# EDGAR Filing Document

**Accession Number:** 0001035976
**File Stem:** 0001437749-23-006166
**Filing Date:** 2023-3
**Character Count:** 781052
**Document Hash:** a02a0d2dd6eab730cb7b6378f604ba2b
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-23-006166.hdr.sgml**: 20230310

**ACCESSION NUMBER**: 0001437749-23-006166

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 121

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230310

**DATE AS OF CHANGE**: 20230310

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** FNCB Bancorp, Inc.
- **CENTRAL INDEX KEY:** 0001035976
- **STANDARD INDUSTRIAL CLASSIFICATION:** NATIONAL COMMERCIAL BANKS [6021]
- **IRS NUMBER:** 232900790
- **STATE OF INCORPORATION:** PA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38408
- **FILM NUMBER:** 23723635

**BUSINESS ADDRESS:**
- **STREET 1:** 102 EAST DRINKER STREET
- **CITY:** DUNMORE
- **STATE:** PA
- **ZIP:** 18512
- **BUSINESS PHONE:** 570-346-7667

**MAIL ADDRESS:**
- **STREET 1:** 102 EAST DRINKER STREET
- **CITY:** DUNMORE
- **STATE:** PA
- **ZIP:** 18512

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** FIRST NATIONAL COMMUNITY BANCORP INC
- **DATE OF NAME CHANGE:** 19970318

fncb20221231_10k.htm

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**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, 2022**

**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)

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| | |
|:---|:---|
| **Pennsylvania** | **23-2900790** |
| (State or Other Jurisdiction<br> of Incorporation or Organization) | (I.R.S. Employer<br> Identification No.) |
| **102 E. Drinker St., Dunmore, PA** | **18512** |
| (Address of Principal Executive Offices) | (Zip Code) |

---

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

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

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| | |
|:---|:---|
| **Title of Each Class** | **Name of Each Exchange on Which Registered** |
| Common Stock $1.25 Par Value FNCB | 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.

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| | |
|:---|:---|
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Non-Accelerated Filer ☒ | Smaller reporting company ☒ |
|  | Emerging growth company ☐ |

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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. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery periods pursuant to §240.10D-1(b). ☐

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 $129,632,432 at June 30, 2022.

State the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 19,682,689 shares of common stock as of March 11, 2023.

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 2023 Annual Meeting of Shareholders.

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**Contents**

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| | | |
|:---|:---|:---|
| [PART I](#parti) |  | [3](#parti) |
| Item 1.  | [Business](#item1) | [3](#item1) |
| Item 1A.  | [Risk Factors](#item1a) | [9](#item1a) |
| Item 1B. | [Unresolved Staff Comments](#item1b) | [19](#item1b) |
| Item 2.  | [Properties](#item2) | [19](#item2) |
| Item 3.  | [Legal Proceedings](#item3) | [19](#item3) |
| Item 4. | [Mine Safety Disclosures](#item4) | [19](#item4) |
| [PART II](#partii) |  | [19](#partii) |
| Item 5. | [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](#item5) | [19](#item5) |
| Item 6.  | [Reserved](#item6) | [20](#item6) |
| Item 7.  | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#item7) | [20](#item7) |
| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#item7a) | [42](#item7a) |
| Item 8.  | [Financial Statements and Supplementary Data](#item8) | [44](#item8) |
| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#item9) | [87](#item9) |
| Item 9A. | [Controls and Procedures](#item9a) | [87](#item9a) |
| Item 9B. | [Other Information](#item9b) | [87](#item9b) |
| Item 9C. | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#item9c) | [87](#item9c) |
| [PART III](#partiii) |  | [88](#partiii) |
| Item 10.  | [Directors, Executive Officers and Corporate Governance](#item10) | [88](#item10) |
| Item 11.  | [Executive Compensation](#item11) | [88](#item11) |
| Item 12.  | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#item12) | [88](#item12) |
| Item 13.  | [Certain Relationships and Related Transactions, and Director Independence](#item13) | [88](#item13) |
| Item 14.  | [Principal Accounting Fees and Services](#item14) | [88](#item14) |
| [PART IV](#partiv) |  | [89](#partiv) |
| Item 15. | [Exhibits and Financial Statement Schedules](#item15) | [89](#item15) |
| Item 16. | [Form 10-K Summary](#item16) | [90](#item16) |

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**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 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, and FNCB's financial condition and results of operations could be negatively impacted by changes in economic and market conditions and other factors that adversely affect FNCB's borrowers;

● FNCB's commercial lending activities, including loans to insiders and their related parties, generally have relatively large balances and are concentrated in the Northeastern Pennsylvania market, which may present greater risks that other types of loans;

● 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 ("ALLL") is not sufficient to absorb actual losses or if increases to the ALLL 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 FNCB's risks or losses;

● FNCB is subject to interest rate risk, changes in interest rates could reduce income, cash flows and asset values, which could adversely affect its profitability;

● Uncertainty relating to the expected phase-out of the London Interbank Offered Rate ("LIBOR") may adversely affect FNCB;

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

● FNCB could be subject to credit risk related to derivative obligations;

● 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;

● 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 may face risks with respect to future expansion of acquisition activity;

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● 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, as well as "fair and responsible banking" laws designed to protect consumers, which may subject FNCB to higher costs and lower shareholder returns;

● New or changed legislation or regulation, updated guidance regarding current regulation and regulatory initiatives could adversely affect FNCB through increased regulation and increased costs of doing business;

● External events, including natural disasters, national or global health emergencies, events of armed conflict in other countries, and terrorist threats, among others, could impact FNCB's ability to do business or other adversely affect FNCB's business, operations and financial condition;

● 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;

● An investment in FNCB's common stock is not an insured deposit;

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

● 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 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;

● 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;

● 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.

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**PART I**

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| | |
|:---|:---|
| **Item 1.**  | **Business** |

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**Overview**

***The Company***

FNCB Bancorp, Inc. is a Pennsylvania business corporation and a registered bank holding company headquartered in Dunmore, Pennsylvania. FNCB Bancorp, Inc. was 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 $20.4 million, $21.4 million, and $15.3 million in 2022, 2021 and2020, respectively. Total assets were $1.746 billion at December 31, 2022, $1.664 billion at December 31, 2021 and $1.466 billion at December 31, 2020.

 ****

***The Bank***

Established as a national banking association in 1910, as of December 31, 2022 the Bank operated 16 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 an evolving, independent, community-focused bank that is a leader through the power of a strong team with a commitment to excellence for our employees, customers and shareholders. We take pride in our core values:

● Simplicity - Simplifying processes, systems and products to create better banking experiences.

● 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 banking products and services for individuals and businesses.

For personal customers, the Bank provides various deposit products including savings, money markets, certificates of deposit and checking accounts, including a line of preferred, relationship products with premium benefits for higher-balance customers.

FNCB is also a member of IntraFi 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.

FNCB offers customers the convenience of 24/7 banking through online (www.fncb.com), mobile and telephone banking channels. Through fncb.com, customers can directly access their accounts, deposit checks, pay bills, open new accounts, apply for consumer or mortgage loans and obtain loan pre-qualification approvals. FNCB also offers customers various mobile pay alternatives including Apple Pay®, Samsung Pay®, Google Pay® and Zelle®.

Customers can also access money from their deposit accounts by using their debit card to make purchases or withdraw cash from any automated teller machines 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, and the My Rewards cash-back offers on debit card purchases.

In addition to traditional deposit and loan products, FNCB 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, 24/7.

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***Lending Activities***

FNCB offers a variety of financing alternatives to individuals and businesses generally in its primary market area through the origination of loans and leases 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. FNCB also offers specialized equipment financing alternatives including simple loans, direct finance leases and municipal leases to businesses within and outside its primary market area under an exclusive brand, *1st Equipment Finance*. Simple interest loans and direct finance leases are included in commercial and industrial loans, while municipal leases are included in state and political subdivision loans. 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 lines of credit ("HELOCs") and HELOCs with a carve-out feature. 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. 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. The carve out feature of a HELOC allows borrowers to access up to three simultaneous fixed-rate amortizing loans without having to reapply. The rate for each amortizing loan is based on the National Prime Rate as published on the day of the carve out plus a spread that is determined by the length of the loan term. FNCB also offers a proprietary "WOW" mortgage, a first-lien, fixed-rate mortgage product with maturity terms ranging from 10 to 19.5 years. At December 31, 2022, 1-4 family residential mortgage loans, including home equity term loans and HELOCs totaled $250.2 million, or 22.3%, of FNCB's 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, 2022, the Bank sold $9.2 million of 1-4 family mortgages. FNCB retains the servicing rights on sold 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, 2022, construction, land acquisition and development loans amounted to $66.6 million and represented 5.9% of FNCB's 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, 2022, commercial real estate loans totaled $377.0 million, or 33.6%, of FNCB's total loan portfolio.

*Commercial and Industrial Loans*

Generally, FNCB offers commercial loans to sole proprietors and businesses located in its primary market area and offers equipment financing alternatives through *1st Equipment Finance* to businesses within and outside 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, 2022, commercial and industrial loans totaled $272.0 million, or 24.2%, of FNCB's total loan portfolio.

*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, 2022, consumer loans totaled $92.6 million, or 8.2%, of FNCB's 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, 2022, state and political subdivision loans and leases totaled $65.0 million, or 5.8%, of FNCB's total loan portfolio.

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*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, residential mortgage loans 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 under the Uniform Commercial Code by 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 its division, *1st Investment Services* and 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.

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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.

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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. As of December 31, 2022, FNCB qualifies as a small bank holding company and is therefore not subject to the consolidated capital requirements.

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, 2022, the following capital requirements were applicable to the Bank for purposes of Section 38 of the FDIA.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Total**  | **Tier I** |  |  |  |
|  | **Risk-Based** | **Risk-Based** | **CET I** | **Leverage** | **Tangible Equity** |
| **Capital Category** | **Capital Ratio** | **Capital Ratio** | **Capital Ratio** | **Ratio** | **to Assets** |
| Well capitalized | >/= 10.0% | >/= 8.0% | >/= 6.5% | >/= 5.0% | N/A |
| Adequately capitalized with conservation buffer | >/= 10.5% | >/= 8.5% | >/= 7.0% | >/= 4.0% | N/A |
| Adequately capitalized | >/= 8.0% | >/= 6.0% | >/= 4.5% | >/= 4.0% | N/A |
| Undercapitalized | < 8.0% | < 6.0% | < 4.5% | < 4.0% | N/A |
| Significantly undercapitalized | < 6.0% | < 4.0% | < 3.0% | < 3.0% | N/A |
| Critically undercapitalized | N/A | N/A | N/A | N/A | Less than 2.0% |

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At December 31, 2022, 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 11.94%, a total capital to risk-weighted assets ratio of 13.11% and a leverage ratio of 8.77%**.** Similarly, at December 31, 2021, 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 13.46%, a total capital to risk-weighted assets ratio of 14.64% and a leverage ratio of 8.92%.

*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.

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*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.

C*onsumer 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 (capital adequacy, assets, management capability, earnings, liquidity, and sensitivity) ratings.

At December 31, 2022, the Bank was considered in the lowest risk category, for deposit insurance assessments and paid an annual assessment rate ranging from 0.0003 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 2022, FNCB Bank was voted "The Best Place to Work" in northeastern, Pennsylvania for the sixth consecutive year, as part of the annual Reader's Choice Awards survey conducted by a local newspaper. As of December 31, 2022, FNCB, including the Bank, employed 230 persons, including 21 part-time employees.

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**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 <u>https://www.sec.gov</u>. 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 <u>https://www.fncb.com</u>. 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 <u>corporatesecretary@fncb.com</u>. Information may also be obtained via written request to FNCB Bancorp, Inc. Attention: Chief Financial Officer, 102 East Drinker Street, Dunmore, PA 18512.

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|:---|:---|
| **Item 1A.**  | **Risk Factors** |

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*The operations and financial results of FNCB are subject to various risks and uncertainties, including those described below. The risks and uncertainties described below are not the only ones FNCB faces. Additional risks and uncertainties FNCB is unaware of, or currently believes are not material, may also become important factors 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.*

**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, and FNCB's financial condition and results of operations could be negatively impacted by changes in economic and market conditions and other factors that adversely affect FNCB's borrowers.***

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 and lease 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 and middle market customers. These businesses generally have fewer financial resources in terms of capital and borrowing capacity than larger entities and may have a heightened vulnerability to economic conditions and be less able to withstand competitive, economic and financial pressures. Changes in general economic conditions in the market area in which FNCB operates mat negatively impact this important customer sector. Additionally, FNCB may have significant exposure if any of these borrowers becomes unable to pay their loan obligations as a result of personal circumstances, such as divorce, unemployment or death. Consequently, FNCB's financial condition and results of operations may be adversely affected. 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 and profitability. 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.

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***FNCB's commercial lending activities, including loans to insiders and their related parties, generally have relatively larger balances and are concentrated within the Northeastern Pennsylvania market, which may present great risks than other types of loans.***

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. All non-performing loans totaled $2.8 million, or 0.25% of total gross loans, as of December 31, 2022, and $3.9 million, or 0.39%, of total gross loans at December 31, 2021. Specifically, commercial real estate loans that were non-performing totaled $1.5 million, or 0.14%, of total gross loans at December 31, 2022 and $2.5 million, or 0.25%, of total gross loans at December 31, 2021. 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.

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, 2022, $693.8 million, or 61.8%, of gross loans were secured by real estate, primarily commercial real estate, in Northeastern Pennsylvania. 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, $66.6 million, or 5.9%, were construction, land acquisition and development loans. Construction, land acquisition and development loans have the highest risk of not being collected. An additional $272.0 million, or 24.2%, 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 market area, could adversely affect the quality and collectability of its loans and could increase the level of non-performing loans. An increase in non-performing loans could result in s loss of earnings from these loans and increases in loan charge-offs and the provision for loan and lease losses, all of which could have a material adverse effect on FNCB's financial condition and results of operations. 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, loan demand may be reduced and collateral values supporting loans may decline, which could also adversely affect FNCB's financial condition and results of operations.

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 $79.1 million as of December 31, 2022. At December 31, 2022, 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 12, "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.

***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.

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***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, 2022, the ALLL totaled $14.2 million, representing 1.26% 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 FNCB's 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, changes in interest rates could reduce income, cash flows and asset values, which could adversely affect its profitability.***

FNCB's earnings and cash flows, 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, 2022 was characterized by maturities or repricing of assets and liabilities that were liability sensitive over the next 18 to 24 months, moving to an asset sensitivity position 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.

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Additionally, a shrinking yield premium, or negative spread, 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, or inversion 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.

***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.

The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR however, other market alternatives have been developed. While SOFR has been adopted in select product areas it has not achieved full implementation as an alternative reference rate. At this time, it is not possible to predict how markets will respond to alternative reference rates as markets continue to transition away from LIBOR.

Furthermore, because of the complexity of the transition from LIBOR, at this time, it is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements.

FNCB has significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. FNCB has established a committee to guide the transition from LIBOR and has identified products that utilize LIBOR and are revising fallback language to facilitate the transition to alternative reference rates. Effective December 31, 2021, FNCB has discontinued originating LIBOR-based loans, and has moved to negotiating loans using the Term SOFR. As of December 31, 2022, FNCB had approximately $65.8 million of loans, $26.6 million in investments and $10.3 million in subordinated debt, as well as certain derivative contracts, borrowings and other financial instruments that have attributes that are either directly or indirectly dependent on LIBOR. Failure to adequately manage the transition could have a material adverse effect on FNCB's business, 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 "Competition" included in Item 1, "Business" to this Annual Report on Form 10-K for an additional discussion of FNCB's competitive environment.

***FNCB could be subject credit risk related to derivative obligations.***

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.

FNCB has minimum collateral posting thresholds with certain of its derivative counterparties for derivatives in a net liability position. As of December 31, 2022, FNCB had no derivatives in a net liability position and accordingly did not have to post any collateral, however this could change in the future.

***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, 2022, FNCB had $1.421 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. 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. Any loss by FNCB of its deposit base could limit its lending ability resulting in lower loan originations, which could have a material adverse effect on FNCB's business, financial condition and results of operations.

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***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 its debt, pay its expenses, to repurchase shares of FNCB stock 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 Federal Home Loan Bank ("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 $8.5 million in capital stock of the FHLB of Pittsburgh as of December 31, 2022. FNCB must own such capital stock to qualify for membership in the FHLB of Pittsburgh which enables it to borrow funds under the FHLB of Pittsburgh advance program. If the FHLB of Pittsburgh 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.

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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.

***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.

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***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 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.

**Risks Related to FNCB's Industry**

***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, as well as "fair and responsible banking'' laws designed to protect consumers, 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. In addition, 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.

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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, updated guidance regarding current 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.

One example of updated guidance regarding legislation is that on October 26, 2022, the CFPB issued supervisory guidance which warned financial institutions that levying overdraft fees to consumers who would not reasonably anticipate the fees may constitute an unfair act or practice under the Consumer Financial Protection Act of 2010 ("CFPA"). In addition, the CFPB issued a compliance bulletin warning that certain depositor fees may similarly violate the CFPA. This guidance comes as a next step in the CFPB's "junk fee" initiative, launched in January 2022, through which the CFPB has endeavored to identify and take certain steps to curb potentially exploitative fees charged by banks and other financial institutions. While management does not believe that FNCB's overdraft fees are in violation of the CFPA, many larger financial institutions have eliminated overdraft charges on consumer accounts and the banking industry has recently announced a significant decrease in overdraft fee income in 2022. Competition from large banks and the imposition of restrictions on overdraft fees by the federal government, may result in FNCB having to change its overdraft fee structure, which could negatively impact future non-interest income run rates.

***External events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries, and terrorist threats could impact FNCB's ability to do business or otherwise adversely affect FNCB's business, operations or financial condition.***

Financial institutions, like other businesses, are susceptible to the effects of external events that can compromise operating and communications systems and otherwise have adverse effects. Such events, should they occur, can cause significant damage, impact the stability of FNCB's operations or facilities, result in additional expense, or impair the ability of FNCB's borrowers to repay their loans. Although we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations, and financial condition. In addition, other external events, including natural disasters, health emergencies and epidemics or pandemics, such as the COVID-19 pandemic, and events of armed conflict in other parts of the world, such as the present armed conflict involving Ukraine and Russia, could adversely affect the global or regional economies resulting in unfavorable economic conditions in the United States. Any such development could have an adverse effect on FNCB's business, operations or financial condition.

**Risks Related to FNCB's Common Stock**

***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.

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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.

***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.***

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. 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. 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.

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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.

***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, became applicable to us on January 1, 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. FNCB has evaluated the impact the CECL accounting model will have on FNCB's accounting, and expects to recognize a one-time cumulative-effect adjustment to reduce the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. FNCB will recognize a cumulative effect adjustment to the opening retained earnings as of the adoption date. Management currently estimates the allowance for credit losses will be in a range of $11.5 million to $11.8 million, decreasing the allowance by approximately $2.4 million to $2.6 million. The estimated increase to equity, net of tax, will range from $1.9 million to $2.1 million. The actual impact will depend on a number of internal and external factors including: outstanding loan balances, characteristics of FNCB's loan and securities portfolios, macroeconomic conditions, forecast information and management's judgement.

***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.

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| **Item 1B.**  | **Unresolved Staff Comments.** |

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None.

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|:---|:---|
| **Item 2.**  | **Properties.** |

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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, 2022, FNCB also operated fifteen 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, 2022 and 2021 include:

● Office space at FNCB's community office, located in Exeter, Luzerne County, Pennsylvania was renovated to house the 1st Equipment Finance and 1st Financial Services teams;

● The Bank's Wheeler Avenue Community Office was consolidated into its Main Office, in early 2022. The branch will be utilized as a temporary training facility until expiration of the lease in December 2024; and

● On September 23, 2022, the Bank purchased a property located at 2039 Delaware Street, Dunmore, Lackawanna County, Pennsylvania. The property, which is situated between the FNCB's Main Office and Corporate center, was purchased as part of FNCB's *Simply Green* initiative. FNCB plans to raze the building to provide green space for the community.

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.

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|:---|:---|
| **Item 3.** | **Legal Proceedings** |

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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.

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|:---|:---|
| **Item 4.** | **Mine Safety Disclosures.** |

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Not Applicable.

**PART II**

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|:---|:---|
| **Item 5.**  | **Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.** |

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**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 25, 2023, 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 pursuant to a trading plan that was adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The repurchase program will commence no earlier than March 3, 2023, and will expire on December 31, 2023, pursuant to a trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act of 1934. In 2022 and 2021, the Board of Directors had authorized a similar program under which 384,830 and 330,759 shares were purchased respectively, at a weighted-average price per share of $9.45 and $7.21, respectively. 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, 2023, there were approximately 1,586 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 $6.5 million, or $0.33 per share, in 2022 and $5.4 million, or $0.27 per share, in 2021. The dividend payout ratio was 32.0% for the year ended December 31, 2022 and 25.4% for the year ended December 31, 2021. 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 15, "Regulatory Matters/Subsequent Events" in the notes to consolidated financial statements in this Annual Report on Form 10-K.

On January 25, 2023, the Board of Directors declared a dividend of $0.090 per share for the first quarter of 2023. The dividend is payable on March 15, 2023 to shareholders of record as of March 1, 2023.

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**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 Purchaser** **s**

None.

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|:---|:---|
| **Item 6.**  | **Reserved** |

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None.

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|:---|:---|
| **I** **tem 7.**  | **Management's Discussion and Analysis of Financial Condition and Results of Operations** |

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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 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.

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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, 2022 and 2021 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.

*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. Judgement 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 judgement 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 judgements 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, 2022 and 2021 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, 2022 and 2021, 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 11, "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.

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**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, 2022 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*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income in 2022 amounted to $20.4 million, or $1.03 per diluted common share, a decrease of $1.0 million, or 4.4%, compared to $21.4 million, or $1.06 per diluted common share, in 2021. The decrease in 2022 net income compared to 2021 was primarily due to increases in non-interest expense and an increase in the provision for loan and lease losses, which were partially offset by an increase in net interest income. Non-interest expense was $35.5 million in 2022, an increase of $4.4 million, or 14.2%, from $31.1 million in 2021, which reflected a $2.6 million, or 15.5%, increase in salaries and employee benefits. The provision for loan and lease losses increased $1.8 million to $2.0 million in 2022, from $166 thousand in 2021, due primarily to higher loan volume. This was partially offset by a $5.0 million, or 10.3%, increase in net interest income, to $54.0 million in 2022 from $49.0 million in 2021. Income tax expense decreased $512 thousand, or 11.0%, to $4.1 million in 2022 as compared to $4.7 million in 2021.

Return on average assets and return on average shareholders' equity equaled 1.21% and 15.55%, respectively, in 2022, compared to 1.36% and 13.46%, respectively, in 2021. FNCB paid dividends to holders of common stock of $0.33 per share in 2022, an increase of $0.06 per share, or 22.2%, compared to $0.27 per share in 2021. Total dividends declared and paid in 2022 equated to a dividend yield of approximately 4.0% based on the closing stock price of $8.21 per share on December 31, 2022. The dividend payout ratio was 31.9% in 2022 compared to 25.4% in 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Balance Sheet Profile*

Total assets increased $81.2million, or 4.9%**,** to $1.746 billion at December 31, 2022 from $1.664 billion at December 31, 2021. The balance sheet expansion primarily reflected substantial increases in loans and leases, net of allowance for loan and lease losses ("ALLL"), partially offset by decreases in cash and cash equivalents and available-for-sale debt securities. Loans and leases, net of ALLL, increased $143.1 million, or 14.8%, to $1.110 billion at December 31, 2022 from $967.0 million at December 31, 2021. Meanwhile, available-for-sale debt securities decreased $46.5 million, or 8.9%, to $476.1 million at December 31, 2022 from $522.6 million at December 31, 2021, which was caused largely by a decline in the fair value of these securities due to rising interest rates. Cash and cash equivalents decreased $57.1 million, or 57.8%, to $41.9 million at December 31, 2022 from $99.0 million at December 31, 2021. Total deposits decreased $34.8 million, or 2.4%, to $1.421 billion at December 31, 2022 from $1.455 billion at December 31, 2021, which reflected the return of municipal deposit seasonality and the outflow of excess COVID-19 deposits. Borrowed funds increased $152.1 million to $182.4 million at December 31, 2022, compared to $30.3 million at December 31, 2021, as FNCB became more reliant on wholesale funding.

Total shareholders' equity decreased $43.5 million, or 26.8%, to $118.9 million at December 31, 2022 from $162.5 million at December 31, 2021. Tangible book value decreased $2.09 per share, or 25.6%, to $6.04 per share at December 31, 2022 from $8.13 per share at December 31, 2021. The decreases in capital and tangible book value were primarily due to an accumulated other comprehensive loss of $48.0 million at December 31, 2022, compared to accumulated other comprehensive income of $6.4 million at December 31, 2021. The negative change of $54.4 million was related primarily to the depreciation in the fair value of FNCB's available-for-sale debt securities, net of deferred taxes, due to the dramatic increase in market interest rates. Also impacting capital in 2022 was net income of $20.4 million partially offset by a $3.6 million utilized for the repurchase of common shares under a stock repurchase program authorized by FNCB's Board of Directors and dividends declared and paid of $6.5 million. At December 31, 2022, FNCB Bank's total risk-based capital ratio and the Tier 1 leverage ratio were 13.10% and 8.77%, respectively, which exceeded the 10.00% and 5.00% thresholds required to be well capitalized under the prompt corrective action provisions of the Basel III capital framework for U.S. banking organizations.

*Management's Focus in 2022*

Management continued to navigate through the lingering challenges of the pandemic and manage the rising rate environment, during 2022, while staying focused on several key strategic initiatives which included: strong organic loan growth, new product offerings and effectively managing funding costs. FNCB is always looking to improve the customer experience by further expanding and enhancing FNCB's digital and traditional product and service offerings; while 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 2022, FNCB's new commercial equipment financing and leasing product offerings, operating under *1st Equipment Finance* were fully integrated and have exceeded management's expectations. This along with the purchase of several third-party originated loan pools, allowed us to diversify FNCB's loan portfolio, reduce risk and enhance net interest income run rates going forward.

In addition, during 2022, FNCB acquired Chiaro Investment Services, LLC which was combined with FNCB's Wealth Management team, and is now operating under a new brand, *1st Investment Service*, out of FNCB Bank's Exeter Community Office, in Luzerne County, Pennsylvania. With the combined experience of our team of advisors, *1st Investment Services,* provides clients with a full suite of offerings, including Investment Management, Brokerage Services, Insurance Planning and Retirement Services that will build on FNCB's exceptional legacy of providing quality services to our clients.

In the fourth quarter of 2022, FNCB committed to make an equity investment of $11.0 million in a senior low-income housing tax credit ("LIHTC") partnership for the Scranton Square Apartments through the Pennsylvania Housing Finance Agency (PHFA). The project will consist of 36 newly constructed senior housing units, located on Dickson Ave, in the Green Ridge section of Scranton, Lackawanna County, Pennsylvania. This project is expected to provide much needed housing for low-income senior citizens, while revitalizing a large vacant lot in the city and is in line with FNCB's larger Community Caring initiative. One hundred percent (100.0%) of the rental units will qualify for Federal Low-Housing Tax credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. FNCB made an initial contribution of $2.2 million in the fourth quarter of 2022, upon closing the partnership agreement. The remaining obligation of $8.8 million, which is included on other liabilities in the consolidated statements of financial condition at December 31, 2022, will be contributed over a series of draws over the following 18-month period according to the construction schedule.

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*Focus for 2023*

Looking ahead to 2023, with increased market rates, management will focus on balance sheet management, managing interest rate risk, controlling funding costs and continuing to evaluate opportunities to enhance net interest income and non-interest income run rates going forward. FNCB will continue to expand 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, continued utilization of our retail and commercial lending origination platforms and utilizing artificial intelligence and robotics to streamline workflows. Additional areas of focus for 2023 include: acquisition and retainage of qualified staff, building and strengthening our core customer base including increasing existing customer wallet share and organic loan growth.

*Stock Repurchase Program/Subsequent Event*

On January 25, 2023, 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 3, 2023 and expiring December 31, 2023 pursuant to a trading plan that was adopted in accordance with Rule 10b5-1 of the Exchange Act. In 2022 and 2021, the Board of Directors had authorized similar programs under which 384,830 and 330,759 common shares were repurchased, respectively. The 2022 plan expired on December 31, 2022. 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, 2022, FNCB had approximately 19.7 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 interest 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 2022, 2021 and 2020.

In response to the economic uncertainty from the global COVID-19 pandemic, the FOMC lowered the federal funds rate 150 basis points in two emergency actions in March 2020. As a result, the target range for federal funds fell from 1.50%-1.75% at December 31, 2019 to 0.00%-0.25% at March 31, 2022 and had remained at these historically low levels through March 15, 2022. Supply chain constraints, the war in Ukraine and lingering effects from the COVID-19 pandemic, among other things, have resulted in rapid rise in price inflation. As a result, the FOMC, in an effort to lower inflation to its 2.0% objective, began tightening U.S. monetary policy in 2022. Specifically, the FOMC increased the target range for the federal funds rate seven times for a total of 425 basis points during 2022, which included additional upward movements in the fourth quarter of 75 basis points on November 2, 2022 and 50 basis points on December 14, 2022. At December 31, 2022, the federal funds target range was 4.25%-4.50% compared to 0.00%-0.25% at December 31, 2021. The increase in the federal funds target rate resulted in a corresponding increase of 425 basis points in the national prime rate to 7.50% at December 31, 2022 compared to 3.25% at December 31, 2021. In addition to these actions by the FOMC in 2022, on February 1, 2023, the FOMC raised the federal funds target rate another 25 basis points and reaffirmed its consensus statement on longer-run goals and monetary policy strategy including its goals of maximum unemployment and a 2.0% inflation rate and has indicated additional rate increases may be required in 2023 to achieve its goals. This dramatic shift to tighten monetary policy has resulted in a rapid rise in general market interest rates. Competition for deposits within FNCB's market area has intensified reflective of industrywide liquidity pressures and rate-sensitivity of depositors. Higher interest rates, coupled with the increased competition, has resulted in significant increases in deposit and wholesale funding costs that have surpassed increases in earning asset yields, which has caused interest margin and rate spread compression. Management anticipates that additional tightening actions by the FOMC in 2023, could result in further contraction of FNCB's tax-equivalent net interest margin and rate spread.

Additionally, net interest income, earning assets yields and the net interest margin for the period ending December 31, 2022 and 2021 were impacted by the activity related to PPP loans, including the timing of forgiveness and recognition of net loan origination fees.

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Tax-equivalent net interest income increased $5.3 million, or 10.5%, to $55.2 million in 2022 compared to $49.9 million in 2021. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, partially offset by an increase in interest expense which resulted primarily from increased utilization of wholesale funding costs and higher funding costs. 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 declined 7 basis points to 3.38% in 2022 compared to 3.45% in 2021, which was largely caused by an increase in average earning assets, coupled with higher funding costs. Additionally, the magnitude and velocity of the rate increases in 2022 has led to a decrease in FNCB's 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, as funding costs increased to a greater extent than asset yields. FNCB's rate spread was 3.24% in 2022, a decrease of 14 basis points as compared to 3.38% in 2021.

Tax-equivalent interest income increased $9.3 million, or 17.6%, to $61.9 million in 2022 from $52.6 million in 2021, which was largely caused by significant growth in average earning assets, coupled with an increase in the tax-equivalent yield on average earning assets. Average earning assets increased $183.5 million, or 12.7%, to $1.633 billion in 2022 from $1.449 billion in 2021, resulting in a corresponding increase to tax-equivalent interest income of $8.4 million. Specifically, average loans and leases increased $123.9 million, or 13.0%, to $1.074 billion in 2022 from $950.5 million in 2021, which reflected new product offerings, strong organic loan demand and the purchase of loan pools from third party originators. Investment securities averaged $550.1 million in 2022, an increase of $120.4 million, or 28.0%, compared to $429.6 million in 2021, which contributed $3.1 million to tax-equivalent interest income. The tax-equivalent yield on earning assets increased 16 basis points to 3.79% in 2022 from 3.63%, which resulted in a corresponding increase in tax-equivalent interest income of $0.8 million. Specifically, FNCB's tax-equivalent yield on loans and leases increased 7 basis points to 4.43% in 2022 compared to 4.36% in 2021, resulting in a corresponding increase in tax-equivalent interest income of $0.7 million. Meanwhile, the tax-equivalent yield on investment securities decreased 1 basis points to 2.58% in 2022 from 2.59% in 2021 and caused a corresponding decrease to tax-equivalent interest income of $44 thousand.

Interest expense increased $4.0 million, or 148.9%, to $6.7 million in 2022 from $2.7 million in 2021, which primarily from an increase in averaged borrowed funds, coupled with an increase in funding costs. Similar to the banking industry in general, FNCB was more reliant on wholesale funding in 2022. As a result, average borrowed funds, which is largely comprised of FHLB of Pittsburgh advances, averaged $109.5 million for 2022, an increase of $97.3 million from just $12.2 million for 2021. Higher volumes of average borrowed funds resulted in a corresponding increase in interest expense of $2.4 million. Total interest-bearing deposits increased $51.8 million, or 4.9%, to $1.118 billion for 2022, compared to $1.066 billion for 2021, which had little impact on interest expense as increases in lower-costing interest-bearing demand and savings volumes were offset by a reduction in higher-costing time deposit volumes. Specifically, average interest-bearing demand deposits, increased $50.8 million, or 6.6%, to $815.6 million in 2022, compared to $764.8 million in 2021. Savings deposits averaged $144.3 million in 2022, an increase of $19.3 million, or 15.5%, from $125.0 million in 2021. Conversely, average time deposits decreased $18.3 million, or 10.4%, to $158.0 million in 2022 from $176.3 million in 2021. In the first half of 2022, management was successful in delaying deposit rate increases, however, in the latter half of 2022, following the rapid rise in market interest rates and change in overall market liquidity, competition for deposits intensified and depositors have become increasingly rate sensitive. Due to increased competitive pressures, FNCB responded with increases in deposit rates. As a result, FNCB experienced an increase interest expense due to an increase in funding costs. For the year-ended December 31, 2022, FNCB's cost of funds increased 30 basis points to 0.55% from 0.25% for the year ended December 31, 2021, which resulted in a corresponding increase in tax-equivalent interest expense of $1.6 million.

