Company Quick10K Filing
FNCB Bancorp
Price7.85 EPS0
Shares20 P/E21
MCap158 P/FCF17
Net Debt52 EBIT21
TEV211 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-04
10-K 2019-12-31 Filed 2020-03-09
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-03-08
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-11
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-24
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-28
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-24
10-Q 2012-03-31 Filed 2012-08-24
10-K 2011-12-31 Filed 2012-08-10
10-Q 2011-09-30 Filed 2012-08-10
10-Q 2010-08-09 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2010-03-16 Filed 2010-03-16
8-K 2020-07-31 Other Events, Exhibits
8-K 2020-07-20 Earnings, Exhibits
8-K 2020-07-02 Other Events, Exhibits
8-K 2020-07-01 Regulation FD, Exhibits
8-K 2020-05-13
8-K 2020-05-13
8-K 2020-04-29
8-K 2020-04-27
8-K 2020-03-25
8-K 2020-01-24
8-K 2020-01-22
8-K 2019-10-30
8-K 2019-10-21
8-K 2019-07-25
8-K 2019-07-01
8-K 2019-05-15
8-K 2019-05-15
8-K 2019-04-24
8-K 2019-04-22
8-K 2019-04-22
8-K 2019-02-05
8-K 2019-01-30
8-K 2019-01-28
8-K 2019-01-25
8-K 2018-12-21
8-K 2018-12-19
8-K 2018-12-14
8-K 2018-11-14
8-K 2018-10-31
8-K 2018-10-22
8-K 2018-10-19
8-K 2018-09-27
8-K 2018-08-14
8-K 2018-08-08
8-K 2018-07-30
8-K 2018-07-26
8-K 2018-07-20
8-K 2018-07-05
8-K 2018-05-16
8-K 2018-05-16
8-K 2018-04-25
8-K 2018-04-20
8-K 2018-04-06
8-K 2018-02-28
8-K 2018-01-31
8-K 2018-01-31
8-K 2018-01-24
8-K 2018-01-05

FNCB 10Q Quarterly Report

Part I - Financial Information
Item 1 - Financial Statements
Note 1. Basis of Presentation/Subsequent Event
Note 2. New Authoritative Accounting Guidance
Note 3. Securities
Note 4. Loans
Note 5. Borrowings
Note 6. Derivative and Hedging Transactions
Note 7. Income Taxes
Note 8. Related Party Transactions
Note 9. Commitments and Contingencies
Note 10. Stock Compensation Plans
Note 11. Regulatory Matters
Note 12. Fair Value Measurements
Note 13. Earnings per Share
Note 14. Other Comprehensive Income
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II Other Information
Item 1 - Legal Proceedings.
Item 1A - Risk Factors.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3 - Defaults Upon Senior Securities.
Item 4 - Mine Safety Disclosures.
Item 5 - Other Information.
Item 6 - Exhibits.
EX-3.1 ex_184096.htm
EX-31.1 ex_173111.htm
EX-31.2 ex_173112.htm
EX-32.1 ex_173113.htm

FNCB Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.31.00.80.50.30.02012201420172020
Assets, Equity
0.10.10.10.00.00.02018201820192020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 fncb20200331_10q.htm FORM 10-Q fncb20180331_10q.htm
 
 

 

Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to       

 

Commission File No. 001-38408

 

FNCB BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

 

23-2900790

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

     

102 E. Drinker St., Dunmore, PA

 

18512

(Address of Principal Executive Offices)

 

(Zip Code)

(570) 346-7667

Registrant’s telephone number, including area code 

 
Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $1.25 par value FNCB Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☒

Non-accelerated filer ☐ 

  Smaller reporting company ☒

 

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 20,174,922 shares as of May 4, 2020

 

 

 

 

 
Contents  
PART I. Financial Information 3
Item 1. Financial Statements (unaudited) 3
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income  5
Consolidated Statements of Changes in Shareholders’ Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures about Market Risk 53
Item 4. Controls and Procedures 53
PART II.  Other Information 54
Item 1. Legal Proceedings. 54
Item 1A. Risk Factors. 54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 54
Item 3. Defaults upon Senior Securities. 54
Item 4. Mine Safety Disclosures. 54
Item 5. Other Information. 54
Item 6. Exhibits. 55

     

 

 

