Note 3 - Securities

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 3. Securities

Available-for-Sale 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, 2023 and December 31, 2022:

	March 31, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
U.S. treasuries	$	36,813	$	-	$	3,968	$	32,845
Obligations of state and political subdivisions		242,857		106		23,480		219,483
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		92,338		-		11,588		80,750
Collateralized mortgage obligations - commercial		3,640		-		282		3,358
Mortgage-backed securities		22,331		2		2,363		19,970
Private collateralized mortgage obligations		77,933		16		8,209		69,740
Corporate debt securities		35,110		-		3,070		32,040
Asset-backed securities		14,562		-		284		14,278
Negotiable certificates of deposit		744		-		89		655
Total available-for-sale debt securities	$	526,328	$	124	$	53,333	$	473,119

	December 31, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
(in thousands)	Cost		Gains		Losses		Value
Available-for-sale debt securities:
U.S. treasuries	$	36,801	$	-	$	4,667	$	32,134
Obligations of state and political subdivisions		250,244		90		29,552		220,782
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		93,577		-		13,170		80,407
Collateralized mortgage obligations - commercial		3,649		-		320		3,329
Mortgage-backed securities		23,332		1		2,670		20,663
Private collateralized mortgage obligations		80,648		-		8,141		72,507
Corporate debt securities		33,630		-		2,958		30,672
Asset-backed securities		15,287		5		351		14,941
Negotiable certificates of deposit		744		-		88		656
Total available-for-sale debt securities	$	537,912	$	96	$	61,917	$	476,091

Except for securities of U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of shareholders’ equity at March 31, 2023 and December 31, 2022.

The following table presents the maturity information of FNCB’s available-for-sale debt securities at March 31, 2023.  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, 2023
	Amortized		Fair
(in thousands)	Cost		Value
Amounts maturing in:
One year or less	$	20,201	$	20,043
After one year through five years		68,798		65,511
After five years through ten years		107,687		94,437
After ten years		118,838		105,032
Mortgage-backed securities		22,331		19,970
Collateralized mortgage obligations		173,911		153,848
Asset-backed securities		14,562		14,278
Total available-for-sale debt securities	$	526,328	$	473,119

The following table presents the gross proceeds received, and gross realized gains and losses, on sales of available-for-sale debt securities for the three months ended March 31, 2023 and 2022. Gains and losses realized on sales of available-for-sale debt securities are included in non-interest income in the consolidated statements of income. There were no sales of available-for-sale debt securities during the three months ended March 31, 2022.

	Three Months Ended March 31,
(in thousands)	2023		2022
Available-for-sale debt securities:
Gross proceeds received on sales	$	7,054	$	-
Gross realized gains		162		-
Gross realized losses		-		-

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities with unrealized losses at March 31, 2023 and December 31, 2022, aggregated by investment category and length of time the securities have been in an unrealized loss position.

	March 31, 2023
	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
U.S. treasuries		-	$	-	$	-		17	$	32,845	$	3,968		17	$	32,845	$	3,968
Obligations of state and political subdivisions		36		35,281		547		176		178,908		22,933		212		214,189		23,480
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		1		296		12		41		80,453		11,576		42		80,749		11,588
Collateralized mortgage obligations - commercial		-		-		-		3		3,358		282		3		3,358		282
Mortgage-backed securities		5		7,208		89		8		12,655		2,274		13		19,863		2,363
Private collateralized mortgage obligations		17		15,938		477		38		52,046		7,732		55		67,984		8,209
Corporate debt securities		13		15,921		1,379		17		16,119		1,691		30		32,040		3,070
Asset-backed securities		2		7,268		72		9		7,010		212		11		14,278		284
Negotiable certificates of deposit		-		-		-		3		655		89		3		655		89
Total available-for-sale debt securities		74	$	81,912	$	2,576		312	$	384,049	$	50,757		386	$	465,961	$	53,333

