FNCB Bancorp, Inc. Annual Report 2021

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FY2021 Annual Report · FNCB Bancorp, Inc.

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Moving ahead. Together.

102 EAST DRINKER STREET, DUNMORE, PA 18512

FNCB Bancorp, Inc.
2021 Annual Report

Non-GAAP Financial Measure:
Non-GAAP Financial Measure:

2021
2021

2020
2020

2019
2019

2018
2018

Financial Highlights
Financial Highlights
(dollars in thousands except share data)
(dollars in thousands except share data)

Income Statement:
Income Statement:

Net interest income
Net interest income

Non-interest income
Non-interest income

Total revenue
Total revenue

Non-interest expense
Non-interest expense

Provision for loan and lease losses
Provision for loan and lease losses

Income tax expense
Income tax expense

Net income
Net income

Net interest margin
Net interest margin

Return on average assets
Return on average assets

Return on average equity
Return on average equity

Efficiency ratio (Bank only)
Efficiency ratio (Bank only)

Net income
Net income

Non-recurring adjustments (1)
Non-recurring adjustments (1)

Adjusted net income
Adjusted net income

Per Share Data:
Per Share Data:

Net income per share (basic and diluted)
Net income per share (basic and diluted)

Adjusted net income per share (basic and diluted)
Adjusted net income per share (basic and diluted)

Cash dividends declared
Cash dividends declared

Tangible book value
Tangible book value

Closing stock price
Closing stock price

Balance Sheet Data:
Balance Sheet Data:

Total assets
Total assets

Total loans, gross
Total loans, gross

Total deposits
Total deposits

Shareholders equity
Shareholders equity

Tier 1 leverage ratio (FNCB Bank only)
Tier 1 leverage ratio (FNCB Bank only)

Total risk-based capital ratio (FNCB Bank only)
Total risk-based capital ratio (FNCB Bank only)

7,225
7,225

40,273
40,273

28,069
28,069

769
769

11,288
11,288

$147
$147

3.23%
3.23%

1.00%
1.00%

0.15%
0.15%

69.13%
69.13%

2017
2017

$147
$147

8,007
8,007

$8,154
$8,154

2017
2017

$0.01
$0.01

0.49
0.49

0.13
0.13

5.32
5.32

2021
2021

2020
2020

2019
2019

2018
2018

2017
2017

$48,994
$48,994

$40,178
$40,178

$36,260
$36,260

$36,507
$36,507

$33,048
$33,048

8,268
8,268

57,262
57,262

31,069
31,069

166
166

4,656
4,656

9,250
9,250

49,428
49,428

28,915
28,915

1,941
1,941

3,225
3,225

7,620
7,620

43,880
43,880

29,682
29,682

797
797

2,326
2,326

11,790
11,790

48,297
48,297

29,327
29,327

2,550
2,550

3,071
3,071

$21,371
$21,371

$15,347
$15,347

$11,075
$11,075

$13,349
$13,349

3.45%
3.45%

1.36%
1.36%

13.46%
13.46%

53.63%
53.63%

3.35%
3.35%

1.13%
1.13%

10.66%
10.66%

59.97%
59.97%

3.29%
3.29%

0.92%
0.92%

8.88%
8.88%

67.72%
67.72%

3.22%
3.22%

1.09%
1.09%

15.38%
15.38%

58.48%
58.48%

$21,371
$21,371

$15,347
$15,347

$11,075
$11,075

$13,349
$13,349

-
-

$21,371
$21,371

$15,347
$15,347

$11,075
$11,075

2021
2021

$1.06
$1.06

1.06
1.06

0.27
0.27

8.13
8.13

2020
2020

$0.76
$0.76

0.76
0.76

0.22
0.22

7.70
7.70

$9.24
$9.24

$6.40
$6.40

2019
2019

$0.56
$0.56

0.56
0.56

0.20
0.20

6.62
6.62

$8.45
$8.45

(4,761)
(4,761)

$8,588
$8,588

2018
2018

$0.79
$0.79

0.51
0.51

0.17
0.17

5.78
5.78

$8.44
$8.44

$7.30
$7.30

2021
2021

2020
2020

2019
2019

2018
2018

2017
2017

$1,664,323
$1,664,323

$1,465,679
$1,465,679

$1,203,541
$1,203,541

$1,237,732
$1,237,732

$1,162,305
$1,162,305

981,447
981,447

903,341
903,341

826,356
826,356

835,207
835,207

768,069
768,069

1,455,028
1,455,028

1,287,448
1,287,448

1,001,709
1,001,709

1,095,629
1,095,629

1,002,448
1,002,448

$162,457
$162,457

$155,860
$155,860

$133,607
$133,607

$97,219
$97,219

$89,191
$89,191

8.92%
8.92%

14.64%
14.64%

9.57%
9.57%

15.79%
15.79%

10.36%
10.36%

13.70%
13.70%

8.27%
8.27%

12.17%
12.17%

8.24%
8.24%

12.49%
12.49%

Asset Quality Data:
Asset Quality Data:

Allowance for loan and lease losses/total loans
Allowance for loan and lease losses/total loans

Non-performing loans/total loans
Non-performing loans/total loans

2021
2021

1.27%
1.27%

0.39%
0.39%

2020
2020

1.33%
1.33%

0.62%
0.62%

2019
2019

1.08%
1.08%

1.10%
1.10%

2018
2018

1.13%
1.13%

0.56%
0.56%

2017
2017

1.17%
1.17%

0.34%
0.34%

Allowance for loan and lease losses/non-performing loans
Allowance for loan and lease losses/non-performing loans

321.41%
321.41%

214.12%
214.12%

98.52%
98.52%

202.70%
202.70%

350.43%
350.43%

Net (recoveries) charge-offs/average loans
Net (recoveries) charge-offs/average loans

(0.03%)
(0.03%)

(0.12%)
(0.12%)

0.16%
0.16%

0.25%
0.25%

0.02%
0.02%

(1) Includes: non-recurring insurance recovery, net of taxes, (2018); non-cash, non-recurring valuation adjustment to net deferred tax assets for change
(1) Includes: non-recurring insurance recovery, net of taxes, (2018); non-cash, non-recurring valuation adjustment to net deferred tax assets for change
in statutory corporate income tax rate (2017).
in statutory corporate income tax rate (2017).

FNCB Bancorp, Inc. is the holding company for FNCB Bank (collectively, “FNCB”). Locally-based for 112 years, FNCB Bank continues as a premier community bank based in Northeastern
FNCB Bancorp, Inc. is the holding company for FNCB Bank (collectively, “FNCB”). Locally-based for 112 years, FNCB Bank continues as a premier community bank based in Northeastern
Pennsylvania – offering a full suite of personal, small business and commer cial banking solutions with industry leading mobile, online and in-branch products and services. FNCB Bank
Pennsylvania – offering a full suite of personal, small business and commer cial banking solutions with industry leading mobile, online and in-branch products and services. FNCB Bank
currently operates 16 community offices in Lackawanna, Luzerne and Wayne Counties and remains dedicated to making its customers’ banking experience simply better.
currently operates 16 community offices in Lackawanna, Luzerne and Wayne Counties and remains dedicated to making its customers’ banking experience simply better.

Common stock of FNCB Bancorp, Inc. is

Philadelphia, PA 19103

listed on The Nasdaq Capital Market® under

the symbol: FNCB

Shareholder Information

CORPORATE HEADQUARTERS

FNCB Bancorp, Inc.

102 E. Drinker Street

Dunmore, PA 18512

Phone: (570) 346-7667 or

1-877-TRY-FNCB

www.fncb.com

STOCK LISTING

VIRTUAL ANNUAL MEETING

Wednesday, May 11, 2022, 9:00 AM EDT

Access to the meeting via the Internet at:

virtualshareholdermeeting.com/FNCB2022

INVESTOR INFORMATION

Investor and shareholder information

regarding FNCB Bancorp, Inc., including

all filings with the Securities and Exchange

Commission, is available through FNCB’s

website: investors.fncb.com. Copies may

also be obtained without charge upon

written request to:

Mr. James M. Bone, Jr., CPA

Investor Relations Department

FNCB Bancorp, Inc.

102 E. Drinker Street

Dunmore, PA 18512

james.bone@fncb.com

TRANFER AGENT

AND REGISTRANT OF STOCK

Shareholders requiring a change of

name, address or ownership of stock, or

information about shareholder records, lost

or stolen certificates, and dividend checks,

direct deposit, dividend reinvestment and

optional cash purchase should contact:

Broadridge Financial Solutions, Inc.

P.O. Box 1342

Brentwood, NY 11717

Phone: (877) 456-5754

Email: shareholder@broadridge.com

shareholder.broadridge.com/fncb

INDEPENDENT AUDITORS

Baker Tilly US, LLP

46 Public Square, Suite 400

Wilkes-Barre, PA 18701

SEC LEGAL COUNSEL

Cozen O’Connor

One Liberty Place

1650 Market Street, Suite 2800

MARKET MAKERS

Boenning & Scattergood, Inc.

Four Tower Bridge

200 Barr Harbor Drive, Suite 300

West Conshohocken, PA 19428

(800) 883-1212

boenninginc.com

Janney Montgomery Scott LLC

1475 Peachtree St. NE, Suite 800

Atlanta, GA 30309

(404) 601-7205

janney.com

JWTT, Inc.

1231 NW Hoyt Street, Suite 206

Portland, OR 97209

(757) 955-8444

jwttinc.com

Keefe, Bruyette & Woods

787 Seventh Avenue, 4th Floor

New York, NY 10019

(212) 887-7777

kbw.com

Stifel, Nicolaus & Company Inc.

One South Street, 15th Floor

Baltimore, MD 21202

(443) 224-1990

stifel.com

INVESTMENT

PROFILE

ESTABLISHED

1910

LISTING

NASDAQ

CAPITAL MARKET

MARKET CAP

$184.7 MILLION

DECEMBER 31, 2021

DIVIDEND

$0.27

2021

DIVIDEND YIELD

2.92%

BASED ON CLOSING PRICE OF

$9.24 ON DECEMBER 31, 2021

TOTAL ASSETS

$1.7 billion

TOTAL LOANS

$1.0 billion

TOTAL DEPOSITS

$1.5 billion

EMPLOYEES

227

Dear Shareholders, Customers
and Friends,

The economic disruption related
to the COVID-19 pandemic in 2020
persisted throughout 2021. We
continued to navigate through a
challenging interest rate environment
as market interest rates remained
at historic lows, as well as the
oversupply of liquidity within the
industry. Recently, the government
stimulus, healthy consumer demand
and supply-chain constraints have
contributed to record price inflation,
leading the Federal Reserve Bank to
change its monetary policy stance
from accommodative to tightening
with its first increase in the federal
funds target rate of 25 basis points
in the first quarter of 2022, with
additional tightening anticipated
over the course of the year.

EARNINGS PER SHARE

$1.06

$0.56

$0.76

$0.79

2021

2020

2019

2018

2017 -
2017

$0.01

$ $0.20 $0.40 $0.60 $0.80 $1.00 $1.20

Moving ahead. Exceptional 2021
financial performance.

Despite a challenging environment,
FNCB adapted to changing market
demands and posted a strong
financial performance in 2021, as net
income increased 39.3%, reaching
$21.4 million, or $1.06 per basic and
diluted share, in 2021, compared
to net income of $15.3 million, or
$0.76 per basic and diluted share,
in 2020. Return on average assets
and return on average shareholders’
equity equaled 1.36% and 13.46%,
respectively in 2021, compared to
1.13% and 10.66%, respectively in
2020.

Strong earning asset growth and our
ongoing leadership in originating
Paycheck Protection Program (“PPP”)
loans and assisting customers
through the forgiveness process,
as well as our ability to effectively
manage funding costs contributed to
the increase in net income.

Fueled by earning asset growth
and reduction in funding costs,
net interest income increased $8.8
million, or 21.9%, to $49.0 million
in 2021 from $40.2 million in 2020.
Average earning assets increased
$226.2 million, or 18.5%, to $1.449
billion in 2021 compared to $1.223
billion in 2020, including a $127.4
million, or 42.1%, increase in average
investment securities and a $39.1
million, or 4.3%, increase in average
loans. Net interest income included
the recognition of $4.8 million in net
loan origination fees from PPP loans
in 2021, an increase of $3.6 million
compared to $1.2 million recognized
in 2020. Additionally, we were able
to reduce our cost of funds 39 basis
points to 0.25% in 2021 from 0.64% in
2020. These factors contributed to a
10-basis point improvement in FNCB’s
tax-equivalent net interest margin to
3.45% in 2021 from 3.35% in 2020.

TAX-EQUIVALENT NET INTEREST MARGIN

3.45%

3.35%

3.29%

2021

2020

2019

2018

3.22%

2017

3.23%

3.10% 3.15% 3.20% 3.25% 3.30% 3.35% 3.40% 3.45% 3.50%

In 2020, we elevated our credit
provisioning in response to economic
disruption and uncertainty brought
on by the pandemic. However,
continued improvement in asset
quality metrics allowed us to lower
our credit provisioning in 2021. The
provision for loan and lease losses

was $166 thousand in 2021 compared
to $1.9 million in 2020.

Partially offsetting these positive
factors was a reduction in non-
interest income and higher levels of
non-interest expense. Non-interest
income decreased $982 thousand, or
10.6%, to $8.3 million in 2021 from
$9.2 million in 2020. The year over
year decrease in non-interest income
largely reflected decreases in net
gains on equity securities, net gains
on the sales of available-for-sale debt
securities and mortgage loans held for
sale, partially offset by an increase in
deposit service charges. Non-interest
expense increased $2.2 million,
or 7.4%, to $31.1 million in 2021
from $28.9 million in 2020, caused
primarily by higher salaries and
employee benefits, data processing
costs, regulatory assessments and
bank shares tax, partially offset by
decreases in occupancy, equipment
and professional fee expenses.
Overall, the Bank’s operating
efficiency improved in 2021 as
evidenced by a significant reduction
in FNCB Bank’s efficiency ratio to
53.63% in 2021 from 59.97% in 2020.

EFFICIENCY RATIO (FNCB BANK ONLY)

2021

2020

2019

2018

2017

53.63%

59.97%

67.72%

58.48%

69.13%

0% 10% 20% 30% 40% 50% 60% 70% 80%

We continue to focus on providing
an annual return to our shareholders
that is meaningful and aligned with
our peers. Total dividends paid to
shareholders increased $0.05 per
share, or 22.7%, to $0.27 per share
in 2021 from $0.22 per share in 2020.
The dividend payout ratio was 25.4%
in 2021 and 29.0% in 2020. Total
dividends declared and paid in 2021

resulted in a dividend yield of 2.92%
based on the closing stock price of
$9.24 per share on December 31,
2021, which appreciated $2.84 from
$6.40 per share on December 31,
2020. The appreciation, coupled with
the 2021 dividends paid, equated to
a one-year total return of 48.6%. We
are pleased to say that on January 26,
2021, the Board of Directors approved
an increase in the first quarter 2022
dividend of $0.015 per share, or 25.0%,
to $0.075 per share from $0.06 per
share for the same quarter of 2021.

DIVIDENDS PER SHARE

$0.27

$0.22

$0.20

$0.17

$0.13

2021

2020

2019

2018

2017

$ $0.05 $0.10 $0.15 $0.20 $0.25 $0.30

Moving ahead. Strong balance
sheet positioning.

Total assets increased $198.6
million, or 13.6%, to $1.664 billion
at December 31, 2021, from $1.465
billion at December 31, 2020. The
strong balance sheet growth reflected
substantial increases in available-for-
sale debt securities, and loans, net of
net deferred loan costs and unearned
income, which were funded by
liquidity from unprecedented deposit
growth. Total deposits increased
$167.6 million, or 13.0%, to $1.455
billion at December 31, 2021 from
$1.287 billion at December 31, 2020.
Interest-bearing deposits increased
$119.0 million, or 11.7%, to $1.135
billion at December 31, 2021 from
$1.016 billion at December 31, 2020.
Additionally, non-interest-bearing
deposits increased $48.6 million, or
17.9%, to $320.1 million at December
31, 2021 from $271.5 million at
December 31, 2020. With a focus on
improving interest income run rates,

we redeployed the excess liquidity
into high-quality earning assets.
Available-for-sale debt securities
increased $172.5 million, or 49.3%, to
$522.6 million at December 31, 2021
from $350.0 million at December 31,
2020. Loans, net of unearned income
and net deferred loan origination
fees, grew $78.3 million, or 8.7%, to
$979.4 million at December 31, 2021,
from $901.1 million at December 31,
2020.

FNCB’s asset quality continued to
improve throughout 2021, as total
non-performing loans decreased
$1.7 million to $3.9 million, or 0.39%
of total loans, at December 31,
2021 from $5.6 million, or 0.62% of
total loans, at December 31, 2020.
FNCB’s loan delinquency rate (total
delinquent loans as a percentage of
total loans) was 0.55% at December
31, 2021 compared to 0.99% at
the end of 2020. FNCB posted net
recoveries for the second consecutive
year. Net loans recovered were $300
thousand, or 0.03% of total average
loans, in 2021 and $1.1 million, or
0.12% of total average loans, in 2020.
FNCB’s excellent asset quality reflects
continued discipline in our lending
practices and our proactive attention
with respect to credit management.
The positive metrics allowed us to
reduce our credit provisioning in
2021. We recorded a provision for loan
and lease losses of $166 thousand
in 2021, a reduction of $1.8 million
compared to $1.9 million in 2020. The
allowance for loan and lease losses as
a percentage of gross loans was 1.27%
and 1.33% at December 31, 2021 and
2020, respectively.

million decrease in accumulated
other comprehensive income related
primarily to depreciation in the fair
value of FNCB’s available-for-sale
debt securities, net of deferred taxes
and dividends declared and paid in
2021 of $5.4 million and common
share repurchases of $2.4 million.
FNCB’s tangible book value per share
improved $0.43, or 5.6%, to $8.13
per share at December 31, 2021 from
$7.70 per share at December 31, 2020.
FNCB Bank’s total risk-based capital
and Tier I leverage ratios were 14.64%
and 8.92%, respectively, at December
31, 2021 compared to 15.79% and
9.57%, respectively, at December 31,
2020.

SHAREHOLDERS’ EQUITY

$162,457

$155,860

$133,607

$97,219

$89,191

(DOLLARS IN
THOUSANDS)

2021

2020

2019

2018

2017

$ $25K $50K $75K $100K $125K $150K $175K

5 year CAGR = 12.74%

BOOK VALUE PER SHARE

$8.13

$7.70

$6.62

$5.78

$5.32

2021

2020

2019

2018

2017

$ $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00

FNCB’s Board of Directors authorized
a stock repurchase program on
January 26, 2022. The program, which
commenced on March 4, 2022,
provides for the repurchase of up to
750,000 shares of FNCB’s
outstanding common stock. In
2021, the Board of Directors had
authorized a similar program under
which 330,759 common shares
were repurchased. The 2021 plan
expired on December 31, 2021.
Repurchase of shares under the

programs are administered through
an independent broker and may
occur from time to time at prevailing
market prices, through open market
transactions depending upon market
conditions. Additionally, repurchases
are subject to SEC regulations as
well as certain price, market volume
and timing constraints specified
in the trading plan. Management
may discontinue purchases at any
time that management determines
additional repurchases are no
longer warranted. The current stock
repurchase program will expire on
December 31, 2022.

Moving ahead. Delivering superior
customer service.

Early in the year, Congress approved
a new relief effort that included
a second round of funding under
the PPP as well as additional fiscal
stimulus packages and emergency
relief programs. The FNCB team once
again answered the call by assisting
our local business customers through
the second round of funding that
allowed them to continue operating,
protect jobs and provide paychecks to
employees. Under this second round
of funding in 2021, FNCB originated
679 loans that provided businesses
with $76.3 million in additional
PPP funding. Combined with the
first-round funding in 2020, FNCB
originated 1,681 PPP loans which
totaled $194.9 million in funding.
Throughout 2021, the FNCB team
assisted customers through the
forgiveness process by providing
them with educational materials and
a cloud-based, digital management
tool where they were able to easily
upload required documents. As
part of the PPP loan process, FNCB
received net loan origination fees
totaling $7.0 million, which were
deferred and recognized in interest
income upon receipt of forgiveness.
As mentioned above, FNCB

recognized net loan origination fees
from PPP loans of $4.8 million in 2021
compared to $1.2 million in 2020. At
December 31, 2021, there were $20.9
million in PPP loans at outstanding,
net of $1.0 million in unrecognized
net loan origination fees. We
anticipate receiving forgiveness
for the outstanding PPP loans and
recognizing the remaining fees in
2022.

Customer banking preferences
continue to evolve, as in-branch
transactions declined dramatically
during the pandemic. FNCB continues
to focus and make additional
investments in technology to
provide our customers with access
to a variety of digital-based delivery
channels in addition to traditional
brick-and-mortar branches. FNCB’s
comprehensive suite of digital
banking platforms include user-
friendly online and mobile banking
platforms that allow customers to
open accounts, apply for a mortgage,
pay bills and transfer funds 24
hours a day, 7 days a week from
their computer or mobile device.
Through our alliance with AllPoint,
customers have access to a network
of over 55,000 surcharge-free ATMs
worldwide. We provide customers
with a variety of mobile wallet
alternatives including Apply Pay®,
Google Pay® and Samsung Pay® and
access to Zelle®, a fast, secure and
contact free way to send and receive
money between trusted partners.

We also provide customers with the
ability to receive fraud alert messages
and manage, where, when and how
their debit card is used through

CardValet® integrated in FNCB’s
mobile banking app. Offering these
safe and reliable technology-based
alternatives provide customers
greater convenience to conduct
transactions anywhere, anytime,
without visiting our offices. While
convenience is necessary, security
is of utmost importance. During
the year, FNCB continued to make
investments in our cybersecurity
infrastructure to ensure customers
have safe, secure and reliable access
to their financial information via our
digital-based platforms.

Moving ahead. Expanding our
product offerings, leveraging
new technologies and creating
efficiencies.

In the second half of 2021, we began
to position FNCB to drive long-
term value and create efficiencies
through new product offerings, new
technologies and new alliances.

During the fourth quarter of 2021,
we launched a new equipment
financing line of business that
provides equipment financing
solutions, including leasing
alternatives, to business customers
and municipalities. We hired a team
of seasoned professionals in this line
of business, which now operates as
1st Equipment Finance and is based
in the Bank’s branch office located in
Exeter, Pennsylvania. We believe this
new product line not only provides us
with an avenue for organic growth,
but also supplies our commercial
clients with financing options that will
allow them to grow in a competitive
business environment. We are
pleased to say that the buildout of
this product offering is complete and
is generating new originations in line
with budget expectations.

We continue to focus efforts on
developing and expanding our

comprehensive digital strategy and
leveraging technology to respond
to evolving customer demands and
create operational and delivery
channel efficiencies. Specifically, in
the latter part of 2021, we partnered
with a leading third-party service
provider for the origination and
underwriting of residential mortgage
loans through a customer-friendly,
state-of-the-art digital platform.
Through this alliance, we will leverage
third-party expertise and industry-
leading technology to enhance our
service level, allowing us to focus on
managing the relationships with our
customers. Full implementation of
this new platform is expected in the
first quarter of 2022.

In the second half of 2021, we also
invested in a cloud-based enterprise
dashboard and analytics software.
This tool combines high-value,
actionable data from our core
operating systems into a user-friendly,
dynamic and analytical dashboard
to enhance management reporting,
and provide insights that will drive
profitability and productivity. We fully
implemented and began using this
platform bank-wide in the first quarter
of 2022.

Other initiatives on the horizon
include enhancement to our existing
e-banking platforms, integration
of a new commercial lending
origination platform and utilizing
artificial intelligence and robotics to
streamline process workflows.

We continually evaluate our branch
network and delivery channels for
opportunities to improve customer
reach or consolidate underutilized
locations. With customer banking
preferences rapidly evolving to a
digital-based approach, management
decided to consolidate FNCB’s
Dunmore-Wheeler community
office into its state-of-the-art,

recently constructed Main Office,
located less than one mile away.
We received regulatory approval
for this consolidation, which was
completed on February 18, 2022. The
consolidation had minimal impact
on customers and is expected to
create efficiency and reduce annual
operating expense run rates by
approximately $230 thousand.

Adopt-a-Family is just one program
under FNCB’s larger Community
Caring initiative. As a true community
bank, FNCB is making a difference in
the communities we serve through
volunteerism, donations and
outreach programs. We are sincerely
grateful for the commitment of the
entire FNCB team in serving the needs
of our communities.

Moving ahead. Broadening our
community outreach.

Moving ahead. Together!

The many challenges presented
over the course of 2021 brought
clarity to what it truly means to
be a community bank, and being
there to provide stability, direction
and assistance to our customers,
neighbors and friends. We believe our
many accomplishments in 2021 puts
us in a strong position as we enter
2022. We stand ready to serve our
customers and our entire FNCB team
remains focused on our mission to
make your banking experience simply
better. Let’s move ahead, together.

In closing we would like to thank you
for your continued trust and support.
We are sincerely grateful for your
commitment to FNCB Bancorp, Inc.

Sincerely,

Louis A. DeNaples
Chairman of the Board

Gerard A. Champi
President and Chief Executive Officer

Through FNCB Bank’s Charitable
Foundation, established during the
height of the pandemic in 2020,
we provide financial support to
make a meaningful impact in the
communities we serve. Giving under
the foundation focuses on supporting
organizations that seek to provide
educational opportunities, including
scholarships, to low- to moderate-
income students, promote youth
initiatives and programs, enhance the
cultural or economic development
within our market area, and improve
the quality of life or meet a specific
unmet need in the communities
we serve. In 2021, FNCB provided
Community Reinvestment Act (“CRA”)
eligible scholarships totaling $150
thousand and expanded our total
community giving nearly 30%.

With pandemic restrictions easing,
FNCB resumed a number of their
signature community events
including our Adopt-a-Family
program, a holiday gift-giving project.
Adopt-A-Family matches local families
in need from the Catherine McAuley
Center and Children & Youth Services
of Wayne County with those wishing
to donate. In 2021, more than 100 gifts
were donated to nine families. Since
launching this program nine years
ago, FNCB employees have adopted
more than 100 families, helping to
make a brighter Christmas for many
in Northeastern, Pennsylvania.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2021
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
(State or Other Jurisdiction of Incorporation or Organization)

23-2900790
(I.R.S. Employer Identification No.)

102 E. Drinker St., Dunmore, PA
(Address of Principal Executive Offices)

18512
(Zip Code)

Registrant’s telephone number, including area code (570) 346-7667

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

Title of Each Class
Common Stock $1.25 Par Value

Trading Symbol(s)
FNCB

Name of Each Exchange on Which Registered
Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Act. Yes ☐ No ☒

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 ☐
Non-Accelerated Filer ☒

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 has filed a report on and attestation to its management's assessment of the effectiveness of
its interest control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the voting and non-voting common stock of the registrant, held by non-affiliates was $122,231,137 at June
30, 2021.

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable
date: 19,991,021 shares of common stock as of March 11, 2022.

DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12, 13 and 14 is incorporated by reference into Part III hereof from portions of the Proxy
Statement for the registrant’s 2022 Annual Meeting of Shareholders.

Contents

.......................................................................................................................................................................
Business .........................................................................................................................................................

3
PART I
Item 1.
3
Item 1A. Risk Factors ................................................................................................................................................... 11
Unresolved Staff Comments .......................................................................................................................... 30
Item 1B.
Properties ....................................................................................................................................................... 31
Item 2.
Legal Proceedings ......................................................................................................................................... 31
Item 3.
Mine Safety Disclosures ................................................................................................................................ 31
Item 4.
....................................................................................................................................................................... 32
PART II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Item 5.

Securities ................................................................................................................................................... 32
Reserved ........................................................................................................................................................ 32
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................ 33
Item 7.
Quantitative and Qualitative Disclosures About Market Risk ....................................................................... 62
Item 7A.
Financial Statements and Supplementary Data ............................................................................................. 65
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................ 115
Item 9.
Controls and Procedures ................................................................................................................................ 115
Item 9A.
Other Information .......................................................................................................................................... 115
Item 9B.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ........................................................... 115
Item 9C.
....................................................................................................................................................................... 116
PART III
Item 10. Directors, Executive Officers and Corporate Governance ............................................................................ 116
Executive Compensation ............................................................................................................................... 116
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...... 116
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence .............................................. 116
Item 14. Principal Accounting Fees and Services ........................................................................................................ 116
....................................................................................................................................................................... 117
PART IV
Exhibits and Financial Statement Schedules ................................................................................................. 117
Item 15.
Form 10-K Summary ..................................................................................................................................... 119
Item 16.

Cautionary Note Regarding Forward-Looking Statements.

This Annual Report on Form 10-K contains statements which are forward-looking statements within the meaning of
Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include statements relating to the outlook for which are subject to risks and uncertainties. These
statements are based on assumptions and may describe future plans, strategies, financial conditions, results of operations and
expectations of FNCB Bancorp, Inc. and its direct and indirect subsidiaries (collectively, “FNCB”). These forward-looking
statements are generally identified by use of the words “may”, “should”, “will”, “could”, “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “project”, “plan”, “future” or similar expressions. All statements in this report, other than statements
of historical facts, are forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, some
of which are beyond FNCB’s control and ability to predict, that could cause actual results to differ materially from those
expressed in the forward-looking statements. Important factors that could cause actual results of FNCB to differ materially
from those in the forward-looking statements include, but are not limited to:

● weakness in the economic environment, in general, and within FNCB's market area could pose significant

challenges for FNCB and could adversely affect FNCB's financial condition and results of operations;

● FNCB is subject to credit risk, which could adversely affect its profitability;
● FNCB’s concentrations of loans, including those to insiders and related parties, may create a greater risk of loan

●

defaults and losses;
the appraisals and other valuation techniques FNCB uses in evaluating and monitoring loans secured by real
property and other real estate owned may not accurately reflect the net value of the asset;

● FNCB’s financial condition and results of operations would be adversely affected if the allowance for loan and
lease losses is not sufficient to absorb actual losses or if increases to the allowance for loan and lease losses were
required;
if management concludes that the decline in value of any of FNCB’s investment securities is other-than-temporary,
FNCB is required to write down the security to reflect credit-related impairments through a charge to earnings;

●

● FNCB’s risk management framework may not be effective in mitigating risks or losses to it;
● FNCB is subject to interest rate risk, which could adversely affect its profitability;
●
● Uncertainty relating to the expected phase-out of the London Interbank Offered Rate ("LIBOR") may adversely

changes in interest rates could reduce income, cash flows and asset values;

affect FNCB;

● FNCB may not be able to successfully compete with others for business;
●

changes in either FNCB's financial condition or in the general banking industry could result in a loss of depositor
confidence;

● FNCB may not be able to retain or grow its core deposit base, which could adversely impact its funding costs;
● FNCB is a bank holding company and depends on dividends for its subsidiary, FNCB Bank, to operate.
●

if FNCB loses access to wholesale funding sources, it may not be able to meet the cash flow requirements of its
deposits, creditors, and borrowers, or have the operating cash needed to fund corporate expansion and other
corporate activities;
interruptions or security breaches of FNCB's information systems could negatively affect its financial performance
or reputation;

●

● FNCB depends on information technology and telecommunications systems of third parties, and any systems

failures or interruptions could adversely affect FNCB's operations and financial condition;

● FNCB is subject to cybersecurity risks and security breaches and may incur increasing costs in an effort to minimize
those risks and to respond to cyber incidents, and FNCB may experience harm to its reputation and liability
exposure from security breaches;
if FNCB's information technology is unable to keep pace with growth or industry developments or if technological
developments result in higher costs or less advantageous pricing, financial performance may suffer;

●

● FNCB relies on management and other key personnel and the loss of any of them may adversely affect its

operations;

● FNCB is dependent on the use of data and modeling in both its management’s decision-making generally and in

meeting regulatory expectations in particular;

● FNCB’s portfolio of loans to small and mid-sized community-based businesses may increase its credit risk;
● new lines of business, products, product enhancements or services may subject FNCB to additional risk;
● FNCB may be adversely affected by the soundness of other financial institutions;

● damage to FNCB’s reputation could significantly harm its businesses, competitive position and prospects for

growth;

● FNCB may be a defendant from time to time in a variety of litigation and other actions, which could have a material

adverse effect on its financial condition, results of operations and cash flows;

● FNCB depends on the accuracy and completeness of information provided by customers and counterparties;
● FNCB may face risks with respect to future expansion of acquisition activity;
● FNCB could be subject to environmental risks and associated costs on its foreclosed real estate assets;
●

the COVID-19 pandemic is adversely affecting, and will likely continue to adversely affect, our business, financial
condition, liquidity, and results of operations;
federal and state regulators periodically examine FNCB’s business and may require FNCB to remediate adverse
examination findings or may take enforcement action against FNCB;

●

● FNCB may be required to act as a source of financial and managerial strength for FNCB Bank in times of stress;
● FNCB is subject to extensive government regulation, supervision and possible regulatory enforcement actions,

which may subject FNCB to higher costs and lower shareholder returns;

● new or changed legislation or regulation and regulatory initiatives could adversely affect FNCB through increased

regulation and increased costs of doing business;

● FNCB faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money

laundering statutes and regulations;

● FNCB is subject to numerous “fair and responsible” banking laws designed to protect consumers, and failure to

comply with these laws could lead to a wide variety of sanctions;

● FNCB is subject to laws regarding the privacy, information security and protection of personal information and any
violation of these laws or another incident involving personal, confidential or proprietary information of individuals
could damage FNCB’s reputation and otherwise adversely affect FNCB’s business;
rulemaking changes implemented by the Consumer Financial Protection Bureau will result in higher regulatory and
compliance costs that may adversely affect FNCB’s business;
the requirements of being a public company may strain FNCB’s resources and divert management's attention;

●

●
● FNCB Bank's FDIC deposit insurance premiums and assessments may increase;
●

the price of FNCB's common stock may fluctuate significantly, which may make it difficult for shareholders to
resell shares of common stock at a time or price they find attractive;
the rights of holders of FNCB's common stock to receive liquidation payments and dividend payments are junior to
FNCB's existing and future indebtedness and to any senior securities FNCB may issue in the future, and FNCB's
ability to declare dividends on, or repurchase shares of, the common stock may become limited;

●

● FNCB may need to raise additional capital in the future, but that capital may not be available when it is needed and

●
●

on terms favorable to shareholders;
the requirements of being a public company may strain FNCB's resources and divert management's attention;
as a public company, FNCB incurs significant legal, accounting, insurance, compliance and other expenses.
Any deficiencies in FNCB’s financial reporting or internal controls could materially and adversely affect its
business and the market price of FNCB’s common stock;

● FNCB’s disclosure controls and procedures and internal controls over financial reporting may not achieve their

●
●

●

intended objectives;
changes in accounting standards could impact FNCB’s reported earnings;
anti-takeover provisions in FNCB's charter documents could discourage, delay or prevent a change of control of
FNCB's company and diminish the value of FNCB's common stock;
short sellers of FNCB’s stock may be manipulative and may drive down the market price of FNCB’s common stock;
and

● other factors and risks described in Part II, Item 1A of this Annual Report on Form 10-K under the caption “Risk

Factors.”

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not
be placed on such statements. FNCB undertakes no obligation, other than as required by law, to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1.

Business

Overview

The Company

FNCB Bancorp, Inc. is a Pennsylvania business corporation and a registered bank holding company headquartered in
Dunmore, Pennsylvania. FNCB Bancorp, Inc. incorporated in 1997 under its former name, First National Community
Bancorp, Inc. and became an active bank holding company on July 1, 1998 when it acquired 100% ownership of FNCB
Bank, formerly First National Community Bank (the "Bank"). In this report, the terms “FNCB,” "the Company," “we,” “us,”
and “our” refer to FNCB Bancorp, Inc. and its subsidiaries, unless the context requires otherwise. In certain circumstances,
however, FNCB Bancorp, Inc. uses the term “FNCB” to refer to itself.

FNCB’s primary activity consists of owning and operating the Bank, which provides substantially all of FNCB’s earnings
from its banking services.

FNCB had net income of $21.4 million, $15.3 million, and $11.1 million in 2021, 2020 and 2019, respectively. Total assets
were $1.664 billion at December 31, 2021, $1.466 billion at December 31, 2020 and $1.204 billion at December 31, 2019.

The Bank

Established as a national banking association in 1910, as of December 31, 2021 the Bank operated 17 full-service branch
offices within its primary market area, Northeastern Pennsylvania.

Mission, Vision and Values

FNCB's mission is to make your banking experience simply better. We strive to be a prosperous, independent bank that is a
leader in our community through the power of a strong team with a commitment to excellence for our customers, employees
and shareholders. We take pride in our core values:

● Simplicity - Simplifying processes, systems and products to create a better banking experience.
● Integrity - Maintaining the highest ethical standards and practices.
● Mission - To make your banking experience simply better.
● People - A strong team of employees dedicated to the community, our customers, our shareholders and each other.
● Leadership - An organization that prospers under the guidance of focused and dedicated leaders.
● You - Our values equal YOU!

Products and Services

Retail Banking

FNCB accomplishes its mission and vision by providing a wide variety of traditional banking products and services to
individuals and businesses, including online, mobile and telephone banking, debit cards, check imaging and electronic
statements. Deposit products include various checking, savings, money market and certificate of deposit products, including
a line of preferred products for higher-balance customers. The Bank is a member of IntraFi Network, formerly the
Promontory Interfinancial Network, and participates in their Certificate of Deposit Account Registry (“CDARs”) and Insured
Cash Sweep (“ICS”) programs, which provide customers with the ability to secure Federal Deposit Insurance Corporation
(“FDIC”) insurance on balances in excess of the standard limitations.

The Bank offers customers the convenience of 24-hour banking, seven days a week, through FNCB Online Banking (“FNCB
Online”) via a secure website www.fncb.com or highly rated mobile app. FNCB’s digital product suite includes Mobile Pay
(Apple Pay®, Samsung Pay® and Google Pay®), Zelle®, Bill Pay, Card Valet, mobile check deposit and My Rewards cash-
back debit card offers. Through fncb.com, customers can directly access their accounts, open new accounts, apply for a
mortgage or obtain a pre-qualification approval. Additionally, through Text Message Banking customers can quickly check
on their money, even transfer funds, with a simple text message. Telephone banking (“Account Link”) provides customers
with the ability to access account information and perform related account transfers through the use of a touch tone telephone.

In addition, customers can access money from their deposit accounts by using their debit card to make purchases or withdraw
cash from any automated teller machines (“ATMs”) including ATMs located in each of the Bank’s branch offices plus
several offsite locations. FNCB is a member of the AllPoint network, providing customers with access to over 55,000
surcharge-free ATMs worldwide. FNCB also provides its customers with CardValet®, allowing debit cardholders the ability
to receive fraud alert messages and manage when, where and how their debit card is used.

The Bank offers business customers a suite of service options including, remote deposit capture, Merchant Services, Treasury
Services, and purchasing cards ("PCards"). Remote deposit capture provides customers the ability to process daily check
deposits to their accounts through an online image capture environment. Merchant Services offers customers payment
processing solutions, including credit card terminals, integrated payment systems and a dedicated account manager. Treasury
Services include ACH origination, ACH and check positive pay, sweep services, wire services and Safepoint by Loomis.
PCards allow business customers the ability to earn a cash rebate on credit card purchases as well as additional functionality
and reporting to effectively manage their expenses and procurement. FNCB Business Online Banking provides customers
the ability to perform wire transfers and payments through ACH transactions, and process direct deposit payroll transactions
for employees, 24 hours a day, 7 days a week, from their place of business.

The Bank offers its retail and business customers FNCB Bank Overdraft Protection to protect against the cost and
inconvenience of returned checks. Customers can also apply for an Instant Money loan or transfer from another FNCB
checking or savings account, for an added level of protection against unanticipated overdrafts due to cash flow emergencies
and account reconciliation errors.

Lending Activities

FNCB offers and originates a variety of loans, including residential real estate loans, construction, land acquisition and
development loans, commercial real estate loans, commercial and industrial loans, loans to state and political subdivisions,
and consumer loans, generally to individuals and businesses in its primary market area. In addition to originating loans,
FNCB from time to time purchases individual and pools of commercial, residential mortgage and consumer loans originated
by third parties, which are included in the respective loan category.

Residential Mortgage Loans and Home Equity Term Loans and Lines of Credit

FNCB offers a variety of 1-4 family residential loans, home equity term loans and home equity lines of credit ("HELOCs").
FNCB’s suite of residential mortgage products include First Time Homebuyer mortgages, FHA and Home Possible®
mortgages with low down payments to meet the home financing needs of customers. Home equity term loans have fixed
interest rates with terms of up to 15 years. HELOCs have adjustable interest rates based on the prime interest rate for the
United States and are offered up to a maximum combined loan-to-value ratio of 90%, based on the property’s appraised
value. FNCB also offers a proprietary “WOW” mortgage, a first-lien, fixed-rate mortgage product with maturity terms
ranging from 7.5 to 19.5 years. At December 31, 2021, 1-4 family residential mortgage loans, including home equity term
loans and HELOCs totaled $234.1 million, or 23.9%, of the total loan portfolio. Except for the WOW mortgage, 1-4 family
mortgage loans are originated generally for sale in the secondary market. However, FNCB may hold in portfolio 1-4 family
residential mortgage loans as deemed necessary according to current asset/liability management strategies. During the year
ended December 31, 2021, the Bank sold $9.4 million of 1-4 family mortgages. FNCB retains servicing rights on these
mortgages.

Construction, Land Acquisition and Development Loans

FNCB offers interim construction financing secured by residential property for the purpose of constructing 1-4 family homes.
FNCB also offers interim construction financing for the purpose of constructing residential developments and various
commercial properties including shopping centers, office complexes and single purpose owner-occupied structures and for
land acquisition. At December 31, 2021, construction, land acquisition and development loans amounted to $41.6 million
and represented 4.2% of the total loan portfolio.

Commercial Real Estate Loans

Commercial real estate loans represent the largest portion of FNCB’s total loan portfolio and loans in this portfolio generally
have larger loan balances. These loans are secured by a broad range of real estate, including but not limited to, office
complexes, shopping centers, hotels, warehouses, gas stations, convenience markets, residential care facilities, nursing care
facilities, restaurants, multifamily housing, farms and land subdivisions. At December 31, 2021, FNCB’s commercial real
estate loans totaled $366.0 million, or 37.3%, of the total loan portfolio.

Commercial and Industrial Loans

Generally, FNCB offers commercial loans to sole proprietors and businesses located in its primary market area. In addition,
FNCB purchases pools of secured and unsecured loans. The commercial loan portfolio includes, but is not limited to, lines
of credit, dealer floor plan lines, equipment loans, vehicle loans and term loans. These loans are primarily secured by vehicles,
machinery and equipment, inventory, accounts receivable, marketable securities and deposit accounts. At December 31, 2021,
FNCB’s commercial and industrial loans totaled $193.1 million, or 19.7%, of the total loan portfolio. Also included in
commercial and industrial loans are loans originated under various programs that were part of the governmental response to
the COVID-19 pandemic. FNCB participated in the Paycheck Protection Program ("PPP") promulgated under the
Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). PPP loans outstanding included in commercial and
industrial loans were $21.9 million at December 31, 2021.

In the fourth quarter of 2021, FNCB launched a new equipment financing line of business that operates as 1st Equipment
Finance. Based in FNCB's community office located in Exeter, Pennsylvania, 1st Equipment Finance provides both direct
and indirect equipment financing solutions, including leasing alternatives, for business and municipal customers located
within and outside FNCB's primary market area. At December 31, 2021, simple interest loans originated under this initiative
totaled $7.9 million and are included in commercial and industrial loans.

Consumer Loans

Consumer loans include indirect automobile loans originated through various auto dealers in the Bank's market area, secured
and unsecured installment loans, direct new and used automobile financing, personal lines of credit and overdraft protection
loans. At December 31, 2021, FNCB’s consumer loans totaled $85.5 million, or 8.7%, of the total loan portfolio.

State and Political Subdivision Loans and Leases

FNCB originates state and political subdivision loans and leases, including general obligation, tax anticipation notes and
municipal leases, primarily to municipalities in the Bank’s market area. At December 31, 2021, FNCB’s state and political
subdivision loans and leases totaled $61.1 million, or 6.2%, of the total loan portfolio. Municipal leases originated through
1st Equipment Finance were $2.4 million at December 31, 2021.

Purchased Loans

FNCB purchases individual loans and loan pools originated by several third-party originators to diversify the loan portfolio
and enhance net interest income. Purchase loans include pooled commercial equipment loans, unsecured commercial and
secured and unsecured consumer individual loans and loan pools. The pools have relatively short average lives and provide
steady cash flows. Commercial equipment loans are secured by UCCs and titles, secured consumer loans are collateralized
by chattel paper, while credit enhancement features including reserve funds provide credit protection for the consumer and
commercial unsecured pools. FNCB has reviewed individual loan files, if feasible, or reviewed random samples of loan files
and credit metrics to ensure underwriting was aligned with FNCB's internal underwriting standards. FNCB does not provide
servicing of purchased loans.

See Note 2, “Summary of Significant Accounting Policies” and Note 4, "Loans" to the consolidated financial statements
included in Item 8, "Financial Statements and Supplementary Data," to this Annual Report on Form 10-K for additional
information regarding FNCB's loan portfolio and lending policies.

Wealth Management

FNCB offers customers wealth management services through a revenue share agreement with a third-party provider.
Customers are able to access alternative deposit products such as mutual funds, annuities, stocks, and bonds directly for
purchase from an outside provider. FNCB receives a percentage of the commission revenue generated from these transactions.

Deposit Activities

In general, deposits, borrowings and loan and investment repayments are the major sources of funding for lending and other
investment purposes. FNCB relies primarily on marketing, product innovation, technology and service to attract, grow and
retain its deposits. Deposit account terms vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining the terms of deposit accounts, management
considers the interest rates offered by its competitors, the interest rates available on Federal Home Loan Bank ("FHLB") of

Pittsburgh advances and other wholesale funding, its liquidity needs and customer preferences. Management regularly
reviews FNCB’s deposit mix and deposit pricing as part of its asset/liability management, taking into consideration rates
offered by competitors in its market area and balance sheet interest-rate sensitivity.

Competition

The banking and financial services industries are highly competitive. FNCB faces direct competition in originating loans and
in attracting deposits from a significant number of financial institutions operating in its market area, many with a statewide
or regional presence, and in some cases, a national presence, as well as other financial and non-financial institutions outside
of its market area through online loan and deposit product offerings. Competition comes principally from other banks, savings
institutions, credit unions, mortgage banking companies, internet-based financial technology (“FinTech”) companies and,
with respect to deposits, institutions offering investment alternatives, including money market funds and online deposit
accounts. The increased competition has resulted from changes in the legal and regulatory guidelines, as well as from
economic conditions. The cost of regulatory compliance remains high for community banks as compared to their larger
competitors that are able to achieve economies of scale.

As a result of consolidation in the banking industry, some of the Bank’s competitors and their respective affiliates are larger
and may enjoy advantages such as greater financial resources, a wider geographic presence, a wider array of services, or
more favorable pricing alternatives and lower origination and operating costs. FNCB considers its major competitors to be
local commercial banks as well as other commercial banks with branches in its market area. Competitors may offer deposits
at higher rates and loans with lower fixed rates, more attractive terms and less stringent credit structures than FNCB has been
able to offer. The growth and profitability of FNCB depends on its continued ability to successfully compete. Management
believes interest rates on deposits, especially money market and time deposits, and interest rates and fees charged on loans
within FNCB’s market area to be very competitive.

Supervision and Regulation

FNCB and the Bank operate in a highly regulated industry and are subject to a variety of statutes, regulations, and policies,
as well as ongoing regulatory supervision and review. Federal statutes that apply to FNCB and the Bank include the Gramm
Leach Bliley Act (“GLB Act”), the Bank Holding Company Act (“BHCA”), the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”), the USA Patriot Act, the Federal Reserve Act and the Federal Deposit
Insurance Act. The Bank is subject primarily to the provisions of the Federal Deposit Insurance Act and, as a state-chartered
financial institution, to the Pennsylvania Banking Code of 1965. In general, these statutes, regulations promulgated in
accordance with these statutes, and interpretations of the statutes and regulations by the banking regulatory agencies establish
the eligible business activities of FNCB and the Bank, certain acquisition and merger restrictions, limitations on intercompany
transactions, such as loans and dividends, and capital adequacy requirements, among other things. These laws, regulations
and policies are subject to frequent change and FNCB takes measures to comply with applicable requirements. The following
summarizes some of the more significant provisions of these laws as they relate to FNCB and the Bank.

