective Dates," which finalized various effective dates delay for private companies,

not

-for-profit organizations, and certain smaller reporting companies. Specifically under ASU

2019

the effective date for implementation of CECL for smaller reporting companies, private companies and

not

-for-profits was extended to fiscal years, and interim periods within those years, beginning after

December 15, 2022.

FNCB is a smaller reporting company, and accordingly, will adopt this guidance on

January 1, 2023.

FNCB has created a CECL task group comprised of members of its finance, credit administration, lending, internal audit, loan operations and information systems units. The

CECL

task group understands the provisions of ASU

2016

and is currently in the process of implementing the new guidance, which includes, but is

not

limited to: (

) identifying segments and sub-segments within the loan portfolio that have similar risk characteristics; (

) determining the appropriate methodology for each segment; (

) implementing changes that are necessary to its core operating system and interfaces to be able to capture appropriate data requirements; and (

) evaluating qualitative factors and economic to develop appropriate forecasts for integration into the model. FNCB is currently evaluating the effect this guidance

may

have on its operating results and/or financial position, including assessing any potential impact on its capital.

ASU

2018

Fair Value Measurement (Topic

820

): “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” modifies the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement, based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter

Notes to Financial Statements”. In accordance with the Concepts Statement, this ASU removes, modifies and adds select disclosure requirements under Topic

820

after consideration of costs and benefits. ASU

2018

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019

for public entities, with early adoption permitted. The adoption of this guidance on

January 1, 2020

not

expected to have a material effect on the operating results or financial position of FNCB.

ASU

2018

Intangibles – Goodwill and Other–Internal-Use Software (Subtopic

350

): “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ASU

2018

requires that a customer in a hosting arrangement that is a service contract follow the guidance in Subtopic

350

to determine which implementation costs to capitalize and which costs to expense, as well as requiring costs that cannot be capitalized to be expensed over the term of the hosting arrangement. ASU

2018

is effective for fiscal years beginning after

December 15, 2019

for public business entities, and interim periods within those fiscal years, beginning after

December 15, 2019,

with early adoption permitted. The adoption of this guidance on

January 1, 2020

not

expected to have a material effect on the operating results or financial position of FNCB.

ASU

2019

Income Taxes (Topic

740

) -"Simplifying the Accounting for Income Taxes" is part of the initiative to reduce complexity in accounting standards by removing certain exceptions to the general principles in Topic

740.

The amendments also provide for the consistent application of, and simplify, GAAP for other areas of Topic

740

by clarifying and amending existing guidance. Particularly, ASU

2019

simplifies GAAP related to franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are

not

subject to tax, and enacted changes in tax laws in interim periods. ASU

2019

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2020

for public business entities, and for fiscal years beginning after

December 15, 2021,

and interim periods within those fiscal years, beginning after

December 15, 2022,

for all other entities. Early adoption is permitted. The adoption of this guidance on

January 1, 2022

not

expected to have a material effect on the operating results or financial position of FNCB.

ASU

2020

Investments - "Investments-Equity Securities (Topic

321

), Investments-Equity Method and Joint Ventures (Topic

323

), and Derivatives and Hedging (Topic

815

). The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchase options and forward contracts to acquire investments. If a company is applying the measurement alternative for an equity investment under ASC

321

and must transition to the equity method, or if applying the equity method and must transition to ASC

321;

because of an observable transaction, it will remeasure its investment immediately before transition. If a company holds certain non-derivative forward contracts or purchased call options to acquire equity securities, such instruments generally will be measured using the fair value principles of ASC

321

before settlement or exercise. ASU

2020

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2020

for public business entities, and for fiscal years, and interim periods within those fiscal years beginning after

December 15, 2021

for all other entities. Early adoption is permitted. The adoption of this guidance on

January 1, 2022

not

expected to have a material effect on the operating results or financial position of FNCB.