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Note 2 - New Authoritative Accounting Guidance
 3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Accounting Standards Update and Change in Accounting Principle [Text Block]
Note
2.
  
New Authoritative Accounting Guidance
 
Accounting Standards Update ("ASU")
2018
-
13
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 Financial Accounting Standards Board ("FASB") Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter
8:
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
-
13
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
did
not
have a material effect on the operating results or financial position of FNCB.
 
ASU
2018
-
15
Intangibles – Goodwill and Other–Internal-Use Software (Subtopic
350
-
40
): “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
-
15
requires that a customer in a hosting arrangement that is a service contract follow the guidance in Subtopic
350
-
40
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
-
15
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
did
not
have a material effect on the operating results or financial position of FNCB.
 
Accounting Policy for Derivative Instruments and Hedging Activities
 
The FASB Accounting Standards Codification 
815,
Derivatives and Hedging
, provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain FNCB’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
 
As required by ASC
815,
FNCB records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether FNCB has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.
 
In accordance with the FASB’s fair value measurement guidance in ASU
2011
-
04
Fair Value Measurement (Topic
820
): "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," FNCB made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
 
In
August 2017,
the FASB issued ASU
2017
-
12
 Derivatives and Hedging (Topic
815
): "Targeted Improvements to Accounting for Hedging Activities." The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU
2017
-
12
was effective for public business entities for fiscal years beginning after
December 15, 2018,
with early adoption, including adoption in an interim period, permitted. ASU
2017
-
12
requires a modified retrospective transition method in which FNCB will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The adoption of ASU
2017
-
12
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
-
13
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
-
13
 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
-
13
 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 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
-
10
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
-
13
 and is currently in the process of implementing the new guidance, which includes, but is 
not
 limited to: (
1
) identifying segments and sub-segments within the loan portfolio that have similar risk characteristics; (
2
) determining the appropriate methodology for each segment; (
3
) implementing changes that are necessary to its core operating system and interfaces to be able to capture appropriate data requirements; and (
4
) 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.
 
Refer to Note
2
to FNCB’s consolidated financial statements included in the 
2019
Annual Report on Form
10
-K for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.