Note

Securities

Debt Securities

The following tables present the amortized cost, gross unrealized gains and losses, and the fair value of FNCB’s available-for-sale debt securities at

March 31, 2020

and

December 31, 2019

	March 31, 2020
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	143,279	$	6,692	$	173	$	149,798
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		77,777		1,914		480		79,211
Collateralized mortgage obligations - commercial		13,339		699		49		13,989
Mortgage-backed securities		18,111		682		-		18,793
Private collateralized mortgage obligations		24,192		187		614		23,765
Corporate debt securities		10,000		48		464		9,584
Asset-backed securities		7,191		-		389		6,802
Negotiable certificates of deposit		694		2		-		696
Total available-for-sale debt securities	$	294,583	$	10,224	$	2,169	$	302,638

	December 31, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
Obligations of state and political subdivisions	$	115,428	$	2,694	$	359	$	117,763
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		79,606		780		92		80,294
Collateralized mortgage obligations - commercial		17,414		320		11		17,723
Mortgage-backed securities		18,142		343		-		18,485
Private collateralized mortgage obligations		25,069		49		43		25,075
Corporate debt securities		7,000		182		-		7,182
Asset-backed securities		5,618		4		1		5,621
Negotiable certificates of deposit		694		2		-		696
Total available-for-sale debt securities	$	268,971	$	4,374	$	506	$	272,839

Except for securities of U.S. government and government-sponsored agencies, there were

securities of any individual issuer that exceeded

10.0%

of shareholders’ equity at March

31,

2020

and

2019.

March 31, 2020

and

December 31, 2019

securities with a carrying amount of

$262.5

million and

$235.0

million, respectively, were pledged as collateral to secure public deposits and for other purposes.

The following table presents the maturity information of FNCB’s available-for-sale debt securities at

March 31, 2020

Expected maturities will differ from contractual maturities because issuers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Because collateralized mortgage obligations, mortgage-backed securities and asset-backed securities are

not

due at a single maturity date, they are

not

included in the maturity categories in the following maturity summary.

	March 31, 2020
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	2,194	$	2,201
After one year through five years		52,604		54,991
After five years through ten years		46,895		48,543
After ten years		52,280		54,343
Asset-backed securities		7,191		6,802
Collateralized mortgage obligations		115,308		116,965
Mortgage-backed securities		18,111		18,793
Total available-for-sale debt securities	$	294,583	$	302,638

Gross proceeds from the sale of available-for-sale debt securities were

$8.0

million for the

three

months ended

March 31, 2020

, with gross gains realized upon the sales of

$149

thousand. There were

gross losses realized upon the sale for the

three

months ended

March 31, 2020.

Gross proceeds from the sale of available-for-sale debt securities were

$25.1

million for the

three

months ended

March 31, 2019

, with gross gains and losses of

$176

thousand and

$16

thousand, respectively, realized upon the sale.

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities with unrealized losses at

March 31, 2020

and

December 31, 2019

aggregated by investment category and length of time the securities have been in an unrealized loss position.

	March 31, 2020
	Less than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
Obligations of state and political subdivisions		6	$	13,753	$	173		-	$	-	$	-		6	$	13,753	$	173
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		5		24,214		480		-		-		-		5		24,214		480
Collateralized mortgage obligations - commercial		1		2,462		49		-		-		-		1		2,462		49
Mortgage-backed securities		-		-		-		-		-		-		-		-		-
Private collateralized mortgage obligations		7		16,304		614		-		-		-		7		16,304		614
Corporate debt securities		4		6,536		464		-		-		-		4		6,536		464
Asset-backed securities		7		6,802		389		-		-		-		7		6,802		389
Negotiable certificates of deposit		-		-		-		-		-		-		-		-		-
Total available-for-sale debt securities		30	$	70,071	$	2,169		-	$	-	$	-		30	$	70,071	$	2,169

	December 31, 2019
	Less than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
(dollars in thousands)	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
Obligations of state and political subdivisions		10	$	19,436	$	359		-	$	-	$	-		10	$	19,436	$	359
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		4		19,934		92		-		-		-		4		19,934		92
Collateralized mortgage obligations - commercial		1		2,500		11		-		-		-		1		2,500		11
Mortgage-backed securities		-		-		-		-		-		-		-		-		-
Private collateralized mortgage obligations		4		18,990		43		-		-		-		4		18,990		43
Corporate debt securities		-		-		-		-		-		-		-		-		-
Asset-backed securities		2		888		1		-		-		-		2		888		1
Negotiable certificates of deposit		-		-		-		-		-		-		-		-		-
Total available-for-sale debt securities		21	$	61,748	$	506		-	$	-	$	-		21	$	61,748	$	506