With the additional 25 basis point increase on February 1, 2023, and statement by the FOMC that additional rate increases may be necessary in 2023, management anticipates that FNCB's cost of funds may continue to increase in 2023, which may result in further net interest margin and rate spread contraction and a reduction in tax-equivalent net interest income.

*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 $175 thousand and $215 thousand for the years ended December 31, 2022 and 2021, respectively. Additionally, interest income recognized on impaired loans based on payments received approximated to $336 thousand and $305 thousand for the years ended December 31, 2022 and 2021, respectively.

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The following table presents the components of net interest income for the three years ended December 31, 2022, 2021 and 2020:

**Summary of Net Interest Income**

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2022** | **2021** | **2021** | **2021** | **2020** | **2020** | **2020** |
|  | **Average** |  | **Yield/** | **Average** |  | **Yield/** | **Average** |  | **Yield/** |
| **(dollars in thousands)** | **Balance** | **Interest** | **Cost** | **Balance** | **Interest** | **Cost** | **Balance** | **Interest** | **Cost** |
| **Assets:** |  |  |  |  |  |  |  |  |  |
| Earning assets (2)(3) |  |  |  |  |  |  |  |  |  |
| Loans and leases-taxable (4) | $1019254 | $45696 | 4.48% | $905237 | $39645 | 4.38% | $863702 | $35980 | 4.17% |
| Loans and leases-tax free (4) | 55058 | 1895 | 3.44 | 45217 | 1777 | 3.93 | 47669 | 2070 | 4.34 |
| Total loans and leases (1)(2) | 1074312 | 47591 | 4.43 | 950454 | 41422 | 4.36 | 911371 | 38050 | 4.18 |
| Securities-taxable | 439824 | 10830 | 2.46 | 346204 | 8476 | 2.45 | 250881 | 7322 | 2.92 |
| Securities-tax free | 110238 | 3370 | 3.06 | 83437 | 2641 | 3.17 | 51367 | 1738 | 3.38 |
| Total securities (1)(5) | 550062 | 14200 | 2.58 | 429641 | 11117 | 2.59 | 302248 | 9060 | 3.00 |
| Interest-bearing deposits in other banks and federal funds sold (8) | 8152 | 91 | 1.12 | 68932 | 88 | 0.13 | 9203 | 28 | 0.30 |
| Total earning assets | 1632526 | 61882 | 3.79% | 1449027 | 52627 | 3.63% | 1222822 | 47138 | 3.85% |
| Non-earning assets | 69602 |  |  | 129386 |  |  | 145227 |  |  |
| Allowance for loan and lease losses | (13497) |  |  | (12311) |  |  | (10867) |  |  |
| Total assets | $1688631 |  |  | $1566102 |  |  | $1357182 |  |  |
| **Liabilities and Shareholders' Equity:** |  |  |  |  |  |  |  |  |  |
| Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |
| Interest-bearing demand deposits | $815579 | 3215 | 0.39% | $764798 | 1252 | 0.16% | $611511 | 2933 | 0.48% |
| Savings deposits | 144343 | 174 | 0.12% | 125022 | 87 | 0.07% | 101847 | 97 | 0.10 |
| Time deposits | 157991 | 581 | 0.37% | 176245 | 1169 | 0.66% | 195140 | 2374 | 1.22 |
| Total interest-bearing deposits | 1117913 | 3970 | 0.36% | 1066065 | 2508 | 0.24% | 908498 | 5404 | 0.59 |
| Borrowed funds and other interest-bearing liabilities | 109515 | 2762 | 2.52 | 12228 | 197 | 1.61 | 51287 | 756 | 1.47 |
| Total interest-bearing liabilities | 1227428 | 6732 | 0.55% | 1078293 | 2705 | 0.25% | 959785 | 6160 | 0.64% |
| Demand deposits | 314105 |  |  | 315181 |  |  | 242017 |  |  |
| Other liabilities | 15609 |  |  | 13892 |  |  | 11368 |  |  |
| Shareholders' equity | 131489 |  |  | 158736 |  |  | 144012 |  |  |
| Total liabilities and shareholders' equity | $1688631 |  |  | $1566102 |  |  | $1357182 |  |  |
| Net interest income/interest rate spread (6) |  | 55150 | 3.24% |  | 49922 | 3.38% |  | 40978 | 3.21% |
| Tax equivalent adjustment |  | (1106) |  |  | (928) |  |  | (800) |  |
| Net interest income as reported |  | $54044 |  |  | $48994 |  |  | $40178 |  |
| Net interest margin (7) |  |  | 3.38% |  |  | 3.45% |  |  | 3.35% |

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

(2) Loans and leases are stated net of unearned income.

(3) Non-accrual loans are included in loans within earning assets.

(4) Interest income on loans and leases includes net loan fees of $68 in 2022, $4,612 in 2021, and $467 in 2020.

(5) The yields for securities that are classified as available for sale are based on the average historical amortized cost.

(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.

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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**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022 vs. 2021** | **2022 vs. 2021** | **2022 vs. 2021** | **2021 vs. 2020** | **2021 vs. 2020** | **2021 vs. 2020** |
|  | **Increase (Decrease) Due to Change in** | **Increase (Decrease) Due to Change in** | **Increase (Decrease) Due to Change in** | **Increase (Decrease) Due to Change in** | **Increase (Decrease) Due to Change in** | **Increase (Decrease) Due to Change in** |
| **(in thousands)** | **Volume** | **Rate** | **Total** | **Volume** | **Rate** | **Total** |
| Interest income: |  |  |  |  |  |  |
| Loans and leases-taxable | $5093 | $958 | $6051 | $1773 | $1892 | $3665 |
| Loans and leases-tax free | 356 | (238) | 118 | (110) | (183) | (293) |
| Total loans and leases | 5449 | 720 | 6169 | 1663 | 1709 | 3372 |
| Securities-taxable | 2305 | 49 | 2354 | 3097 | (1943) | 1154 |
| Securities-tax free | 822 | (93) | 729 | 1022 | (119) | 903 |
| Total securities | 3127 | (44) | 3083 | 4119 | (2062) | 2057 |
| Interest-bearing deposits in other banks and federal funds sold | (139) | 142 | 3 | 279 | (219) | 60 |
| Total interest income | 8437 | 818 | 9255 | 6061 | (572) | 5489 |
| Interest expense: |  |  |  |  |  |  |
| Interest-bearing demand deposits | 88 | 1875 | 1963 | 602 | (2283) | (1681) |
| Savings deposits | 15 | 72 | 87 | 19 | (29) | (10) |
| Time deposits | (111) | (477) | (588) | (212) | (993) | (1205) |
| Total interest-bearing deposits | (8) | 1470 | 1462 | 409 | (3305) | (2896) |
| Borrowed funds and other interest-bearing liabilities | 2395 | 170 | 2565 | (623) | 64 | (559) |
| Total interest expense | 2387 | 1640 | 4027 | (214) | (3241) | (3455) |
| Net interest income | $6050 | $(822) | $5228 | $6275 | $2669 | $8944 |

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**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 $2.0 millionfor the year ended December 31, 2022, an increase of $1.8 million, compared to $166 thousand for the year ended December 31, 2021, which primarily reflected higher loan and lease volume, coupled with a slight increase in net loans charged off. Despite continued economic uncertainty and inflationary pressures due to remnants of the COVID-19 pandemic, supply chain constraints and other factors such as the war in Ukraine, which have resulted in monetary policy tightening, FNCB's asset quality metrics have remained mostly favorable throughout 2022 and 2021.

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**Non-Interest Income**

The following table presents the components of non-interest income for the years ended December 31, 2022 and 2021:

**Components of Non-Interest Income**

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  |  |  | **Change** |
| **(in thousands)** | **2022** | **2021** | **%** |
| Deposit service charges | $4415 | $3877 | 13.9% |
| Net (loss) gain on the sale of available-for-sale debt securities | (223) | 213 | (204.7) |
| Net (loss) gain on equity securities | (34) | 701 | (104.9) |
| Net gain on the sale of mortgage loans held for sale | 205 | 352 | (41.8) |
| Net gain on the sale of other real estate owned |  | 11 | (100.0) |
| Loan-related fees | 243 | 390 | (37.7) |
| Income from bank-owned life insurance | 710 | 541 | 31.2 |
| Bank-owned life insurance settlement | 273 | 426 | (35.9) |
| Loan referral fees | 191 | 72 | 164.8 |
| Merchant services revenue | 712 | 593 | 20.1 |
| Wealth management services revenue | 563 | 543 | 3.7 |
| Other | 926 | 560 | 65.4 |
| Total non-interest income | $7981 | $8268 | (3.5)% |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For the year ended December 31, 2022 , non-interest income decreased $287 thousand, or 3.5%, to $8.0 million compared to $8.3 million for the year ended December 31, 2021. The 3.5% decrease in non-interest income primarily from an unfavorable change in market value of equity securities and a net loss on the sale of available-for-sale debt securities, coupled with reductions in net gains on the sale of mortgages held for sale, and loan-related fees. Stock market volatility resulted in FNCB recoding a net loss on equity securities of $34 thousand in 2022, compared to a net gain of $735 thousand recorded in 2021. Additionally, FNCB recorded a net loss on the sale of available-for sale debt securities of $223 thousand in 2022, compared to a net gain of $213 thousand in 2021, a decrease of $436 thousand, or 204.7%. Net gains on the sale of mortgages held for sale decreased $147 thousand, or 41.8%, to $205 thousand for the year ended December 31, 2022, compared to $352 thousand for the year ended December 31, 2021, as pricing margins on loans and the volume of loan sales decreased due to the rapid rise in market interest rates. Loan-related fees decreased $147 thousand, or 37.7%, to $243 thousand in 2022 from $390 thousand in 2021, which was largely due to a reduction in loan servicing and letter of credit fees. Additionally, FNCB recorded income associated with BOLI death benefit claims of $273 thousand in 2022 and $426 thousand in 2021, a decrease of $153 thousand, or 35.9%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Partially offsetting these decreases in non-interest income, were increases in deposit service charges, BOLI income, loan referral fees, merchant services revenue and other income. Loan referral fees, which 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, increased $119 thousand. The decrease in these fees reflected a reduction in the number and volume of such transactions in 2022 as compared to 2021. Deposit service charges increased $538 thousand, or 13.9%, to $4.4 million in 2022, compared to $3.9 million in 2021, which was primarily due to increases in transactional-related charges, check card fees and wire transfer fees. During 2022, FNCB purchased $3.0 million in additional BOLI policies, which was the primary factor for the $169 thousand, or 31.2%, increase in BOLI income. Comparing 2022 and 2021, loan referral fees and merchant services revenue each increased by $119 thousand. Loan referral fees include fees received from third-party counterparties to commercial loan interest rate swap transactions and fees received for the referral of FHA residential mortgage loans to a third-party broker. The 164.8% increase in loan referral fees largely reflected an increase in the number and volume of such transaction due to changing market conditions, while the 20.1% increase in revenue from merchant services resulted primarily from an increase in card processing revenue due to the continued shift to e-commerce. The $366 thousand, or 35.0%, increase in other income was due primarily to an increase in commissions received from FNCB's third-party credit card and purchasing card provider.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As previously mentioned, on September 30, 2022 FNCB announced that the Bank had entered into an asset purchase agreement with Chiaro Investment Services, LLC, which was combined into the Bank's investment arm and now operates under the new brand as *1st Investment Services*. As a result of this transaction, FNCB anticipates an increase in income from wealth management services in 2023.

On October 26, 2022, the Bureau of Consumer Financial Protection ("CFPB") issued supervisory guidance which warned financial institutions that levying overdraft fees to consumers who would not reasonably anticipate the fees may constitute an unfair act or practice under the Consumer Financial Protection Act of 2010 ("CFPA"). In addition, the CFPB issued a compliance bulletin warning that certain depositor fees may similarly violate the CFPA. This guidance comes as a next step in the CFPB's "junk fee" initiative, launched in January 2022, through which the CFPB has endeavored to identify and take certain steps to curb potentially exploitative fees charged by banks and other financial institutions. While management does not believe that FNCB's overdraft fees are in violation of the CFPA, the banking industry, in general, experienced a significant reduction in overdraft fee income in 2022, as many larger financial institutions have eliminated overdraft charges on consumer checking accounts. Competition from large banks and the imposition of restrictions on overdraft fees by the federal government may result in FNCB having to change its overdraft fee structure, which could negatively impact future non-interest income run rates.

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&nbsp;&nbsp;&nbsp;&nbsp; **Non-Interest Expense**

The following table presents the major components of non-interest expense for the years ended December 31, 2022 and 2021:

**Components of Non-Interest Expense**

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  |  |  | **Change** |
| **(in thousands)** | **2022** | **2021** | **%** |
| Salaries and employee benefits | $19283 | $16697 | 15.5% |
| Occupancy expense | 2093 | 2039 | 2.6 |
| Equipment expense | 1295 | 1338 | (3.2) |
| Advertising expense | 801 | 712 | 12.5 |
| Data processing expense | 4027 | 3689 | 9.2 |
| Regulatory assessments | 811 | 609 | 33.2 |
| Bank shares tax | 915 | 975 | (6.2) |
| Professional fees | 1273 | 674 | 88.9 |
| Other operating expenses | 4976 | 4336 | 14.8 |
| Total non-interest expense | $35474 | $31069 | 14.2% |

---

Non-interest expense totaled $35.5 million in 2022, an increase of $4.4 million, or 14.2%, from $31.1 million in 2021. The increase resulted primarily from increases in salaries and employee benefits, professional fees, data processing expenses, regulatory assessments and other operating expenses.

Salaries and employee benefits increased $2.6 million, or 15.5%, to $19.3 million in 2022 from $16.7 million in 2021. The increase in salaries and employee benefits was primarily due to higher full-time salaries, payroll taxes and benefits associated with staff additions. Also factoring into the increase in salaries and employee benefits were increases in employment retirement plan contributions and incentive pay. Recognizing the impact of inflation on employees, at the end of 2022, FNCB awarded each employee a one-time employee appreciation bonus to alleviate some of the pressure, the aggregate cost of this one-time award was $393 thousand.

At the end of 2022, management engaged a third-party consultant to conduct a comprehensive evaluation of FNCB's salary and benefit structure and industry comparison. As a result of this study, FNCB has increased the minimum starting salary for new employees and will be adjusting salary ranges to be competitive as appropriate. Additionally, FNCB increased the 2023 annual cost of living/merit increase for employees. As a result of these changes, management anticipates FNCB's personnel-related costs will continue to increase in 2023.

Professional fees increased $599 thousand, or 88.9%, to $1.3 million in 2022, compared to $674 thousand in 2021, while data processing expenses increased $338 thousand, or 9.2%, to $4.0 million in 2022, compared to $3.7 million in 2021. These increases were primarily due to additional costs associated with the new retail mortgage and commercial lending platforms, coupled with consulting and validation services associated with implementation of CECL. Additionally, comparing 2022 and 2021, regulatory assessments increased $202 thousand, or 33.2%, due largely to balance sheet growth, while other operating expenses increased $640 thousand, or 14.8%, which reflected increases in insurance costs, legal fees, correspondent bank fees and servicing costs of purchased loans.

**Provision for Income Taxes**

FNCB recorded income tax expense of $4.1 million in 2022, a decrease of $512 thousand, or 11.0%, compared to $4.6 million in 2021. The decrease in income tax expense was due to lower taxable income in 2022 as compared to 2021. FNCB's effective tax rate decreased to 16.85% at December 31, 2022, compared to 17.89% at December 31, 2021, which resulted primarily from an increase in tax-exempt income.

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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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management performed an evaluation of FNCB 's deferred tax assets at December 31, 2022 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, 2022 or 2021.

 **FINANCIAL CONDITION**

Total assets increased $81.2million, or 4.9%**,** to $1.746 billion at December 31, 2022 from $1.664 billion at December 31, 2021. The balance sheet expansion primarily reflected substantial increases in loans and leases, net of ALLL, partially offset by decreases in cash and cash equivalents and available-for-sale debt securities. Loans and leases, net of ALLL, increased $143.1 million, or 14.8%, to $1.110 billion at December 31, 2022 from $967.0 million at December 31, 2021. Available-for-sale debt securities decreased $46.5 million, or 8.9%, to $476.1 million at December 31, 2022 from $522.6 million at December 31, 2021, which was caused largely by a decline in the fair value of these securities due to rising interest rates. Cash and cash equivalents decreased $57.1 million, or 57.8%, to $41.9 million at December 31, 2022 from $99.0 million at December 31, 2021. Total deposits decreased $34.8 million, or 2.4%, to $1.421 billion at December 31, 2022 from $1.455 billion at December 31, 2021, which reflected the return municipal deposit seasonality and the outflow of excess COVID-19 deposits. FNCB increased its utilization of wholesale funding, specifically advances through the FHLB of Pittsburgh, to fund loan growth. As a result, borrowed funds increased $152.1 million, or 501.6%, to $182.4 million at December 31, 2022, compared to $30.3 million at December 31, 2021.

Total shareholders' equity decreased $43.5 million, or 26.8%, to $118.9 million at December 31, 2022 from $162.5 million at December 31, 2021. The decrease in capital was primarily due to an accumulated other comprehensive loss of $48.0 million at December 31, 2022, compared to accumulated other comprehensive income of $6.4 million at December 31, 2021. The negative change of $54.4 million was related primarily to the depreciation in the fair value of FNCB's available-for-sale debt securities, net of deferred taxes, and was the main factor contributing to a $2.09 per share, or 25.6% decrease in tangible book value to $6.04 per share at December 31, 2022 from $8.13 per share at December 31, 2021. Also impacting capital in 2022 was net income of $20.4 million partially offset by a $3.6 million utilized for the repurchase of common shares under a stock repurchase program authorized by FNCB's Board of Directors and dividends declared and paid of $6.5 million. At December 31, 2022, FNCB Bank's total risk-based capital ratio and the Tier 1 leverage ratio were 13.11% and 8.77%, respectively, which exceeded the thresholds of 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.

**Cash and Cash Equivalents**

Cash and cash equivalents decreased $57.1 million, or 57.8%, to $41.9 million at December 31, 2022, from $99.0 million at December 31, 2021. The decrease in cash and cash equivalents resulted primarily from cash used to fund earning asset growth. Additionally, FNCB paid cash dividends totaling $6.5 million, or $0.330 per share in 2022 compared to $5.4 million, or $0.27 per share, in 2021, while purchase of common shares under the repurchase program amounted to $3.6 million in 2022 compared to $2.4 million in 2021.

**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, 2022 and 2021, 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.

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At December 31, 2022, 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, 2022.

The majority of FNCB's debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuate with changes in interest rates. U.S. Treasury rates increased dramatically in 2022 as the FOMC continued to tighten monetary policy. Additionally, as short-term interest rates moved up sharply, the yield curve was inverted at December 31, 2022, causing spreads between the 2-year and 10-year U.S. Treasury rates to go negative. The 10-year Treasury rate, which was 1.52% at December 31, 2021, increased 236 basis points to 3.88% at December 31, 2022, while the 2-year Treasury rate, which was 0.73% at December 31, 2021, increased 368 basis point to 4.41% at December 31, 2022. These movements resulted in a negative spread of 53-basis points between the 2-year and 10-year U.S. Treasury, compared to a positive spread of 0.79% at December 31, 2021. Generally, a security's value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of shareholder's equity net of deferred income taxes. At December 31, 2022, FNCB reported a net unrealized loss, included in accumulated other comprehensive loss, of $48.8 million, net of deferred income taxes of $13.0 million, a decrease of $55.0 million compared to the net unrealized holding gain of $6.1 million, net of deferred income taxes of $1.6 million, at December 31, 2021. Any further increase in interest rates could result in further depreciation in the fair value of FNCB's securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on FNCB's regulatory capital ratios.

The following table presents the carrying value of available-for-sale debt securities and equity securities, at fair value at December 31, 2022, 2021 and 2020:

**Composition of the Investment Portfolio**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| **(dollars in thousands)** | **Fair Value** | **% of Portfolio** | **Fair Value** | **% of Portfolio** | **Fair Value** | **% of Portfolio** |
| **Available-for-sale debt securities** |  |  |  |  |  |  |
| U.S. Treasuries | $32134 | 6.75% | $36355 | 6.96% | $- | -% |
| Obligations of state and political subdivisions | 220782 | 46.37 | 244372 | 46.76 | 205828 | 58.80 |
| U.S. Government-sponsored agency: |  |  |  |  |  |  |
| Collateralized mortgage obligations - residential | 80407 | 16.89 | 100710 | 19.27 | 56972 | 16.28 |
| Collateralized mortgage obligations - commercial | 3329 | 0.70 | 3727 | 0.71 | 3904 | 1.12 |
| Residential mortgage-backed securities | 20663 | 4.34 | 25506 | 4.88 | 13026 | 3.72 |
| Private Collateralized mortgage obligations | 72507 | 15.23 | 67165 | 12.85 | 38199 | 10.91 |
| Corporate debt securities | 30672 | 6.44 | 32063 | 6.14 | 24580 | 7.02 |
| Asset backed securities | 14941 | 3.14 | 11932 | 2.28 | 7526 | 2.15 |
| Negotiable certificates of deposit | 656 | 0.14 | 736 | 0.14 |  |  |
| Total available-for-sale debt securities | $476091 | 100.00% | $522566 | 100.00% | $350035 | 100.00% |
| Equity securities, at fair value | $7717 |  | $4922 |  | $3026 |  |

---

FNCB purchased 73 securities with an aggregate cost of $78.1 million and a weighted-average yield of 3.89% during the year ended December 31, 2022. Securities purchased were diversified across all major sectors, including $28.2 million in private CMOs, $18.4 million in tax-free obligations of state and political subdivisions, $10.7 million in CMOs of U.S. government-sponsored agencies, $5.7 million in asset-backed securities, $5.0 million in taxable obligations of state and political subdivisions, $4.4 million in corporate debt securities and $0.7 in U.S. Treasury securities. Principal repayments and a decrease in the fair value of the available-for-sale portfolio due to an increase in market interest rates entirely offset the increase due to the purchases. In 2022, FNCB also sold available-for-sale securities with an aggregate amortized cost of $14.2 million and a weighted-average yield of 3.93%. Gross proceeds received on the sales totaled $14.0 million and a realized net loss of $223 thousand upon the sale is included in non-interest income in 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management continually monitors the investment portfolio for credit worthiness, value, and yield. 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 municipal 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, 2022, the third-party report concluded that each municipal 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, 2023. Management also monitors municipal securities monthly using a third-party surveillance report that identifies events related to the issuer that may indicate a deterioration in credit quality. Management noted no such events during 2022.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table presents the weighted-average yields on available-for-sale debt securities by major category and maturity period at December 31, 2022. Yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security. 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%. Because residential, commercial and private collaterized 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 summary.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **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 | -% | 1.11% | 1.18% | -% | -% | 1.17% |
| Obligations of state and political subdivisions | 2.67 | 2.95 | 2.34 | 2.78 |  | 2.77 |
| U.S. government/government-sponsored agencies: |  |  |  |  |  |  |
| Collateralized mortgage obligations - residential |  |  |  |  | 1.62 | 1.62 |
| Collateralized mortgage obligations - commercial |  |  |  |  | 1.98 |  |
| Mortgage-backed securities |  |  |  |  | 2.23 | 2.33 |
| Private collateralized mortgage obligations |  |  |  |  | 2.32 | 2.32 |
| Corporate debt securities |  |  | 4.79 |  |  | 4.79 |
| Asset-backed securities |  |  |  |  | 1.46 | 1.46 |
| Negotiable certificates of deposit |  | 1.02 |  |  |  | 1.02 |
| **Weighted-average yield** | 2.67% | 2.80% | 2.77% | 2.78% | 1.92% | 2.43% |

---

*OTTI Evaluation*

 

There was no OTTI recognized during the years ended December 31, 2022 and 2021. 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, 2022, 2021 and 2020.

**Loans and Leases**

Total loans and leases, gross increased by $141.9 million, or 14.5%, to $1.123 billion at December 31, 2022 from $981.4 million at December 31, 2021. The growth in the loan and lease portfolio reflected increases in all major loan categories, which was primarily due to strong organic demand and the new commercial equipment financing product line. In addition, FNCB purchased individual loans and loan pools originated by third-party originators to enhance interest income revenue streams and diversify the loan portfolio. Loan purchases through 2022 included commercial equipment financing, residential mortgages loans and secured and unsecured consumer installment loans. FNCB expanded its commercial credit product offerings to include commercial equipment financing, including simple interest loans and direct finance and municipal leases, through its brand 1st Equipment Finance. The majority of equipment financing is originated through indirect, third-party dealers. As of December 31, 2022 and 2021, simple interest loans outstanding under this initiative totaled $78.4 million and $7.9 million, respectively, and are included with commercial and industrial loans. Also included with commercial and industrial loans and originated under this initiative are direct finance leases, which totaled $0.9 million at December 31, 2022. There were no direct leases outstanding at December 31, 2021. Municipal leases originated under this initiative were $4.4 million and $2.4 million, respectively, at December 31, 2022 and 2021 and are included in state and municipal subdivision loans and leases.

Also included in commercial and industrial loans and leases at December 31, 2022 and 2021, were $1.3 million and $21.9 million, respectively, in outstanding balances of PPP loans, which are 100.0% guaranteed by the SBA. Accordingly, management excluded PPP loans in its evaluations of the ALLL and there was no ALLL established for PPP loans at December 31, 2022 and 2021.

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 $52.1 million, or 8.1%, to $693.8 million at December 31, 2022 from $641.7 million at December 31, 2021. However, the percentage of real estate secured loans to total loans and leases decreased to 61.8% at December 31, 2022 from 65.4% at December 31, 2021, which primarily reflected the originations through 1st Equipment Finance.

Commercial real estate loans, which include long-term commercial mortgage financing and are primarily secured by first or second lien mortgages, increased $11.0 million, or 3.0%, to $377.0 million at December 31, 2022, from $366.0 million at December 31, 2021. Commercial and industrial loans consist primarily of equipment loans and leases, including purchased commercial equipment loans, working capital financing, revolving lines of credit and loans secured by cash and marketable securities and remaining PPP loans. Commercial and industrial loans increased $78.9 million, or 40.9%, during the year to $272.0 million at December 31, 2022 from $193.1 million at December 31, 2021. The increase was primarily due to equipment loan and lease origination through 1st Equipment Finance and the purchase of loan pools through third-party originators, which was partially offset by forgiveness of PPP loans. Construction, land acquisition and development loans increased $25.0 million, or 60.1%, to $66.6 million at December 31, 2022 from $41.6 million at December 31, 2021.

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Residential real estate loans include fixed-rate and variable-rate, amortizing mortgage loans, home equity lines of credit ("HELOCs") and HELCOs with a carve out feature. 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 propriety non-saleable mortgage product branded as the WOW mortgage. The WOW mortgage has maturity terms of 10 to 19.5 years and offers customers an attractive fixed interest rate and low closing costs. Residential real estate loans totaled $250.2 million at December 31, 2022, an increase of $16.1 million, or 6.9%, from $234.1 million at December 31, 2021.

Consumer loans totaled $92.6 million at December 31, 2022, an increase of $7.1 million, or 8.3%, from $85.5 million at December 31, 2021. The increase in consumer loans was largely due to the purchase of individual and loans and pools of personal installment loans from third-party originators including unsecured loans and loans secured by chattel paper. Loans to state and municipal governments increased $3.8 million, or 6.2%, to $64.9 million at December 31, 2022 from $61.1 million at December 31, 2021.

The following table presents loans and leases receivable, net by major category at December 31, 2022 and 2021:

**Loan and Lease Portfolio Detail**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | **2022** | **2022** | **2021** | **2021** |
|  |  | **% of Total** |  | **% of Total** |
| **(in thousands)** | **Amount** | **Loans, Gross** | **Amount** | **Loans, Gross** |
| Residential real estate | $250221 | 22.28% | $234113 | 23.86% |
| Commercial real estate | 376976 | 33.56 | 366009 | 37.29 |
| Construction, land acquisition and development | 66555 | 5.92 | 41646 | 4.24 |
| Commercial and industrial | 272024 | 24.22 | 193086 | 19.67 |
| Consumer | 92612 | 8.24 | 85522 | 8.72 |
| State and political subdivisions | 64955 | 5.78 | 61071 | 6.22 |
| Total loans, gross | 1123343 | 100.00% | 981447 | 100.00% |
| Unearned income | (810) |  | (1442) |  |
| Net deferred loan and lease fees | 1784 |  | (566) |  |
| Allowance for loan and lease losses | (14193) |  | (12416) |  |
| Loans and leases, net | $1110124 |  | $967023 |  |

---

The following tables present the maturity distribution and interest rate information of the loan and lease portfolio by major category as of December 31, 2022:

**Loans and Leases by Maturity and Interest Rate Sensitivity**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Within One** | **One to Five** | **Five to Fifteen** | **Over Fifteen** |  |
| **(in thousands)** | **Year** | **Years** | **Years** | **Years** | **Total** |
| Residential real estate | $3897 | $7161 | $114581 | $124582 | $250221 |
| Commercial real estate | 10446 | 55553 | 194572 | 116405 | 376976 |
| Construction, land acquisition and development | 6133 | 16443 | 10863 | 33116 | 66555 |
| Commercial and industrial | 90529 | 135674 | 45821 |  | 272024 |
| Consumer | 1734 | 38042 | 51652 | 1184 | 92612 |
| State and political subdivisions | 104 | 9686 | 33002 | 22163 | 64955 |
| &nbsp;&nbsp;&nbsp; Total loans and leases, gross | $112843 | $262559 | $450491 | $297450 | $1123343 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Within One** | **One to Five** | **Five to Fifteen** | **Over Fifteen** |  |
| **(in thousands)** | **Year** | **Years** | **Years** | **Years** | **Total** |
| **Loans with fixed rates** |  |  |  |  |  |
| Residential real estate | $637 | $6443 | $81396 | $99089 | $187565 |
| Commercial real estate | 2563 | 41679 | 33663 |  | 77905 |
| Construction, land acquisition and development | 564 | 1362 | 5927 | 2055 | 9908 |
| Commercial and industrial | 3316 | 131454 | 35096 |  | 169866 |
| Consumer | 1689 | 37928 | 51579 | 1183 | 92379 |
| State and political subdivisions | 104 | 2366 | 30789 | 7644 | 40903 |
| &nbsp;&nbsp;&nbsp; Total loans and leases with fixed rates | $8873 | $221232 | $238450 | $109971 | $578526 |
| **Loans with floating rates** |  |  |  |  |  |
| Residential real estate | $3260 | $718 | $33185 | $25493 | $62656 |
| Commercial real estate | 7883 | 13874 | 160909 | 116405 | 299071 |
| Construction, land acquisition and development | 5569 | 15081 | 4936 | 31061 | 56647 |
| Commercial and industrial | 87213 | 4220 | 10725 |  | 102158 |
| Consumer | 45 | 114 | 73 |  | 232 |
| State and political subdivisions |  | 7320 | 2213 | 14520 | 24053 |
| &nbsp;&nbsp;&nbsp; Total loans and leases with floating rates | $103970 | $41327 | $212041 | $187479 | $544817 |

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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, 2022 and 2021. 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, 2022 and 2021:

**Loan Concentrations**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | **2022** | **2022** | **2021** | **2021** |
|  |  | **% of Gross** |  | **% of Gross** |
| **(dollars in thousands)** | **Amount** | **Loans** | **Amount** | **Loans** |
| Retail space/shopping centers | $54461 | 4.85% | $48590 | 4.95% |
| 1-4 family residential investment properties | 113746 | 10.13% | 92745 | 9.45% |

---

**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.

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, management 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.

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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.

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.

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**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
| **(dollars in thousands)** | **2022** | **2021** | **2020** | **2019** | **2018** |
| Non-accrual loans, including non-accrual TDRs | $2763 | $3863 | $5581 | $9084 | $4696 |
| Loans past due 90 days or more and still accruing | 79 |  |  |  |  |
| Total non-performing loans | 2842 | 3863 | 5581 | 9084 | 4696 |
| Other real estate owned |  | 920 | 58 | 289 | 919 |
| Other non-performing assets | 1773 | 1773 | 1900 | 1900 | 1900 |
| Total non-performing assets | $4615 | $6556 | $7539 | $11273 | $7515 |
| Accruing TDRs | $5554 | $6666 | $6975 | $7745 | $8457 |
| Non-performing loans as a percentage of total loans, gross | 0.25% | 0.39% | 0.62% | 1.10% | 0.56% |

---

FNCB's asset quality remained favorable throughout 2022. Total non-performing assets decreased $1.9 million, or 29.6%, to $4.6 million at December 31, 2022 from $6.5 million at December 31, 2021. The improvement reflected decreases in non-accrual loans and OREO. Non-performing loans, which include non-accrual loans and loans past due 90 days or more and still accruing, decreased $1.0 million, or 26.5%, to $2.8 million at December 31, 2022 from $3.8 million at December 31, 2021. The reduction in non-accrual loans was primarily due to the sale to an unrelated third party of two non-accrual loans to one commercial borrower totaling $0.9 million in the second quarter of 2022. The sale was to another commercial bank with no gain or loss realized on the sale. The $0.9 million decrease in OREO resulted from the sale of one bank-owned property that was held in OREO during the first quarter of 2022. In the fourth quarter of 2022, leasehold improvements of a former branch office that was held in OREO was transferred out and returned to premises and equipment and now serves as an off-site training facility. FNCB's ratio of non-performing loans to total gross loans decreased to 0.25% at December 31, 2022 from 0.39% at December 31, 2021. Similarly, FNCB's ratio of non-performing assets as a percentage of shareholders' equity decreased to 3.9% at December 31, 2022 from 4.0% at December 31, 2021.