	December 31, 2022
	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
U.S. treasuries		-	$	-	$	-		17	$	32,134	$	4,667		17	$	32,134	$	4,667
Obligations of state and political subdivisions		128		146,932		12,751		94		69,872		16,801		222		216,804		29,552
U.S. government/government-sponsored agencies:
Collateralized mortgage obligations - residential		16		26,826		3,407		26		53,581		9,763		42		80,407		13,170
Collateralized mortgage obligations - commercial		2		1,911		94		1		1,418		226		3		3,329		320
Mortgage-backed securities		7		8,569		219		7		11,998		2,451		14		20,567		2,670
Private collateralized mortgage obligations		29		27,705		1,213		28		42,819		6,928		57		70,524		8,141
Corporate debt securities		18		21,325		1,805		11		9,347		1,153		29		30,672		2,958
Asset-backed securities		5		7,295		179		5		3,988		172		10		11,283		351
Negotiable certificates of deposit		-		-		-		3		656		88		3		656		88
Total available-for-sale debt securities		205	$	240,563	$	19,668		192	$	225,813	$	42,249		397	$	466,376	$	61,917

Evaluation for Credit Impairment

Quarterly, or more frequently if market conditions warrant, management evaluates securities for impairment where there has been a decline in fair value of a security below its amortized cost basis to determine whether the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors.  At March 31, 2023, there were 386 securities in an unrealized loss position. FNCB expects to recover its amortized cost basis of all available-for-sale debt securities. Furthermore, FNCB does not intend to sell, nor is it more likely than not that it would be required to sell, any security in an unrealized loss position prior to recovery of its amortized cost. As part of its evaluation, management considered, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any adverse conditions related to the security, an industry or geographic area, any adverse changes to the rating of any security by a rating agency, whether or not any issuer has failed to make contractual principal and interest payments, or if there are any indications that an issuer would not be able to make future contractual principal and interest payments. 

Management performed a review of all securities in an unrealized loss position as of March 31, 2023 and noted that there was no 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, 2023. Based on the results of its review and considering the attributes of these debt securities, management concluded that changes in the fair values of the securities were consistent with movements in market interest rates and spreads relative to when the securities were purchased and not due to the credit quality of the securities or issuers. Accordingly, management determined that FNCB was not required to establish an ACL for any security in an unrealized loss position at March 31, 2023.

Equity Securities

Included in equity securities with readily determinable fair values at March 31, 2023 and December 31, 2022 were investments in the common or preferred stock of publicly traded bank holding companies and an investment in a mutual fund comprised of 1-4 family residential mortgage-backed securities collateralized by properties within FNCB’s market area. 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.

The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the three months ended March 31, 2023 and 2022.

	Three Months Ended March 31,
(in thousands)	2023			2022
Net losses recognized on equity securities	$	(508	)	$	(125	)
Less: net gains (losses) realized on equity securities sold		-			-
Unrealized losses on equity securities	$	(508	)	$	(125	)

Equity Securities without Readily Determinable Fair Values

At March 31, 2023 and  December 31, 2022, equity securities without readily determinable fair values consisted of a $500 thousand investment in a fixed-rate, non-cumulative perpetual preferred stock of a privately-held bank holding company, which is included in other assets in the consolidated statement of financial condition. The preferred stock pays quarterly dividends at an annual rate of 8.25%. The preferred stock of this bank holding company is not traded on any established market and is accounted for as an equity security without a 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.  As part of its qualitative assessment, management engaged an independent third party to provide valuations of this investment as of March 31, 2023 and December 31, 2022, which indicated that the investment was not impaired.  Accordingly, management determined that no adjustment for impairment was required at March 31, 2023 and  December 31, 2022.

Restricted Stock

The following table presents FNCB's investment in restricted stock at March 31, 2023 and  December 31, 2022.  Restricted stock has limited marketability and is carried at cost. Management noted no indicators of impairment for the Federal Home Loan Bank ("FHLB") of Pittsburgh or Atlantic Community Banker’s Bank stock at March 31, 2023 and  December 31, 2022.

	March 31,		December 31,
(in thousands)	2023		2022
Stock in Federal Home Loan Bank of Pittsburgh	$	8,472	$	8,535
Stock in Atlantic Community Banker's Bank		10		10
Total restricted securities, at cost	$	8,482	$	8,545