Part I - Financial Information

Item 1 - Financial Statements

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

   

March 31,

   

December 31,

 

(in thousands, except share data)

 

2020

   

2019

 

Assets

               

Cash and cash equivalents:

               

Cash and due from banks

  $ 15,243     $ 22,861  

Interest-bearing deposits in other banks

    30,304       11,704  

Total cash and cash equivalents

    45,547       34,565  

Available-for-sale debt securities, at fair value

    302,638       272,839  

Equity securities, at fair value

    934       920  

Restricted stock, at cost

    4,224       3,804  

Loans held for sale

    470       1,061  

Loans, net of allowance for loan and lease losses of $9,907 and $8,950

    825,028       819,529  

Bank premises and equipment, net

    17,447       17,518  

Accrued interest receivable

    3,387       3,234  

Bank-owned life insurance

    31,359       31,230  

Other real estate owned

    85       289  

Net deferred tax assets

    4,950       6,278  

Other assets

    12,163       12,274  

Total assets

  $ 1,248,232     $ 1,203,541  
                 

Liabilities

               

Deposits:

               

Demand (non-interest-bearing)

  $ 181,223     $ 179,465  

Interest-bearing

    820,339       822,244  

Total deposits

    1,001,562       1,001,709  

Borrowed funds:

               

Federal Reserve Bank Discount Window advances

    10,000       -  

Federal Home Loan Bank of Pittsburgh advances

    77,934       46,909  

Junior subordinated debentures

    10,310       10,310  

Total borrowed funds

    98,244       57,219  

Accrued interest payable

    261       258  

Other liabilities

    10,233       10,748  

Total liabilities

    1,110,300       1,069,934  
                 

Shareholders' equity

               

Preferred shares ($1.25 par)

               

Authorized: 20,000,000 shares at March 31, 2020 and December 31, 2019

               

Issued and outstanding: 0 shares at March 31, 2020 and December 31, 2019

    -       -  

Common shares ($1.25 par)

               

Authorized: 50,000,000 shares at March 31, 2020 and December 31, 2019

               

Issued and outstanding: 20,174,250 shares at March 31, 2020 and 20,171,408 shares at December 31, 2019

    25,217       25,214  

Additional paid-in capital

    81,209       81,130  

Retained earnings

    25,155       24,207  

Accumulated other comprehensive income

    6,351       3,056  

Total shareholders' equity

    137,932       133,607  

Total liabilities and shareholders’ equity

  $ 1,248,232     $ 1,203,541  

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

 

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

   

Three Months Ended March 31,

 

(in thousands, except share data)

 

2020

   

2019

 

Interest income

               

Interest and fees on loans

  $ 9,139     $ 9,407  

Interest and dividends on securities:

               

U.S. government agencies

    750       893  

State and political subdivisions, tax free

    57       37  

State and political subdivisions, taxable

    765       1,021  

Other securities

    412       205  

Total interest and dividends on securities

    1,984       2,156  

Interest on interest-bearing deposits in other banks

    21       46  

Total interest income

    11,144       11,609  

Interest expense

               

Interest on deposits

    1,660       2,238  

Interest on borrowed funds:

               

Federal Reserve Bank Discount Window advances

    -       -  

Federal Home Loan Bank of Pittsburgh advances

    219       287  

Junior subordinated debentures

    88       114  

Subordinated debentures

    -       24  

Total interest on borrowed funds

    307       425  

Total interest expense

    1,967       2,663  

Net interest income before provision (credit) for loan and lease losses

    9,177       8,946  

Provision (credit) for loan and lease losses

    1,151       (154 )

Net interest income after provision (credit) for loan and lease losses

    8,026       9,100  

Non-interest income

               

Deposit service charges

    825       685  

Net gain on the sale of available-for-sale debt securities

    149       160  

Net gain on equity securities

    14       12  

Net gain on the sale of mortgage loans held for sale

    96       56  

Loan-related fees

    56       79  

Income from bank-owned life insurance

    129       131  

Merchant services revenue

    135       118  

Other

    290       274  

Total non-interest income

    1,694       1,515  

Non-interest expense

               