Other non-performing assets was comprised solely of a classified account receivable, the balance of which was $1.8 million at both December 31, 2022 and 2021. 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, Pennsylvania. 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 began improving and 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 this project and has noted an increase in construction activity related to this project including the construction of two additional six- or eight-unit buildings and further site development including building pads for a new six-seven unit building and pool/spa building during 2022. Additionally, the developer has increased marketing and sales initiatives for the project. However, the impact of economic uncertainty, supply-chain constraints, inflation and other factors are still unknown and could negatively affect the timing of future sales and payments.

TDRs at December 31, 2022 and 2021 were $5.7 million and $6.9 million, respectively. Accruing and non-accruing TDRs were $5.5 million and $0.2 million, respectively at December 31, 2022 and $6.7 million and $0.2 million, respectively at December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There were no loans modified as TDR during 2022. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The average balance of impaired loans, including TDRs was $8.7 million and $11.0 million for the years ended December 31, 2022 and 2021, respectively. FNCB recognized interest on impaired loans of $335 thousand in 2022 and $305 thousand in 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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 $175 thousand and $215 thousand for the years ended December 31, 2022 and 2021, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table presents the changes in non-performing loans for the years ended December 31, 2022 and 2021 . Loan foreclosures represent recorded investment at time of foreclosure not including the effect of any guarantees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Changes in Non-performing Loans**

---

| | | |
|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Balance, January 1 | $3863 | $5581 |
| Loans newly placed on non-accrual | 2325 | 1375 |
| Change in loans past due 90 days or more and still accruing | 79 |  |
| Loans transferred to OREO |  | (138) |
| Loans returned to performing status |  | (388) |
| Loans charged-off | (1237) | (735) |
| Loans sold | (925) |  |
| Loan payments received | (1263) | (1832) |
| Balance, December 31 | $2842 | $3863 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table presents accruing loan delinquencies and non-accrual loans as a percentage of gross loans at December 31, 2022 and 2021 :

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Loan Delinquencies and Non-accrual Loans**

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| Accruing: |  |  |
| 30-59 days | 0.15% | 0.13% |
| 60-89 days | 0.05 | 0.03 |
| 90+ days | 0.01 | 0.00 |
| Non-accrual | 0.25 | 0.39 |
| Total delinquencies | 0.45% | 0.55% |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total delinquencies as a percent of gross loans decreased to 0.45% at December 31, 2022 from 0.55% at December 31, 2021. The most predominant factor contributing to the decrease in total delinquencies was the $1.0 million decrease in non-accrual loans; as previously mentioned, that resulted from the sale of the $0.9 million in a non-performing commercial relationship.

**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;

● **c**hanges 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.

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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 $14.2 million at December 31, 2022, an increase of $1.8 million, or 14.3%, from $12.4 million at December 31, 2021. The increase resulted from a provision for loan and lease losses of $2.0 million offset by net charge-offs of $185 thousand for the year ended December 31, 2022. The increase in credit provisioning in 2022 was largely due to the increase in loan volumes as FNCB's assets quality metrics were favorable throughout the year.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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 $34 thousand, or 0.2% **,** of the total ALLL at December 31, 2022, compared to $26 thousand, or 0.2%, of the total ALLL at December 31, 2021. A general reserve of $14.2 million was established for loans analyzed collectively under ASC 450 "*Contingencies*" ("ASC 450"), which represented 99.8% of the total ALLL of $14.2 million at December 31, 2022. Included in the general component of the ALLL were unallocated reserves of $1.1 million, for both years ended December 31, 2022 and 2021. 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 established an unallocated reserve for the potential effect of economic uncertainty related to the pandemic. Management believes the level of the unallocated reserve continues to be appropriate at December 31, 2022 due to continued economic uncertainty related to global supply-chain issues, the war in Ukraine, current inflation levels, monetary policy tightening, among other factors. At December 31, 2022, management is not aware of any asset quality deterioration and FNCB has not experienced an increase in credit losses related to these factors. The ratio of the ALLL to total loans, net of net deferred loan origination fees and unearned income at December 31, 2022 and December 31, 2021 was 1.26% and 1.27%, respectively.

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 for additional information about FNCB's adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): "Measurement of Credit Losses on Financial Instruments."

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**

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** | **2019** | **2019** | **2018** | **2018** |
| **(dollars in thousands)** | **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** | **Percentage of Loans in Each Category to Total Loans** |
| Residential real estate | $2215 | 22.28% | $2081 | 23.86% | $1715 | 21.73% | $1147 | 22.73% | $1175 | 22.09% |
| Commercial real estate | 4193 | 33.56 | 4530 | 37.29 | 4268 | 30.32 | 3198 | 33.69 | 3107 | 31.46 |
| Construction, land acquisition and development | 747 | 5.92 | 392 | 4.24 | 538 | 6.62 | 271 | 5.75 | 188 | 2.49 |
| Commercial and industrial | 4099 | 24.22 | 2670 | 19.67 | 2619 | 26.39 | 1997 | 17.86 | 2552 | 18.08 |
| Consumer | 1307 | 8.25 | 1159 | 8.72 | 1319 | 9.51 | 1658 | 14.66 | 2051 | 18.81 |
| State and political subdivisions | 503 | 5.78 | 455 | 6.22 | 405 | 5.43 | 253 | 5.31 | 417 | 7.07 |
| Unallocated | 1129 |  | 1129 |  | 1086 |  | 426 |  | 29 |  |
| Total | $14193 | 100.00% | $12416 | 100.00% | $11950 | 100.00% | $8950 | 100.00% | $9519 | 100.00% |

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

**Reconciliation of the ALLL**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
| **(dollars in thousands)** | **2022** | **2021** | **2020** | **2019** | **2018** |
| Balance, January 1, | $12416 | $11950 | $8950 | $9519 | $9034 |
| Charge-offs: |  |  |  |  |  |
| Residential real estate | 3 | 14 |  | 27 | 63 |
| Commercial real estate |  | 11 | 336 |  | 1845 |
| Construction, land acquisition and development |  |  |  | 18 |  |
| Commercial and industrial | 69 | 218 | 254 | 1258 | 97 |
| Consumer | 1234 | 543 | 975 | 1311 | 1134 |
| State and political subdivision |  |  |  |  |  |
| Total charge-offs | 1306 | 786 | 1565 | 2614 | 3139 |
| Recoveries of charged-off loans: |  |  |  |  |  |
| Residential real estate | 3 | 17 | 43 | 9 | 135 |
| Commercial real estate | 293 | 467 | 846 | 32 | 42 |
| Construction, land acquisition and development | 10 | 13 |  | 82 | 30 |
| Commercial and industrial | 30 | 74 | 1220 | 364 | 291 |
| Consumer | 785 | 515 | 515 | 761 | 576 |
| State and political subdivision |  |  |  |  |  |
| Total recoveries | 1121 | 1086 | 2624 | 1248 | 1074 |
| Net charge-offs (recoveries) | 185 | (300) | (1059) | 1366 | 2065 |
| Provision for loan and lease losses | 1962 | 166 | 1941 | 797 | 2550 |
| Balance, December 31, | $14193 | $12416 | $11950 | $8950 | $9519 |
| **Net charge-offs (recoveries) to average loans and leases** |  |  |  |  |  |
| Residential real estate | -% | -% | (0.03)% | 0.01% | (0.05)% |
| &nbsp;&nbsp;&nbsp; Commercial real estate | (0.02) | (0.13) | (0.16) | (0.01) | 0.62 |
| &nbsp;&nbsp;&nbsp; Construction, land acquisition and development |  | (0.02) |  | (0.21) | (0.13) |
| &nbsp;&nbsp;&nbsp; Commercial and industrial | 0.36 | 0.06 | (0.43) | 0.59 | (0.12) |
| &nbsp;&nbsp;&nbsp; Consumer | 0.04 | 0.03 | 0.42 | 0.37 | 0.35 |
| &nbsp;&nbsp;&nbsp; State and political subdivision | 0.04 |  |  |  |  |
| **Net charge-offs (recoveries) to average loans and leases** | 0.02% | (0.03)% | (0.12)% | 0.16% | 0.25% |
| Ratios: |  |  |  |  |  |
| Allowance for loan and lease losses to gross loans at period end | 1.26% | 1.27% | 1.33% | 1.08% | 1.13% |
| Allowance for loan and lease losses to non-accrual loans | 513.68% | 321.41% | 214.12% | 98.52% | 202.70% |

---

**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. Deposit gathering shifted in 2022 and posed many challenges, as FNCB experienced a return of cyclicality with respect to its municipal customers, while liquidity pressures throughout the industry and heightened competition were the primary factors that caused an increase in deposit rates.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deposits de creased $34.4 million**,** or 2.4%, to $1.421 billion at December 31, 2022 from $1.455 billion at December 31, 2021 . Interest-bearing deposits decreased $20.1 million, or 1.8%, to $1.115 billion at December 31, 2022 from $1.135 billion at December 31, 2021 . In addition, non-interest-bearing deposits decreased $14.3 million, or 4.5%, to $305.8 million at December 31, 2022 from $320.1 million at December 31, 2021 . With regard to interest-bearing deposits, the decrease 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 decreased $49.4 million, or 5.8%, to $808.5 million at December 31, 2022 from $857.9 million at December 31, 2021 . Savings accounts increased $14.2 million, or 10.6%, to $148.4 million at December 31, 2022 from $134.2 million at December 31, 2021. Time deposits with balances $250 thousand and over decreased $1.6 million, or 6.1%, to $24.9 million a t December 31, 2022 , from $26.5 million at December 31, 2021, while other time deposits increased $16.6 million, or 14.3%, to $133.0 million at December 31, 2022 from $116.3 million at December 31, 2021. At December 31, 2022, other time deposits included $20.0 million in brokered time deposits outstanding that are part of an interest rate swap transaction, compared to $10.0 million at December 31, 2021.

Total deposits averaged $1.432 billion in 2022, an increase of $50.8 million, or 3.7%, compared to $1.381 billion in 2021. Non-interest-bearing demand deposits averaged $1.1 million, or 0.3%, lower at $314.1 million in 2022 as compared to $315.2 million in 2021. Interest-bearing deposits averaged $1.118 billion in 2022, an increase of $51.9 million, or 4.9%, from $1.066 billion in 2021. The increase was concentrated in average interest-bearing demand deposits which increased $50.8 million, or 6.6% comparing 2022 and 2021. Average savings deposits increased $19.3 million, or 15.5%, to $144.3 million in 2022 from $125.0 million in 2021. Partially offsetting these increases was a decrease of $18.2 million, or 10.3%, in average time deposits, to $158.0 million in 2022 from $176.2 million in 2021. FNCB's deposit funding costs increased 12 basis points, to 0.36% in 2022 from 0.24% in 2021. Rates on interest-bearing demand and savings deposits increased by 23 basis points and 5 basis points, respectively, while time deposit rates decreased by 29 basis points, comparing 2022 and 2021. Given the rising interest rate environments and increasing competition for deposits, management anticipates FNCB's deposit costs will continue to increase in 2023.

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**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
|  | **Average** |  | **Average** |  | **Average** |  |
| **(dollars in thousands)** | **Balance** | **Rate** | **Balance** | **Rate** | **Balance** | **Rate** |
| **Interest-bearing deposits:** |  |  |  |  |  |  |
| Demand | $815579 | 0.39% | $764798 | 0.16% | $611511 | 0.48% |
| Savings | 144343 | 0.12 | 125022 | 0.07 | 101847 | 0.10 |
| Time | 157991 | 0.37 | 176245 | 0.66 | 195140 | 1.22 |
| Total interest-bearing deposits | 1117913 | 0.36% | 1066065 | 0.24% | 908498 | 0.59% |
| Non-interest-bearing deposits | 314105 |  | 315181 |  | 242017 |  |
| Total deposits | $1432018 |  | $1381246 |  | $1150515 |  |

---

The following table presents the maturity distribution of time deposits in excess of insurance limit at December 31, 2022 and 2021:

**Maturity Distribution of Time Deposits $250,000 or More**

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands)** | **2022** | **2021** |
| 3 months or less | $10009 | $10740 |
| Over 3 through 6 months | 4524 | 5354 |
| Over 6 through 12 months | 7362 | 8431 |
| Over 12 months | 3007 | 2006 |
| Total | $24902 | $26531 |

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**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 $482.1 million at December 31, 2022 and $478.3 million at December 31, 2021. FNCB's maximum borrowing capacity was $394.7 million at December 31, 2022. There was $47.5 million in letters of credit to secure municipal deposits outstanding at December 31, 2022 under this agreement. There were $139.4 million in overnight advances and $32.7 million in term advances, that were hedged under interest-rate swaps through the FHLB of Pittsburgh outstanding at December 31, 2022.

Advances through the Federal Reserve Bank Discount Window generally include short-term advances which are fully collateralized by certain pledged loans of $25.8 million under the Federal Reserve Bank's Borrower-in-Custody ("BIC") program. There were no advances under the BIC program outstanding at December 31, 2022 and December 31, 2021. FNCB had available borrowing capacity of $19.0 million under this program at December 31, 2022.

FNCB also had $10.3 million of junior subordinated debentures outstanding at December 31, 2022 and 2021. The interest rate on these debentures resets quarterly at a spread of 1.67% above the current 3-month LIBOR rate. Upon the expected phase-out of LIBOR on June 30, 2023, the interest rate on the debentures will reset quarterly at a spread of 1.67% above 3-month CME Term SOFR plus 0.26161%. CME Term SOFR are administered by CME Group Benchmark Administration Limited (CBA) which is registered under Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019 (SI 2019/657) is authorized and supervised by the UK Financial Conduct Authority (FCA) and is aligned to the IOSCO Principles for Financial Benchmarks. The average interest rate paid on the junior subordinated debentures in 2022 was 3.47%, compared to 1.85% in 2021.

Average borrowed funds increased $97.3 million to $109.5million in 2022 from $12.2 million in 2021. The average rate paid on borrowed funds increased 91 basis points to 2.52% in 2022 from 1.61% in 2021. The increase in rate on borrowed funds reflected higher average volumes of overnight and short-term borrowings through the FHLB of Pittsburgh in 2022 as compared to 2021, as short-term borrowing rates were at historical lows. Average borrowed funds in 2022 was comprised mainly of overnight advances through the FHLB of Pittsburgh.

See Note 8, "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 funds, diversification between funding sources and asset/liability management strategies. FNCB utilizes brokered deposits, including one-way purchases through the IntraFi**<sup>SM</sup>** 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 $41.9 million at December 31, 2022, a decrease of $57.1 million, or 57.7%, from $99.0 million at December 31, 2021, 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 $184.6 million of cash and cash equivalents during the year ended December 31, 2022. Accounting for the majority of the net cash outflow was a net increase in loans and leases of $144.5 million, which reflected 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. Additionally, cash outflows for purchases of available-for-sale debt securities, net of inflows for sales, maturities, calls and repayments, were $26.2 million in 2022. Also contributing to the net cash outflow for investing activities were purchases of $6.6 million in restricted stock, $3.2 million in equity securities, $3.0 million in new BOLI policies and $2.2 million for the initial investment in a LIHTC program.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financing activities provided $107.5 million in net cash, which resulted primarily from the proceeds from overnight and net term advances through the FHLB of Pittsburgh, of $139.4 million and $12.7 million, respectively. These inflows were slightly offset by the $34.4 million decrease in deposits, net cash used to pay dividends to shareholder dividends of $6.5 million and to repurchase shares of common stock totaling $3.6 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 2022, operating activities provided FNCB with $20.0 million in net cash, which reflected net income of $20.4 million, net of a reduction for non-cash negative adjustments of $475 thousand.

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Management is actively monitoring FNCB's liquidity position and capital adequacy in light of the changing circumstances related to economic uncertainty, liquidity constraints, current inflation levels, rising interest rates and increased competition. Management believes that FNCB's current liquidity position is sufficient to meet its cash flow needs as of December 31, 2022. In addition to cash and cash equivalents of $41.9 million at December 31, 2022, FNCB had ample sources of additional liquidity including approximately $394.5 million in available borrowing capacity with the FHLB of Pittsburgh, and available borrowing capacity through The Federal Reserve Discount Window of $19.0 million under the BIC program. In addition, FNCB had $75.0 million in federal fund lines of credit available through correspondent banks at December 31, 2022, as well as access to wholesale deposit markets. While management believes FNCB has adequate liquidity to meet its cash flow needs, they are keenly aware that changes in general economic conditions, including inflation, further increases in interest rates and competition, among other factors, could pose potential stress on liquidity should deposits begin exiting the Bank and/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 continually monitors FNCB's liquidity positions and sources of available liquidity in relation to funding and cash flow need and evaluates potential sources of additional liquidity. Management is currently evaluating FNCB's ability to pledge equipment loans originated under 1st Equipment Finance and increase borrowing capacity through the Federal Reserve Discount Window under the BIC program.

**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 15, "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, 2022 and 2021, and selected other capital ratios:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **FNCB Bank** | **FNCB Bank** | **Minimum Required For Capital Adequacy Purposes** | **Minimum Required For Capital Adequacy Purposes with Conservation Buffer** | **Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations** |
| **(dollars in thousands)** | **Amount** | **Ratio** | **Ratio** | **Ratio** | **Ratio** |
| December 31, 2022 |  |  |  |  |  |
| Total capital (to risk-weighted assets) | $169984 | 13.11% | 8.00% | 10.50% | 10.00% |
| Tier I capital (to risk-weighted assets) | 154842 | 11.94% | 6.00% | 8.50% | 8.00% |
| Tier I common equity (to risk-weighted assets) | 154842 | 11.94% | 4.50% | 7.00% | 6.50% |
| Tier I capital (to average assets) | 154842 | 8.77% | 4.00% | 4.00% | 5.00% |
| Total risk-weighted assets | 1296618 |  |  |  |  |
| Total average assets | 1765251 |  |  |  |  |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **FNCB Bank** | **FNCB Bank** | **Minimum Required For Capital Adequacy Purposes** | **Minimum Required For Capital Adequacy Purposes with Conservation Buffer** | **Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations** |
| **(dollars in thousands)** | **Amount** | **Ratio** | **Ratio** | **Ratio** | **Ratio** |
| December 31, 2021 |  |  |  |  |  |
| Total capital (to risk-weighted assets) | $161957 | 14.64% | 8.00% | 10.50% | 10.00% |
| Tier I capital (to risk-weighted assets) | 148958 | 13.46% | 6.00% | 8.5% | 8.00% |
| Tier I common equity (to risk-weighted assets) | 148958 | 13.46% | 4.50% | 7.00% | 6.50% |
| Tier I capital (to average assets) | 148958 | 8.92% | 4.00% | 4.00% | 5.00% |
| Total risk-weighted assets | 1106636 |  |  |  |  |
| Total average assets | 1669932 |  |  |  |  |

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FNCB's total regulatory capital increased $8.0 million to $170.0 million at December 31, 2022 from $162.0 million at December 31, 2021. 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, 2022 and 2021. There are no conditions or events since this notification that management believes have changed this category.

As of December 31, 2022, FNCB had 30,132,391 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 15, "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, 2022 and 2021.

On January 25, 2023, FNCB's Board of Directors authorized the repurchase of up to 750,000 shares of FNCB's outstanding common stock may be acquired in the open market commencing no earlier than March 3, 2023 and expiring on December 31, 2023 pursuant to a trading plan that was adopted in accordance with rule 10b5-1 of the Exchange Act. Repurchases under this program 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 2022 and 2021, the Board of Directors had authorized a similar program under which 384,830 and 330,759 common shares were repurchased, respectively.

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 2022 and 2021 were $0.33 per share and $0.27per share, respectively. FNCB offers a Dividend Reinvestment and Stock Purchase plan ("DRP") to its shareholders. For the years ended December 31, 2022 and 2021 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 5,089 and 12,189 for the years ended December 31, 2022 and 2021, respectively. Subsequent to December 31, 2022, on January 25, 2023, FNCB declared a $0.090 per share dividend payable on March 15, 2023 to shareholders of record on March 1, 2023.

**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, 2022, 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 13, "Commitments, Contingencies, and Concentrations" to the Notes to 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, 2022 and 2021. 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, 2022 expire within one year of their respective contract dates.

**Off-Balance Sheet Commitments**

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Commitments to extend credit | $301300 | $273883 |
| Standby letters of credit | 17923 | 17179 |

---

In order to provide for probable losses inherent in these instruments, FNCB recorded reserves for unfunded commitments of $949 thousand and $583 thousand at December 31, 2022 and 2021, 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 consider the impact of inflation and rising interest rates on FNCB borrowers in managing credit risk related to the loan and lease portfolio.

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**I** **tem 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, ceased to be published. Additionally, effective January 1, 2022, no new financial instruments could be written with terms tied to LIBOR. Accordingly, FNCB has not written any loans with terms tied to LIBOR during the year ended December 31, 2022. 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, evaluating any risks involved and has amended loan documents as necessary.

*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 Simulation s:*

 

*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.

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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, 2022 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, 2022 levels:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Rates +200** | **Rates +200** | **Rates +400** | **Rates +400** | **Rates -100** | **Rates -100** |
|  | **Simulation** | **Policy** | **Simulation** | **Policy** | **Simulation** | **Policy** |
|  | **Results** | **Limit** | **Results** | **Limit** | **Results** | **Limit** |
| Earnings at risk: |  |  |  |  |  |  |
| Percent change in net interest income | (14.2)% | (12.5)% | (27.8)% | (20.0)% | 4.0% | (10.0)% |
| Economic value at risk: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Percent change in economic value of equity | (9.3)% | (20.0)% | (20.0)% | (35.0)% | 2.5% | (10.0)% |

---

Model results at December 31, 2022 indicated that FNCB's asset/liability position was liability-rate sensitive over the next 18-24 months. At December 31, 2022, the model indicated that FNCB's net interest income is expected to decrease 14.2% under a +200-basis point interest rate shock, as compared to the base case, caused by spread compression due to increased wholesale funding and deposit migration into higher-yielding alternatives and certificate of deposit specials. Under this scenario, projected net interest income is expected to improve in years 3 through 5 of the 5-year simulation driven by asset cashflows replaced into higher assumed replacement rates outpacing the increase in funding costs from certificate of deposit maturities rolling into higher-costing specials. The percentage change in net interest income in under the +200 and +400-basis point shock scenarios exceed policy guidelines at December 31, 2022. As part of its ALCO initiatives, management is currently evaluating various strategies to reduce FNCB's liability sensitivity and will execute such strategies as appropriate. Model results also indicate a 4.0% increase to net interest income from the base case over the next 12 months under a rate shock of -100 basis points, as asset yields less of a decline as compared to overnight funding costs. Additionally, with respect to FNCB's EVE, all modeled exposures are within policy guidelines.

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, 2022 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, 2022 of approximately $0.8 million, or 5.96%. The variance primarily reflected a difference in the assumption for the pricing of wholesale borrowing due to additional rate increases. ALCO performs a detailed rate/volume analysis between actual and projected results to continue to improve the accuracy of its simulation models.

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**Ite** **m 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 (the "Company") as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income (loss), 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, 2022 and 2021, 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 Matter**

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 the 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 44

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**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.

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 non-accrual 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. 

/s/ Baker Tilly US, LLP

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

Baker Tilly US, LLP

Iselin, New Jersey

March 10, 2023

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| |
|:---|
| **FNCB BANCORP, INC. AND SUBSIDIARIES** |
| **CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION** |

---

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands, except share data)** | **2022** | **2021** |
| **Assets** |  |  |
| Cash and cash equivalents: |  |  |
| &nbsp;&nbsp;&nbsp; Cash and due from banks | $26588 | $16651 |
| &nbsp;&nbsp;&nbsp; Interest-bearing deposits in other banks | 15328 | 82369 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total cash and cash equivalents | 41916 | 99020 |
| Available-for-sale debt securities | 476091 | 522566 |
| Equity securities, at fair value | 7717 | 4922 |
| Restricted stock, at cost | 8545 | 1911 |
| Loans held for sale | 60 |  |
| Loans and leases, net of allowance for loan and lease losses of $14,193 and $12,416 | 1110124 | 967023 |
| Bank premises and equipment, net | 15616 | 16082 |
| Accrued interest receivable | 5957 | 4643 |
| Bank-owned life insurance | 36499 | 33494 |
| Other assets | 43005 | 14662 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total assets** | $1745530 | $1664323 |
| **Liabilities** |  |  |
| Deposits: |  |  |
| &nbsp;&nbsp;&nbsp; Demand (non-interest-bearing) | $305850 | $320089 |
| &nbsp;&nbsp;&nbsp; Interest-bearing | 1114797 | 1134939 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deposits | 1420647 | 1455028 |
| Borrowed funds: |  |  |
| &nbsp;&nbsp;&nbsp; Federal Home Loan Bank of Pittsburgh advances | 172050 | 20000 |
| &nbsp;&nbsp;&nbsp; Junior subordinated debentures | 10310 | 10310 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total borrowed funds | 182360 | 30310 |
| Accrued interest payable | 171 | 49 |
| Other liabilities | 23403 | 16479 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total liabilities** | 1626581 | 1501866 |
| **Shareholders' equity** |  |  |
| Preferred stock ($1.25 par) |  |  |
| &nbsp;&nbsp;&nbsp; Authorized: 20,000,000 shares at December 31, 2022 and December 31, 2021 |  |  |
| &nbsp;&nbsp;&nbsp; Issued and outstanding: 0 shares at December 31, 2022 and December 31, 2021 |  |  |
| Common stock ($1.25 par) |  |  |
| &nbsp;&nbsp;&nbsp; Authorized: 50,000,000 shares at December 31, 2022 and December 31, 2021 |  |  |
| &nbsp;&nbsp;&nbsp; Issued and outstanding: 19,681,644 shares at December 31, 2022 and 19,989,875 shares at December 31, 2021 | 24602 | 24987 |
| Additional paid-in capital | 77502 | 80128 |
| Retained earnings | 64873 | 50990 |
| Accumulated other comprehensive (loss) income | (48028) | 6352 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total shareholders' equity** | 118949 | 162457 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total liabilities and shareholders**' **equity** | $1745530 | $1664323 |

---

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

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| |
|:---|
| **FNCB BANCORP, INC. AND SUBSIDIARIES** |
| **CONSOLIDATED STATEMENTS OF INCOME** |

---

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
| **(in thousands, except share data)** | **2022** | **2021** |
| **Interest income** |  |  |
| Interest and fees on loans and leases | $47193 | $41049 |
| Interest and dividends on securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Taxable | 10281 | 8237 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tax-exempt | 2662 | 2086 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dividends | 549 | 239 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total interest and dividends on securities | 13492 | 10562 |
| Interest on interest-bearing deposits in other banks | 91 | 88 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total interest income** | 60776 | 51699 |
| **Interest expense** |  |  |
| Interest on deposits | 3970 | 2508 |
| Interest on borrowed funds: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Federal Reserve Bank Discount Window advances | 3 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Federal Home Loan Bank of Pittsburgh advances | 2401 | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Junior subordinated debentures | 358 | 191 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total interest on borrowed funds | 2762 | 197 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total interest expense** | 6732 | 2705 |
| **Net interest income before provision for loan and lease losses** | 54044 | 48994 |
| Provision for loan and lease losses | 1962 | 166 |
| **Net interest income after provision for loan and lease losses** | 52082 | 48828 |
| **Non-interest income**  |  |  |
| Deposit service charges | 4415 | 3877 |
| Net (loss) gain on the sale of available-for-sale debt securities | (223) | 213 |
| Net (loss) gain on equity securities | (34) | 701 |
| Net gain on the sale of mortgage loans held for sale | 205 | 352 |
| Loan-related fees | 243 | 390 |
| Income from bank-owned life insurance | 710 | 541 |
| Bank-owned life insurance settlement | 273 | 426 |
| Merchant services revenue | 712 | 593 |
| Other | 1680 | 1175 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total non-interest income**  | 7981 | 8268 |
| **Non-interest expense** |  |  |
| Salaries and employee benefits | 19283 | 16697 |
| Occupancy expense | 2093 | 2039 |
| Equipment expense | 1295 | 1338 |
| Advertising expense | 801 | 712 |
| Data processing expense | 4027 | 3689 |
| Regulatory assessments | 811 | 609 |
| Bank shares tax | 915 | 975 |
| Professional fees | 1273 | 674 |
| Other operating expenses | 4976 | 4336 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total non-interest expense** | 35474 | 31069 |
| **Income before income tax expense** | 24589 | 26027 |
| Income tax expense | 4144 | 4656 |
| **Net income**  | $20445 | $21371 |
| **Earnings per share** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic | $1.04 | $1.06 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted | $1.03 | $1.06 |
| **Cash dividends declared per common share**  | $0.33 | $0.27 |
| **WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic | 19744477 | 20111430 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted | 19762566 | 20126853 |

---

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 47

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| |
|:---|
| **FNCB BANCORP, INC. AND SUBSIDIARIES** |
| **CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME** |

---

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Net income | $20445 | $21371 |
| Other comprehensive loss: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unrealized (losses) on available-for-sale debt securities | (69809) | (9711) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Taxes | 14660 | 2039 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net of tax amount | (55149) | (7672) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Reclassification adjustment for losses (gains) included in net income | 223 | (213) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Taxes | (47) | 45 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net of tax amount | 176 | (168) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Derivative adjustments | 750 | 388 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Taxes | (157) | (82) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net of tax amount | 593 | 306 |
| Total other comprehensive loss | (54380) | (7534) |
| Comprehensive (loss) income | $(33935) | $13837 |

---

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 48

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| |
|:---|
| **FNCB BANCORP, INC. AND SUBSIDIARIES** |
| **CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY** |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Years Ended December 31, 2022 and 2021** | **For the Years Ended December 31, 2022 and 2021** | **For the Years Ended December 31, 2022 and 2021** | **For the Years Ended December 31, 2022 and 2021** | **For the Years Ended December 31, 2022 and 2021** | **For the Years Ended December 31, 2022 and 2021** |
|  |  |  |  |  | **Accumulated** |  |
|  | ***Number*** |  | ***Additional*** |  | ***Other*** | ***Total*** |
|  | ***of Common*** | ***Common*** | ***Paid-in*** | ***Retained*** | ***Comprehensive*** | ***Shareholders'*** |
| **(in thousands, except share data)** | ***Shares*** | ***Stock*** | ***Capital*** | ***Earnings*** | ***Income (Loss)*** | ***Equity*** |
| Balances, December 31, 2020 | 20245649 | $25307 | $81587 | $35080 | $13886 | $155860 |
| Net income | *-* |  |  | 21371 |  | 21371 |
| Cash dividends paid, $0.27 per share | *-* |  |  | (5427) |  | (5427) |
| Restricted stock awards | *-* |  | 376 |  |  | 376 |
| Repurchase of common shares | (330759) | (413) | (1984) |  |  | (2397) |
| Common shares issued under long-term incentive compensation plan | 62796 | 78 | 72 |  |  | 150 |
| Common shares issued through dividend reinvestment/optional cash purchase plan | 12189 | 15 | 77 | (34) |  | 58 |
| Other comprehensive loss net of tax of $2,002 | *-* |  |  |  | (7534) | (7534) |
| Balances, December 31, 2021 | 19989875 | $24987 | $80128 | $50990 | $6352 | $162457 |
| Net income | *-* |  |  | 20445 |  | 20445 |
| Cash dividends paid, $0.33 per share | *-* |  |  | (6520) |  | (6520) |
| Restricted stock awards | *-* |  | 448 |  |  | 448 |
| Repurchase of common shares | (384830) | (481) | (3155) |  |  | (3636) |
| Common shares issued under long-term incentive compensation plan | 71510 | 89 | 46 |  |  | 135 |
| Common shares issued through dividend reinvestment/optional cash purchase plan | 5089 | 7 | 35 | (42) |  |  |
| Other comprehensive loss, net of tax of $14,456 | *-* |  |  |  | (54380) | (54380) |
| Balances, December 31, 2022 | 19681644 | $24602 | $77502 | $64873 | $(48028) | $118949 |

---

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 49

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**FNCB BANCORP, INC AND SUBSIDIARIES**<br> **CONSOLIDATED STATEMENTS OF CASH FLOWS**<br>

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,**  | **For the Year Ended December 31,**  |
| **(in thousands)** | **2022** | **2021** |
| **Cash flows from operating activities:** |  |  |
| Net income | $20445 | $21371 |
| **Adjustments to reconcile net income to net cash provided by operating activities:** |  |  |
| Investment securities amortization, net | 2883 | 2059 |
| Equity in trust | (11) | (6) |
| Depreciation of bank premises and equipment | 1565 | 1567 |
| Amortization of loan origination fees | (466) | (4793) |
| Valuation adjustment for loan servicing rights | (3) | (16) |
| Stock-based compensation expense | 583 | 526 |
| Provision for loan and lease losses | 1962 | 166 |
| Valuation adjustment for off-balance sheet commitments | 366 | (30) |
| Net (loss) gain on the sale of available-for-sale debt securities | 223 | (213) |
| Net (loss) gain on equity securities | 34 | (701) |
| Net gain on the sale of mortgage loans held for sale | (205) | (352) |
| Net gain on other real estate owned | (3) | (11) |
| Valuation adjustment of other real estate owned |  | (36) |
| Loss on the disposition of bank premises and equipment |  | 300 |
| Bank-owned life insurance settlement | (273) | (426) |
| Income from bank-owned life insurance | (710) | (541) |
| Proceeds from the sale of mortgage loans held for sale | 9444 | 9778 |
| Funds used to originate mortgage loans held for sale | (9299) | (7319) |
| (Increase) decrease in net deferred tax assets | (573) | 387 |
| Increase in accrued interest receivable | (1314) | (357) |
| Increase in other assets | (1163) | (672) |
| Increase (decrease) in accrued interest payable | 122 | (59) |
| (Decrease) increase in other liabilities | (3637) | 3536 |
| Total adjustments | (475) | 2787 |
| **Net cash provided by operating activities** | 19970 | 24158 |
| **Cash flows from investing activities:** |  |  |
| Maturities, calls and principal payments of available-for-sale debt securities | 37876 | 36666 |
| Proceeds from the sale of available-for-sale debt securities | 14004 | 2981 |
| Purchases of available-for-sale debt securities | (78097) | (223949) |
| Purchase of equity securities | (3188) | (1195) |
| Purchase of restricted stock | (6634) | (166) |
| Proceeds from the sale of equity securities | 359 |  |
| Net increase in loans and leases to customers | (144506) | (73238) |
| Proceeds from the sale of other real estate owned | 695 | 243 |
| Proceeds received from bank-owned life insurance settlement | 978 | 1685 |
| Purchase of bank-owned life insurance | (3000) | (2500) |
| Investment in low-income housing tax credit program | (2203) |  |
| Purchases of bank premises and equipment | (871) | (1290) |
| **Net cash used in investing activities** | (184587) | (260763) |
| **Cash flows from financing activities:** |  |  |
| Net (decrease) increase in deposits | (34381) | 167580 |
| Proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight | 139400 |  |
| Proceeds from Federal Home Loan Bank of Pittsburgh advances - term | 42650 | 20000 |
| Repayment of Federal Home Loan Bank of Pittsburgh advances - term | (30000) |  |
| Repurchase of common shares | (3636) | (2397) |
| Proceeds from issuance of common shares, net of discount |  | 58 |
| Cash dividends paid | (6520) | (5427) |
| **Net cash provided by financing activities** | 107513 | 179814 |
| **Net decrease in cash and cash equivalents** | (57104) | (56791) |
| **Cash and cash equivalents at beginning of year** | 99020 | 155811 |
| **Cash and cash equivalents at end of year** | $41916 | $99020 |
| **Supplemental cash flow information** |  |  |
| Cash paid during the period for: |  |  |
| Interest | $6610 | $2764 |
| Taxes | 4616 | 4480 |
| Other transactions: |  |  |
| Commitment in low-income housing tax credit program | 8811 |  |
| Loans transferred to OREO |  | 138 |
| OREO transferred to bank premises and equipment | 228 |  |
| Lease liabilities arising from obtaining right-of-use assets | 559 | 60 |

---

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50

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**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 *16* full-service branch locations, as of *December 31, 2022,* 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, 2022* and *2021.*

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, 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, 2022* and *2021,* the amount of these balances were $2.1 million and $1.7 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 (loss) 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, 2022* and *2021*.