FNCB

FNCB is a bank holding company within the meaning of the BHCA and is registered with, and subject to regulation and
examination by, the Board of Governors of the Federal Reserve System (“FRB”). FNCB is required to file annual and
quarterly reports with the FRB and to provide the FRB with such additional information that they may require. BHCA and
other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to
a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and
regulations and unsafe and unsound banking practices.

The BHCA requires approval of the FRB for, among other things, the acquisition of direct or indirect ownership or control
of more than five percent (5%) of the voting securities or substantially all the assets of any bank or bank holding company,
or before the merger or consolidation with another bank holding company.

With certain limited exceptions, a bank holding company is prohibited from acquiring control of any voting shares of any
company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or furnishing services to or performing services for its authorized subsidiaries. A
bank holding company may, however, engage in, or acquire an interest in a company that engages in, activities that the FRB
has determined by order or regulation to be so closely related to banking or managing or controlling banks as to be properly
incidental thereto. In making such a determination, the FRB is required to consider whether the performance of such activities
can reasonably be expected to produce benefits to the public, such as convenience, increased competition, or gains in

efficiency, which outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The FRB is also empowered to differentiate between activities
commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern. Some of the
activities that the FRB has determined by regulation to be closely related to banking include making or servicing loans,
performing certain data processing services, acting as a fiduciary or investment or financial advisor, and making investments
in corporations or projects designed primarily to promote community welfare.

Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the bank holding company or any of its subsidiaries or affiliates, or investments in the stock or other
securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Further, a holding
company and any subsidiary bank are prohibited from engaging in certain tie-in arrangements in connection with the
extension of credit.

The GLB Act allows a bank holding company or other company to certify status as a financial holding company, which
allows such company to engage in activities that are financial in nature, that are incidental to such activities, or are
complementary to such activities without further approval. The GLB Act enumerates certain activities that are deemed
financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing
in or making markets in securities, and engaging in merchant banking under certain restrictions. The GLB Act also authorizes
the FRB to determine by regulation what other activities are financial in nature, or incidental or complementary thereto.
FNCB has not elected to be treated as a financial holding company.

FNCB also is subject to the periodic reporting requirements and anti-fraud regulations of the Securities and Exchange
Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in connection with
the offer and sale of securities, including FNCB's securities, the Securities Act of 1933, as amended.

FNCB’s shares of common stock are listed on the Nasdaq Stock Market under the symbol "FNCB." Accordingly, FNCB is
subject to certain financial, liquidity and corporate governance requirements imposed by Nasdaq. Non-compliance of these
requirements could subject FNCB to potential denial of listing, or additional conditions, as necessary, to protect investors
and the public interest.

The Bank

Effective June 30, 2016, upon its conversion to a state charter, the Bank is regulated by the Pennsylvania Department of
Banking and Securities (“PADOBS”). The Bank’s deposit accounts are insured up to the maximum legal limit by the Deposit
Insurance Fund of the FDIC and accordingly, the Bank is also regulated by the FDIC. The regulations of the PADOBS and
the FDIC govern most aspects of the Bank’s business, including required reserves against deposits, loans, investments,
mergers and acquisitions, borrowings, dividends and location and number of branch offices. The laws and regulations
governing the Bank generally have been promulgated to protect depositors and the Deposit Insurance Fund, and not to
protect shareholders.

Branching and Interstate Banking. The federal banking agencies are generally authorized to approve interstate bank merger
transactions.

The Dodd-Frank Act amended federal banking law to permit banks to establish de novo branches in other states to the same
extent as a bank chartered by that state would be so permitted. The interstate banking and branching provisions of the federal
banking laws would permit the Bank to merge with banks in other states and branch into other states and would also permit
banks from other states to acquire banks in the Bank's market area and to establish de novo branches in the Bank’s market
area.

USA Patriot Act and the Bank Secrecy Act (“BSA”). Under the BSA, a financial institution is required to have systems in
place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required
to report cash transactions involving more than $10,000 to the United States Treasury. In addition, financial institutions are
required to file suspicious activity reports for transactions that involve more than $5,000 and that the financial institution
knows, suspects or has reason to suspect, involve illegal funds, are designed to evade the requirements of the BSA or have
no lawful purpose. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act, commonly referred to as the “USA Patriot Act” or the “Patriot Act,” financial institutions are subject
to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards
intended to detect, and prevent, the use of the United States financial system for money laundering and terrorist financing
activities. The Patriot Act requires financial institutions, including banks, to establish anti-money laundering programs,

including employee training and independent audit requirements, meet minimum specified standards, follow minimum
standards for customer identification and maintenance of customer identification records, and regularly compare customer
lists against lists of suspected terrorists, terrorist organizations and money launderers.

Capital Adequacy Requirements. Federal banking agencies have adopted risk-based capital adequacy and leverage capital
adequacy requirements pursuant to which they assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based capital requirements determine the adequacy
of capital based on the risk inherent in various classes of assets and off-balance sheet items.

Financial institutions are subject to extensive and detailed capital requirements, which generally follow a framework of rules
adopted by the Basel Committee on Banking Supervision commonly referred to as Basel III. Basel III calls for the following
capital requirements:

● A minimum ratio of common equity tier I (“CET I”) capital to risk-weighted assets of 4.5%.
● A minimum ratio of tier I capital to risk-weighted assets of 6%.
● A minimum ratio of total capital to risk-weighted assets of 8%.
● A minimum leverage ratio of 4%.

Basel III provides for a "capital conservation buffer" of 2.5% above the regulatory minimum capital requirements for each
of the CET I, tier I capital, and total capital ratios. The buffer must consist entirely of CET I capital. As a result, if a banking
organization does not have a CET I, Tier I capital, and total capital ratios of at least 7.0%, 8.5% and 10.5%, respectively, its
ability to make or commit to discretionary dividends and discretionary bonus payments to "executive officers" or engage in
share repurchases or redemptions generally will be restricted in accordance with a pre-determined "maximum payout
ratio." Under the maximum payout ratio formula, a banking organization with a capital conservation buffer of less than 2.5%
of risk-weighted assets would become subject to increasingly restrictive limitations on covered distributions (as a percentage
of eligible retained income) as the capital conservation buffer decreases.

Basel III provides for new deductions from and adjustments to CET I. These include, for example, under current rules, the
requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant
investments in non-consolidated financial entities be deducted from CET I to the extent that any one such category exceeds
25.00% of CET I.

Basel III also imposed changes to methodologies for determining risk weighted assets, including revisions to recognition of
credit risk mitigation, such as a greater recognition of financial collateral and a wider range of eligible guarantors, the risk
weighting of equity exposures and past due loans, and higher (greater than 100%) risk weighting for certain commercial real
estate exposures that have higher credit risk profiles, including higher loan to value and equity components.

During 2018, the FRB raised the threshold of its "Small Bank Holding Company" exemption to the application of
consolidated capital requirements for qualifying small bank holding companies from $1 billion to $3 billion of consolidated
assets. Consequently, qualifying bank holding companies having less than $3 billion of consolidated assets are not subject to
the consolidated capital requirements unless otherwise directed by the FRB.

Under the Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in May 2018, federal banking
agencies adopted the community bank leverage ratio (“CBLR”) framework available to depository institutions having less
than $10 billion in total assets and meeting certain other qualifying criteria. The CBLR rules provide that qualifying
community banking organizations that adopt the CBLR framework and that maintain a CBLR in excess of 9% will be
considered to have met the generally applicable leverage and risk-based capital requirements under the banking agencies’
capital rules and the capital ratio requirements necessary to be considered “well capitalized.” FNCB has not elected to use
the CBLR framework at this time.

Prompt Corrective Action. Under Section 38 of the Federal Deposit Insurance Act ("FDIA"), each federal banking agency is
required to implement a system of prompt corrective action for an insured institution which it regulates. The federal banking
agencies have promulgated substantially similar regulations, which integrate Basel III capital requirements, to implement the
system of prompt corrective action established by Section 38 of the FDIA.

The following are the capital requirements under Basel III as integrated into the prompt corrective action category definitions.
As of December 31, 2021, the following capital requirements were applicable to the Bank for purposes of Section 38 of the
FDIA.

Capital Category

Total
Risk-Based
Capital
Ratio

Tier I

Risk-Based
Capital
Ratio

CET I
Capital
Ratio

Leverage
Ratio

Well capitalized ....................................................... >/= 10.0% >/= 8.0% >/= 6.5% >/= 5.0%
Adequately capitalized with conservation buffer .... >/= 10.5% >/= 8.5% >/= 7.0% >/= 4.0%
Adequately capitalized ............................................ >/= 8.0% >/= 6.0% >/= 4.5% >/= 4.0%
Undercapitalized ..................................................... < 8.0%
Significantly undercapitalized ................................. < 6.0%
Critically undercapitalized ......................................

< 4.0%
< 3.0%

< 4.5%
< 3.0%

< 6.0%
< 4.0%

N/A

Tangible
Equity
to Assets
N/A
N/A
N/A
N/A
N/A
Less than 2.0%

At December 31, 2021, the Bank was “well capitalized” under the applicable requirements with a CET I capital and Tier I
capital to risk-weighted assets ratios (for the Bank only) of 13.46%, a total capital to risk-weighted assets ratio of 14.64%
and a leverage ratio of 8.92%. Similarly, at December 31, 2020, the Bank exceeded capital requirements for an institution to
be considered "well capitalized" with CET I capital and Tier I capital to risk-weighted assets ratios of 14.54%, a total capital
to risk-weighted assets ratio of 15.79% and a leverage ratio of 9.57%.

Regulatory Enforcement Authority. Federal banking law grants substantial enforcement powers to federal banking regulators.
This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general,
these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with
regulatory authorities.

The Bank and its “institution-affiliated parties,” including its management, employees, agents, independent contractors,
consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs,
are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a governmental
agency. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and
institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance and cease-and-desist
orders. Such orders may, among other things, require affirmative action to correct any harm resulting from a violation or
practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also
be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined
by the ordering agency to be appropriate.

Under provisions of the federal securities laws, a determination by a court or regulatory agency that certain violations have
occurred at a company, or its affiliates can result in fines, restitution, a limitation of permitted activities, disqualification to
continue to conduct certain activities and an inability to rely on certain favorable exemptions. Certain types of infractions
and violations can also affect a public company in its timing and ability to expeditiously issue new securities into the capital
markets.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect to the classification of assets and the
establishment of adequate loan loss allowances for regulatory purposes.

The Dodd-Frank Act. The Dodd-Frank Act made significant changes to the bank regulatory structure and affects the lending,
deposit, investment, trading and operating activities of financial institutions and their holding companies. To date, the
following provisions of the Dodd-Frank Act are considered to be of the greatest significance to FNCB:

●

expands the authority of the FRB to examine bank holding companies and their subsidiaries, including insured
depository institutions;
requires a bank holding company to be well capitalized and well managed to receive approval of an interstate bank
acquisition;

● provides mortgage reform provisions regarding a customer’s ability to pay and making more loans subject to

provisions for higher-cost loans and new disclosures;

●

created the Consumer Financial Protection Bureau (the “CFPB”) that has rulemaking authority for a wide range of
consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection
laws;

● made permanent the $250 thousand limit for federal deposit insurance at all insured depository institutions;
●

includes additional corporate governance and executive compensation requirements on companies subject to the
Exchange Act;

● permits FDIC-insured banks to pay interest on business demand deposits;
●

requires that holding companies and other companies that directly or indirectly control an insured depository
institution serve as a source of financial strength;
created the Financial Stability Oversight Council with authority to identify institutions and practices that might pose
a systemic risk; and

●

● permits national and state banks to establish interstate branches to the same extent as the branch host state allows

establishment of in-state branches.

Consumer Financial Protection Bureau and Consumer Lending Regulation. The Dodd-Frank Act created the CFPB, which
is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws,
including the Equal Credit Opportunity Act, Truth in Lending Act (“TILA”), Real Estate Settlement Procedures Act
(“RESPA”), Fair Credit Reporting Act, Fair Debt Collection Practices Act, Consumer Financial Privacy provisions of the
Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with
respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by
the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes.
The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer
financial products. For example, the Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the
origination of residential mortgages including, in certain circumstances, a determination of the borrower’s ability to repay.
In addition, the Dodd-Frank Act allows certain borrowers to raise certain defenses to foreclosure if they receive any loan
other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection
laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state
attorneys general to enforce compliance with both the state and federal laws and regulations.

The CFPB’s rulemaking, examination and enforcement authority has and will continue to significantly affect financial
institutions offering consumer financial products and services, including FNCB and the Bank. These regulatory activities
may limit the types of financial services and products the Bank may offer, which in turn may reduce FNCB’s revenues.

FDIC Insurance Premiums. Under the FDIC's risk-based assessment system, deposit insurance assessments are based on
each insured institution's total assets less tangible equity, thereby basing deposit insurance assessments on an institution’s
total liabilities, not only insured deposits. A bank’s assessment is calculated by multiplying its individual assessment rate by
its assessment base (average consolidated total assets less average tangible equity), determined quarterly. Banks with assets
less than $10 billion, such as the Bank, are assigned an individual rate based on a formula using financial data and the bank’s
CAMELS ratings.

At December 31, 2021, the Bank was considered in the lowest risk category, for deposit insurance assessments and paid an
annual assessment rate ranging from 0.0005 basis points to 0.0006 basis points on the assessment base of average
consolidated total assets less the average tangible equity during the assessment period.

Dividend and Share Repurchase Restrictions

FNCB is a legal entity separate and distinct from the Bank. FNCB’s revenues (on a parent company only basis) and its ability
to pay dividends to its shareholders, or repurchase shares from its shareholders, are almost entirely dependent upon the
receipt of dividends from the Bank. The right of FNCB, and consequently the rights of its creditors and shareholders to
participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise
is necessarily subject to the prior claims of creditors of the subsidiary (including depositors) except to the extent that claims
of FNCB, in its capacity as a creditor, may be recognized. Additionally, the ability of the Bank to pay dividends to FNCB is
subject to Pennsylvania state law and various regulatory restrictions.

The declaration of cash dividends on FNCB’s common stock, or the repurchase of shares of its common stock, is at the
discretion of its board of directors, and any decision to declare a dividend, or repurchase shares, is based on a number of
factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants
under any credit agreements, notes and other contractual restrictions, Pennsylvania law, federal bank regulatory law, and
other factors deemed relevant.

Human Capital Resources

FNCB's employees support its vision to be a leader in the community with a commitment to financial excellence for
customers and shareholders and deliver its mission to make your banking experience simply better. With this in mind, FNCB
recognizes that the success of our organization is highly correlated to the effectiveness of the FNCB team. In order to
attract, motivate and retain high-quality staff, the Bank must have a competitive, broad-based compensation plan. FNCB
focuses on ensuring top talent is compensated appropriately and entry-level starting salaries are competitive and provide an
opportunity for advancement.

As FNCB’s leadership culture and business model evolves, FNCB's policies, practices and programs must also evolve and
support and reinforce our desired culture and business needs. The Compensation Committee of the Board of
Directors evaluates and modifies policies, practices and programs on an ongoing basis to ensure compensation plans are
competitive and do not encourage inappropriate risk taking. Market competitive and risk appropriate incentive plans have
been fully implemented for management, commercial lending, branch banking, specialty sales functions and all staff
positions. FNCB also has a Long-Term Incentive Plan designed to align shareholder goals with employee goals and to
encourage retention of key officers.

FNCB is an Equal Opportunity and Affirmative Action Employer. We recruit, employ, train, compensate, and promote
without regard to race, religion, creed, color, national origin, age, gender, sexual orientation, gender identity, marital status,
disability, veteran status, or any other basis protected by applicable federal, state or local law.

In 2021, FNCB Bank was voted "The Best Place to Work" in northeastern, Pennsylvania for the fifth consecutive year, as
part of the annual Reader's Choice Awards survey conducted by a local newspaper. As of December 31, 2021, FNCB,
including the Bank, employed 227 persons, including 23 part-time employees.

Available Information

FNCB files reports, proxy and information statements and other information electronically with the SEC. The SEC maintains
an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The SEC’s website site address is https://www.sec.gov. FNCB makes its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available through
its website at https://www.fncb.com. The information contained on our website is not included as a part of, or incorporated
by reference in, this Annual Report on Form 10-K. These reports may also be obtained free of charge as soon as practicable
after filing or furnishing them to the SEC upon request by sending an email to corporatesecretary@fncb.com. Information
may also be obtained via written request to FNCB Bancorp, Inc. Attention: Chief Financial Officer, 102 East Drinker Street,
Dunmore, PA 18512.

Item 1A.

Risk Factors

The operations and financial results of FNCB are subject to various risks and uncertainties, including those described below.
the only ones FNCB faces. Additional risks and
The risks and uncertainties described below are not
factors
uncertainties FNCB is unaware of, or currently believes are not material, may also become
affecting FNCB. If any of the following risks occur, FNCB’s business, financial condition, operating results and prospects
could be materially and adversely affected. In that event, the price of the FNCB’s common stock could decline.

important

Risks Related to FNCB’s Business

Weakness in the economic environment, in general, and within FNCB’s market area could pose significant challenges
for FNCB and could adversely affect its financial condition and results of operations.

FNCB’s success depends primarily on the general economic conditions in the Commonwealth of Pennsylvania and the
specific local markets in which it operates. Unlike larger national or other regional banks that are more geographically
diversified, FNCB provides banking and financial services to customers primarily in the Lackawanna, Luzerne, and Wayne
County markets. The local economic conditions in these areas have a significant impact on the demand for FNCB’s products
and services as well as the ability of customers to repay loans, the value of the collateral securing loans, and the stability of
deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of
terrorism, severe weather or natural disasters, outbreak of hostilities or other international or domestic occurrences,
unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have

a material adverse effect on FNCB’s financial condition and results of operations. Specifically, weakness in economic
conditions could result in one or more of the following:

● A decrease in the demand for FNCB's loans and other products and services;
● A decrease in customer savings generally and in the demand for FNCB's savings and other deposit products; and
● An increase in the number of customers and counterparties who become delinquent, file for protection under

bankruptcy laws, or default on their loans or other obligations.

An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets,
net charge-offs, and provision for loan and lease losses. The markets FNCB serves are dependent on retail and service-related
businesses and, thus, are particularly vulnerable to adverse changes in economic conditions affecting these sectors.

To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their
obligations to the Bank in full, in a timely manner, resulting in decreased earnings or losses to the Bank. To the extent that
loans are secured by real estate, adverse conditions in the real estate market may reduce the ability of the borrowers to generate
the necessary cash flow for repayment of the loan, and reduce the ability to collect the full amount of the loan upon a default.
To the extent that the Bank makes fixed-rate loans, general increases in interest rates will tend to reduce its spread as the
interest rates FNCB must pay for deposits would increase while interest income is flat. Economic conditions and interest
rates may also adversely affect the value of property pledged as security for loans.

FNCB is subject to credit risk, which could adversely affect its profitability.

FNCB’s business depends on its ability to successfully measure and manage credit risk. As a lender, FNCB is exposed to the
risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a
loan will be insufficient to cover FNCB’s outstanding exposure. In addition, FNCB is exposed to risks with respect to the
period of time over which the loan may be repaid, risks relating to loan underwriting, risks resulting from changes in economic
and industry conditions, and risks inherent in dealing with individual loans and borrowers. The creditworthiness of a borrower
is affected by many factors including local market conditions and general economic conditions. If the overall economic
climate in the United States generally, or in the market areas in which FNCB operates specifically, experiences material
disruption, FNCB’s borrowers may experience difficulties in repaying their loans, the collateral FNCB holds may decrease
in value or become illiquid, and FNCB’s level of nonperforming loans, charge-offs and delinquencies could rise and require
significant additional provisions for loan losses.

FNCB’s risk management practices, such as monitoring the concentrations of its loans and its credit approval, review and
administrative practices, may not adequately reduce credit risk, and FNCB’s credit administration personnel, policies and
procedures may not adequately adapt to changes in economic or any other conditions affecting related customers and the
quality of the loan portfolio. Many of FNCB’s loans are made to small businesses that are less able to withstand competitive,
economic and financial pressures than larger borrowers. Consequently, FNCB may have significant exposure if any of these
borrowers becomes unable to pay their loan obligations as a result of economic or market conditions, or personal
circumstances, such as divorce, unemployment or death. A failure to effectively measure and limit the credit risk associated
with FNCB’s loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that
FNCB significantly increase its allowance for loan losses, each of which could adversely affect FNCB’s net income. As a
result, FNCB’s inability to successfully manage credit risk could have a material adverse effect on its business, financial
condition and results of operations.

FNCB’s loan portfolio contains a significant number of commercial real estate loans with relatively large balances, the
deterioration of one or a few of these loans could cause a significant increase in non-performing loans.

As of December 31, 2021, approximately 41.5% of FNCB’s loan portfolio consisted of commercial real estate loans and
construction, land acquisition and development loans. These types of loans are generally viewed as having a higher risk of
default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real
estate loans and consumer loans. Because FNCB’s loan portfolio contains a significant number of commercial real estate
loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-
performing loans. All non-performing loans totaled $3.9 million, or 0.39% of total gross loans, as of December 31, 2021, and
$5.6 million, or 0.62% of total gross loans, as of December 31, 2020. Specifically, commercial real estate loans that were
non-performing totaled $2.5 million, or 0.25%, of total gross loans, as of December 31, 2021, and $3.2 million, or 0.36%, of
total gross loans, as of December 31, 2020. There were no construction, land acquisition and development loans that were
non-performing at December 31, 2021 and 2020. An increase in non-performing loans in the future could result in an increase
in the provision for loan and lease losses and an increase in loan charge-offs, both of which could have a material adverse

effect on FNCB’s financial condition and results of operations. The lending activities in which the Bank engages carry the
risk that the borrowers will be unable to perform on their obligations. As such, general economic conditions, nationally and
in FNCB’s primary market area, will have a significant impact on its results of operations.

FNCB’s concentrations of loans, including those to insiders and related parties, may create a greater risk of loan defaults
and losses.

A substantial portion of FNCB’s loans are secured by real estate in the Northeastern Pennsylvania market, and substantially
all of its loans are to borrowers in that area. FNCB also has a significant amount of commercial real estate, commercial and
industrial, construction, land acquisition and development loans and land-related loans for residential and commercial
developments. At December 31, 2021, $641.8 million, or 65.4%, of gross loans were secured by real estate, primarily
commercial real estate. Management has taken steps to mitigate commercial real estate concentration risk by diversification
among the types and characteristics of real estate collateral properties, sound underwriting practices, and ongoing portfolio
monitoring and market analysis. Of total gross loans, $41.6 million, or 4.2%, were construction, land acquisition and
development loans. Construction, land acquisition and development loans have the highest risk of uncollectability. An
additional $193.1 million, or 19.7%, of portfolio loans were commercial and industrial loans not secured by real estate.
Historically, commercial and industrial loans generally have had a higher risk of default than other categories of loans, such
as single-family residential mortgage loans. The repayment of these loans often depends on the successful operation of a
business and are more likely to be adversely affected by adverse economic conditions. While management believes that the
loan portfolio is well diversified in terms of borrowers and industries, these concentrations expose FNCB to the risk that
adverse developments in the real estate market, or in the general economic conditions in its general market area, could
increase the levels of non-performing loans and charge-offs, and reduce loan demand. In that event, FNCB would likely
experience lower earnings or losses. Additionally, if, for any reason, economic conditions in its market area deteriorate, or
there is significant volatility or weakness in the economy or any significant sector of the area’s economy, FNCB’s ability to
develop business relationships may be diminished, the quality and collectability of its loans may be adversely affected, the
value of collateral may decline and loan demand may be reduced.

Commercial real estate, commercial and industrial and construction, land acquisition and development loans tend to have
larger balances than single family mortgage loans and other consumer loans. Because FNCB’s loan portfolio contains a
significant number of commercial and industrial loans, commercial real estate loans and construction, land acquisition and
development loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant
increase in non-performing assets. An increase in non-performing loans could result in a loss of earnings from these loans,
an increase in the provision for loan and lease losses, or an increase in loan charge-offs, which could have an adverse impact
on FNCB’s results of operations and financial condition.

Guidance adopted by federal banking regulators provides that banks having concentrations in construction, land development
or commercial real estate loans are expected to have and maintain higher levels of risk management and, potentially, higher
levels of capital, which may adversely affect shareholder returns, or require FNCB to obtain additional capital sooner than it
otherwise would. Excluded from the scope of this guidance are loans secured by non-farm nonresidential properties where
the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or
affiliate of the party, who owns the property.

Outstanding loans and line of credit balances to directors, officers and their related parties totaled $71.4 million as of
December 31, 2021. At December 31, 2021, there were no loans to directors, officers and their related parties that were
categorized as criticized loans within the Bank’s risk rating system, meaning they are not considered to present a higher risk
of collection than other loans. See Note 11, “Related Party Transactions” of the notes to consolidated financial statements
included in Item 8, "Financial Statements and Supplementary Data" and Item 13, “Certain Relationships and Related
Transactions, and Director Independence” to this Annual Report on Form 10-K for more information regarding loans to
officers and directors and/or their related parties

FNCB’s portfolio of loans to small and mid-sized community-based businesses may increase its credit risk.

Many of FNCB’s commercial business and commercial real estate loans are made to small business or middle market
customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger
entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market area in
which FNCB operates negatively impact this important customer sector, FNCB’s results of operations and financial condition
may be adversely affected. Moreover, a portion of these loans have been made by FNCB in recent years and the borrowers
may not have experienced a complete business or economic cycle. The deterioration of FNCB’s borrowers’ businesses may

hinder their ability to repay their loans with FNCB, which could have a material adverse effect on FNCB’s financial condition
and results of operations.

The appraisals and other valuation techniques FNCB uses in evaluating and monitoring loans secured by real property
and other real estate owned may not accurately reflect the net value of the asset.

In considering whether to make a loan secured by real property, FNCB generally requires an appraisal of the property.
However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate
values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty),
this estimate may not accurately reflect the net value of the collateral after the loan is made. As a result, FNCB may not be
able to realize the full amount of any remaining indebtedness when FNCB forecloses on and sells the relevant property. In
addition, FNCB relies on appraisals and other valuation techniques to establish the value of other real estate owned
(“OREO”), that FNCB acquires through foreclosure proceedings and to determine loan impairments. If any of these
valuations are inaccurate, FNCB’s financial statements may not reflect the correct value of FNCB’s OREO, if any, and
FNCB’s allowance for loan and lease losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or
inaccurate provisioning for loan and lease losses could have a material adverse effect on FNCB’s business, financial condition
and results of operations.

FNCB’s financial condition and results of operations would be adversely affected if the ALLL is not sufficient to absorb
actual losses or if increases to the ALLL were required.

The lending activities in which the Bank engages carry the risk that the borrowers will be unable to perform on their
obligations, and that the collateral securing the payment of their obligations may be insufficient to assure repayment. FNCB
may experience significant credit losses, which could have a material adverse effect on its operating results. Management
makes various assumptions and judgments about the collectability of FNCB’s loan portfolio, including the creditworthiness
of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of its loans,
which it uses as a basis to estimate and establish its reserves for losses. In determining the amount of the ALLL, management
reviews loans, loss and delinquency experience, and evaluates current economic conditions. If these assumptions prove to be
incorrect, the ALLL may not cover inherent losses in FNCB’s loan portfolio at the date of its financial statements. Material
additions to FNCB’s allowance or extensive charge-offs would materially decrease its net income. At December 31, 2021,
the ALLL totaled $12.4 million, representing 1.27% of loans, net of unearned income and net deferred loan origination fees.

Although management believes FNCB’s underwriting standards are adequate to manage normal lending risks, it is difficult
to assess the future performance of its loan portfolio due to the ongoing economic environment and the state of the real estate
market. The assessment of future performance of the loan portfolio is inherently uncertain. FNCB can give no assurance that
non-performing loans will not increase or that non-performing or delinquent loans will not adversely affect its future
performance.

In addition, federal and state regulators periodically review the ALLL and may require increases to the ALLL or further loan
charge-offs. Any increase in ALLL or loan charge-offs as required by these regulatory agencies could have a material adverse
effect on FNCB’s results of operations and financial condition.

If management concludes that the decline in value of any of FNCB’s investment securities is other-than-temporary, FNCB
is required to write down the security to reflect credit-related impairments through a charge to earnings.

Management reviews FNCB’s investment securities portfolio at each quarter-end reporting period to determine whether the
fair value is below the current carrying value. When the fair value of any of FNCB’s debt investment securities has declined
below its carrying value, management is required to assess whether the decline represents an other than temporary
impairment. If management concludes that the decline is other-than-temporary, it is required to write down the value of that
security to reflect the credit-related impairments through a charge to earnings. Changes in the expected cash flows of
securities in FNCB’s portfolio and/or prolonged price declines in future periods may result in OTTI, which would require a
charge to earnings. Due to the complexity of the calculations and assumptions used in determining whether an asset is
impaired, any impairment disclosed may not accurately reflect the actual impairment in the future. In addition, to the extent
that the value of any of FNCB’s investment securities is sensitive to fluctuations in interest rates, any increase in interest rates
may result in a decline in the value of such investment securities.

FNCB’s risk management framework may not be effective in mitigating risks or losses.

FNCB’s risk management framework is comprised of various processes, systems and strategies, and is designed to manage
the types of risk to which FNCB is subject, including, among others, credit, market, liquidity, interest rate and compliance.
FNCB’s framework also includes financial or other modeling methodologies that involve management assumptions and
judgment. FNCB’s risk management framework may not be effective under all circumstances and may not adequately
mitigate any risk or loss to FNCB. If FNCB’s risk management framework is not effective, FNCB could suffer unexpected
losses and its business, financial condition, results of operations or growth prospects could be materially and adversely
affected. FNCB may also be subject to potentially adverse regulatory consequences.

FNCB is subject to interest rate risk, which could adversely affect its profitability.

FNCB’s profitability, like that of most financial institutions, depends to a large extent on its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans and investment securities, and its interest
expense on interest-bearing liabilities, such as deposits and borrowings.

Interest rates are highly sensitive to many factors that are beyond FNCB’s control, including general economic conditions
and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal
Reserve System, or the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not
only the interest FNCB receives on loans and securities and the interest FNCB pays on deposits and borrowings, but such
changes could affect FNCB’s ability to originate loans and obtain deposits, the fair value of FNCB’s financial assets and
liabilities, and the average duration of FNCB’s assets. If the interest rates paid on deposits and other borrowings increase at
a faster rate than the interest rates received on loans and other investments, FNCB’s net interest income, and therefore
earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and
other investments fall more quickly than the interest rates paid on deposits and other borrowings. Any substantial, unexpected
or prolonged change in market interest rates could have a material adverse impact on FNCB’s business, financial condition
and results of operations.

FNCB uses simulation analysis to model net interest income for various interest rate scenarios over a five-year time horizon.
Based on the simulation analysis, FNCB’s interest sensitivity profile at December 31, 2021 was characterized by maturities
or repricing of assets and liabilities that were well matched over the next six to nine months, moving to an asset sensitivity
position by the end of the first year and in subsequent years of the model. These simulations are based on numerous
assumptions, including but not limited to: the nature and timing of interest rate levels, prepayments on loans and securities,
deposit decay rates, pricing decisions on loans and deposits, reinvestment of asset and liability cash flows, customer behavior
in a rising rate environment and other factors. When short-term interest rates rise, the rate of interest FNCB pays on its
interest-bearing liabilities may rise more quickly than the rate of interest that FNCB receives on its interest-earning assets,
which may cause FNCB’s net interest income to decrease.

Additionally, a shrinking yield premium between short-term and long-term market interest rates, a pattern usually indicative
of investors' waning expectations of future growth and inflation, commonly referred to as a flattening of the yield curve,
typically reduces FNCB’s profit margin as FNCB borrows at shorter terms than the terms at which FNCB lends and invests.

In addition, an increase in interest rates could also have a negative impact on FNCB’s results of operations by reducing the
ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan
defaults, foreclosures and charge-offs, but also reduce collateral values and necessitate further increases to the allowance for
loan losses, which could have a material adverse effect on FNCB’s business, financial condition and results of operations.

Changes in interest rates could reduce income, cash flows and asset values.

FNCB’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference
between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-
bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond
FNCB’s control, including general economic conditions and policies of various governmental and regulatory agencies and,
in particular, the FRB. Changes in monetary policy, including changes in interest rates, could influence not only the interest
FNCB receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could
also affect FNCB’s ability to originate loans and obtain deposits, the fair value of FNCB’s financial assets and liabilities, and
the average duration of FNCB’s mortgage-backed securities portfolio.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and
investments, FNCB’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be
adversely affected if the interest rates received on loans and investments fall more quickly than the interest rates paid on
deposits and other borrowings. Any substantial, unexpected, prolonged change in market interest rates could have a material
adverse effect on FNCB’s financial condition and results of operations.

Uncertainty relating to the expected phase-out of the London Interbank Offered Rate (“LIBOR”) may adversely affect
FNCB.

The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of
the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30,
2023. The publication of all other LIBOR settings ceased to be published as of December 31, 2021. Given consumer
protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that
use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine
bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR
as a reference rate as soon as practicable and in any event by December 31, 2021. FNCB has discontinued originating LIBOR-
based loans effective December 31, 2021, and will preferably negotiate loans using the Term Secured Overnight Financing
Rate ("Term SOFR") going forward. As of December 31, 2021, FNCB had approximately $83.9 million of loans and $26.5
million in investments, as well as certain derivative contracts, borrowings and other financial instruments that have attributes
that are either directly or indirectly dependent on LIBOR.

There continues to be substantial uncertainty as to the ultimate effects of the LIBOR transition, including with respect to the
acceptance and use of Term SOFR and other benchmark rates, such as AMERIBOR, a benchmark developed by the
American Financial Exchange and BSBY, a benchmark developed by Bloomberg Index Services, among others. Since Term
SOFR and other benchmark rates are calculated differently, payments under contracts referencing new rates will differ from
those referencing LIBOR, which may lead to increased volatility as compared to LIBOR. The transition has impacted our
market risk profiles and required changes to our risk and pricing models, valuation tools, product design and hedging
strategies. Furthermore, failure to adequately manage this transition process with customers could adversely impact FNCB's
reputation. Although FNCB is currently unable to assess what the ultimate impact of the transition from LIBOR will be,
failure to adequately manage the transition could have a material adverse effect on FNCB's internal systems and processes,
financial condition and results of operations.

FNCB may not be able to successfully compete with others for business.

FNCB competes for loans, deposits and investment dollars with numerous regional and national banks and other community
banking institutions, online divisions of banks located in other markets as well as other kinds of financial institutions and
enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private
lenders and Fintech companies. There is also competition for banking business from competitors outside of its market area.
As noted above, FNCB and the Bank are subject to extensive regulations and supervision, including, in many cases,
regulations that limit the type and scope of activities. Many competitors have substantially greater resources and may offer
certain services that FNCB and the Bank does not provide, and operate under less stringent regulatory environments. The
differences in available resources and applicable regulations may make it harder for FNCB to compete profitably, reduce the
rates that it can earn on loans and investments, increase the rates it must offer on deposits and other funds, and adversely
affect its overall financial condition and earnings. Refer to the section entitled “Business – Competition” included in Item 1,
"Business" to this Annual Report on Form 10-K for an additional discussion of FNCB's competitive environment.

Changes in either FNCB’s financial condition or in the general banking industry could result in a loss of depositor
confidence.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend
credit and to repay liabilities as they become due or as demanded by customers. The Board of Directors establishes liquidity
policies, including contingency funding plans, and limits and management establishes operating guidelines for liquidity.
FNCB’s primary source of liquidity is customer deposits. The continued availability of this funding source depends on
customer willingness to maintain deposit balances with banks in general and FNCB in particular. The availability of deposits
can also be impacted by regulatory changes (e.g. changes in FDIC insurance, the liquidity coverage ratio, etc.), changes in
the financial condition of FNCB, or the banking industry in general, and other events which can impact the perceived safety
and soundness or economic benefits of bank deposits. While FNCB makes significant efforts to consider and plan for
hypothetical disruptions in FNCB’s deposit funding through the use of liquidity stress testing, market related, geopolitical,
or other events could impact the liquidity derived from deposits.

FNCB may not be able to retain or grow its core deposit base, which could adversely impact its funding costs.

Like many financial institutions, FNCB relies on customer deposits as its primary source of funding for its lending activities,
and FNCB continues to seek customer deposits to maintain this funding base. FNCB’s future growth will largely depend on
its ability to retain and grow its deposit base. As of December 31, 2021, FNCB had $1.455 billion in deposits. FNCB’s
deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of its control,
such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes,
customer perceptions of its financial health and general reputation, and a loss of confidence by customers in FNCB or the
banking sector generally, which could result in significant outflows of deposits within short periods of time or significant
changes in pricing necessary to maintain current customer deposits or attract additional deposits. Any such loss of funds
could result in lower loan originations, which could have a material adverse effect on FNCB’s business, financial condition
and results of operations.

FNCB is a bank holding company and depends on dividends from its subsidiary, FNCB Bank, to operate.

FNCB is an entity separate and distinct from the Bank. The Bank conducts most of FNCB’s operations and FNCB depends
upon dividends from the Bank to service FNCB's debt, pay FNCB’s expenses and to pay dividends to FNCB's shareholders.
The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the
financial condition including liquidity and capital adequacy of the Bank and other factors, that the Bank’s regulators could
limit the payment of dividends or other payments to FNCB by the Bank. In the event that the Bank was unable to pay
dividends and would be unable to repurchase its shares, FNCB in turn would likely have to reduce or stop paying dividends
to its shareholders. Failure to pay dividends to FNCB shareholders could have a material adverse effect on the market price
of FNCB’s Common Stock. For additional information regarding dividend restrictions, refer to the section entitled
“Regulatory Matters” included in Item 1 of this Annual Report on Form 10-K.

If FNCB loses access to wholesale funding sources, it may not be able to meet the cash flow requirements of its depositors,
creditors, and borrowers, or have the operating cash needed to fund corporate expansion and other corporate activities.

Wholesale funding sources include brokered deposits, one-way CDARS and ICS deposits, federal funds lines of credit,
securities sold under repurchase agreements, non-core deposits, and long-term debt. The Bank is also a member of the FHLB
of Pittsburgh, which provides members access to funding through advances collateralized with certain qualifying assets
within the Bank’s loan portfolio. In addition, FNCB’s available-for-sale securities provide an additional source of liquidity.
Disruptions in availability of wholesale funding can directly impact the liquidity of FNCB and the Bank. The inability to
access capital markets funding sources as needed could adversely impact FNCB’s financial condition, results of operations,
cash flows, and level of regulatory-qualifying capital.

FNCB held approximately $1.9 million in capital stock of the FHLB as of December 31, 2021. FNCB must own such capital
stock to qualify for membership in the Federal Home Loan Bank system which enables it to borrow funds under the FHLB
advance program. If the FHLB were to cease operations, FNCB’s business, financial condition, liquidity, capital and results
of operations may be materially and adversely affected.

Interruptions or security breaches of FNCB’s information systems could negatively affect its financial performance or
reputation.

In conducting its business, FNCB relies heavily on its information systems. FNCB collects and stores sensitive data, including
proprietary business information and personally identifiable information of its customers and employees, in its data centers
and on its networks. The secure processing, maintenance and transmission of this information is critical to FNCB’s operations
and business strategy. Maintaining and protecting those systems is difficult and expensive, as is dealing with any failure,
interruption or breach of those systems. Despite security measures, FNCB’s information technology and infrastructure may
be vulnerable to security breaches, cyber-attacks by hackers or breaches due to employee error, malfeasance or other
disruptions. Any damage, failure or breach could cause an interruption in operations. Computer break-ins, phishing and other
disruptions could also jeopardize the security of information stored in and transmitted through FNCB’s computer systems
and network infrastructure. The occurrence of any failures, interruptions or breaches could damage FNCB’s reputation,
disrupt operations and the services provided to customers, cause a loss of confidence in the products and the services provided,
cause FNCB to incur additional expenses, result in a loss of customer business and data, result in legal claims or proceedings,
result in liability under laws that protect the privacy of personal information, result in regulatory penalties, or expose FNCB
to other liability, any of which could have a material adverse effect on its business, financial condition and results of
operations and competitive position.

FNCB depends on information technology and telecommunications systems of third parties, and any systems failures or
interruptions could adversely affect FNCB’s operations and financial condition.

FNCB’s business depends on the successful and uninterrupted functioning of its information technology and
telecommunications systems. FNCB outsources many of its major systems, such as data processing, deposit processing, loan
origination, email and anti-money laundering monitoring systems. The failure of these systems, or the termination of a third-
party software license or service agreement on which any of these systems is based, could interrupt FNCB’s operations, and
FNCB could experience difficulty in implementing replacement solutions. In many cases, FNCB’s operations rely heavily
on secured processing, storage and transmission of information and the monitoring of a large number of transactions on a
minute-by-minute basis, and even a short interruption in service could have significant consequences. Because FNCB’s
information technology and telecommunications systems interface with and depend on third party systems, FNCB could
experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience
interruptions. If significant, sustained or repeated, a system failure or service denial could compromise FNCB’s ability to
operate effectively, damage FNCB’s reputation, result in a loss of customer business and subject FNCB to additional
regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on FNCB’s business,
financial condition and results of operations. In addition, failure of third parties to comply with applicable laws and
regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt FNCB’s operations
or adversely affect FNCB’s reputation.

FNCB is subject to cybersecurity risks and security breaches and may incur increasing costs in an effort to minimize those
risks and to respond to cyber incidents, and FNCB may experience harm to its reputation and liability exposure from
security breaches.

FNCB’s business involves the storage and transmission of customers' proprietary information and security breaches could
expose FNCB to a risk of loss or misuse of this information, litigation and potential liability. While FNCB has not incurred
a material cyber-attack or security breach to date, a number of other financial services and other companies have disclosed
cyber-attacks and security breaches, some of which have involved intentional attacks. Attacks may be targeted at FNCB, its
customers or both. Although FNCB devotes significant resources to maintain, regularly update and backup its systems and
processes that are designed to protect the security of FNCB’s computer systems, software, networks and other technology
assets and the confidentiality, integrity and availability of information belonging to FNCB or its customers, its security
measures may not be effective against all potential cyber-attacks or security breaches. Despite FNCB’s efforts to ensure the
integrity of its systems, it is possible that FNCB may not be able to anticipate, or implement effective preventive measures
against, all security breaches of these types, especially because the techniques used change frequently or are not recognized
until launched, and because cyber-attacks can originate from a wide variety of sources, including persons who are involved
with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile
foreign governments. These risks may increase in the future as FNCB continues to increase FNCB’s internet-based product
offerings and expand its internal usage of web-based products and applications. If an actual or perceived security breach
occurs, customer perception of the effectiveness of FNCB’s security measures could be harmed and could result in the loss
of customers.

A successful penetration or circumvention of the security of FNCB’s systems, including those of third party providers or
other financial institutions, or the failure to meet regulatory requirements for security of its systems, could cause serious
negative consequences, including significant disruption of FNCB’s operations, misappropriation of FNCB’s confidential
information or that of FNCB’s customers, or damage to FNCB’s computers or systems or those of FNCB’s customers or
counterparties, significant increases in compliance costs (such as repairing systems or adding new personnel or protection
technologies), and could result in violations of applicable privacy and other laws, financial loss to FNCB or to its customers,
loss of confidence in its security measures, customer dissatisfaction, significant litigation and regulatory exposure, and harm
to FNCB’s reputation, all of which could have a material adverse effect on FNCB’s business, financial condition and results
of operations.

If FNCB’s information technology is unable to keep pace with growth or industry developments or if technological
developments result in higher costs or less advantageous pricing, financial performance may suffer.

Effective and competitive delivery of FNCB’s products and services increasingly depends on information technology
resources and processes, both those provided internally as well as those provided through third party vendors. In addition to
better serving customers, the effective use of technology can improve efficiency and help reduce costs. FNCB’s future success
will depend, in part, upon its ability to address the needs of its customers by using technology to provide products and services
to enhance customer convenience, as well as to create efficiencies in its operations. There is increasing pressure to provide
products and services at lower prices. This can reduce net interest income and non-interest income from fee-based products

and services. In addition, the widespread adoption of new technologies could require FNCB to make substantial capital
expenditures to modify or adapt existing products and services or develop new products and services. FNCB may not be
successful in introducing new products and services in response to industry trends or developments in technology, or those
new products may not achieve market acceptance. Many of FNCB’s competitors have greater resources to invest in
technological improvements. Additionally, as technology in the financial services industry changes and evolves, keeping
pace becomes increasingly complex and expensive. There can be no assurance that FNCB will be able to effectively
implement new technology-driven products and services, which could reduce its ability to compete effectively. As a result,
FNCB could lose business, be forced to price products and services on less advantageous terms to retain or attract customers,
or be subject to cost increases.

FNCB relies on management and other key personnel and the loss of any of them may adversely affect its operations.

FNCB believes each member of the executive management team is important to its success and the unexpected loss of any
of these persons could impair day-to-day operations as well as its strategic direction.

FNCB’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most
activities engaged in by FNCB can be intense and it may not be able to hire people or retain them. The unexpected loss of
services of one or more of FNCB’s key personnel could have a material adverse impact on its business due to the loss of their
skills, knowledge of its market, years of industry experience and to the difficulty of promptly finding qualified replacement
personnel.

FNCB is dependent on the use of data and modeling in both its management’s decision-making generally and in meeting
regulatory expectations in particular.

The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision-making
and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in FNCB’s
operations. Liquidity stress testing, interest rate sensitivity analysis, allowance for loan loss measurement, portfolio stress
testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which
FNCB is dependent on models and the data that underlies them. FNCB anticipates that model-derived insights will be used
more widely in FNCB’s decision-making in the future. While these quantitative techniques and approaches improve FNCB’s
decision-making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse
outcomes or regulatory scrutiny. Secondarily, because of the complexity inherent in these approaches, misunderstanding or
misuse of their outputs could similarly result in suboptimal decision making, which could have a material adverse effect on
FNCB’s business, financial condition and results of operations.

New lines of business, products, product enhancements or services may subject FNCB to additional risk.

From time to time, FNCB may implement new lines of business or offer new products and product enhancements as well as
new services within FNCB’s existing lines of business. There are substantial risks and uncertainties associated with these
efforts. In developing, implementing or marketing new lines of business, products, product enhancements or services, FNCB
may invest significant time and resources. FNCB may underestimate the appropriate level of resources or expertise necessary
to make new lines of business or products successful to realize their expected benefits. FNCB may not achieve the milestones
set in initial timetables for the development and introduction of new lines of business, products, product enhancements or
services, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations,
competitive alternatives and shifting market preferences, may also impact the ultimate implementation of a new line of
business or offering of new products, product enhancements or services. Any new line of business, product, product
enhancement or service could have a significant impact on the effectiveness of FNCB’s system of internal controls. FNCB
may also decide to discontinue business or products, due to lack of customer acceptance or unprofitability. Failure to
successfully manage these risks in the development and implementation of new lines of business or offerings of new products,
product enhancements or services could have a material adverse effect on FNCB’s business, financial condition and results
of operations.

FNCB may be adversely affected by the soundness of other financial institutions.

FNCB’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing,
counterparty and other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services
companies, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults

by FNCB or other institutions. These losses could have a material adverse effect on FNCB’s business, financial condition
and results of operations.

Damage to FNCB’s reputation could significantly harm its businesses, competitive position and prospects for growth.

FNCB’s ability to attract and retain investors, customers, clients, and employees could be adversely affected by damage to
its reputation resulting from various sources, including environmental, social and governance ("ESG") related issues,
employee misconduct, litigation, or regulatory outcomes; failure to deliver minimum standards of service and quality;
compliance failures; unethical behavior; unintended breach of confidential information; and the activities of FNCB’s clients,
customers, or counterparties. Actions by the financial services industry in general, or by certain entities or individuals within
it, also could have a significantly adverse impact on FNCB’s reputation.

FNCB’s actual or perceived failure to identify and address various issues, including failure to properly address operational
and ESG risks, could also give rise to reputation risk that could negatively impact business prospects. These issues include,
among others, legal and regulatory requirements; consumer protection, fair lending, and privacy issues; properly maintaining
customer and associated personal information; record keeping; protecting against money laundering; sales and trading
practices; and ethical issues.

FNCB may be a defendant from time to time in a variety of litigation and other actions, which could have a material
adverse effect on its financial condition, results of operations and cash flows.