Management evaluates individual securities in an unrealized loss position quarterly for other than temporary impairment (“OTTI”). As part of its evaluation, management considers, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any credit deterioration of the issuer, whether or

not

management intends to sell the security, and whether it is more likely than

not

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

There were

securities in an unrealized loss

position at

March 31, 2020

including

seven

asset-backed securities,

seven

non-agency collaterized mortgage obligations ("CMOs"),

six

CMOs issued by a U.S. government or government-sponsored agency,

six

obligations of state and political subdivisions and

four

corporate debt securities. Management performed a review of all securities in an unrealized loss position as of

March 31, 2020

and determined that changes in the fair values of the securities were consistent with movements in market interest rates or market disruption stemming from the COVID-

global pandemic. In addition, as part of its review, management noted that there was

material change in the credit quality of any of the issuers or any other event or circumstance that

may

cause a significant adverse effect on the fair value of these securities. Moreover, to date, FNCB has received all scheduled principal and interest payments and expects to fully collect all future contractual principal and interest payments on all securities in an unrealized loss position at

March 31, 2020

FNCB does

not

intend to sell the securities, nor is it more likely than

not

that it will be required to sell the securities, prior to recovery of their amortized cost. Based on the results of its review and considering the attributes of these debt securities, management concluded that the individual unrealized losses were temporary and OTTI did

not

exist at

March 31, 2020

Equity Securities

March 31, 2020

and

December 31, 2019,

equity securities consisted entirely of a

$1.0

million investment in a mutual fund, comprised of

family residential mortgage-backed securities collateralized by properties within FNCB's geographical market. This mutual fund had an unrealized loss of

$66

thousand and

$80

thousand, respectively, resulting in a fair value of

$934

thousand and

$920

thousand, respectively, at

March 31, 2020

and

December 31, 2019.

The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the

three months ended March 31, 2020 and 2019

	Three Months Ended March 31,
(in thousands)	2020		2019
Net gains recognized on equity securities	$	14	$	12
Less: net gains (losses) recognized on equity securities sold		-		-
Unrealized gains on equity securities held	$	14	$	12

Restricted Securities

The following table presents FNCB's investment in restricted stock at

March 31, 2020

and

December 31, 2019

. Restricted stock has limited marketability and is carried at cost.

	March 31,		December 31,
(in thousands)	2020		2019
Stock in Federal Home Loan Bank of Pittsburgh	$	4,214	$	3,794
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	4,224	$	3,804

Management noted

indicators of impairment for the Federal Home Loan Bank of Pittsburgh or Atlantic Community Banker’s Bank stock at

March 31, 2020

and

December 31, 2019

Equity Securities without Readily Determinable Fair Values

FNCB owns

201,000

shares of the common stock of a privately-held bank holding company. The common stock was purchased during

2017

for

$8.25

per share, or

$1.7

million in aggregate, as part of a private placement pursuant to an exemption from the registration requirements of the Securities Act of

1933,

as amended for offerings

not

involving any public offering. The common stock of such bank holding company is

not

currently traded on any established market and is

not

expected to be traded in the near future on any securities exchange or established over-the-counter market. The

$1.7

million investment is included in other assets in the consolidated statements of financial condition at

March 31, 2020

and

December 31, 2019.

FNCB has elected to account for this transaction as an investment in an equity security without a readily determinable fair value. Under GAAP, an equity security without a readily determinable fair value shall be written down to its fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value.

December 18, 2019,

management became aware that this privately held bank holding company had entered into an Agreement and Plan Merger ("Merger Agreement") with a publicly traded bank holding company. Pursuant to the Merger Agreement, this privately-held bank holding company will merge with and into the publicly traded bank holding company with that company surviving the merger ("surviving company"). At the effective time of the merger, anticipated to be sometime in the

third

quarter of

2020,

each share of the privately-held bank holding company's common stock issued and outstanding prior to the effective time of merger will be converted into the right to receive

0.6212

shares of common stock of the surviving company or

$16.50

in cash, at the election of holder; provided, however, individual shareholder elections of consideration will be prorated as necessary to ensure that, in aggregate,

25%

of the privately held bank holding company's stock will be converted into the cash consideration with the remaining

75%

converted into stock consideration. Based on this event, management determined that

adjustment for impairment was required at

March 31, 2020