Equity securities with readily determinable fair values are reported at fair value with net unrealized gains and losses recognized non-interest income 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 Stock*

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").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *51*

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*Equity Securities without Readily *Determinable Fair Value*s*

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.

**Loans and Leases**

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.

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**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.

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.

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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:

<u>Construction, Land Acquisition and Development</u> - 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, hotels, 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.

<u>Commercial Real Estate</u> - 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.

<u>Commercial and Industrial</u> **-** 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.

<u>State and Political Subdivision</u> - 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.

<u>Residential Real Estate</u> - 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 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.

<u>Consumer</u> – 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.

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**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:

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| | | | |
|:---|:---|:---|:---|
| Buildings and improvements (years) | 5 | *to* | 40 |
| Furniture, fixtures and equipment (years) | 3 | *to* | 20 |
| Leasehold improvements (years) | 3 | *to* | 35 |

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**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 *2019.*

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 ta*x* positions at *December 31, 2022* and *2021*.

**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 $101 thousand and $99 thousand at *December 31, 2022* and *2021*, respectively, and is reflected in other liabilities on the consolidated statements of financial condition.

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**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 records revenue from contracts with customers in accordance with ASC *606,* "Revenue from Contracts with Customers." 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, investment securities and other financial instruments, which are *not* within the scope of ASC *606.* FNCB has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the consolidated statements of income was *not* necessary. In general, FNCB fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. FNCB earns non-interest income from various banking services offered by the Bank and other transactions that are within the scope of ASC *606* 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. 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 (losses) 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 (losses) on the sale of equity securities - Gains or losses realized from the sale of equity securities are recorded to non-interest income on the settlement date.

● Net gains (losses) on the sale of mortgage loans held for sale - Gains or losses realized on the sale of mortgages held for sale are recorded to non-interest income on the settlement date.

● Loan-related fees - include servicing fees received on loans sold for which FNCB has retained the servicing, net of amortization for mortgage servicing rights.

● Merchant services revenue - Merchant services fees represent interchange revenue generated from the processing of merchant card payments on behalf of certain business customers. Merchant services fee income is transactional in nature and is recognized in income monthly when FNCB's performance obligation is complete, which is generally the time that payment is received.

● Other income – primarily includes wealth management fee income, interest rate swap revenue 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. Wealth management services fee income is transactional in nature and is recognized in income monthly when FNCB's performance obligation is complete, which is generally the time that payment is received. Interest rate swap revenue represents net fees FNCB receives from a counterparty for completing loan swap transactions, which FNCB receives at the time the loan closes. Interest rate swap revenue is non-refundable, is *not* tied to the loan and FNCB has *no* future obligation to the counterparty related to such fees. Accordingly, FNCB records interest rate swap revenue in non-interest income upon receipt. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Comprehensive (Loss) 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 (loss) income.

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**New Authoritative Accounting Guidance**

Accounting Standards Update ("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 requires that 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. 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.* As a smaller reporting company, FNCB adopted this guidance on *January 1, 2023.* In implementing this guidance, FNCB formed a CECL task group comprised of members of management for its finance, credit administration, lending, internal audit, loan operations and information systems units. The CECL task group has evaluated the impact of the current expected loss methodology to identify the necessary modifications in accordance with this standard which will require a change in the processes and procedures to calculated the allowance for loan and lease losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current incurred loss methodology. FNCB also engaged a *third*-party consultant to assist and provide guidance in determining the appropriate methodology for each segment and evaluating qualitative factors and economic data to develop appropriate forecasts for integration into the model. Management has determined that peer loss experience provides the best basis for its assessment of expected credit losses to determine FNCB's allowance and has run parallel model results in preparation for adopting the new guidance on *January 1, 2023.* FNCB engaged another *third*-party consultant that performed an independent validation of the model. Management continues to finalize documentation on the methodologies utilized as well as the controls, processes, policies and disclosures. FNCB will recognize a cumulative effect adjustment to the opening retained earnings as of the adoption date. Management currently estimates the allowance for credit losses will be in a range of $11.5 million to $11.8 million, decreasing the allowance by approximately $2.4 million to $2.6 million. The estimated increase to equity, net of tax, will range from $1.9 million to $2.1 million. The actual impact will depend on a number of internal and external factors including: outstanding loan balances, characteristics of FNCB's loan and securities portfolios, macroeconomic conditions, forecast information and management's judgement. Management is currently evaluating the impact of the reserve for unfunded commitments. Additionally, adoption of ASU *2016*-*13* could result in higher volatility in our quarterly credit loss provision than the current reserve process and could adversely impact FNCB's ongoing results of operations.

ASU *2022*-*02,* Financial Instruments—Credit Losses (Topic *326*): "Troubled Debt Restructurings and Vintage Disclosures," eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic *326*-*20.* Gross charge-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph *326*-*20*-*50*-*6,* which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The amendments in this update are effective for fiscal years beginning after *December 15, 2022,* including interim periods within those fiscal years. These amendments should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, which an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU *No. 2016*-*13,* including adoption in an interim period. If an entity elects to early adopt ASU *No. 2022*-*02* in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity *may* elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in ASU *2022*-*02* are effective upon FNCB's adoption of ASU *2016*-*13.*

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* did *not* have a material effect on the operating results or financial position of FNCB.

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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.

**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, 2022* and *2021*:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** |
|  |  | ***Gross*** | ***Gross*** |  |
|  |  | ***Unrealized*** | ***Unrealized*** |  |
|  | ***Amortized*** | ***Holding*** | ***Holding*** | ***Fair*** |
| **(in thousands)** | ***Cost*** | ***Gains*** | ***Losses*** | ***Value*** |
| **Available-for-sale debt securities:** |  |  |  |  |
| U.S. Treasury | $36801 | $- | $4667 | $32134 |
| Obligations of state and political subdivisions | 250244 | 90 | 29552 | 220782 |
| U.S. government/government-sponsored agencies: |  |  |  |  |
| Collateralized mortgage obligations - residential | 93577 |  | 13170 | 80407 |
| Collateralized mortgage obligations - commercial | 3649 |  | 320 | 3329 |
| Mortgage-backed securities | 23332 | 1 | 2670 | 20663 |
| Private collateralized mortgage obligations | 80648 |  | 8141 | 72507 |
| Corporate debt securities | 33630 |  | 2958 | 30672 |
| Asset-backed securities | 15287 | 5 | 351 | 14941 |
| Negotiable certificates of deposit | 744 |  | 88 | 656 |
| Total available-for-sale debt securities | $537912 | $96 | $61917 | $476091 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  |  | **Gross** | **Gross** |  |
|  |  | **Unrealized** | **Unrealized** |  |
|  | ***Amortized*** | ***Holding***  | ***Holding***  | ***Fair*** |
| **(in thousands)** | ***Cost*** | ***Gains*** | ***Losses*** | ***Value*** |
| **Available-for-sale debt securities:** |  |  |  |  |
| U.S. Treasury | $36751 | $1 | $397 | $36355 |
| Obligations of state and political subdivisions | 235489 | 9651 | 768 | 244372 |
| U.S. government/government-sponsored agencies: |  |  |  |  |
| Collateralized mortgage obligations - residential | 101321 | 1158 | 1769 | 100710 |
| Collateralized mortgage obligations - commercial | 3685 | 87 | 45 | 3727 |
| Mortgage-backed securities | 25467 | 263 | 224 | 25506 |
| Private collateralized mortgage obligations | 68137 | 60 | 1032 | 67165 |
| Corporate debt securities | 31300 | 940 | 177 | 32063 |
| Asset-backed securities | 11907 | 42 | 17 | 11932 |
| Negotiable certificates of deposit | 744 |  | 8 | 736 |
| Total available-for-sale debt securities | $514801 | $12202 | $4437 | $522566 |

---

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, 2022* or *2021*.

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The following table presents the maturity information of FNCB's available-for-sale debt securities at *December 31, 2022*. 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, 2022*** | ***December 31, 2022*** |
|  | ***Amortized*** | ***Fair*** |
| **(in thousands)** | ***Cost*** | ***Value*** |
| **Available - for-sale debt securities:** |  |  |
| Amounts maturing in: |  |  |
| One year or less | $17709 | $17535 |
| After one year through five years | 65344 | 61839 |
| After five years through ten years | 112971 | 97101 |
| After ten years | 125395 | 107769 |
| Collateralized mortgage obligations | 177874 | 156243 |
| Mortgage-backed securities | 23332 | 20663 |
| Asset-backed securities | 15287 | 14941 |
| Total | $537912 | $476091 |

---

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, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***Year Ended December 31,*** | ***Year Ended December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| **Available-for-sale debt securities:** |  |  |
| Gross proceeds received on sales | $14004 | $2981 |
| Gross proceeds received on redemption |  | 1000 |
| Gross realized gains on sales | 78 | 213 |
| Gross realized losses on sales | (301) |  |

---

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, 2022* and *2021*, aggregated by investment category and length of time the securities have been in an unrealized loss position:

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** |
|  | ***Less than 12 Months*** | ***Less than 12 Months*** | ***Less than 12 Months*** | ***12 Months or Longer*** | ***12 Months or Longer*** | ***12 Months or Longer*** | ***Total*** | ***Total*** | ***Total*** |
|  | ***Number*** |  | ***Gross*** | ***Number*** |  | ***Gross*** | ***Number*** |  | ***Gross*** |
|  | ***of*** | ***Fair*** | ***Unrealized*** | ***of*** | ***Fair*** | ***Unrealized*** | ***of*** | ***Fair*** | ***Unrealized*** |
| **(dollars in thousands)** | ***Securities*** | ***Value*** | ***Losses*** | ***Securities*** | ***Value*** | ***Losses*** | ***Securities*** | ***Value*** | ***Losses*** |
| U.S. Treasuries |  | $- | $- | 17 | $32134 | $4667 | 17 | $32134 | $4667 |
| Obligations of state and political subdivisions | 128 | 146932 | 12751 | 94 | 69872 | 16801 | 222 | 216804 | 29552 |
| U.S. government/government-sponsored agencies: |  |  |  |  |  |  |  |  |  |
| Collateralized mortgage obligations - residential | 16 | 26826 | 3407 | 26 | 53581 | 9763 | 42 | 80407 | 13170 |
| Collateralized mortgage obligations - commercial | 2 | 1911 | 94 | 1 | 1418 | 226 | 3 | 3329 | 320 |
| Mortgage-backed securities | 7 | 8569 | 219 | 7 | 11998 | 2451 | 14 | 20567 | 2670 |
| Private collateralized mortgage obligations | 29 | 27705 | 1213 | 28 | 42819 | 6928 | 57 | 70524 | 8141 |
| Corporate debt securities | 18 | 21325 | 1805 | 11 | 9347 | 1153 | 29 | 30672 | 2958 |
| Asset-backed securities | 5 | 7295 | 179 | 5 | 3988 | 172 | 10 | 11283 | 351 |
| Negotiable certificates of deposit |  |  |  | 3 | 656 | 88 | 3 | 656 | 88 |
| Total | 205 | $240563 | $19668 | 192 | $225813 | $42249 | 397 | $466376 | $61917 |

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Less than 12 Months** | **Less than 12 Months** | **Less than 12 Months** | **12 Months or Longer** | **12 Months or Longer** | **12 Months or Longer** | **Total** | **Total** | **Total** |
|  | **Number**  |  | **Gross** | **Number**  |  | **Gross** | **Number**  |  | **Gross** |
|  | **of** | **Fair** | **Unrealized** | **of** | **Fair** | **Unrealized** | **of** | **Fair** | **Unrealized** |
| **(dollars in thousands)** | **Securities** | **Value** | **Losses** | **Securities** | **Value** | **Losses** | **Securities** | **Value** | **Losses** |
| U.S. Treasuries | 16 | $35394 | $397 |  | $- | $- | 16 | $35394 | $397 |
| Obligations of state and political subdivisions | 41 | 36107 | 702 | 2 | 1257 | 66 | 43 | 37364 | 768 |
| U.S. government/government-sponsored agencies: |  |  |  |  |  |  |  |  |  |
| Collateralized mortgage obligations - residential | 20 | 58848 | 1530 | 2 | 5713 | 239 | 22 | 64561 | 1769 |
| Collateralized mortgage obligations - commercial | 1 | 1632 | 45 |  |  |  | 1 | 1632 | 45 |
| Mortgage-backed securities | 6 | 14585 | 204 | 1 | 1596 | 20 | 7 | 16181 | 224 |
| Private collateralized mortgage obligations | 22 | 44425 | 897 | 3 | 6213 | 135 | 25 | 50638 | 1032 |
| Corporate debt securities | 9 | 7643 | 107 | 2 | 2180 | 70 | 11 | 9823 | 177 |
| Asset-backed securities | 4 | 3810 | 14 | 2 | 1293 | 3 | 6 | 5103 | 17 |
| Negotiable certificates of deposit | 3 | 736 | 8 |  |  |  | 3 | 736 | 8 |
| Total | 122 | $203180 | $3904 | 12 | $18252 | $533 | 134 | $221432 | $4437 |

---

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, 2022* and determined that changes in the fair values of the securities were consistent with movements in market interest rates and spreads or general market conditions. 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, 2022*. 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, 2022*.

*Equity Securities* 

Included in equity securities with readily determinable fair values at *December 31, 2022* and *December 31, 2021* 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, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***Year Ended December 31,*** | ***Year Ended December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Net (loss) gain recognized on equity securities | $(34) | $701 |
| Less: net gains recognized on equity securities sold/acquired | 118 |  |
| Unrealized (loss) gain recognized on equity securities | $(152) | $701 |

---

*Equity Securities and Equity Securities without Readily Determinable Fair Value*

At *December 31, 2022* and *December 31, 2021,* 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, 2022* and *2021,* which indicated that the investment was *not* impaired. Accordingly, management determined that *no* adjustment for impairment was required at *December 31, 2022* and *December 31, 2021.*

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*Restricted Stock*

The following table presents FNCB's investment in restricted securities at *December 31, 2022* and *2021*. 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, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***December 31,*** | ***December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Stock in Federal Home Loan Bank of Pittsburgh | $8535 | $1901 |
| Stock in Atlantic Community Bankers Bank | 10 | 10 |
| Total restricted securities, at cost | $8545 | $1911 |

---

**Note *4*. LOANS AND LEASES**

The following table summarizes loans and leases receivable, net, by major category at *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***December 31,*** | ***December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Residential real estate | $250221 | $234113 |
| Commercial real estate | 376976 | 366009 |
| Construction, land acquisition and development | 66555 | 41646 |
| Commercial and industrial | 272024 | 193086 |
| Consumer | 92612 | 85522 |
| State and political subdivisions | 64955 | 61071 |
| Total loans and leases, gross | 1123343 | 981447 |
| Unearned income | (810) | (1442) |
| Net deferred origination fees | 1784 | (566) |
| Allowance for loan and lease losses | (14193) | (12416) |
| Loans and leases, net | $1110124 | $967023 |

---

Included in commercial and industrial loans and leases at *December 31, 2022* and *December 31, 2021* were $1.3 million and $21.9 million, respectively, of loans originated under the Small Business Administration ("SBA") Payment Protection Program ("PPP"). Included in net deferred origination fees at *December 31, 2022* and *December 31, 2021,* were $40 thousand and $1.0 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, 2022* and *2021.*

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. Simple interest loans and direct finance leases originated under this initiative are included in commercial and industrial loans, tax-free municipal leases originated under this initiative are included in state and political subdivision loans. Simple interest loans and direct finance leases were $79.3 million and $7.9 million, respectively at *December 31, 2022* and *2021.* Tax-free municipal leases were $4.4 million at *December 31, 2022* and $2.4 million at *December 31, 2021.*

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 *12,* "Related Party Transactions" to these consolidated financial statements.

For information about credit concentrations within FNCB's loan portfolio, refer to Note *13,* "Commitments, Contingencies and Concentrations" to these consolidated financial statements.

FNCB originates *1*- *4* family residential mortgage loans for sale in the secondary market. The aggregate principal balance of *1*-*4* family residential mortgages sold on the secondary market were $9.2 million for the year ended *December 31, 2022* and $9.4 million for the year ended *December 31, 2021.* Net gains on the sale of residential mortgage loans were $205 thousand in *2022* and $352 thousand in *2021*. FNCB retains servicing rights on mortgages sold in the secondary market. At *December 31, 2022,* there were $60 thousand in *1*-*4* family residential mortgage loans held for sale. There were no *1*-*4* family residential mortgage loans held for sale at *December 31, 2021.* 

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The unpaid principal balance of loans serviced for others, including residential mortgages and SBA-guaranteed loans were $78.7 million and $77.2 million at *December 31, 2022* and *2021*, 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, judgements, 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 judgement, 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:

● 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.

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.

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The following table summarizes activity in the ALLL by major category for the years ended *December 31, 2022* and *2021*:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** | ***Allowance for Loan and Lease Losses by Loan Category*** |
| ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** |
| **(in thousands)** | ***Residential Real Estate*** | ***Commercial Real Estate*** | ***Construction, Land Acquisition and Development*** | ***Commercial and Industrial*** | ***Consumer*** | ***State and Political Subdivisions*** | ***Unallocated*** | ***Total*** |
| **Allowance for loan and lease losses:** |  |  |  |  |  |  |  |  |
| Beginning balance, January 1, 2022 | $2081 | $4530 | $392 | $2670 | $1159 | $455 | $1129 | $12416 |
| Charge-offs | (3) |  |  | (69) | (1234) |  |  | (1306) |
| Recoveries | 3 | 293 | 10 | 30 | 785 |  |  | 1121 |
| Provisions (credits) | 134 | (630) | 345 | 1468 | 597 | 48 |  | 1962 |
| Ending balance, December 31, 2022 | $2215 | $4193 | $747 | $4099 | $1307 | $503 | $1129 | $14193 |
| Specific reserve | $17 | $15 | $- | $2 | $- | $- | $- | $34 |
| General reserve | $2198 | $4178 | $747 | $4097 | $1307 | $503 | $1129 | $14159 |
| **Loans and leases receivable:** |  |  |  |  |  |  |  |  |
| Individually evaluated for impairment | $1472 | $5766 | $- | $362 | $- | $- | $- | $7600 |
| Collectively evaluated for impairment | 248749 | 371210 | 66555 | 271662 | 92612 | 64955 |  | 1115744 |
| Total loans and leases, gross at December 31, 2022 | $250221 | $376976 | $66555 | $272024 | $92612 | $64955 | $- | $1123343 |

---

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** | **Allowance for Loan and Lease Losses by Loan Category** |
| **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
| **(in thousands)** | **Residential Real Estate** | **Commercial Real Estate** | **Construction, Land Acquisition and Development** | **Commercial and Industrial**  | **Consumer** | **State and Political Subdivisions** | **Unallocated** | **Total** |
| **Allowance for loan and lease losses:** |  |  |  |  |  |  |  |  |
| Beginning balance, January 1, 2021 | $1715 | $4268 | $538 | $2619 | $1319 | $405 | $1086 | $11950 |
| Charge-offs | (14) | (11) |  | (218) | (543) |  |  | (786) |
| Recoveries | 17 | 467 | 13 | 74 | 515 |  |  | 1086 |
| Provisions (credits) | 363 | (194) | (159) | 195 | (132) | 50 | 43 | 166 |
| Ending balance, December 31, 2021 | $2081 | $4530 | $392 | $2670 | $1159 | $455 | $1129 | $12416 |
| Specific reserve | $9 | $6 | $- | $11 | $- | $- | $- | $26 |
| General reserve | $2072 | $4524 | $392 | $2659 | $1159 | $455 | $1129 | $12390 |
| **Loans and leases receivable:** |  |  |  |  |  |  |  |  |
| Individually evaluated for impairment | $1681 | $7530 | $- | $762 | $- | $- | $- | $9973 |
| Collectively evaluated for impairment | 232432 | 358479 | 41646 | 192324 | 85522 | 61071 |  | 971474 |
| Total loans and leases, gross at December 31, 2021 | $234113 | $366009 | $41646 | $193086 | $85522 | $61071 | $- | $981447 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *64*

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**Credit Quality Indicators – Commercial Loans**

Management continuously monitors and evaluates the credit quality of FNCB's commercial loans and leases 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 and lease 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *65*

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**Credit Quality Indicators – Other Loans**

Certain residential real estate loans, consumer loans, and commercial and municipal 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, 2022* and *2021*:

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** |
| ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** |
|  | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Other Loans*** | ***Other Loans*** | ***Other Loans*** |  |
|  |  | ***Special*** |  |  |  | ***Subtotal*** | ***Accruing*** | ***Non-accrual*** | ***Subtotal*** | ***Total*** |
| **(in thousands)** | ***Pass*** | ***Mention*** | ***Substandard*** | ***Doubtful*** | ***Loss*** | ***Commercial*** | ***Loans*** | ***Loans*** | ***Other*** | ***Loans*** |
| Residential real estate | $43188 | $434 | $99 | $- | $- | $43721 | $205887 | $613 | $206500 | $250221 |
| Commercial real estate | 367866 | 7082 | 2028 |  |  | 376976 |  |  |  | 376976 |
| Construction, land acquisition and development | 62965 | 797 |  |  |  | 63762 | 2793 |  | 2793 | 66555 |
| Commercial and industrial | 260358 | 829 | 8875 |  |  | 270062 | 1962 |  | 1962 | 272024 |
| Consumer |  |  |  |  |  |  | 92251 | 361 | 92612 | 92612 |
| State and political subdivisions | 64955 |  |  |  |  | 64955 |  |  |  | 64955 |
| Total | $799332 | $9142 | $11002 | $- | $- | $819476 | $302893 | $974 | $303867 | $1123343 |

---

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** | ***Credit Quality Indicators*** |
| ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** | ***December 31, 2021*** |
|  | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Commercial Loans*** | ***Other Loans*** | ***Other Loans*** | ***Other Loans*** |  |
|  |  | ***Special*** |  |  |  | ***Subtotal*** | ***Accruing*** | ***Non-accrual*** | ***Subtotal*** | ***Total*** |
| **(in thousands)** | ***Pass*** | ***Mention*** | ***Substandard*** | ***Doubtful*** | ***Loss*** | ***Commercial*** | ***Loans*** | ***Loans*** | ***Other*** | ***Loans*** |
| Residential real estate | $42028 | $530 | $77 | $- | $- | $42635 | $190919 | $559 | $191478 | $234113 |
| Commercial real estate | 350904 | 8232 | 6873 |  |  | 366009 |  |  |  | 366009 |
| Construction, land acquisition and development | 34869 |  |  |  |  | 34869 | 6777 |  | 6777 | 41646 |
| Commercial and industrial | 187554 | 1877 | 1343 |  |  | 190774 | 2312 |  | 2312 | 193086 |
| Consumer |  |  |  |  |  |  | 85291 | 231 | 85522 | 85522 |
| State and political subdivisions | 61066 |  |  |  |  | 61066 | 5 |  | 5 | 61071 |
| Total | $676421 | $10639 | $8293 | $- | $- | $695353 | $285304 | $790 | $286094 | $981447 |

---

Included in loans and leases 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 $2.8 million at *December 31, 2022* and $3.9 million at *December 31, 2021*. 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 $79 thousand in consumer loans that were past *90* days or more and still accruing at December *31, 2022,* which comprise entirely of unsecured personal loans purchased from a *third*-party originator. There were no loans past due *90* days or more and still accruing at December *31, 2021*.

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The following tables present the delinquency status of past due and non-accrual loans and leases at *December 31, 2022* and *2021*:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** |
|  | **0-29 Days** | **30-59 Days** | **60-89 Days** | **>/= 90 Days** |  |
| **(in thousands)** | **Past Due** | **Past Due** | **Past Due** | **Past Due** | **Total** |
| **Performing (accruing) loans and leases:** |  |  |  |  |  |
| Residential real estate | $248953 | $555 | $- | $- | $249508 |
| Commercial real estate | 375431 |  |  |  | 375431 |
| Construction, land acquisition and development | 66555 |  |  |  | 66555 |
| Commercial and industrial | 271767 | 113 |  |  | 271880 |
| Consumer | 90794 | 965 | 413 | 79 | 92251 |
| State and political subdivisions | 64955 |  |  |  | 64955 |
| Total performing (accruing) loans and leases | 1118455 | 1633 | 413 | 79 | 1120580 |
| **Non-accrual loans and leases:** |  |  |  |  |  |
| Residential real estate | 156 | 84 | 16 | 457 | 713 |
| Commercial real estate | 218 |  |  | 1327 | 1545 |
| Construction, land acquisition and development |  |  |  |  |  |
| Commercial and industrial | 144 |  |  |  | 144 |
| Consumer | 96 | 26 | 53 | 186 | 361 |
| State and political subdivisions |  |  |  |  |  |
| Total non-accrual loans and leases | 614 | 110 | 69 | 1970 | 2763 |
| Total loans and leases receivable | $1119069 | $1743 | $482 | $2049 | $1123343 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** | **Delinquency Status** |
|  | **0-29 Days** | **30-59 Days** | **60-89 Days** | **>/= 90 Days** |  |
| **(in thousands)** | **Past Due** | **Past Due** | **Past Due** | **Past Due** | **Total** |
| **Performing (accruing) loans and leases:** |  |  |  |  |  |
| Residential real estate | $233054 | $406 | $17 | $- | $233477 |
| Commercial real estate | 363394 | 116 |  |  | 363510 |
| Construction, land acquisition and development | 41646 |  |  |  | 41646 |
| Commercial and industrial | 192584 | 4 | 1 |  | 192589 |
| Consumer | 84333 | 754 | 204 |  | 85291 |
| State and political subdivisions | 61071 |  |  |  | 61071 |
| Total performing (accruing) loans and leases | 976082 | 1280 | 222 |  | 977584 |
| **Non-accrual loans and leases:** |  |  |  |  |  |
| Residential real estate | 67 | 27 | 87 | 455 | 636 |
| Commercial real estate | 1172 |  |  | 1327 | 2499 |
| Construction, land acquisition and development |  |  |  |  |  |
| Commercial and industrial | 497 |  |  |  | 497 |
| Consumer | 117 | 85 | 15 | 14 | 231 |
| State and political subdivisions |  |  |  |  |  |
| Total non-accrual loans and leases | 1853 | 112 | 102 | 1796 | 3863 |
| Total loans and leases receivable | $977935 | $1392 | $324 | $1796 | $981447 |

---

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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, 2022* and *2021*. 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 $0.7 million and $0.6 million at *December 31, 2022* and *2021*, respectively.

---

| | | | |
|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Recorded** | **Unpaid Principal**  | **Related**  |
| **(in thousands)** | **Investment** | **Balance** | **Allowance** |
| **With no allowance recorded:** |  |  |  |
| Residential real estate | $431 | $509 | $*-* |
| Commercial real estate | 1071 | 1339 | *-* |
| Construction, land acquisition and development |  |  | *-* |
| Commercial and industrial | 218 | 218 | *-* |
| Consumer |  |  | *-* |
| State and political subdivisions |  |  | *-* |
| Total impaired loans with no related allowance recorded | 1720 | 2066 | *-* |
| **With a related allowance recorded:** |  |  |  |
| Residential real estate | 1041 | 1041 | 17 |
| Commercial real estate | 4695 | 4695 | 15 |
| Construction, land acquisition and development |  |  |  |
| Commercial and industrial | 144 | 362 | 2 |
| Consumer |  |  |  |
| State and political subdivisions |  |  |  |
| Total impaired loans with a related allowance recorded | 5880 | 6098 | 34 |
| **Total of impaired loans:** |  |  |  |
| Residential real estate | 1471 | 1550 | 17 |
| Commercial real estate | 5766 | 6034 | 15 |
| Construction, land acquisition and development |  |  |  |
| Commercial and industrial | 363 | 580 | 2 |
| Consumer |  |  |  |
| State and political subdivisions |  |  |  |
| Total impaired loans | $7600 | $8164 | $34 |

---

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---

| | | | |
|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Recorded** | **Unpaid Principal**  | **Related**  |
| **(in thousands)** | **Investment** | **Balance** | **Allowance** |
| **With no allowance recorded:** |  |  |  |
| Residential real estate | $395 | $463 | $*-* |
| Commercial real estate | 2499 | 4230 | *-* |
| Construction, land acquisition and development |  |  | *-* |
| Commercial and industrial | 314 | 347 | *-* |
| Consumer |  |  | *-* |
| State and political subdivisions |  |  | *-* |
| Total impaired loans with no related allowance recorded | 3208 | 5040 | *-* |
| **With a related allowance recorded:** |  |  |  |
| Residential real estate | 1286 | 1285 | 9 |
| Commercial real estate | 5031 | 5031 | 6 |
| Construction, land acquisition and development |  |  |  |
| Commercial and industrial | 448 | 666 | 11 |
| Consumer |  |  |  |
| State and political subdivisions |  |  |  |
| Total impaired loans with a related allowance recorded | 6765 | 6982 | 26 |
| **Total of impaired loans:** |  |  |  |
| Residential real estate | 1681 | 1748 | 9 |
| Commercial real estate | 7530 | 9261 | 6 |
| Construction, land acquisition and development |  |  |  |
| Commercial and industrial | 762 | 1013 | 11 |
| Consumer |  |  |  |
| State and political subdivisions |  |  |  |
| Total impaired loans | $9973 | $12022 | $26 |

---

The following table presents the average balance and interest income by loan category recognized on impaired loans for the years ended *December 31, 2022* and *2021*:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** |
|  | **Average**  | **Interest** | **Average** | **Interest**  |
| **(in thousands)** | **Balance** | **Income (1)** | **Balance** | **Income (1)** |
| Residential real estate | $1640 | $65 | $1966 | $71 |
| Commercial real estate | 6614 | 251 | 8052 | 223 |
| Construction, land acquisition and development |  |  | 33 | 2 |
| Commercial and industrial | 482 | 19 | 969 | 9 |
| Consumer |  |  |  |  |
| State and political subdivisions |  |  |  |  |
| Total impaired loans | $8736 | $335 | $11020 | $305 |

---

------

(*1*) Interest income represents income recognized on performing TDRs.<br>

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 $175 thousand and $215 thousand, respectively, for years ended *December 31, 2022* and *2021*.

**Troubled Debt Restructured Loans**

TDRs at *December 31, 2022* and *2021* were $5.7 million and $6.9 million, respectively. Accruing and non-accruing TDRs were $5.5 million and $0.2 million**,** respectively at *December 31, 2022* and $6.7 million and $0.2 million, respectively at *December 31, 2021*. There were approximately $26 thousand in specific reserves established for TDRs at both *December 31, 2022* and *2021*. FNCB was not committed to lend additional funds to any loan classified as a TDR at *December 31, 2022* and *2021*.