FNCB has been and may continue to be involved from time to time in a variety of litigation matters arising out of its business.
An increased number of lawsuits, including purported class action lawsuits and other consumer driven litigation, have been
filed and will likely continue to be filed against financial institutions, which may involve substantial compensatory and/or
punitive damages. Management believes the risk of litigation generally increases during downturns in the national and local
economies. FNCB’s insurance may not cover all claims that may be asserted against it, and any claims asserted against it,
regardless of merit or eventual outcome, may harm its reputation and may cause it to incur significant expense. Should the
ultimate judgments or settlements in any litigation exceed insurance coverage, they could have a material adverse effect on
its financial condition, results of operations and cash flows. In addition, FNCB may not be able to obtain appropriate types
or levels of insurance in the future, nor may it be able to obtain adequate replacement policies with acceptable terms, if at all.
Refer to Item 3, “Legal Proceedings” to this Annual Report on Form 10-K for an additional discussion of FNCB's current
material legal matters.

FNCB depends on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, FNCB may rely on
information furnished by or on behalf of customers and counterparties, including financial information. FNCB may also rely
on representations of customers and counterparties as to the accuracy and completeness of that information. In deciding
whether to extend credit, FNCB may rely upon customers' representations that their financial statements conform to GAAP
and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. FNCB
also may rely on customer representations and certifications, or audit or accountants' reports, with respect to the business and
financial condition of its customers. FNCB’s financial condition, results of operations, financial reporting and reputation
could be negatively affected if FNCB relies on materially misleading, false, inaccurate or fraudulent information.

FNCB may face risks with respect to future expansion or acquisition activity.

FNCB may selectively seek to expand its banking operations through limited de novo branching or opportunistic acquisition
activities. FNCB cannot be certain that any expansion activity, through de novo branching, acquisition of branches of another
financial institution or a whole institution, or the establishment or acquisition of nonbanking financial service companies,
will prove profitable or will increase shareholder value. The success of any acquisition will depend, in part, on FNCB’s
ability to realize the estimated cost savings and revenue enhancements from combining its business and that of the target
company. FNCB’s ability to realize increases in revenue will depend, in part, on its ability to retain customers and employees,
and to capitalize on existing relationships for the provision of additional products and services. If FNCB estimates turn out
to be incorrect or FNCB is not able to successfully combine companies, the anticipated cost savings and increased revenues
may not be realized fully or at all, or may take longer to realize than expected. It is possible that the integration process could
result in the loss of key employees, the disruption of each company’s ongoing business, diversion of management attention,
or inconsistencies in standards, controls, procedures and policies that adversely affect FNCB’s ability to maintain
relationships with clients and employees or to achieve the anticipated benefits of the merger. As with any combination of
banking institutions, there also may be disruptions that cause FNCB to lose customers or cause customers to withdraw their

deposits. Customers may not readily accept changes to their banking arrangements that FNCB makes as part of, or following,
an acquisition. Additionally, the value of an acquisition to FNCB is dependent on its ability to successfully identify and
estimate the magnitude of any asset quality issues of acquired companies.

FNCB may not be successful in overcoming these risks or other problems encountered in connection with potential
acquisitions or other expansion activity. FNCB’s inability to overcome these risks could have an adverse effect on FNCB’s
ability to implement its business strategy and enhance shareholder value, which, in turn, could have a material adverse effect
on FNCB’s business, financial condition or results of operations. Additionally, if FNCB records goodwill in connection with
any acquisition, FNCB’s financial condition and results of operation may be adversely affected if that goodwill is determined
to be impaired, which would require FNCB to take an impairment charge.

FNCB could be subject to environmental risks and associated costs on its foreclosed real estate assets.

A substantial portion of FNCB’s loan portfolio is secured by real property. During the ordinary course of business, FNCB
may foreclose on and take title to properties securing loans. There is a risk that hazardous or toxic substances could be found
on these properties and that FNCB could be liable for remediation costs, as well as personal injury and property damage.
Environmental laws may require FNCB to incur substantial expenses and may materially reduce the affected property's value
or limit FNCB’s ability to sell the affected property. The remediation costs and any other financial liabilities associated with
an environmental hazard could have a material adverse effect on FNCB’s business, financial condition and results of
operations.

The COVID-19 pandemic is adversely affecting, and will likely continue to adversely affect, our business, financial
condition, liquidity, and results of operations.

Although U.S. and global economies have begun to recover from the COVID-19 pandemic as many health and safety
restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue
to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global
supply chains. The growth in economic activity and demand for goods and services, alongside labor shortages and supply
chain complications, has also contributed to rising inflationary pressures. The extent to which the COVID-19 pandemic will
impact FNCB's business, financial condition, liquidity, and results of operations will depend on future developments, which
are highly uncertain and cannot be predicted, including the rate and distribution and administration of vaccines globally, the
severity and duration of any resurgence of COVID-19 variants either locally, nationally or globally, the continued
effectiveness of FNCB's business continuity plan, the direct and indirect impact of the pandemic on FNCB's customers,
counterparties and service providers, and actions taken by governmental authorities and other third parties in response to the
pandemic.

Governmental authorities have taken significant measures to provide economic assistance to individual households and
businesses, stabilize the markets, and support economic growth. These measures may not be sufficient to fully mitigate the
negative impact of the pandemic. Additionally, some measures, such as a suspension of consumer and commercial loan
payments, may have a negative impact on our business, financial condition, liquidity, and results of operations. We also
expect that the temporary reduction of interest rates to near zero will, over the course of 2022, be reversed, with the Federal
Reserve now signaling its concerns with respect to inflation and announcing that it will begin to taper its purchases of
mortgages and other bonds.

The COVID-19 pandemic has resulted in heightened operational risks. A significant portion of FNCB's staff has
been working remotely, and increased levels of remote access create additional cybersecurity risk and opportunities for
cybercriminals to exploit vulnerabilities. Cybercriminals have increased their attempts to compromise business emails,
including an increase in phishing attempts, and fraudulent vendors or other parties may view the pandemic as an opportunity
to prey upon consumers and businesses during this time. The increase in online and remote banking activities may also
increase the risk of fraud in certain instances.

The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown. Until the
effects of the pandemic subside, there is a risk of reduced revenues in our businesses and increased customer
defaults. Furthermore, the U.S. economy experienced a temporary recession as a result of the pandemic, and our business
could be materially and adversely affected by another recession should the effects of the pandemic continue for a period of
time or worsen. To the extent the pandemic adversely affects FNCB's business, financial condition, liquidity, or results of
operations, it also has the effect of heightening many of the other risks described in this Annual Report on Form 10-K.

FNCB has also participated as a lender in certain government programs designed to provide economic relief in response to
the pandemic, including the SBA's Paycheck Protection Program ("PPP") and the Federal Reserve's Main Street Lending
Program. As a result of participating in these programs, FNCB faces increased risks, including credit, fraud risk and litigation.
Additionally, while these loans to small business clients benefit from a government guaranty, many of these businesses may
face difficulties even after being granted such a loan. Many of theses businesses have loans other than PPP loans with
FNCB A decline in the financial condition of these businesses could result in a loss of earnings from these loans, an increase
in the provision for loan and lease losses, or an increase in loan charge-offs, which could have an adverse impact on FNCB’s
results of operations and financial condition.

Risks Related to FNCB’s Industry

Federal and state regulators periodically examine FNCB’s business and may require FNCB to remediate adverse
examination findings or may take enforcement action against FNCB.

The FRB, the FDIC and the PADOBS, periodically examine FNCB’s business, including its compliance with laws and
regulations. If, as a result of an examination, the Federal Reserve, FDIC or PADOBS were to determine that FNCB’s financial
condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of FNCB’s
operations had become unsatisfactory, or that FNCB were in violation of any law or regulation, they may take a number of
different remedial actions as they deem appropriate. These actions include the power to require FNCB to remediate any such
adverse examination findings.

In addition, these agencies have the power to take enforcement action against FNCB to enjoin "unsafe or unsound" practices,
to require affirmative action to correct any conditions resulting from any violation of law or regulation or unsafe or unsound
practice, to issue an administrative order that can be judicially enforced, to direct an increase in FNCB’s capital, to direct the
sale of subsidiaries or other assets, to limit dividends and distributions, including the repurchase of common stock, to restrict
FNCB’s growth, to assess civil money penalties against FNCB or its officers or directors, to remove officers and directors
and, if it is concluded that such conditions cannot be corrected or there is imminent risk of loss to depositors, to terminate
FNCB’s deposit insurance and place the Bank into receivership or conservatorship. Any regulatory enforcement action
against FNCB could have a material adverse effect on its business, financial condition and results of operations.

FNCB may be required to act as a source of financial and managerial strength for the Bank in times of stress.

FNCB, as a bank holding company, is required to act as a source of financial and managerial strength to the Bank and to
commit resources to support the Bank if necessary. FNCB may be required to commit additional resources to the Bank at
times when FNCB may not be in a financial position to provide such resources or when it may not be in FNCB’s, or its
shareholders’ or creditors’, best interests to do so. A requirement to provide such support is more likely during times of
financial stress for FNCB and the Bank, which may make any capital FNCB is required to raise to provide such support more
expensive than it might otherwise be. In addition, any capital loans FNCB makes to the Bank are subordinate in right of
repayment to deposit liabilities of the Bank.

FNCB is subject to extensive government regulation, supervision and possible regulatory enforcement actions, which may
subject it to higher costs and lower shareholder returns.

The banking industry is subject to extensive regulation and supervision that govern almost all aspects of its operations. The
extensive regulatory framework is primarily intended to protect the federal deposit insurance fund and depositors, not
shareholders. Compliance with applicable laws and regulations can be difficult and costly and, in some instances, may put
banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking
companies, leasing companies and internet-based Fintech companies. FNCB’s regulatory authorities have extensive
discretion in their supervisory and enforcement activities, including with respect to the imposition of restrictions on the
operation of a bank or a bank holding company, the imposition of significant fines, the ability to delay or deny merger or
other regulatory applications, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses,
among other matters. If they deem FNCB to be operating in a manner inconsistent with safe and sound banking practices,
these regulatory authorities can require the entry into informal and formal supervisory agreements, including board
resolutions, memorandum of understanding, settlement agreements and consent or cease and desist orders, pursuant to which
FNCB would be required to implement identified corrective actions to address cited concerns and/or to refrain from taking
certain actions in the form of injunctive relief. In recent years, the banking industry has faced increased regulation and
scrutiny; for instance, areas such as BSA compliance (including BSA and related anti-money laundering regulations) and
real estate-secured consumer lending (such as Truth-in-Lending regulations, changes in Real Estate Settlement Procedures
Act regulations, implementation of licensing and registration requirements for mortgage originators and more recently,

heightened regulatory attention to mortgage and foreclosure-related activities and exposures) are being confronted with
escalating regulatory expectations and scrutiny. Non-compliance with laws and regulations such as these, even in cases of
inadvertent non-compliance, could result in litigation, significant fines and/or sanctions. Any failure to comply with, or any
change in, any applicable regulation and supervisory requirement, or change in regulation or enforcement by such authorities,
whether in the form of policies, regulations, legislation, rules, orders, enforcement actions, or decisions, could have a material
impact on FNCB, the Bank and other affiliates, and its operations. Federal economic and monetary policy may also affect
FNCB’s ability to attract deposits and other funding sources, make loans and investments, and achieve satisfactory interest
spreads. Any failure to comply with such regulation or supervision could result in sanctions by regulatory agencies, civil
money penalties and/or reputation damage, which could have a material adverse effect on FNCB’s business, financial
condition and results of operations. In addition, compliance with any such action could distract management’s attention from
FNCB’s operations, cause it to incur significant expenses, restrict it from engaging in potentially profitable activities and
limit its ability to raise capital.

New or changed legislation or regulation and regulatory initiatives could adversely affect FNCB through increased
regulation and increased costs of doing business.

Changes in federal and state legislation and regulation may affect FNCB’s operations. Laws and regulations, such as the
Dodd-Frank Act and Basel III, may have unforeseen or unintended consequences on the banking industry. The Dodd-Frank
Act has implemented significant changes to the U.S. financial system, including the creation of new regulatory agencies (such
as the Financial Stability Oversight Council to oversee systemic risk and the CFPB to develop and enforce rules for consumer
financial products), changes in retail banking regulations, and changes to deposit insurance assessments. For example, the
Dodd-Frank Act has implemented new requirements with respect to “qualified mortgages” and new mortgage servicing
standards have, and may continue to, increase costs associated with this business. Refer to the section entitled “Business –
The Bank – Consumer Financial Protection Bureau” included in Item 1, "Business" to this Annual Report on Form 10-K for
a more detailed description of new or changed legislation or regulation and regulatory initiatives.

The Biden Administration may seek to implement a regulatory reform agenda, which could include a heightened focus on
the regulation of loan portfolios and credit concentrations to borrowers impacted by climate change, heightened scrutiny on
Bank Secrecy Act and anti-money laundering requirements, topics related to social equity, executive compensation, and
increased capital and liquidity, as well as limits on share buybacks and dividends. In addition, mergers and acquisitions could
be dampened by increased antitrust scrutiny. Reform proposals are also expected for the short-term wholesale markets. At
this time it cannot be determined which, if any of these policies, would be implemented and what their impact would be.
However, FNCB believes such uncertainty may reduce business activities, which ordinarily would be beneficial to its
business.

Additionally, final rules to implement Basel III adopted in July 2013 revise risk-based and leverage capital requirements and
limit capital distributions and certain discretionary bonuses if a banking organization does not hold the required “capital
conservation buffer.” The rule became effective for FNCB on January 1, 2015, with some additional transition periods. This
additional regulation could increase compliance costs and otherwise adversely affect operations. Refer to the description in
Item 1, "Business" to this Annual Report on Form 10-K under the heading “Capital Adequacy Requirements” for a more
detailed description of the final rules. The potential also exists for additional federal or state laws or regulations, or changes
in policy or interpretations, affecting many of FNCB’s operations, including capital levels, lending and funding practices,
insurance assessments, and liquidity standards. The effect of any such changes and their interpretation and application by
regulatory authorities cannot be predicted, may increase FNCB’s cost of doing business and otherwise affect FNCB’s
operations, may significantly affect the markets in which it does business, and could have a materially adverse effect on
FNCB.

FNCB is also subject to the guidelines under the GLB Act. The GLB Act guidelines require, among other things, that each
financial institution develop, implement and maintain a written, comprehensive information security program containing
safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial
institution’s activities and the sensitivity of any customer information at issue. In recent years there also has been increasing
enforcement activity in the areas of privacy, information security and data protection in the United States, including at the
federal level. Compliance with these laws, rules and regulations regarding the privacy, security and protection of customer
and employee data could result in higher compliance and technology costs. In addition, non-compliance could result in
potentially significant fines, penalties and damage to FNCB’s reputation and brand.

The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For
example, holding companies experiencing significant internal growth or making acquisitions are expected to maintain strong
capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

FNCB’s regulatory capital ratios currently are in excess of the levels established for "well capitalized" institutions. Future
regulatory change could impose higher capital standards.

Any new or revised standards adopted in the future may require us to maintain materially more capital, with common equity
as a more predominant component, or manage the configuration of our assets and liabilities to comply with formulaic liquidity
requirements. We may not be able to raise additional capital at all, or on terms acceptable to us. Failure to maintain capital
to meet current or future regulatory requirements could have a significant material adverse effect on our business, financial
condition and results of operations.

FNCB faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.

The Bank Secrecy Act of 1970, the Uniting and Strengthening America by Providing Appropriate Tools to Intercept and
Obstruct Terrorism Act of 2001, or the USA Patriot Act or Patriot Act, and other laws and regulations require financial
institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such
as suspicious activity reports and currency transaction reports. FNCB is required to comply with these and other anti-money
laundering requirements. FNCB’s federal and state banking regulators, the Financial Crimes Enforcement Network
(“FinCEN”), and other government agencies are authorized to impose significant civil money penalties for violations of anti-
money laundering requirements. FNCB is also subject to increased scrutiny of compliance with the regulations issued and
enforced by the Office of Foreign Assets Control (“OFAC”). If FNCB’s program is deemed deficient, FNCB could be subject
to liability, including fines, civil money penalties and other regulatory actions, which may include restrictions on FNCB’s
business operations and its ability to pay dividends, or repurchase shares of its common stock, restrictions on mergers and
acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Failure to maintain and
implement adequate programs to combat money laundering and terrorist financing could also have significant consequences
to FNCB's reputation. Any of these circumstances could have a material adverse effect on FNCB’s business, financial
condition or results of operations.

FNCB is subject to numerous "fair and responsible banking" laws designed to protect consumers, and failure to comply
with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and
regulations, including state laws and regulations, prohibit discriminatory lending practices by financial institutions. The
Federal Trade Commission Act and the Dodd-Frank Act prohibit unfair, deceptive, or abusive acts or practices by financial
institutions. The U.S. Department of Justice, or DOJ, federal banking agencies, and other federal and state agencies are
responsible for enforcing these fair and responsible banking laws and regulations. A challenge to an institution’s compliance
with fair and responsible banking laws and regulations could result in a wide variety of sanctions, including damages and
civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and
restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance
under fair lending laws in private class action litigation. Such actions could have a material adverse effect on FNCB’s
reputation, business, financial condition and results of operations.

FNCB is subject to laws regarding the privacy, information security and protection of personal information and any
violation of these laws or another incident involving personal, confidential or proprietary information of individuals could
damage FNCB’s reputation and otherwise adversely affect FNCB’s business.

FNCB’s business requires the collection and retention of large volumes of customer data, including personally identifiable
information (“PII”), in various information systems that FNCB maintains and in those maintained by third party service
providers. FNCB also maintains important internal company data such as PII about its employees and information relating
to its operations. FNCB is subject to complex and evolving laws and regulations governing the privacy and protection of PII
of individuals (including customers, employees and other third parties). For example, FNCB’s business is subject to the
Gramm-Leach-Bliley Act, or the GLB Act, which, among other things: (i) imposes certain limitations on FNCB’s ability to
share nonpublic PII about FNCB’s customers with nonaffiliated third parties; (ii) requires that FNCB provides certain
disclosures to customers about its information collection, sharing and security practices and afford customers the right to "opt
out" of any information sharing by FNCB with nonaffiliated third parties (with certain exceptions); and (iii) requires that
FNCB develops, implements and maintains a written comprehensive information security program containing appropriate
safeguards based on FNCB’s size and complexity, the nature and scope of its activities, and the sensitivity of customer
information FNCB processes, as well as plans for responding to data security breaches. Various federal and state banking
regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer,
regulatory or law enforcement notification in the event of a security breach. Ensuring that FNCB’s collection, use, transfer

and storage of PII complies with all applicable laws and regulations can increase FNCB’s costs. Furthermore, FNCB may
not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of
the information that they exchange with FNCB, particularly where such information is transmitted by electronic means. If
personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations
where, for example, such information was erroneously provided to parties who are not permitted to have the information, or
where such information was intercepted or otherwise compromised by third parties), FNCB could be exposed to litigation or
regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of FNCB’s
measures to safeguard PII, or even the perception that such measures are inadequate, could cause FNCB to lose customers or
potential customers and thereby reduce FNCB’s revenues. Accordingly, any failure, or perceived failure, to comply with
applicable privacy or data protection laws and regulations may subject FNCB to inquiries, examinations and investigations
that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or
penalties, and could damage FNCB’s reputation and otherwise adversely affect FNCB’s operations, financial condition and
results of operations.

Rulemaking changes implemented by the Consumer Financial Protection Bureau may result in higher regulatory and
compliance costs that may adversely affect FNCB’s business.

The Dodd-Frank Act created a new, independent federal agency, the Consumer Financial Protection Bureau, or CFPB, which
was granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection
laws. The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those
laws and implementing regulations issued by the CFPB have created a more intense and complex environment for consumer
finance regulation. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing,
practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and
examination. These changes could have a material adverse effect on FNCB’s business, financial condition and results of
operations.

The Bank’s FDIC deposit insurance premiums and assessments may increase.

The Bank’s deposits are insured by the FDIC up to legal limits and, accordingly, the Bank is subject to insurance assessments
based on the Bank’s average consolidated total assets less its average tangible equity. The Bank’s regular assessments are
determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that
it poses. Numerous bank failures during the financial crisis and increases in the statutory deposit insurance limits increased
resolution costs to the FDIC and put significant pressure on the Deposit Insurance Fund. In order to maintain a strong funding
position and the reserve ratios of the Deposit Insurance Fund required by statute and FDIC estimates of projected
requirements, the FDIC has the power to increase deposit insurance assessment rates and impose special assessments on all
FDIC-insured financial institutions. Any future increases or special assessments could reduce FNCB’s profitability and could
have a material adverse effect on FNCB’s business, financial condition and results of operations.

Risks Related to FNCB’s Common Stock

The price of FNCB’s common stock may fluctuate significantly, which may make it difficult for shareholders to resell
shares of common stock at a time or price they find attractive.

FNCB’s stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond its control.
These factors include, among others:

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●

●

●
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●

actual or anticipated quarterly fluctuations in operating results and financial condition;
changes in financial estimates or publication of research reports and recommendations by financial analysts or
actions taken by rating agencies with respect to FNCB or other financial institutions;
speculation in the press or investment community generally or relating to FNCB’s reputation or the financial
services industry;
failure to declare dividends on FNCB’s common stock from time to time;
failure to meet analysts’ revenue or earnings estimates;
failure to integrate any future acquisitions or realize anticipated benefits from any future acquisitions;
strategic actions by FNCB or its competitors, such as acquisitions, restructurings, dispositions or financings;
fluctuations in the stock price and operating results of FNCB’s competitors or other companies that investors deem
comparable to FNCB;
future sales or repurchases of FNCB’s equity or equity-related securities;

●
● proposed or adopted regulatory changes or developments;

anticipated or pending audits or litigation that involve or affect FNCB;
any future investigations or proceedings that involve or affect FNCB;
adverse weather conditions, including floods, tornadoes and hurricanes;

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●
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● geopolitical conditions such as acts or threats of terrorism or military conflicts;
● domestic and international economic factors unrelated to FNCB’s performance; and
● general market conditions and, in particular, developments related to market conditions for the financial services

industry.

In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This volatility
has had a significant effect on the market price of securities issued by many companies, including for reasons unrelated to
their operating performance. These broad market fluctuations may adversely affect FNCB’s stock price, notwithstanding its
operating results. FNCB expects that the market price of its common stock will continue to fluctuate and there can be no
assurances about the levels of the market prices for its common stock.

General market fluctuations, industry factors and general economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss trends, could also cause FNCB’s stock price to decrease
regardless of operating results.

The rights of holders of FNCB’s common stock to receive liquidation payments and dividend payments are junior
to FNCB’s existing and future
the future,
and FNCB’s ability to declare dividends on, or repurchase shares of, the common stock may become limited.

to any senior securities FNCB may

indebtedness and

issue

Shares of the common stock are equity interests in FNCB and do not constitute indebtedness. As such, shares of FNCB’s
common stock rank junior to all current and future indebtedness and other non-equity claims on FNCB with respect to assets
available to satisfy claims on FNCB, including in a liquidation of FNCB. FNCB may, and the Bank and FNCB’s other
subsidiaries may also, incur additional indebtedness from time to time and may increase FNCB’s aggregate level of
outstanding indebtedness.

FNCB’s board of directors is authorized to cause FNCB to issue additional classes or series of preferred stock without any
action on the part of the shareholders. If FNCB issues preferred shares in the future that have a preference over its common
stock with respect to the payment of dividends or upon liquidation, or if FNCB issues preferred shares with voting rights that
dilute the voting power of the common stock, then the rights of holders of FNCB’s common stock or the market price of
FNCB’s common stock could be adversely affected.

FNCB’s ability to pay dividend, or repurchase shares of its common stock, may become limited by regulatory restrictions. In
addition, the ability of the Bank to pay dividends to FNCB is limited by the Bank’s obligations to maintain sufficient
accumulated net earnings and by other general restrictions on dividends that are applicable to state nonmember banks.

Holders of FNCB’s common stock are only entitled to receive the dividends that FNCB’s board of directors may declare out
of funds legally available for those payments. In addition, FNCB's board of directors may only repurchase shares out of funds
legally available for those repurchases. Although FNCB has historically paid cash dividends on its common stock, and has
recently announced a share repurchase program to repurchase shares of its common stock, FNCB is not required to do so.
FNCB cannot assure shareholders that it will continue paying dividends, or repurchase shares, in the future. This could
adversely affect the market price of FNCB’s common stock. Also, as discussed above, FNCB is a bank holding company and
its ability to declare and pay dividends, or repurchase shares, depends in part on federal regulatory considerations, including
the guidelines of the Federal Reserve regarding capital adequacy and dividends.

FNCB may need to raise additional capital in the future, but that capital may not be available when it is needed and on
terms favorable to current shareholders.

Laws, regulations and banking regulators require FNCB and the Bank to maintain adequate levels of capital to support their
operations. In addition, capital levels are determined by FNCB’s management and Board of Directors based on capital levels
that they believe are necessary to support business operations. Management regularly evaluates its present and future capital
requirements and needs and analyzes capital raising alternatives and options. Although FNCB succeeded in meeting its
current regulatory capital requirements, it may need to raise additional capital in the future to support growth, possible loan
losses or potential OTTI during future periods, to meet future regulatory capital requirements or for other reasons.

The Board of Directors may determine from time to time that FNCB needs to raise additional capital by issuing additional
shares of common stock or other securities. FNCB is not restricted from issuing additional shares of common stock, including

securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. Because FNCB’s
decision to issue securities in any future offering will depend on market conditions and other factors beyond its control,
FNCB cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings
may be affected. Such offerings will likely be dilutive to common shareholders from ownership, earnings and book value
perspectives. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, its
then current common shareholders. Additionally, if FNCB raises additional capital by making additional offerings of debt or
preferred equity securities, upon liquidation, holders of its debt securities and shares of preferred shares, and lenders with
respect to other borrowings, will receive distributions of available assets prior to the holders of common stock. Additional
equity offerings may dilute the holdings of existing shareholders or reduce the market price of FNCB’s common stock, or
both. Holders of FNCB’s common stock are not entitled to preemptive rights or other protections against dilution.

FNCB cannot provide any assurance that additional capital will be available on acceptable terms or at all. Any occurrence
that may limit access to the capital markets may adversely affect FNCB’s capital costs and its ability to raise capital and, in
turn, its liquidity. Moreover, if FNCB needs to raise capital, it may have to do so when many other financial institutions are
also seeking to raise capital and would have to compete with those institutions for investors. An inability to raise additional
capital on acceptable terms when needed could have a material adverse effect on FNCB’s business, financial condition and
results of operations.

An investment in FNCB’s common stock is not an insured deposit.

FNCB’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit
insurance fund or by any other public or private entity. Investment in FNCB’s common stock is inherently risky for the
reasons described in this “Risk Factors” section, and elsewhere in FNCB’s reports filed with the SEC, including under
heading “Risk Factors” in this Annual Report on Form 10-K, or any subsequent report filed by FNCB. Investment in FNCB’s
common stock is also subject to the market forces that affect the price of common stock in any company. As a result,
shareholders may lose some or all of their investment in FNCB’s common stock.

Shareholders may not receive dividends on FNCB’s common stock or have their shares repurchased by FNCB.

Although FNCB has historically declared quarterly cash dividends on its common stock, and adopted a share repurchase
program for the repurchase of shares of its common stock, FNCB is not required to do so and may reduce or cease to pay
common stock dividends, or repurchase shares, in the future. If FNCB reduces or ceases to pay common stock dividends, or
terminates its stock repurchase program, the market price of its common stock could be adversely affected.

The principal source of funds from which FNCB pays cash dividends, and repurchase shares, are the dividends received from
the Bank. Banking laws and regulations of the Commonwealth of Pennsylvania restrict the amount of dividends and loans a
bank may make to its parent company. In addition, under The Federal Deposit Insurance Corporation Improvement Act of
1991, banks may not pay a dividend, or repurchase shares if, after paying the dividend, or repurchasing such shares, the bank
would be undercapitalized.

If FNCB fails to pay dividends, capital appreciation, if any, of its common stock may be the sole opportunity for gains on an
investment in its common stock. In addition, in the event the Bank becomes unable to pay dividends to FNCB, FNCB may
not be able to service its debt or pay its other obligations, pay dividends on, or repurchase shares of, its common stock and
preferred stock. Accordingly, FNCB’s inability to receive dividends from the Bank could also have a material adverse effect
on its business, financial condition and results of operations and the value of a shareholder’s investment in FNCB’s common
stock.

An entity holding as little as a 5% interest in FNCB’s outstanding securities could, under certain circumstances, be subject
to regulation as a “bank holding company.”

Any entity, including a “group” composed of natural persons, owning or controlling with the power to vote 25% or more of
FNCB’s outstanding securities, or 5% or more if the holder otherwise exercises a “controlling influence” over FNCB, may
be subject to regulation as a “bank holding company” in accordance with the Bank Holding Company Act of 1956, as
amended, or the BHC Act. In addition, (a) any bank holding company or foreign bank with a U.S. presence may be required
to obtain the approval of the Federal Reserve under the BHC Act to acquire or retain 5% or more of FNCB’s outstanding
securities and (b) any person not otherwise defined as a company by the BHC Act and its implementing regulations may be
required to obtain the approval of the Federal Reserve under the Change in Bank Control Act to acquire or retain 10% or
more of FNCB’s outstanding securities. Becoming a bank holding company imposes statutory and regulatory restrictions and
obligations, such as providing managerial and financial strength for its bank subsidiaries. Regulation as a bank holding

company could require the holder to divest all or a portion of the holder’s investment in FNCB’s securities or those
nonbanking investments that may be deemed impermissible or incompatible with bank holding company status, such as a
material investment in a company unrelated to banking.

The requirements of being a public company may strain FNCB’s resources and divert management's attention.

FNCB is a public company, subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and applicable
securities rules and regulations. Under FDIC regulations, the Sarbanes-Oxley Act and regulations increase the scope,
complexity and cost of corporate governance, reporting and disclosure practices over those of non-public or non-reporting
companies. Among other things, the Exchange Act requires that FNCB file annual, quarterly and current reports with respect
to its business and operating results and maintain effective disclosure controls and procedures and internal control over
financial reporting. As a Nasdaq listed company, FNCB is also required to prepare and file proxy materials which meet the
requirements of the Exchange Act and the SEC's proxy rules. Compliance with these rules and regulations increase FNCB’s
legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on
FNCB’s systems and resources, particularly if FNCB becomes ineligible to report as a “smaller reporting company” as
defined in the SEC’s regulations. In order to maintain, appropriately document and, if required, improve FNCB’s disclosure
controls and procedures and internal control over financial reporting to meet the standards required by the Sarbanes-Oxley
Act, significant resources and management oversight may be required. As a result, management's attention may be diverted
from other business concerns, which could harm FNCB’s business and operating results. Additionally, any failure by FNCB
to file its periodic reports with the SEC in a timely manner could, among other things, harm its reputation, cause its investors
and potential investors to lose confidence in FNCB, restrict trading in or reduce the market price of FNCB’s common stock,
and potentially limit its ability to access the capital markets.

As a public company, FNCB incurs significant legal, accounting, insurance, compliance and other expenses. Any
deficiencies in FNCB’s financial reporting or internal controls could materially and adversely affect its business and the
market price of FNCB’s common stock.

As a public company, FNCB incurs significant legal, accounting, insurance and other expenses. These costs and compliance
with the rules of the SEC and the rules of Nasdaq increase FNCB’s legal and financial compliance costs and make some
activities more time consuming and costly. SEC rules require that FNCB’s Chief Executive Officer and Chief Financial
Officer periodically certify the existence and effectiveness of its internal control over financial reporting. In addition, FNCB
is required to engage an independent registered public accounting firm to audit and opine on the design and operating
effectiveness of its internal control over financial reporting. This process requires significant documentation of policies,
procedures and systems, and review of that documentation and testing of FNCB’s internal control over financial reporting by
its internal auditing and accounting staff and an independent registered public accounting firm. This process requires
considerable time and attention from management, which could prevent FNCB from successfully implementing its business
initiatives and improving its business, financial condition and results of operations, which may strain FNCB’s internal
resources, and may increase its operating costs. FNCB may experience higher than anticipated operating expenses and outside
auditor fees during the implementation of these changes and thereafter.

During the course of FNCB’s testing it may identify deficiencies that would have to be remediated to satisfy the SEC rules
for certification of FNCB’s internal control over financial reporting. A material weakness is defined by the standards issued
by the PCAOB as a deficiency, or combination of deficiencies, in internal control over financial reporting that results in a
reasonable possibility that a material misstatement of FNCB’s annual or interim financial statements will not be prevented
or detected on a timely basis. As a consequence, FNCB would have to disclose in periodic reports it files with the SEC any
material weakness in its internal control over financial reporting. The existence of a material weakness would preclude
management from concluding that FNCB’s internal control over financial reporting is effective and would preclude its
independent auditors from expressing an unqualified opinion on the effectiveness of its internal control over financial
reporting. In addition, disclosures of deficiencies of this type in FNCB’s SEC reports could cause investors to lose confidence
in its financial reporting, and may negatively affect the market price of its common stock, and could result in the delisting of
its securities from the securities exchanges on which they trade. Moreover, effective internal controls are necessary to produce
reliable financial reports and to prevent fraud. If FNCB has deficiencies in its disclosure controls and procedures or internal
control over financial reporting, it may materially and adversely affect FNCB.

FNCB’s disclosure controls and procedures and internal controls over financial reporting may not achieve their intended
objectives.

FNCB maintains disclosure controls and procedures designed to ensure the timely filing of reports as specified in the rules
and forms of the SEC. FNCB also maintains a system of internal control over financial reporting. These controls may not
achieve their intended objectives. Control processes that involve human diligence and compliance, such as its disclosure
controls and procedures and internal controls over financial reporting, are subject to lapses in judgment and breakdowns
resulting from human failures. Controls can also be circumvented by collusion or improper management override. Because
of such limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected and that
information may not be reported on a timely basis. If FNCB’s controls are not effective, it could have a material adverse
effect on its financial condition, results of operations, and market for its common stock, and could subject it to additional
regulatory scrutiny.

Changes in accounting standards could impact reported earnings.

From time to time there are changes in the financial accounting and reporting standards that govern the preparation of
financial statements. These changes can materially impact how FNCB records and reports its financial condition and results
of operations. In some instances, FNCB could be required to apply a new or revised standard retroactively, resulting in the
restatement of prior period financial statements.

Changes which have been approved for future implementation include the calculation of the allowance for loan and leases
losses on the basis of the current expected credit losses over the lifetime of our loans, referred to as the CECL model, which
is expected to be applicable to us beginning in 2023. The change in this calculation could adversely affect our capital,
regulatory capital ratios, ability to make larger loans, earnings and performance metrics. Any such changes could have a
material adverse effect on our business, financial condition and results of operations.

Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held
for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected
credit losses is to be based on information about past events, including historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place
at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the
"incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred.
Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan
losses, and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility
in the level of the allowance for loan losses. If we are required to materially increase the level of the allowance for loan losses
for any reason, such increase could adversely affect our business, financial condition and results of operations. We are
evaluating the impact the CECL accounting model will have on our accounting, but expect to recognize a one-time
cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the
new standard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the
overall impact of the new standard on our financial condition or results of operations.

Anti-takeover provisions in FNCB’s charter documents could discourage, delay or prevent a change of control
of FNCB’s company and diminish the value of FNCB’s common stock.

Some of the provisions of FNCB’s amended and restated articles of incorporation, as amended, and amended and restated
bylaws, as amended, could make it difficult for its shareholders to change the composition of its board of directors,
preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or
prevent a merger or acquisition that FNCB’s shareholders may consider favorable. These provisions include:

classifying FNCB’s board of directors into three classes of directors with staggered three-year terms;
authorizing FNCB’s board of directors to issue preferred shares without shareholder approval;

●
●
● prohibiting cumulative voting in the election of directors;
●

requiring the approval of 75% of FNCB’s shareholders to approve any merger or sale of all, or substantially all,
unless approval of such proposed transaction is recommended by at least a majority of FNCB’s entire board of
directors;
authorizing FNCB’s board of directors to, if it deems advisable, oppose a tender or other offer for FNCB’s securities;
and
requiring the approval of 75% of FNCB’s shareholders to amend certain provisions relating to business
combinations not approved by the board of directors.

●

In addition, pursuant to the Pennsylvania Business Corporation Law (the “PBCL”), in the case of a merger or share exchange,
with some exceptions, FNCB’s board of directors must submit the plan of merger or share exchange to the shareholders for
approval, and the approval of the plan of merger or share exchange generally requires the approval of the shareholders at a
meeting at which a quorum consisting of at least a majority of the shares entitled to vote on the plan exists.

Provisions of the PBCL, applicable to FNCB provide, among other things, that:

● FNCB may not engage in a business combination with an “interested shareholder,” generally defined as a holder of
20% of a corporation’s voting stock, during the five-year period after the interested shareholder became such except
under certain specified circumstances;

● holders of FNCB’s common stock may object to a “control transaction” involving FNCB (a control transaction is
defined as the acquisition by a person or group of persons acting in concert of at least 20% of the outstanding voting
stock of a corporation), and demand that they be paid a cash payment for the “fair value” of their shares from the
“controlling person or group”;

● holders of “control shares” will not be entitled to voting rights with respect to any shares in excess of specified
thresholds, including 20% voting control, until the voting rights associated with such shares are restored by the
affirmative vote of a majority of disinterested shares and the outstanding voting shares of the Company; and
any “profit,” as defined in the PBCL, realized by any person or group who is or was a “controlling person or group”
with respect to FNCB from the disposition of any equity securities of within 18 months after the person or group
became a “controlling person or group” shall belong to and be recoverable by FNCB.

●

These anti-takeover provisions could impede the ability of FNCB’s common shareholders to benefit from a change of control
and, as a result, could have a material adverse effect on the market price of FNCB’s common stock and shareholders’ ability
to realize any potential change-in-control premium.

Short sellers of FNCB’s stock may be manipulative and may drive down the market price of FNCB’s common stock.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow
from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes
to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the
replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short
seller's interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or
characterizations regarding the relevant issuer, its business practices and prospects and similar matters calculated to or which
may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the
stock short. Issuers whose securities have historically had limited trading volumes or have been susceptible to relatively high
volatility levels can be particularly vulnerable to such short seller attacks. The publication of any such commentary regarding
FNCB in the future may bring about a temporary, or possibly long-term, decline in the market price of FNCB’s common
stock. No assurances can be made that declines in the market price of FNCB’s common stock will not occur in the future, in
connection with such commentary by short sellers or otherwise. When the market price of a company's stock drops
significantly, it is not unusual for stockholder lawsuits to be filed or threatened against the company and its board of directors
and for a company to suffer reputational damage. Such lawsuits could cause FNCB to incur substantial costs and divert the
time and attention of FNCB’s board and management. In addition, reputational damage may affect FNCB’s ability to attract
and retain deposits and may cause FNCB’s deposit costs to increase, which could adversely affect its liquidity and earnings.
Reputational damage may also affect FNCB’s ability to attract and retain loan customers and maintain and develop other
business relationships, which could likewise adversely affect FNCB’s earnings. Negative reports issued by short sellers
could also negatively impact FNCB’s ability to attract and retain employees.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

FNCB currently conducts business from its headquarters located at 102 E. Drinker Street, Dunmore, Pennsylvania, which
now also houses the Bank’s Commercial Lending and Retail Banking Units. The Bank's main office is located at 100 S.
Blakely Street, Dunmore, Pennsylvania, 18512. At December 31, 2021, FNCB also operated sixteen additional community
banking offices located throughout Lackawanna, Luzerne and Wayne counties, two administrative offices and another
lending center located in Dunmore, Lackawanna County, Pennsylvania. Eight of the offices are leased and the balance are
owned by the Bank. Except for potential remodeling of certain facilities to provide for the efficient use of workspace and/or
to maintain an appropriate appearance, each property is considered reasonably suitable and adequate for current and
immediate future purposes except as discussed below.

As part of its responsibilities, management regularly evaluates FNCB’s delivery system and facilities including analyzing
each office’s operating efficiency, location, foot traffic, structure and design. FNCB and the Bank have an ongoing
comprehensive branch network improvement program that focuses on strengthening, better positioning and expanding its
market coverage by developing new state-of-the-art customer facilities, as well as relocating and consolidating select
locations. Initiatives FNCB executed under the branch network improvement program during the years ended December 31,
2021 and 2020 include:

● On January 18, 2021, with appropriate Board Approval, FNCB closed a limited purpose office (LPO), that was

located at 3500 Winchester Road, Allentown, Pennsylvania.

● Office space at FNCB's community office, located in Exeter, Luzerne County, Pennsylvania was renovated to house

the new 1st Equipment Finance team.

● On December 16, 2021, FNCB received approval from its primary regulator to consolidate the Bank's Wheeler
Avenue Community Office into its Main Office, effective February 18, 2022. Both offices are located in Dunmore,
Lackawanna County, Pennsylvania. The consolidation is consistent with the Bank's strategic goals and will not have
any significant disruptions to customer service in the area.

See Note 5, "Bank Premises and Equipment" of the notes to consolidated financial statements included in Item 8, "Financial
Statements and Supplementary Data" to this Annual Report on Form 10-K for additional information about FNCB's
properties.

Item 3.

Legal Proceedings

FNCB has been subject to tax audits, and is also a party to routine litigation involving various aspects of its business, such
as employment practice claims, workers compensation claims, claims to enforce liens, condemnation proceedings on
properties in which FNCB holds security interests, claims involving the making and servicing of real property loans and other
issues incident to its business, none of which has or is expected to have a material adverse impact on the consolidated financial
condition, results of operations or liquidity of FNCB.

Item 4.

Mine Safety Disclosures.

Not Applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.

Market Prices of Stock and Dividends Paid

FNCB’s common shares are traded on The Nasdaq Stock Market LLC ("Nasdaq") under the symbol "FNCB."

On January 27, 2021, FNCB's Board of Directors authorized a stock repurchase program under which up to 975,000 shares
of FNCB's outstanding common stock may be acquired in the open market pursuant to a trading plan that was adopted in
accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The repurchase program commenced on
February 3, 2021 and expired on December 31, 2021. On January 26, 2022, FNCB's Board of Directors authorized the
repurchase of an additional 750,000 shares of FNCB's outstanding common stock. Repurchases under both programs are
administered through an independent broker and are subjected to SEC regulations as well as certain price, market volume
and timing constraints specified in the trading plan. In 2021, FNCB repurchased 330,759 shares at a weighted-average price
per share of $7.21, or $2.4 million in aggregate. Repurchases are funded from available working capital and the repurchased
shares are returned to the status of authorized but unissued shares of common stock.

Holders

As of February 28, 2022, there were approximately 1,632 holders of record of FNCB’s common shares. Because many of
FNCB’s shares are held by brokers and other institutions on behalf of shareholders, FNCB is unable to estimate the total
number of shareholders represented by these record holders.

Dividends

Dividends declared and paid were $5.4 million, or $0.27 per share, in 2021 and $4.4 million, or $0.22 per share, in 2020. The
dividend payout ratio was 25.4% for the year ended December 31, 2021 and 29.0% for the year ended December 31, 2020.
It is the present intent of the Board of Directors to continue paying quarterly dividends going forward. However, FNCB’s
ability to declare and pay future dividends is dependent upon earnings, financial position, appropriate restrictions under
applicable laws, legal and regulatory restrictions and other factors relevant at the time FNCB’s Board of Directors considers
any declaration of any dividends. For a further discussion of FNCB’s and the Bank’s dividend restrictions, refer to Note 14,
“Regulatory Matters/Subsequent Events” in the notes to consolidated financial statements in this Annual Report on Form
10-K.

On January 26, 2022, the Board of Directors declared a dividend of $0.075 per share for the first quarter of 2022. The dividend
is payable on March 15, 2022 to shareholders of record as of March 1, 2022.

Equity Compensation Plans

For more information regarding FNCB’s equity compensation plans, see Part III, Item 12, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K.

Recent Sales of Unregistered Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6.

Reserved

None.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) represents an overview of the financial condition and results of operations
of FNCB and should be read in conjunction with our consolidated financial statements and notes thereto included in Item 8,
"Financial Statements and Supplementary Data" and Item 1A, "Risk Factors" of Part I to this Annual Report on Form 10-K.

FNCB is in the business of providing customary retail and commercial banking services to individuals, businesses and local
governments and municipalities through 16 full-service branch offices operated by FNCB Bank, FNCB's wholly-owned
subsidiary, within its primary market area, Northeastern Pennsylvania.

FORWARD-LOOKING STATEMENTS

FNCB may from time to time make written or oral “forward-looking statements,” including statements contained in our
filings with the SEC, in our reports to shareholders, and in our other communications, which are made in good faith by us
pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements with respect to FNCB’s beliefs, plans, objectives, goals, expectations,
anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based
on various factors (some of which are beyond our control). The words “may,” “could,” “should,” "will," “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” "project," "future" and similar expressions are intended to identify
forward-looking statements.

Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and
assumption that are difficult to predict, including those under "Part I, Item 1A. Risk Factors," and elsewhere in this Annual
Report on Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-
looking statements. Readers are also cautioned not to place undue reliance on any forward-looking statements, which reflect
management’s analysis only as of the date of this report, even if subsequently made available by FNCB on its website or
otherwise. FNCB does not undertake to update any forward-looking statement, whether written or oral, that may be made
from time to time by or on behalf of FNCB to reflect events or circumstances occurring after the date of this report.

CRITICAL ACCOUNTING POLICIES

In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect
the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and results of operations
for the periods indicated. Actual results could differ significantly from those estimates.

FNCB’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial
condition and results of operations. Management has identified the policies on the determination of the allowance for loan
and lease losses (“ALLL”), securities’ valuation and impairment evaluation, the valuation of other real estate owned
(“OREO”) and income taxes to be critical, as management is required to make subjective and/or complex judgments about
matters that are inherently uncertain and could be subject to revision as new information becomes available.

The judgments used by management in applying the critical accounting policies discussed below may be affected by changes
and/or deterioration in the economic environment, which may impact future financial results. Specifically, subsequent
evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the ALLL in
future periods, and the inability to collect on outstanding loans could result in increased loan losses. In addition, the valuation
of certain securities in FNCB’s investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces
resulting in significantly depressed market prices thus leading to impairment losses.

Allowance for Loan and Lease Losses

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

Determining the amount of the ALLL is considered a critical accounting estimate because it requires significant judgment
and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses
on pools of homogeneous loans based on historical loss experience, qualitative factors, and consideration of current economic
trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their
examination of FNCB, also review the ALLL, and may require, based on their judgments about information available to them
at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ALLL.
Additionally, the ALLL is determined, in part, by the composition and size of the loan portfolio.

The ALLL consists primarily of two components, a specific component and a general component. The specific component
relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows,
collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general
component covers all other loans and is based on historical loss experience adjusted by qualitative factors. The general reserve
component of the ALLL is based on pools of unimpaired loans segregated by loan segment and risk rating categories of
“Pass”, “Special Mention” or “Substandard and Accruing.” Historical loss factors and various qualitative factors are applied
based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans. Substandard
loans on non-accrual status above the $100 thousand loan relationship threshold and all loans considered troubled debt
restructurings (“TDRs”) are classified as impaired. Based on its evaluations, management may establish an unallocated
component that is used to cover any inherent losses that exist as of the evaluation date, but which may not have been identified
under the methodology.

See Note 2, “Summary of Significant Accounting Policies” and Note 4, “Loans” of the notes to consolidated financial
statements included in Item 8, “Financial Statements and Supplementary Data” to this Annual Report on Form 10-K for
additional information about the ALLL.

Securities Valuation and Evaluation for Impairment

Management utilizes various inputs to determine the fair value of its investment portfolio. To the extent they exist, unadjusted
quoted market prices in active markets (Level 1) or quoted prices for similar assets or models using inputs that are observable,
either directly or indirectly (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence
of observable inputs or if markets are illiquid, valuation techniques are used to determine fair value of any investments that
require inputs that are both unobservable and significant to the fair value measurement (Level 3). For Level 3 inputs, valuation
techniques are based on various assumptions, including, but not limited to, cash flows, discount rates, adjustments for
nonperformance and liquidity, and liquidation values. A significant degree of judgment is involved in valuing investments
using Level 3 inputs. The use of different assumptions could have a positive or negative effect on FNCB’s financial condition
or results of operations. See Note 3, “Securities” and Note 15, “Fair Value Measurements” of the notes to consolidated
financial statements included in Item 8, “Financial Statements and Supplementary Data” to this Annual Report on Form 10-
K for additional information about FNCB’s securities valuation techniques.

On a quarterly basis, management evaluates individual investment securities in an unrealized loss position for other than
temporary impairment (“OTTI”). The evaluation for OTTI requires the use of various assumptions, including but not limited
to, the length of time an investment’s fair value is less than book value, the severity of the investment’s decline, any credit
deterioration of the issuer, whether 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 basis. Debt investment securities deemed to have
OTTI are written down by the impairment related to the estimated credit loss, and the non-credit related impairment loss is
recognized in other comprehensive income. FNCB did not recognize any OTTI charges on investment securities for years
ended December 31, 2021 and 2020 within the consolidated statements of income.