Salaries and employee benefits

    3,929       3,899  

Occupancy expense

    554       550  

Equipment expense

    371       307  

Advertising expense

    207       197  

Data processing expense

    725       781  

Regulatory assessments

    59       168  

Bank shares tax

    300       278  

Expense of other real estate owned

    55       51  

Professional fees

    188       332  

Insurance expense

    123       126  

Other operating expenses

    694       736  

Total non-interest expense

    7,205       7,425  

Income before income tax expense

    2,515       3,190  

Income tax expense

    452       555  

Net income

  $ 2,063     $ 2,635  
                 

Earnings per share

               

Basic

  $ 0.10     $ 0.14  

Diluted

  $ 0.10     $ 0.14  
                 

Cash dividends declared per common share

  $ 0.055     $ 0.050  

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

               

Basic

    20,172,498       18,720,502  

Diluted

    20,176,565       18,733,652  

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

 

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(unaudited)

 

   

Three Months Ended March 31,

 

(in thousands)

 

2020

   

2019

 

Net income

  $ 2,063     $ 2,635  

Other comprehensive income:

               

Unrealized gains on available-for-sale debt securities

    4,336       4,655  

Taxes

    (911 )     (978 )

Net of tax amount

    3,425       3,677  
                 

Reclassification adjustment for gains included in net income

    (149 )     (160 )

Taxes

    32       34  

Net of tax amount

    (117 )     (126 )
                 
Derivative adjustments     (16 )     -  
Taxes     3       -  
Net of tax amount     (13 )     -  

Total other comprehensive income

    3,295       3,551  

Comprehensive income

  $ 5,358     $ 6,186  
                 
                 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

 

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2020 and 2019

(unaudited)

 

(in thousands, except per share data)

 

Number of Common Shares

   

Common Stock

   

Additional Paid-in Capital

   

Retained Earnings

   

Accumulated Other Comprehensive (Loss) Income

   

Total Shareholders' Equity

 

Balances, December 31, 2018

    16,821,371     $ 21,026     $ 63,547     $ 17,186     $ (4,540 )   $ 97,219  

Net income for the period

    -       -       -       2,635       -       2,635  

Cash dividends paid, $0.05 per share

    -       -       -       (1,006 )     -       (1,006 )

Common shares issued for capital raise, net

    3,285,550       4,107       17,201       -       -       21,308  

Restricted stock awards

    -       -       67       -       -       67  

Common shares issued through dividend reinvestment/optional cash purchase plan

    1,639       2       12       (6 )     -       8  

Other comprehensive income, net of tax of $944

    -       -       -       -       3,551       3,551  
Balances, March 31, 2019     20,108,560     $ 25,135     $ 80,827     $ 18,809     $ (989 )   $ 123,782  
                                                 

Balances, December 31, 2019

    20,171,408     $ 25,214     $ 81,130     $ 24,207     $ 3,056     $ 133,607  
Net income for the period     -       -       -       2,063       -       2,063  

Cash dividends paid, $0.055 per share

    -       -       -       (1,110 )     -       (1,110 )

Restricted stock awards

    -       -       62       -       -       62  
Common shares issued through dividend reinvestment/optional cash purchase plan     2,842       3       17       (5 )     -       15  

Other comprehensive income, net of tax of $876

    -       -       -       -       3,295       3,295  
Balances, March 31, 2020     20,174,250     $ 25,217     $ 81,209     $ 25,155     $ 6,351     $ 137,932  

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

 

FNCB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   

Three Months Ended March 31,

 

(in thousands)

 

2020

   

2019

 

Cash flows from operating activities:

               
Net income   $ 2,063     $ 2,635  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Investment securities amortization, net

    120       212  

Equity in trust

    (3 )     (3 )
Depreciation and amortization     744       802  

Valuation adjustment for loan servicing rights

    23       1  

Stock-based compensation expense

    62       67  
Provision (credit) for loan and lease losses     1,151       (154 )

Valuation adjustment for off-balance sheet commitments

    2       21  
Net gain on the sale of available-for-sale debt securities     (149 )     (160 )
Net gain on equity securities     (14 )     (12 )
Net gain on the sale of mortgage loans held for sale     (96 )     (56 )
Income from bank-owned life insurance     (129 )     (131 )
Proceeds from the sale of mortgage loans held for sale     2,982       1,858  
Funds used to originate mortgage loans held for sale     (2,295 )     (1,591 )