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 were no loans modified as TDRs during the year ended December *31, 2022.*

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 at the time of modification was $235 thousand.

There were no TDRs modified within the previous *12* months that defaulted during the years ended *December 31, 2022* and *2021*.

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**Residential Real Estate Loan Foreclosures**

There were three residential real estate loans with an aggregate recorded investment of $215 thousand that were in the process of foreclosure at *December 31, 2022.* 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.* FNCB did not have any residential real estate properties in OREO at *December 31, 2022.*

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.*

**Note *5*. BANK PREMISES AND EQUIPMENT**

The following table summarizes bank premises and equipment at *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Land | $2930 | $2776 |
| Buildings and improvements | 14408 | 14249 |
| Furniture, fixtures and equipment | 11048 | 10610 |
| Leasehold improvements | 3328 | 2980 |
| &nbsp;&nbsp;&nbsp; Total | 31714 | 30615 |
| Accumulated depreciation | (16098) | (14533) |
| &nbsp;&nbsp;&nbsp; Net | $15616 | $16082 |

---

Depreciation and amortization expense of premises and equipment amounted to $1.6 million for both of the years ended *December 31, 2022,* and *2021.*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In *2021,* FNCB received approval from its primary regulator to consolidate the Bank's Wheeler Avenue Community Office into its Main Office, both 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 to consolidate the *two* offices, 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.* In the *fourth* quarter of *2022,* management decided to utilize the property as a temporary training facility until expiration of the lease in *December 2024.* Accordingly, the property was transferred out of OREO into bank premises and equipment at fair value during the *fourth* quarter of *2022.* No gain or loss was recorded upon the transfer.

**Note *6*. OTHER ASSETS**

The major components of other assets at *December 31, 2022* and *2021* are summarized as follows:

---

| | | |
|:---|:---|:---|
|  | ***December 31,*** | ***December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Other real estate owned | $- | $920 |
| Investment in low-income housing tax credit program | 11014 |  |
| Right of use assets | 3226 | 2955 |
| Mortgage servicing rights | 254 | 268 |
| Interest rate swaps | 1946 | 371 |
| Net deferred tax asset | 16826 | 1797 |
| Equity securities without readily determined fair value | 500 | 500 |
| Other assets | 9239 | 7851 |
| Total | $43005 | $14662 |

---

**Note *7*. DEPOSITS**

The following table summarizes deposits by major category at *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Demand (non-interest bearing) | $305850 | $320089 |
| &nbsp;&nbsp;&nbsp; Interest-bearing: |  |  |
| &nbsp;&nbsp;&nbsp; Interest-bearing demand | 808497 | 857849 |
| &nbsp;&nbsp;&nbsp; Savings | 148426 | 134224 |
| &nbsp;&nbsp;&nbsp; Time ($250,000 and over) | 24902 | 26531 |
| &nbsp;&nbsp;&nbsp; Other time | 132972 | 116335 |
| &nbsp;&nbsp;&nbsp; Total interest-bearing | 1114797 | 1134939 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deposits | $1420647 | $1455028 |

---

The aggregate amount of deposits reclassified as loans was $124 thousand at *December 31, 2022* and $83 thousand at *December 31, 2021*. Management evaluates transaction accounts that are overdrawn for collectability as part of its evaluation for credit losses. During *2022* and *2021*, no deposits were received on terms other than those available in the normal course of business.

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The following table summarizes scheduled maturities of time deposits, including certificates of deposit and individual retirement accounts, at *December 31, 2022*:

---

| | | | |
|:---|:---|:---|:---|
|  | ***$250000*** | ***Other*** |  |
| **(in thousands)** | ***and Over*** | ***Time Deposits*** | ***Total*** |
| 2023 | $21895 | $94644 | $116539 |
| 2024 | 3007 | 29767 | 32774 |
| 2025 |  | 4582 | 4582 |
| 2026 |  | 2050 | 2050 |
| 2027 |  | 1929 | 1929 |
| Total | $24902 | $132972 | $157874 |

---

Investment securities with a carrying value of $357.2 million at *December 31, 2022* and $410.5 million at *December 31, 2021* were pledged to collateralize certain municipal deposits. In addition, FNCB had outstanding letters of credit with the FHLB of Pittsburgh to secure municipal deposits of $47.5 million and $7.5 million at *December 31, 2022* and *2021,* respectively.

**Note *8*. 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 $75.0 million at *December 31, 2022* and $72.0 million at *December 31, 2021.* There were no amounts outstanding on federal funds lines of credit at *December 31, 2022* or *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 $482.1 million at *December 31, 2022* and $478.3 million at *December 31, 2021.* FNCB's maximum borrowing capacity was $394.5 million at *December 31, 2022.* At *December 31, 2022* and *2021,* there were $47.5 million and $7.5 million, respectively, in letters of credit to secure municipal deposits outstanding under this agreement. There were $139.4 million in overnight advances and $32.7 million in term advances through the FHLB of Pittsburgh outstanding at *December 31, 2022.* There were $20.0 million in term advances through the FHLB of Pittsburgh outstanding at *December 31, 2021.* 

Advances through the Federal Reserve Bank Discount Window generally include short-term advances which are fully collateralized by certain pledged loans of $25.8 million under the Federal Reserve Bank's Borrower-in-Custody ("BIC") program. There were no advances under the BIC program outstanding at *December 31, 2022* and *December 31, 2021.* FNCB had available borrowing capacity of $19.0 million under this program at *December 31, 2022.*

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***As of and for the Year Ended December 31, 2022*** | ***As of and for the Year Ended December 31, 2022*** | ***As of and for the Year Ended December 31, 2022*** | ***As of and for the Year Ended December 31, 2022*** | ***As of and for the Year Ended December 31, 2022*** |
|  |  |  |  | ***Weighted*** | ***Weighted*** |
|  |  |  | ***Maximum*** | ***Average*** | ***Average*** |
|  | ***Ending*** | ***Average*** | ***Month-End*** | ***Rate for*** | ***Rate at*** |
| **(dollars in thousands)** | ***Balance*** | ***Balance*** | ***Balance*** | ***the Year*** | ***Period End*** |
| FHLB of Pittsburgh advances - term | $32650 | $5830 | $32650 | 4.51% | 4.45% |
| FHLB of Pittsburgh advances - overnight | 139400 | 93309 | 170350 | 2.56 | 4.45 |
| Federal Reserve discount window BIC advances |  | 66 |  | 3.77 |  |
| Junior subordinated debentures | 10310 | 10310 | 10310 | 3.47 | 6.44 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **As of and for the Year Ended December 31, 2021** | **As of and for the Year Ended December 31, 2021** | **As of and for the Year Ended December 31, 2021** | **As of and for the Year Ended December 31, 2021** | **As of and for the Year Ended December 31, 2021** |
|  |  |  |  | **Weighted** | **Weighted** |
|  |  |  | ***Maximum*** | ***Average*** | ***Average*** |
|  | ***Ending***  | ***Average*** | ***Month-End*** | ***Rate for*** | ***Rate at*** |
| **(dollars in thousands)** | ***Balance*** | ***Balance*** | ***Balance*** | ***the Year*** | ***Period End*** |
| FHLB of Pittsburgh advances - term | 20000 | $1890 | $20000 | 0.33% | 0.07% |
| Federal funds |  | 28 |  |  |  |
| Junior subordinated debentures | 10310 | 10310 | 10310 | 1.85 | 1.87 |

---

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. Upon the expected phase-out of LIBOR on June *30, 2023,* the interest rate on the debentures will reset quarterly at a spread of 1.67% above *3*-month CME Term SOFR plus 0.26161%. The average interest rate paid on the Debentures was 3.47% in *2022* and 1.85% in *2021*. 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, 2022* and *2021* 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, 2022* and *2021*. At *December 31, 2022* and *2021*, accrued and unpaid interest associated with the Debentures amounted to $31 thousand and $9 thousand, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *71*

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The following table presents the contractual maturities of borrowed funds at *December 31, 2022*:

---

| | |
|:---|:---|
| **(in thousands)** | ***December 31, 2022*** |
| 2023 | $139400 |
| 2024 | 12650 |
| 2025 | 20000 |
| 2026 |  |
| 2027 |  |
| 2028 and thereafter | 10310 |
| Total | $182360 |

---

**Note *9.* 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. FNCB's existing credit derivatives result from loan participations arrangements, therefore, are *not* used to manage interest rate risk in FNCB's assets or liabilities.

**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, such derivatives were used to hedge the variable cash flows associated with forecasted issuances of debt in *2022* and *2021.*

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 $604 thousand will be reclassified as a decrease 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. FNCB's existing credit derivatives result from participations out of interest rate swaps provided to external lenders as part of loan participation arrangements, therefor, are *not* used to manage interest rate risk in FNCB's assets or liabilities. Derivatives *not* designated as hedges are *not* speculative and result from a service FNCB provides to certain lenders which participate in loans.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *72*

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**Fair Values of Derivative Instruments on the Balance Sheet**

The following table presents the fair value of FNCB's derivative financial instruments and the classification on the consolidated statements of financial condition at *December 31, 2022* and *December 31, 2021:*

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  | ***Derivative Assets*** | ***Derivative Assets*** | ***Derivative Assets*** | ***Derivative Assets*** |  | ***Derivative Liabilities*** | ***Derivative Liabilities*** | ***Derivative Liabilities*** | ***Derivative Liabilities*** |
|  |  | ***As of December 31, 2022*** | ***As of December 31, 2022*** | ***As of December 31, 2021*** | ***As of December 31, 2021*** |  | ***As of December 31, 2022*** | ***As of December 31, 2022*** | ***As of December 31, 2021*** | ***As of December 31, 2021*** |
| **(in thousands)** | ***Notional Amount*** | ***Balance Sheet Location*** | ***Fair Value*** | ***Balance Sheet Location*** | ***Fair Value*** | ***Notional Amount*** | ***Balance Sheet Location*** | ***Fair Value*** | ***Balance Sheet Location*** | ***Fair Value*** |
| **Derivatives designated as hedging instruments** |  |  |  |  |  |  |  |  |  |  |
| Cash flow hedges | $20000 | *Other assets* | $1173 | *Other assets* | $271 | $- | *Other liabilities* | $- | *Other liabilities* | $7 |
| Total derivatives designated as hedging instruments |  |  | 1173 |  | 271 |  |  |  |  | 7 |
| **Derivatives not designated as hedging instruments** |  |  |  |  |  |  |  |  |  |  |
| Interest rate swaps | 6922 | *Other assets* | 931 | *Other assets* | 92 | 6922 | *Other liabilities* | 931 | *Other liabilities* | 92 |
| Risk participation transaction | 2486 |  |  |  |  |  |  |  |  |  |
| Total derivatives not designated as hedging instruments |  |  | 931 |  | 92 |  |  | 931 |  | 92 |
| Net Derivatives on the Balance Sheet |  |  | 2104 |  | 363 |  |  | 931 |  | 98 |
| Gross amounts not offset in the Statement of Financial Position |  |  |  |  |  |  |  |  |  |  |
| Financial instruments |  |  |  |  | 18 |  |  |  |  | 18 |
| Cash collateral (1) |  |  | 1946 |  | 300 |  |  |  |  |  |
| Net derivative amounts |  |  | $158 |  | $45 |  |  | $931 |  | $80 |

---

(*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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *73*

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**Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income**

The following table presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income as of *December 31, 2022* and *2021.* Amounts disclosed are gross and *not* net of taxes:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** | ***Year Ended December 31, 2022*** |
| **(in thousands)** | ***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*** | ***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*** |
| Derivatives in cash flow hedging relationships |  |  |  |  |  |  |  |
| Interest rate products | $46 | $46 | $- | *Interest expense* | $176 | $176 | $- |
| Total | $46 | $46 | $- |  | $176 | $176 | $- |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** |
| **(in thousands)** | **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**  | **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** |
| Derivatives in cash flow hedging relationships |  |  |  |  |  |  |  |
| Interest rate products | $168 | $168 | $- | *Interest expense* | $(22) | $(22) | $- |
| Total | $168 | $168 | $- |  | $(22) | $(22) | $- |

---

**Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Income**

The following table presents the effect of the FNCB's derivative financial instruments on the consolidated statements of income for the years ended *December 31, 2022* and *2021:*

---

| | | |
|:---|:---|:---|
|  | ***Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships*** | ***Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships*** |
|  | ***Year Ended*** | ***Year Ended*** |
|  | ***December 31, 2022*** | ***December 31, 2021*** |
| **(in thousands)** | ***Interest Expense*** | ***Interest Expense*** |
| Total amounts of income and expense line items presented in the cash flow statement of financial performance in which the effects of fair value or hedges are recorded | $176 | $(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 | $176 | $(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 | $176 | $(22) |
| Amount of gain or (loss) reclassified from accumulated OCI into income - excluded component | $- | $- |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *74*

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**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, 2022* and *2021.*

**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.

FNCB has minimum collateral posting thresholds with certain of its derivative counterparties for derivatives in a net liability position. As of *December 31, 2022,* FNCB had *no* derivatives in a net liability position and accordingly did *not* have to post any collateral.

**Note *10*. 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 *2022* and *2021*. Discretionary matching contributions under the *401*(k) feature of the plan totaled $481 thousand in *2022* and $385 thousand in *2021*.

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 $1.3 million and $1.9 million at *December 31, 2022* and *December 31, 2021,* 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 $370 thousand in *2022* and $387 thousand in *2021*. The total liability associated with the SERP was $1.5 million at *December 31, 2022* and $1.1 million at *December 31, 2021*.

**Note *11.* 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, 2022* and *2021:*

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Current | $4646 | $4250 |
| Deferred | (502) | 406 |
| &nbsp;&nbsp;&nbsp; Income tax expense | $4144 | $4656 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *75*

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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, 2022* and *December 31, 2021*:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** |
|  | ***2022*** | ***2022*** | ***2021*** | ***2021*** |
| **(dollars in thousands)** | ***Amount*** | *%*** | ***Amount*** | *%*** |
| Provision at statutory tax rates | $5164 | 21.00% | $5466 | 21.00% |
| Add (deduct): |  |  |  |  |
| Tax effects of tax free interest income | (874) | (3.55)% | (733) | (2.82)% |
| Non-deductible interest expense | 85 | 0.35% | 32 | 0.12% |
| Bank-owned life insurance | (206) | (0.84)% | (114) | (0.44)% |
| Other items, net | (25) | (0.11)% | 5 | 0.03% |
| Income tax provision | $4144 | 16.85% | $4656 | 17.89% |

---

The following table summarizes the components of net deferred tax assets at *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***December 31,*** | ***December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Allowance for loan and lease losses | $3180 | $2730 |
| Deferred compensation | 650 | 697 |
| Lease liability | 736 | 659 |
| Other real estate owned valuation | 72 | 9 |
| Employee benefits | 352 | 340 |
| Accrued interest | 7 | 2 |
| Charitable contribution carryover |  | 19 |
| Accrued vacation |  | 54 |
| Deferred income | 29 | 47 |
| Unrealized holding losses on securities available-for-sale | 12982 |  |
| Unrealized holding losses on equity securities | 32 |  |
| &nbsp;&nbsp;&nbsp; Gross deferred tax assets | 18040 | 4557 |
| Deferred loan origination costs | (137) | (114) |
| Unrealized holding gains on securities available-for-sale |  | (1631) |
| Unrealized holding gains on equity securities |  | (147) |
| Right of use asset | (677) | (597) |
| Prepaid expenses |  | (27) |
| Derivative assets | (215) | (58) |
| Mortgage servicing rights | (53) | (56) |
| Depreciation | (130) | (122) |
| &nbsp;&nbsp;&nbsp; Gross deferred tax liabilities | (1213) | (2752) |
| &nbsp;&nbsp;&nbsp; Net deferred tax assets | $16827 | $1805 |

---

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, 2022* 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, 2022* and December *31, 2021.*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *76*

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**Note *12.* 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, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Balance January 1, | $71437 | $98935 |
| Additions, new loans and advances | 96978 | 123717 |
| Repayments | (89271) | (127558) |
| &nbsp;&nbsp;&nbsp; Other (1) | - | (23657) |
| Balance December 31, | $79144 | $71437 |

---

(*1*) Other represents loans to related parties that ceased being related parties.

At *December 31, 2022* and *2021* 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, 2022* and *2021* amounted to $133.0 million and $152.6 million, respectively. Interest paid on the deposits amounted to $502 thousand in *2022* and $290 thousand in *2021*.

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, fidelity bond and errors and omissions insurance, legal services, rent and repair of repossessed automobiles for resale. For *2021,* goods and services acquired from related parties also included employee health insurance. FNCB recorded payments to related parties for goods and services of $0.5 million and $2.0 million for the years ending December *31, 2022* and *2021,* respectively.

**Note *13.* 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 $3.2 million and $3.5 million, respectively, at *December 31, 2022* and $3.0 million and $3.2 million, respectively, at *December 31, 2021.*

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 $391 thousand and $389 thousand, respectively, at *December 31, 2022* and *2021.*

The following table summarizes the maturity of remaining operating lease liabilities as of *December 31, 2022:*

---

| | |
|:---|:---|
| **(in thousands)** | ***December 31, 2022*** |
| 2023 | $416 |
| 2024 | 407 |
| 2025 | 385 |
| 2026 | 387 |
| 2027 | 388 |
| 2028 and thereafter | 2271 |
| Total lease payments | 4254 |
| Less: imputed interest | 749 |
| Present value of operating lease liabilities | $3505 |

---

The following table presents other information related to FNCB's operating leases:

---

| | | |
|:---|:---|:---|
| **(dollars in thousands)** | ***December 31, 2022*** | ***December 31, 2021*** |
| Weighted-average remaining lease term (in years) | 9.9 | 12.2 |
| Weighted-average discount rate | 3.33% | 3.29% |
| Cash paid for amounts included in the measurement of lease liabilities: |  |  |
| Operating cash flows from operating leases | $402 | $401 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *77*

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*Commitments*

On *October 1, 2022,* FNCB issued a signed letter of intent to make an equity investment of approximately $11.0 million in a limited partnership interest, to build and operate a senior low-income housing development located in Scranton, Lackawanna County, Pennsylvania. One hundred percent (100.0%) of the rental units will qualify for Federal Low-Housing Tax credits ("LIHTCs") as provided for in Section *42* of the Internal Revenue Code of *1986,* as amended. FNCB made an initial contribution of $2.2 million in the *fourth* quarter of *2022,* upon closing the partnership agreement. The remaining obligation of $8.8 million, which is included on other liabilities in the consolidated statements of financial condition at *December 31, 2022,* will be contributed over a series of draws over the following *18*-month period according to the construction schedule.

*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.

The following table summarizes financial instruments whose contract amounts represent credit risk at *December 31, 2022* and *2021* :

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Commitments to extend credit | $301300 | $273883 |
| Standby letters of credit | 17923 | 17179 |

---

In order to provide for probable losses inherent in these instruments, FNCB recorded reserves for unfunded commitments of $949 thousand and $583 thousand at *December 31, 2022* and *2021*, respectively, which were included in other liabilities on the consolidated balance sheets.

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, 2022*, FNCB serviced payments on $12.9 million of *first* lien residential loan principal under these terms for the FHLB. At *December 31, 2022*, the maximum credit enhancement obligation for such guarantees by FNCB would be approximately $655 thousand if total foreclosure losses on the entire pool of loans exceed the FLA of approximately $65 thousand*.* There was *no* reserve established for this guarantee at *December 31, 2022* and *2021*.

 

*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. At *December 31, 2022* and *2021*, FNCB had balances with PNC Bank of $1.7 million and $1.6 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, 2022* and *2021*.

Loan and Lease Concentrations: FNCB attempts to limit its exposure to concentrations of credit risk by diversifying its loan and lease portfolios and closely monitoring any concentrations of credit risk. The commercial real estate and construction, land acquisition and development portfolios comprise $443.5 million, or 39.5% of gross loans at *December 31, 2022*. 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 outside its primary market area of $123.4 million, or 11.0%, of gross loans at *December 31, 2022*.

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, 2022* and *2021*:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2021*** | ***December 31, 2021*** |
|  |  | ***% of*** |  | ***% of*** |
| **(in thousands)** | ***Amount*** | ***Gross Loans*** | ***Amount*** | ***Gross Loans*** |
| Retail space/shopping centers | $54461 | 4.85% | $48590 | 4.95% |
| 1-4 family residential investment properties | 113746 | 10.13% | 92745 | 9.45% |

---

*Litigation*

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *78*

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**Note *14.* 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 71,860 shares in *2022* and 66,065 shares in *2021*.

The following table summarizes the activity related to FNCB's unvested restricted stock awards during the years ended *December 31, 2022* and *2021*:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***For the Years Ended December 31,*** | ***For the Years Ended December 31,*** | ***For the Years Ended December 31,*** | ***For the Years Ended December 31,*** |
|  | ***2022*** | ***2022*** | ***2021*** | ***2021*** |
|  |  | ***Weighted-*** |  | ***Weighted-*** |
|  |  | ***Average*** |  | ***Average*** |
|  | ***Restricted*** | ***Grant Date*** | ***Restricted*** | ***Grant Date*** |
|  | ***Shares*** | ***Fair Value*** | ***Shares*** | ***Fair Value*** |
| Unvested restricted stock awards at January 1, | 174297 | $7.37 | 159913 | $7.07 |
| Awards granted | 71860 | 9.64 | 66065 | 7.98 |
| Forfeitures | (5503) | 8.17 | (7443) | 7.38 |
| Vestings | (54689) | 7.38 | (44238) | 7.20 |
| Unvested restricted stock awards at December 31, | 185965 | $8.22 | 174297 | $7.37 |

---

For the years ended *December 31, 2022* and *2021*, stock-based compensation expense, which is included in salaries and benefits expense in the consolidated statements of income, totaled $448 thousand in *2022* and $376 thousand in *2021*. Total unrecognized compensation expense related to unvested restricted stock awards at *December 31, 2022* and *2021* was $1*.2* million and $992 thousand, respectively. Unrecognized compensation expense related to unvested shares of restricted stock is expected to be recognized over a weighted-average period of 3.5 years.

On *July 1, 2022* and *2021,* 1,869 shares and 2,062 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 16,821 in *2022* and 18,558 in *2021.* The shares of common stock immediately vested to each director upon grant, and the fair value per share on the grant date was $8.03 for the *2022* grant and $7.28 for the *2021* grant. Director fees of $135 thousand in both years of *2022* and *2021,* 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, 2022,* there were 596,029 shares of common stock available for award under the LTIP.

**Note *15.* 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 *2022* and *2021* were $0.33 per share and $0.27 per share, respectively. FNCB offers a Dividend Reinvestment and Stock Purchase plan ("DRP") to its shareholders. For the years ended *December 31, 2022* and *2021* 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 5,089 and 12,189 for the years ended *December 31, 2022* and *2021*, respectively. Subsequent to *December 31, 2022*, on *January 25, 2023,* FNCB declared a $0.090 per share dividend payable on March *15, 2023* to shareholders of record as of March *1, 2023 .*

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 which commenced on *March 4, 2022* and expired on *December 31, 2022.* On *January 25, 2023,* 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 3, 2023.* 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 *2022,* FNCB repurchased 384,830 shares at a weighted-average price per share of $9.45, or $3.6 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, 2022*, that FNCB and the Bank meet all applicable capital adequacy requirements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *79*

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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, 2022* and *2021*:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***FNCB Bank*** | ***FNCB Bank*** | ***Minimum Required For Capital Adequacy Purposes*** | ***Minimum Required For Capital Adequacy Purposes with Conservation Buffer*** | ***Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*** |
| **(dollars in thousands)** | ***Amount*** | ***Ratio*** | ***Ratio*** | ***Ratio*** | ***Ratio*** |
| **December 31, 2022** |  |  |  |  |  |
| Total capital (to risk-weighted assets) | $169984 | 13.11% | 8.00% | 10.50% | 10.00% |
| Tier I capital (to risk-weighted assets) | 154842 | 11.94% | 6.00% | 8.50% | 8.00% |
| Tier I common equity (to risk-weighted assets) | 154842 | 11.94% | 4.50% | 7.00% | 6.50% |
| Tier I capital (to average assets) | 154842 | 8.77% | 4.00% | 4.00% | 5.00% |
| Total risk-weighted assets | 1296618 |  |  |  |  |
| Total average assets | 1765251 |  |  |  |  |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***FNCB Bank*** | ***FNCB Bank*** | ***Minimum Required For Capital Adequacy Purposes*** | ***Minimum Required For Capital Adequacy Purposes with Conservation Buffer*** | ***Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations*** |
| **(dollars in thousands)** | ***Amount*** | ***Ratio*** | ***Ratio*** | ***Ratio*** | ***Ratio*** |
| **December 31, 2021** |  |  |  |  |  |
| Total capital (to risk-weighted assets) | $161957 | 14.64% | 8.00% | 10.50% | 10.00% |
| Tier I capital (to risk-weighted assets) | 148958 | 13.46% | 6.00% | 8.50% | 8.00% |
| Tier I common equity (to risk-weighted assets) | 148958 | 13.46% | 4.50% | 7.00% | 6.50% |
| Tier I capital (to average assets) | 148958 | 8.92% | 4.00% | 4.00% | 5.00% |
| Total risk-weighted assets | 1106636 |  |  |  |  |
| Total average assets | 1669932 |  |  |  |  |

---

**Note *16.* 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *80*

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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;

● 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.

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.

At *December 31, 2022*, FNCB owned 29 corporate debt securities with an aggregate amortized cost and fair value of $33.6 million and $30.7 million, respectively. The market for six of the 29 corporate debt securities at *December 31, 2022* 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 market approach that incorporates identifying a population of transactions for similar instruments and an evaluation to capture credit risk associated with these bonds. Management takes measures to validate the service provider's analysis and is actively involved in the valuation process, including reviewing and verifying the population and evaluation of credit risk. Managment believes this approach to be a conservative approach as it takes into consideration securities that have longer maturities or longer call dates, issuers with smaller asset sizes, and securities with smaller issue amounts. These factors are typically considered to be factors that would add credit spread to a bond, thus resulting in a higher yield. Management believes the valuation results from this market approach to be consistent with pricing and data for similar deals at December *31, 2022.* FNCB considers the inputs used in the market approach to be observable Level *3* inputs because, while inputs are based on actual transactions, the relative number of transactions in the population is small and subjective assumptions are used in considering factors considered to incorporate credit spreads into price determination. 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 FNCB's *third*-party service provider.

**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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *81*

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**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, 2022* and *2021*, and the fair value hierarchy of the respective valuation techniques utilized to determine the fair value:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***Fair Value Measurements at December 31, 2022*** | ***Fair Value Measurements at December 31, 2022*** | ***Fair Value Measurements at December 31, 2022*** | ***Fair Value Measurements at December 31, 2022*** |
|  |  | ***Quoted Prices***  | ***Significant*** | ***Significant*** |
|  |  | ***in Active Markets*** | ***Observable*** | ***Unobservable*** |
|  |  | ***for Identical Assets*** | ***Inputs*** | ***Inputs*** |
| **(in thousands)** | ***Fair Value*** | ***(Level 1)*** | ***(Level 2)*** | ***(Level 3)*** |
| **Financial assets:** |  |  |  |  |
| Available-for-sale debt securities: |  |  |  |  |
| U.S. Treasury securities | $32134 | $- | $32134 | $- |
| Obligations of state and political subdivisions | 220782 |  | 220782 |  |
| U.S. government/government-sponsored agencies: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Collateralized mortgage obligations - residential | 80407 |  | 80407 |  |
| &nbsp;&nbsp;&nbsp; Collateralized mortgage obligations - commercial | 3329 |  | 3329 |  |
| &nbsp;&nbsp;&nbsp; Mortgage-backed securities | 20663 |  | 20663 |  |
| Private collateralized mortgage obligations | 72507 |  | 72507 |  |
| Corporate debt securities | 30672 |  | 22736 | 7936 |
| Asset-backed securities | 14941 |  | 14941 |  |
| Negotiable certificates of deposit | 656 |  | 656 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | 476091 |  | 468155 | 7936 |
| Equity securities, at fair value | 7717 | 7717 |  |  |
| Derivative assets | 2104 |  | 2104 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total financial assets | $485912 | $7717 | $470259 | $7936 |
| **Financial liabilities:** |  |  |  |  |
| Derivative liabilities | $931 | $- | $931 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total financial liabilities | $931 | $- | $931 | $- |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** |
|  |  | **Quoted Prices**  | **Significant** | **Significant** |
|  |  | **in Active Markets** | **Observable** | **Unobservable** |
|  |  | **for Identical Assets** | **Inputs** | **Inputs** |
| **(in thousands)** | **Fair Value** | **(Level 1)** | **(Level 2)** | **(Level 3)** |
| **Financial assets:** |  |  |  |  |
| Available-for-sale debt securities: |  |  |  |  |
| U.S. Treasury securities | $36355 | $- | $36355 | $- |
| Obligations of state and political subdivisions | 244372 |  | 244372 |  |
| U.S. government/government-sponsored agencies: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Collateralized mortgage obligations - residential | 100710 |  | 100710 |  |
| &nbsp;&nbsp;&nbsp; Collateralized mortgage obligations - commercial | 3727 |  | 3727 |  |
| &nbsp;&nbsp;&nbsp; Mortgage-backed securities | 25506 |  | 25506 |  |
| Private collateralized mortgage obligations | 67165 |  | 67165 |  |
| Corporate debt securities | 32063 |  | 19718 | 12345 |
| Asset-backed securities | 11932 |  | 11932 |  |
| Negotiable certificates of deposit | 736 |  | 736 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | 522566 |  | 510221 | 12345 |
| Equity Securities, at fair value | 4922 | 4922 |  |  |
| Derivative assets | 363 |  | 363 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total financial assets | $527851 | $4922 | $510584 | $12345 |
| **Financial liabilities:** |  |  |  |  |
| Derivative liabilities | $99 | $- | $99 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total financial liabilities | $99 | $- | $99 | $- |

---

There was one corporate debt security transferred from Level *3* hierarchy to Level *2* during the year ended, *December 31, 2022.*

For the year ended *December 31, 2021,* eight corporate debt securities were transferred from Level *3* hierarchy to Level *2.* The market for these securities was previously *not* active and management obtained fair values from an independent *third* party. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *82*

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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, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
| ***Fair Value Measurements*** | ***Fair Value Measurements*** | ***Fair Value Measurements*** |
| ***Using Significant Unobservable Inputs (Level 3)*** | ***Using Significant Unobservable Inputs (Level 3)*** | ***Using Significant Unobservable Inputs (Level 3)*** |
|  | ***Corporate Debt Securities*** | ***Corporate Debt Securities*** |
|  | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| Balance at January 1, | $12345 | $16424 |
| Additions |  | 4500 |
| Redemptions | (2066) | (1000) |
| Transfer to Level 2 | (756) | (7550) |
| Total gains or losses (realized/unrealized): |  |  |
| &nbsp;&nbsp;&nbsp; Included in earnings |  |  |
| &nbsp;&nbsp;&nbsp; Included in other comprehensive income | (1587) | (29) |
| Balance at December 31, | $7936 | $12345 |

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**Assets Measured at Fair Value on a Non-Recurring Basis**

The following tables present assets and liabilities measured at fair value on a non-recurring basis at *December 31, 2022* and *2021*, 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, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2022*** |
|  | ***Fair Value Measurement*** | ***Fair Value Measurement*** | ***Fair Value Measurement*** | ***Quantitative Information*** | ***Quantitative Information*** | ***Quantitative Information*** | ***Quantitative Information*** | ***Quantitative Information*** |
|  | ***Recorded*** | ***Valuation*** | ***Fair*** | ***Valuation*** | ***Unobservable*** | ***Value/*** | ***Value/*** | ***Value/*** |
| **(in thousands)** | ***Investment*** | ***Allowance*** | ***Value*** | ***Technique*** | ***Inputs*** | ***Range*** | ***Range*** | ***Range*** |
| Impaired loans - collateral dependent | $1902 | $8 | $1894 | *Appraisal of collateral* | *Selling costs* |  | 10.0% |  |
| Impaired loans - other | 5698 | 26 | 5672 | *Discounted cash flows* | *Discount rate* | 3.00% | *-* | 10.25% |

---

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Fair Value Measurement** | **Fair Value Measurement** | **Fair Value Measurement** | **Quantitative Information** | **Quantitative Information** | **Quantitative Information** | **Quantitative Information** | **Quantitative Information** |
|  | **Recorded** | **Valuation**  | **Fair**  | **Valuation** | **Unobservable** | **Value/** | **Value/** | **Value/** |
| **(in thousands)** | **Investment** | **Allowance** | **Value** | **Technique** | **Inputs** | **Range** | **Range** | **Range** |
| Impaired loans - collateral dependent | $3208 | $- | $3208 | *Appraisal of collateral* | *Selling costs* |  | 10.0% |  |
| Impaired loans - other | 6765 | 26 | 6739 | *Discounted cash flows* | *Discount rate* | 3.00% | *-* | 8.75% |
| Other real estate owned | 920 |  | 920 | *Appraisal of collateral* | *Selling costs* |  | 1.0% |  |

---

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *83*

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The following table summarizes the estimated fair values of FNCB's financial instruments at *December 31, 2022* and *2021*. 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.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***Fair Value*** | ***December 31, 2022*** | ***December 31, 2022*** | ***December 31, 2021*** | ***December 31, 2021*** |
| **(in thousands)** | ***Measurement*** | ***Carrying Value*** | ***Fair Value*** | ***Carrying Value*** | ***Fair Value*** |
| Financial assets: |  |  |  |  |  |
| Cash and short term investments | *Level 1* | $41916 | $41916 | $99020 | $99020 |
| Available-for-sale debt securities | *See previous table* | 476091 | 476091 | 522566 | 522566 |
| Equity securities | *Level 1* | 7717 | 7717 | 4922 | 4922 |
| Restricted stock | *Level 2* | 8545 | 8545 | 1911 | 1911 |
| Loans held for sale | *Level 2* | 60 | 60 |  |  |
| Loans, net | *Level 3* | 1110124 | 1079266 | 967023 | 967087 |
| Accrued interest receivable | *Level 2* | 5957 | 5957 | 4643 | 4643 |
| Servicing rights | *Level 3* | 254 | 621 | 268 | 526 |
| Derivative assets | *Level 2* | 1946 | 2104 | 371 | 363 |
| Financial liabilities: |  |  |  |  |  |
| Deposits | *Level 2* | 1420647 | 1416272 | 1455028 | 1454812 |
| Borrowed funds | *Level 2* | 182360 | 182108 | 30310 | 30310 |
| Accrued interest payable | *Level 2* | 171 | 171 | 49 | 49 |
| &nbsp;&nbsp;&nbsp; Derivative liabilities | *Level 2* | 921 | 931 | 96 | 99 |

---

**Note *17.* EARNINGS PER SHARE**

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, 2022* and *2021* common stock equivalents reflected in the table above were related entirely to the incremental shares of unvested restricted stock.