See Note 2, “Summary of Significant Accounting Policies” and Note 3, “Securities” of the notes to consolidated financial
statements included in Item 8, “Financial Statements and Supplementary Data” to this Annual Report on Form 10-K for
additional information about valuation of securities and management's evaluation for OTTI.

Other Real Estate Owned

OREO consists of property acquired by foreclosure, abandonment or conveyance of deed in-lieu of foreclosure of a loan, and
bank premises that are no longer used for operation or for future expansion. OREO is held for sale and is initially recorded
at fair value less estimated costs to sell at the date of acquisition or transfer, which establishes a new cost basis. Upon
acquisition of the property through foreclosure, or deed-in-lieu of foreclosure, any adjustment to fair value less estimated
selling costs is recorded to the ALLL. The determination is made on an individual asset basis. Bank premises no longer used
for operations or future expansion are transferred to OREO at fair value less estimated selling costs with any related write-

down included in non-interest expense. Subsequent to acquisition, valuations are periodically performed, and the assets are
carried at the lower of cost or fair value less estimated cost to sell. Fair value is determined through external appraisals,
current letters of intent, broker price opinions or executed agreements of sale, unless management determines that conditions
exist that warrant an adjustment to the value. Costs relating to the development and improvement of the OREO properties
may be capitalized; holding period costs and any subsequent changes to the valuation allowance are charged to expense as
incurred.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s
financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been
recognized in FNCB’s consolidated financial statements or tax returns. Fluctuations in the actual outcome of these future tax
consequences could impact our consolidated financial condition or results of operations.

FNCB records an income tax provision or benefit based on the amount of tax currently payable or receivable and the change
in deferred tax assets and liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial and tax reporting purposes. Management conducts quarterly
assessments of all available positive and negative evidence to determine the amount of deferred tax assets that will more
likely than not be realized. FNCB establishes a valuation allowance for deferred tax assets and records a charge to income if
management determines, based on available evidence at the time the determination is made, that it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance,
management considers past operating results, estimates of future taxable income based on approved business plans, future
capital requirements and ongoing tax planning strategies. This evaluation process involves significant management judgment
about assumptions that are subject to change from period to period depending on the related circumstances. The recognition
of deferred tax assets requires management to make significant assumptions and judgments about future earnings, the periods
in which items will impact taxable income, future corporate tax rates, and the application of inherently complex tax laws.
The use of different estimates can result in changes in the amounts of deferred tax items recognized, which may result in
equity and earnings volatility because such changes are reported in current period earnings. Management’s evaluation as
of December 31, 2021 and 2020 concluded that no valuation allowance was necessary for net deferred tax assets.

In connection with determining the income tax provision or benefit, management considers maintaining liabilities for
uncertain tax positions and tax strategies that it believes contain an element of uncertainty. Periodically, management
evaluates each of FNCB’s tax positions and strategies to determine whether a liability for uncertain tax benefits is required.
As of December 31, 2021 and 2020, management determined that FNCB did not have any uncertain tax positions or tax
strategies and that no liability was required to be recorded.

See Note 2, “Summary of Significant Accounting Policies” and Note 10, “Income Taxes” of the notes to consolidated
financial statements included in Item 8, “Financial Statements and Supplementary Data” to this Annual Report on Form
10-K for additional information about the accounting for income taxes.

New Authoritative Accounting Guidance and Accounting Guidance to be Adopted in Future Periods

For information regarding new authoritative accounting guidance adopted by FNCB during the year ended December 31,
2021 and accounting guidance that FNCB will adopt in future periods, see Note 2, “Summary of Significant Accounting
Policies” of the notes to consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”
to this Annual Report on Form 10-K.

EXECUTIVE OVERVIEW

The following overview should be read in conjunction with this MD&A in its entirety.

Results of Operations

FNCB exhibited strong earnings performance in 2021, consistent with our mission to provide a simply better banking
experience to our customers, while adapting to changing market demands. Net income in 2021 amounted to $21.4 million,
or $1.06 per diluted common share, an increase of $6.0 million, or 39.3%, compared to $15.3 million, or $0.76 per diluted
common share, in 2020. The increase in 2021 net income compared to 2020 was primarily attributable to increases in net
interest income and a decrease in the provision for loan and lease losses. These positive factors were partially offset by a
decrease in non-interest income and an increase in non-interest expense. Net interest income was $49.0 million in 2021,
an increase of $8.8 million, or 21.9%, from $40.2 million in 2020, which resulted from a $5.4 million, or 11.6%, increase in
total interest income and a $3.4 million, or 56.1% reduction in total interest expense. The increase in interest income was
driven by strong earning asset growth, while the reduction in interest expense was largely due to a significant reduction in
funding costs. Interest income in 2021 was also favorably impacted by a $3.6 million increase in net loan origination fees
associated with PPP loans that were recognized upon forgiveness. The provision for loan and lease losses decreased
$1.8 million to $166 thousand in 2021, from $1.9 million in 2020. The elevated amount of credit provisioning in 2020 was
in response to uncertainty brought on by the COVID-19 global pandemic. Non-interest income decreased $982 thousand, or
10.6%, to $8.3 million in 2021 from $9.2 million in 2020. The year over year decrease in non-interest income largely reflected
decreases in net gains on equity securities, net gains on the sales of available-for-sale debt securities and mortgage loans held
for sale, partially offset by increases in deposit service charges, higher income from bank-owned life insurance and
loan referral fees/interest rate swap revenue. Non-interest expense increased $2.2 million, or 7.4%, to $31.1 million in
2021 from $28.9 million in 2020, which primarily reflected higher salaries and employee benefits, data processing costs,
regulatory assessments and bank shares tax, partially offset by decreases in occupancy, equipment and professional fee
expenses. Income tax expense increased $1.4 million, or 44.4%, to $4.6 million in 2021 as compared to $3.2 million in 2020.

Return on average assets and return on average shareholders’ equity equaled 1.36% and 13.46%, respectively, in 2021,
compared to 1.13% and 10.66%, respectively, in 2020. FNCB paid dividends to holders of common stock of $0.27 per share
in 2021, an increase of $0.05 per share, or 22.7%, compared to $0.22 per share in 2020. Total dividends declared and paid in
2021 equated to a dividend yield of approximately 2.92% based on the closing stock price of $9.24 per share on December
31, 2021. The dividend payout ratio was 25.4% in 2021 compared to 29.0% in 2020.

Balance Sheet Profile

Total assets increased $198.6 million, or 13.6%, to $1.664 billion at December 31, 2021 from $1.465 billion at December 31,
2020. The balance sheet expansion primarily reflected substantial increases in available-for-sale debt securities, and loans
and leases, net of deferred origination fees and unearned income. Available-for-sale debt securities increased $172.5 million,
or 49.3%, to $522.6 million at December 31, 2021 from $350.0 million at December 31, 2020. Loans and leases, net of net
deferred origination fees and unearned income, increased $78.3 million, or 8.7%, to $979.4 million at December 31,
2021 from $901.1 million at December 31, 2020 Excluding activity related to the origination and forgiveness of PPP loans,
loans and leases, net of net deferred origination fees, increased $133.4 million, or 16.2%. Cash and cash equivalents decreased
$56.8 million, or 36.4%, to $99.0 million at December 31, 2021 from $155.8 million at December 31, 2020, as excess liquidity
was redeployed to the loan and investment portfolios. Total deposits increased $167.6 million, or 13.0%, to $1.455 billion
at December 31, 2021 from $1.287 billion at December 31, 2020. Borrowed funds increased $20.0 million, or 194%, to $30.3
million at December 31, 2021, compared to $10.3 million at December 31, 2020. The increase in borrowed funds reflected
the transition of $20.0 million that was part of a cash flow hedge from brokered time deposits to advances through the Federal
Home Loan Bank ("FHLB") of Pittsburgh.

Total shareholders’ equity increased $6.6 million, or 4.2%, to $162.5 million at December 31, 2021 from $155.9 million at
December 31, 2020. Contributing to the increase in capital was net income in 2021 of $21.4 million partially offset by a $7.5
million decrease in accumulated other comprehensive income related primarily to depreciation in the fair value of available-
for-sale debt securities, net of deferred taxes, and year-to-date dividends declared and paid of $5.4 million. The repurchase
of 330,759 common shares under the board-authorized 2021 stock repurchase program also reduced shareholder's equity by
$2.4 million. At December 31, 2021, FNCB Bank’s total risk-based capital ratio and the Tier 1 leverage ratio were 14.64%
and 8.92%, respectively, which exceeded the 10.00% and 5.00% required to be well capitalized under the prompt corrective
action provisions of the Basel III capital framework for U.S. banking organizations. FNCB's tangible book value improved
$0.43 per share, or 5.6%, to $8.13 per share at December 31, 2021 from $7.70 per share at December 31, 2020.

Management’s Focus in 2021

COVID-19 Considerations

Management continued to navigate and respond to the many challenges brought on by the COVID-19 pandemic, with
prioritizing the health and safety of FNCB's customers and employees at the forefront. Throughout 2021, FNCB operated
under its pandemic preparedness plan and continued to manage the many challenges brought on by the COVID-
19 pandemic. FNCB continues to follow CDC and Commonwealth of Pennsylvania guidance and take additional precautions
to ensure the safety of its customers and its employees. As of the date of this report, FNCB branches are open and are fully
operational with lobbies open for consumer traffic.Widespread availability and distribution of vaccines, including boosters,
has led to improved economic growth across the United States and more specifically within our market area. However,
lingering effects from the COVID-19 pandemic, including the effects of the Delta and Omicron variants, and the potential
for additional variants, continue to adversely impact employment markets and supply-chains affecting national, regional and
local economies, which has resulted in pronounced price inflation in 2021 and continuing into 2022.

Additionally, FNCB focused on originating PPP loans under the second round of funding, in addition to assisting customers
through the loan forgiveness process. In 2020, FNCB implemented a digital, cloud-based management tool to facilitate the
entire PPP loan origination and forgiveness process, providing customers with direct access to educational materials and the
ability to easily upload required documents. FNCB's response to the second round of funding resulted in the origination of
679 PPP loans totaling $76.3 million in 2021. FNCB received $3.6 million in related loan origination fees associated with
this second round of originations, which was deferred and is being recognized upon forgiveness or repayment. During the
year ended December 31, 2021, FNCB received forgiveness for PPP loans totaling $130.3 million and recognized $4.8
million in net PPP loans origination fees, which is included in interest income in the consolidated statements of income. At
December 31, 2021, FNCB had PPP loans still outstanding of $20.9 million, net of $1.0 million in net deferred origination
fees, compared to $76.0 million, net of $2.6 million in net deferred origination fees at December 31, 2020.

Regarding our banking operations, commercial activity within our market area, while improving , remains volatile and has
not returned to pre-pandemic levels. Economic restrictions adopted in 2020, caused many borrowers to request payment
deferrals and other payment accommodations. As of December 31, 2021, all borrowers that previously received payment
accommodations have resumed making contractual principal and interest payments. While positive developments have
occurred, management is keenly aware that uncertainty regarding the pandemic may still exist. Additionally, FNCB's
commercial customer base includes businesses in industries such as automobile, hotel/lodging, restaurants, hospitality, and
retail and commercial real estate, all of which has been significantly and adversely impacted in 2021 and 2020 by economic
restrictions and employment and supply-chain constraints related to the COVID-19 pandemic. Management continues to
closely monitor customers within these industries as the economic recovery continues to unfold.

Management expects the COVID-19 pandemic, as well as certain provisions of legislative and regulatory relief efforts, to
continue to impact FNCB's operations. At this time, management cannot determine or estimate the full magnitude of the
impact and cannot provide any assurances as to the effect on FNCB's results of operations or financial position. The FNCB
team will continue to work diligently to address any issues related to the COVID-19 pandemic in a safe and sound manner
as they arise. Management believes that FNCB's balance sheet and capital position are strong and will allow FNCB to
withstand any further challenges that may be presented.

General Banking Operations

Outside of navigating the challenges of the pandemic, during 2021, management focused several key strategic initiatives
including: enhancing future net interest income run rates through the redeployment of excess liquidity into the investment
and loan portfolios and effectively managing funding costs; improving the customer experience by further expanding and
enhancing FNCB's digital and traditional product and service offerings; continuing to create efficiency within FNCB's branch
network and delivery channels; and investing in strategic business alliances and opportunities to advance financial
performance over the long-term.

In the fourth quarter of 2021, management expanded FNCB's commercial credit product offerings to include commercial
equipment financing, through direct finance leases, tax-free municipal leases and simple interest loans. FNCB hired a team
of professionals highly-experienced with this type of financing to launch this new product line, which are doing business
under the name 1st Equipment Finance and operating out of FNCB's community office located in Exeter, Luzerne County.
Pennsylvania. The new product line officially launched on November 1, 2022. Originations for the remainder of the year
were in line with budget expectations. As of December 31, 2021 gross loans and municipal leases originated under this
initiative were $9.8 million. FNCB expects to originate approximately $50.0 million annually under this product line.

Management regularly evaluates FNCB's branch network and delivery channels for opportunities to improve customer reach
or consolidate underutilized locations. With customer banking preferences rapidly evolving to a digital-based approach,
management decided to consolidate FNCB's Dunmore-Wheeler community office in its state-of-the-art, recently constructed
Main Office, which were located within a mile of each other. On December 16, 2021, FNCB received regulatory approval
for the consolidation. The consolidation, which was completed on February 18, 2022, had minimal impact to customers and
is expected to reduce operating expense run rates going forward by approximately $230 thousand annually.

Focus for 2022

Looking ahead to 2022, FNCB will focus on expanding its comprehensive digital strategy to respond to evolving customer
demands and create operational and delivery channel efficiencies. Specific initiatives include enhancement to the existing
online banking platforms, integration of a new commercial lending origination platform and utilizing artificial intelligence
and robotics to streamline workflows. Additional areas of focus for 2022 include: outsourcing the origination and
underwriting of residential mortgage loans through a third party to create efficiencies and improve customer service; building
and strengthening our core customer base including increasing existing customer wallet share; and continuing to assist
business customers through the PPP loan forgiveness process as well as seeking opportunities to provide for the future
banking needs of these customers. In 2022, FNCB expects to benefit from the recognition of approximately $1.0 million in
remaining net loan origination fees from the outstanding PPP loans.

Furthermore, in response to a recent increase in inflation, the Federal Open Market Committee ('FOMC") has indicated a
potential tightening of monetary policy, including several increases in the federal funds target rate in 2022. With the
anticipated increase in market interest rates, management will focus on balance sheet management, controlling funding costs
and continuing to evaluate opportunities to enhance net interest income and non-interest income run rates going forward.

Stock Repurchase Program/Subsequent Event

On January 26, 2022, FNCB's Board of Directors authorized a stock repurchase program under which up to 750,000 shares
of FNCB's outstanding common stock may be acquired in the open market commencing no earlier than March 4, 2022 and
expiring December 31, 2022 pursuant to a trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities
Exchange Act of 1934, as amended. In 2021, the Board of Directors had authorized a similar program under which 330,759
common shares were repurchased. The 2021 plan expired on December 31, 2021. The repurchase of shares under the
programs are administered through an independent broker. Repurchases may occur from time to time at prevailing market
prices, through open market transactions depending upon market conditions, and are subject to SEC regulations as well as
certain price, market volume and timing constraints specified in the trading plan. Under the program, the purchases will be
funded from working capital presently available to FNCB, and the repurchased shares will be returned to the status of
authorized but unissued shares of Common Stock. There is not a guarantee as to the exact number of shares that will be
repurchased by FNCB, and FNCB may discontinue purchases at any time that management determines additional repurchases
are no longer warranted. As of December 31, 2021, FNCB had approximately 20.0 million shares outstanding.

SUMMARY OF FINANCIAL PERFORMANCE

Net Interest Income

Net interest income is the difference between (i) interest income, interest and fees on interest-earning assets, and (ii) interest
expense, interest paid on deposits and borrowed funds. Net interest income represents the largest component of FNCB’s
operating income and, as such, is the primary determinant of profitability. Net interest income is impacted by variations in
the volume, rate and composition of earning assets and interest-bearing liabilities, changes in general market rates and the
level of non-performing assets. Interest income is shown on a fully tax-equivalent basis using the corporate statutory tax rate
of 21.0% in 2021, 2020 and 2019.

In 2020, in response to economic fallout from the global pandemic, the Federal Open Market Committee (“FOMC”) reduced
the federal funds target rate a total of 150 basis points in two emergency actions: a 50-basis point decrease on March 3, 2020
followed by another 100 basis point decrease on March 16, 2020. The federal funds target rate remained at 0.00% to 0.25%
from this point through the remainder of 2020 and 2021. These actions resulted in a corresponding decrease in the national
prime rate to 3.25% at December 31, 2021 and December 31, 2020. Despite the decreases, FNCB experienced an increase in
yields on taxable loans throughout 2021, compared to 2020. Origination and funding of low-yielding PPP loans with a rate
of 1.0%, were offset by the recognition of net origination fees associated with a portion of these loans that were forgiven by
the SBA. The Bank remained competitive in deposit rate offerings, parallel to market conditions and a surplus of liquidity
within the industry. As a result, FNCB experienced a decrease in funding costs across interest-bearing deposits.

Tax-equivalent net interest income increased $8.9 million, or 21.8%, to $49.9 million in 2021 compared to $41.0 million in
2020. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income due primarily
to higher earning asset volumes coupled with a decrease in interest expense due primarily to a reduction in funding costs.
Additionally, net interest income was favorably impacted by an increase in net loan origination fees recognized on forgiven
PPP loans of $3.6 million to $4.8 million in 2021 compared to $1.2 million in 2020. Tax-equivalent net interest margin, a
key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those
assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. FNCB's tax-equivalent
net interest margin improved 10 basis points to 3.45% in 2021 compared to 3.35% in 2020. Additionally, rate spread, the
difference between the average yield on interest-earning assets shown on a fully tax-equivalent basis and the average cost of
interest-bearing liabilities, increased 17 basis points to 3.38% in 2021 compared to 3.21% in 2020.

Tax-equivalent interest income increased $5.5 million, or 11.6%, to $52.6 million in 2021 from $47.1 million in 2020, which
reflected higher volumes of average earning assets and higher loan yields, partially offset by a decrease in investment yields.
Average earning assets increased $226.2 million, or 18.5%, to $1.449 billion in 2021 from $1.223 billion in 2020, resulting
in a corresponding increase to tax-equivalent interest income of $6.1 million. Specifically, average loans increased $39.1
million, or 4.3%, to $950.4 million in 2021 from $911.4 million in 2020, which reflected strong organic loan demand and the
purchase of loan pools from third party originators. Investment securities averaged $429.6 million in 2021, an increase of
$127.4 million, or 42.1%, compared to $302.2 million in 2020. FNCB's tax-equivalent yield on loans increased 18 basis
points to 4.36% in 2021 compared to 4.18% in 2020, resulting in a corresponding increase in tax-equivalent interest income
of $1.7 million. The impact on changes in loan volumes and rates largely reflected the origination of PPP loans. PPP loans,
which carry an interest rate of 1.00%, averaged $76.4 million in 2021. Including amortization of net origination fees
associated with PPP loans of $4.8 million, the yield on PPP loans was 7.18% in 2021, compared to 2.61% in 2020. Partially
counteracting these positive factors, was a decrease in the tax-equivalent yield on investment securities which decreased 41
basis points to 2.59% in 2021 from 3.00% in 2020 and caused a corresponding decrease to tax-equivalent interest income of
$2.1 million. The tax-equivalent yield on average interest-bearing deposits decreased 17 basis points to 0.13% in 2021 from
0.30% in 2020, resulting in a $219 thousand decrease in tax equivalent interest income, which was more than entirely offset
by the $59.7 million, or 649.0%, increase in volume to $68.9 million in 2021 from $9.2 million in 2020.

The low interest rate environment and continued oversupply of deposits in the market resulted in a further reduction in the
cost of funds. As a result, interest expense decreased $3.5 million, or 56.1%, to $2.7 million in 2021 from $6.2 million in
2020. Specifically, rates paid on interest-bearing deposits decreased 36 basis points to 0.24% in 2021 from 0.59% in 2020,
resulting in a corresponding decrease to interest expense of $3.3 million. The decrease in interest expense due to changes in
deposit rates was concentrated in rates paid on interest-bearing demand deposits and time deposits. The rate paid on interest-
bearing demand deposits, decreased 32 basis points to 0.16% in 2021 as compared to 0.48% in 2020. In addition, the rate
paid on time deposits decreased 55 basis points to 0.66% in 2021, compared to 1.22% in 2020. The reduction in rates paid
on interest-bearing demand deposits and time deposits resulted in corresponding reductions to interest expense due to changes
in rates of $2.3 million and $1.0 million, respectively. The rate paid on savings deposits decreased only 3 basis
points to 0.07% in 2021 compared to 0.10% in 2020 and had minimal impact on interest expense. Also contributing to the
decrease to interest expense was a $39.1 million, or 76.2%, decrease in the average balance of other borrowed funds to $12.2
million in 2021 from $51.3 million in 2020, which led to a corresponding decrease in interest expense of $623 thousand.
Partially offsetting this decrease, was a 14-basis point increase in the rate paid on borrowed funds to 1.61% in 2021 from
1.47% in 2020, which resulted in a corresponding increase in interest expense of $64 thousand. While FNCB experienced
significant deposit growth, changes in average volumes of interest-bearing deposits resulted in only a negligible increase to
interest expense, as much of the growth was concentrated in low-costing interest-bearing demand deposits. Additionally,
FNCB continued to experience deposit migration as higher-costing time deposits migrated to non-maturity deposits at the
end of their term. Total average interest-bearing deposits increased $157.6 million, or 17.3%, to $1.066 billion in 2021 from
$908.5 million in 2020, which resulted in a $409 thousand corresponding increase in interest expense. The average balance
of time deposits decreased $18.9 million, or 9.7%, to $176.2 million in 2021 from $195.1 million in 2020, which resulted in
a corresponding decrease to interest expense of $212 thousand that was more than entirely offset by an increase to interest
expense of $602 thousand due to a $153.3 million, or 25.1%, increase in average interest-bearing demand deposits to $764.8
million in 2021 from $611.5 million in 2020. Additionally, FNCB experienced strong demand for its non-interest-bearing
deposit products as average non-interest-bearing demand deposits increased $73.2 million, or 30.2%, to $315.2 million in
2021 from $242.0 million in 2020.

Non-accrual loans

The interest income that would have been earned on non-accrual and restructured loans, had these loans performed in
accordance with their original terms approximated to $215 thousand and $353 thousand for the years ended December 31,
2021 and 2020, respectively. Additionally, interest income recognized on impaired loans based on payments received
approximated to $305 thousand and $351 thousand for the years ended December 31, 2021 and 2020, respectively.

The following table presents the components of net interest income for the three years ended December 31, 2021, 2020 and
2019:

Summary of Net Interest Income

2021

For the Year Ended December 31,
2020

2019

Average
Balance

Yield/

Interest Cost

Average
Balance

Yield/

Interest Cost

Average
Balance

Yield/
Interest Cost

(dollars in thousands)
Assets:
Earning assets (2)(3)

Loans and leases-taxable (4) ............ $ 905,237 $ 39,645
45,217 1,777
Loans and leases-tax free (4) ............
Total loans and leases (1)(2) ........ 950,454 41,422
Securities-taxable ............................. 346,204 8,476
83,437 2,641
Securities-tax free .............................
Total securities (1)(5) ................... 429,641 11,117

4.38 % $ 863,702 $ 35,980
47,669 2,070
3.93
911,371 38,050
4.36
250,881 7,322
2.45
51,367 1,738
3.17
302,248 9,060
2.59

Interest-bearing deposits in other

4.17 % $ 784,124 $ 36,332 4.63 %
4.34
4.18
2.92
3.38
3.00

45,246 1,881 4.16
829,370 38,213 4.61
274,739 7,901 2.88
189 4.09
279,357 8,090 2.90

4,618

banks and federal funds sold (8)..

88
Total earning assets (8) ........... 1,449,027 52,627

68,932

28
0.13
3.63 % 1,222,822 47,138

9,203

0.30
3.85 % 1,116,637 46,491 4.16 %

188 2.38

7,910

Non-earning assets (8) ...................... 129,386
(12,311 )
Allowance for loan and lease losses .
Total assets .............................. $ 1,566,102

145,227
(10,867 )
$ 1,357,182

101,273
(9,359 )
$ 1,208,551

Liabilities and Shareholders' Equity:
Interest-bearing liabilities

Interest-bearing demand deposits ..... $ 764,798 1,252
87
Savings deposits ............................... 125,022
Time deposits .................................... 176,245 1,169
Total interest-bearing deposits ..... 1,066,065 2,508

0.16 % $ 611,511 2,933
97
0.07 % 101,847
0.66 % 195,140 2,374
0.24 % 908,498 5,404

0.48 % $ 513,542 4,167 0.81 %
0.10
1.22
0.59

124 0.13
238,145 3,810 1.60
844,801 8,101 0.96

93,114

Borrowed funds and other interest-
bearing liabilities ..............................

197
Total interest-bearing liabilities ... 1,078,293 2,705

12,228

Demand deposits .............................. 315,181
Other liabilities .................................
13,892
Shareholders' equity ......................... 158,736

Total liabilities and

1.61
756
51,287
0.25 % 959,785 6,160

1.47
0.64 % 908,441 9,796 1.08 %

63,640 1,695 2.66

242,017
11,368
144,012

164,035
11,395
124,680

shareholders' equity ............ $ 1,566,102

$ 1,357,182

$ 1,208,551

Net interest income/interest rate

spread (6) (8) ...............................

49,922

3.38 %

40,978

3.21 %

36,695 3.08 %

Tax equivalent adjustment................
Net interest income as reported ........

(928 )
$ 48,994

(800 )
$ 40,178

(435 )
$ 36,260

Net interest margin (7) (8) ................

3.45 %

3.35 %

3.29 %

Interest income is presented on a tax-equivalent basis using a 21% rate.

(1)
(2) Loans are stated net of unearned income.
(3) Non-accrual loans are included in loans within earning assets.
(4)
(5) The yields for securities that are classified as available for sale are based on the average historical amortized cost.

Interest income on loans includes net loan fees of $4,612 in 2021, $467 in 2020, and net loan costs of $1,467 in 2019 .

(6)

Interest rate spread represents the difference between the average yield on interest-earning assets and the cost of average interest-bearing liabilities
and is presented on a tax equivalent basis.

(7) Net interest income as a percentage of total average interest earning assets.
(8)

Information for 2019 includes revisions to average balances to reclassify certain average deposits in other banks from interest-bearing deposits in
other banks to non-earning assets in the amount of $4,794.

The most significant impact on net income between periods is derived from the interaction of changes in the volume and
rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning assets, specifically loans
and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined
with the spread, produces the changes in net interest income between periods.

The following table summarizes the effect that changes in volumes of earning assets and interest-bearing liabilities and the
interest rates earned and paid on these assets and liabilities have on net interest income. The net change or mix component
attributable to the combined impact of rate and volume changes has been allocated proportionately to the change due to
volume and the change due to rate.

Rate Volume Analysis

(in thousands)
Interest income:

For the Year Ended December 31,

2021 vs. 2020
Increase (Decrease) Due to
Change in

2020 vs. 2019
Increase (Decrease) Due to
Change in

Volume Rate

Total

Volume Rate

Total

Loans and leases-taxable ................................ $
Loans and leases-tax free ...............................
Total loans and leases .............................
Securities-taxable ...........................................
Securities-tax free ..........................................
Total securities ........................................

Interest-bearing deposits in other banks and

1,773 $ 1,892 $
(183)
(110)
1,709
1,663
(1,943)
3,097
(119)
1,022
(2,062)
4,119

3,665 $
(293)
3,372
1,154
903
2,057

3,501 $ (3,853) $
86
(3,767)
116
(38)
78

103
3,604
(695)
1,587
892

(352)
189
(163)
(579)
1,549
970

federal funds sold .......................................
Total interest income .......................

279
6,061

(219)
(572)

60
5,489

35
4,531

(195)
(3,884)

(160)
647

Interest expense:

Interest-bearing demand deposits ...................
Savings deposits .............................................
Time deposits .................................................
Total interest-bearing deposits ................

Borrowed funds and other interest-bearing

602
19
(212)
409

(2,283)
(29)
(993)
(3,305)

(1,681)
(10)
(1,205)
(2,896)

692
11
(617)
86

(1,926)
(38)
(819)
(2,783)

(1,234)
(27)
(1,436)
(2,697)

liabilities .....................................................
Total interest expense ......................
Net interest income ............................................... $

64
(623)
(214)
(3,241)
6,275 $ 2,669 $

(559)
(3,455)
8,944 $

(284)
(198)
4,729 $

(655)
(3,438)

(939)
(3,636)
(446) $ 4,283

Provision for Loan and Lease Losses

The provision for loan and lease losses is an expense charged against net interest income to provide for probable losses
attributable to uncollectible loans and is based on management’s analysis of the adequacy of the ALLL. A credit to loan and
lease losses reflects the reversal of amounts previously charged to the ALLL. Management closely monitors the loan portfolio
and the adequacy of the ALLL by considering the underlying financial performance of the borrower, collateral values and
associated credit risks. Future material adjustments may be necessary to the provision for loan and lease losses and the ALLL
if economic conditions or loan performance differ substantially from the assumptions management considered in its
evaluation of the ALLL.

FNCB recorded a provision for loan and lease losses of $166 thousand for the year ended December 31, 2021, a decrease of
$1.8 million, or 91.5%, compared to $1.9 million for the year ended December 31, 2020. The elevated amount credit
provisioning in 2020 was primarily related to the economic disruption and uncertainty caused by the COVID-19 pandemic,
as management took into consideration the potential adverse impact that the COVID-19 pandemic had on economic
conditions, at the time, in its application of FNCB's methodology on the allowance for loan and lease losses. Specifically,
management tried to address this adverse impact by adjusting the qualitative factor associated with changes in national, local
and business economic conditions and developments. In addition, management increased the unallocated portion of the ALLL
to a maximum of 10.0% of the total allowance. Both actions resulted in higher credit provisioning during the year ended
December 31, 2020.

Non-Interest Income

The following table presents the components of non-interest income for the years ended December 31, 2021 and 2020:

Components of Non-Interest Income

(in thousands)
Deposit service charges ........................................................................................... $
Net gain on the sale of available-for-sale debt securities ........................................
Net gain on equity securities ...................................................................................
Net gain on the sale of mortgage loans held for sale ...............................................
Net gain on the sale of other real estate owned .......................................................
Loan-related fees .....................................................................................................
Income from bank-owned life insurance .................................................................
Bank-owned life insurance settlement ....................................................................
Loan referral fees ....................................................................................................
Merchant services revenue ......................................................................................
Other........................................................................................................................
Total non-interest income .................................................................................... $

Year Ended December 31,
2020
2021

3,877 $
213
701
352
11
390
541
426
72
593
1,092
8,268 $

3,252
1,528
1,171
653
-
348
482
-
390
565
861
9,250

For the year ended December 31, 2021, non-interest income decreased $1.0 million to $8.3 million compared to $9.3 million
for the year ended December 31, 2020. The 10.6% decrease in non-interest income primarily reflected decreases in net gains
on the sale of available-for-sale debt securities, net gains on equity securities, net gains on the sale of mortgage loans held
for sale, and loan referral fees, partially offset by increases in deposit services charges and a settlement received on a bank-
owned life insurance policy. Net gains on the sale of available-for-sale debt securities decreased to $213 thousand in 2021,
compared to $1.5 million in 2020, while net gains on equity securities that decreased $470 thousand, to $701 thousand in
2021, from $1.2 million in 2020. Net gains on equity securities in 2020 included a $1.1 thousand gain recognized on FNCB's
investment in the common stock of a privately held bank holding company as part of the completion of a merger and
acquisition. Also contributing to the lower level of non-interest income were decreases in the net gains realized on the sale
of mortgage loans held for sale. As part of an asset/liability management initiative to enhance future interest income run rates,
management elected to hold higher-quality saleable mortgage loans in the loan portfolio. This initiative contributed to a $301
thousand, or 46.1%, decrease in net gains on the sale of mortgages held for sale to $352 thousand in 2021, compared to
$653 thousand in 2020. Loan referral fees decreased $318 thousand, or 81.5%, to $72 thousand in 2021 from $390 thousand
in 2020. Loan referral fees include fees received from third-party counterparties related to various commercial loan interest
rate swap transactions and fees received for the referral of FHA residential mortgage loans to a third-party broker. The
decrease in these fees reflected a reduction in the number and volume of such transactions in 2021 as compared to
2020. Partially offsetting the decreases to non-interest income was a $625 thousand, or 19.2%, increase in deposit service
charges, resulting primarily from an increase in debit card usage. FNCB also received a $426 thousand settlement from bank-
owned life insurance death benefit, that was recognized in 2021 and recorded in other non-interest income.

Non-Interest Expense

The following table presents the major components of non-interest expense for the years ended December 31, 2021 and 2020:

Components of Non-Interest Expense

(in thousands)
Salaries and employee benefits ............................................................................... $
Occupancy expense .................................................................................................
Equipment expense .................................................................................................
Advertising expense ................................................................................................
Data processing expense .........................................................................................
Regulatory assessments ...........................................................................................
Bank shares tax .......................................................................................................
Professional fees ......................................................................................................
Other operating expenses ........................................................................................
Total non-interest expense ................................................................................... $

Year Ended December 31,
2020
2021

16,697 $
2,039
1,338
712
3,689
609
975
674
4,336
31,069 $

15,246
2,052
1,477
685
2,933
387
786
999
4,350
28,915

Non-interest expense totaled $31.1 million in 2021, an increase of $2.2 million, or 7.5%, from $28.9 million in 2020.
The increase resulted primarily from increases in salaries and employee benefits, data processing expenses, regulatory
assessments and bank shares tax. Partially offsetting these increases were decreases in occupancy costs, equipment expenses
and professional fee expenses.

Salaries and employee benefits increased $1.5 million, or 9.5%, to $16.7 million in 2021 from $15.2 million in 2020. The
increase in salaries and employee benefits was primarily due to higher full-time salaries, payroll taxes and benefits associated
with staff additions, including the onboarding of the 1st Equipment Financing team of professionals. Also factoring into the
increase in salaries and employee benefits were increases in employment retirement plan contributions and incentive
pay. Data processing expenses increased $756 thousand, or 25.8%, to $3.7 million in 2021, compared to $2.9 million in
2020, resulting from additional costs associated with a remote work environment, enhancements made to FNCB's digital
banking services, including cybersecurity protection, and higher software costs. Regulatory assessments increased $222
thousand, or 57.4%, to $609 thousand in 2021 from $387 thousand in 2020, which reflected the utilization of the remaining
FDIC small bank assessment credit in 2020. Bank shares tax also increased in 2021, to $975 thousand, up $189 thousand, or
24.1%, from $786 thousand recorded at December 31, 2020, due to an increase in capital at the Bank level.

These increases were slightly offset by the decreases in professional fees and equipment expense. Professional fees decreased
$325 thousand, or 32.5%, to $674 thousand in 2021 from $999 thousand in 2020. Equipment expenses decreased $139
thousand, or 9.4%, to $1.3 million in 2021, compared to $1.5 million in 2020. The reduction in professional fees in 2021 was
largely due to the expiration of a revenue-share agreement with a third-party consultant, while the decrease in equipment
expenses was primarily due to a decrease in depreciation related to office and computer equipment.

Other operating expenses of $4.3 million in 2021 included $300 thousand in losses associated with the transfer of two bank-
owned properties to other real estate owned. As part of management's ongoing initiative to optimize its branch network,
on December 16, 2021, FNCB received regulatory approval to consolidate a community office located in the Borough of
Dunmore, Lackawanna County, Pennsylvania with its main office located in the same Borough. The consolidation is expected
to be completed in the first quarter of 2022 and is expected to generate annual operating cost savings of approximately $230
thousand. Additionally, with the continuing evolution of digital banking and declining utilization of brick-and-mortar
branches, management entered into a sales agreement to sell land located in Lackawanna County that FNCB was holding for
future branch expansion.

Provision for Income Taxes

FNCB recorded income tax expense of $4.6 million in 2021, an increase of $1.4 million, or 44.4%, compared to $3.2 million
in 2020. The increase in income tax expense was due to higher taxable income in 2021 as compared to 2020.

Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently, as necessary,
in accordance with guidance set forth in ASC Topic 740 “Income Taxes,” and applies the criteria in the guidance to determine
whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized within its life cycle,
based on the weight of available evidence. If management determines based on available evidence, both positive and negative,
that it is more likely than not that some portion or all of the deferred tax asset will not be realized in future periods, a valuation
allowance is calculated and recorded. These determinations are inherently subjective and depend upon management’s
estimates and judgments used in their evaluation of both positive and negative evidence.

In evaluating available evidence, management considers, among other factors, historical financial performance, expectation
of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods,
experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of
reversals of temporary differences. In assessing the need for a valuation allowance, management carefully weighs both
positive and negative evidence currently available.

Management performed an evaluation of FNCB’s deferred tax assets at December 31, 2021 taking into consideration both
positive and negative evidence as of that date. Based on this evaluation, management believes that FNCB's future taxable
income will be sufficient to utilize deferred tax assets. Accordingly, management concluded that no valuation allowance for
deferred tax assets was required at December 31, 2021 or 2020.

FINANCIAL CONDITION

Total assets were $1.664 billion at December 31, 2021, an increase of $198.6 million, or 13.6%, from $1.465 billion at
December 31, 2020. The increase in total assets primarily reflected substantial increases in available-for-sale debt securities,
and loans and leases, net of deferred origination fees and unearned income. Available-for-sale debt securities increased
$172.5 million, or 49.3%, to $522.6 million at December 31, 2021 from $350.0 million at December 31, 2020. Loans and
leases, net of net deferred origination fees and unearned income, increased $78.3 million, or 8.7%, to $979.4 million at
December 31, 2021 from $901.1 million at December 31, 2020. Excluding activity related to the origination and forgiveness
of PPP loans, loans and leases, net of net deferred origination fees, increased $133.4 million, or 16.2%. The increases in the
investment and loan portfolios were funded primarily by deposit growth, as total deposits increased $167.6 million, or 13.0%,
to $1.455 billion at December 31, 2021 from $1.287 billion at December 31, 2020. The increase in deposits was primarily
attributable to increases in both interest-bearing and non-interest-bearing deposits. Total borrowed funds increased $20.0
million, or 194.0%, to $30.3 million at December 31, 2021, compared to $10.3 million at December 31, 2020. Cash and cash
equivalents decreased $56.8 million, or 36.4%, to $99.0 million at December 31, 2021 from $155.8 million at December 31,
2020, as excess liquidity was redeployed to the loan and investment portfolios. FNCB had $20.0 million in borrowings
through the Federal Home Loan Bank ("FHLB") of Pittsburgh outstanding at December 31, 2021.

Total shareholders’ equity increased $6.6 million, or 4.2%, to $162.5 million at December 31, 2021 from $155.9 million at
December 31, 2020. Contributing to the increase in capital was net income in 2021 of $21.4 million partially offset by a $7.5
million decrease in accumulated other comprehensive income related primarily to depreciation in the fair value of available-
for-sale debt securities, net of deferred taxes, and year-to-date dividends declared and paid of $5.4 million. The repurchase
of 330,759 common shares under the board-authorized 2021 stock repurchase program also reduced shareholder's equity by
$2.4 million. FNCB's tangible book value was $8.13 per share at December 31, 2021, an increase of $0.43 per share, or 5.6%,
from $7.70 per share at December 31, 2020.

Securities

FNCB’s investment securities portfolio provides a source of liquidity needed to meet expected loan demand and interest
income to increase profitability. Additionally, the investment securities portfolio is used to meet pledging requirements to
secure public deposits and for other purposes. Debt securities are classified as either available-for-sale or held-to-maturity at
the time of purchase based on management's intent. Available-for-sale securities are carried at fair value, with unrealized
holding gains and losses reported as a component of shareholders’ equity in accumulated other comprehensive income (loss),
net of tax, while held-to-maturity securities are carried at amortized cost. At December 31, 2021 and 2020, all debt securities
were classified as available-for-sale. Equity securities with readily determinable fair values are carried at fair value, with
gains and losses due to fluctuations in market value included in the consolidated statements of income. Securities with limited
marketability and/or restrictions, such as FHLB of Pittsburgh stock, are carried at cost. Decisions to purchase or sell
investment securities are based upon management’s current assessment of long- and short-term economic and financial
conditions, including the interest rate environment and asset/liability management, liquidity and tax-planning strategies.

At December 31, 2021, the investment portfolio was comprised principally of available-for-sale debt securities including,
fixed-rate, taxable and tax-exempt obligations of state and political subdivisions and fixed-rate and floating-rate securities
issued by U.S. government or U.S. government-sponsored agencies, which include mortgage-backed securities and
residential and commercial collateralized mortgage obligations ("CMOs"). FNCB also holds investments, to a lesser extent,
in private CMO's, corporate debt securities, asset-backed securities and U.S. Treasury securities. Additionally, FNCB holds
equity investments in the common and preferred stock of certain publicly-traded bank holding companies. Except for U.S.
government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of
shareholders’ equity as of December 31, 2021.

The investment portfolio is predominantly fixed rate in nature. As such, FNCB's debt securities are inherently subject to
interest rate risk, defined as the risk that an investment’s value will change due to a change in interest rates, in the spread
between two rates and in the shape of the yield curve. U.S. Treasury rates fell significantly in the first quarter of 2020 in
response to the outbreak of COVID-19, declaration of a national emergency and economic shutdown in March 2020. U.S.
Treasury rates fluctuated slightly but hovered near historic lows for the remainder of 2020. In 2021, longer-term U.S. Treasury
rates gradually increased over the course of the year, however short-term rates remained at historic lows throughout most of
2021, before increasing considerably in the fourth quarter due to talk of potential tightening of monetary policy by the FOMC
in early 2022. The 10-year Treasury rate, which was 0.93% at December 31, 2020, increased 59 basis points to 1.52% at
December 31, 2021, while the 2-year Treasury rate, which was 0.13% at December 31, 2020, increased 15 basis points 0.28%
at September 30, 2022 before jumping another 45 basis point to 0.73% at December 31, 2021. Additionally, the spread
between the 2-year and 10-year treasury, which was 80 basis points at December 31, 2020, fluctuated throughout 2021

and widened to 158 basis points at March 31, 2021 then gradually narrowed to 79 basis points at December 31, 2021,
indicating flattening of the yield curve. Generally, a security's value reacts inversely with changes in interest rates. Due to
the increase in rates comparing December 31, 2021 and 2020, FNCB experienced significant depreciation in the fair value of
its investment portfolio. FNCB reported a net unrealized holding gain on its investment portfolio of $6.1 million, net of
income taxes of $1.6 million at December 31, 2021, compared to a $14.0 million net unrealized holding gain, net of income
taxes of $3.7 million, at December 31, 2020. Any further increase in interest rates could result in further depreciation in the
fair value of FNCB’s securities portfolio and capital position.

The following table presents the carrying value of available-for-sale debt securities and equity securities, at fair value at
December 31, 2021, 2020 and 2019:

Composition of the Investment Portfolio

2021

(dollars in thousands)
Available-for-sale debt securities
U.S. Treasuries .................................................. $ 36,355
Obligations of state and political subdivisions .. 244,372
U.S. Government-sponsored agency:

Fair
Value

% of

Portfolio

December 31,
2020

2019

Fair
Value

% of

Portfolio

Fair
Value

% of
Portfolio

6.96% $
-
46.76 205,828

-% $

-
58.80 117,763

43.16

Collateralized mortgage obligations –

residential .................................................. 100,710

19.27 56,972

16.28 80,294

29.43

Collateralized mortgage obligations –

commercial ................................................

3,727
Residential mortgage-backed securities ......... 25,506
Private Collateralized mortgage obligations ..... 67,165
Corporate debt securities ................................... 32,063
Asset backed securities...................................... 11,932
736
Negotiable certificates of deposit ......................

3,904
0.71
4.88 13,026
12.85 38,199
6.14 24,580
7,526
2.28
-
0.14

1.12 17,723
3.72 18,485
10.91 25,075
7,182
5,621
696

7.02
2.15
-

6.50
6.78
9.19
2.63
2.06
0.26

Total available-for-sale debt securities ...... $ 522,566 100.00% $ 350,035 100.00% $ 272,839 100.00%

Equity securities, at fair value ........................... $

4,922

3,026

920

Management monitors the investment portfolio regularly and adjusts the investment strategy to reflect changes in liquidity
needs, asset/liability strategy and tax-planning requirements. The composition of FNCB's investment portfolio shifted in
2020, reflecting the change in its income tax position, as the majority of available NOL carryforwards were consumed in
2020, this resulted in FNCB increasing its holdings of tax-free investments in 2020 and 2021. The yields on tax-exempt
obligations of states and political subdivisions are presented on a tax-equivalent basis using the federal corporate income tax
rate of 21.0%.

the

continually monitors

Management
yield.
investment portfolio for
Semiannually, management engages a third-party consultant to review the municipal portfolio to determine if there is any
undue credit risk within the portfolio. As part of the independent review, each security is compared to their Portfolio Credit
Benchmark to identify which securities may contain more than a minimal risk of payment default. As of December 31, 2021,
the third-party report concluded that each security held within the portfolio met or exceeded the benchmark and that none of
the securities required further review. The next third-party review is scheduled for June 30, 2022. Management also monitors
municipal securities monthly using a third-party surveillance report that indicates changes in issuer status, credit downgrades,
rating changes and other pertinent events.

credit worthiness,

value,

and

FNCB sold available-for-sale securities in 2021 with an aggregate amortized cost of $2.8 million and a weighted-average
yield of 2.78%. Gross proceeds received on the sales totaled $3.0 million, with net gains of $0.2 million realized upon the
sales and included in non-interest income. Given the economic climate during 2021, characterized by historically low interest
rates and high liquidity due to the pandemic, FNCB's investment strategy included a focus on yield maintenance and utilizing
excess liquidity to purchase investments within the Bank's risk tolerance in order to enhance interest income streams. FNCB
purchased 137 securities with an aggregate cost of $224.0 million and a weighted-average yield of 1.63% during the year
ended December 31, 2021. Securities purchased were diversified across all major sectors, including $79.2 million in CMOs
of U.S. government-sponsored agencies, $36.8 in U.S. Treasury securities, $40.3 million in private CMOs, $27.3 million in

taxable obligations of state and political subdivisions, $24.7 million in tax-free obligations of state and political subdivisions,
$8.5 million in corporate debt securities, $6.5 million in asset-backed securities and $744 thousand in negotiable certificates
of deposit.

The following table presents the weighted-average yields on available-for-sale debt securities by major category and maturity
period at December 31, 2021:

December 31, 2021

Within

One Year

> 1 – 5
Years

6-10
Years

Over 10
Years

Collateralized
Mortgage
Obligations,
Mortgage-
Backed and
Asset-Backed
Securities

Total

Weighted-average yield
U.S. Treasury ...................................
Obligations of state and political

1.11%

1.18 %

1.17 %

subdivisions ..................................

2.67

2.95

2.34

2.78

2.77

U.S. government/government-

sponsored agencies:
Collateralized mortgage

obligations – residential ............

Collateralized mortgage

obligations – commercial..........
Mortgage-backed securities ..........

Private collateralized mortgage

obligations ....................................
Corporate debt securities ..................
Asset-backed securities ....................
Negotiable certificates of deposit .....
Weighted-average yield ..........

OTTI Evaluation

-
-

-
-
-
-
2.67%

-
-

-
-
-
1.02
2.80%

-
-

-
4.79
-
-
2.77 %

-
-

-
-
-
-
2.78%

1.62

1.98
2.23

1.98
2.33

2.32
-
1.46
-
1.92%

2.32
4.79
1.46
1.02
2.43 %

There was no OTTI recognized during the years ended December 31, 2021 and 2020. For additional information regarding
management’s evaluation of securities for OTTI, see Note 3, “Securities” of the notes to consolidated financial statements
included in Item 8, “Financial Statements and Supplementary Data” to this Annual Report on Form 10-K.

Management noted no indicators of impairment for the FHLB of Pittsburgh or Atlantic Community Bankers Bank stock at
December 31, 2021, 2020 and 2019.