Decrease in net deferred tax assets

    452       555  

Increase in accrued interest receivable

    (153 )     (92 )

Decrease (increase) in prepaid expenses and other assets

    87       (3,257 )

Increase in accrued interest payable

    3       1  

(Decrease) increase in accrued expenses and other liabilities

    (548 )     603  
Total adjustments     2,239       (1,336 )
Net cash provided by operating activities     4,302       1,299  
                 

Cash flows from investing activities:

               

Maturities, calls and principal payments of available-for-sale debt securities

    3,865       1,230  
Proceeds from the sale of available-for-sale debt securities     7,975       25,130  
Purchases of available-for-sale debt securities     (37,424 )     -  

(Purchase) redemption of the stock in Federal Home Loan Bank of Pittsburgh

    (420 )     3  
Net increase in loans to customers     (6,966 )     (333 )

Proceeds from the sale of other real estate owned

    204       -  
Purchases of bank premises and equipment     (337 )     (894 )
Net cash (used in) provided by investing activities     (33,103 )     25,136  
                 

Cash flows from financing activities:

               

Net decrease in deposits

    (147 )     (55,539 )

Net proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight

    21,025       8,400  

Proceeds from Federal Home Loan Bank of Pittsburgh advances - term

    10,000       8,478  

Repayment of Federal Home Loan Bank of Pittsburgh advances - term

    -       (6,820 )
Proceeds from Federal Reserve Bank Discount Window advances     10,000       -  

Principal reduction on subordinated debentures

    -       (5,000 )

Proceeds from issuance of common shares, net of discount

    15       21,316  

Cash dividends paid

    (1,110 )     (1,006 )

Net cash provided by (used in) financing activities

    39,783       (30,171 )
Net increase (decrease) in cash and cash equivalents     10,982       (3,736 )

Cash and cash equivalents at beginning of period

    34,565       36,481  

Cash and cash equivalents at end of period

  $ 45,547     $ 32,745  
                 

Supplemental cash flow information

               

Cash paid during the period for:

               
Interest   $ 1,963     $ 2,662  

Other transactions:

               

Lease liabilities arising from obtaining right-of-use assets

    15       12  

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

FNCB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1.   Basis of Presentation/Subsequent Event

 

The consolidated financial statements of FNCB are comprised of the accounts of FNCB Bancorp, Inc., and its wholly owned subsidiary, FNCB Bank (the “Bank”), as well as the Bank’s wholly owned subsidiaries (collectively, “FNCB”). The accounting and reporting policies of FNCB conform to accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Prior period amounts have been reclassified when necessary to conform to the current period’s presentation. Such reclassifications did not have an impact on the operating results or financial position of FNCB. The operating results and financial position of FNCB for the three months ended March 31, 2020, may not be indicative of future results of operations and financial position.

 

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.

 

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2019.

 

Risks and Uncertainties Related to COVID-19

 

In March 2020, the outbreak of the novel Coronavirus Disease 2019 ("COVID-19") was recognized as a pandemic by the World Health Organization. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that FNCB serves. Governmental authorities have responded to the pandemic by mandating the closure of locations of non-essential businesses and requiring individuals to observe social distancing and "stay-at-home" restrictions. These governmental restrictions, coupled with fear of contracting the virus, have resulted in a rapid decline in commercial and consumer activity, loss of revenues by businesses, a severe spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility. 

 

The federal government has taken several actions designed to mitigate the impact of the economic disruption. Specifically, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, a $2.0 trillion legislative package, was signed into law. The CARES Act contains substantial tax and spending provisions including direct financial aid to American families, extensive emergency funding for hospitals and medical providers, and economic stimulus to significant impacted industry sectors. Management expects the general impact of COVID-19, as well as certain provisions of the CARES Act and other recent legislative and regulatory relief efforts, to have a material impact on FNCB's operations. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. However, FNCB is disclosing potentially material items it is currently aware of.