The following table presents the calculation of both basic and diluted earnings per share of common stock for the years ended *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** |
| **(in thousands, except share data)** | ***2022*** | ***2021*** |
| Net income | $20445 | $21371 |
| Basic weighted-average number of common stock outstanding | 19744477 | 20111430 |
| Plus: common share equivalents | 18089 | 15423 |
| Diluted weighted-average number of common stock outstanding | 19762566 | 20126853 |
| Income per share of common stock: |  |  |
| &nbsp;&nbsp;&nbsp; Basic | $1.04 | $1.06 |
| &nbsp;&nbsp;&nbsp; Diluted | $1.03 | $1.06 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *84*

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**Note *18.* OTHER COMPREHENSIVE (LOSS) INCOME**

The following tables summarize the reclassifications out of accumulated other comprehensive income for the years ended *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | **For the year Ended December 31, 2022** | **For the year Ended December 31, 2022** |
|  | **Amount Reclassified** |  |
|  | **from Accumulated** | **Affected Line Item** |
|  | **Other Comprehensive** | **in the Consolidated** |
| **(in thousands)** | **Income** | **Statements of Income** |
| Available-for-sale debt securities: |  |  |
| Reclassification adjustment for net losses reclassified into net income | $223 | *Net loss on the sale of available-for-sale securities* |
| Taxes | (47) | *Income taxes* |
| &nbsp;&nbsp;&nbsp; Net of tax amount | $176 |  |

---

---

| | | |
|:---|:---|:---|
|  | **For the year Ended December 31, 2021** | **For the year Ended December 31, 2021** |
|  | **Amount Reclassified** |  |
|  | **from Accumulated** | **Affected Line Item** |
|  | **Other Comprehensive** | **in the Consolidated** |
| **(in thousands)** | **Income** | **Statements of Income** |
| Available-for-sale debt securities: |  |  |
| Reclassification adjustment for net gains reclassified into net income | $(213) | *Net gain on the sale of available-for-sale securities* |
| Taxes | 45 | *Income taxes* |
| &nbsp;&nbsp;&nbsp; Net of tax amount | $(168) |  |

---

The following table summarizes the changes in accumulated other comprehensive income, net of tax, for the years ended *December 31, 2022* and *2021*:

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
| **(in thousands)** | **2022** | **2021** |
| Balance, January 1, | $6352 | $13886 |
| Other comprehensive loss before reclassifications | (54556) | (7366) |
| Amounts reclassified from accumulated other comprehensive income | 176 | (168) |
| Net other comprehensive loss during the period | (54380) | (7534) |
| Balance, December 31, | $(48028) | $6352 |

---

**Note *19.* CONDENSED FINANCIAL INFORMATION — PARENT COMPANY ONLY**

The following tables present condensed parent company only financial information:

**Condensed Statements of Financial Condition**

---

| | | |
|:---|:---|:---|
|  | **December 31,**  | **December 31,**  |
| **(in thousands)** | **2022** | **2021** |
| **Assets:** |  |  |
| Cash | $12779 | $11423 |
| Investment in statutory trust | 442 | 431 |
| Investment in subsidiary (equity method) | 106837 | 155342 |
| Equity securities, at fair value | 6937 | 4016 |
| Other assets | 2409 | 1800 |
| &nbsp;&nbsp;&nbsp; Total assets | $129404 | $173012 |
| **Liabilities and Shareholders**' **Equity:** |  |  |
| Junior subordinated debentures | $10310 | $10310 |
| Accrued interest payable | 31 | 9 |
| Other liabilities | 114 | 236 |
| &nbsp;&nbsp;&nbsp; Total liabilities | 10455 | 10555 |
| Shareholders' equity | 118949 | 162457 |
| &nbsp;&nbsp;&nbsp; Total liabilities and shareholders' equity | $129404 | $173012 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *85*

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**Condensed Statements of Income**

---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,**  | **For the Year Ended December 31,**  |
| **(in thousands)** | **2022** | **2021** |
| **Income:** |  |  |
| Dividends from subsidiaries | $15000 | $10000 |
| Interest and dividend income | 204 | 168 |
| Gain on equity securities | 92 | 728 |
| Trust income | 11 | 6 |
| Other income |  | 5 |
| &nbsp;&nbsp;&nbsp; **Total income** | 15307 | 10907 |
| **Expense:** |  |  |
| Interest on junior subordinated debt | 358 | 191 |
| Other operating expenses | 513 | 351 |
| &nbsp;&nbsp;&nbsp; **Total expenses** | 871 | 542 |
| **Income before income taxes** | 14436 | 10365 |
| (Benefit) provision for income taxes | (133) | 170 |
| **Income before equity in undistributed net income of subsidiary** | 14569 | 10195 |
| Equity in undistributed net income of subsidiary | 5876 | 11176 |
| **Net income** | $20445 | $21371 |

---

**Condensed Statements of Cash Flows**

---

| | | |
|:---|:---|:---|
|  | ***For the Year Ended December 31,*** | ***For the Year Ended December 31,*** |
| **(in thousands)** | ***2022*** | ***2021*** |
| **Cash flows from operating activities:** |  |  |
| Net income | $20445 | $21371 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| Equity in undistributed income of subsidiary | (5876) | (11176) |
| Equity in trust | (11) | (6) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gain on equity securities | (92) | (728) |
| Increase in other assets | (25) | (548) |
| Increase in accrued interest payable | 22 |  |
| Decrease (increase) in other liabilities | (122) | 175 |
| **Net cash provided by operating activities** | 14341 | 9088 |
| **Cash flows from investing activities:** |  |  |
| &nbsp;&nbsp;&nbsp; Sale of equity securities | 359 |  |
| Purchases of equity securities | (3188) | (1195) |
| **Net cash used in investing activities** | (2829) | (1195) |
| **Cash flows from financing activities:** |  |  |
| Proceeds from issuance of common shares |  | 58 |
| Repurchase of common shares | (3636) | (2397) |
| Cash dividends paid | (6520) | (5427) |
| **Net cash used in financing activities** | (10156) | (7766) |
| **Net increase in cash** | 1356 | 127 |
| **Cash at beginning of year** | 11423 | 11296 |
| **Cash at end of year** | $12779 | $11423 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *86*

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**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, 2022.

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, 2022.

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, 2022, 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, 2022.

---

| | |
|:---|:---|
| <u>/s/ Gerard A. Champi</u> | /s/ James M. Bone, Jr., CPA |
| Gerard A. Champi <br> President and Chief Executive Officer  | James M. Bone, Jr., CPA<br> Executive Vice President and Chief Financial Officer |

---

---

| | |
|:---|:---|
| **Item 9B.** | **Other Information** |

---

None

---

| | |
|:---|:---|
| **Item 9C.**  | **Disclosure Regarding Foreign Jurisdictions that Prevent Inspections** |

---

Not applicable

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 87

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**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 Regarding the Board of Directors and Corporate Governance" and "Information about FNCB's Executive Officers" in FNCB's Definitive Proxy Statement for its 2023 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or about April 10, 2023 (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 "Report of the Audit Committee" 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 <u>*www.fncb.com/investorrelations/*</u> 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 "Security Ownership of Certain Beneficial Owners and Management" 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 "Information Regarding the Board of Directors and 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 "Independent Registered Public Accounting Firm Fees and Services" in FNCB's Proxy Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 88

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**PART IV**

---

| | |
|:---|:---|
| **Item 15.** | **Exhibits and Financial Statement Schedules** |

---

1. Financial Statements

The following financial statements are included by reference in Part II, Item 8 hereof:

---

| |
|:---|
| Report of Independent Registered Public Accounting Firm (PCAOB ID 23) |
| 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 |

---

2. 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.

3. The following exhibits are filed herewith or incorporated by reference.

---

| | |
|:---|:---|
| EXHIBIT 3.1 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000103597610000030/amendarticles.htm) |
| EXHIBIT 3.2 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774916039693/ex3-1.htm) |
| EXHIBIT 3.3\* | [Amended and Restated Bylaws.](ex_482421.htm) |
| EXHIBIT 4.1 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774916041149/ex4-1.htm) |
| EXHIBIT 4.2 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774915015256/ex4-2.htm) |
| EXHIBIT 4.3 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000103597606000121/indenture.htm) |
| EXHIBIT 4.4\* | [Description of Securities.](ex_482422.htm) |
| EXHIBIT 10.1 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000103597606000121/declarationoftrust.htm) |
| EXHIBIT 10.2 | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000103597606000121/guarantee.htm) |
| EXHIBIT 10.3\*+ | [Directors' and Officers' Deferred Compensation Plan.](ex_485847.htm) |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 89

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---

| | |
|:---|:---|
| EXHIBIT 10.4+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000114420413069233/v364075_ex10-1.htm) |
| EXHIBIT 10.5+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000110465913025396/a13-1502_1ex10d14.htm) |
| EXHIBIT 10.6+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000114420414003888/v366196_ex4-2.htm) |
| EXHIBIT 10.7+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000114420414003888/v366196_ex4-3.htm) |
| EXHIBIT 10.8\*+ | [First National Community Bank Supplemental Executive Retirement Plan.](ex_485848.htm) |
| EXHIBIT 10.9+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774915018001/ex10-17.htm) |
| EXHIBIT 10.10+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774915018001/ex10-18.htm) |
| EXHIBIT 10.11+ | [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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774915018001/ex10-19.htm) |
| EXHIBIT 10.12+ | [Form of Change in Control Agreement - filed as Exhibit 10.12 to FNCB's Annual Report on Form 10-K for the year ended December 31, 2021, as filed on March 11, 2022, is hereby incorporated by reference.](http://www.sec.gov/Archives/edgar/data/1035976/000143774922006006/ex_345374.htm) |
| 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.](http://www.sec.gov/Archives/edgar/data/1035976/000143774918017591/ex_124732.htm) |
| EXHIBIT 23\* | [Consent of Baker Tilly US, LLP](ex_452769.htm) |
| EXHIBIT 31.1\* | [Certification of Chief Executive Officer](ex_452770.htm) |
| EXHIBIT 31.2\* | [Certification of Chief Financial Officer](ex_452771.htm) |
| EXHIBIT 32\* | [Section 1350 Certification — Chief Executive Officer and Chief Financial Officer](ex_452772.htm) |
| 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 90

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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 | March 10, 2023 |
| Gerard A. Champi<br> President and Chief Executive Officer | Date |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 91

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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 | March 10, 2023 |
| Gerard A. Champi<br> President and Chief Executive Officer | Date |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /s/ James M. Bone, Jr.  | March 10, 2023 |
| James M. Bone, Jr., CPA<br> Executive Vice President and Chief Financial Officer<br> Principal Financial Officer | Date |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /s/ Stephanie A. Westington  | March 10, 2023 |
| Stephanie A. Westington, CPA<br> Senior Vice President and Chief Accounting Officer<br> Principal Accounting Officer | Date |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 92

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[**Table of Contents**](#toc)

Directors:

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| | | | |
|:---|:---|:---|:---|
| /s/ William G. Bracey | March 10, 2023 | /s/ Gerard A. Champi | March 10, 2023 |
| William G, Bracey | Date | Gerard A. Champi | Date |
| /s/ Joseph Coccia | March 10, 2023 | /s/ William P. Conaboy | March 10, 2023 |
| Joseph Coccia | Date | William P. Conaboy | Date |
| /s/ Dominick L. DeNaples | March 10, 2023 | /s/ Joseph L. DeNaples | March 10, 2023 |
| Dominick L. DeNaples | Date | Joseph L. DeNaples | Date |
| /s/Louis a. DeNaples | March 10, 2023 | /s/ Louis A. DeNaples, Jr. | March 10, 2023 |
| Louis A. DeNaples | Date | Louis A. DeNaples, Jr. | Date |
| /s/ Keith W. Eckel | March 10, 2023 | /s/ Kathleen McCarthy Lambert | March 10, 2023 |
| Keith W. Eckel | Date | Kathleen McCarthy Lambert | Date |
| /s/ Thomas J. Melone | March 10, 2023 |  |  |
| Thomas J. Melone | Date |  |  |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 93

## Exhibit 3.3

**EXHIBIT 3.3**

**AMENDED AND RESTATED BYLAWS**

**of**

**FNCB BANCORP, INC.**

**as of January 25, 2023**

(A Pennsylvania Business Corporation)

**ARTICLE 1**

**MEETINGS OF SHAREHOLDERS**

Section 1.01 <u>Place of Meeting</u>. Meetings of shareholders of the Corporation shall be held at such place, within the Commonwealth of Pennsylvania or elsewhere, as may be fixed from time to time by the Board of Directors; provided, however, if a meeting is held by means of the Internet or other electronic communications technology in a fashion pursuant to which shareholders have the opportunity to read or hear the proceedings substantially concurrently with their occurrence, vote on matters submitted to the shareholders and pose questions to the directors, the meeting need not be held at a particular geographic location. If no place is so fixed for a meeting, it shall be held at the Corporation's then principal executive office.

Section 1.02 <u>Annual Meeting</u>. There shall be an annual meeting of shareholders that shall be held at such time and place as the Board may determine pursuant to Section 1.01. At an annual meeting of shareholders, only such business (other than elections of directors, which must be made in compliance with, and shall be exclusively governed by, Section 2.16) shall be conducted as shall have been properly brought before the meeting (i) pursuant to the Corporation's notice of the meeting, (ii) by or at the direction of the Board of Directors, (iii) by the chairman of the meeting, or (iv) by any shareholder of the Corporation who is a shareholder of record both at the time of giving of the notice provided for in Section 1.07 and at the time of the annual meeting, who shall be entitled to vote at such meeting and who shall have complied with the notice procedures set forth in Section 1.07. Clause (iv) in the immediately preceding sentence shall be the exclusive means for a shareholder to submit such business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and included in the Corporation's notice of meeting) before an annual meeting of shareholders.

Section 1.03 <u>Special Meetings</u>. Special meetings of the shareholders may be called at any time and place by only the Board of Directors, the Executive Committee, the Chairman of the Board or the President. Business transacted at all special meetings shall be confined to the objects stated in the notice of such meeting and matters germane thereto.

Section 1.04 <u>Notice of Meetings</u>. Except as provided in Section 1707 of the Pennsylvania Business Corporation Law of 1988 (as amended from time to time, the "PBCL"), written notice of every meeting of shareholders shall be given in any manner permitted by law or at the direction of the Secretary or such other person as is authorized by the Board of Directors to each shareholder of record entitled to receipt thereof, at least five days prior to the day named for the meeting, unless a greater period of notice is required by law in a particular case. Such notice shall set forth the place (or if held by means of the Internet or other electronic communications technology, the means of remote communications by which shareholders and proxyholders may be deemed to be present in person and vote at such meeting), date and time of each meeting of shareholders and, in the case of a special meeting, the general nature of the business to be transacted in accordance with any requirements set forth in the PBCL. If such notice is mailed, it shall be deemed to have been given to a shareholder when deposited in the United States mail, postage prepaid, directed to the shareholder at the address of such shareholder as it appears on the record of shareholders of the Corporation or supplied by such shareholder to the Corporation for the purpose of notice. Notice given by electronic transmission shall be deemed given (i) if by facsimile, when directed to a number at which the shareholder has consented to receive such notice; (ii) if by electronic mail, when directed to an electronic mail address at which the shareholder consented to receive such notice; (iii) if by posting on an electronic network together with separate notice to the shareholder of such specific posting, upon the later of (A) such posting and (B) giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the shareholder.

No notice of any meeting of shareholders need be given to any shareholder who properly waives notice, whether before or after the meeting and whether in writing or by electronic transmission or otherwise. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in a waiver of notice. The attendance, in person or by proxy, of any shareholder at any meeting of shareholders shall constitute a proper waiver of notice of such meeting, except if the shareholder attends a meeting solely for the express purpose of objecting, prior to or at the commencement of such meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.

Section 1.05 <u>Organization</u>. At every meeting of the shareholders, the Chairman of the Board, or in his absence, one of the following persons present shall act as chairman in the order stated, shall preside: any presiding officer designated by the Board of Directors, the President, the vice presidents in their order of earliest election to that office, or a person chosen by vote of the shareholders present; and the Secretary, or in his absence, a person appointed by the chairman, shall act as secretary. The order of business and all other matters of procedure at every meeting of shareholders shall be determined by such presiding officer.

Section 1.06 <u>Voting</u>. Except as otherwise required by applicable law or the Articles of Incorporation of the Corporation (as amended, the "Articles of Incorporation"), shareholders shall be entitled to one vote for each share of capital stock owned by them as reflected on the books of the Corporation and entitled to vote at the particular meeting of shareholders at which the shareholder is present, in person or by proxy. Except as otherwise specified herein or in the Articles of Incorporation or provided by law, whenever any corporate action is to be taken by vote of shareholders, it shall be authorized by a majority of the votes cast, in person or by proxy, at a duly organized meeting of shareholders by the holders of shares entitled to vote thereon. For the avoidance of doubt, at each meeting of shareholders at which Directors are to be elected, provided a quorum is present thereat, the candidates for election as directors receiving the highest number of votes validly cast for each class or group of classes, if any, entitled to elect directors separately up to the number of directors to be elected by the class or group of classes shall be elected.

Section 1.07 <u>Notifications of Proposed Business</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *<u>Required Procedures</u>*. Subject to the rights of holders of any class or series of preferred shares, business to be brought before any shareholder meeting may be made or proposed by or at the direction of the Chairman of the Board, the President or by the Board of Directors or a proxy committee appointed by the Board of Directors, or by any shareholder entitled to vote in the election of directors generally. However, any such shareholder may propose business to be brought before a meeting, only if such shareholder has given timely notice in proper written form of intent to propose such business. To be timely, a shareholder's notice must be received by the Corporation not less than 70 days nor more than 90 days prior to the first anniversary of the previous year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days before or more than 30 days after the anniversary date of the previous year's annual meeting, or in the case of a special meeting, notice by a shareholder to be timely must be received by the Corporation not earlier than the 90th day before such meeting and not later than (i) the 70th day prior to such meeting, or (ii) if the notice of the meeting is mailed or public announcement of the date of such meeting is made less than 70 days prior to the date of such meeting, the 10th day following the day on which notice of the meeting was mailed or public announcement of the date of such meeting was made. In no event shall any adjournment or postponement of a meeting or the announcement or notice thereof by the Corporation commence a new time period (or extend any time period) for the giving of a shareholder's notice as provided in this Section 1.07. To be in proper written form, a shareholder's notice to the Corporation shall set forth:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a brief description of the business to be brought before the meeting and the reasons for conducting such business at such meeting, and the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these Bylaws, the text of the proposed amendment);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) as to both the shareholder giving the notice and any Shareholder Associated Person on whose behalf the proposal is made:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) the name and address of the shareholder who intends to propose the business and, and of each Shareholder Associated Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) a representation that the shareholder is a holder of record of shares of the Corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to make the proposal to the meeting;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) a representation that the shareholder will notify the Corporation in writing of the number and class of shares owned beneficially or of record by the shareholder and any Shareholder Associated Person as of the close of business on the record date for the meeting promptly, and in no event later than 10 days, following the later of the record date or the date notice of the record date is first publicly disclosed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) a description of all agreements, arrangements or understandings between the shareholder and persons (naming such person or persons) pursuant to which the business is to be proposed, and a representation that the shareholder will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the close of business on the record date for the meeting promptly, and in no event later than 10 days, following the later of the record date or the date notice of the record date is first publicly disclosed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) such other information regarding each matter of business to be proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the matter been proposed, or intended to be proposed by the Board of Directors; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) the information required by Section 1.08, and a representation that the shareholder will notify the Corporation in writing of any changes in that information as of the close of business on the record date for the meeting promptly, and in no event later than 10 days, following the later of the record date or the date notice of the record date is first publicly disclosed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Effect of Failure to Comply. This Section 1.07 shall be the exclusive means for a shareholder to submit other business (other than matters properly brought under Rule 14a-8 under the Exchange Act, and included in the Corporation's notice of meeting) before any shareholder meeting. The chairman of the meeting shall refuse to acknowledge the proposal of any business not made in compliance with the foregoing procedures. The provisions of this Section 1.07 shall also govern what constitutes timely notice for purposes of Rule 14a-4(c) of the Exchange Act.

Section 1.08 <u>Disclosure by Shareholders of Hedged Positions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Required Disclosures. A notice submitted by a shareholder under Section 1.07 must describe in reasonable detail, with respect to the shareholder and any Shareholder Associated Person:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) any class or series and number of the Corporation's securities, including shares of the Corporation and Derivative Instruments, directly or indirectly beneficially owned by the shareholder or a Shareholder Associated Person, or any other direct or indirect opportunity for the shareholder or Shareholder Associated Person to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which the shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any hedging or other transaction or series of transactions that has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, without limitation, any put, short position or any borrowing or lending of shares) that has been made by or on behalf of, a shareholder or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the shareholder or any Shareholder Associated Person with respect to any share of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder or Shareholder Associated Person has a right to vote any shares of any class or series of the Corporation's capital stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) any short interest of such shareholder or Shareholder Associated Person in any security of the Corporation (for purposes of this Section 1.08, a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) any rights to dividends on any securities of the Corporation owned beneficially by such shareholder or Shareholder Associated Person that are separated or separable from the underlying securities of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) any proportionate interest in shares of any class or series of the Corporation's capital stock or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) any performance-related fees (other than an asset-based fee) to which such shareholder or Shareholder Associated Person is entitled based on any increase or decrease in the value of securities of the Corporation or Derivative Instruments as of the date of such notice, including any such interests held by members of the immediate family of such shareholder or Shareholder Associated Person sharing the same household (which information shall be supplemented by such shareholder and Shareholder Associated Person not later than ten (10) days after the record date for the meeting to disclose such ownership as of the record date);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) any significant equity interests or any Derivative Instruments or short interests in any principal competitor of the Corporation held by such shareholder or Shareholder Associated Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) any direct or indirect interest of such shareholder or any Shareholder Associated Person in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Exchange Act and the rules and regulations promulgated thereunder by such shareholder or beneficial owner, if any;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) any other information relating to such shareholder or Shareholder Associated Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of Directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii) any material interest of the shareholder or Shareholder Associated Person on whose behalf the proposal is made in such business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv) a description of all agreements, arrangements and understandings between such shareholder or such Shareholder Associated Person and any other person or persons (including their names) in connection with the proposal of such business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv) a representation that the shareholder is a holder of record of capital stock of the Corporation, is entitled to vote at such meeting and intends to appear, in person or by proxy, at the meeting to propose such business; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi) a representation as to whether the shareholder or such Shareholder Associated Person is or intends to be part of a group that intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to approve or adopt the proposal and/or (B) otherwise to solicit proxies from shareholders in support of such proposal.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Definitions</u>. As used in Section 1.07 and this Section 1.08, the following terms have the meanings indicated:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "Derivative Instrument" means an option, warrant, convertible security, stock appreciation right, or other right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to the value of any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right is subject to settlement in the underlying class or series of shares of the Corporation or otherwise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) "Shareholder Associated Person" of a shareholder means (i) any person controlling, controlled by, under common control with, or acting in concert with, the shareholder, (ii) any beneficial owner of shares of the Corporation owned of record or beneficially by the shareholder, (iii) any entity of which the shareholder is an employee, officer, member, partner, trustee, director or, except for entities the shares of which are registered under the Exchange Act, a shareholder, and (iv) any person controlling, controlled by or under common control with, the Shareholder Associated Person.

Section 1.09 <u>Determination of Shareholders of Record</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *<u>Record Date for Meetings</u>*. The Board of Directors may fix a time prior to the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting of shareholders. Only shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as provided in this subsection. When a determination of shareholders of record has been made as provided in this subsection for purposes of a meeting, the determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date for the adjourned meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *<u>Fixing Record Date for Purpose of Distributions</u>*. The Board of Directors of the Corporation may fix a time prior to the date of payment of a distribution as a record date for the determination of the shareholders entitled to be paid the distribution, which time shall be not more than 90 days prior to the date of payment. Only shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as provided in this subsection.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *<u>Record Date for Action by Written Consent</u>*. Before a shareholder may seek to have the shareholders authorize or take corporate action by written consent without a meeting, the shareholder must, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date for such consent. The request must include a brief description of the action proposed to be taken. The Board of Directors shall, within twenty days after the date on which such request is received, adopt a resolution fixing the record date. The record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and shall not be more than twenty days after the date on which the resolution fixing the record date is adopted by the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) *<u>Fixing Record Date for Other Purposes</u>*. The Board of Directors of the Corporation may fix a time prior to an event or action other than a meeting of shareholders or payment of a distribution as a record date for the determination of shareholders with respect thereto, which time shall be not more than 90 days prior to the date of the event or action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) *<u>Determination When a Record Date is Not Fixed</u>*. If a record date is not fixed:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) *<u>Certification by Nominee</u>*. The Board of Directors may adopt a procedure whereby a shareholder of the Corporation may certify in writing to the Corporation that all or a portion of the shares registered in the name of the shareholder are held for the account of a specified person or persons. Upon receipt by the Corporation of a certification complying with the procedure, the persons specified in the certification shall be deemed, for the purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.

Section 1.10 <u>Quorum</u>. Except as otherwise provided or permitted by applicable law or the Articles of Incorporation, the presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on a particular matter to be acted upon shall constitute a quorum for the purpose of acting upon such matter at a meeting of shareholders. If a quorum is not present, in person or by proxy, at a meeting of shareholders, those present may adjourn from time to time to reconvene at such date, time and place as they may determine. The shareholders present at any duly organized meeting of shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient shareholders to otherwise render the remaining shareholders less than a quorum.

Section 1.11 <u>Voting by Ballot</u>. No vote of the shareholders need be taken by written ballot or conducted by Inspectors of Election, unless otherwise required by applicable law. Any vote of the shareholders which need not be taken by ballot may be conducted in any manner approved by the Chairman. If authorized by the Board of Directors, a ballot may be submitted by electronic transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the shareholder or proxyholder.

Section 1.12 <u>Adjournments</u>. At any meeting of shareholders, only the Chairman or the holders of a majority of the voting power of the shares of capital stock entitled to vote thereat, present, in person or by proxy, shall have the power to adjourn such meeting to another date, time or place or by means of the Internet or other electronic communication technology, without notice other than announcement at the meeting of the date, time and place, if any, at which such meeting will be reconvened and the means of electronic communication technology, if any, by which shareholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, any notice required by applicable law shall be given. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted on the original date of the meeting.

Section 1.13 <u>Proxies</u>. Any shareholder entitled to vote at any meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such shareholder by proxy. A shareholder may authorize a valid proxy in any manner permitted by applicable law, including by executing a written instrument executed by such shareholder, or by causing such shareholder's signature to be affixed to such writing by any reasonable means, including by facsimile signature or by transmitting or authorizing an electronic transmission to the person designated as the holder of the proxy, a proxy solicitation firm or a like authorized agent. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the shareholder executing it, unless such proxy is coupled with an interest sufficient in law to support an irrevocable power and except in any other case in which applicable law provides that such a proxy shall be irrevocable. A shareholder may revoke any proxy which is not irrevocable by giving notice of such revocation in writing or by electronic transmission to the Secretary or the designated agent of the Secretary. Proxies authorized by electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of a writing or electronic transmission created pursuant to this Section 1.13 may be substituted or used in lieu of the original writing or electronic transmission, as the case may be, for any and all purposes for which the original writing or electronic transmission, as the case may be, could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or electronic transmission, as the case may be. Every proxy shall be filed with or transmitted to the Secretary or the Corporation's designated agent.

Any shareholder directly or indirectly soliciting proxies from other shareholders must use a proxy card color other than white, which shall be reserved for exclusive use by the Corporation.

Section 1.14 <u>Inspector of Elections</u>. Before each meeting of shareholders, the Chairman or any officer of the Corporation designated by resolution of the Board of Directors shall appoint one or more Inspectors of Election (each an "Inspector") for the meeting. If any of the Inspectors shall fail to attend or refuse or be unable to serve, a substitute shall be appointed by the Chairman. An Inspector may be an employee of the Corporation and shall have such duties as are provided by applicable law. Upon request by the Chairman, an Inspector shall take and sign an oath faithfully to execute the duties of an Inspector of Election with strict impartiality and according to the best of such person's ability.

Section 1.15 <u>Voting Lists</u>. The officer who has charge of the stock ledger of the Corporation shall prepare a complete list of the shareholders entitled to vote at a meeting of shareholders. The list shall be arranged in alphabetical order, showing the address of each shareholder and the number of shares registered in the name of each shareholder; provided, however, that, subject to applicable law, the Corporation shall not be required to include electronic mail addresses or other electronic contact information for shareholders on such list. The list shall be produced and kept open at the time and place of the meeting of shareholders and shall be subject to the inspection of any shareholder during such meeting for the purposes thereof. The Board of Directors also may elect to make the list available at such other times and by such other means as permitted by applicable law. If the Board of Directors determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to shareholders of the Corporation. If a meeting of shareholders is to be held solely by means of remote communication, then the list also shall be open to the examination of any shareholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting of shareholders. The list shall presumptively determine the identity of the shareholders entitled to vote at the meeting and the number of shares that each such shareholder may vote at the meeting.

Section 1.16 <u>Participation in Meetings by Electronic Means</u>. The Chairman may permit, on such conditions as may be determined by him, one or more shareholders or proxyholders to participate in a meeting of shareholders, count for the purposes of determining a quorum thereat and exercise all rights and privileges to which such person or persons might be entitled were such person or persons, as the case may be, personally in attendance at such meeting (including the right to vote or to consent to or dissent from any action) by means of conference telephone or other electronic means, including the Internet. Unless the Board of Directors so permits by resolution or the Chairman so permits, no person may participate in a meeting of shareholders by means of a conference telephone or other electronic means, including the Internet.

Section 1.17 <u>No Consent of Shareholders in Lieu of Meeting</u>. No action, including the authorization of any business or the expression of consent or dissent to any corporate action, may be taken by the shareholders of the Corporation without a meeting, whether by written consent or otherwise, except by the unanimous consent of all holders of capital stock of the Corporation entitled to vote upon such action.

**ARTICLE 2**

**DIRECTORS**

Section 2.01 <u>Number</u>. The number of directors of the Corporation shall be such number, not less than three, as shall be designated from time to time by resolution of the Board of Directors.

Section 2.02 <u>Classes and Term of Office</u>. The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable. At each annual meeting, directors who are elected at such annual meeting shall be elected to hold office until the third succeeding annual meeting. Each director shall serve until his successor is elected and qualified or until his earlier death, resignation or removal. In the event the Corporation fails to hold an annual meeting in any year at which the term of office of a class of directors is to expire ("Regularly Scheduled Annual Meeting"), then in any succeeding year in which an annual meeting of shareholders is held and such class of directors is elected, the term of such class shall expire as if such class had been elected at the Regularly Scheduled Annual Meeting. If the number of directors is hereafter changed, then any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, but in no case will a decrease in the number of directors constituting the whole Board of Directors or any class of directors have the effect of removing or shortening the term of any incumbent director.

Section 2.03 <u>Director Emeritus</u>. The Board of Directors may appoint a person who previously held the position of Director of the Corporation to be a Director Emeritus. This appointment is made in recognition of many years of distinguished service to the Corporation. The appointment and compensation, if any, of a Director Emeritus shall occur at the Corporation's annual reorganization meeting. Any Director who has served at least five (5) years on the Board of Directors for the Corporation immediately prior to his or her retirement or resignation shall be qualified to serve as a Director Emeritus.

The appointment of Director Emeritus shall be for a period of one (1) year, not subject to any term limitation.

Any person appointed as a Director Emeritus shall continue to provide advice and counsel to the Board of the Directors of the Corporation and shall be entitled to receive notice of and attend meetings of the Board.

A Director Emeritus is not obligated to attend Board and Committee meetings. A Director Emeritus shall not, in fact, be a Director, shall not be counted in determining the quorum of the Corporation Board and shall not have any of the duties or liabilities of a Director under the law, including, but not limited to, the ability to cast votes for matters considered by the Corporation Board of Directors.