Loans and Leases

Total loans and leases, gross increased by $78.1 million, or 8.6%, to $981.4 million at December 31, 2021 from $903.3
million at December 31, 2020. The growth in the loan and lease portfolio primarily reflected increases in residential and
commercial real estate loans, and loans to state and political subdivisions. Partially offsetting these increases were reductions
in commercial and industrial loans, construction, land acquisition and development loans and consumer loans. With respect
to commercial and industrial loans, on January 19, 2021, the SBA fully reopened the loan portal and began accepting
applications for a second round of PPP loans through May 31, 2021 when the application period ended and the portal closed.
During the first half of 2021, FNCB originated and received funding for 679 PPP loans totaling $76.3 million. FNCB also
continued to assist PPP customers in applying for forgiveness. At December 31, 2021, PPP loans outstanding were $21.9
million, a decrease of $54.3 million, compared to $78.6 million at December 31, 2020. In 2021, FNCB received forgiveness
on PPP loans of $132.9 million and expects to receive forgiveness for the remaining PPP loans in early 2022. In addition to
PPP loan activity, in the fourth quarter of 2021, FNCB expanded its commercial credit product offerings to include
commercial equipment financing, including simple interest loans and direct finance and municipal leases. The majority of
equipment financing originations under this product line is expected to come through indirect, third-party dealers. As of
December 31, 2021, simple interest loans and municipal leases originated under this initiative were $7.9 million and $2.4
million, respectively.

To assist in deploying excess liquidity, enhance interest income and further diversify the loan portfolio, FNCB purchased
individual loans and loan pools originated by third-party originators, including $14.3 million in commercial equipment loans,
$1.8 million in unsecured commercial loans, and $7.4 million in unsecured personal loans. The pools have relatively short
average lives to provide cash flow. Commercial equipment loans are secured by UCCs and titles, while credit enhancement
features including reserve funds provide credit protection for the personal and commercial unsecured pools. FNCB has
reviewed individual loan files, if feasible, or reviewed a random sample of loan files and credit metrics to ensure underwriting
was aligned with FNCB's internal underwriting standards.

includes commercial and

Historically, commercial lending activities have represented a significant portion of FNCB’s loan portfolio. Commercial
lending
including commercial equipment financing and purchased
loans, commercial real estate loans, and construction, land acquisition and development loans, and represented 61.2% and
63.3% of total loans at December 31, 2021 and December 31, 2020, respectively. The decrease in commercial lending was
largely due to the decreases in commercial and industrial loans, specifically PPP loans, due to loan forgiveness, and
construction, land acquisition and development loans. Excluding PPP loans, commercial lending represented 59.0% of total
loans at December 31, 2021 compared to 54.6% at December 31, 2020.

industrial

loans,

From a collateral standpoint, a majority of FNCB’s loan portfolio consists of loans secured by real estate. Real estate secured
loans, which include commercial real estate, construction, land acquisition and development, and residential real estate
loans increased by $111.8 million, or 21.1%, to $641.8 million at December 31, 2021 from $530.0 million at December 31,
2020. The increase was concentrated in commercial and residential real estate loans. Real estate secured loans
represents 65.4% and 58.7% at December 31, 2021 and December 31, 2020, respectively.

Commercial real estate loans, which include long-term commercial mortgage financing and are primarily secured by first or
second lien mortgages, increased $92.1 million, or 33.6%, to $366.0 million at December 31, 2021, from $273.9 million at
December 31, 2020. While, commercial and industrial loans decreased $45.3 million, or 19.0%, during the year to $193.1
million at December 31, 2021 from $238.4 million at December 31, 2020. Commercial and industrial loans consist primarily
of equipment loans, including purchased commercial equipment loans, working capital financing, revolving lines of credit
and loans secured by cash and marketable securities and PPP loans. Commercial and industrial loans decreased $45.3 million,
or 19.0%, to $193.1 million at December 31, 2021 from $238.4 million at December 31, 2020. The decline was largely due
to PPP loan forgiveness. Excluding PPP loans, commercial and industrial loans increased $11.1 million, or 7.1%, reflecting
an increase in loan demand, loan purchases and the launch of the new equipment financing product line.

Residential real estate loans include fixed-rate and variable-rate, amortizing mortgage loans, home equity term loans and
home equity lines of credit ("HELOCs"). FNCB primarily underwrites fixed-rate purchase and refinance of residential
mortgage loans for sale in the secondary market to reduce interest rate risk and provide funding for additional loans.
Additionally, FNCB offers a “WOW” mortgage product, which is a non-saleable mortgage with maturity terms of 7.5 to 19.5
years, that offers customers an attractive fixed interest rate and low closing costs. Residential real estate loans totaled $234.1
million at December 31, 2021, an increase of $37.8 million, or 19.2%, from $196.3 million at December 31, 2020. In 2021,
FNCB experienced strong demand for its proprietary WOW mortgage product, which increased $28.0 million, or 38.5%, to
$100.9 million at December 31, 2021 from $72.9 million at December 31, 2020.

Consumer loans totaled $85.5 million at December 31, 2021, a decrease of $0.4 million, or 0.4%, from $85.9 million at
December 31, 2020. The reduction in consumer loans was concentrated within the indirect auto loan portfolio, which
decreased $7.6 million, or 9.2%, to $74.9 million at December 31, 2021 from $82.5 million at December 31, 2020. The
decrease in indirect automobile loans reflected automobile supply-chain constraints for new automobiles, coupled with a
reduction in supply of pre-owned automobiles. The purchase of $7.4 million in consumer loan pools partially counteracted
the reduction in indirect automobile loans. Loans to state and municipal governments increased $12.1 million, or 24.6%, to
$61.1 million at December 31, 2021 from $49.0 million at December 31, 2020.

The following table presents loans receivable, net by major category at December 31, 2021 and 2020:

Loan and Lease Portfolio Detail

December 31,

2021

2020

% of Total
Loans,
Gross

(in thousands)
Residential real estate ................................................................... $
Commercial real estate .................................................................
Construction, land acquisition and development ..........................
Commercial and industrial ...........................................................
Consumer .....................................................................................
State and political subdivisions ....................................................
Total loans, gross ..................................................................
Unearned income .........................................................................
Net deferred loan and lease fees ...................................................
Allowance for loan and lease losses .............................................
Loans and leases, net ............................................................. $

Amount
234,113
366,009
41,646
193,086
85,522
61,071
981,447
(1,442)
(566)
(12,416)
967,023

23.86% $
37.29
4.24
19.67
8.72
6.22
100.00%

Amount
196,328
273,903
59,785
238,435
85,881
49,009
903,341
(110)
(2,129)
(11,950)
889,152

21.73%
30.32
6.62
26.39
9.51
5.43
100.00%

The following tables present the maturity distribution and interest rate information of the loan and lease portfolio by major
category as of December 31, 2021:

Loans and Leases by Maturity and Interest Rate Sensitivity

(in thousands)
Residential real estate ........................................... $
Commercial real estate .........................................
Construction, land acquisition and development ..
Commercial and industrial ...................................
Consumer .............................................................
State and political subdivisions ............................
Total loans and leases, gross ............................. $

Over
Fifteen
Years

Within
One
Year

One to Five
Years

December 31, 2021
Five to
Fifteen
Years
13,348 $ 112,233 $
203,205
54,900
5,281
15,438
20,107
109,857
25,148
58,089
35,834
8,734
100,549 $ 260,366 $ 401,808 $

6,630 $
23,596
5,336
63,122
1,713
152

Total

101,902 $
84,308
15,591
-
572
16,351
218,724 $

234,113
366,009
41,646
193,086
85,522
61,071
981,447

Within
One
Year

December 31, 2021
Five to
Fifteen
Years

Over
Fifteen
Years

One to Five
Years

Total

(in thousands)
Loans with fixed rates
Residential real estate ........................................... $
Commercial real estate .........................................
Construction, land acquisition and development ..
Commercial and industrial ...................................
Consumer .............................................................
State and political subdivisions ............................
Total loans and leases with fixed rates ............. $

1,338 $
5,778
2,428
7,893
1,647
152

78,778 $
18,249
586
15,367
25,070
31,821
19,236 $ 211,587 $ 169,871 $

11,607 $
38,908
1,168
101,194
57,994
716

84,328 $
-
3,910
-
-
715
88,953 $

Loans with floating rates
Residential real estate ........................................... $
Commercial real estate .........................................
Construction, land acquisition and development ..
Commercial and industrial ...................................
Consumer .............................................................
State and political subdivisions ............................
Total loans and leases with floating rates ......... $

5,292 $
17,818
2,908
55,229
66
-
81,313 $

33,455 $
1,741 $
184,956
15,992
4,695
14,270
4,741
8,663
78
95
8,018
4,013
48,779 $ 231,938 $

17,574 $
84,308
11,681
-
572
15,636
129,771 $

176,051
62,935
8,092
124,454
84,711
33,404
489,647

58,062
303,074
33,554
68,632
811
27,667
491,800

Under industry regulations, a concentration is considered to exist when there are loans extended to a multiple number of
borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions.
Typically, industry guidelines require disclosure of concentrations of loans exceeding 10.0% of total loans outstanding.
FNCB had no such concentrations at December 31, 2021 and 2020. In addition to industry guidelines, FNCB’s internal policy
considers a concentration to exist in its loan portfolio if an aggregate loan balance outstanding to borrowers within a specific
industry exceeds 25.0% of capital. However, management regularly reviews loans in all industry categories to determine if a
potential concentration exists.

The following table presents loans by industry, the percentage to gross loans and indicates concentrations greater than 25%
of capital at December 31, 2021 and 2020:

Loan Concentrations

(dollars in thousands)
Retail space/shopping centers .............................................. $
1-4 family residential investment properties ........................

Amount

December 31,

2021

2020

% of Gross
Loans

Amount

% of Gross
Loans

48,590
92,745

4.95 % $
9.45 %

43,926
58,114

4.86%
6.43%

Modifications Related to COVID-19

In late March 2020, the federal banking regulators issued guidance encouraging banks to work prudently with and provide
short-term payment accommodations to borrowers affected by COVID-19. Additionally, Section 4013 of the CARES Act
addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of
December 31, 2019 do not need to be classified as TDRs. In 2020, FNCB had applied this guidance and made 922 such
modifications, with 843 loans having an aggregate recorded investment of $151.4 million outstanding at December 31,
2020. These initial modifications provided borrowers with a short-term, typically three-month, interest-only period or full
payment deferral. FNCB extended a second payment deferral modification for 79 loans with an aggregate recorded
investment of $22.0 million. Management closely monitored all loans for which a payment deferral was granted and as of
December 31, 2021, there were no loans that were still under deferral.

Asset Quality

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at
the amount of unpaid principal, net of unearned interest, deferred loan fees and costs, and reduced by the ALLL. The ALLL
is established through a provision for loan and lease losses charged to earnings.

FNCB has established and consistently applies loan policies and procedures designed to foster sound underwriting and credit
monitoring practices. Credit risk is managed through the efforts of loan officers, the Chief Credit Officer, the loan review
function, and the Credit Risk Management and the ALLL committees, as well as oversight from the Board of Directors,
including the Director's Loan Committee. Management continually evaluates its credit risk management practices to
ensure problems in the loan portfolio are addressed in a timely manner, although, as is the case with any financial institution,
a certain degree of credit risk is dependent in part on local and general economic conditions that are beyond management’s
control.

Under FNCB’s risk rating system, loans that are rated pass, special mention, substandard, doubtful, or loss are reviewed
regularly as part of the risk management practices. The Credit Risk Management Committee, which consists of key members
of management from the finance, legal, retail lending and credit administration units, meets monthly, or more often as
necessary, to review individual problem credits and workout strategies and provides monthly reports to the Director's Loan
Committee and full Board of Directors.

obtains external appraisals annually, or more frequently as warranted, to ascertain a fair value so that the impairment analysis
can be updated. Should a current appraisal not be available at the time of impairment analysis, management may use other
valuations sources, including current letters of intent, broker price opinions or executed agreements of sale. Under the fair
value of collateral method, the impaired amount of the loan is deemed to be the difference between the loan amount and the
fair value of the collateral, less the estimated costs to sell. For real estate secured loans, management generally estimates
selling costs using a factor of 10%, which is based on typical cost factors, such as a 6% broker commission, 1% transfer
taxes, and 3% various other miscellaneous costs associated with the sales process. If the valuation indicates that the fair value
has deteriorated below the carrying value of the loan, the difference between the fair value and the principal balance is either
charged off or a specific reserve is established. For impaired loans for which the value of the collateral less estimated costs
to sell exceeds the loan value, the impairment is determined to be zero. For non-collateral-dependent loans, impairment is
measured based on the present value of expected future cash flows, net of any deferred fees and costs, discounted at the loan’s
original effective interest rate.

Loans to borrowers that are experiencing financial difficulty that are modified and result in the granting of concessions to the
borrowers are classified as TDRs and are considered to be impaired. Such concessions generally involve an extension of a
loan’s stated maturity date, a reduction of the stated interest rate, payment modifications, capitalization of property taxes with
respect to mortgage loans or a combination of these modifications. Non-accrual TDRs are returned to accrual status if
principal and interest payments, under the modified terms, are brought current, are performing under the modified terms for
six consecutive months, and management believes that collection of the remaining interest and principal is probable.

Non-performing loans are monitored on an ongoing basis as part of FNCB’s loan review process. Additionally, work-out for
non-performing loans and OREO are actively monitored through the Credit Risk Management Committee. A potential loss
on a non-performing asset is generally determined by comparing the outstanding loan balance to the fair market value of the
pledged collateral, less estimated cost to sell.

Loans are placed on non-accrual when a loan is specifically determined to be impaired or when management believes that
the collection of interest or principal is doubtful. This generally occurs when a default of interest or principal has existed for
90 days or more, unless the loan is well secured and in the process of collection, or when management becomes aware of
facts or circumstances that the loan would default before 90 days. FNCB determines delinquency status based on the number
of days since the date of the borrower’s last required contractual loan payment. When the interest accrual is discontinued, all
unpaid interest income is reversed and charged back against current earnings. Any subsequent cash payments received are
applied, first to the outstanding loan amounts, then to the recovery of any charged-off loan amounts, with any excess treated
as a recovery of lost interest. A non-accrual loan is returned to accrual status when the loan is current as to principal and
interest payments, is performing according to contractual terms for six consecutive months and future payments are
reasonably assured.

The following table presents information about non-performing assets and accruing TDRs as of December 31, for each of the
last five years:

Non-performing Assets and Accruing TDRs

(dollars in thousands)
Non-accrual loans, including non-accrual TDRs . $
Loans past due 90 days or more and still

accruing ............................................................
Total non-performing loans ..............................
Other real estate owned ........................................
Other non-performing assets ................................
Total non-performing assets .......................... $

Accruing TDRs .................................................... $
Non-performing loans as a percentage of total

2021

2020

December 31,
2019

2018

2017

3,863 $

5,581 $

9,084 $

4,696 $

2,578

-
3,863
920
1,773
6,556 $

-
5,581
58
1,900
7,539 $

-
9,084
289
1,900
11,273 $

-
4,696
919
1,900
7,515 $

-
2,578
1,023
1,900
5,501

6,666 $

6,975 $

7,745 $

8,457 $

9,299

loans, gross .......................................................

0.39%

0.62%

1.10%

0.56%

0.34%

FNCB's asset quality metrics continued to improve throughout 2021. Total non-performing assets decreased $1.0 million, or
13.0%, to $6.5 million at December 31, 2021 from $7.5 million at December 31, 2020. The decrease was due primarily to a
decrease in non-accrual loans, partially offset by an increase in OREO. Nonaccrual loans decreased $1.7 million, or 30.8%,
to $3.9 million at December 31, 2021 from $5.6 million at December 31, 2020. The reduction in non-accrual loans primarily

reflected strong repayment activity and the return of several smaller balance loans to accrual status. FNCB’s ratio of non-
performing loans to total gross loans decreased to 0.39% at December 31, 2021 from 0.62% at December 31, 2020. Similarly,
FNCB’s ratio of non-performing assets as a percentage of shareholders’ equity decreased to 4.0% at December 31, 2021 from
4.8% at December 31, 2020.

Other non-performing assets at December 31, 2021 and 2020 was comprised solely of a classified account receivable, the
balance of which was $1.8 million at December 31, 2021 and $1.9 million at December 31, 2020. The receivable is secured
by an evergreen letter of credit that was received in 2011 as part of a settlement agreement for a large construction, land
acquisition and development loan for a residential development project in the Pocono region of Monroe County. The
agreement provides for payment to FNCB as real estate building lots are sold. The project was stalled due to a decline in real
estate values in this area following the financial crisis of 2008. In 2019, economic development in this market area started to
improve and management had confirmed that the developer for this project had resumed construction activity, including the
completion of substantial infrastructure, and had increased marketing and sales initiatives related to the project. To date, no
single-unit lots have been sold, however, the developer completed the construction of a seven-unit building that houses
timeshare units and owners began occupying the units in the fourth quarter of 2020. In 2020, management negotiated a
repayment plan with the developer. FNCB received the first payment of $127 thousand in the second quarter of 2021.
Management continues to closely monitor the project. While the repayment plan has commenced, economic uncertainty
and volatility associated with the COVID-19 pandemic are still unknown and could negatively impact the timing of sales and
payments.

There was one loan that was modified as a TDR during the year ended December 31, 2021. The modification involved a
commercial and industrial loan that was granted a principal forbearance. The pre- and post-modification recorded investment
for this loan was $235 thousand.

There were four loans that were modified as TDRs during the year ended December 31, 2020. There was one residential real
estate loan for which the original terms were extended, and three commercial and industrial loans that were each granted a
principal forbearance. The residential real estate loan had a pre- and post-modification recorded investment of $93 thousand.
The three commercial and industrial loans had an aggregate pre- and post-modification recorded investment of $196
thousand.

The average balance of impaired loans, including TDRs was $11.0 million and $13.8 million for the years ended December
31, 2021 and 2020, respectively. FNCB recognized interest on impaired loans of $305 thousand in 2021 and $351 thousand
in 2020.

The additional interest income that would have been earned on non-accrual and restructured loans had the loans been
performing in accordance with their original terms approximated $215 thousand and $353 thousand for the years ended
December 31, 2021 and 2020, respectively.

Management actively manages impaired loans in an effort to mitigate loss to FNCB by working with customers to develop
strategies to resolve borrower difficulties, through sale or liquidation of collateral, foreclosure, and other appropriate means.
In addition, management monitors employment and economic conditions within FNCB’s market area, as weakening of
conditions could result in real estate devaluations and an increase in loan delinquencies, which could negatively impact asset
quality and cause an increase in the provision for loan and lease losses. Employment conditions in FNCB’s market area, at
December 31, 2021 although elevated, improved as compared to December 31, 2020, as the economy re-opened and
economic activity increased amid widespread vaccine distribution. The seasonally-adjusted unemployment rate for the
Scranton-Wilkes-Barre-Hazleton metropolitan statistical area, FNCB's primary market area, improved to 6.4% at December
31, 2021, compared to 7.7% at December 2020. Additionally, in response to continuing inflationary pressures, the FOMC
has indicated that they will begin tightening monetary policy by increasing short-term interest rates as early as their meeting
in March of 2022. Rising interest rates, coupled with elevated unemployment levels, may pose debt service constraints for
borrowers with floating-rate loans, which could result in an increase in loan delinquencies and general asset quality
deterioration. Management continues to monitor the loan portfolio in light of the any continued effects of the pandemic to
proactively addresses any potential impact to the credit quality of FNCB's loan portfolio.

For additional information about impaired loans and TDRs, see Note 4, "Loans" of the notes to consolidated financial
statements included in Item 8, "Financial Statements and Supplementary Data" to this Annual Report on Form 10-K.

The following table presents the changes in non-performing loans for the years ended December 31, 2021 and 2020. Loan
foreclosures represent recorded investment at time of foreclosure not including the effect of any guarantees.

Changes in Non-performing Loans

(in thousands)
Balance, January 1 .......................................................................................................... $
Loans newly placed on non-accrual ................................................................................
Change in loans past due 90 days or more and still accruing ..........................................
Loans transferred to OREO .............................................................................................
Loans returned to performing status ................................................................................
Loans charged-off ...........................................................................................................
Loan payments received ..................................................................................................
Balance, December 31..................................................................................................... $

Year ended December 31,

2021

2020

5,581 $
1,375
-
(138 )
(388 )
(735 )
(1,832 )
3,863 $

9,084
2,352
-
-
(1,573 )
(1,514 )
(2,768 )
5,581

The following table presents accruing loan delinquencies and non-accrual loans as a percentage of gross loans at December
31, 2021 and 2020:

Loan Delinquencies and Non-accrual Loans

Accruing:
30-59 days .......................................................................................................................
60-89 days .......................................................................................................................
90+ days ..........................................................................................................................
Non-accrual .....................................................................................................................
Total delinquencies ......................................................................................................

December 31,

2021

2020

0.13 %
0.03
0.00
0.39
0.55 %

0.31 %
0.06
0.00
0.62
0.99 %

Total delinquencies as a percent of gross loans decreased to 0.55% at December 31, 2021 from 0.99% at December 31, 2020.
The most predominant factor contributing to the decrease in total delinquencies was the $1.7 million decrease in non-accrual
loans, along with decreases in the balance of accruing loans past due 30-59 days and 60-89 days.

Allowance for Loan and Lease Losses

The ALLL represents management’s estimate of probable loan losses inherent in the loan portfolio. The ALLL is analyzed
in accordance with GAAP and is maintained at a level that is based on management’s evaluation of the adequacy of the
ALLL in relation to the risks inherent in the loan portfolio.

As part of its evaluation, management considers qualitative and environmental factors, including, but not limited to:

●

●
●

●
●
●

●
●

●

changes in national, local, and business economic conditions and developments, including the condition of various
market segments;
changes in the nature and volume of the loan portfolio;
changes in lending policies and procedures, including underwriting standards, collection, charge-off and recovery
practices and results;
changes in the experience, ability and depth of lending management and staff;
changes in the quality of the loan review system and the degree of oversight by the Board of Directors;
changes in the trend of the volume and severity of past due and classified loans, including trends in the volume of
non-accrual loans, TDRs and other loan modifications;
the existence and effect of any concentrations of credit and changes in the level of such concentrations;
the effect of external factors such as competition and legal and regulatory requirements on the level of estimated
credit losses in the current loan portfolio; and
analysis of customers’ credit quality, including knowledge of their operating environment and financial condition.

Evaluations are intrinsically subjective, as the results are estimated based on management knowledge and experience and
are subject to interpretation and modification as information becomes available or as future events occur. Management
monitors the loan portfolio on an ongoing basis with emphasis on weakness in both the real estate market and the economy
in general and its effect on repayment. Adjustments to the ALLL are made based on management’s assessment of the factors
noted above.

For purposes of management’s analysis of the ALLL, all loan relationships with an aggregate balance greater than $100
thousand that are rated substandard and non-accrual, identified as doubtful or loss, and all TDRs are considered impaired and
are analyzed individually to determine the amount of impairment. Circumstances such as construction delays, declining real
estate values, and the inability of the borrowers to make scheduled payments have resulted in these loan relationships being
classified as impaired. FNCB utilizes the fair value of collateral method for collateral-dependent loans and TDRs for which
repayment depends on the sale of collateral. For non-collateral-dependent loans and TDRs, FNCB measures impairment
based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. With regard
to collateral-dependent loans, appraisals are received at least annually to ensure that impairment measurements reflect current
market conditions. Should a current appraisal not be available at the time of impairment analysis, other valuation sources
including current letters of intent, broker price opinions or executed agreements of sale may be used. Only downward
adjustments are made based on these supporting values. Included in all impairment calculations is a cost to sell adjustment
of approximately 10%, which is based on typical cost factors, including a 6% broker commission, 1% transfer taxes and 3%
various other miscellaneous costs associated with the sales process. Sales costs are periodically reviewed and revised based
on actual experience. The ALLL analysis is adjusted for subsequent events that may arise after the end of the reporting period
but before the financial reports are filed.

The ALLL equaled $12.4 million at December 31, 2021, an increase of $0.5 million, or 3.9%, from $11.9 million at
December 31, 2020. The increase resulted from a provision for loan and lease losses of $166 thousand coupled with net
recoveries of $300 thousand for the year ended December 31, 2021. In 2020, Management adjusted the qualitative factors
for the potential effect of economic and employment uncertainty and disruption due to the global pandemic into its
evaluation.

The ALLL consists of both specific and general components. The component of the ALLL that is related to impaired loans
that are individually evaluated for impairment, the guidance for which is provided by ASC 310 “Impairment of a Loan”
(“ASC 310”), was $26 thousand, or 0.2%, of the total ALLL at December 31, 2021, compared to $416 thousand, or 3.5%, of
the total ALLL at December 31, 2020. A general reserve of $12.4 million was established for loans analyzed collectively
under ASC 450 “Contingencies” (“ASC 450”), which represented 99.8% of the total ALLL of $12.4 million at December
31, 2021. Included in the general component of the ALLL were unallocated reserves of $1.1 million, for both years
ended December 31, 2021 and 2020. Based on its evaluations, management may establish an unallocated component to cover
any inherent losses that exist as of the evaluation date, but which may not have been identified under the methodology. In
2020, management increased the unallocated reserve as part of an overall increase in credit provisioning due to the economic
disruption caused by the COVID-19 pandemic. Based on continued economic uncertainty related to the pandemic,
management believes the level of the unallocated reserve continues to be appropriate at December 31, 2021. The ratio of the
ALLL to total loans at December 31, 2021 and December 31, 2020 was 1.27% and 1.33%, respectively, based on loans, net
of net deferred origination fees and unearned income of $979.4 million and $901.1 million, respectively.

The following table presents an allocation of the ALLL by major loan category and percent of loans in each category to total
loans at December 31, for each of the last five years:

Allocation of the ALLL

2021

2020

December 31,
2019

2018

2017

Percentage
of
Loans in
Each
Category
to Total
Loans

Allowance

Percentage
of
Loans in
Each
Category
to Total
Loans

Allowance

Percentage
of
Loans in
Each
Category
to Total
Loans

Allowance

Percentage
of
Loans in
Each
Category
to Total
Loans

Allowance

Percentage
of Loans in
Each
Category to
Total
Loans

Allowance

(dollars in
thousands)
Residential

real estate ..... $

2,081

23.86 % $

1,715

21.73 % $

1,147

22.73 % $

1,175

22.09 % $

1,236

23.36 %

Commercial

real estate .....

4,530

37.29

4,268

30.32

3,198

33.69

3,107

31.46

3,499

34.08

Construction,

land
acquisition
and
development .

Commercial

392

4.24

538

6.62

271

5.75

188

2.49

209

2.73

2,670
1,159

and
industrial ......
Consumer .......
State and
political
subdivisions .
455
Unallocated.....
1,129
Total ............... $ 12,416

19.67
8.72

2,619
1,319

26.39
9.51

1,997
1,658

17.86
14.66

2,552
2,051

18.08
18.81

2,340
1,395

19.54
14.75

6.22
-

405
1,086
100.00 % $ 11,950

5.43
-
100.00 % $

253
426
8,950

5.31
-
100.00 % $

417
29
9,519

7.07
-
100.00 % $

355
-
9,034

5.54
-

100.00 %

The following table presents an analysis of changes in the ALLL and the ratio of net (recoveries) charge-offs to average
loans by major loan category and certain credit ratios for each of the last five years:

Reconciliation of the ALLL

(dollars in thousands)
Balance, January 1, .......................................................... $ 11,950 $ 8,950 $ 9,519 $ 9,034 $ 8,419
Charge-offs:

2017

2021

For the Year Ended December 31,
2019

2018

2020

Residential real estate ...................................................
Commercial real estate .................................................
Construction, land acquisition and development ..........
Commercial and industrial ............................................
Consumer ......................................................................
State and political subdivision ......................................
Total charge-offs .......................................................

14
11
-
218
543
-
786

-
336
-
254
975
-
1,565

27
-
18
1,258
1,311
-
2,614

63
1,845
-
97
1,134
-
3,139

192
159
-
495
603
-
1,449

Recoveries of charged-off loans:

29
Residential real estate ...................................................
45
Commercial real estate .................................................
480
Construction, land acquisition and development ..........
360
Commercial and industrial ............................................
381
Consumer ......................................................................
-
State and political subdivision ......................................
1,295
Total recoveries .........................................................
154
Net (recoveries) charge-offs .............................................
Provision for loan and lease losses ...................................
769
Balance, December 31, ..................................................... $ 12,416 $ 11,950 $ 8,950 $ 9,519 $ 9,034

43
846
-
1,220
515
-
2,624
(1,059)
1,941

135
42
30
291
576
-
1,074
2,065
2,550

9
32
82
364
761
-
1,248
1,366
797

17
467
13
74
515
-
1,086
(300)
166

Net (recoveries) charge-offs to average loans and

leases
Residential real estate ...................................................
Commercial real estate .....................................................
Construction, land acquisition and development ..............
Commercial and industrial ...............................................
Consumer .........................................................................
State and political subdivision ..........................................
Net (recoveries) charge-offs to average loans and
leases .....................................................................

Ratios:
Allowance for loan and lease losses to gross loans at

(0.00) %
(0.13)
(0.02)
0.06
0.03
-

(0.03) %
(0.16)
-
(0.43)
0.42
-

0.01 %

(0.01)
(0.21)
0.59
0.37
-

(0.05) %
0.62
(0.13)
(0.12)
0.35
-

0.11 %
0.04
(2.53)
0.10
0.19
-

(0.03) %

(0.12) %

0.16 %

0.25 %

0.02 %

period end.....................................................................

1.27 %

1.33 %

1.08 %

1.13 %

1.17 %

Allowance for loan and lease losses to nonaccrual

loans .............................................................................

321.41 % 214.12 % 98.52 % 202.70 % 350.43 %

Other Real Estate Owned

The balance of OREO was $920 thousand at December 31, 2021, which included two bank-owned properties that were
transferred from bank premises to OREO. Comparatively, OREO at December 31, 2020 included one piece of commercial
land with a carrying value of $58 thousand. FNCB recorded a valuation adjustment to the carrying value of $4 thousand prior
to selling the land in 2021. The land was subsequently sold for $65 thousand with a gain of $11 thousand recognized at the
time of sale. In 2021, FNCB also obtained a deed in lieu of foreclosure for a residential mortgage with a recorded investment
of $138 thousand. The property immediately went under contract at a selling price of $205 thosuand. FNCB transferred the
property to OREO at the selling price less cost to sell of $178 thousand and recorded a positive valuation adjustment of $40
thousand, which is included in non-interest income for the year ended December 31, 2021. The sale of this property was
finalized in 2021.

On December 16, 2021, FNCB received approval from its primary regulator to consolidate the Bank’s Wheeler Avenue
Community Office into its Main Office effective February 18, 2022. Both offices are located in Dunmore, Lackawanna
County, Pennsylvania. FNCB is obligated under a land lease through December 2024 for the Wheeler Avenue property and
FNCB received an independent third-party appraisal of the building and improvements, which it owns. Upon regulatory
approval, FNCB transferred the building and improvements to OREO at fair value less estimated cost to sell of $228 thousand
and recorded a loss on the transfer of $242 thousand which is included in other operating expense in the consolidated
statement of income for the year ended December 31, 2021. In addition, in the fourth quarter of 2021, FNCB accepted an
offer on a parcel of commercial land originally held in bank premises for future branch expansion. Upon acceptance FNCB
transferred the property to OREO at $692 thousand, the selling price less estimated cost to sell. A loss of $68 thousand was
recorded on the transfer and included in other operating expense in the consolidated statements of income. The sale of the
land is expected to close by the end of the first quarter of 2022.

FNCB actively markets OREO properties for sale through a variety of channels including internal marketing and the use of
outside brokers/realtors. The carrying value of OREO is generally calculated at an amount not greater than 90% of the most
recent fair market appraised value unless specific conditions warrant an exception. A 10% factor is generally used to estimate
costs to sell, which is based on typical cost factors, such as 6% broker commission, 1% transfer taxes, and 3% various other
miscellaneous costs associated with the sales process. This fair value is updated on an annual basis or more frequently if new
valuation information is available. Deterioration in the real estate market could result in additional losses on these properties.
Valuation adjustments related to OREO included a positive valuation adjustment of $36 thousand for the year ended
December 31, 2021 and a write-down of $27 thousand for the year ended December 31, 2020.

The following table presents the activity in OREO for the years ended December 31, 2021 and 2020:

Activity in OREO

(in thousands)
Balance, January 1 .................................................................................................................. $
Real estate foreclosures ...........................................................................................................
Transfer from bank premises ...................................................................................................
Valuation adjustments .............................................................................................................
Carrying value of OREO sold .................................................................................................
Balance, December 31............................................................................................................. $

The following table presents a distribution of OREO at December 31, for the past five years:

Distribution of OREO

For the Years Ended
December 31,

2021

2020

58 $
138
920
36
(232)
920 $

289
-
-
(27)
(204)
58

(in thousands)
Land / lots ................................................... $
Commercial real estate ...............................
Residential real estate .................................
Total other real estate owned .................. $

2021

2020

692 $
228
-
920 $

December 31,
2019

58 $
-
-
58 $

85 $
-
204
289 $

2018

2017

436 $
438
45
919 $

516
427
80
1,023

The expenses related to maintaining OREO include the subsequent write-downs of the properties related to declines in value
since foreclosure, net of any income received. OREO expenses amounted to $25 thousand and $164 thousand and are
included in other operating expense in the consolidated statements of income, for the years ended December 31, 2021 and
2020, respectively.

Deposits

Management recognizes the importance of deposit growth as its primary funding source for loan products and
regularly evaluates new products and strategies focused on growing commercial, consumer and municipal deposit
relationships. FNCB experienced strong deposit demand in 2021 and 2020, which was concentrated primarily in non-maturity
deposits. The strong demand was generally caused by factors related to the COVID-19 pandemic including among others,
various government stimulus initiatives, PPP funding, and changes in consumer and saving habits and business investment
in response to economic uncertainty. FNCB did experience some deposit migration during both 2021 and 2020 as maturing
time deposits were redirected into non-maturity deposits.

Total deposits increased $167.6 million, or 13.0%, to $1.455 billion at December 31, 2021 from $1.287 billion at December
31, 2020. Interest-bearing deposits increased $119.0 million, or 11.7%, to $1.135 billion at December 31, 2021 from $1.016
billion at December 31, 2020. In addition, non-interest-bearing deposits increased $48.6 million, or 17.9%, to $320.1 million
at December 31, 2021 from $271.5 million at December 31, 2020. The increase in non-interest-bearing deposits was due
primarily to increases in consumer and small business demand deposit accounts, including residual balances retained from
PPP loan funding. With regard to interest-bearing deposits, the increase was primarily concentrated in interest-bearing
demand accounts, specifically money market transaction accounts, interest-bearing public funds and interest-bearing business
checking accounts. In total, interest-bearing demand deposits increased $144.6 million, or 20.2%, to $857.9 million at
December 31, 2021 from $713.4 million at December 31, 2020. Savings accounts increased $24.6 million, or 22.4%, to
$134.2 million at December 31, 2021 from $109.7 million at December 31, 2020. Time deposits with balances $250 thousand
and over decreased $9.7 million, or 26.7%, to $26.5 million at December 31, 2021, from $36.2 million at December 31, 2020,
and other time deposits decreased $40.3 million, or 25.7%, to $116.3 million at December 31, 2021 from $156.7 million at
December 31, 2020. At December 31, 2021 other time deposits included $10 million in brokered time deposits outstanding
that are part of an interest rate swap transaction, compared to $20 million at December 31, 2020.

Total deposits averaged $1.381 billion in 2021, an increase of $230.7 million, or 20.1%, compared to $1.151 billion in 2020.
The changes in average deposit balances reflected the migration of time deposits into non-maturity deposits, and continued
oversupply of deposits in the market. Non-interest-bearing demand deposits averaged $73.2 million, or 30.2%, higher at
$315.2 million in 2021 as compared to $242.0 million in 2020. Interest-bearing deposits averaged $1.066 billion in 2021, an
increase of $157.6 million, or 17.3%, from $908.5 million in 2020. The increase was concentrated in average interest-bearing
demand deposits which increased $153.3 million, or 25.1% comparing 2021 and 2020. Average savings deposits increased
$23.2 million, or 22.8%, to $125.0 million in 2021 from $101.9 million in 2020. Partially offsetting these increases was a
decrease of $18.9 million, or 9.7%, in average time deposits, to $176.2 million in 2021 from $195.1 million in 2020. FNCB’s
deposit funding costs decreased 35 basis points, to 0.24% in 2021 from 0.59% in 2020. Rates on interest-bearing demand and
time deposits decreased by 32 basis points and 55 basis points, respectively, while savings deposit rates decreased to a lesser
extent, by 3 basis points, comparing 2021 and 2020. The decrease in deposit costs reflected sustained low market interest
rates due to deposit oversupply within the industry in 2021.

The average balance of, and the rate paid on, the major classifications of deposits for the past three years are summarized in
the following table:

Deposit Distribution

2021
Average
Balance

Rate

For the Year Ended December 31,
2020
Average
Balance

Rate

2019
Average
Balance

Rate

(dollars in thousands)
Interest-bearing deposits:
Demand ........................................ $ 764,798
125,022
Savings .........................................
176,245
Time .............................................
Total interest-bearing deposits .. 1,066,065

0.16% $
0.07
0.66
0.24%

611,511
101,847
195,140
908,498

0.48% $
0.10
1.22
0.59%

513,542
93,114
238,145
844,801

0.81%
0.13
1.60
0.96%

Non-interest-bearing deposits ......

315,181

242,017

164,035

Total deposits ........................ $ 1,381,246

$ 1,150,515

$ 1,008,836

The following table presents the maturity distribution of time deposits in excess of insurance limit at December 31, 2021 and
2020:

Maturity Distribution of Time Deposits $250,000 or More

(in thousands)
3 months or less ................................................................................................................ $
Over 3 through 6 months ..................................................................................................
Over 6 through 12 months ................................................................................................
Over 12 months ................................................................................................................
Total .............................................................................................................................. $

December 31,

2021

2020

10,740 $
5,354
8,431
2,006
26,531 $

13,022
5,476
14,913
2,805
36,216

Borrowings

FNCB has an agreement with the FHLB of Pittsburgh which allows for borrowings, either overnight or term, up to a
maximum borrowing capacity based on a percentage of qualifying loans pledged under a blanket pledge agreement. In
addition to pledging loans, FNCB is required to purchase FHLB of Pittsburgh stock based upon the amount of credit extended.
Loans that were pledged to collateralize borrowings under this agreement were $478.3 million at December 31, 2021 and
$500.1 million at December 31, 2020. FNCB’s maximum borrowing capacity was $391.7 million at December 31, 2021.
There was $7.5 million in letters of credit to secure municipal deposits outstanding at December 31, 2021 under this
agreement. There were $20.0 million in term advances through the FHLB of Pittsburgh outstanding at December 31, 2021
that were hedged under interest-rate swaps. There were no overnight borrowings or term advances through the FHLB of
Pittsburgh at December 31, 2020.

Advances through the Federal Reserve Bank Discount Window generally include short-term advances which are fully
collateralized by certain pledged loans of $18 million under the Federal Reserve Bank’s Borrower-in-Custody (“BIC”)
program. There were no advances under the BIC program outstanding at December 31, 2021 and December 31, 2020. FNCB
had available borrowing capacity of $10.6 million under this program at December 31, 2021.

FNCB also had $10.3 million of junior subordinated debentures outstanding at December 31, 2021 and 2020. The interest
rate on these debentures resets quarterly at a spread of 1.67% above the current 3-month LIBOR rate. The average interest
rate paid on the junior subordinated debentures in 2021 was 1.85%, compared to 2.43% in 2020.

Average borrowed funds decreased $39.1 million, or 14.0%, to $12.2 million in 2021 from $51.3 million in 2020. The
average rate paid on borrowed funds increased 14 basis points to 1.61% in 2021 from 1.47% in 2020. The increase in rate on
borrowed funds reflected lower average volumes of overnight and short-term borrowings through the FHLB of Pittsburgh
and Federal Reserve Bank in 2021 as compared to 2020, as short-term borrowing rates were at historical lows.
Average borrowed funds in 2021 was comprised mainly of the junior subordinated debentures, which carry an adjustable rate
tied to 3-Month LIBOR plus 1.67%.

See Note 7, “Borrowed Funds” of the Notes to consolidated financial statements included in Item 8, "Financial Statements
and Supplementary Data" to this Annual Report on Form 10-K for additional information about FNCB's borrowed funds.

Liquidity

The term liquidity refers to the ability to generate sufficient amounts of cash to meet cash flow needs. Liquidity is required
to fulfill the borrowing needs of FNCB’s credit customers and the withdrawal and maturity requirements of its deposit
customers, as well as to meet other financial commitments. FNCB’s liquidity position is impacted by several factors, which
include, among others, loan and lease origination volumes, loan, lease and investment maturity structure and cash flows,
deposit demand and time deposit maturity structure and retention. FNCB has liquidity and contingent funding policies in
place that are designed with controls in place to provide advanced detection of potentially significant funding shortfalls,
establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate a potential
liquidity crisis. Management monitors fluctuations in FNCB’s liquidity position daily and forecasts future liquidity needs.
Additionally, management performs periodic stress tests on FNCB's liquidity position that attempt to model in varying
degrees of stress in order to proactively develop strategies to ensure adequate liquidity at all times. Additionally, management
regularly monitors FNCB's wholesale funding sources taking into consideration the cost of fund, diversification between
funding sources and asset/liability management strategies. FNCB utilizes brokered deposits, including one-way purchases

through the IntraFiSM Network, deposits acquired through a national listing service, as well as overnight and term advances
through the FHLB of Pittsburgh as wholesale sources of funds to supplement its deposit gathering initiatives.

The statements of cash flows present the change in cash and cash equivalents from operating, investing and financing
activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash
equivalents, are FNCB’s most liquid assets. Cash and cash equivalents totaled $99.0 million at December 31, 2021, a decrease
of $56.8 million, or 36.4%, from $155.8 million at December 31, 2020, as net cash outflows for investing activities more
than offset net cash inflows from operating and financing activities.

Net cash outflows from investing activities used $260.8 million of cash and cash equivalents during the year ended December
31, 2021, which primarily reflected the deployment of excess liquidity into the investment and loan portfolios. Specifically,
cash outflows for purchases of available-for-sale debt securities, net of inflows for sales, maturities, calls and repayments,
were $184.3 million in 2021. Additionally, FNCB recorded a net increase in loans and leases of $73.2 million, resulting from
increased demand, ALCO initiatives to hold in portfolio saleable 1-4 family residential mortgages, and the purchase of
individual loans and loan pools from third-party originators. Also, contributing to the net cash outflow for investing activities
were purchases of new BOLI policies and bank premises and equipment of $2.5 million and $1.3 million, respectively.

Financing activities provided $179.8 million in net cash, which resulted primarily from a $167.6 million net increase in
deposits in 2021, coupled with $20.0 million in proceeds received from term advances through FHLB of Pittsburgh.
These inflows were slightly offset by net cash used to pay dividends to shareholder dividends of $5.4 million and to
repurchase shares of common stock totaling $2.4 million. Operating activities include net income, adjusted for the effects of
non-cash transactions including, among others, depreciation and amortization and the provision for loan and lease losses, and
is the primary source of cash flows from operations. In 2021 operating activities provided FNCB with $24.2 million in net
cash, which reflected net income of $21.4 million and non-cash adjustments to income of $2.8 million.

Management is actively monitoring FNCB's liquidity position and capital adequacy in light of the changing circumstances
related to economic uncertainty brought on by the COVID-19 pandemic. While management believes FNCB's liquidity
position is favorable, they are keenly aware that changes in general economic conditions, including inflation, rising interest
rates and situations related to the pandemic, among others, could pose potential stress on liquidity should deposits begin
exiting the Bank or FNCB's asset quality deteriorates. Additionally, FNCB could experience an increase in the utilization of
existing lines of credit as customers manage their own liquidity needs during this time of economic uncertainty. Management
believes that FNCB’s current liquidity position is sufficient to meet its cash flow needs as of December 31, 2021. In addition
to cash and cash equivalents of $99.0 million at December 31, 2021, FNCB had ample sources of additional liquidity
including approximately $391.7 million in available borrowing capacity with the FHLB of Pittsburgh, and available
borrowing capacity through The Federal Reserve Discount Window of $10.6 million under the BIC program. In addition,
FNCB had $72.0 million in federal fund lines of credit available through correspondent banks at December 31, 2021, as well
as access to wholesale deposit markets.

Capital

A strong capital base is essential to the continued growth and profitability of FNCB and is therefore a management priority.
Management’s principal capital planning goals include providing an adequate return to shareholders, retaining a sufficient
base from which to provide for future growth, and complying with applicable regulatory standards. As more fully described
in Note 14, “Regulatory Matters” to the notes to the consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K, regulatory authorities have prescribed specified minimum capital ratios as guidelines for determining
capital adequacy to help assure the safety and soundness of financial institutions.

The following schedules present information regarding the Bank’s risk-based capital at December 31, 2021 and 2020, and
selected other capital ratios:

(dollars in thousands)
December 31, 2021

Amount Ratio

Ratio

FNCB Bank

Minimum
Required
For Capital
Adequacy
Purposes
with
Conservation
Buffer
Ratio

Minimum
Required
To Be Well
Capitalized
Under
Prompt
Corrective
Action
Regulations

Ratio

Minimum
Required
For
Capital
Adequacy
Purposes

Total capital (to risk-weighted assets) .................. $

161,957

14.64%

8.00%

10.50%

10.00 %

Tier I capital (to risk-weighted assets) .................

148,958

13.46%

6.00%

8.50%

8.00 %

Tier I common equity (to risk-weighted assets) ...

148,958

13.46%

4.50%

7.00%

6.50 %

Tier I capital (to average assets) ...........................

148,958

8.92%

4.00%

5.00 %

Total risk-weighted assets .................................... 1,106,636

Total average assets .............................................. 1,669,932

(dollars in thousands)
December 31, 2020

Amount Ratio

Ratio

FNCB Bank

Minimum
Required
For Capital
Adequacy
Purposes
with
Conservation
Buffer
Ratio

Minimum
Required
To Be Well
Capitalized
Under
Prompt
Corrective
Action
Regulations

Ratio

Minimum
Required
For
Capital
Adequacy
Purposes

Total capital (to risk-weighted assets) .................. $

149,173

15.79%

8.00%

10.50%

10.00 %

Tier I capital (to risk-weighted assets) .................

137,356

14.54%

6.00%

8.5%

8.00 %

Tier I common equity (to risk-weighted assets) ...

137,356

14.54%

4.50%

7.00%

6.50 %

Tier I capital (to average assets) ...........................

137,356

9.57%

4.00%

5.00 %

Total risk-weighted assets ....................................

944,546

Total average assets .............................................. 1,434,776

FNCB’s total regulatory capital increased $12.8 million to $162.0 million at December 31, 2021 from $149.2 million at
December 31, 2020. The Bank’s risk-based capital ratios exceeded the minimum regulatory capital ratios required for
adequately capitalized institutions. Based on the most recent notification from its primary regulators, the Bank was
categorized as well capitalized at December 31, 2021 and 2020. There are no conditions or events since this notification
that management believes have changed this category.

As of December 31, 2021, FNCB had 30,010,125 shares of common stock available for future sale or share dividends.
Quarterly market highs and lows, dividends paid and known market makers are highlighted in Part I, Item 5, “Market for
Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities” of this Annual Report
on Form 10-K. For further discussion of FNCB’s capital requirements and dividend limitations, refer to Note 14, “Regulatory
Matters,” of the notes to consolidated financial statements included in Item 8, “Financial Statements and Supplementary
Data” of this Annual Report on Form 10-K.

Additionally, FNCB has available 20,000,000 authorized shares of preferred stock. There were no preferred shares issued
and outstanding at December 31, 2021 and 2020.

On January 27, 2021, FNCB's Board of Directors authorized a stock repurchase program under which up to 975,000 shares
of FNCB's outstanding common stock may be acquired in the open market pursuant to a trading plan that was adopted in
accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The repurchase program commenced on
February 3, 2021 and expired on December 31, 2021. On January 26, 2022, FNCB's Board of Directors authorized the
repurchase of up to 750,000 shares of FNCB's outstanding common stock under a similar program, which is anticipated to
commence on March 4, 2022. Repurchases under both programs are administered through an independent broker and are
subjected to SEC regulations as well as certain price, market volume and timing constraints specified in the trading plan. In
2021, FNCB repurchased 330,759 shares at a weighted-average price per share of $7.21, or $2.4 million in aggregate.
Repurchases are funded from available working capital and the repurchased shares were returned to the status of authorized
but unissued shares of common stock.

FNCB’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to FNCB.
Bank regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulatory agency.
Cash dividends declared and paid by FNCB during 2021 and 2020 were $0.27 per share and $0.22 per share, respectively.
FNCB offers a Dividend Reinvestment and Stock Purchase plan ("DRP") to its shareholders. For the years ended December
31, 2021 and 2020 dividend reinvestment shares were purchased in open market transactions, while shares under the optional
cash purchase feature of the DRP were issued from authorized but unissued common shares. Shares of common stock issued
under the DRP totaled 12,189 and 10,271 for the years ended December 31, 2021 and 2020, respectively. Subsequent to
December 31, 2021, on January 26, 2022, FNCB declared a $0.075 per share dividend payable on March 15, 2022 to
shareholders of record on March 1, 2022.