 

Business Continuity, Processes and Controls

 

As a financial institution, FNCB is considered essential and has remained open for business. FNCB has invoked its pandemic preparedness plan. To address the financial needs of our customers in a safe and consistent manner, FNCB Bank offices remain open for regular business via drive-thru facilities, automated teller machines, Customer Care center, remote deposit capture and online and mobile banking applications. For customers needing in-person service, FNCB has been offering a by-appointment option while adhering to social distancing mandates. FNCB has also provided the technology for the majority of our operational staff can work remotely in a secure environment. FNCB does not currently face any material resource constraints through the implementation of its pandemic preparedness plan and does not anticipate incurring material cost related to its implementation. Additionally, FNCB has not identified any material operational or internal control challenges or risks, nor does it anticipate any significant challenges to its ability to maintain its systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

 

Financial Position and Results of Operations

 

Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, the FNCB is actively working with borrowers affected by COVID-19 and has rolled out a payment deferral program providing for either a three-month interest-only period or full payment deferral for three months. While interest and fees will still accrue to income, under normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. As a result, interest income in future periods could be negatively impacted. While FNCB is unable to determine the effective of such an impact on its financial condition or results of operations at this time, it recognizes sustained economic impact may affect its borrowers’ ability to repay in future periods.

 

At March 31, 2020, FNCB and FNCB Bank was considered well capitalized with capital ratios that were in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact FNCB and FNCB Bank's capital  position and regulatory capital ratios due to a potential increase in credit losses. 

 

Lending Operations and Credit Risk

 

As previously mentioned, FNCB is working with its lending customers that are facing unemployment, temporary furloughs and closures, by offering a payment deferral program. FNCB has provided either a three-month interest-only period or full payment deferral for three months depending on the specific need of the borrower. As of April 30, 2020, FNCB assisted 771 customers under our payment deferral program, with the total principal balance of loans modified of $153.7 million. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings.

 

 

The CARES Act includes a Paycheck Protection Program ("PPP"), a program administered by the Small Business Administration ("SBA") designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. As an SBA Lender, FNCB Bank is actively participating in PPP loans assisting our small business community in securing this important funding. As of April 30, 2020, FNCB has approved and/or closed with the SBA 482 PPP loans representing $93.6 million in funding. It is FNCB's understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, FNCB could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses. 

 

FNCB is prepared to continue to offer short-term assistance in accordance with regulatory guidelines. As the fallout of the COVID-19 pandemic ripple through the national, regional and local economies, management continues to identify and monitor potential weaknesses in the loan portfolio. Management has identified and is monitoring exposures to borrowers and industries that may be impacted more immediately and acutely than others.  Additionally, management has proactively reached out to specific borrowers to provide guidance and assistance as appropriate.  On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as hotels and hospitality for changes in asset quality and payment performance, and liquidity levels. Management monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. Should economic conditions worsen, FNCB could experience further increases in its required allowance for loan and lease losses and record additional provisions for loan and lease losses. It is possible that FNCB’s asset quality metrics could be materially and adversely impacted in future periods if the effects of COVID-19 are prolonged.

 

 

 

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.

 

 

 

 

Note 3. 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 no securities of any individual issuer that exceeded 10.0% of shareholders’ equity at March 31, 2020 and 2019.

 

At 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 no 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 30 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-19 global pandemic. In addition, as part of its review, management 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, 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

 

At March 31, 2020 and December 31, 2019, equity securities consisted entirely of a $1.0 million investment in a mutual fund, comprised of 1-4 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 no 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.

 

On 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 no adjustment for impairment was required at March 31, 2020.

 

 

 

Note 4. Loans

 

The following table summarizes loans receivable, net, by category at March 31, 2020 and December 31, 2019:

 

   

March 31,

   

December 31,

 

(in thousands)

 

2020

   

2019

 

Residential real estate

  $ 171,764     $ 170,723  

Commercial real estate

    276,662       278,379  

Construction, land acquisition and development

    43,929       47,484  

Commercial and industrial

    161,654       147,623  

Consumer

    129,192       138,239  

State and political subdivisions

    49,953       43,908  

Total loans, gross

    833,154       826,356  

Unearned income

    (51 )     (69 )

Net deferred loan costs

    1,832       2,192  

Allowance for loan and lease losses

    (9,907 )     (8,950 )

Loans, net

  $ 825,028     $ 819,529  

 

FNCB has granted loans, letters of credit and lines of credit to certain of its executive officers and directors as well as to certain of their related parties. For more information about related party transactions, refer to Note 8, “Related Party Transactions” to these consolidated financial statements.