Section 2.04 <u>Resignations</u>. Any director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary. The resignation shall be effective upon receipt thereof or at such subsequent time as may be specified in the notice of resignation. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 2.05 <u>Annual Meeting</u>. As soon as practicable after each annual election of directors, the Board of Directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where such election of directors was held. Notice of such meeting need not be given. In the absence of a quorum at said meeting, the same may be held at any other time and place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

Section 2.06 <u>Regular Meetings</u>. Regular meetings of the Board of Directors shall be held not less often than semi-annually at a time and place determined by the Board of Directors at the preceding meeting. Notice of such meetings need not be given. If the date fixed for any such regular meeting be a legal holiday under the laws of the State where such meeting is to be held, then the same shall be held on the next succeeding secular day not a legal holiday under the laws of said State, or at such other time as may be determined by resolution of the Board. At such meetings the directors may transact such business as may be brought before the meeting.

Section 2.07 <u>Special Meetings</u>. Special meetings of the Board of Directors may be called by the Chairman of the Board, by the President or by two or more of the directors, and shall be held at such time and place as shall be designated in the call for the meeting. Notice of each special meeting shall be given by or at the direction of the person or persons authorized to call such meeting to each director at least one day prior to the day named for the meeting.

Section 2.08 <u>Organization</u>. Every meeting of the Board of Directors shall be presided over by the Chairman of the Board, if present, and, if not, the President, or in the absence of the Chairman of the Board and the President, a chairman chosen by a majority of the directors present. The Secretary, or in his absence, a person appointed by the chairman, shall act as secretary.

Section 2.09 <u>Quorum and Voting</u>. The presence of a majority of Directors then in office shall constitute a quorum for the purpose of acting upon proper matters at a meeting of the Board of Directors. If a quorum is not present at a meeting of the Board of Directors, those Directors present may adjourn from time to time to reconvene at such time and place as they may determine. The Directors present at any duly organized meeting of the Board of Directors may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient Directors to otherwise render the remaining Directors less than a quorum. Except as otherwise required by applicable law or the Articles of Incorporation, the vote of a majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors.

Section 2.10 <u>Adjournment</u>. At any meeting of the Board of Directors, the Chairman or a majority of the Directors shall have the power to adjourn such meeting to another date, time or place or by means of the Internet or other electronic communication technology, without notice other than announcement at the meeting of the date, time and place, if any, at which such meeting will be reconvened and the means of electronic communication technology, if any, by which Directors may be deemed to be present and vote at such adjourned meeting.

Section 2.11 <u>Chairman of the Board of Directors</u>. The Board of Directors may elect from among the members of the Board of Directors a Chairman. The Chairman may also be the President of the Corporation (the "President") or be employed by the Corporation in any other capacity. In the event of the absence or disability of the Chairman, any duties assigned to the Chairman by the Board of Directors may be performed by a presiding officer chosen by a majority of the Board of Directors, and such a presiding officer may be granted the authority to take any action required or permitted to be taken by the Chairman by applicable law, the Articles of Incorporation or these Bylaws as if such presiding officer were the Chairman. All references in these Bylaws to the "Chairman" shall include such a presiding officer in the event of the absence or disability of the Chairman.

Section 2.12 <u>Compensation</u>. Directors shall receive such compensation for their services as shall be determined by resolution of the Board of Directors or a committee thereof. Directors shall also be reimbursed for their expenses for attending Board of Directors and committee meetings as determined from time to time by resolution of the Board of Directors or a committee thereof.

Section 2.13 <u>Remote Participation in Meetings</u>. One or more Directors may participate in a meeting of the Board of Directors or any committee thereof by means of a conference telephone or other remote communications equipment, including electronic communications equipment, by means of which all persons participating in the meeting can hear each other. If a meeting is held by means of the Internet or other electronic communications technology in a fashion pursuant to which Directors have the opportunity to read or hear the proceedings substantially concurrently with their occurrence, vote on matters submitted to the Directors and converse with and pose questions to any one or more of the other Directors, the meeting need not be held at a particular geographic location.

Section 2.14 <u>Action Without a Meeting</u>. Any action which is required or permitted to be taken at a meeting of the Board of Directors or any committee of the Board of Directors may be taken without a meeting, if, before, on, or after the effective date of the action, a consent or consents in writing or by electronic transmission, setting forth the action so taken, are signed by all of the Directors or the members of the particular committee, as the case may be, in office on the date the first consent is signed. The consent or consents must be filed with the minutes of proceedings of the Board of Directors.

Section 2.15 <u>Regulations; Manner of Acting</u>. To the extent not inconsistent with applicable law, the Articles of Incorporation and these Bylaws, the Board of Directors may adopt such rules and regulations for conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a collective Board, and the individual Directors shall have no power as such.

Section 2.16 <u>Nomination of Directors for Election</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as Directors. For purposes of this Section 2.16, a "nominee" shall include any person being considered to fill a vacancy on the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Nominations of persons who satisfy the eligibility requirements of subsection (d) of this Section 2.16 for the election of Directors may be made by the Board of Directors, by a committee appointed by the Board of Directors with authority from the Board to do so, or by any shareholder who complies with subsection (c) of this Section 2.16.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Nominations of persons who satisfy the eligibility requirements of subsection (d) of this Section 2.16 for the election of Directors may be made by any person that (i) is a shareholder of record both at the time of giving of the notice provided for in this Section 2.16 and at the time of the annual meeting, (ii) is entitled to vote for the election of Directors at the annual meeting and (iii) complies with the notice procedures set forth in this Section 2.16. Nomination for the election of Directors pursuant to this subsection (c) of this Section 2.16 is the exclusive means for a shareholder to make nominations before a meeting of shareholders. For nominations to be properly brought before a meeting of shareholders pursuant to subsection (c) of this Section 2.16, such nomination (other than a nomination to fill a vacancy resulting from removal from office by a vote of the shareholders under Section 1726(a) of the PBCL) may be made by a shareholder only if:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Advance written notice of a proposed nomination by a shareholder setting forth the information required under subsection (e) of this Section 2.16 is delivered or mailed by certified mail to the Secretary and received at the principal executive offices of the Corporation no later than (1) with respect to an election to be held at an annual meeting, not less than 70 days nor more than 90 days prior to the anniversary of the previous year's annual meeting of shareholders, or (2) with respect to an election to be held at a special meeting of shareholders or, in the event that no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days before or more than 30 days after the anniversary date of the previous year's annual meeting, not earlier than the 90<sup>th</sup> day before such meeting and not later than (i) the 70<sup>th</sup> day prior to such meeting, or (ii) if the notice if the meeting is mailed or public announcement of the date of such meeting is made less than 70 days prior to the date of such meeting, the 10<sup>th</sup> day following the day on which notice of the meeting was mailed or public announcement of the date of such meeting was made. In no event shall any adjournment or postponement of a meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a shareholder's notice as described above;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Any update or supplement to the notice delivered pursuant to Section 2.16(c)(i) above is delivered pursuant to the requirements of subsections (f) and (g) of this Section 2.16;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The nominating shareholder has complied in all respects with the requirements of Section 14 of the Exchange Act, including without limitation, the requirements of Rule 14a-19 (as such rule and regulations may be amended from time to time by the Securities and Exchange Commission (the "Commission"), including any Commission staff interpretation relating thereto); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) The Board of Directors or an executive officer designated thereby has determined that the shareholder has reasonably satisfied the requirements of this Section 2.16.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) To be eligible to be a nominee for election as a Director pursuant to this Section 2.16, the prospective nominee (whether nominated by or at the direction of the Board of Directors or by a shareholder), or someone acting on such prospective nominee's behalf, must deliver (with respect to any nomination by a shareholder pursuant to this Section 2.16, in accordance with any applicable time periods prescribed for delivery of notice under this Section 2.16) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request). Upon request, the prospective nominee must also provide a written representation and agreement, in the form provided by the Secretary upon written request, that such prospective nominee:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such prospective nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a "Voting Commitment") that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such prospective nominee's ability to comply, if elected as a director of the Corporation, with such prospective nominee's fiduciary duties under applicable laws;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) would be in compliance if elected as a director of the Corporation, and will comply with all applicable corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Each notice delivered pursuant to subsection (c)(i) of this Section 2.16 shall set forth:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) as to each person whom the shareholder proposes to nominate for election or reelection as a Director:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) all information relating to such person that would be required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act (including such person's written consent to (A) being named as a nominee in any proxy materials relating to the Corporation's next annual meeting or special meeting, as applicable, and (B) to serving as a Director if elected); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner on whose behalf the nomination is being made, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and such nominees' respective affiliates and associates, or others acting in concert therewith, on the other hand, including all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the "registrant" for purposes of such rule and the nominee were a director or executive officer of such registrant;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) as to the shareholder giving the notice and any Shareholder Associated Person on whose behalf the nomination is made:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) the name and address, as they appear on the Corporation's books, of such shareholder, and of each Shareholder Associated Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) any class or series and number of the Corporation's securities, including shares of the Corporation and Derivative Instruments, directly or indirectly beneficially owned by the shareholder or a Shareholder Associated Person, or any other direct or indirect opportunity for the shareholder or Shareholder Associated Person to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) any interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which the shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) any hedging or other transaction or series of transactions that has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, without limitation, any put, short position or any borrowing or lending of shares) that has been made by or on behalf of, a shareholder or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the shareholder or any Shareholder Associated Person with respect to any share of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder or Shareholder Associated Person has a right to vote any shares of any class or series of the Corporation's capital stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) any short interest of such shareholder or Shareholder Associated Person in any security of the Corporation (for purposes of this Section 2.16, a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) any rights to dividends on any securities of the Corporation owned beneficially by such shareholder or Shareholder Associated Person that are separated or separable from the underlying securities of the Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) any proportionate interest in shares of any class or series of the Corporation's capital stock or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) any performance-related fees (other than an asset-based fee) to which such shareholder or beneficial owner is entitled based on any increase or decrease in the value of securities of the Corporation or Derivative Instruments, if any, as of the date of such notice, including any such interests held by members of the immediate family of such shareholder or Shareholder Associated Person sharing the same household (which information shall be supplemented by such shareholder and Shareholder Associated Person not later than ten (10) days after the record date for the meeting to disclose such ownership as of the record date);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10) any significant equity interests or any Derivative Instruments or short interests in any principal competitor of the Corporation held by such shareholder or Shareholder Associated Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11) any direct or indirect interest of such shareholder or any Shareholder Associated Person in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(12) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Exchange Act and the rules and regulations promulgated thereunder by such shareholder or beneficial owner, if any;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(13) in the case of a notice of nomination delivered pursuant to this Section 2.16, a representation that such nominating shareholder or beneficial owner, if any, intends to solicit the holders of shares representing at least 67% of the shares of capital stock of the Corporation entitled to vote generally for the election of Directors in support of director nominees other than the Corporation's nominees in accordance with Rule 14a-19; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(14) any other information relating to such shareholder or Shareholder Associated Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) a representation that the shareholder is a holder of record of capital stock of the Corporation is entitled to vote at such meeting and intends to appear in person or by proxy at the annual meeting to propose such nomination; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) a representation as to whether the shareholder or any such Shareholder Associated Person is or intends to be part of a group that intends to solicit proxies from shareholders in support of such nomination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The shareholder and any Shareholder Associated Person shall update and supplement the notice required by this Section 2.16 by giving notice that the information provided or required to be provided in such notice shall be true and correct (1) as of the record date for the meeting and (2) as of the date that is ten (10) business days prior to the meeting or any adjournment, postponement or recess thereof. Such updates and supplements shall be delivered or mailed by certified mail to the Secretary and received at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment, postponement or recess thereof) not later than five (5) business days prior to the date for the meeting or, if practicable, any adjournment, postponement or recess thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned, postponed or recessed). No such supplement or update may include any new nominees who were not named in the original notice of nomination or to be deemed to cure any defects or limit the remedies (including without limitation under these Bylaws) available to the Corporation relating to any defect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) In addition, the shareholder making such nomination shall promptly provide any other information reasonably requested by the Corporation, including information to determine (1) the eligibility of such proposed nominee to serve as an independent Director of the Corporation or that could be material to a reasonable shareholder's understanding of the independence, or lack thereof, of such nominee; (2) whether the proposed nominee has any direct or indirect relationship with the Corporation other than those relationships that have been deemed categorically immaterial pursuant to the Corporation's corporate governance guidelines or its related party transaction policy; (3) whether the proposed nominee would, by serving on the Board of Directors, violate or cause the Corporation to be in violation of these Bylaws, the Articles of Incorporation, the rules and listing standards of the principal U.S. exchange upon which the common stock of the Corporation is listed or any applicable law, rule or regulation, and (4) whether the proposed nominee is or has been subject to any event specified in Item 401(f) of Regulation S-K (or successor rule) of the Commission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) A shareholder who has delivered a notice of nomination pursuant to this Section 2.16 shall promptly certify to the Corporation in writing that it has complied with the requirements of Rule 14a-19 promulgated under the Exchange Act and deliver no later than five (5) business days prior to the annual meeting or special meeting, as applicable, reasonable evidence that it has complied with such requirements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Notwithstanding anything to the contrary in these Bylaws, unless otherwise required by law, if any shareholder (i) provides notice pursuant to Rule 14a-19 promulgated under the Exchange Act and (ii) subsequently (1) notifies the Corporation that such shareholder no longer intends to solicit proxies in support of director nominees other than the Corporation's director nominees in accordance with Rule 14a-19, (2) fails to comply with the requirements of Rule 14a-19 or (3) fails to provide reasonable evidence sufficient to satisfy the Corporation that such requirements have been met, such shareholder's nomination(s) shall be deemed null and void and the Corporation shall disregard any proxies or votes solicited for any nominee proposed by such shareholder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) The Chairman may, if the facts warrant, determine that any proposed nomination was not properly brought before the annual meeting in accordance with the provisions of this Section 2.16; and if the Chairman shall so determine, the Chairman shall so declare to the annual meeting, and any such nomination not properly brought before the annual meeting shall not be considered. A shareholder proposing a nomination for Director shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.16; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the applicable requirements pursuant to this Section 2.16.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) Subject to Rules 14a-8 and 14a-19 promulgated under the Exchange Act, nothing in these Bylaws shall be construed to permit any shareholder, or give any shareholder the right to include or have disseminated or described in any proxy materials relating to the Corporation's next annual meeting or special meeting, as applicable, any nomination of a director or directors or any other business proposal.

Section 2.17 <u>Advisory Committees</u>. The Board of Directors may, at its discretion, designate by resolution one or more Advisory Committees consisting of one or more Directors Emeritus, to provide consulting or advisory services to the Board of Directors as requested from time to time by the Board of Directors. Directors Emeritus serving on an Advisory Committee shall be considered for all purposes to be governed by the terms of Section 2.03.

**ARTICLE 3**

**COMMITTEES**

Section 3.01 <u>Committees Generally</u>. The Board of Directors may establish one or more committees to consist of one or more directors of the Corporation. Any committee, to the extent provided by the Board of Directors, shall have and may exercise all of the powers and authority of the Board of Directors except that a committee shall not have any power or authority as to the following: (i) the submission to shareholders of any action requiring approval of shareholders under the PBCL; (ii) the creation or filling of vacancies in the Board of Directors; (iii) the adoption, amendment or repeal of the bylaws; (iv) the amendment or repeal of any resolution of the Board that by its terms is amendable or repealable only by the Board; (v) action on matters committed by the bylaws or resolution of the Board of Directors to another committee of the Board.

Section 3.02 <u>Conduct of Committees</u>. The term "Board of Directors" or "Board" when used in any provision of these Bylaws related to the organization or procedures of or the manner of taking action by the Board of Directors, shall be construed to include and refer to any executive or other committee of the Board of Directors. Subject to any charter adopted by the Board with respect to a committee of the Board of Directors, any provision of these Bylaws related or referring to action to be taken by the Board of Directors or the procedures required therefor shall be satisfied by the taking of corresponding action by a committee of the Board of Directors to the extent authority to take the action has been delegated to the committee pursuant to this Article 3.

**ARTICLE 4**

**OFFICERS**

Section 4.01 <u>Number</u>. The officers of the Corporation shall be a President, a Secretary and a Treasurer, and may include one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as the Board of Directors may authorize from time to time; provided, however, that the Chairman and Vice Chairman of the Board shall not be an officer of the Corporation. Any two or more offices may be held by the same person. No officer need be a Director of the Corporation.

Section 4.02 <u>Qualifications</u>. The President and Secretary shall be natural persons of full age. The Treasurer may be a corporation, but if a natural person shall be of full age.

Section 4.03 <u>Election and Term of Office</u>. The officers of the Corporation shall be elected or appointed by the Board of Directors and each shall serve at the pleasure of the Board. Any additional officers authorized from time to time by the Board of Directors also may be removed, with or without cause, by the President.. Any vacancy occurring in any office specified identified in Section 4.01 due to the death, resignation or removal of such officer or otherwise shall be filled by the Board of Directors, and any vacancy due to the death, resignation or removal of any other officer shall be filled at the discretion of the President, if at all.

Section 4.04 <u>Resignations</u>. Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary. Any officer specifically identified in Section 4.01 shall also provide a copy of such a written notice of resignation to the Board of Directors in any event. The resignation shall be effective upon receipt thereof or at such subsequent time as may be specified in the notice of resignation. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4.05 <u>Chairman of the Board</u>. If there is a Chairman of the Board, he shall preside at the meetings of the Board and at meetings of shareholders. Such Chairman of the Board shall also perform such other duties as may be specified by the Board from time to time and as do not conflict with the duties of the President.

Section 4.06 <u>The President</u>. The President shall be the chief executive officer of the Corporation and shall have general supervision over the business and operations of the Corporation with all such powers with respect to such business and operations as may be reasonably incident to such responsibilities, subject, however, to the control of the Board of Directors. He shall sign, execute, and acknowledge, in the name of the Corporation, deeds, mortgages, bonds, contracts, and other instruments authorized by the Board, except in cases where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of President, and such other duties as from time to time may be assigned to him by the Board. In addition, the President shall preside at meetings of shareholders in the absence of the Chairman of the Board and shall preside at meetings of the Board of Directors in the absence of the Chairman of the Board. In the event that the President ceases to be an employee of the Corporation for any reason, the President, if he or she is then serving as a director of the Corporation, shall cease to be eligible to serve as a director of the Corporation and shall immediately resign as a director of the Corporation (failure to tender such resignation within five (5) days of such termination of employment shall be deemed to constitute a resignation for purposes of these bylaws).

Section 4.07 <u>The Vice Presidents</u>. In the absence or disability of the President or when so directed by the President, any Vice President designated by the Board of Directors may perform all the duties of the President, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President; provided, however, that no Vice President shall act as a member of or as chairman of any committee of the Board of which the President is a member or chairman by designation or ex-officio, unless such Vice President is a member of the Board of Directors and has been designated expressly by the Board as the alternate to the President for purposes of service on such committee. The Vice Presidents shall perform such other duties as from time to time may be assigned to them respectively by the Board of Directors or the President.

Section 4.08 <u>The Secretary</u>. The Secretary shall record all the votes of the shareholders and of the directors and the minutes of the meetings of the shareholders and of the Board of Directors in a book or books to be kept for that purpose; he shall see that notices of meetings of the Board and shareholders are given and that all records and reports are properly kept and filed by the Corporation as required by law; he shall be the custodian of the seal of the Corporation and shall see that it is affixed to all documents to be executed on behalf of the Corporation under its seal; and, in general, he shall perform all duties incident to the office of Secretary, and such other duties as may from time to time be assigned to him by the Board of Directors or the President.

Section 4.09 <u>Assistant Secretaries</u>. In the absence or disability of the Secretary or when so directed by the Secretary, any Assistant Secretary may perform all the duties of the Secretary, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them respectively by the Board of Directors, the President, or the Secretary.

Section 4.10 <u>The Treasurer</u>. The Chief Financial Officer shall perform all the duties of Treasurer if a separate Treasurer has not been designated. The Treasurer shall have charge of all receipts and disbursements of the Corporation and shall have or provide for the custody of its funds and securities; he shall have full authority to receive and give receipts for all money due and payable to the Corporation, and to endorse checks, drafts, and warrants in its name and on its behalf and to give full discharge for the same; he shall deposit all funds of the Corporation, except such as may be required for current use, in such banks or other places of deposit as the Board of Directors may from time to time designate; and, in general, he shall perform all duties incident to the office of Treasurer and such other duties as may from time to time be assigned to him by the Board of Directors or the President.

Section 4.11 <u>Assistant Treasurers</u>. In the absence or disability of the Treasurer or when so directed by the Treasurer, any Assistant Treasurer may perform all the duties of the Treasurer, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them respectively by the Board of Directors, the President, or the Treasurer.

Section 4.12 <u>Compensation</u>. The salaries and other compensation of all officers of the Corporation specifically identified in Section 4.01 shall be fixed as determined by the Board of Directors or a committee of the Board of Directors to which the Board of Directors has delegated authority to do so; provided, however, that the salaries and other compensation of any other officers also may be fixed by the President.

**ARTICLE 5**

**POWERS OF BOARD OF DIRECTORS**

Section 5.01 <u>Conduct of the Corporation</u>. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised and done by the shareholders.

Section 5.02 <u>Fiduciary Duties</u>. A director shall stand in a fiduciary relation to the Corporation and shall perform his duties as a director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) One or more officers or employees of the Corporation whom the director reasonably believes to be reliable and competent in the matters presented.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such persons.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A committee of the Board of Directors upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.

A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted.

Section 5.03 <u>Standard for Fiduciary Duties</u>. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors may, in considering the best interests of the Corporation, consider the effects of any action upon employees, upon suppliers and customers of the Corporation and upon communities in which offices or other establishments of the Corporation are located, and all other pertinent factors. The consideration of those factors shall not constitute a violation of Section 5.02.

Section 5.04 <u>Presumption</u>. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or any failure to take any action shall be presumed to be in the best interests of the Corporation.

Section 5.05 <u>Exculpation for Money Damages</u>. A director shall not be personally liable, as such, for monetary damages for any action taken, or any failure to take any action, unless:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the director has breached or failed to perform the duties of his office under this Article 5; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

The provision of Section 5.05 shall not apply to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the responsibility or liability of a director pursuant to any criminal statute; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the liability of a director for the payment of taxes pursuant to local, State or Federal law.

**ARTICLE 6**

**INDEMNIFICATION**

Section 6.01 <u>Indemnification</u>. The Corporation shall indemnify any person who was or is a party to or witness in, or is threatened to be made a party to or a witness in, any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving while a director or officer of the Corporation at the request of the Corporation as a director, officer, employee, agent, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted self-dealing, willful misconduct or recklessness, subject to any limitations prescribed by state or federal law, rule or regulation or interpretations thereof.

Section 6.02 <u>Advancement of Expenses</u>. Expenses incurred by an officer or director of the Corporation in connection with participating in a civil or criminal action, suit or proceeding as described in Section 6.01 shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation, subject to any limitations prescribed by state or federal law, rule or regulation or interpretations thereof.

Section 6.03 <u>Other Rights</u>. The indemnification and advancement of expenses provided by or pursuant to this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Corporation's Articles of Incorporation, any insurance or other agreement, vote of shareholders or directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person.

Section 6.04 <u>Insurance</u>. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of these Bylaws.

Section 6.05 <u>Security Fund; Indemnity Agreements</u>. By action by the Board of Directors (notwithstanding their interest in the transaction) the Corporation may create and fund a trust fund or fund of any nature, and may enter into agreements with its directors, officers, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article.

Section 6.06 <u>Modification</u>. The duties of the Corporation to indemnify and to advance expenses to a director or officer provided in this Article shall be in the nature of a contract between the Corporation and each such director or officer, and no amendment or repeal of any provision of this Article, and no amendment or termination of any trust or other fund created pursuant to Section 6.05, shall alter, to the detriment of such director or officer, the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.

Section 6.07 <u>Exception</u>. Notwithstanding anything in this Article 6 to the contrary, the Corporation shall not be obligated to indemnify any person under Section 6.01 or advance expenses under Section 6.02 with respect to an action, suit or proceeding commenced by such person, other than mandatory counterclaims, affirmative defenses or to enforce the right to indemnification under Section 6.01 or advancement of expenses under Section 6.02.

**ARTICLE 7**

**BORROWING, DEPOSITS, PROXIES, ETC.**

Section 7.01 <u>Borrowing, etc</u>. No officer, agent or employee of the Corporation shall have any power or authority to borrow money on its behalf, to pledge its credit, or to mortgage or pledge its real or personal property, except within the scope and to the extent of the authority delegated by resolution of the Board of Directors. Authority may be given by the Board for any of the above purposes and may be general or limited to specific instances.

Section 7.02 <u>Deposits and Investments</u>. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositaries, or invested in such manner, as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks signed by, and all such investments shall be disposed of only by, such one or more officers or employees as the Board shall from time to time determine.

Section 7.03 <u>Proxies</u>. Unless otherwise ordered by the Board of Directors, any officer of the Corporation may appoint an attorney or attorneys (who may be or include such officer himself), in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation or other entity, any of whose shares or other securities are held by or for the Corporation, at meetings of the holders of the shares or other securities of such other corporation or other entity, or, in connection with the ownership of such shares or other securities, to consent in writing to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its seal such written proxies or other instruments as the officer may deem necessary or proper in the premises.

**ARTICLE 8**

**SHARE CERTIFICATES; TRANSFER**

Section 8.01 <u>Share Certificates</u>. Share certificates in the form prescribed by the Board of Directors, shall be signed by the President or a Vice President and by the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer of the Corporation, but such signatures may be facsimiles, engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon any share certificate shall have ceased to be such officer because of death, resignation, or otherwise, before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue.

Section 8.02 <u>Transfer of Shares</u>. The Corporation or a Registrar or Transfer Agent of the Corporation shall maintain books in which the ownership and transfer of the Corporation's shares shall be definitively registered. Transfer of share certificates and the shares represented thereby shall be made only on the books of the Corporation by the owner thereof or by the owner's attorney thereunto authorized, by a power of attorney duly executed and filed with the Secretary or a Transfer Agent of the Corporation, and on surrender of the share certificates.

Section 8.03 <u>Transfer Agent and Registrar; Regulations</u>. The Corporation may, if and whenever the Board of Directors so determines, maintain, in the Commonwealth of Pennsylvania, or any other state of the United States, one or more transfer offices or agencies, each in charge of a Transfer Agent designated by the Board, where the shares of the Corporation shall be transferable, and also one or more registry offices, each in charge of a Registrar (which may also be a Transfer Agent) designated by the Board, where such shares shall be registered; and no certificates for shares of the Corporation in respect of which a Transfer Agent shall have been designated shall be valid unless countersigned by such Transfer Agent and no certificates for shares of the Corporation in respect of which a Registrar shall have been designated shall be valid unless registered by such Registrar. The Board may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of its shares.

Section 8.04 <u>Lost, Destroyed and Mutilated Certificates</u>. The Board of Directors, by standing resolution or by resolutions with respect to particular cases, may authorize the issue of new share certificates in lieu of share certificates lost, destroyed or mutilated, upon such terms and conditions as the Board may direct.

**ARTICLE 9**

**MISCELLANEOUS**

Section 9.01 <u>Venue</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Unless the Corporation consents in writing to the selection of an alternate forum, the state courts of the Commonwealth of Pennsylvania in and for Lackawanna County shall be the sole and exclusive forum, to the fullest extent permitted by law, for (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action asserting a claim of a breach of fiduciary duty owed by any director or officer of the Corporation to the Corporation or the Corporation's shareholders; (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the Business Corporation Law of the Commonwealth of Pennsylvania, the Articles of Incorporation of the Corporation or these Bylaws; (iv) any action seeking to interpret, apply, enforce or determine the validity of the Article of Incorporation or the Bylaws of the Corporation; or (v) any action asserting a claim against the Corporation governed by the internal affairs doctrine.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in any securities of the Corporation shall be deemed to have notice of and consented to this Section 9.01(b).

Section 9.02 <u>Fiscal Year</u>. The fiscal year of the Corporation shall be the calendar year.

Section 9.03 <u>Application and Effect</u>. The provisions of Article 6 of these bylaws shall not apply to any person who ceased to be a director or officer of the Corporation prior to April 5, 2012. Article 24 of the Corporation's bylaws as in effect immediately prior to April 5, 2012 shall continue to apply to any person entitled to indemnification or advancement of expenses under Article 24 prior to April 5, 2012.

Section 9.04 <u>Certain Definitions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) For purposes of these Bylaws, "<u>electronic transmission</u>" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) For purposes of these Bylaws, "<u>public announcement</u>" shall mean disclosure in a press release reported by the Dow Jones News Service, PR Newswire, Associated Press or a comparable news service, or in a document publicly filed or furnished by the Corporation with the Commission pursuant to Section 13, 14 or 15(b) of the Exchange Act, and the meaning of the term "<u>group</u>" shall be within the meaning ascribed to such term under Section 13 of the Exchange Act.

**ARTICLE 10**

**AMENDMENTS**

Section 10.01 Except as otherwise provided by the PBCL, these Bylaws may be altered, amended or repealed by the affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding Common Shares at any regular or special meeting duly convened after notice to the shareholders of that purpose, or by a majority vote of the members of the Board of Directors at any regular or special meeting thereof duly convened after notice to the directors of that purpose, subject always to the power of the shareholders to change such action of the Board of Directors by the affirmative vote of the holders of seventy-five percent (75%) of the outstanding Common Shares. No provision of these Bylaws shall vest any property right in any shareholder as such.

## Exhibit 4.4

**EXHIBIT 4.4**

**FNCB BANCORP, INC.**<br> **DESCRIPTION OF CAPITAL STOCK**

*The following is a description of the capital stock of FNCB Bancorp, Inc. (*"*FNCB,*" "*we,*" "*our*" *or the* "*Company*"*) and the material provisions of the FNCB*'*s amended and restated articles of incorporation and amended and restated bylaws and other agreements to which we and our shareholders are parties. FNCB has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: its common stock. The following is only a summary and is qualified by applicable law and by the provisions of the amended and restated articles of incorporation and amended and restated bylaws and other agreements, copies of which are filed as exhibits to the Company*'*s most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.*

**General**

The total number of shares of all classes of stock that we have authority to issue is 70,000,000, consisting of 50,000,000 shares of common stock, par value $1.25 per share, and 20,000,000 shares of preferred stock, par value $1.25 per share.

**Common Stock**

*Voting rights*. The holders of our common stock possess exclusive voting rights in us. They elect our board of directors and act on such other matters as are required to be presented to them under Pennsylvania law, the rules promulgated by The Nasdaq Capital Market or our articles of incorporation and bylaws or as are otherwise presented to them by the board of directors. Each holder of our common stock is entitled to one vote per share and does not have any right to cumulative voting in the election of directors. At any meeting of the shareholders, the holders of a majority of our outstanding stock then having voting rights, present in person or by proxy, shall constitute a quorum for all purposes. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceeds the votes cast opposing the action, unless otherwise provided by the charter or bylaws. Certain matters require the affirmative vote of the holders of at least 75% of the outstanding shares of our common stock.

*Dividend rights*. Subject to the rights that may be applicable to any outstanding preferred stock and all other classes of stock at the time outstanding having prior rights as to dividends, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors, subject to certain prohibitions on our ability to pay dividends under Pennsylvania corporate law.

In addition, as a bank holding company, any dividends paid by us are subject to various federal and state regulatory limitations and also may be subject to the ability of the Bank to make distributions or pay dividends to us. The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us. Our ability to pay dividends is limited by minimum capital and other requirements prescribed by law and regulation. Furthermore, we are generally prohibited under Pennsylvania corporate law from making a distribution to our shareholders to the extent that, at the time of the distribution, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus (unless the articles of incorporation permits otherwise) the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any shareholders who may have preferential rights superior to those receiving the distribution. In addition, financing arrangements that we may enter into in the future may include restrictive covenants that may limit our ability to pay dividends.

*Rights upon liquidation*. In the event of our liquidation, dissolution or winding up, the holders of our common stock would be entitled to receive, after payment or provision for payment of all our debts and liabilities and after we have paid, or set aside for payment to, the holders of any stock having a liquidation preference over the common stock, all of our assets available for distribution. In the event of any liquidation, dissolution or winding up of the Bank, we, as a holder of the Bank's capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of the Bank (including all deposit accounts and accrued interest thereon), all assets of the Bank available for distribution.

*Other rights*. The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of our preferred stock.

**Preferred Stock**

*General*

Our board of directors has the authority, without shareholder consent, subject to certain limitations imposed by Pennsylvania law, to issue preferred stock from time to time in one or more series and to establish the number of shares to be included in each such series, and to fix the voting rights, preferences, limitations and special rights, if any of the shares of each such series and the qualifications, or restrictions thereof. These rights, preferences and restrictions will be fixed by a statement with respect to shares relating to each particular series. As of this date of this prospectus, we have no shares of preferred stock outstanding.

The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of FNCB without further action by the shareholders and may adversely affect the voting and other rights of the holders of common stock. The authority of the board of directors with respect to each such series includes, among others:

● the number of shares constituting the series;

● general or specific voting rights;

● preferential liquidation rights;

● preferential cumulative or noncumulative dividend rights;

● redemption or put rights; and

● conversion rights.

We may issue shares of, or rights to purchase shares of, one or more series of our preferred stock that have been designated from time to time, the terms of which might:

● adversely affect the voting or other rights evidenced by, or amounts otherwise payable with respect to, the common stock or other series of preferred stock;

● discourage an unsolicited proposal to acquire us; or

● facilitate a particular business combination involving us.