Off-Balance Sheet Arrangements

In the ordinary course of operations, FNCB engages in a variety of financial transactions that, in accordance with GAAP, are
not recorded in our consolidated financial statements or are recorded in amounts that differ from the notional amounts. These
transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions may be used for
general corporate purposes or for customer needs. Corporate purpose transactions would be used to help manage credit,
interest rate and liquidity risk or to optimize capital. Customer transactions are used to manage customers' requests for
funding.

For the year ended December 31, 2021, FNCB did not engage in any off-balance sheet transactions that would have or would
be reasonably likely to have a material effect on its consolidated financial condition. For a further discussion of FNCB’s off-
balance sheet arrangements, refer to Note 12, “Commitments, Contingencies, and Concentrations” to the notes to the
consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report
on Form 10-K.

The following table presents off-balance financial instruments whose contractual amounts represent credit risk at December
31, 2021 and 2020. With the exception of credit availability for certain commercial construction, land acquisition and
development loans having a 24-month draw period, all of the off-balance sheet financial instruments outstanding at December
31, 2021 expire within one year of their respective contract dates.

Off-Balance Sheet Commitments

(in thousands)
Commitments to extend credit ........................................................................................ $
Standby letters of credit...................................................................................................

December 31,

2021

2020

273,883 $
17,179

227,908
18,914

In order to provide for probable losses inherent in these instruments, FNCB recorded reserves for unfunded commitments of
$583 thousand and $613 thousand at December 31, 2021 and 2020, respectively, which were included in other liabilities in
the consolidated statements of financial condition.

Impact of Inflation and Changing Prices

The preparation of financial statements in conformity with GAAP requires management to measure the FNCB’s financial
position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation
or recession are generally not considered. The primary effect of inflation on FNCB's operations is primarily related to
increases in operating expenses. Management considers changes in interest rates to impact our financial condition and results
of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by
changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate.
FNCB manages interest rate risk in several ways. Refer to “Interest Rate Risk ” in Item 7A for further discussion.There can
be no assurance that FNCB will not be materially adversely affected by future changes in interest rates, as interest rates are
highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial
condition of FNCB's borrowers and could impact their ability to repay their loans, which could negatively affect FNCB's
asset quality through higher delinquency rates and increased charge-offs. Management will carefully will carefully consider
the impact of inflation and rising interest rates on FNCB borrowers in managing credit risk related to the loan and lease
portfolio.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Interest Rate Sensitivity

Market risk is the risk to earnings and/or financial position resulting from adverse changes in market rates or prices, such as
interest rates, foreign exchange rates or equity prices. FNCB’s exposure to market risk is primarily interest rate risk associated
with our lending, investing and deposit gathering activities, all of which are other than trading. Changes in interest rates affect
earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. In addition,
variations in interest rates affect the underlying economic value of our assets, liabilities and off-balance sheet items.

LIBOR Replacement

The Alternative Reference Rates Committee ("ARRC") had proposed that the Secured Overnight Funding Rate ("SOFR")
replace USD-LIBOR, with the transition to SOFR from USD-LIBOR to take place by the end of 2021. FNCB has various
loans, investments, borrowings and interest rate swap contracts that are indexed to USD-LIBOR. On November 30, 2020 the
ICE Benchmark Administration ("IBA"), which complies and oversees LIBOR, announced its intention to extend most of
the USD-LIBOR tenors to June 30, 2023, with U.S. banking regulators supporting the extension. As of December 31, 2021,
most LIBOR tenors, with the exception of the overnight, 1-,3-, 6- and 12-month LIBOR tenors which have been extended
through June 30, 2023, have ceased to be published. Additionally, beginning January 1, 2022, no new financial instruments
can be written with terms tied to LIBOR. FNCB has various loans, investments, borrowings and interest rate swap contracts
that are indexed to USD-LIBOR, and management is actively monitoring its LIBOR exposures and evaluating any risks
involved.

Asset and Liability Management

The ALCO, comprised of members of the Bank's board of directors, executive management and other appropriate officers,
oversees FNCB's interest rate risk management program. Members of ALCO meet quarterly, or more frequently as
necessary, to develop balance sheet strategies affecting the future level of net interest income, liquidity and capital. The major
objectives of ALCO are to:

● manage exposure to changes in the interest rate environment by limiting the changes in net interest margin to an

acceptable level within a reasonable range of interest rates;
ensure adequate liquidity and funding;

●
● maintain a strong capital base; and
● maximize net interest income opportunities.

ALCO monitors FNCB’s exposure to changes in net interest income over both a one-year planning horizon and a longer-
term strategic horizon. ALCO uses net interest income simulations and economic value of equity (“EVE”) simulations as the
primary tools in measuring and managing FNCB’s position and considers balance sheet forecasts, FNCB's liquidity position,
the economic environment, anticipated direction of interest rates and FNCB’s earnings sensitivity to changes in these rates
in its modeling. In addition, ALCO has established policy tolerance limits for acceptable negative changes in net interest
income. Furthermore, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which
involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions
used in the modeling techniques.

Earnings at Risk and Economic Value at Risk Simulations:

Earnings at Risk

Earnings-at-risk simulation measures the change in net interest income and net income under various interest rate
scenarios. Specifically, given the current market rates, ALCO looks at “earnings at risk” to determine anticipated changes in
net interest income from a base case scenario with scenarios of + 200, +400 and -100 basis points for simulation purposes.
The simulation takes into consideration that not all assets and liabilities re-price equally and simultaneously with market rates
(i.e., savings rate).

Economic Value at Risk

While earnings-at-risk simulation measures the short-term risk in the balance sheet, economic value (or portfolio equity) at
risk measures the long-term risk by finding the net present value of the future cash flows from FNCB’s existing assets and
liabilities. ALCO examines this ratio regularly, and given the current rate environment, has utilized rate shocks of +200, +400
and -100 basis points for simulation purposes. Management recognizes that, in some instances, this ratio may contradict the
“earnings at risk” ratio.

While ALCO regularly performs a wide variety of simulations under various strategic balance sheet and treasury yield curve
scenarios, the following results reflect FNCB’s sensitivity over the subsequent twelve months based on the following
assumptions:

●
●

●

asset and liability levels as of December 31, 2021 as a starting point;
cash flows are based on contractual maturity and amortization schedules with applicable prepayments derived from
internal historical data and external sources; and
cash flows are reinvested into similar instruments to keep interest-earning asset and interest-bearing liability levels
constant.

The following table illustrates the simulated impact of parallel and instantaneous interest rate shocks of +400 basis points,
+200 basis points and -100 basis points on net interest income and the change in economic value over a one-year time horizon
from the December 31, 2021 levels:

Rates +200

Rates +400

Rates -100

Simulation
Results

Policy
Limit

Simulation
Results

Policy
Limit

Simulation
Results

Policy
Limit

Earnings at risk:

Percent change in net interest

income ......................................

(4.1 )%

(12.5)%

(6.9)%

(20.0)%

(4.6)%

(10.0)%

Economic value at risk:

Percent change in economic value

of equity ....................................

(3.0 )%

(20.0)%

(8.9)%

(35.0)%

(21.6)%

(10.0)%

Model results at December 31, 2021 indicated that FNCB's asset/liability position was relatively well matched in the near
term with an asset-sensitive bias emerging over the remaining over the life of the model. At December 31, 2021, the
model indicated that FNCB’s net interest income is expected to decrease 4.1% under a +200-basis point interest rate shock,
as compared to the base case. Under this scenario, assumed increases to funding costs hinder potential benefits of rising rates
on net interest income in the near term with net interest income exhibiting a strong upward trajectory for the remainder of the
simulation. Model results also indicate a 4.6% decrease to net interest income from the base case over the next 12 months
under a rate shock of -100 basis points. Assumptions under this falling-rate scenario, indicate that asset-yield deterioration

would offset any remaining funding cost relief, with net interest income to continue a downward trend as assets continue to
reprice into lower rates. Additionally, model results indicated that FNCB's EVE is expected to decrease 3.0% and
21.6% under parallel shifts in interest rates of +200 basis points and -100 basis points, respectively. With the exception of a
-100-basis point impact on the EVE, all modeled exposures of net interest income and EVE were within internal policy
guidelines. Management does not believe that the modeled decrease in the EVE, which exceeds the current policy limit of
10.0%, poses any undue interest rate risk at December 31, 2021, as the results are impacted by deposit decay rate assumptions
on the higher level of non-maturity deposits. Comparatively, model results at December 31, 2020 indicated net interest
income would be expected to decrease 1.0% and economic value of equity would be expected to increase 10.7% given a
+200-basis point rate shock, and under a -100- basis point rate shock, net interest income would be expected to decrease
0.8% and the economic value of equity would decrease 32.9%.

This analysis does not represent a forecast for FNCB and should not be relied upon as being indicative of expected operating
results. These simulations are based on numerous assumptions, including but not limited to, the nature and timing of interest
rate levels, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits,
reinvestment/replacements of asset and liability cash flows, and other factors. While assumptions reflect current economic
and local market conditions, FNCB cannot make any assurances as to the predictive nature of these assumptions, including
changes in interest rates, customer preferences, competition and liquidity needs, or what actions ALCO might take in
responding to these changes.

As previously mentioned, as part of its ongoing monitoring, ALCO requires quarterly back testing of modeling results, which
involves after-the-fact comparisons of projections with FNCB’s actual performance to measure the validity of assumptions
used in the modeling techniques. As part of its quarterly review, management compared tax-equivalent net interest income
recorded for the three months ended December 31, 2021 with tax-equivalent net interest income that was projected for
the period. There was a positive variance between actual and projected tax-equivalent net interest income for the three
months ended December 31, 2021 of approximately $1.1 million, or 8.1%. The variance primarily reflected a difference in
the assumption for the volume and timing of the forgiveness of PPP loans used in the model with that
actually experienced. ALCO performs a detailed rate/volume analysis between actual and projected results to continue to
improve the accuracy of its simulation models.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
FNCB Bancorp, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of FNCB Bancorp, Inc. and
Subsidiaries (Company) as of December 31, 2021 and 2020, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and
the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31,
2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Qualitative Factor Adjustments

Critical Audit Matter Description

As described in Notes 2 and 4 to the consolidated financial statements, the allowance for loan losses is
established through a provision for loan losses and represents an amount, which, in management’s judgment,
will be adequate to absorb losses in the loan portfolio. The Company's allowance for loan losses was $12.42
million at December 31, 2021, which consisted of specific and general reserve components of $.03 million and
$12.39 million, respectively.
In calculating the general reserve component, management considered historical loss experience by segment
and qualitative factor adjustments for changes not reflected in the historical loss experience. The general
reserve component of the Company’s allowance for loan losses involved consideration of national and local
economic conditions, levels of and trends in classified loans, delinquency rates and nonaccrual loans, trends in
volumes and terms of loans, changes in lending policies, lending personnel, and collateral, as well as
concentrations in loan types, industry, and geography. The adjustments for qualitative factors require a
significant amount of judgment by management and involve a high degree of estimation uncertainty.

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as
auditing the underlying qualitative factors required significant auditor judgment as amounts determined by
management rely on analysis that is highly subjective and includes significant estimation uncertainty. The
primary procedures we performed to address this critical audit matter included:

 Obtaining an understanding of the relevant controls related to the allowance for loan losses and tested
such controls for design and operating effectiveness, including controls related to management’s
establishment, review, and approval of the qualitative factors, and the completeness and accuracy of
data used in determining qualitative factors.

 Evaluation of the appropriateness of management’s methodology for estimating the allowance for loan

losses.

 Testing of the completeness and accuracy of data used by management in determining qualitative

factor adjustments by agreeing them to internal and external source data.

 Testing of management’s conclusions regarding the appropriateness of the qualitative factor
adjustments and agreement of any changes therein to the allowance for loan losses calculation.

We have served as the Company’s auditor since 2014.

Baker Tilly US, LLP
Iselin, New Jersey
March 11, 2022

FNCB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)
Assets
Cash and cash equivalents:

December 31, December 31,

2021

2020

Cash and due from banks ............................................................................................. $
Interest-bearing deposits in other banks ......................................................................
Total cash and cash equivalents ...............................................................................
Available-for-sale debt securities ....................................................................................
Equity securities, at fair value .........................................................................................
Restricted stock, at cost ...................................................................................................
Loans held for sale ..........................................................................................................
Loans and leases, net of allowance for loan and lease losses of $12,416 and $11,950 ...
Bank premises and equipment, net ..................................................................................
Accrued interest receivable .............................................................................................
Bank-owned life insurance ..............................................................................................
Other assets .....................................................................................................................
Total assets .......................................................................................................... $

16,651 $
82,369
99,020
522,566
4,922
1,911
-
967,023
16,082
4,643
33,494
14,662
1,664,323 $

Liabilities
Deposits:

Demand (non-interest-bearing) .................................................................................... $
Interest-bearing ............................................................................................................
Total deposits ...........................................................................................................

320,089 $
1,134,939
1,455,028

Borrowed funds:

Federal Home Loan Bank of Pittsburgh advances .......................................................
Junior subordinated debentures ...................................................................................
Total borrowed funds ...............................................................................................
Accrued interest payable .................................................................................................
Other liabilities ................................................................................................................
Total liabilities ....................................................................................................

20,000
10,310
30,310
49
16,479
1,501,866

24,822
130,989
155,811
350,035
3,026
1,745
2,107
889,152
17,579
4,286
31,712
10,226
1,465,679

271,499
1,015,949
1,287,448

-
10,310
10,310
108
11,953
1,309,819

Shareholders' equity
Preferred stock ($1.25 par)

Authorized: 20,000,000 shares at December 31, 2021 and December 31, 2020
Issued and outstanding: 0 shares at December 31, 2021 and December 31, 2020 .......

Common stock ($1.25 par)

Authorized: 50,000,000 shares at December 31, 2021 and December 31, 2020
Issued and outstanding: 19,989,875 shares at December 31, 2021 and 20,245,649

shares at December 31, 2020 ....................................................................................
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive income .....................................................................
Total shareholders' equity .................................................................................
Total liabilities and shareholders’ equity ...................................................... $

24,987
80,128
50,990
6,352
162,457
1,664,323 $

25,307
81,587
35,080
13,886
155,860
1,465,679

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

FNCB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share data)
Interest income
Interest and fees on loans and leases ....................................................................................................... $
Interest and dividends on securities:

Taxable ............................................................................................................................................
Tax-exempt .....................................................................................................................................
Dividends ........................................................................................................................................
Total interest and dividends on securities ................................................................................
Interest on interest-bearing deposits in other banks ................................................................................
Total interest income .........................................................................................................

Interest expense
Interest on deposits ..................................................................................................................................
Interest on borrowed funds:

Federal Reserve Bank Discount Window advances ........................................................................
Federal Home Loan Bank of Pittsburgh advances ...........................................................................
Junior subordinated debentures .......................................................................................................
Total interest on borrowed funds .............................................................................................
Total interest expense ........................................................................................................
Net interest income before provision for loan and lease losses ..........................................................
Provision for loan and lease losses ..........................................................................................................
Net interest income after provision for loan and lease losses .............................................................
Non-interest income
Deposit service charges ...........................................................................................................................
Net gain on the sale of available-for-sale debt securities ........................................................................
Net gain on equity securities ...................................................................................................................
Net gain on the sale of mortgage loans held for sale ...............................................................................
Net gain on the sale of other real estate owned .......................................................................................
Loan-related fees .....................................................................................................................................
Income from bank-owned life insurance .................................................................................................
Bank-owned life insurance settlement.....................................................................................................
Merchant services revenue ......................................................................................................................
Other .......................................................................................................................................................
Total non-interest income .................................................................................................

Non-interest expense
Salaries and employee benefits ...............................................................................................................
Occupancy expense .................................................................................................................................
Equipment expense .................................................................................................................................
Advertising expense ................................................................................................................................
Data processing expense .........................................................................................................................
Regulatory assessments ...........................................................................................................................
Bank shares tax .......................................................................................................................................
Professional fees .....................................................................................................................................
Other operating expenses ........................................................................................................................
Total non-interest expense ................................................................................................
Income before income tax expense .......................................................................................................
Income tax expense .................................................................................................................................
Net income ............................................................................................................................................. $

Earnings per share

Basic ................................................................................................................................................ $
Diluted............................................................................................................................................. $

Cash dividends declared per common share ....................................................................................... $
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

For the Year Ended
December 31,

2021

2020

41,049 $

37,615

8,237
2,086
239
10,562
88
51,699

7,073
1,373
249
8,695
28
46,338

2,508

5,404

-
6
191
197
2,705
48,994
166
48,828

3,877
213
701
352
11
390
541
426
593
1,164
8,268

16,697
2,039
1,338
712
3,689
609
975
674
4,336
31,069
26,027
4,656
21,371 $

1.06 $
1.06 $

0.27 $

32
474
250
756
6,160
40,178
1,941
38,237

3,252
1,528
1,171
653
-
348
482
-
565
1,251
9,250

15,246
2,052
1,477
685
2,933
387
786
999
4,350
28,915
18,572
3,225
15,347

0.76
0.76

0.22

Basic ................................................................................................................................................
Diluted.............................................................................................................................................

20,111,430
20,126,853

20,210,439
20,212,187

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

FNCB BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)
Net income .............................................................................................................................. $
Other comprehensive (loss) income:

For the Year Ended
December 31,

2021

2020

21,371 $

15,347

Unrealized (losses) gains on available-for-sale debt securities ........................................
Taxes ................................................................................................................................
Net of tax amount .............................................................................................................

(9,711)
2,039
(7,672)

Reclassification adjustment for net gains included in net income ....................................
Taxes ................................................................................................................................
Net of tax amount .............................................................................................................

Derivative adjustments .....................................................................................................
Taxes ................................................................................................................................
Net of tax amount .............................................................................................................
Total other comprehensive (loss) income ................................................................................
Comprehensive income ........................................................................................................... $

(213)
45
(168)

388
(82)
306
(7,534)
13,837 $

15,349
(3,223)
12,126

(1,528)
321
(1,207)

(112)
23
(89)
10,830
26,177

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 Years Ended December 31, 2021 and 2020
Accumulated
Other

Additional

Number of
Common Common Paid-in Retained Comprehensive Shareholders'
Shares

Capital Earnings

Stock

Income

Equity

Total

(in thousands, except share data)
Balances, December 31, 2019 ............... 20,171,408 $ 25,214 $
-
-
-

Net income .........................................
Cash dividends paid, $0.22 per share .
Restricted stock awards .....................
Common shares issued under long-

-
-
-

81,130 $ 24,207 $
- 15,347
(4,447)
-
-
336

3,056 $
-
-
-

133,607
15,347
(4,447)
336

term incentive compensation plan ..

63,970

Common shares issued through

dividend reinvestment/optional
cash purchase plan ..........................

Other comprehensive income, net of

10,271

(27)

tax of $2,879 ..................................

-
Balances, December 31, 2020 ............... 20,245,649 $ 25,307 $
-
-
-
(413)

Net income .........................................
Cash dividends paid, $0.27 per share .
Restricted stock awards .....................
Repurchase of common shares ..........
Common shares issued under long-

-
-
-
(330,759)

-
81,587 $ 35,080 $
- 21,371
(5,427)
-
-
376
-
(1,984)

term incentive compensation plan ..

62,796

Common shares issued through

dividend reinvestment/optional
cash purchase plan ..........................

Other comprehensive loss, net of tax

12,189

(34)

10,830
13,886 $
-
-
-
-

150

10,830
155,860
21,371
(5,427)
376
(2,397)

150

of $2,002 ........................................

-
Balances, December 31, 2021 ............... 19,989,875 $ 24,987 $

-
80,128 $ 50,990 $

(7,534)
6,352 $

(7,534)
162,457

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

FNCB BANCORP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended December 31,

(in thousands)
Cash flows from operating activities:
Net income ...................................................................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
Investment securities amortization, net ..........................................................................................................................
Equity in trust .................................................................................................................................................................
Depreciation of bank premises and equipment ..............................................................................................................
Amortization of loan origination fees ............................................................................................................................
Valuation adjustment for loan servicing rights ..............................................................................................................
Stock-based compensation expense ...............................................................................................................................
Provision for loan and lease losses .................................................................................................................................
Valuation adjustment for off-balance sheet commitments ............................................................................................
Net gain on the sale of available-for-sale debt securities ..............................................................................................
Net gain on equity securities ..........................................................................................................................................
Net gain on the sale of mortgage loans held for sale .....................................................................................................
Net gain on other real estate owned ...............................................................................................................................
Valuation adjustment of other real estate owned ...........................................................................................................
Loss on the disposition of bank premises and equipment..............................................................................................
Bank-owned life insurance settlement ...........................................................................................................................
Income from bank-owned life insurance ........................................................................................................................
Proceeds from the sale of mortgage loans held for sale .................................................................................................
Funds used to originate mortgage loans held for sale ....................................................................................................
Decrease in net deferred tax assets .................................................................................................................................
Increase in accrued interest receivable ...........................................................................................................................
(Increase) decrease in other assets .................................................................................................................................
Decrease in accrued interest payable .............................................................................................................................
Increase in other liabilities .............................................................................................................................................
Total adjustments ............................................................................................................................................................
Net cash provided by operating activities ..................................................................................................................

Cash flows from investing activities:
Maturities, calls and principal payments of available-for-sale debt securities ..............................................................
Proceeds from the sale of available-for-sale debt securities ..........................................................................................
Purchases of available-for-sale debt securities ..............................................................................................................
Purchase of equity securities ..........................................................................................................................................
(Purchase) redemption of restricted stock ......................................................................................................................
Proceeds from the sale/transfer of equity securities.......................................................................................................
Purchase of equity securities without readily determinable fair values ........................................................................
Net increase in loans and leases to customers ................................................................................................................
Proceeds from the sale of other real estate owned .........................................................................................................
Proceeds received from bank-owned life insurance settlement .....................................................................................
Purchase of bank-owned life insurance ..........................................................................................................................
Purchases of bank premises and equipment ...................................................................................................................
Net cash used in investing activities ............................................................................................................................

Cash flows from financing activities:
Net increase in deposits ..................................................................................................................................................
Repayment of from Federal Home Loan Bank of Pittsburgh advances – overnight .....................................................
Proceeds from Federal Home Loan Bank of Pittsburgh advances – term .....................................................................
Repayment of Federal Home Loan Bank of Pittsburgh advances – term......................................................................
Repurchase of common shares .......................................................................................................................................
Proceeds from issuance of common shares, net of discount ..........................................................................................
Cash dividends paid ........................................................................................................................................................
Net cash provided by financing activities...................................................................................................................
Net (decrease) increase in cash and cash equivalents ...............................................................................................
Cash and cash equivalents at beginning of year........................................................................................................
Cash and cash equivalents at end of year .................................................................................................................. $

2021

2020

21,371 $

15,347

2,059
(6)
1,567
(4,793)
(16)
526
166
(30)
(213)
(701)
(352)
(11)
(36)
300
(426)
(541)
9,778
(7,319)
387
(357)
(672)
(59)
3,536
2,787
24,158

36,666
2,981
(223,949)
(1,195)
(166)
-
-
(73,238)
243
1,685
(2,500)
(1,290)
(260,763)

167,580
-
20,000
-
(2,397)
58
(5,427)
179,814
(56,791)
155,811
99,020 $

879
(8)
1,628
(626)
16
486
1,941
(90)
(1,528)
(1,171)
(653)
-
27
-
-
(482)
14,510
(14,903)
3,219
(1,052)
1,412
(150)
773
4,228
19,575

20,694
69,271
(152,691)
(500)
2,059
1,223
(500)
(70,820)
204
-
-
(1,689)
(132,749)

285,739
(14,100)
20,000
(52,809)
-
37
(4,447)
234,420
121,246
34,565
155,811

Supplemental cash flow information
Cash paid during the period for:
Interest ............................................................................................................................................................................ $
Taxes ...............................................................................................................................................................................
Other transactions:
Loans transferred to OREO ............................................................................................................................................
Lease liabilities arising from obtaining right-of-use assets ...........................................................................................

2,764 $
4,480

138
60

6,310
-

-
387

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

Notes to Consolidated Financial Statements

Note 1. ORGANIZATION

FNCB Bancorp, Inc. is a registered bank holding company under the Bank Holding Company Act of 1956, incorporated
under the laws of the Commonwealth of Pennsylvania in 1997. It is the parent company of FNCB Bank (the “Bank”) and the
Bank’s wholly owned subsidiaries FNCB Realty Company, Inc., FNCB Realty Company I, LLC, and FNCB Realty Company
II, LLC. Unless the context otherwise requires, the term “FNCB” is used to refer to FNCB Bancorp, Inc., and its subsidiaries.
In certain circumstances, however, the term “FNCB” refers to FNCB Bancorp, Inc., itself.

The Bank provides customary retail and commercial banking services to individuals, businesses and local governments and
municipalities through its 17 full-service branch locations, as of December 31, 2021, within its primary market
area, Northeastern Pennsylvania.

FNCB Realty Company, Inc., FNCB Realty Company I, LLC, and FNCB Realty Company II, LLC, which were formed to
hold real estate and/or operate businesses acquired in exchange for debt settlement or foreclosure, were inactive at December
31, 2021 and 2020.

In December 2006, First National Community Statutory Trust I (“Issuing Trust”), which is wholly owned by FNCB, was
formed under Delaware law to provide FNCB with an additional funding source through the issuance of pooled trust preferred
securities. FNCB has adopted Accounting Standards Codification (“ASC”) 810-10, Consolidation, for the Issuing Trust.
Accordingly, the Issuing Trust has not been consolidated with the accounts of FNCB, because FNCB is not the primary
beneficiary of the trust.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements of FNCB are comprised of the accounts of FNCB Bancorp, Inc., and its wholly-owned
subsidiary, FNCB Bank, as well as the Bank’s wholly-owned subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation. The accounting and reporting policies of FNCB conform to accounting principles generally
accepted in the United States of America (“GAAP”), Regulation S-X and general practices within the banking industry. Prior
period amounts have been reclassified when necessary to conform to the current year’s presentation. Such reclassifications
did not have a material impact on the operating results or financial position of FNCB.

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

Cash Equivalents

For purposes of reporting cash flows, cash equivalents include cash on hand and amounts due from banks. FNCB maintains
compensating balances at correspondent banks, most of which are not required, but are used to offset specific charges for
services. At December 31, 2021 and 2020, the amount of these balances were $1.7 million and $4.5 million, respectively.

Securities

Debt Securities and Equity Securities with Readily Determinable Fair Values

FNCB classifies its investments in debt securities as either available-for-sale or held-to-maturity at the time of purchase. Debt
securities that are classified as available-for-sale are carried at fair value with unrealized holding gains and losses recognized
as a component of shareholders’ equity in accumulated other comprehensive income, net of tax. Debt securities that are
classified as held-to-maturity are carried at amortized cost when management has the positive intent and ability to hold them
to maturity. Premiums on callable debt securities are amortized to the earliest call date. Amortization of premiums and
accretion of discounts on noncallable debt securities is recognized over the life of the related security as an adjustment to

yield using the interest method. Realized gains and losses on sales of debt securities are based on amortized cost using the
specific identification method on the trade date. All of FNCB's debt securities were classified as available-for-sale at
December 31, 2021 and 2020.

Equity securities with readily determinable fair values are reported at fair value with net unrealized gains and losses
recognized in the consolidated statements of income.

Fair values for debt securities and equity securities with readily determinable fair values are based upon quoted market prices,
where available. If quoted market prices are not available, fair values are based upon quoted market prices of comparable
instruments, or a discounted cash flow model using market estimates of interest rates and volatility.

Restricted Securities

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

Equity Securities without Readily Determinable Fair Values

Equity securities without readily determinable fair values generally consist of common and/or preferred stock of privately
held financial institutions, which are carried at cost and included in other assets in the consolidated statements of financial
condition. On a quarterly basis, management performs a qualitative assessment to determine if the securities are impaired. If
the qualitative assessment indicates impairment, the security is written down to its fair value, with the charge for impairment
included in net income.

Evaluation for Other Than Temporary Impairment

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

the length of time and extent of the impairment;
the causes of the decline in fair value, such as credit deterioration, interest rate fluctuations, or market volatility;
adverse industry or geographic conditions;

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

failure of the issuer to make contractual interest or principal payments in the past; and
changes in the security’s rating.

Based on current authoritative guidance, when a held-to-maturity or available-for-sale security is assessed for OTTI,
management must first consider (a) whether it intends to sell the security and (b) whether it is more likely than not the FNCB
will be required to sell the security prior to recovery of its amortized cost. If one of these circumstances applies to a security,
an OTTI loss is recognized in the statement of income equal to the full amount of the decline in fair value below amortized
cost. If neither of these circumstances applies to a security, but FNCB does not expect to recover the entire amortized cost,
an OTTI loss has occurred that must be separated into two categories: (a) the amount related to credit loss and (b) the amount
related to other factors (such as market risk). In assessing the level of OTTI attributable to credit loss, management compares
the present value of cash flows expected to be collected with the amortized cost of the security. The portion of the total OTTI
related to credit loss is identified as the amount of principal cash flows not expected to be received over the remaining term
of the security as estimated based on cash flow projections discounted at the applicable original yield of the security, and is
recognized in earnings, while the amount related to other factors is recognized in other comprehensive income. The total
OTTI loss is presented in the statement of income less the portion recognized in other comprehensive income. When a debt
security becomes other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the total
impairment related to credit loss. The assessment of whether an OTTI decline exists involves a high degree of subjectivity
and judgment that is based on information available to management at a point in time.

Loan and Lease Origination Fees and Costs

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

Loans are placed on non-accrual status when a loan is specifically determined to be impaired or when management believes
that the collection of interest or principal is doubtful. This generally occurs when a default of interest or principal has existed
for 90 days or more, unless the loan is well secured and in the process of collection, or when management becomes aware of
facts or circumstances that the loan would default before 90 days. FNCB determines delinquency status based on the number
of days since the date of the borrower’s last required contractual loan payment. When the interest accrual is discontinued, all
unpaid interest income is reversed and charged back against current earnings. Any subsequent cash payments received are
applied, first to the outstanding principal balance, then to the recovery of any previously charged-off principal, with any
excess treated as a recovery of lost interest. A non-accrual loan is returned to accrual status when the loan is current as to
principal and interest payments, is performing according to contractual terms for six consecutive months and factors
indicating reasonable doubt about the timely collection of payments no longer exist.

In accordance with federal regulations, prior to making, extending, renewing or advancing additional funds in excess of $500
thousand on a loan secured by real estate, FNCB requires an appraisal of the property by an independent, state-certified or
state-licensed appraiser (depending upon collateral type and loan amount) that is approved by the Board of Directors.
Appraisals are reviewed internally or by an independent third party engaged by FNCB. Generally, management obtains a
new appraisal when a loan is deemed impaired. These appraisals may be more limited in scope than those obtained at the
initial underwriting of the loan.

Troubled Debt Restructurings

FNCB considers a loan to be a troubled debt restructuring (“TDR”) when it grants a concession to the borrower for legal or
economic reasons related to the borrower’s financial difficulties that it would not otherwise consider. Such concessions
granted generally involve a reduction of the stated interest rate, an extension of a loan’s stated maturity date, a payment
modification under a forbearance agreement, a permanent reduction of the recorded investment in the loan, capitalization of
real estate taxes, or a combination of these modifications. Non-accrual TDRs are returned to accrual status if principal and
interest payments, under the modified terms, are brought current, are performing under the modified terms for six consecutive
months, and management believes that collection of the remaining interest and principal is probable.

Loan Impairment

A loan is considered impaired when it is probable that FNCB will be unable to collect all amounts due (including principal
and interest) according to the contractual terms of the note and loan agreement. For purposes of the analysis, all TDRs, loan
relationships with an aggregate outstanding balance greater than $100 thousand rated substandard and non-accrual, and loans
that are identified as doubtful or loss are considered impaired. Impaired loans are analyzed individually to determine the
amount of impairment. For collateral-dependent loans, impairment is measured based on the fair value of the collateral
supporting the loans. A loan is determined to be collateral dependent when repayment of the loan is expected to be provided
through the operation or liquidation of the collateral held. For impaired loans that are secured by real estate, external
appraisals are generally obtained annually, or more frequently as warranted, to ascertain a fair value so that the impairment
analysis can be updated. Should a current appraisal not be available at the time of impairment analysis, other sources of
valuation may be used including current letters of intent, broker price opinions or executed agreements of sale. For non-
collateral dependent loans, impairment is measured based on the present value of expected future cash flows, net of any
deferred fees and costs, discounted at the loan’s original effective interest rate.

Generally, all loans with balances of $100 thousand or less are considered within homogeneous pools and are not individually
evaluated for impairment. However, individual loans with balances of $100 thousand or less are individually evaluated for
impairment if that loan is part of a larger impaired loan relationship or the loan is a TDR.

Impaired loans, or portions thereof, are charged-off upon determination that all or a portion of the loan balance is uncollectible
and exceeds the fair value of the collateral. A loan is considered uncollectible when the borrower is delinquent with respect
to principal or interest repayment and it is unlikely that the borrower will have the ability to pay the debt in a timely manner,
collateral value is insufficient to cover the outstanding indebtedness and the guarantors (if applicable) do not provide adequate
support for the loan.

Allowance for Loan and Lease Losses

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

FNCB's allowance methodology consists primarily of two components, a specific component and a general component. The
specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the
discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of
that loan. The general component covers all other loans and is based on historical loss experience adjusted by qualitative
factors. The general reserve component of the ALLL is based on pools of unimpaired loans segregated by loan segment and
risk rating categories of “Pass”, “Special Mention” or “Substandard and Accruing.” Historical loss factors and various
qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related
to those loans. Substandard loans on non-accrual status above the $100 thousand loan relationship threshold and all loans
considered TDRs are classified as impaired. Based on its evaluation, management may establish an unallocated component
that is used to cover any inherent losses that exist as of the evaluation date, but which may not have been identified under the
methodology.

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

Construction, Land Acquisition and Development - These loans consist of loans secured by real estate, with the purpose of
constructing one- to four-family homes, residential developments and various commercial properties including shopping
centers, office complexes and single-purpose, owner-occupied structures. Additionally, loans in this category include loans
for land acquisition, secured by raw land. FNCB’s construction program offers either short-term, interest-only loans that
require the borrower to pay only interest during the construction phase with a balloon payment of the principal outstanding
at the end of the construction period or only interest during construction with a conversion to amortizing principal and interest
when the construction is complete. Loans for undeveloped real estate are subject to a loan-to-value ratio not to exceed 65%.
Construction loans are treated similarly to the developed real estate loans and are subject to a maximum loan to value ratio
of 85% based upon an “as-completed” appraised value. Construction loans generally yield a higher interest rate than other
mortgage loans but also carry more risk.

Commercial Real Estate - These loans represent the largest portion of FNCB’s total loan portfolio and loans in this portfolio
generally carry larger loan balances. The commercial real estate mortgage loan portfolio consists of owner-occupied and non-
owner-occupied properties that are secured by a broad range of real estate, including but not limited to, office complexes,
shopping centers, hotels, warehouses, gas stations, convenience markets, residential care facilities, nursing care facilities,
restaurants and multifamily housing. FNCB offers commercial real estate loans at various rates and terms that do not exceed
25 years. These types of loans are subject to specific loan-to-value guidelines prior to the time of closing. The policy limits
for developed real estate loans are subject to a maximum loan-to-value ratio of 85%. Commercial mortgage loans must also
meet specific criteria that include the capacity, capital, credit worthiness and cash flow of the borrower and the project being
financed. Potential borrower(s) and guarantor(s) are required to provide FNCB with historical and current financial data. As
part of the underwriting process for commercial real estate loans, management performs a review of the cash flow analysis

of the borrower(s), guarantor(s) and the project in addition to considering the borrower’s expertise, credit history, net worth
and the value of the underlying property.

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

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

Residential Real Estate - FNCB offers fixed-rate 1 - 4 family residential loans. Residential first lien mortgages are generally
subject to an 80% loan to value ratio based on the appraised value of the property. FNCB will generally require the mortgagee
to purchase Private Mortgage Insurance if the amount of the loan exceeds the 80% loan to value ratio. Residential mortgage
loans are generally smaller in size and are considered homogeneous as they exhibit similar characteristics. FNCB may sell
loans and retain servicing when warranted by market conditions. FNCB offers home equity loans and home equity lines of
credit (“HELOCs”) with a maximum combined loan-to-value ratio of 90% based on the appraised value of the property.
Home equity loans have fixed rates of interest and carry terms up to 15 years. HELOCs have adjustable interest rates and are
based upon the national prime interest rate. Residential mortgage loans, including home equity loans, are generally smaller
in size and are considered homogeneous as they exhibit similar characteristics.

Consumer – FNCB offers both secured and unsecured installment loans, personal lines of credit and overdraft protection
loans. FNCB is in the business of underwriting indirect auto loans which are originated through various auto dealers in
northeastern Pennsylvania and dealer floor plan loans. Consumer loans are generally smaller in size and exhibit homogeneous
characteristics.

Off-Balance-Sheet Credit-Related Financial Instruments

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

Mortgage Banking Activities, Loan Sales and Servicing

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

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

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

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

Servicing rights are evaluated for impairment at each reporting date based upon the fair value of the rights as compared to
amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such
as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche,
to the extent that fair value is less than the capitalized amount for the tranche. If management later determines that all or a
portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase
to income.

Other Real Estate Owned

OREO consists of property acquired by foreclosure, abandonment or conveyance of deed in-lieu of foreclosure of a loan, and
bank premises that are no longer used for operations or for future expansion. OREO is held for sale and is initially recorded
at fair value less estimated costs to sell at the date of acquisition or transfer, which establishes a new cost basis. Upon
acquisition of the property through foreclosure or deed in-lieu of foreclosure, any adjustment to fair value less estimated
selling costs is recorded to the ALLL. The determination is made on an individual asset basis. Bank premises no longer used
for operations or future expansion are transferred to OREO at fair value less estimated selling costs with any related write-
down included in non-interest expense. Subsequent to acquisition, valuations are periodically performed, and the assets are
carried at the lower of cost or fair value less estimated cost to sell. Fair value is determined through external appraisals,
current letters of intent, broker price opinions or executed agreements of sale, unless management determines that conditions
exist that warrant an adjustment to the value. Costs relating to the development and improvement of the OREO properties
may be capitalized; holding period costs and any subsequent changes to the valuation allowance are charged to expense as
incurred.

Bank Premises and Equipment

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

Buildings and improvements (years) ..............................................................
Furniture, fixtures and equipment (years) ......................................................
Leasehold improvements (years)....................................................................

5 to 40
3 to 20
3 to 35

Long-lived Assets

Intangible assets and bank premises and equipment are reviewed by management at least annually for potential impairment
and whenever events or circumstances indicate that carrying amounts may not be recoverable.

Income Taxes

FNCB recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more-likely-than-not that all or some portion of the deferred tax assets will not be realized.

FNCB files a consolidated federal income tax return. Under tax sharing agreements, each subsidiary provides for and settles
income taxes with FNCB as if it would have filed on a separate return basis. Interest and penalties, if any, as a result of a
taxing authority examination are recognized within non-interest expense. FNCB is not currently subject to an audit by any of
its tax authorities and with limited exception is no longer subject to federal and state income tax examinations by taxing
authorities for years before 2018.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that
would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during
which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or

aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be
payable to the taxing authorities upon examination. Management determined that FNCB had no liabilities for uncertain tax
positions at December 31, 2021 and 2020.

Earnings per Share

Earnings per share is calculated on the basis of the weighted-average number of common shares outstanding during the year.
Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders by the
weighted-average common shares outstanding during the period. Diluted earnings per share reflect additional shares that
would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be
issued by FNCB relate to shares of unvested restricted stock for which the dilutive effect is calculated using the treasury stock
method.

Stock-Based Compensation

FNCB recognizes all share-based payments for compensation in the consolidated statements of income based on their fair
values on the grant date. The fair value of shares of unrestricted and restricted stock and awarded under the Long Term
Incentive Compensation Plan (“LTIP”) is determined using an average of the high and low prices for FNCB’s common stock
for the 10 days preceding the grant date. Stock-based compensation expense for unrestricted stock is recognized on the grant
date. For restricted stock, stock-based compensation expense is recognized ratably over the vesting period, adjusted for
forfeitures during the period in which they occur.

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) represents the cash surrender value of life insurance policies on certain current and
former directors and officers of FNCB. FNCB purchased the insurance as a tax-deferred investment and future source of
funding for liabilities, including the payment of employee benefits such as health care. BOLI is carried in the consolidated
statements of financial condition at its cash surrender value. Increases in the cash value of the policies, as well as proceeds
received, are recorded in non-interest income. Under some of these policies, the beneficiaries receive a portion of the death
benefit. The net present value of the future death benefits scheduled to be paid to the beneficiaries was $99 thousand and
$116 thousand at December 31, 2021 and 2020, respectively, and is reflected in other liabilities on the consolidated statements
of financial condition.

Fair Value Measurement

FNCB uses fair value measurements to record fair value adjustments to certain financial assets and liabilities and to
determine fair value disclosures. Available-for-sale debt securities and derivative contracts are recorded at fair value on a
recurring basis. Additionally, from time to time, FNCB may be required to recognize adjustments to other assets at fair value
on a nonrecurring basis, such as impaired loans, other securities, and OREO.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction
that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are
usual and customary for transactions involving such assets or liabilities; it is not a forced transaction.

Accounting standards define fair value, establish a framework for measuring fair value, establish a three-level hierarchy for
disclosure of fair value measurement and provide disclosure requirements about fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

The three levels of the fair value hierarchy are:

● Level 1 valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets;

● Level 2 valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market
prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques
for which all significant assumptions are observable in the market or can be corroborated by market data; and

● Level 3 valuation is derived from other valuation methodologies including discounted cash flow models and similar
techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect
estimates of assumptions that market participants would use in determining fair value.

Revenue Recognition

FNCB recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided
and collectability is reasonably assured. FNCB's primary source of revenue is interest income from the Bank's loans and
investment securities, which is recognized on the accrual basis primarily on terms in written contracts such as loan
agreements or securities contracts. FNCB also earns non-interest income from various banking services offered by the Bank
and other transactions as follows:

● Deposit service charges - include general service fees for monthly account maintenance, account analysis fees, non-
sufficient funds fees, wire transfer fees and other deposit account related fees. Revenue is recognized when FNCB’s
performance obligation is completed which is generally monthly for account maintenance services or when a
transaction has been completed (such as a wire transfer). Payment for service charges on deposit accounts is received
immediately or in the following month through a direct charge to customers’ accounts. Also included in deposit
service charges is income from ATM surcharges and debit card services income. ATM surcharges are generated
when an FNCB cardholder uses an ATM that is not within the AllPoint ATM network or a non-FNCB cardholder
uses an FNCB ATM. Card services income is primarily comprised of interchange fees earned whenever a customer
uses an FNCB debit card as payment for goods and/or services through a card payment network such as
Mastercard®/Visa®. FNCB’s performance obligation is satisfied on a daily basis as transactions are processed.
FNCB recognizes ATM surcharges and card services income as transactions with merchants are settled, generally
on a daily basis.
Net gains on the sale of available-for-sale debt securities - Gains or losses realized from the sale of available-for-
sale debt securities are recorded to non-interest income on the settlement date.
Net gains on the sale of mortgage loans held for sale - Gains or losses realizd on the sale of mortgages held for sale
are recorded to non-interest income on the settlement date.

●

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

● Loan referral fees/interest rate swap revenue - Loan referral fees represent fees FNCB receives from a third-party
correspondent bank for referring certain qualified borrowers to their proprietary loan participation swap program.
Interest rate swap revenue represent net fees FNCB receives from a counterparty for completing the swap
transaction with the counterparty directly. FNCB receives both types of fees at the time the loan closes. The fees
are non-refundable and are not tied to the loan and FNCB has no future obligations to the correspondent under the
participation agreement related to such fees. FNCB records referral fees/interest rate swap revenue in non-interest
income upon receipt.

● Other income – primarily includes wealth management fee income, merchant services fee income and title insurance
revenue. Wealth management fee income represents fees received from a third-party broker-dealer as part of a
revenue-sharing agreement for fees earned from customers that we refer to the third party. Merchant services fees
represent commissions received from the major payment networks such as VISA®/Mastercard® on activity
generated by customers on their merchant account. Wealth management and merchant services fee income are
transactional in nature and are recognized in income monthly when FNCB’s performance obligation is complete,
which is generally the time that payment is received. With regard to title insurance revenue, FNCB is a member in
a limited liability company that provides title insurance services to customers referred by member financial
institutions. In accordance with an operating agreement, the title insurance company makes quarterly discretionary

distributions to member institutions on a pro-rata basis based on their respective membership interest percentage at
the time of distribution. FNCB’s performance obligation under the operating agreement was satisfied with its capital
contribution. There are no future minimum referral quotas required under the operating agreement. FNCB records
revenue from quarterly distributions at the time of receipt.

Comprehensive Income

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

New Authoritative Accounting Guidance

Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of
Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential
burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional
expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other
transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 were effective
upon issuance. On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) that clarifies
that certain optional expedients and exceptions provided for in ASU 2020-04 also apply to derivatives that do not reference
a rate that is being discontinued but otherwise are affected by reference rate reform. ASU 2021-01 clarifies that changes in
the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being
implemented as part of the market-wide transition to new reference rates, commonly referred to as the "discounting
transition," are within the scope of Topic 848. ASU 2021-01 was effective upon issuance. As part of its overall evaluation of
reference rate reform, management is still evaluating the impact that LIBOR replacement will have on FNCB's operating
results and financial position. Any such impacts will be prospective in nature and may affect net interest income and fair
value estimates after the effective date of such rate replacement. The LIBOR replacement is not expected to 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 Financial Accounting Standards Board ("FASB") issued ASU 2019-10, "Credit Losses (Topic 326), Derivatives and

Hedging (Topic 815), and Leases (Topic 842): Effective Dates," which finalized various effective dates delay for private
companies, not-for-profit organizations, and certain smaller reporting companies. Specifically, under ASU 2019-10 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.

ASU 2020-01 Investments - Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures
(Topic 323), and Derivatives and Hedging (Topic 815). The new guidance addresses accounting for the transition into and
out of the equity method and measuring certain purchase options and forward contracts to acquire investments. If a company
is applying the measurement alternative for an equity investment under ASC 321 and must transition to the equity method,
or if applying the equity method and must transition to ASC 321; because of an observable transaction, it will remeasure its
investment immediately before transition. If a company holds certain non-derivative forward contracts or purchased call
options to acquire equity securities, such instruments generally will be measured using the fair value principles of ASC 321
before settlement or exercise. ASU 2020-01 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020 for public business entities, and for fiscal years, and interim periods within those
fiscal years beginning after December 15, 2021 for all other entities. Early adoption is permitted. The adoption of this
guidance on January 1, 2022 is not expected to have a material effect on the operating results or financial position of FNCB.

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 December 31, 2021 and 2020:

December 31, 2021
Gross

Gross
Unrealized Unrealized

(in thousands)
Available-for-sale debt securities:
U.S. Treasury ............................................................................... $
Obligations of state and political subdivisions .............................
U.S. government/government-sponsored agencies:

Amortized Holding
Gains

Cost

Holding
Losses

Fair
Value

36,751 $
235,489

1 $
9,651

397 $
768

36,355
244,372

Collateralized mortgage obligations – residential .....................
Collateralized mortgage obligations – commercial ..................
Mortgage-backed securities ......................................................
Private collateralized mortgage obligations .................................
Corporate debt securities ..............................................................
Asset-backed securities ................................................................
Negotiable certificates of deposit .................................................

101,321
3,685
25,467
68,137
31,300
11,907
744
Total available-for-sale debt securities ..................................... $ 514,801 $

1,158
87
263
60
940
42
-
12,202 $

1,769
45
224
1,032
177
17
8
4,437 $

100,710
3,727
25,506
67,165
32,063
11,932
736
522,566

(in thousands)
Available-for-sale debt securities:
Obligations of state and political subdivisions ............................. $ 192,851 $
U.S. government/government-sponsored agencies:

December 31, 2020
Gross

Gross
Unrealized Unrealized

Amortized Holding
Gains

Cost

Holding
Losses

Fair
Value

13,012 $

35 $

205,828

54,091
3,721
12,452
37,926
23,800
7,505
-
Total available-for-sale debt securities ..................................... $ 332,346 $

2,940
183
588
352
790
46
-
17,911 $

59
-
14
79
10
25
-
222 $

56,972
3,904
13,026
38,199
24,580
7,526
-
350,035

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 December 31, 2021 or 2020.