 

FNCB originates 1-4 family mortgage loans for sale in the secondary market. During the three months ended March 31, 2020 and 2019, 1-4 family mortgages sold on the secondary market were $2.9 million and $1.9 million, respectively. Net gains on the sale of residential mortgage loans were $96 thousand for the three months ended March 31, 2020 and $56 thousand for the three months ended March 31, 2019. FNCB retains servicing rights on mortgages sold on the secondary market. At March 31, 2020 and December 31, 2019, there were $0.5 million and $1.1 million in 1-4 family residential mortgage loans held for sale, respectively.

 

 

There were no sales of Small Business Administration (“SBA”) guaranteed loans during the three months ended March 31, 2020 and 2019. The unpaid principal balance of loans serviced for others, including residential mortgages and SBA-guaranteed loans, was $105.7 million at March 31, 2020 and $106.0 million at December 31, 2019.

 

FNCB does not have any lending programs commonly referred to as "subprime lending." Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, and bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

 

There were no material changes to the risk characteristics of FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL during the three months ended March 31, 2020. Refer to Note 2, “Summary of Significant Accounting Policies” to FNCB’s consolidated financial statements included in the 2019 Annual Report on Form 10-K for information about the risk characteristics related to FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL.

 

Management evaluates the credit quality of the loan portfolio on an ongoing basis, and performs a formal review of the adequacy of the ALLL on a quarterly basis. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the established ALLL, which could have a material negative effect on FNCB’s operating results or financial condition. While management uses the best information available to make its evaluations, future adjustments to the ALLL may be necessary if conditions differ substantially from the information used in making the evaluations. 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.

 

The following table summarizes activity in the ALLL by loan category for the three months ended March 31, 2020 and 2019.

 

 

                   

Construction,

                                         
                   

Land

                   

State and

                 
   

Residential

   

Commercial

   

Acquisition and

   

Commercial

           

Political

                 

(in thousands)

 

Real Estate

   

Real Estate

   

Development

   

and Industrial

   

Consumer

   

Subdivisions

   

Unallocated

   

Total

 
Three months ended March 31, 2020                                                                

Allowance for loan losses:

                                                               
Beginning balance, January 1, 2020   $ 1,147     $ 3,198     $ 271     $ 1,997     $ 1,658     $ 253     $ 426     $ 8,950  

Charge-offs

    -       (56 )     -       (35 )     (238 )     -       -       (329 )

Recoveries

    2       -       -       59       74       -       -       135  

Provisions

    158       415       12       283       220       17       46       1,151  

Ending balance, March 31, 2020

  $ 1,307     $ 3,557     $ 283     $ 2,304     $ 1,714     $ 270     $ 472     $ 9,907  
                                                                 

Three months ended March 31, 2019

                                                               

Allowance for loan losses:

                                                               
Beginning balance, January 1, 2019   $ 1,175     $ 3,107     $ 188     $ 2,552     $ 2,051     $ 417     $ 29     $ 9,519  

Charge-offs

    -       -       -       (139 )     (315 )     -       -       (454 )

Recoveries

    4       -       81       84       173       -       -       342  

Provisions (credits)

    (24 )     (56 )     (163 )     2       54       6       27       (154 )

Ending balance, March 31, 2019

  $ 1,155     $ 3,051     $ 106     $ 2,499     $ 1,963     $ 423     $ 56     $ 9,253  

 

 

The following table represents the allocation of the ALLL and the related loan balance, by loan category, disaggregated based on the impairment methodology at March 31, 2020 and December 31, 2019:

 

 

                   

Construction,

                                         
                   

Land

                   

State and

                 
   

Residential

   

Commercial

   

Acquisition and

   

Commercial

           

Political

                 

(in thousands)

 

Real Estate

   

Real Estate

   

Development

   

and Industrial

   

Consumer

   

Subdivisions

   

Unallocated

   

Total

 

March 31, 2020

                                                               

Allowance for loan losses:

                                                               

Individually evaluated for impairment

  $ 8     $ 205     $ -     $ 209     $ 1     $ -     $ -     $ 423  

Collectively evaluated for impairment

    1,299       3,352       283       2,095       1,713       270       472       9,484  

Total

  $ 1,307     $ 3,557     $ 283     $ 2,304     $ 1,714     $ 270     $ 472     $ 9,907