The following table presents the maturity information of FNCB’s available-for-sale debt securities at December 31, 2021.
Expected maturities will differ from contractual maturity 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.

December 31, 2021
Fair
Value

Amortized
Cost

(in thousands)
Available -for-sale debt securities:
Amounts maturing in:
One year or less ................................................................................................................... $
After one year through five years ........................................................................................
After five years through ten years .......................................................................................
After ten years .....................................................................................................................
Collateralized mortgage obligations ....................................................................................
Mortgage-backed securities .................................................................................................
Asset-backed securities .......................................................................................................
Total ................................................................................................................................. $

749 $
74,425
94,945
134,165
173,143
25,467
11,907
514,801 $

760
77,529
95,781
139,456
171,602
25,506
11,932
522,566

The following table presents the gross proceeds received and gross realized gains and losses on the sale and redemption of
available-for-sale debt securities for the years ended December 31, 2021 and 2020.

(in thousands)
Available-for-sale debt securities:
Gross proceeds received on sales .................................................................................... $
Gross proceeds received on redemption ..........................................................................
Gross realized gains on sales ...........................................................................................
Gross realized losses on sales ..........................................................................................
Gross realized gain on redemption ..................................................................................

2021

2020

2,981 $
1,000
213
-
-

68,256
1,015
1,686
(173)
15

Year Ended December 31,

397

768

The following tables present the number, fair value and gross unrealized losses of available-for-sale debt securities in an
unrealized loss position at December 31, 2021 and 2020, aggregated by investment category and length of time the securities
have been in an unrealized loss position.

Less than 12 Months

December 31, 2021
12 Months or Longer

Total

Number
of

Fair
Securities Value

Gross
Unrealized
Losses

Number
of

Fair
Securities Value Losses

Gross
Unrealized

16 $ 35,394 $

397

- $

Number
of

Fair
Securities Value
-

16 $ 35,394 $

Gross
Unrealized
Losses

(dollars in thousands)
U.S. Treasuries ..........................
Obligations of state and

political subdivisions ............

36,107

702

1,257

37,364

U.S. government/government-

sponsored agencies:
Collateralized mortgage

obligations – residential ...

58,848

1,530

5,713

239

64,561

1,769

Collateralized mortgage

obligations – commercial
Mortgage-backed securities ..

Private collateralized mortgage

obligations ............................
Corporate debt securities ...........
Asset-backed securities .............
Negotiable certificates of

deposit ..................................
Total ..................................

1
6

1,632
14,585

22
9
4

44,425
7,643
3,810

45
204

897
107
14

-
1

3
2
2

-
1,596

6,213
2,180
1,293

736
122 $ 203,180 $

8
3,904

-
12 $ 18,252 $

-
20

135
70
3

-
533

1
7

1,632
16,181

25
11
6

50,638
9,823
5,103

736
134 $ 221,432 $

45
224

1,032
177
17

8
4,437

Less than 12 Months

December 31, 2020
12 Months or Longer

Total

(dollars in thousands)
Obligations of state and political

Number
of

Gross
Unrealized

Number

Fair
Securities Value Losses

Gross
Unrealized

Number

Gross
Unrealized

subdivisions.............................

6 $ 4,541 $

- $

6 $ 4,541 $

U.S. government/government-

sponsored agencies:
Collateralized mortgage

obligations – residential .....

7,019

Collateralized mortgage

obligations – commercial ...
Mortgage-backed securities ....

Private collateralized mortgage

obligations ...............................
Corporate debt securities .............
Asset-backed securities ...............
Total ....................................

-
1

-
2,103

7,857
3
1,739
2
746
2
16 $ 24,005 $

-
14

42
10
13
173

-
-

1 2,256
-
-
1 1,591
2 $ 3,847 $

-
-

37
-
12
49

7,019

-
1

-
2,103

4 10,113
1,739
2
3
2,337
18 $ 27,852 $

-
14

79
10
25
222

Management evaluates individual securities in an unrealized loss position quarterly for 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.

Management performed a review of all securities in an unrealized loss position as of December 31, 2021 and determined that
movements in the fair values of the securities were consistent with changes 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 December 31, 2021. 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 December 31, 2021.

Equity Securities

Included in equity securities with readily determinable fair values at December 31, 2021 and December 31, 2020 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 security 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 years ended December 31, 2021 and 2020.

(in thousands)
Net gain recognized on equity securities ................................................................. $
Less: net gains recognized on equity securities sold/acquired ................................
Unrealized gain recognized on equity securities ..................................................... $

Year Ended December 31,
2020
2021

701 $
-
701 $

1,171
611
560

Equity Securities and Equity Securities without Readily Determinable Fair Value

At December 31, 2021 and December 31, 2020, 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%, which commenced on March 30, 2021. 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 values 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 December 31, 2021 & 2020, which indicated that the investment was not impaired. Accordingly,
management determined that no adjustment for impairment was required at December 31, 2021 and December 31, 2020.

Restricted Securities

The following table presents FNCB's investment in restricted securities at December 31, 2021 and 2020. Restricted securities
have limited marketability and are carried at cost. Management noted no indicators of impairment for FHLB of Pittsburgh or
ACBB stock at December 31, 2021 and 2020.

(in thousands)
Stock in Federal Home Loan Bank of Pittsburgh .................................................... $
Stock in Atlantic Community Bankers Bank ..........................................................
Total restricted securities, at cost ......................................................................... $

December 31,

2021

2020

1,901 $
10
1,911 $

1,735
10
1,745

Note 4. LOANS AND LEASES

The following table summarizes loans and leases receivable, net, by major category at December 31, 2021 and 2020:

(in thousands)
Residential real estate ...................................................................................................... $
Commercial real estate ....................................................................................................
Construction, land acquisition and development .............................................................
Commercial and industrial ..............................................................................................
Consumer ........................................................................................................................
State and political subdivisions .......................................................................................
Total loans and leases, gross ....................................................................................
Unearned income ............................................................................................................
Net deferred origination fees ...........................................................................................
Allowance for loan and lease losses ................................................................................
Loans and leases, net ................................................................................................ $

December 31,

2021

2020

234,113 $
366,009
41,646
193,086
85,522
61,071
981,447
(1,442)
(566)
(12,416)
967,023 $

196,328
273,903
59,785
238,435
85,881
49,009
903,341
(110)
(2,129)
(11,950)
889,152

Included in commercial and industrial loans and leases at December 31, 2021 and December 31, 2020 were $21.9 million
and $78.6 million, respectively, of loans originated under the Small Business Administration ("SBA") Payment Protection
Program ("PPP"). Included in net deferred origination fees at December 31, 2021 and December 31, 2020, were $1.0
million and $2.6 million, respectively, in deferred origination fees, net of deferred loan origination costs, associated with the
PPP Loans. PPP loans are 100.0% guaranteed and may be forgiven by the SBA. Accordingly, there was no ALLL established
for PPP loans at December 31, 2021 and 2020.

In 2021, management expanded FNCB's commercial credit product offerings to include commercial equipment financing,
through simple interest loans, direct finance leases and municipal leases. There were no direct finance leases originated in
2021. Simple loans and municipal leases originated under this initiative were $7.9 million and $2.4 million, respecitively.
Simple interest loans are included in commercial and industrial loans, while municipal leases are included with state and
political subdivision loans.

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 11, “Related Party
Transactions” to these consolidated financial statements.

For information about credit concentrations within FNCB’s loan portfolio, refer to Note 12, “Commitments, Contingencies
and Concentrations” to these consolidated financial statements.

FNCB originates 1- 4 family residential mortgage loans for sale in the secondary market. During the years ended December
31, 2021 and 2020, 1 - 4 family residential mortgages sold on the secondary market were $9.4 million and $13.9 million,
respectively. Net gains on the sale of residential mortgage loans were $352 thousand in 2021 and $653 thousand in 2020.
FNCB retains servicing rights on mortgages sold in the secondary market. There were no 1-4 family residential mortgage
loans held for sale at December 31, 2021. At December 31, 2020 1-4 family residential mortgage loans held for sale were
$2.1 million.

There were no sales of SBA-guaranteed loans during the years ended December 31, 2021 and 2020. The unpaid principal
balance of loans serviced for others, including residential mortgages and SBA-guaranteed loans were $77.2 million and
$96.5 million at December 31, 2021 and 2020, respectively.

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.

FNCB provides for loan and lease losses based on the consistent application of its documented ALLL methodology. Loan
and lease losses are charged to the ALLL and recoveries are credited to it. Additions to the ALLL are provided by charges
against income based on various factors which, in management’s judgment, deserve current recognition of estimated probable
losses. Loan and lease losses are charged-off in the period the loans, or portions thereof, are deemed uncollectible. Generally,
FNCB will record a loan charge-off (including a partial charge-off) to reduce a loan to the estimated recoverable amount

based on its methodology detailed below. Management regularly reviews the loan portfolio and makes adjustments for loan
losses in order to maintain the ALLL in accordance with GAAP. The ALLL consists primarily of the following two
components:

(1) Specific allowances are established for impaired loans, which FNCB defines as all loan relationships with an
aggregate outstanding balance greater than $100 thousand rated substandard and on non-accrual, loans rated
doubtful or loss, and all TDRs. The amount of impairment provided for as an allowance is represented by the
deficiency, if any, between the carrying value of the loan and either (a) the present value of expected future cash
flows discounted at the loan’s effective interest rate, (b) the loan’s observable market price, or (c) the fair value of
the underlying collateral, less estimated costs to sell, for collateral dependent loans. Impaired loans that have no
impairment losses are not considered in the establishment of general valuation allowances as described below. If
management determines that collection of the impairment amount is remote, a charge-off will be recorded for the
impairment amount.

(2) General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of
impaired. FNCB divides its portfolio into loan segments for loans exhibiting similar characteristics. Loans rated
special mention or substandard and accruing, which are embedded in these loan segments, are then separated from
these loan segments, as these loans are subject to an analysis that emphasizes the credit risk associated with these
loans. An estimated loss rate is then applied to each loan segment, which are based on FNCB’s own historical loss
experience for each respective loan segment. In addition, management evaluates and applies to each loan segment
certain qualitative or environmental factors that are likely to cause estimated credit losses associated with FNCB’s
existing portfolio to differ from historical experience, which are discussed below. For loans that have an internal
credit rating of special mention or substandard, the qualitative and environmental factors are further adjusted for
the increased risk.

In addition to the specific and general components, management may establish an unallocated allowance that is used to cover
any inherent losses that exist as of the evaluation date, but which may have not been identified under the methodology.

As part of its evaluation, management considers qualitative and environmental factors, including, but not limited to:

●

●
●

●
●
●

●
●

●

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. However,
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 tables present, by major category, the activity in the ALLL and the allocation of the ALLL and the related loan
balance disaggregated based on impairment methodology at December 31, 2021 and 2020.

Allowance for Loan and Lease Losses by Loan Category
December 31, 2021
Construction,
Land
Acquisition
and
Development

Commercial
Real Estate

Commercial
and

Residential
Real Estate

Industrial Consumer

Subdivisions Unallocated Total

State and
Political

1,715 $
(14)
17
363
2,081 $

4,268 $
(11)
467
(194)
4,530 $

538 $
-
13
(159)
392 $

2,619 $
(218)
74
195
2,670 $

1,319 $
(543)
515
(132)
1,159 $

405 $
-
-
50
455 $

1,086 $ 11,950
(786)
1,086
166
1,129 $ 12,416

-
-
43

(in thousands)
Allowance for loan and lease losses:
Beginning balance, January 1, 2021 .. $
Charge-offs ....................................
Recoveries ......................................
Provisions (credits) ........................
Ending balance, December 31, 2021 . $

Specific reserve .................................. $

9 $

6 $

- $

11 $

- $

General reserve ................................... $

2,072 $

4,524 $

392 $

2,659 $

1,159 $

455 $

1,129 $ 12,390

Loans and leases receivable:
Individually evaluated for

impairment ..................................... $

1,681 $

7,530 $

- $

762 $

- $

9,973

Collectively evaluated for

impairment .....................................
Total loans and leases, gross at

232,432

358,479

41,646

192,324

85,522

61,071

- 971,474

December 31, 2021 ................... $

234,113 $

366,009 $

41,646 $

193,086 $

85,522 $

61,071 $

- $981,447

Allowance for Loan and Lease Losses by Loan Category
December 31, 2020
Construction,
Land
Acquisition
and
Development

Commercial
Real Estate

Commercial
and

Residential
Real Estate

Industrial Consumer

Subdivisions Unallocated Total

State and
Political

1,147 $
-
43
525
1,715 $

3,198 $
(336)
846
560
4,268 $

271 $
-
-
267
538 $

1,997 $
(254)
1,220
(344)
2,619 $

1,658 $
(975)
515
121
1,319 $

253 $
-
-
152
405 $

426 $
-
-
660

8,950
(1,565)
2,624
1,941
1,086 $ 11,950

(in thousands)
Allowance for loan and lease losses:
Beginning balance, January 1, 2020 .. $
Charge-offs ....................................
Recoveries ......................................
Provisions (credits) ........................
Ending balance, December 31, 2020 . $

Specific reserve .................................. $

13 $

46 $

- $

357 $

- $

416

General reserve ................................... $

1,702 $

4,222 $

538 $

2,262 $

1,319 $

405 $

1,086 $ 11,534

Loans and leases receivable:
Individually evaluated for

impairment ..................................... $

2,321 $

8,448 $

69 $

897 $

- $

- $ 11,735

Collectively evaluated for

impairment .....................................
Total loans and leases, gross at

194,007

265,455

59,716

237,538

85,881

49,009

- 891,606

December 31, 2020 ................... $

196,328 $

273,903 $

59,785 $

238,435 $

85,881 $

49,009 $

- $903,341

Credit Quality Indicators – Commercial Loans

Management continuously monitors and evaluates the credit quality of FNCB’s commercial loans by regularly reviewing
certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the
credit quality of FNCB’s loan receivables.

FNCB’s commercial loan classification and credit grading processes are part of the lending, underwriting, and credit
administration functions to ensure an ongoing assessment of credit quality. FNCB maintains a formal, written loan
classification and credit grading system that includes a discussion of the factors used to assign appropriate classifications of
credit grades to loans. The risk grade groupings provide a mechanism to identify risk within the loan portfolio and provide
management and the board of directors with periodic reports by risk category. The process also identifies groups of loans that
warrant the special attention of management. Accurate and timely loan classification and credit grading is a critical
component of loan portfolio management. Loan officers are required to review their loan portfolio risk ratings regularly for
accuracy. In addition, the credit risk ratings play an important role in the loan review function, as well as the establishment
and evaluation of the provision for loan and lease losses and the ALLL.

The loan review function uses the same risk rating system in the loan review process. Quarterly, FNCB engages an
independent third party to assess the quality of the loan portfolio and evaluate the accuracy of ratings with the loan officer’s
and management’s assessment.

FNCB’s loan rating system assigns a degree of risk to commercial loans based on relevant information about the ability of
borrowers to service their debt such as: current financial information, historical payment experience, credit documentation,
public information and current economic trends, among other factors. Management analyzes these non-homogeneous loans
individually by grading the loans as to credit risk and probability of collection for each type of loan. Commercial and
industrial loans include commercial indirect auto loans which are not individually risk rated, and construction, land
acquisition and development loans include residential construction loans which are also not individually risk rated. These
loans are monitored on a pool basis due to their homogeneous nature as described in “Credit Quality Indicators – Other
Loans” below. FNCB risk rates certain residential real estate loans and consumer loans that are part of a larger commercial
relationship using a credit grading system as described in “Credit Quality Indicators – Commercial Loans.” The grading
system contains the following basic risk categories:

1. Minimal Risk
2. Above Average Credit Quality
3. Average Risk
4. Acceptable Risk
5. Pass - Watch
6. Special Mention
7. Substandard - Accruing
8. Substandard - Non-Accrual
9. Doubtful
10. Loss

This analysis is performed on a quarterly basis using the following definitions for risk ratings:

Pass – Assets rated 1 through 5 are considered pass ratings. These assets show no current or potential problems and are
considered fully collectible. All such loans are evaluated collectively for ALLL calculation purposes. However, accruing
loans restructured under a TDR that have been performing for an extended period, do not represent a higher risk of loss, and
have been upgraded to a pass rating are evaluated individually for impairment.

Special Mention – Assets classified as special mention do not currently expose FNCB to a sufficient degree of risk to warrant
an adverse classification but do possess credit deficiencies or potential weaknesses deserving close attention. Special mention
assets have a potential weakness or pose an unwarranted financial risk which, if not corrected, could weaken the asset and
increase risk in the future.

Substandard – Assets classified as substandard have well defined weaknesses based on objective evidence and are
characterized by the distinct possibility that FNCB will sustain some loss if the deficiencies are not corrected.

Doubtful – Assets classified as doubtful have all the weaknesses inherent in those classified as substandard with the added
characteristic that such weaknesses make collection or liquidation in full highly questionable and improbable based on current
circumstances.

Loss – Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is
not warranted.

Credit Quality Indicators – Other Loans

Certain residential real estate loans, consumer loans, and commercial indirect auto loans are monitored on a pool basis due
to their homogeneous nature. Loans that are delinquent 90 days or more are placed on non-accrual status unless collection of
the loan is in process and reasonably assured. FNCB utilizes accruing versus non-accrual status as the credit quality indicator
for these loan pools.

The following tables present the recorded investment in loans and leases receivable by major category and credit quality
indicator at December 31, 2021 and 2020:

Credit Quality Indicators
December 31, 2021

Commercial Loans

Special
Mention Substandard Doubtful Loss Commercial Loans

Subtotal

Accru-
ing

Other Loans
Non-

accrual Subtotal Total
Loans

Loans Other

Pass

(in thousands)
Residential real estate .......... $ 42,028 $
530 $
Commercial real estate ......... 350,904 8,232
Construction, land
acquisition and
development .................... 34,869

-
Commercial and industrial ... 187,554 1,877
Consumer .............................
-
State and political

77 $
6,873

- $
-

42,635 $ 190,919 $ 559 $ 191,478 $ 234,113
- 366,009

366,009

-
1,343
-

-
-
-

34,869
190,774

6,777
2,312
- 85,291

-
-

6,777 41,646
2,312 193,086
231 85,522 85,522

61,066

5 61,071
695,353 $ 285,304 $ 790 $ 286,094 $ 981,447

subdivisions ..................... 61,066
-
Total ................................. $ 676,421 $ 10,639 $

-
8,293 $

-
- $

Credit Quality Indicators
December 31, 2020

Commercial Loans

Pass

(in thousands)
Residential real estate .......... $ 35,839 $
494 $
Commercial real estate ......... 256,390 4,349
Construction, land
acquisition and
development .................... 55,697
Commercial and industrial ... 233,370
Consumer .............................
-
State and political

-
961
-

Special
Mention Substandard Doubtful Loss Commercial Loans

Subtotal

Accru-
ing

Other Loans
Non-

accrual Subtotal Total
Loans

Loans Other

209 $
13,164

- $
-

36,542 $ 158,896 $ 890 $ 159,786 $ 196,328
- 273,903

273,903

-
1,104
-

-
-
-

55,697
235,435

4,088
3,000
- 85,374

-
-

4,088 59,785
3,000 238,435
507 85,881 85,881

subdivisions ..................... 48,998
-
Total ................................. $ 630,294 $ 5,804 $

-
14,477 $

-
- $

48,998

11 49,009
650,575 $ 251,369 $ 1,397 $ 252,766 $ 903,341

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in
the financial condition of the borrowers. The recorded investment in these non-accrual loans was $3.9 million at December
31, 2021 and $5.6 million at December 31, 2020. Generally, loans are placed on non-accrual status when they become 90
days or more delinquent. Once a loan is placed on non-accrual status it remains on non-accrual status until it has been brought
current, has six months of performance under the loan terms, and factors indicating reasonable doubt about the timely
collection of payments no longer exists. Therefore, loans may be current in accordance with their loan terms, or may be less
than 90 days delinquent, and still be on a non-accrual status. There were no loans past due 90 days or more and still accruing
at December 31, 2021 and 2020.

The following tables present the delinquency status of past due and non-accrual loans at December 31, 2021 and 2020:

December 31, 2021
Delinquency Status

0-29 Days 30-59 Days 60-89 Days
Past Due Past Due Past Due Past Due

>/= 90
Days

406 $
116
-
4
754
-
1,280

27
-
-
-
85
-
112
1,392 $

17 $
-
-
1
204
-
222

87
-
-
-
15
-
102
324 $

- $
-
-
-
-
-
-

455
1,327
-
-
14
-
1,796
1,796 $

December 31, 2020
Delinquency Status

251 $
606
-
419
1,485
-
2,761

39
-
-
-
132
-
171
2,932 $

159 $
-
-
16
403
-
578

-
-
-
124
96
-
220
798 $

- $
-
-
-
-
-
-

417
1,754
-
-
165
-
2,336
2,336 $

Total

233,477
363,510
41,646
192,589
85,291
61,071
977,584

636
2,499
-
497
231
-
3,863
981,447

Total

195,230
270,665
59,785
237,697
85,374
49,009
897,760

1,098
3,238
-
738
507
-
5,581
903,341

0-29 Days 30-59 Days 60-89 Days
Past Due Past Due Past Due Past Due

>/= 90
Days

(in thousands)
Performing (accruing) loans and leases:
Residential real estate ........................................... $ 233,054 $
363,394
Commercial real estate .........................................
41,646
Construction, land acquisition and development ..
192,584
Commercial and industrial ...................................
84,333
Consumer .............................................................
61,071
State and political subdivisions ............................
976,082
Total performing (accruing) loans and leases ...

Non-accrual loans and leases:
Residential real estate ...........................................
Commercial real estate .........................................
Construction, land acquisition and development ..
Commercial and industrial ...................................
Consumer .............................................................
State and political subdivisions ............................
Total non-accrual loans and leases ...................

67
1,172
-
497
117
-
1,853
Total loans and leases receivable .................. $ 977,935 $

(in thousands)
Performing (accruing) loans and leases:
Residential real estate ........................................... $ 194,820 $
270,059
Commercial real estate .........................................
59,785
Construction, land acquisition and development ..
237,262
Commercial and industrial ...................................
83,486
Consumer .............................................................
49,009
State and political subdivisions ............................
894,421
Total performing (accruing) loans and leases ...

642
1,484
-
614
114
-
2,854
Total loans and leases receivable .................. $ 897,275 $

The following tables present a distribution of the recorded investment, unpaid principal balance and the related allowance for
FNCB’s impaired loans, which have been analyzed for impairment under ASC 310, at December 31, 2021 and 2020. Non-
accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold are not evaluated
individually for impairment and accordingly, are not included in the following tables. However, these loans are evaluated
collectively for impairment as homogeneous pools in the general allowance under ASC 450. Total non-accrual loans, other
than TDRs, with balances less than the $100 thousand loan relationship threshold that were evaluated under ASC 450
amounted to $0.6 million and $1.4 million at December 31, 2021 and 2020, respectively.

Recorded
Investment

December 31, 2021
Unpaid
Principal
Balance

Allowance

395 $
2,499
-
314
-
-
3,208

1,286
5,031
-
448
-
-
6,765

1,681
7,530
-
762
-
-
9,973 $

463 $
4,230
-
347
-
-
5,040

1,285
5,031
-
666
-
-
6,982

1,748
9,261
-
1,013
-
-
12,022 $

-
-
-
-
-
-
-

9
6
-
11
-
-
26

(in thousands)
With no allowance recorded:
Residential real estate ......................................................................... $
Commercial real estate .......................................................................
Construction, land acquisition and development ................................
Commercial and industrial .................................................................
Consumer ...........................................................................................
State and political subdivisions ..........................................................
Total impaired loans with no related allowance recorded ...........

With a related allowance recorded:
Residential real estate .........................................................................
Commercial real estate .......................................................................
Construction, land acquisition and development ................................
Commercial and industrial .................................................................
Consumer ...........................................................................................
State and political subdivisions ..........................................................
Total impaired loans with a related allowance recorded .............

Total of impaired loans:
Residential real estate .........................................................................
Commercial real estate .......................................................................
Construction, land acquisition and development ................................
Commercial and industrial .................................................................
Consumer ...........................................................................................
State and political subdivisions ..........................................................
Total impaired loans .................................................................... $

Recorded
Investment

December 31, 2020
Unpaid
Principal
Balance

Allowance

859 $
2,729
69
5
-
-
3,662

1,462
5,719
-
892
-
-
8,073

2,321
8,448
69
897
-
-
11,735 $

957 $
5,311
69
5
-
-
6,342

1,462
5,719
-
1,130
-
-
8,311

2,419
11,030
69
1,135
-
-
14,653 $

-
-
-
-
-
-
-

13
46
-
357
-
-
416

The following table presents the average balance and interest income by loan category recognized on impaired loans for the
years ended December 31, 2021 and 2020:

Year Ended December 31,

2021

2020

Average
Balance

Interest

Average

Income (1) Balance

1,966 $
8,052
33
969
-
-
11,020 $

71 $
223
2
9
-
-
305 $

Interest
Income (1)
78
254
5
14
-
-
351

2,542 $
10,111
72
1,041
-
-
13,766 $

(1) Interest income represents income recognized on performing TDRs.

The additional interest income that would have been earned on non-accrual and restructured loans had these loans performed
in accordance with their original terms approximated to $215 thousand and $353 thousand, respectively, for years ended
December 31, 2021 and 2020.

Troubled Debt Restructured Loans

TDRs at December 31, 2021 and 2020 were $6.9 million and $7.7 million, respectively. Accruing and non-accruing TDRs
were $6.7 million and $0.2 million, respectively at December 31, 2021 and $7.0 million and $0.7 million, respectively at
December 31, 2020. Approximately $26 thousand and $197 thousand in specific reserves have been established for TDRs as
of December 31, 2021 and 2020, respectively. FNCB was not committed to lend additional funds to any loan classified as a
TDR at December 31, 2021 and 2020.

The modification of the terms of loans classified as TDRs may include one or a combination of the following, among others:
a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, a
payment modification under a forbearance agreement, or a permanent reduction of the recorded investment in the loan. There
was one loan that was modified as a TDR during the year ended December 31, 2021. The modification involved a commercial
and industrial loan that was granted a principal forbearance. The pre- and post-modification recorded investment for this loan
was $235 thousand.

There were no TDRs modified within the previous 12 months that defaulted during the years ended December 31, 2021 and
2020.

Residential Real Estate Loan Foreclosures

In 2021, FNCB obtained a deed in lieu of foreclosure for a residential mortgage with a recorded investment of $138 thousand.
FNCB accepted an offer of $205 thousand at which time the property went under agreement of sale and the sale closed prior
to December 31, 2021. At the time of acceptance, FNCB transferred the property to OREO at the selling price less cost to
sell of $178 thousand and recorded a positive valuation adjustment of $40 thousand, which is included in non-interest income
for the year ended December 31, 2021.

There were two residential real estate loans with an aggregate recorded investment of $98 thousand that were in the process
of foreclosure at December 31, 2021. There was one residential real estate loan with a recorded investment of $154 thousand
that was in the process of foreclosure at December 31, 2020. FNCB did not have any residential real estate properties in
OREO at December 31, 2021 and 2020.

Note 5. BANK PREMISES AND EQUIPMENT

The following table summarizes bank premises and equipment at December 31, 2021 and 2020:

(in thousands)
Land .................................................................................................................................... $
Buildings and improvements ...............................................................................................
Furniture, fixtures and equipment .......................................................................................
Leasehold improvements .....................................................................................................
Total .................................................................................................................................
Accumulated depreciation ...................................................................................................
Net ................................................................................................................................... $

December 31,

2021

2020

2,776 $
14,249
10,610
2,980
30,615
(14,533)
16,082 $

3,537
13,708
12,114
3,654
33,013
(15,434 )
17,579

Depreciation and amortization expense of premises and equipment amounted to $1.6 million for both of the years ended
December 31, 2021 and 2020.

approval, FNCB transferred the building and improvements to OREO at fair value less cost to sell and recorded loss on the
transfer of $242 thousand which is included in other operating expenses of the consolidated statement of income for the year
ended December 31, 2021.

Note 6. DEPOSITS

The following table summarizes deposits by major category at December 31, 2021 and 2020:

(in thousands)
Demand (non-interest bearing) ............................................................................................ $
Interest-bearing:

December 31,

2021

2020

320,089 $

271,499

Interest-bearing demand ..................................................................................................
Savings ............................................................................................................................
Time ($250,000 and over) ...............................................................................................
Other time ........................................................................................................................
Total interest-bearing .......................................................................................................
Total deposits ............................................................................................................... $

857,849
134,224
26,531
116,335
1,134,939
1,455,028 $

713,398
109,664
36,216
156,671
1,015,949
1,287,448

The aggregate amount of deposits reclassified as loans was $83 thousand at December 31, 2021 and $86 thousand at
December 31, 2020. Management evaluates transaction accounts that are overdrawn for collectability as part of its evaluation
for credit losses. During 2021 and 2020, no deposits were received on terms other than those available in the normal course
of business.

The following table summarizes scheduled maturities of time deposits, including certificates of deposit and individual
retirement accounts, at December 31, 2021:

(in thousands)
2022 .................................................................................................... $
2023 ....................................................................................................
2024 ....................................................................................................
2025 ....................................................................................................
2026 ....................................................................................................
Total ................................................................................................... $

$250,000
and Over

Other
Time Deposits

Total

24,525 $
899
1,107
-
-
26,531 $

94,189 $
8,360
8,685
2,947
2,154
116,335 $

118,714
9,259
9,792
2,947
2,154
142,866

Investment securities with a carrying value of $410.5 million and $279.7 million at December 31, 2021 and 2020,
respectively, were pledged to collateralize certain municipal deposits. In addition, FNCB had outstanding letters of credit
with the FHLB to secure municipal deposits of $7.5 million and $75.0 million at December 31, 2021 and 2020, respectively.

Note 7. BORROWED FUNDS

Short-term borrowings available to FNCB include overnight advances through the FHLB of Pittsburgh advances, federal
funds lines of credit and the Federal Reserve Discount Window, which generally represent overnight or less than 30-day
borrowings. FNCB's maximum borrowing capacity under federal funds lines of credit, which are unsecured, was $72.0
million at December 31, 2021.

FNCB has an agreement with the FHLB of Pittsburgh which allows for borrowings, either overnight or term, up to a
maximum borrowing capacity based on a percentage of qualifying loans pledged under a blanket pledge agreement. In
addition to pledging loans, FNCB is required to purchase FHLB of Pittsburgh stock based upon the amount of credit extended.
Loans that were pledged to collateralize borrowings under this agreement were $478.3 million at December 31, 2021 and
$500.1 million at December 31, 2020. FNCB’s maximum borrowing capacity was $391.7 million at December 31, 2021. At
December 31, 2021 and 2020, there were $7.5 million and $75.0 million, respectively, in letters of credit to secure municipal
deposits outstanding under this agreement. There was $20.0 million in term advances through the FHLB of Pittsburgh
outstanding at December 31, 2021 that were hedged under interest-rate swaps. There were no overnight borrowings or term
advances through the FHLB of Pittsburgh outstanding at December 31, 2020.

The Federal Reserve Bank established the Paycheck Protection Program Liquidity Facility (“PPPLF”) on April 9, 2020;
through the Discount Window to provide participating lenders with liquidity to lend money under the PPP. PPPLF advances
were collateralized by pools of PPP loans, with an interest rate of 0.35% and a maturity date equal to the term of the pool of
PPP loans securing it. Repayment of PPP loans serving as collateral were passed on to the Federal Reserve Bank Discount
Window to pay down the corresponding PPPLF advance. At December 31, 2021 and 2020, there were no outstanding
advances under the PPPLF.

As of and for the Year Ended December 31, 2021

(dollars in thousands)
FHLB of Pittsburgh advances – term ................... $
Federal funds ........................................................
Junior subordinated debentures ............................

20,000 $
-
10,310

1,890 $
28
10,310

Ending Average
Balance

Balance

Maximum Weighted Weighted
Average
Rate for

Average
Rate at

Month-
End

the Year Period End
0.07 %
0.33 %
-
-
1.87
1.85

20,000
-
10,310

As of and for the Year Ended December 31, 2020

(dollars in thousands)
FHLB of Pittsburgh advances – overnight ........... $
FHLB of Pittsburgh advances – term ...................
Federal funds ........................................................
Federal reserve discount window BIC advances ..
Federal reserve discount window PPPLF

Ending Average
Balance

Balance

Maximum Weighted Weighted
Average
Rate for

Average
Rate at

Month-
End

Balance
- $
-
-
-

5,501 $
26,354
26
437

the Year Period End
- %
1.24 %
-
1.54
-
0.76
-
0.25

35,125
52,809
-
10,000

advances ...........................................................
Junior subordinated debentures ............................

-
10,310

8,659
10,310

36,272
10,310

0.35
2.43

-
1.89

On December 14, 2006, the Issuing Trust issued $10.0 million of trust preferred securities (the “Trust Securities”) at a variable
interest rate of 7.02%, with a scheduled maturity of December 15, 2036. FNCB owns 100.0% of the ownership interest in
the Issuing Trust. The proceeds from the issue were invested in $10.3 million, 7.02% Junior Subordinated Debentures (the
“Debentures”) issued by FNCB. The interest rate on the Trust Securities and the Debentures resets quarterly at a spread of
1.67% above the current 3-month LIBOR rate. The average interest rate paid on the Debentures was 1.85% in 2021 and 2.43%
in 2020. The Debentures are unsecured and rank subordinate and junior in right to all indebtedness, liabilities and obligations
of FNCB. The Debentures represent the sole assets of the Trust. Interest on the Trust Securities is deferrable until a period of
twenty consecutive quarters has elapsed. FNCB has the option to prepay the Trust Securities beginning December 15, 2011.
FNCB has, under the terms of the Debentures and the related Indenture, as well as the other operative corporate documents,
agreed to irrevocably and unconditionally guarantee the Trust’s obligations under the Debentures. FNCB has reflected this
investment on a deconsolidated basis. As a result, the Debentures totaling $10.3 million, have been reflected in borrowed
funds in the consolidated statements of financial condition at December 31, 2021 and 2020 under the caption “Junior
Subordinated Debentures”. FNCB records interest expense on the Debentures in its consolidated statements of income. FNCB
also records its common stock investment issued by First National Community Statutory Trust I in other assets in its
consolidated statements of financial condition at December 31, 2021 and 2020. At both December 31, 2021 and 2020, accrued
and unpaid interest associated with the Debentures amounted to $9 thousand.

The following table presents the contractual maturities of borrowed funds at December 31, 2021:

(in thousands)
2022 ............................................................................................................................................................. $
2023 .............................................................................................................................................................
2024 .............................................................................................................................................................
2025 .............................................................................................................................................................
2026 .............................................................................................................................................................
2027 and thereafter ......................................................................................................................................
Total ............................................................................................................................................................ $

December 31,
2021

20,000
-
-
-
-
10,310
30,310

Note 8. DERIVATIVE AND HEDGING TRANSACTIONS

Risk Management Objective of Using Derivatives

FNCB is exposed to certain risks arising from both its business operations and economic conditions. It principally manages
its exposures to a wide variety of business and operational risks through management of its core business activities. FNCB
manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and
duration of its assets and liabilities and the use of derivative financial instruments. Specifically, FNCB enters into derivative
financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future
unknown and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments
are used to manage differences in the amount, timing, and duration of known or expected cash payments primarily related to
FNCB's borrowings.

Cash Flow Hedges of Interest Rate Risk

FNCB's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, FNCB primarily uses interest rate swaps as part of its interest rate
risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a
counterparty in exchange for FNCB making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount. During 2021, such derivatives were used to hedge the variable cash flows associated with
forecasted issuances of debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is
recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period
during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related
to derivatives will be reclassified to interest expense as interest payments are made on FNCB's variable-rate debt. During
the next twelve months, it is estimated that an additional $69 thousand will be reclassified as an increase to interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service FNCB provides to certain
customers. FNCB executes interest rate swaps with commercial banking customers to facilitate their respective risk
management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that FNCB
executes with a third party, such that FNCB minimizes its net risk exposure resulting from such transactions. As the interest
rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of
both the customer swaps and the offsetting swaps are recognized directly in earnings.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of FNCB's derivative financial instruments and the classification on the consolidated
statements of financial condition at December 31, 2021 and December 31, 2020.

Derivative Assets

As of
December 31,
2021

As of
December 31,
2020

Derivative Liabilities

As of
December 31,
2021

As of
December 31,
2020

Notional
Amount

Balance
Sheet
Location

Fair
Value

Notional
Amount

Balance
Sheet
Location

Fair
Value

(in thousands)
Derivatives designated

as hedging
instruments

Interest rate products .... $ 20,000
Total derivatives

designated as hedging
instruments .................

Derivatives not
designated as
hedging instruments

Interest Rate Products .. 5,807
Total derivatives not

designated as hedging
instruments .................

Cash and other

collateral (1) ...............

Net derivative

amounts ......................

Other
assets $

271

- $ 10,000

Other
liabilities $

271

Other
assets

23 5,807

Other
liabilities

120

363

143

(1) Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis
to a net basis in accordance with the applicable accounting guidance. The other collateral consist of securities and is
exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with
the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore,
excess other collateral, if any, is not reflected above.

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income
as of December 31, 2021. Amounts disclosed are gross and not net of taxes.

Year Ended December 31, 2021

Amount of
Gain or
(Loss)
Recognized
in OCI on
Derivative

Amount of
Gain or
(Loss)
Recognized
in OCI
Included
Component

Amount of
Gain or
(Loss)
Recognized
in OCI
Excluded
Component

Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income

(in thousands)
Derivatives in cash flow

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Included

Component

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Excluded
Component

hedging relationships .....

Interest rate products ........ $
Total ................................. $

168 $
168 $

- Interest expense $
$
-

(22) $
(22) $

-
-

Year Ended December 31, 2020

Amount of
Gain or
(Loss)
Recognized
in OCI on
Derivative

Amount of
Gain or
(Loss)
Recognized
in OCI
Included
Component

Amount of
Gain or
(Loss)
Recognized
in OCI
Excluded
Component

Location of
Gain or (Loss)
Recognized
from
Accumulated
Other
Comprehensive
Income into
Income

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income

(in thousands)
Derivatives in cash flow

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Included

Component

Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
Excluded
Component

hedging relationships ...

Interest rate products ..... $
Total .............................. $

(102 ) $
(102 ) $

- Interest expense $
$
-

11 $
11 $

-
-

Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Income

The table below presents the effect of the FNCB's derivative financial instruments on the consolidated statements of
income for the year ended December 31, 2021.

(in thousands)
Total amounts of income and expense line items presented in the cash flow statement

Location and Amount of Gain
or (Loss) Recognized in Income
on Fair Value and Cash Flow
Hedging Relationships
Year Ended

December 31,
2021
Interest
Expense

December 31,
2020
Interest
Expense

of financial performance in which the effects of fair value or hedges are recorded .... $

(22) $

The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income

into income .................................................................................................................. $

(22) $

Amount of gain or (loss) reclassified from accumulated other comprehensive income

into income as a result that a forecasted transaction is no longer probable of
occurring ..................................................................................................................... $

- $

Amount of gain or (loss) reclassified from accumulated OCI into income - included

component ................................................................................................................... $

(22) $

Amount of gain or (loss) reclassified from accumulated OCI into income - excluded

component ................................................................................................................... $

- $

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Income

Derivative financial instruments that are not designated as hedging instruments had no effect on the consolidated statements
of income for the years ended December 31, 2021 and 2020.

Credit-risk-related Contingent Features

FNCB has agreements with each of its derivative counterparties that contain a provision where if FNCB defaults or is capable
of being declared in default on any of its indebtedness, then it could also be declared in its derivative obligations.

FNCB has agreements with certain of its derivatives counterparties that contain a provision where if it fails to maintain its
status as a well-capitalized institution, then it could be required to post additional collateral.

As of December 31, 2021, the termination value of derivatives in a net liability position, which includes accrued interest but
excludes any adjustment for nonperformance risk, related to these agreements was $96 thousand. As of December 31, 2020,
the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment
for nonperformance risk, related to these agreements was $135 thousand. FNCB has minimum collateral posting thresholds
with certain of its derivative counterparties and has received posted collateral of $300 thousand against its obligations under
these agreements as of December 31, 2021. As of December 31, 2020, FNCB had not posted or received any collateral related
to these agreements with counterparties. If FNCB had breached any of these provisions it could have been required to settle
its obligations under the agreements at the termination value.

Note 9. BENEFIT PLANS

The Bank has a defined contribution profit sharing plan (“Profit Sharing Plan”) which includes the provision under section
401(k) of the Internal Revenue Code (“401(k)”) and covers all eligible employees. The Bank’s contribution to the Profit
Sharing Plan is determined at management’s discretion at the end of each year and funded. The 401(k) feature of the Profit
Sharing Plan permits employees to make voluntary salary deferrals, either pre-tax or Roth, up to the dollar limit prescribed
by law. FNCB may make discretionary matching contributions equal to a uniform percentage of employee salary deferrals.
Discretionary matching contributions are determined each year by management and approved by the Board of Directors.
There were no discretionary annual contributions made to the Profit Sharing Plan in 2021 and 2020. Discretionary matching
contributions under the 401(k) feature of the plan totaled $385 thousand in 2021 and $332 thousand in 2020.

The Bank has an unfunded non-qualified deferred compensation plan covering all eligible Bank officers and directors as
defined by the plan. This plan permits eligible participants to elect to defer a portion of their compensation. Elective deferred
compensation and accrued earnings, included in other liabilities in the accompanying consolidated statements of financial
condition, aggregated to $1.9 million and $2.0 million at December 31, 2021 and December 31, 2020, respectively.

The Bank has a Supplemental Executive Retirement Plan (“SERP”) for a select group of management or highly compensated
employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of The Employee Retirement Income Security
Act of 1974. The general provisions of the SERP provide for annual year-end contributions, performance contingent
contributions and discretionary contributions. The SERP contributions are unfunded for Federal tax purposes and constitute
an unsecured promise by the Bank to pay benefits in the future and are included in other liabilities in the accompanying
consolidated statements of financial condition. Participants in the SERP have the status of general unsecured creditors of the
Bank. SERP contributions totaled $387 thousand in 2021 and $240 thousand in 2020. The total liability associated with the
SERP was $1.1 million at December 31, 2021 and $856 thousand at December 31, 2020.

Note 10. INCOME TAXES

The following table summarizes the current and deferred amounts of the provision for income tax expense (benefit) for each
of the two years ended December 31, 2021 and 2020:

(in thousands)
Current ................................................................................................................................ $
Deferred ..............................................................................................................................
Income tax expense ......................................................................................................... $

For the Year Ended
December 31,

2021

2020

4,250 $
406
4,656 $

6
3,219
3,225

The following table presents a reconciliation between the effective income tax expense and the income tax expense that
would have been provided at the federal statutory tax rate of 21.0% for the years ended December 31, 2021 and December
31, 2020:

For the Year Ended December 31,
2020
2021

(dollars in thousands)
Provision at statutory tax rates ..................................................... $
Add (deduct):

Amount %
5,466

Amount %
3,900

21.00%

21.00% $

Tax effects of tax free interest income ......................................
Non-deductible interest expense ...............................................
Bank-owned life insurance .......................................................
Other items, net.........................................................................
Income tax provision .................................................................... $

(733)
32
(114)
5
4,656

(2.82)%
0.12%
(0.44)%
0.03%
17.89% $

(632)
46
(101)
12
3,225

(3.40)%
0.25%
(0.55)%
0.06%
17.36%

100

The following table summarizes the components of net deferred tax assets at December 31, 2021 and 2020:

(in thousands)
Allowance for loan and lease losses ............................................................................ $
Deferred compensation ...............................................................................................
Lease liability ..............................................................................................................
Other real estate owned valuation ...............................................................................
Deferred intangible assets ...........................................................................................
Employee benefits .......................................................................................................
Accrued interest ..........................................................................................................
Charitable contribution carryover ...............................................................................
Accrued vacation .........................................................................................................
Deferred income ..........................................................................................................
Depreciation ................................................................................................................
Derivative liabilities ....................................................................................................
Net operating loss carryover .......................................................................................
Gross deferred tax assets .........................................................................................

Deferred loan origination costs ...................................................................................
Unrealized holding gains on securities available-for-sale ...........................................
Unrealized holding gains on equity securities .............................................................
Right of use asset ........................................................................................................
Prepaid expenses .........................................................................................................
Derivative assets ..........................................................................................................
Mortgage servicing rights ............................................................................................
Depreciation ................................................................................................................
Gross deferred tax liabilities ....................................................................................
Net deferred tax assets ............................................................................................. $

December 31,

2021

2020

2,730 $
697
659
9
-
340
2
19
54
47
-
-
-
4,557

(114)
(1,631)
(147)
(597)
(27)
(58)
(56)
(122)
(2,752)
1,805 $

2,638
641
752
23
45
210
2
-
56
51
13
24
418
4,873

(173)
(3,715)
(118)
(686)
-
-
-
-
(4,692)
181

Management evaluates the carrying amount of its deferred tax assets on a quarterly basis, or more frequently if necessary, in
accordance with guidance set forth in ASC Topic 740 “Income Taxes,” and applies the criteria in the guidance to determine
whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized within its life cycle,
based on the weight of available evidence. Management performed an evaluation of FNCB's deferred tax assets at December
31, 2021 taking into consideration all available positive and negative evidence at that time. Based on this evaluation,
management believes that FNCB's future taxable income will be sufficient to utilize its deferred tax assets. There was no
valuation allowance for deferred tax assets at December 31, 2021 and December 31, 2020.

Note 11. RELATED PARTY TRANSACTIONS

In conducting its business, FNCB has engaged in, and intends to continue to engage in, banking and financial transactions
with directors, executive officers and their related parties.

FNCB has granted loans, letters of credit and lines of credit to directors, executive officers and their related parties. The
following table summarizes the changes in the total amounts of such outstanding loans, advances under lines of credit, net of
any participations sold, as well as repayments during the years ended December 31, 2021 and 2020:

(in thousands)
Balance January 1, ................................................................................................... $
Additions, new loans and advances ......................................................................
Repayments ..........................................................................................................
Other (1) ...............................................................................................................
Balance December 31,.............................................................................................. $
(1) Other represents loans to related parties that ceased being related parties

2021

2020

98,935 $
123,717
(127,558)
(23,657)
71,437 $

77,896
79,325
(58,286)
-
98,935

For the Year Ended December 31,

101

At December 31, 2021 and 2020 there were no loans made to directors, executive officers and their related parties that were
not performing in accordance with the terms of the loan agreements.

Deposits from directors, executive officers and their related parties held by the Bank at December 31, 2021 and
2020 amounted to $152.6 million and $146.2 million, respectively. Interest paid on the deposits amounted to $290 thousand
in 2021 and $542 thousand in 2020.

In the course of its operations, FNCB acquires goods and services from, and transacts business with, various companies of
related parties, which include, but are not limited to, employee health insurance, fidelity bond and errors and omissions
insurance, legal services, and dealer reserve payments. FNCB recorded payments to related parties for goods and services
of $2.0 million for both years ending December 31, 2021 and 2020.

Note 12. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

Leases

FNCB is obligated under operating leases for certain bank branches, office space, automobiles and equipment. Operating
lease right of use ("ROU") assets represent FNCB's right to use an underlying asset during the lease term and operating
liabilities represent its obligation to make lease payments under the lease agreement. ROU assets and operating lease
liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount
rate that represents FNCB's incremental borrowings rate at the commencement date. ROU assets are included in other assets
and operating lease liabilities are included in other liabilities in the consolidated statements of financial condition. ROU assets
and lease liabilities were $3.0 million and $3.2 million, respectively, at December 31, 2021 and $3.3 million and
$3.6 million, respectively, at December 31, 2020.

Operating lease expense associated with bank branches and office space is included in occupancy expense, while operating
lease expense associated with automobiles and office equipment are included in equipment expense in the consolidated
statements of income. Total rental expense under leases amounted to $389 thousand and $408 thousand, respectively, at
December 31, 2021 and 2020.

The following table summarizes the maturity of remaining operating lease liabilities as of December 31, 2021:

(in thousands)
2022 ......................................................................................................................................................... $
2023 .........................................................................................................................................................
2024 .........................................................................................................................................................
2025 .........................................................................................................................................................
2026 .........................................................................................................................................................
2027 and thereafter ..................................................................................................................................
Total lease payments ...........................................................................................................................
Less: imputed interest .............................................................................................................................
Present value of operating lease liabilities .............................................................................................. $

December 31,
2021

398
368
323
328
329
2,271
4,017
769
3,248

The following table presents other information related to FNCB's operating leases:

(dollars in thousands)
Weighted-average remaining lease term (in years) .............................................
Weighted-average discount rate ..........................................................................
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases .................................................... $

401 $

102

December 31,
2021

December 31,
2020

12.2
3.29%

13.3
3.25%

395

Financial Instruments with off-balance sheet commitments

FNCB is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit that
involve varying degrees of credit, interest rate or liquidity risk in excess of the amount recognized in the balance sheet.
FNCB’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to
extend credit and standby letters of credit is represented by the contractual amount of those instruments.

Financial instruments whose contract amounts represent credit risk at December 31, 2021 and 2020 are as follows:

(in thousands)
Commitments to extend credit ............................................................................. $
Standby letters of credit........................................................................................

December 31,

2021

2020

273,883 $
17,179

227,908
18,914

Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These
commitments usually are for specific periods or contain termination clauses and may require the payment of a fee. The total
amounts of unused commitments do not necessarily represent future cash requirements, in that commitments often expire
without being drawn upon.

Letters of credit and financial guarantees are agreements whereby FNCB guarantees the performance of a customer to a third
party. Collateral may be required to support letters of credit in accordance with management’s evaluation of the
creditworthiness of each customer. The credit exposure assumed in issuing letters of credit is essentially equal to that in other
lending activities.

Federal Home Loan Bank — Mortgage Partnership Finance (“MPF”) Program

Under a secondary market loan servicing program with the FHLB, FNCB, in exchange for a monthly fee, provides a credit
enhancement guarantee to the FHLB for foreclosure losses in excess of a defined First Loss Account (“FLA”) balance, up to
specified amounts. At December 31, 2021, FNCB serviced payments on $15.4 million of first lien residential loan principal
under these terms for the FHLB. At December 31, 2021, the maximum credit enhancement obligation for such guarantees by
FNCB would be approximately $987 thousand if total foreclosure losses on the entire pool of loans exceed the FLA of
approximately $60 thousand. There was no reserve established for this guarantee at December 31, 2021 and 2020.

Concentrations of Credit Risk

Cash Concentrations: The Bank maintains cash balances at several correspondent banks. FNCB engages in a primary
correspondent banking relationship with PNC Bank (formerly BBVA Compass). At December 31, 2021 and 2020, FNCB
had balances with PNC Bank of $1.6 million and $4.4 million, respectively. There were no other due from bank accounts in
excess of the $250 thousand limit covered by the Federal Deposit Insurance Corporation (“FDIC”) at December 31, 2021
and 2020.

Loan Concentrations: FNCB attempts to limit its exposure to concentrations of credit risk by diversifying its loan portfolio
and closely monitoring any concentrations of credit risk. The commercial real estate and construction, land acquisition and
development portfolios comprise $407.7 million, or 41.5% of gross loans at December 31, 2021. Geographic concentrations
exist because FNCB provides its services in its primary market area of Northeastern Pennsylvania and conducts limited
activities outside of that area. FNCB had loans and loan commitments secured by collateral of its primary market area of
$77.7 million, or 6.2%, of gross loans at December 31, 2021.

103

FNCB considers an industry concentration within the loan portfolio to exist if the aggregate loan balance outstanding for that
industry exceeds 25.0% of capital. The following table summarizes the concentration within FNCB’s loan portfolio by
industry at December 31, 2021 and 2020:

(in thousands)
Retail space/shopping centers ...................................................... $
1-4 family residential investment properties ................................

Amount
48,590
92,745

Amount
43,926
58,114

4.95% $
9.45%

4.86%
6.43%

December 31, 2021
% of
Gross
Loans

December 31, 2020
% of
Gross
Loans

Litigation

Note 13. STOCK COMPENSATION PLANS

FNCB has a Long-Term Incentive Compensation Plan (“LTIP”) for directors, executive officers and key employees. The
LTIP authorizes up to 1,200,000 shares of common stock for issuance and provides the Board of Directors with the authority
to offer several different types of long-term incentives, including stock options, stock appreciation rights, restricted stock,
restricted stock units, performance units and performance shares. The Board of Directors granted awards, comprised solely
of shares of restricted stock, to executives and certain key employees under the terms of the LTIP of 66,065 shares in 2021 and
75,924 shares in 2020.

The following table summarizes the activity related to FNCB’s unvested restricted stock awards during the years ended
December 31, 2021 and 2020.

For the Years Ended December 31,

Unvested restricted stock awards at January 1, ............................
Awards granted ............................................................................
Forfeitures ....................................................................................
Vestings ........................................................................................
Unvested restricted stock awards at December 31, ......................

2021

Weighted-
Average

2020
Weighted-
Average
Restricted Grant Date Restricted Grant Date
Fair Value
Shares
7.76
6.07
6.64
7.48
7.07

Fair Value Shares
7.07
7.98
7.38
7.20
7.37

159,913 $
66,065
(7,443)
(44,238)
174,297 $

128,150 $
75,924
(5,741)
(38,420)
159,913 $

For the years ended December 31, 2021 and 2020, stock-based compensation expense, which is included in salaries and
benefits expense in the consolidated statements of income, totaled $376 thousand in 2021 and $336 thousand in 2020. Total
unrecognized compensation expense related to unvested restricted stock awards at December 31, 2021 and 2020 was
$992 thousand and $896 thousand, respectively. Unrecognized compensation expense related to unvested shares of restricted
stock is expected to be recognized over a weighted-average period of 3.4 years.

On July 1, 2021 and 2020, 2,062 shares and 2,555 shares, respectively, of FNCB's common stock were granted under the
LTIP to each of the Bank's non-employee directors. The total number of shares granted to the directors were 18,558 in
2021 and 25,550 in 2020. The shares of common stock immediately vested to each director upon grant, and the fair value per
share on the grant date was $7.28 for the 2021 grant and $5.87 for the 2020 grant. Directors fees of $135 thousand in 2021
and $150 thousand in 2020 associated with these grants was recognized on each of the respective grant dates and included in
other operating expense in the consolidated statements of income. At December 31, 2021, there were 679,207 shares of
common stock available for award under the LTIP.

104

Note 14. REGULATORY MATTERS/SUBSEQUENT EVENTS

FNCB’s ability to pay dividends to its shareholders, or repurchase shares of its common stock, is largely dependent on the
Bank’s ability to pay dividends to FNCB. Bank regulations limit the amount of dividends that may be paid, or shares that
may be repurchased, without prior approval of the Bank’s regulatory agency. Cash dividends declared and paid by FNCB
during 2021 and 2020 were $0.27 per share and $0.22 per share, respectively. FNCB offers a Dividend Reinvestment and
Stock Purchase plan ("DRP") to its shareholders. For the years ended December 31, 2021 and 2020 dividend reinvestment
shares were purchased in open market transactions. However, shares under the optional cash purchase feature of the DRP
were issued from authorized but unissued common shares. Shares of common stock issued under the DRP totaled 12,189 and
10,271 for the years ended December 31, 2021 and 2020, respectively. Subsequent to December 31, 2021, on January 26,
2022, FNCB declared a $0.075 per share dividend payable on March 15, 2022 to shareholders of record as of March 1, 2022.

On January 27, 2021, FNCB's Board of Directors authorized a stock repurchase program under which up to 975,000 shares
of FNCB's outstanding common stock may be acquired in the open market pursuant to a trading plan that was adopted in
accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The repurchase program commenced on
February 3, 2021 and expired on December 31, 2021. On January 26, 2022, FNCB's Board of Directors authorized the
repurchase of up to 750,000 shares of FNCB's outstanding common stock under a similar progrm, which is anticipated to
commence on March 4, 2022. Repurchases under both programs are administered through an independent broker and are
subjected to SEC regulations as well as certain price, market volume and timing constraints specified in the trading plan. In
2021, FNCB repurchased 330,759 shares at a weighted-average price per share of $7.21, or $2.4 million in aggregate.
Repurchases are funded from available working capital and the repurchased shares were returned to the status of authorized
but unissued shares of common stock.

The holding company is considered a small bank holding company and is exempt from risk-based capital and leverage rules,
including Basel III. FNCB and the Bank are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on FNCB’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNCB and the
Bank must meet specific capital guidelines that involve quantitative measures of FNCB's and the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting practices. FNCB's and the Bank's capital
amounts, and classification are also subject to qualitative judgments by the regulators about components, risk weightings,
and other factors. Management believes, as of December 31, 2021, that FNCB and the Bank meet all applicable capital
adequacy requirements.

105

Current quantitative measures established by regulation to ensure capital adequacy require FNCB Bank to maintain minimum
amounts and ratios (set forth in the table below) of Total capital, Tier I capital, and Tier I common equity (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The following
tables present summary information regarding the Bank’s risk-based capital and related ratios at December 31, 2021 and
2020:

Minimum
Required
For
Capital
Adequacy
Purposes

Minimum
Required
For Capital
Adequacy
Purposes
with
Conservation
Buffer
Ratio

Minimum
Required
To Be Well
Capitalized
Under
Prompt
Corrective
Action
Regulations

(dollars in thousands)
December 31, 2021
Total capital (to risk-weighted assets) ................. $

FNCB Bank

Amount Ratio

Ratio

161,957

14.64%

8.00%

10.50%

10.00 %

Tier I capital (to risk-weighted assets) ................

148,958

13.46%

6.00%

8.50%

8.00 %

Tier I common equity (to risk-weighted assets) ..

148,958

13.46%

4.50%

7.00%

6.50 %

Tier I capital (to average assets) ..........................

148,958

8.92%

4.00%

5.00 %

Total risk-weighted assets ................................... 1,106,636

Total average assets ............................................. 1,669,932

Minimum
Required
For
Capital
Adequacy
Purposes

Minimum
Required
For Capital
Adequacy
Purposes
with
Conservation
Buffer
Ratio

Minimum
Required
To Be Well
Capitalized
Under
Prompt
Corrective
Action
Regulations

(dollars in thousands)
December 31, 2020
Total capital (to risk-weighted assets) ................. $

FNCB Bank

Amount Ratio

Ratio

149,173

15.79%

8.00%

10.50%

10.00 %

Tier I capital (to risk-weighted assets) ................

137,356

14.54%

6.00%

8.50%

8.00 %

Tier I common equity (to risk-weighted assets) ..

137,356

14.54%

4.50%

7.00%

6.50 %

Tier I capital (to average assets) ..........................

137,356

9.57%

4.00%

5.00 %

Total risk-weighted assets ...................................

944,546

Total average assets ............................................. 1,434,776

106

Note 15. FAIR VALUE MEASUREMENTS

In determining fair value, FNCB uses various valuation approaches, including market, income and cost approaches.
Accounting standards establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market
data obtained from sources independent of FNCB. Unobservable inputs reflect FNCB’s knowledge about the assumptions
the market participants would use in pricing an asset or liability, which are developed based on the best information available
in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or
liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). A financial asset or
liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value
measurement. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

● Level 1 valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets;

A description of the valuation methodologies used for assets recorded at fair value, and for estimating fair value of financial
instruments not recorded at fair value, is set forth below.

Available-for-Sale Debt Securities

The estimated fair values for FNCB’s investments in obligations of the U.S. government, obligations of state and political
subdivisions, government-sponsored agency CMOs and mortgage-backed securities, private collateralized mortgage
obligations, asset-backed securities, negotiable certificates of deposit and certain corporate debt securities are obtained by
FNCB from a nationally-recognized pricing service. This pricing service develops estimated fair values by analyzing like
securities and applying available market information through processes such as benchmark curves, benchmarking of like
securities, sector groupings and matrix pricing (Level 2 inputs), to prepare valuations. Matrix pricing is a mathematical
technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific
securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The fair value
measurements consider observable data that may include, among other things, dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information
and the bond’s terms and conditions, and are based on market data obtained from sources independent from FNCB. The
Level 2 investments in FNCB’s portfolio are priced using those inputs that, based on the analysis prepared by the pricing
service, reflect the assumptions that market participants would use to price the assets. Management has determined that the
Level 2 designation is appropriate for these securities because, as with most fixed-income securities, those in FNCB’s
portfolio are not exchange-traded, and such non-exchange-traded fixed income securities are typically priced by correlation
to observed market data. FNCB has reviewed the pricing service’s methodology to confirm its understanding that such
methodology results in a valuation based on quoted market prices for similar instruments traded in active markets, quoted
markets for identical or similar instruments traded in markets that are not active and model-based valuation techniques for
which the significant assumptions can be corroborated by market data as appropriate to a Level 2 designation.

For those securities for which the inputs used by an independent pricing service were derived from unobservable market
information, FNCB evaluated the appropriateness and quality of each price. Management reviewed the volume and level of
activity for all classes of securities and attempted to identify transactions which may not be orderly or reflective of a
significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market
participants or an independent pricing service may be adjusted, as necessary, to estimate fair value (fair values based on Level
3 inputs). If applicable, the adjustment to fair value was derived based on present value cash flow model projections obtained
from third party providers using assumptions similar to those incorporated by market participants.

107

At December 31, 2021, FNCB owned 27 corporate debt securities with an aggregate amortized cost and fair value of
$31.3 million and $32.1 million, respectively. The market for eight of the 27 corporate debt securities at December 31,
2021 was not active and markets for similar securities are also not active. FNCB obtained valuations for these securities from
a third-party service provider that prepared the valuations using a discounted cash flow approach. Management takes
measures to validate the service provider’s analysis and is actively involved in the valuation process, including reviewing
and verifying the assumptions used in the valuation calculations. Results of a discounted cash flow test are significantly
affected by variables such as the estimate of the probability of default, estimates of future cash flows, discount rates,
prepayment rates and the creditworthiness of the underlying issuers. FNCB considers these inputs to be unobservable Level
3 inputs because they are based on estimates about the assumptions market participants would use in pricing this type of asset
and developed based on the best information available in the circumstances rather than on observable inputs. As it relates to
fair value measurements, once each issuer is categorized and the forecasted default rates have been applied, the expected cash
flows are modeled using the variables described above. Discount rates ranging from 2.86% to 3.90% were applied to the
expected cash flows to estimate fair value. Management will continue to monitor the market for these securities to assess the
market activity and the availability of observable inputs and will continue to apply these controls and procedures to the
valuations received from its third-party service provider for the period it continues to use an outside valuation service.

Equity Securities

The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges
(Level 1 inputs).

Derivative Contracts

FNCB's derivative liabilities are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained
through an independent pricing source utilizing information which may include market observed quotations for swaps,
LIBOR rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements a swell as
risks from the potential of non-performance of the counterparty.

108

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the financial assets and liabilities that are measured at fair value on a recurring basis at December
31, 2021 and 2020, and the fair value hierarchy of the respective valuation techniques utilized to determine the fair value:

(in thousands)
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities ................................................ $
Obligations of state and political subdivisions ..............
U.S. government/government-sponsored agencies:

Collateralized mortgage obligations – residential .....
Collateralized mortgage obligations – commercial ...
Mortgage-backed securities ......................................
Private collateralized mortgage obligations ..................
Corporate debt securities ...............................................
Asset-backed securities .................................................
Negotiable certificates of deposit ..................................
Total available-for-sale debt securities ..................
Equity securities, at fair value .......................................
Derivative assets ...........................................................
Total financial assets ......................................... $

Financial liabilities:
Derivative liabilities ...................................................... $
Total financial liabilities ................................... $

(in thousands)
Financial assets:
Available-for-sale debt securities:
Obligations of state and political subdivisions .............. $
U.S. government/government-sponsored agencies:

Collateralized mortgage obligations – residential .....
Collateralized mortgage obligations – commercial ...
Mortgage-backed securities ......................................
Private collateralized mortgage obligations ..................
Corporate debt securities ...............................................
Asset-backed securities .................................................
Total available-for-sale debt securities ..................
Equity Securities, at fair value ......................................
Derivative assets ...........................................................
Total financial assets ......................................... $

Financial liabilities:
Derivative liabilities ...................................................... $
Total financial liabilities ................................... $

Fair Value Measurements at December 31, 2021

Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)

Fair Value

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

36,355 $
244,372

100,710
3,727
25,506
67,165
32,063
11,932
736
522,566
4,922
363
527,851 $

- $
-

36,355 $
244,372

-
-
-
-
-
-
-
-
4,922
-
4,922 $

100,710
3,727
25,506
67,165
19,718
11,932
736
510,221
-
363
510,584 $

-
-

-
-
-
-
12,345
-
-
12,345
-
-
12,345

99 $
99 $

- $
- $

99 $
99 $

-
-

Fair Value Measurements at December 31, 2020

Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)

Fair Value

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

205,828 $

- $

205,828 $

56,972
3,904
13,026
38,199
24,580
7,526
350,035
3,026
23
353,084 $

-
-
-
-
-
-
-
3,026
-
3,026 $

56,972
3,904
13,026
38,199
8,156
7,526
333,612
-
23
333,635 $

-
-
-
-
16,424
-
16,424
-
-
16,424

143 $
143 $

- $
- $

143 $
143 $

-
-

109

Eight corporate debt securities were transferred from Level 3 hierarchy to Level 2 during the year ended December 31, 2021.
The market for these securities was previously not active and management obtained fair values from an independent third
party that utilized a discounted cash flow model. During 2021, the market of these securities became active. Accordingly,
management was able to obtain fair values for these eight securities from the independent pricing service used to price the
remainder of the portfolio.

There were no transfers between levels within the fair value hierarchy during the year ended December 31, 2020.

The following table presents a reconciliation and statement of operations classification of gains and losses for all assets
measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which consisted entirely of
corporate debt securities, for the years ended December 31, 2021 and 2020.

Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)

Corporate Debt Securities

(in thousands)
Balance at January 1, ....................................................................................................... $
Additions .........................................................................................................................
Redemptions ....................................................................................................................
Transfer to Level 2 ..........................................................................................................
Total gains or losses (realized/unrealized):

Included in earnings .....................................................................................................
Included in other comprehensive income ....................................................................
Balance at December 31, ................................................................................................. $

Assets Measured at Fair Value on a Non-Recurring Basis

For the Year Ended
December 31,

2021

2020

16,424 $
4,500
(1,000 )
(7,550 )

-
(29 )
12,345 $

5,150
11,800
(1,015 )
-

15
474
16,424

The following tables present assets and liabilities measured at fair value on a non-recurring basis at December 31, 2021 and
2020, and additional quantitative information about the valuation techniques and inputs utilized by FNCB to determine fair
value. All such assets and liabilities were measured using Level 3 inputs.

December 31, 2021

(in thousands)
Impaired loans - collateral

dependent ......................... $
Impaired loans – other ..........

3,208 $
6,765

Fair Value Measurement

Recorded Valuation Fair
Valuation
Investment Allowance Value Technique
Appraisal of
collateral

- $ 3,208

26 6,739 Discounted cash

flows

Quantitative Information
Unobservable
Inputs

Value/
Range

Selling costs
Discount rate

10.0%
3.00% - 8.75%

Other real estate owned ........

920

920 Appraisal of

Selling costs

1.00%

collateral/Sales
Contract

December 31, 2020

Fair Value Measurement

Quantitative Information

(in thousands)
Impaired loans - collateral

Recorded Valuation Fair
Valuation
Investment Allowance Value Technique
Appraisal of
collateral

Unobservable
Inputs

Value/
Range

10.0%

dependent .........................
$
Impaired loans – other .........

4,244 $
7,491

218 $ 4,026
198 7,293 Discounted cash

Selling costs
Discount rate

3.00% - 8.75%

Other real estate owned .......

58 Appraisal of

Selling costs

10.0%

flows

collateral

110

The fair value of collateral-dependent impaired loans is determined through independent appraisals or other reasonable offers,
which generally include various Level 3 inputs which are not identifiable. Management reduces the appraised value by the
estimated costs to sell the property and may make adjustments to the appraised values as necessary to consider any declines
in real estate values since the time of the appraisal. For impaired loans that are not collateral-dependent, fair value is
determined using the discounted cash flow method. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation allowance or is charged off. The amount shown is the
balance of impaired loans, net of any charge-offs and the related allowance for loan losses.

OREO properties are recorded at fair value less the estimated cost to sell at the date of FNCB’s acquisition of the property.
Subsequent to acquisition of the property, the balance may be written down further. It is FNCB’s policy to obtain certified
external appraisals of real estate collateral underlying impaired loans and OREO, and estimate fair value using those
appraisals. Other valuation sources may be used, including broker price opinions, letters of intent and executed sale
agreements.

The following table summarizes the estimated fair values of FNCB’s financial instruments at December 31, 2021 and 2020.
FNCB discloses fair value information about financial instruments, whether or not recognized in the statements of financial
condition, for which it is practicable to estimate that value. The fair value of financial instruments that are not measured at
fair value in the financial statements were based on exit price notion. The following estimated fair value amounts have been
determined using available market information and appropriate valuation methodologies. However, management judgment
is required to interpret data and develop fair value estimates. Accordingly, the estimates below are not necessarily indicative
of the amounts FNCB could realize in a current market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

(in thousands)
Financial assets:

Fair Value
Measurement

December 31, 2021
Fair
Value

Carrying
Value

December 31, 2020
Fair
Value

Carrying
Value

Level 1

Cash and short term investments ................
$
Available-for-sale debt securities ............... See previous table
Equity securities .........................................
Restricted stock...........................................
Loans held for sale ......................................
Loans, net ...................................................
Accrued interest receivable .........................
Servicing rights ...........................................
Derivative assets .........................................

Level 1
Level 2
Level 2
Level 3
Level 2
Level 3
Level 2

99,020 $
522,566
4,922
1,911
-
967,023
4,643
268
371

99,020 $ 155,811 $ 155,811
350,035
350,035
3,026
3,026
1,745
1,745
2,107
2,107
891,880
889,152
4,286
4,286
479
324
23
23

522,566
4,922
1,911
-
967,087
4,643
526
363

Financial liabilities:

Deposits ......................................................
Borrowed funds ..........................................
Accrued interest payable .............................
Derivative liabilities ...................................

Level 2
Level 2
Level 2
Level 2

Note 16. EARNINGS PER SHARE

1,455,028 1,454,812 1,287,448 1,288,567
10,310
108
143

30,310
49
96

30,310
49
99

10,310
108
135

For FNCB, the numerator of both the basic and diluted earnings per share of common stock is net income available to common
shareholders. The weighted average number of common shares outstanding used in the denominator for basic earnings per
common share is increased to determine the denominator used for diluted earnings per common share by the effect of
potentially dilutive common share equivalents utilizing the treasury stock method. For each of the years ended December 31,
2021 and 2020 common stock equivalents reflected in the table above were related entirely to the incremental shares of
unvested restricted stock.

111

The following table presents the calculation of both basic and diluted earnings per share of common stock for the years
ended December 31, 2021 and 2020:

(in thousands, except share data)
Net income .............................................................................................................................. $

For the Year Ended
December 31,

2021

2020

21,371 $

15,347

Basic weighted-average number of common stock outstanding ............................................. 20,111,430 20,210,439
Plus: common share equivalents .............................................................................................
1,747
Diluted weighted-average number of common stock outstanding .......................................... 20,126,853 20,212,187

15,423

Income per share of common stock:

Basic .................................................................................................................................... $
Diluted ................................................................................................................................. $

1.06 $
1.06 $

0.76
0.76

Note 17. OTHER COMPREHENSIVE (LOSS) INCOME

The following tables summarize the reclassifications out of accumulated other comprehensive income for the years
ended December 31, 2021 and 2020.

For the year Ended December 31, 2021

Amount
Reclassified
from Accumulated
Other
Comprehensive
Income

Affected Line Item
in the Consolidated
Statements of Income

(in thousands)
Available-for-sale debt securities:
Reclassification adjustment for net gains

reclassified into net income ................... $
Taxes .........................................................
Net of tax amount .................................. $

(213) Net gain on the sale of available-for-sale securities

Income taxes

45
(168)

For the year Ended December 31, 2020

Amount
Reclassified
from Accumulated
Other
Comprehensive
Income

Affected Line Item
in the Consolidated
Statements of Income

(in thousands)
Available-for-sale debt securities:
Reclassification adjustment for net gains

reclassified into net income ................... $
Taxes .........................................................
Net of tax amount .................................. $

(1,528) Net gain on the sale of available-for-sale securities

321
(1,207)

Income taxes

112

The following table summarizes the changes in accumulated other comprehensive income, net of tax, for the years
ended December 31, 2021 and 2020:

(in thousands)
Balance, January 1, ......................................................................................................... $
Other comprehensive (loss) income before reclassifications ..........................................
Amounts reclassified from accumulated other comprehensive income ..........................
Net other comprehensive (loss) income during the period ..............................................
Balance, December 31, .................................................................................................... $

For the Year Ended
December 31,

2021

2020

13,886 $
(7,366)
(168)
(7,534)
6,352 $

3,056
12,037
(1,207)
10,830
13,886

Note 18. CONDENSED FINANCIAL INFORMATION — PARENT COMPANY ONLY

The following tables present condensed parent company only financial information:

Condensed Statements of Financial Condition

(in thousands)
Assets:
Cash ................................................................................................................................. $
Investment in statutory trust ............................................................................................
Investment in subsidiary (equity method) .......................................................................
Equity securities, at fair value .........................................................................................
Other assets .....................................................................................................................
Total assets .................................................................................................................. $

Liabilities and Shareholders’ Equity:
Junior subordinated debentures ....................................................................................... $
Accrued interest payable .................................................................................................
Other liabilities ................................................................................................................
Total liabilities .............................................................................................................
Shareholders’ equity ........................................................................................................
Total liabilities and shareholders’ equity ..................................................................... $

December 31,

2021

2020

11,423 $
431
155,342
4,016
1,800
173,012 $

10,310 $
9
236
10,555
162,457
173,012 $

11,296
425
151,700
2,093
726
166,240

10,310
9
61
10,380
155,860
166,240

113

Condensed Statements of Income

(in thousands)
Income:
Dividends from subsidiaries ............................................................................................ $
Interest and dividend income ..........................................................................................
Gain on equity securities .................................................................................................
Trust income ...................................................................................................................
Other income ...................................................................................................................
Total income ...............................................................................................................

Expense:
Interest on junior subordinated debt ................................................................................
Other operating expenses ................................................................................................
Total expenses ............................................................................................................
Income before income taxes .........................................................................................
Provision for income taxes ..............................................................................................
Income before equity in undistributed net income of subsidiary ..............................
Equity in undistributed net income of subsidiary ............................................................
Net income ..................................................................................................................... $

For the Year Ended
December 31,

2021

2020

10,000 $
168
728
6
5
10,907

191
351
542
10,365
170
10,195
11,176
21,371 $

10,000
75
1,158
8
-
11,241

251
312
563
10,679
6
10,673
4,675
15,347

Condensed Statements of Cash Flows

(in thousands)
Cash flows from operating activities:

For the Year Ended December 31,

2021

2020

Net income ............................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiary.......................................................
Equity in trust .......................................................................................................
Gain on equity securities ......................................................................................
Decrease in other assets .......................................................................................
Decrease in accrued interest payable ...................................................................
Increase in other liabilities ...................................................................................
Net cash provided by operating activities .................................................

Cash flows from investing activities:

Investment in Subsidiary .........................................................................................
Proceeds from the sale/transfer of equity securities.................................................
Purchases of equity securities ..................................................................................
Purchase of equity security without a readily determinable fair value ....................
Net cash used in investing activities ...........................................................

Cash flows from financing activities:

Proceeds from issuance of common shares .............................................................
Repurchase of common shares ....................................................................................
Cash dividends paid .................................................................................................
Net cash used in financing activities ..............................................................
Net increase in cash ...................................................................................................
Cash at beginning of year .........................................................................................
Cash at end of year .................................................................................................... $

21,371 $

15,347

(11,176)
(6)
(728)
(548)
-
175
9,088

-
-
(1,195)
-
(1,195)

58
(2,397)
(5,427)
(7,766)
127
11,296
11,423 $

(4,675)
(8)
(1,158)
621
(7)
20
10,140

(5,000)
1,223
(500)
(500)
(4,777)

37
-
(4,447)
(4,410)
953
10,343
11,296

114

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

FNCB’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of FNCB’s disclosure controls and procedures, as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2021.

Based on that evaluation, FNCB’s Chief Executive Officer and Chief Financial Officer concluded FNCB’s disclosure controls
and procedures were effective as of December 31, 2021.

There were no changes made to FNCB’s internal control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, FNCB’s internal control over financial
reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for FNCB
Bancorp, Inc. (the “Company”). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States and is not intended to provide absolute
assurance that a misstatement of the Company’s financial statements would be prevented or detected.

Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are only being made in
accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.

Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. The design of a control system inherently has limitations and the benefits of
controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the controls. Therefore, no assessment of a cost-
effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will
be detected.

As of December 31, 2021, management of the Company conducted an assessment of the effectiveness of the Company’s
internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included
extensive documenting, evaluating and testing the design and operating effectiveness of our internal control over financial
reporting.

Based on this evaluation under the criteria in the Framework, management concluded that the Company’s system of internal
control over financial reporting was effective as of December 31, 2021.

Gerard A. Champi
President and Chief Executive Officer

James M. Bone, Jr., CPA
Executive Vice President and Chief Financial Officer

Item 9B.

Other Information

None

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable

115

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information concerning the Directors and Executive Officers of FNCB required by this Item 10 is incorporated herein
by reference to the sections entitled “Information as to Nominees, Directors and Executive Officers” in FNCB’s Definitive
Proxy Statement for its 2022 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission on or about April 4, 2022 (the “Proxy Statement”). Disclosure of compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, by FNCB’s Directors and Executive Officers is incorporated by reference to the section
entitled “Delinquent Section 16(a) Reports” in the Proxy Statement. In addition, information concerning Audit Committee
and Audit Committee Financial Expert is included in the Proxy Statement under the caption “Audit Committee Report” and
is incorporated herein by reference.

FNCB has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to FNCB’s directors and employees,
including the President and Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”) and Principal
Accounting Officer (“PAO”). The Code includes guidelines relating to compliance with laws, the ethical handling of actual
or potential conflicts of interest, the use of corporate opportunities, protection and use of FNCB’s confidential information,
accepting gifts and business courtesies, accurate financial and regulatory reporting, and procedures for promoting compliance
with, and reporting violations of, the Code. The Code is available on FNCB’s website at www.fncb.com/investorrelations/
under the heading “Governance Documents.” FNCB intends to post any amendments to the Code on its website and also to
disclose any waivers (to the extent applicable to FNCB’s President, PEO, PFO or PAO) on a Form 8-K within the prescribed
time period.

Item 11.

Executive Compensation.

The information required by this Item 11 is incorporated herein by reference to the section entitled “Executive Compensation”
in FNCB’s Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

The information regarding security ownership of certain beneficial owners and management required by this Item 12 is
incorporated herein by reference to the section entitled “Principal Beneficial Owners of FNCB’s Common Stock” in FNCB’s
Proxy Statement. The information regarding securities authorized for issuance under equity compensation plans by this Item
12 is incorporated by reference to the section entitled "Equity Compensation Plan Information" in FNCB's Proxy Statement.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 related to certain relationships and related transactions is incorporated herein by
reference to the section entitled “Certain Relationships and Related Transactions” in FNCB’s Proxy Statement. The
information required under this Item 13 related to Director Independence is incorporated herein by reference to the section
entitled “Corporate Governance” in FNCB’s Proxy Statement.

Item 14.

Principal Accounting Fees and Services.

The information required by this Item 14 is incorporated herein by reference to the section entitled “Fees Paid to Independent
Registered Public Accounting Firm” in FNCB’s Proxy Statement.

116

PART IV

Item 15.

Exhibits and Financial Statement Schedules

Financial Statements

The following financial statements are included by reference in Part II, Item 8 hereof:

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Financial Statement Schedules

Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown
in the respective financial statements or in the notes thereto.

The following exhibits are filed herewith or incorporated by reference.

EXHIBIT 3.1

EXHIBIT 3.2

EXHIBIT 3.3

EXHIBIT 4.1

EXHIBIT 4.2

EXHIBIT 4.3

EXHIBIT 4.4

EXHIBIT 10.1

Amended and Restated Articles of Incorporation of FNCB Bancorp, Inc. dated May 19, 2010 –
filed as Exhibit 3.1 to FNCB’s Current Report on Form 8-K on May 19, 2010, is hereby
incorporated by reference.

Articles of Amendment to the Amended and Restated Articles of Incorporation dated October
4, 2016 – filed as Exhibit 3.1 to FNCB’s Current Report on Form 8-K on October 11, 2016, is
hereby incorporated by reference.

Amended and Restated Bylaws - filed as Exhibit 3.1 to FNCB's Quarterly Report on Form 10-
Q for the quarter ended March 31, 2020, as filed on May 4, 2020, is hereby incorporated by
reference.

Form of Common Stock Certificate – filed as Exhibit 4.1 to FNCB’s Form 10-Q for the quarter
ended September 30, 2016, as filed on November 4, 2016, is hereby incorporated by reference.

Form of Amended and Restated Subordinated Note – filed as Exhibit 4.2 to FNCB’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2015, as filed on August 7, 2015, is hereby
incorporated by reference.

Indenture by and between First National Community Bancorp, Inc. and Wilmington Trust
Company, dated as of December 14, 2006 - filed as Exhibit 10.2 to FNCB's Current Report on
Form 8-K on December 19, 2006, SEC file number 333-24121, is hereby incorporated by
reference.

Description of Securities - filed as Exhibit 4.4 to FNCB's Annual Report on Form 10-K for the
fiscal year ended December 31, 2020, as filed on March 12, 2021, is hereby incorporated by
reference.

Amended and Restated Declaration of Trust by and among Wilmington Trust Company First
National Community Bancorp, Inc. and with individuals as administrators, dated as of
December 14, 2006 – filed as Exhibit 10.1 to FNCB’s 8-K on December 19, 2006 is hereby
incorporated by reference.

117

EXHIBIT 10.2

EXHIBIT 10.3+

EXHIBIT 10.4+

EXHIBIT 10.5+

EXHIBIT 10.6+

EXHIBIT 10.7+

EXHIBIT 10.8+

EXHIBIT 10.9+

EXHIBIT 10.10+

EXHIBIT 10.11+

Guarantee Agreement by and between First National Community Bancorp, Inc. and
Wilmington Trust Company, dated as of December 14, 2006 - filed as Exhibit 10.4 to FNCB’s
Current Report on Form 8-K on December 19, 2006, SEC file number 333-24121, is hereby
incorporated by reference.

Directors’ and Officers’ Deferred Compensation Plan - filed as Exhibit 10.4 to FNCB’s
Form 10-K for the year ended December 31, 2004 – as filed on March 16, 2005, is hereby
incorporated by reference.

2013 Long-Term Incentive Compensation Plan – filed as Exhibit 10.1 to FNCB’s Current
Report on Form 8-K on December 27, 2013, is hereby incorporated by reference.

Executive Incentive Plan – filed as Exhibit 10.14 to FNCB’s Form 10-K for the year ended
December 31, 2012, as filed on March 28, 2013, is hereby incorporated by reference.

Form of Restricted Stock Award Agreement – filed as Exhibit 4.2 to FNCB’s Form S-8 on
January 24, 2014 is hereby incorporated by reference.

Form of Stock Option Award Agreement – filed as Exhibit 4.3 to FNCB’s Form S-8 on January
24, 2014 is hereby incorporated by reference.

First National Community Bank Supplemental Executive Retirement Plan – filed as Exhibit
10.16 to FNCB’s Current Report on Form 8-K on October 2, 2015, is hereby incorporated by
reference.

Employment Agreement Between First National Community Bank and Gerard A. Champi,
COO – filed as Exhibit 10.17 to FNCB’s Current Report on Form 8-K on October 2, 2015, is
hereby incorporated by reference.

Employment Agreement Between First National Community Bancorp, Inc., First National
Community Bank and James M. Bone, Jr. CFO – filed as Exhibit 10.18 to FNCB’s Current
Report on Form 8-K on October 2, 2015, is hereby incorporated by reference.

Employment Agreement Between First National Community Bank and Brian C. Mahlstedt,
CLO – filed as Exhibit 10.19 to FNCB’s Current Report on Form 8-K on October 2, 2015, is
hereby incorporated by reference.

EXHIBIT 10.12*+

Change in Form of Control Agreement

EXHIBIT 21

Subsidiaries– filed as Exhibit 21.1 to FNCB’s Registration Statement on Form S-3 , as filed on
September 28, 2018, is hereby incorporated by reference.

EXHIBIT 23*

Consent of Baker Tilly US, LLP

EXHIBIT 31.1*

Certification of Chief Executive Officer

EXHIBIT 31.2*

Certification of Chief Financial Officer

EXHIBIT 32**

Section 1350 Certification — Chief Executive Officer and Chief Financial Officer

118

EXHIBIT 101.INS

INLINE XBRL INSTANCE DOCUMENT (THE INSTANCE DOCUMENT DOES NOT
APPEAR IN THE INTERACTIVE DATA FILE BECAUSE ITS XBRL TAGS ARE
EMBEDDED WITHIN THE INLINE XBRL DOCUMENT)

EXHIBIT 101.SCH

INLINE XBRL TAXONOMY EXTENSION SCHEMA

EXHIBIT 101.CAL

INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

EXHIBIT 101.DEF

INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

EXHIBIT 101.LAB

INLINE XBRL TAXONOMY EXTENSION LABLE LINKBASE

EXHIBIT 101.PRE

INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

EXHIBIT 104

COVER PAGE INTERATIVE DATA FILE (FORMATTED AS INLINE XBRL AND
CONTAINED IN EXHIBIT 101)

_____________________________

* Filed herewith
** Furnished herewith
+ Management contract, compensatory plan or arrangement

Item 16. Form 10-K Summary

None.

119

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized:

Registrant: FNCB BANCORP, INC.

/s/ Gerard A. Champi
Gerard A. Champi
President and Chief Executive Officer

March 11, 2022
Date

120

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Gerard A. Champi and James M. Bone, Jr., jointly and severally, his or her attorney-in-fact, each with the full power of
substitutes, for such person, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could
do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:

/s/ Gerard A. Champi
Gerard A. Champi
President and Chief Executive Officer

/s/ James M. Bone, Jr.
James M. Bone, Jr., CPA
Executive Vice President and Chief Financial Officer
Principal Financial Officer

/s/ Stephanie A. Westington
Stephanie A. Westington, CPA
Senior Vice President and Chief Accounting Officer
Principal Accounting Officer

March 11, 2022
Date

Directors:

/s/ William G. Bracey
William G. Bracey

March 11, 2022
Date

/s/ Gerard A. Champi

Gerard A. Champi

March 11, 2022
Date

/s/ Joseph Coccia
Joseph Coccia

March 11, 2022
Date

/s/ Joseph L. DeNaples
Joseph L. DeNaples

March 11, 2022
Date

/s/ Louis A. DeNaples
Louis A. DeNaples

March 11, 2022
Date

/s/ Louis A. DeNaples, Jr.

Louis A. DeNaples, Jr.

March 11, 2022
Date

/s/John P. Moses
John P. Moses

March 11, 2021
Date

/s/ Keith W. Eckel

Keith W. Eckel

March 11, 2022
Date

/s/ Kathleen McCarthy Lambert
Kathleen McCarthy Lambert

March 11, 2022
Date

/s/ Thomas J. Melone

Thomas J. Melone

March 11, 2022
Date

121

Non-GAAP Financial Measure:

2021

2020

2019

2018

Financial Highlights

(dollars in thousands except share data)

Income Statement:

Net interest income

Non-interest income

Total revenue

Non-interest expense

Provision for loan and lease losses

Income tax expense

Net income

Net interest margin

Return on average assets

Return on average equity

Efficiency ratio (Bank only)

Net income

Non-recurring adjustments (1)

Adjusted net income

Per Share Data:

Net income per share (basic and diluted)

Adjusted net income per share (basic and diluted)

Cash dividends declared

Tangible book value

Closing stock price

Balance Sheet Data:

Total assets

Total loans, gross

Total deposits

Shareholders equity

Tier 1 leverage ratio (FNCB Bank only)

Total risk-based capital ratio (FNCB Bank only)

2021

2020

2019

2018

2017

$48,994

$40,178

$36,260

$36,507

$33,048

$21,371

$15,347

$11,075

$13,349

8,268

57,262

31,069

166

4,656

3.45%

1.36%

13.46%

53.63%

9,250

49,428

28,915

1,941

3,225

3.35%

1.13%

10.66%

59.97%

2021

$1.06

1.06

0.27

8.13

2020

$0.76

0.76

0.22

7.70

7,620

43,880

29,682

797

2,326

3.29%

0.92%

8.88%

67.72%

2019

$0.56

0.56

0.20

6.62

$8.45

11,790

48,297

29,327

2,550

3,071

3.22%

1.09%

15.38%

58.48%

(4,761)

$8,588

2018

$0.79

0.51

0.17

5.78

7,225

40,273

28,069

769

11,288

$147

3.23%

1.00%

0.15%

69.13%

2017

$147

8,007

$8,154

2017

$0.01

0.49

0.13

5.32

$21,371

$15,347

$11,075

$13,349

$21,371

$15,347

$11,075

$9.24

$6.40

$8.44

$7.30

2021

2020

2019

2018

2017

$1,664,323

$1,465,679

$1,203,541

$1,237,732

$1,162,305

981,447

903,341

826,356

835,207

768,069

1,455,028

1,287,448

1,001,709

1,095,629

1,002,448

$162,457

$155,860

$133,607

$97,219

$89,191

8.92%

14.64%

9.57%

15.79%

10.36%

13.70%

8.27%

12.17%

8.24%

12.49%

Asset Quality Data:

Allowance for loan and lease losses/total loans

Non-performing loans/total loans

2021

1.27%

0.39%

2020

1.33%

0.62%

2019

1.08%

1.10%

2018

1.13%

0.56%

2017

1.17%

0.34%

Allowance for loan and lease losses/non-performing loans

321.41%

214.12%

98.52%

202.70%

350.43%

Net (recoveries) charge-offs/average loans

(0.03%)

(0.12%)

0.16%

0.25%

0.02%

(1) Includes: non-recurring insurance recovery, net of taxes, (2018); non-cash, non-recurring valuation adjustment to net deferred tax assets for change

in statutory corporate income tax rate (2017).

FNCB Bancorp, Inc. is the holding company for FNCB Bank (collectively, “FNCB”). Locally-based for 112 years, FNCB Bank continues as a premier community bank based in Northeastern

Pennsylvania – offering a full suite of personal, small business and commer cial banking solutions with industry leading mobile, online and in-branch products and services. FNCB Bank

currently operates 16 community offices in Lackawanna, Luzerne and Wayne Counties and remains dedicated to making its customers’ banking experience simply better.

Shareholder Information
Shareholder Information

CORPORATE HEADQUARTERS
CORPORATE HEADQUARTERS
FNCB Bancorp, Inc.
FNCB Bancorp, Inc.
102 E. Drinker Street
102 E. Drinker Street
Dunmore, PA 18512
Dunmore, PA 18512
Phone: (570) 346-7667 or
Phone: (570) 346-7667 or
1-877-TRY-FNCB
1-877-TRY-FNCB
www.fncb.com
www.fncb.com

STOCK LISTING
STOCK LISTING
Common stock of FNCB Bancorp, Inc. is
Common stock of FNCB Bancorp, Inc. is
listed on The Nasdaq Capital Market® under
listed on The Nasdaq Capital Market® under
the symbol: FNCB
the symbol: FNCB

VIRTUAL ANNUAL MEETING
VIRTUAL ANNUAL MEETING
Wednesday, May 11, 2022, 9:00 AM EDT
Wednesday, May 11, 2022, 9:00 AM EDT
Access to the meeting via the Internet at:
Access to the meeting via the Internet at:
virtualshareholdermeeting.com/FNCB2022
virtualshareholdermeeting.com/FNCB2022

INVESTOR INFORMATION
INVESTOR INFORMATION
Investor and shareholder information
Investor and shareholder information
regarding FNCB Bancorp, Inc., including
regarding FNCB Bancorp, Inc., including
all filings with the Securities and Exchange
all filings with the Securities and Exchange
Commission, is available through FNCB’s
Commission, is available through FNCB’s
website: investors.fncb.com. Copies may
website: investors.fncb.com. Copies may
also be obtained without charge upon
also be obtained without charge upon
written request to:
written request to:

Mr. James M. Bone, Jr., CPA
Mr. James M. Bone, Jr., CPA
Investor Relations Department
Investor Relations Department
FNCB Bancorp, Inc.
FNCB Bancorp, Inc.
102 E. Drinker Street
102 E. Drinker Street
Dunmore, PA 18512
Dunmore, PA 18512
james.bone@fncb.com
james.bone@fncb.com

TRANFER AGENT
TRANFER AGENT
AND REGISTRANT OF STOCK
AND REGISTRANT OF STOCK
Shareholders requiring a change of
Shareholders requiring a change of
name, address or ownership of stock, or
name, address or ownership of stock, or
information about shareholder records, lost
information about shareholder records, lost
or stolen certificates, and dividend checks,
or stolen certificates, and dividend checks,
direct deposit, dividend reinvestment and
direct deposit, dividend reinvestment and
optional cash purchase should contact:
optional cash purchase should contact:

Broadridge Financial Solutions, Inc.
Broadridge Financial Solutions, Inc.
P.O. Box 1342
P.O. Box 1342
Brentwood, NY 11717
Brentwood, NY 11717
Phone: (877) 456-5754
Phone: (877) 456-5754
Email: shareholder@broadridge.com
Email: shareholder@broadridge.com
shareholder.broadridge.com/fncb
shareholder.broadridge.com/fncb

INDEPENDENT AUDITORS
INDEPENDENT AUDITORS
Baker Tilly US, LLP
Baker Tilly US, LLP
46 Public Square, Suite 400
46 Public Square, Suite 400
Wilkes-Barre, PA 18701
Wilkes-Barre, PA 18701

SEC LEGAL COUNSEL
SEC LEGAL COUNSEL
Cozen O’Connor
Cozen O’Connor
One Liberty Place
One Liberty Place
1650 Market Street, Suite 2800
1650 Market Street, Suite 2800
Philadelphia, PA 19103
Philadelphia, PA 19103

MARKET MAKERS
MARKET MAKERS
Boenning & Scattergood, Inc.
Boenning & Scattergood, Inc.
Four Tower Bridge
Four Tower Bridge
200 Barr Harbor Drive, Suite 300
200 Barr Harbor Drive, Suite 300
West Conshohocken, PA 19428
West Conshohocken, PA 19428
(800) 883-1212
(800) 883-1212
boenninginc.com
boenninginc.com

Janney Montgomery Scott LLC
Janney Montgomery Scott LLC
1475 Peachtree St. NE, Suite 800
1475 Peachtree St. NE, Suite 800
Atlanta, GA 30309
Atlanta, GA 30309
(404) 601-7205
(404) 601-7205
janney.com
janney.com

JWTT, Inc.
JWTT, Inc.
1231 NW Hoyt Street, Suite 206
1231 NW Hoyt Street, Suite 206
Portland, OR 97209
Portland, OR 97209
(757) 955-8444
(757) 955-8444
jwttinc.com
jwttinc.com

Keefe, Bruyette & Woods
Keefe, Bruyette & Woods
787 Seventh Avenue, 4th Floor
787 Seventh Avenue, 4th Floor
New York, NY 10019
New York, NY 10019
(212) 887-7777
(212) 887-7777
kbw.com
kbw.com

Stifel, Nicolaus & Company Inc.
Stifel, Nicolaus & Company Inc.
One South Street, 15th Floor
One South Street, 15th Floor
Baltimore, MD 21202
Baltimore, MD 21202
(443) 224-1990
(443) 224-1990
stifel.com
stifel.com

INVESTMENT
INVESTMENT

PROFILE
PROFILE

ESTABLISHED
ESTABLISHED
1910
1910

LISTING
LISTING
NASDAQ
NASDAQ
CAPITAL MARKET
CAPITAL MARKET

MARKET CAP
MARKET CAP
$184.7 MILLION
$184.7 MILLION
DECEMBER 31, 2021
DECEMBER 31, 2021

DIVIDEND
DIVIDEND
$0.27
$0.27
2021
2021

DIVIDEND YIELD
DIVIDEND YIELD
2.92%
2.92%
BASED ON CLOSING PRICE OF
BASED ON CLOSING PRICE OF
$9.24 ON DECEMBER 31, 2021
$9.24 ON DECEMBER 31, 2021

TOTAL ASSETS
TOTAL ASSETS
$1.7 billion
$1.7 billion

TOTAL LOANS
TOTAL LOANS
$1.0 billion
$1.0 billion

TOTAL DEPOSITS
TOTAL DEPOSITS
$1.5 billion
$1.5 billion

EMPLOYEES
EMPLOYEES
227
227

Moving ahead. Together.

102 EAST DRINKER STREET, DUNMORE, PA 18512

FNCB Bancorp, Inc.

2021 Annual Report