**Election and removal of directors**

Our articles of incorporation and bylaws give our board of directors the power to determine the exact number of directors, which shall not be less than three. Our articles of incorporation also provide for a "classified" board of directors with staggered three-year terms of office. Our board of directors is divided into three classes, with each class to be as nearly equal in number as possible. The terms of the separate classes expire in successive years. Thus, at each annual meeting of shareholders, successors to the class of directors whose term then expires are elected to hold office for a term of three years. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election of such class of directors at a meeting at which a quorum is present. Under the laws of the Commonwealth of Pennsylvania, vacancies in our board of directors, including vacancies resulting from an increase in the number of directors, may be filled by a majority vote of the remaining members of the board of directors though less than a quorum, or by a sole remaining director, and each person so selected shall hold office until the next selection of the class for which such director has been chosen, and until his or her successor has been selected and qualified or until his or her earlier death, resignation or removal. Directors may only be removed for cause, which is defined as "final conviction of a felony, unsound mind, adjudication of bankruptcy, non-acceptance of the office or conduct prejudicial to the interests of *[us].*" In addition, shareholders may only attempt to remove a director for cause after service of specific charges, adequate notice and full opportunity to refute the charges.

**Advance notice for shareholder proposals or making nominations at meetings**

Our bylaws establish an advance notice procedure for shareholder proposals to be brought before a meeting of our shareholders and for nominations by shareholders of candidates for election as directors at an annual meeting or a special meeting at which directors are to be elected. Subject to any other applicable requirements, only such business may be conducted at an annual meeting of shareholders as has been brought before the meeting (i) pursuant to the Company's notice of the meeting, (ii) by, or at the direction of, our board of directors, (iii) by the chairman of the annual meeting, or (iv) by a shareholder who is a shareholder of record both at the time of giving notice required by our bylaws and at the time of the annual meeting, and who has complied with the notice requirements set forth in the bylaws Special meetings of the shareholders may be called only by the Board of Directors, the executive committee of the Board of Directors, the chairman of the Board or the President and only the objects listed in the notice of such meeting, or matters germane thereto, may be transacted at such special meeting. The chairman of any such meeting has the authority to make such determinations. Only persons who are selected and recommended by our board of directors, or the committee of our board of directors designated to make nominations, or who are nominated by a shareholder who is a shareholder of record both at the time of the annual meeting and at the time of giving timely written notice, in proper form, to the Secretary prior to a meeting at which directors are to be elected , will be eligible for election as directors.

To be timely, notice of nominations or other business to be brought before any meeting must be delivered to our principal executive offices and within the following time periods:

● in the case of an annual meeting of shareholders, not earlier than the close of business on the 90th day and not later than the close of business on the 70th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days before or more than 30 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to the date of such annual meeting and not later than (a) the 70<sup>th</sup> day prior to such meeting or (b) if the notice of such meeting is mailed or public announcement of the date of such meeting is made less than 70 days prior to the date of such meeting, the 10<sup>th</sup> day following the day on which notice of the meeting was mailed or public announcement of the date of such meeting was made; and

● in the case of a special meeting of shareholders, not earlier that the close of business on the 90th day prior to such special meeting and not later than (a) the 70<sup>th</sup> day prior to such meeting or (b) if the notice of such meeting is mailed or public announcement of the date of such meeting is made less than 70 days prior to the date of such meeting, the 10<sup>th</sup> day following the day on which notice of the meeting was mailed or public announcement of the date of such meeting was made.

In no event shall any adjournment or postponement of an annual meeting, or the announcement thereof, commence a new time period for the giving of a shareholder's notice as described above.

The notice of any shareholder proposal or nomination for election as director must set forth various information required under the bylaws, including a brief description of the business to be brought before the meeting and the reason for conducting such business at such meeting, and the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the bylaws, the text of the proposed amendment. Additionally, the person submitting the notice of nomination and any person acting in concert with such person must provide, among other things the name and address under which they appear on our books (if they so appear) and the class and number of shares of our capital stock that are beneficially owned by them.

**Amendment of charter and bylaws**

Under the Pennsylvania Business Corporation Law, (the "PBCL"), our articles of incorporation generally may not be amended without shareholder approval. Except as provided in the articles of incorporation and subject to the voting rights, any amendment to our articles of incorporation submitted for shareholder approval at a shareholders' meeting is generally approved if the number of votes cast in favor of the amendment exceeds the number of votes cast against the amendment. Our articles of incorporation require the approval of at least 75% of the outstanding shares of our common stock for the amendment of certain provisions of our articles of incorporation relating to business combinations not approved by the board of directors. Thus, the holders of a minority of the shares of our common stock could block certain future amendments to our articles of incorporation, even if that action were deemed beneficial by the holders of more than a majority, but less than 75%, of our outstanding shares of our common stock.

Our shareholders may amend our bylaws only upon the affirmative vote of the holders of at least 75% of our outstanding common stock. Additionally, our board of directors may amend our bylaws upon the affirmative vote of a majority of the directors then in office, subject to the power of the shareholders to change such actions by the board of directors by the affirmative vote of the holders of 75% of the outstanding shares of our common stock.

**Ownership limitation**

We are a bank holding company. A holder of common stock (or group of holders acting in concert) that (i) directly or indirectly owns, controls or has the power to vote more than 5% of the total voting power of the Company, (ii) directly or indirectly owns, controls or has the power to vote 10% or more of any class of voting securities of the Company, if certain presumptions are not rebutted, (iii) directly or indirectly owns, controls or has the power to vote 25% or more of any class of voting securities, (iv) owns a combination of voting and non-voting securities representing one-third or more of the total equity of the Company, or (v) is otherwise deemed to "control" the Company under applicable regulatory standards may be subject to important restrictions, such as prior regulatory notice or approval requirements and applicable provisions of the FDIC Policy Statement.

Under our bylaws, only our board of directors, the Executive Committee, the Chairman of our board of directors, or our President, may call special meetings of the shareholders. Our shareholders are not permitted to call special meetings of the shareholders.

**Limitation of liability of directors and officers**

Our bylaws provide that we will indemnify any person who was or is a party to or witness in, or is threatened to be made a party to or a witness in, any threatened, pending or completed action, suit or proceeding, including actions by us or in our right, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was our director or officer, or is or was serving while our director or officer at our request as a director, officer, employee, agent, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding.

Pennsylvania law requires that to the extent that a director, officer or another representative has been successful on the merits or otherwise in defense of any action or proceeding referred to above or in defense of any claim, issue or matter therein, that director or officer shall be indemnified against expenses (including attorney fees) actually and reasonably incurred by him in connection therewith. Our bylaws further provide that the right to indemnification includes the right to have expenses incurred by our officer or director in connection with participating in a civil or criminal action, suit or proceeding described above shall be paid by us in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by us, subject to any limitations prescribed by state or federal law, rule or regulation or interpretations thereof.

Indemnification shall not be made in respect of any claim, issue or matter as to which the person has been adjudged to be liable to us unless and only to the extent that a court determines that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses that the court deems proper. Nor shall indemnification be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted self-dealing, willful misconduct or recklessness, subject to any limitations prescribed by state or federal law, rule or regulation or interpretations thereof.

**Anti-takeover provisions in the PBCL**

Pursuant to the PBCL, in the case of a merger or share exchange, with some exceptions, our 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 us provide, among other things, that:

● we 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 our common stock may object to a "control transaction" involving us (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, realized by any person or group who is or was a "controlling person or group" with respect to us 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 us.

Pennsylvania-chartered corporations may exempt themselves from these and other anti-takeover provisions. Our articles of incorporation do not provide for exemption from the applicability of these or other anti-takeover provisions in the PBCL.

The provisions noted above may have the effect of discouraging a future takeover attempt that is not approved by our board of directors but which individual shareholders may consider to be in their best interests or in which shareholders may receive a substantial premium for their shares over the then current market price. As a result, shareholders who might wish to participate in such a transaction may not have an opportunity to do so. The provisions may also result in the removal of our board of directors or management more difficult. Furthermore, such provisions could render our company being deemed less attractive to a potential acquirer or could result in our shareholders receiving a lesser amount of consideration for their shares of our common stock than otherwise could have been available either in the market generally or in a takeover.

**Anti-takeover effects of some provisions**

In addition to the anti-takeover provisions of the PBCL, some provisions of our articles of incorporation and bylaws could make more difficult the removal of our incumbent officers and directors. These provisions, as well as our ability to issue preferred stock, are designed to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms.

Our articles of incorporation contain certain super-majority requirements to approve a merger or consolidation of us. Under the articles of incorporation, the affirmative vote of the holders of not less than 75% of our outstanding common stock is required to authorize any merger or sale of all, or substantially all, unless approval of such proposed transaction is recommended by at least a majority of our entire board of directors. In addition, our articles of incorporation provides that our board of directors may issue "blank check" preferred stock without shareholder approval. Some of the rights and preferences of these shares of preferred stock would be superior to the rights and preferences of shares of our common stock. Accordingly, the issuance of new shares of preferred stock may adversely affect the rights of the holders of shares of our common stock. Our articles of incorporation also provide for a "classified" board of directors with staggered three-year terms of office. Our board of directors is divided into three classes, with each class to be as nearly equal in number as possible. The terms of the separate classes expire in successive years. Thus, at each annual meeting of shareholders, successors to the class of directors whose term then expires are elected to hold office for a term of three years. Therefore, the term of office of one class of directors expires in each year. A classified board of directors may have the result of delaying or preventing an investor from changing a majority of our directors.

**Exclusive Forum**.

Our bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, (a) the state courts of the Commonwealth of Pennsylvania in and for Lackawanna County will be the sole and exclusive forum, to the extent permitted by law, for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of a breach of fiduciary duty owed by any of our directors or officers to us or our shareholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Business Corporation Law of the Commonwealth of Pennsylvania, our articles of incorporation or our bylaws, (iv) any action seeking to interpret, apply, enforce or determine the validity of our articles of incorporation or our bylaws and (v) any action asserting a claim against us governed by the internal affairs doctrine and (b) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. This provision does not apply to claims brought pursuant to the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated thereunder, or any other claim for which the U.S. federal courts have exclusive jurisdiction. This choice-of-forum provision may limit a shareholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. In addition, a shareholder that is unable to bring a claim in the judicial forum of its choosing may be required to incur additional costs in the pursuit of actions which are subject to this exclusive forum provision. If a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Company may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or operating results.

**Listing and trading market for common stock**

Our common stock is traded on The Nasdaq Capital Market under the symbol "FNCB".

**Transfer agent and registrar**

Broadridge Corporate Issuer Solutions, Inc. is the transfer agent and registrar of our common stock.

## Exhibit 10.3

**EXHIBIT 10.3**

**THE FIRST NATIONAL COMMUNITY BANK**

**AMENDED AND RESTATED**

**DIRECTORS**' **AND OFFICERS' DEFERRED COMPENSATION PLAN**

THE FIRST NATIONAL COMMUNITY BANK, whose principal office is located at 102 East Drinker Street, Dunmore, PA ("Bank") hereby establishes this Amended and Restated Directors' and Officers' Deferred Compensation Plan effective January 1, 2005, for the purpose of promoting in its Directors and Officers the strongest interest in the successful operation of the Bank and to provide its Directors and Officers with deferred benefits upon retirement.

**WITNESSETH:**

**WHEREAS**, the Bank established a Directors' and Officers' Deferred Compensation Plan effective April 1, 1994 ("Plan"); and

**WHEREAS**, the Plan was subsequently amended effective July 1, 2003; and

**WHEREAS**, the Bank intends hereby to make certain modifications to the Plan to ensure its continuing compliance with all applicable provisions of the tax laws, including Internal Revenue Code Section 409A ("Section 409A").

**NOW, THEREFORE**, effective January 1, 2005 (except as otherwise specifically provided herein), the Plan is restated in its entirety as follows:

**ARTICLE I**

**<u>Definitions</u>**

&nbsp;&nbsp;&nbsp;&nbsp;1.1 **<u>Bonus Deferral Agreement</u>** – "Bonus Deferral Agreement" shall mean a written agreement between a Participant and the Bank, whereby a Participant agrees to defer a portion of bonus Compensation pursuant to the provisions of the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;1.2 **<u>Compensation</u>** – "Compensation" shall mean a Director's fee, including but not limited to, annual fees, meeting fees, committee fees, bonuses and other payments for services rendered by a Director to the Bank during a calendar year. With regard to Officers, Compensation shall include all salary and bonus amounts earned during a calendar year.

&nbsp;&nbsp;&nbsp;&nbsp;1.3 **<u>Deferral Agreement</u>** – "Deferral Agreement" shall mean a written agreement between a Participant and the Bank, whereby a Participant agrees to defer a portion of Compensation, excluding bonus Compensation, pursuant to the provisions of the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;1.4 **<u>Distribution Election</u>** – "Distribution Election" shall mean a written agreement between a Participant and the Bank, whereby a Participant elects the method of payment of the amounts deferred by the Participant under the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;1.5 **<u>Early Retirement Date</u>** – "Early Retirement Date" shall mean the date on which a Participant has attained age fifty-nine-and-a-half (59½) with at least five (5) years as a Participant in the Plan. A Participant may elect to receive payment of Plan benefits upon the Participant's Early Retirement Date regardless of whether the Participant remains an Officer or Director on such date; provided, however, that any such election may apply only to amounts deferred under the Plan prior to January 1, 2005 and earnings on those deferred amounts.

&nbsp;&nbsp;&nbsp;&nbsp;1.6 **<u>Normal Retirement Date</u>** – "Normal Retirement Date" shall mean the date on which a Participant reaches age sixty (60) or the Participant's Termination of Service, whichever is later.

&nbsp;&nbsp;&nbsp;&nbsp;1.7 **<u>Participant</u>** – "Participant" shall mean a Director or Officer of the Bank who has entered into a Deferral Agreement, Bonus Deferral Agreement and/or, under the terms of the Plan prior to this amendment and restatement, a Deferred Compensation Agreement, with the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;1.8 **<u>Plan Year</u>** – "Plan Year" shall mean the calendar year.

&nbsp;&nbsp;&nbsp;&nbsp;1.9 **<u>Specified Employee</u>** – "Specified Employee" shall mean a key employee, as defined in Internal Revenue Code Section 416(i) (without regard to Internal Revenue Code Section 416(i)(5)), of the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;1.10 **<u>Stated Deferral</u>** – "Stated Deferral" shall mean the amount of Compensation the Participant agrees to defer under a Deferral Agreement or Bonus Deferral Agreement, or had previously deferred under a Deferred Compensation Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;1.11 **<u>Termination of Service</u>** – "Termination of Service" shall mean the Participant's ceasing to serve as a Director or Officer of the Bank for any reason whatsoever, voluntary or involuntary, including by reason of death or disability; provided, however, that such shall be construed consistent with the definition of "separation from service" under Section 409A. Whether a Termination of Service has occurred is determined based on the facts and circumstances. If an Officer either actually or purportedly continues in the capacity as an Officer, such as through the execution of an employment agreement under which the Officer agrees to be available to perform services if requested, but the facts and circumstances indicate that the Bank and the Officer did not intend for the Officer to provide more than insignificant services for the Bank, the Officer will be treated as having a Termination of Service. For purposes of the preceding sentence, the Bank and the Officer will not be treated as having intended for the Officer to provide insignificant services where the Officer continues to provide services as an employee at an annual rate that is at least equal to 20 percent of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is at least equal to 20 percent of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period). Where a former Officer continues to provide services to the Bank in a capacity other than as an Officer or other employee, a Termination of Service will not be deemed to have occurred if the former Officer is providing services at an annual rate that is 50 percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is 50 percent or more of the annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period). No Termination of Service will have occurred where an Officer is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six months (or longer period to the extent the Officer's right to reemployment extends beyond six months by statute or contract), and if the period of leave exceeds six months (and the Officer's right to reemployment does not extend beyond six months), a Termination of Service occurs on the first day immediately following such six-month period.

------

**ARTICLE II**

**<u>Eligibility</u>**

All Directors serving on the Bank's Board of Directors shall be entitled to participate in the Plan as of the January 1 coincident with or next following the Director's commencement of service on the Board. Subsequently, a Director shall be entitled to participate hereunder as of the first day of a Plan Year, provided the Director has executed a Deferral Agreement prior to the beginning of that Plan Year. All Officers who have been employed at the beginning of a Plan Year for at least two (2) years in any capacity by the Bank and whose annualized pay for the Plan Year exceeds $40,000 shall be entitled to participate as of the January 1 coincident with or next following the Officer's second anniversary date of employment with the Bank. Nothing shall preclude an individual from participating both as an Officer and a Director in this Plan.

**ARTICLE III**

**<u>Compensation Deferrals</u>**

&nbsp;&nbsp;&nbsp;&nbsp;3.1 **<u>Deferrals</u>** – Any election to defer Compensation hereunder shall be made no later than December 31 of the year prior to the Plan Year in which the Compensation to be deferred is earned; provided, however, that elections to defer bonuses constituting performance-based compensation under the rules of Section 409A shall be made no later than June 30 of the Plan Year with respect to which the bonus is earned. Notwithstanding the foregoing, an election to defer bonus Compensation cannot be made after such bonus Compensation has become both substantially certain to be paid and readily ascertainable in amount. Further, an election to defer bonus Compensation with respect to a Plan Year may be made only if the amount of, or entitlement to, the bonus Compensation is contingent on the satisfaction of organizational or individual performance criteria relating to the entire Plan Year in which the Participant performs services and such criteria are established in writing within the first ninety (90) days of the Plan Year, provided the outcome is substantially uncertain at the time the criteria are established.

&nbsp;&nbsp;&nbsp;&nbsp;3.2 **<u>Procedure for Deferral</u>** – The Participant shall make the elections provided for in Section 3.1 by executing a Deferral Agreement or a Bonus Deferral Agreement, as applicable, in the form provided by the Bank. The Deferral Agreement or Bonus Deferral Agreement shall set forth the Stated Deferral. The Stated Deferral shall be subtracted from the Compensation otherwise payable to the Participant during the Plan Year of the deferral; provided, however, that bonus Compensation shall in all events be paid, and any Stated Deferral amount relating to such bonus Compensation subtracted, after December 31 of the Plan Year in which the services giving rise to the bonus Compensation were performed. Further, all bonus Compensation shall be paid, and any Stated Deferral amount relating to such bonus Compensation subtracted, on or before March 15 of the year following the Plan Year in which the services giving rise to the bonus Compensation were performed.

&nbsp;&nbsp;&nbsp;&nbsp;3.3 **<u>Limitation on Deferral</u>** –

**Directors** – A participating Director may defer up to 50% of Compensation in any Plan Year.

**Officers** – A participating Officer who has been employed at the beginning of a Plan Year for at least ten (10) years in any capacity by the Bank may defer up to 25% of Compensation for such Plan Year. Any other participating Officer may defer up to 15% of Compensation for the Plan Year.

Nothing shall preclude an individual from participating both as a Director and an Officer.

&nbsp;&nbsp;&nbsp;&nbsp;3.4 **<u>Election to Defer Irrevocable</u>** – A Participant's election to defer Compensation shall be irrevocable during the period for which it is made; provided, however, that in the event of an unforeseeable emergency constituting a severe financial hardship of the Participant or the Participant's beneficiary resulting from an illness or accident of the Participant or beneficiary, the Participant's or beneficiary's spouse or the Participant's or beneficiary's dependent (as defined in Code Section 152(a)); loss of the Participant's or beneficiary's property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant or beneficiary, the Participant, by written instructions to the Bank, may cancel future deferrals under the Plan. Subsequent to such cancellation, the Participant may elect to make additional deferrals upon filing a new Deferral Agreement setting forth the amounts to be deferred; provided, however, that any such new election will not be effective before the beginning of the Plan Year following the year in which such election is made.

**ARTICLE IV**

**<u>Deferred Compensation Accounts</u>**

&nbsp;&nbsp;&nbsp;&nbsp;4.1 **<u>Deferred Compensation Account</u>** – The Bank shall establish a bookkeeping account ("Deferred Compensation Account") for each Participant which shall be credited with the Stated Deferral on the date such Compensation would have been paid to the Participant had no election to defer been made.

&nbsp;&nbsp;&nbsp;&nbsp;4.2 **<u>Interest on the Deferred Compensation Account</u>** – Each Participant's Deferred Compensation Account shall be credited with interest on December 31 of each Plan Year on the amount in the Participant's Deferred Compensation Account as of said December 31. In addition, any Stated Deferral of bonus Compensation relating to services performed during the Plan Year and paid after December 31 of the Plan Year shall be credited with interest for the period of the Plan Year.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Interest Rate</u>** - The rate of interest credited on the amounts described in Section 4.2 shall be 200% of the one-year Treasury Bill rate in effect not more than thirty (30) days nor less than fifteen (15) days prior to the last day of the Plan Year to which the interest applies; provided, however, that in no event shall the rate be less than 8% per annum. Beginning with the sixth Plan Year of a Participant's participation in the Plan, the rate of interest shall be increased to 1% above the rate determined under the foregoing formula or 9%, whichever is greater.

&nbsp;&nbsp;&nbsp;&nbsp;4.4 **<u>Purpose of Deferred Compensation Account</u>** – The purpose of the Deferred Compensation Account shall be to determine the amount of benefits to be paid to the Participant at times hereinafter specified, and the Bank shall not segregate any asset in order to satisfy any obligations under the Plan. A Participant's Deferred Compensation Account shall not constitute nor be treated as a trust fund of any kind. It is expressly understood that all amounts credited to any Deferred Compensation Account shall be for the sole and exclusive purpose of bookkeeping; that all amounts shall remain the sole property of the Bank; and that the Participant shall have no ownership rights thereto. The Participant's rights are expressly limited to the right to receive payments as hereinafter provided, and the Participant's rights with respect thereto are merely those of a general unsecured creditor of the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;4.5 **<u>Vesting</u>** – Each Participant shall at all times be one hundred percent (100%) vested in the Participant's Deferred Compensation Account.

------

**ARTICLE V**

**<u>Payment of Benefits</u>**

&nbsp;&nbsp;&nbsp;&nbsp;5.1 **<u>Election as to Method of Payment</u>** – On or before the date of the Participant's first Stated Deferral election pursuant to a Deferral Agreement or a Bonus Deferral Agreement executed after January 1, 2006, the Participant must complete and submit to the Bank a Distribution Election electing one of the following methods of payment of the Participant's entire Deferred Compensation Account:

&nbsp;&nbsp;&nbsp;&nbsp;a. Equal annual payments for five (5) years.

&nbsp;&nbsp;&nbsp;&nbsp;b. Equal annual payments for ten (10) years.

&nbsp;&nbsp;&nbsp;&nbsp;c. Equal annual payments for fifteen (15) years.

&nbsp;&nbsp;&nbsp;&nbsp;d. Equal annual payments for twenty (20) years.

&nbsp;&nbsp;&nbsp;&nbsp;e. Equal annual payments for twenty-five (25) years.

&nbsp;&nbsp;&nbsp;&nbsp;f. Equal annual payments for thirty (30) years.

&nbsp;&nbsp;&nbsp;&nbsp;g. Equal monthly payments for sixty (60) months.

&nbsp;&nbsp;&nbsp;&nbsp;h. Equal monthly payments for one hundred twenty (120) months.

&nbsp;&nbsp;&nbsp;&nbsp;i. Equal monthly payments for one hundred eighty (180) months.

&nbsp;&nbsp;&nbsp;&nbsp;j. Equal monthly payments for two hundred forty (240) months.

&nbsp;&nbsp;&nbsp;&nbsp;k. Equal monthly payments for three hundred (300) months.

&nbsp;&nbsp;&nbsp;&nbsp;l. Equal monthly payments for three hundred sixty (360) months.

&nbsp;&nbsp;&nbsp;&nbsp;m. Single lump sum payment.

Notwithstanding the foregoing, a Participant may elect, on or before December 31, 2006, to have that portion of the Participant's Deferred Compensation Account attributable to Stated Deferrals made before January 1, 2005, together with earnings thereon, paid pursuant to the Plan's distribution rules and any elections in effect as of December 31, 2004 (disregarding, however, any financial health payment triggers, which are hereby voided for all Deferred Compensation Account amounts, whether credited before or after December 31, 2004). Further, a Participant may not make any election that would have the effect of deferring payment to a later year of an amount that would otherwise be payable in 2006 or that would have the effect of causing a payment to be made in 2006 that would otherwise be paid after 2006, and any such purported election by a Participant shall be ineffective.

&nbsp;&nbsp;&nbsp;&nbsp;5.2 **<u>Change in Election of Payment Method</u>** – A Participant may change a distribution election established pursuant to Section 5.1 with respect to the Participant's entire Deferred Compensation Account, or, at the Participant's election (but only if the Participant elected prior to December 31, 2006 to have the Plan's distribution rules and the Participant's elections in effect as of December 31, 2004 apply to Stated Deferrals made prior to January 1, 2005), with respect only to that portion of the Participant's Deferred Compensation Account attributable to Stated Deferrals made after December 31, 2004, and earnings thereon, provided that such change (i) may not take effect until at least twelve (12) months after the date on which the new election is made; (ii) defers payment for a period of not less than five (5) years from the date such payment would otherwise have been made; and (iii) in the case of any election related to a payment based upon a specified time or fixed schedule may not be made less than twelve (12) months prior to the date of the first scheduled payment. For purposes of changing a Participant's distribution election, if the Participant had elected an installment form of payment, the installments shall be treated as a single payment occurring on the date of the first installment, and subject to the other rules for changes in distribution elections as set forth above, the Participant may elect to receive a lump sum payment five years after the first installment payment would otherwise have been made.

&nbsp;&nbsp;&nbsp;&nbsp;5.3 **<u>Amount of Payments</u>** – A Participant electing installment payments shall receive equal monthly or annual installments over the period elected pursuant to Section 5.1, the amount of such payments being determined by annuitizing the Participant's Deferred Compensation Account, including interest at an annual rate as established under Section 4.3 until such account is fully paid.

&nbsp;&nbsp;&nbsp;&nbsp;5.4 **<u>Time of Payments</u>** – The benefit payments to be made pursuant to a Participant's election shall begin on the first business day of the month after the Participant's Normal Retirement Date; provided, however, that if the Participant elects (but only if the Participant elected prior to December 31, 2006 to have the Plan's distribution rules and the Participant's elections in effect as of December 31, 2004 apply to Stated Deferrals made prior to January 1, 2005), payment of amounts deferred prior to January 1, 2005, and earnings on such amounts, may begin on the first business day after the Participant's Early Retirement Date. Notwithstanding the foregoing, in the event that the Participant is determined to be a Specified Employee, any payment that is made on account of a Termination of Service shall be delayed until the first business day of the month after six months from the date of the Participant's Termination of Service. In the event that any installment payments are delayed pursuant to this Section 5.4, such delayed payments will be accumulated and paid in one lump sum on the delayed payment date and any remaining payments shall be made in accordance with the otherwise applicable schedule of payments.

&nbsp;&nbsp;&nbsp;&nbsp;5.5 **<u>Recipients of Payments: Designation of Beneficiary</u>** – All payments to be made pursuant to this Plan shall be made to the Participant, if living. If a Participant dies before receiving all payments the Participant would be entitled to receive, all remaining payments shall be paid to the designated beneficiary or beneficiaries of the Participant. The participant shall designate a beneficiary by filing a written notice of such designation with the Bank in such form as the Bank prescribes. A Participant may change a beneficiary designation at any time. The Participant's beneficiary designation shall be deemed automatically revoked in the event of the death of the beneficiary or in the event of dissolution of marriage, if the beneficiary is the Participant's spouse. If no designation is in effect when benefits due under this Plan are payable, the beneficiary shall be the Participant's spouse, if living, and if the spouse is deceased, the legal representative of the Participant's estate. Any payments made pursuant to this paragraph shall begin within sixty (60) days after the Participant's death.

&nbsp;&nbsp;&nbsp;&nbsp;5.6 **<u>Pre-Retirement Death Benefit</u>** – If a Participant's Termination of Service prior to the Normal Retirement Date is due to death, the Participant's beneficiary, or the legal representative of the Participant's estate if no beneficiary designation is in effect, shall be paid the Participant's Deferred Compensation Account as of the date of death, together with interest as provided in Section 5.3, pursuant to the election made by the Participant in Section 5.1 or, if applicable, Section 5.2.

&nbsp;&nbsp;&nbsp;&nbsp;5.7 **<u>Hardship Distribution</u>** – Upon the Bank's determination (following petition by the Participant) that the Participant has suffered an unforeseeable emergency, as described in Section 3.4, the Participant shall be paid all or a portion of the Participant's Deferred Compensation Account balance, as determined by the Bank, but in no event shall the distribution amount exceed the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution). A distribution on account of an unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Director's assets (to the extent the liquidation of such assets would not cause severe financial hardship) or by cessation of deferrals under Section 3.4, and determination of the amount reasonably necessary to satisfy the emergency need shall take into account any additional compensation available to the Participant as a result of a cessation of deferrals.

------

**ARTICLE VI**

**<u>Funding and Life Insurance</u>**

&nbsp;&nbsp;&nbsp;&nbsp;6.1 **<u>Funding</u>** – The Bank's obligation under the Plan shall be an unfunded and unsecured promise to pay. The Bank shall not be obligated to fund any obligations arising hereunder, but the Bank may, in its sole discretion, elect to segregate assets for the purpose of paying Plan benefits. Any such assets shall remain solely the property of the Bank until paid to the Participant or the Participant's beneficiary.

&nbsp;&nbsp;&nbsp;&nbsp;6.2 **<u>Insurance Policies</u>** – The Bank in its discretion may apply for and procure, as owner and for its own benefit, insurance on the life of the Participant, in such amounts and in such form as the Bank may choose. The Participant shall have no interest whatsoever in any such policy or policies, but at the request of the Bank shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Bank has applied for insurance. The rights of the Participant, or the Participant's beneficiary or estate, to benefits under the Plan shall be solely those of an unsecured creditor of the Bank. Any insurance policy or other assets acquired by or held by the Bank in connection with the liabilities assumed by it pursuant to the Plan shall not be deemed to be held under any trust for the benefit of the Participant, or the Participant's beneficiary or estate, or to be security for the performance of the obligations of the Bank, but shall be and remain, a general, unpledged and unrestricted asset of the Bank.

**ARTICLE VII**

**<u>Administration and Interpretation of the Plan</u>**

&nbsp;&nbsp;&nbsp;&nbsp;7.1 **<u>Administrative Committee</u>** – The Board of Directors shall appoint an Administrative Committee comprising the same persons serving on the Retirement (Profit Sharing) Plan Committee to administer and interpret the Plan. Interpretation by the Administrative Committee shall be final and binding upon a Participant. The Administrative Committee may adopt rules and regulations relating to the administration of the Plan as it may deem necessary.

&nbsp;&nbsp;&nbsp;&nbsp;7.2 **<u>Claims Procedure</u>** – If a Participant or a Participant's beneficiary (hereinafter referred to as a "Claimant") is denied all or a portion of an expected benefit under this Plan for any reason, he or she may file a claim with the Administrative Committee. The Administrative Committee shall notify the Claimant within sixty (60) days of allowance or denial of the claim, unless the Claimant receives written notice from the Administrative Committee prior to the end of the sixty (60) day period stating that special circumstances require an extension of the time for decision. The notice of the Administrative Committee's decision shall be in writing, sent by mail to the Claimant's last known address, and, if a denial of the claim, must contain the following information:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. the specific reasons for the denial;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. a specific reference to pertinent provisions of the Plan upon which the denial is based; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c. if applicable, a description of any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary and an explanation of the claims review procedure.

&nbsp;&nbsp;&nbsp;&nbsp;7.3 **<u>Review Procedure</u>** – A Claimant is entitled to request a review of any denial of a claim by the Administrative Committee. The request for review must be submitted in writing within sixty (60) days of receipt of the notice of the denial. Absent a request for review within the sixty (60) day period, the claim will be deemed to be conclusively denied. The Claimant or the Claimant's representative shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing. If the request for review by a Claimant concerns the interpretation and application of the provisions of the Plan and the Bank's obligations, then the review shall be conducted by a separate committee consisting of three persons designated or appointed by the Administrative Committee. The separate committee shall afford the Claimant a hearing and the opportunity to review all pertinent documents and submit issues and comments orally and in writing and shall render a review decision in writing, all within sixty (60) days after receipt of a request for review, provided that, in special circumstances (such as the necessity of holding a hearing) the committee may extend the time for decision by not more than sixty (60) days upon written notice to the Claimant. The Claimant shall receive written notice of the separate committee's review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan.

**ARTICLE VIII**

**<u>Taxes</u>**

The Company shall deduct from all payments made hereunder all applicable federal and state taxes required by law to be withheld from such payments.

**ARTICLE IX**

**<u>Governing Law</u>**

The Plan shall be construed according to the laws of the Commonwealth of Pennsylvania. Further, the provisions of this Plan shall be construed consistent with Section 409A and all applicable guidance thereunder so as not to result in the inclusion in the Participant's income of any benefit under this Plan by reason of the application of such section.

**ARTICLE X**

**<u>Forms of Communication</u>**

Any election, application, claim, notice or other communication required or permitted to be made by a Participant to the Bank shall be made in writing and in such form as the Bank shall prescribe. Such communication shall be effective upon mailing, if sent by first class mail, postage pre-paid, and addressed to the Bank's office at 102 East Drinker St., Dunmore, PA 18512.

**ARTICLE XI**

**<u>Effect on Other Bank Benefit Plans</u>**

Nothing contained in this Plan shall affect the right of the Participant to participate in or be covered by any qualified or non-qualified pension, profit sharing, group bonus or other supplemental compensation or fringe benefit plans constituting a part of the Bank's existing or future compensation structure.

------

**ARTICLE XII**

**<u>Assignment or Pledge</u>**

The Participant's Deferred Compensation Account and any amount payable at any time pursuant to this Plan shall not be assignable or subject to pledge or hypothecation nor shall said payments be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise except to the extent as provided by law. Upon the occurrence of any event in violation or attempted violation of this paragraph, any payments thereafter payable hereunder shall, in the sole discretion of the Bank, be subject to cancellation; whereupon, the Bank may, but need not, make such payments to someone else deemed by it to be a natural object of the bounty of the Participant.

**ARTICLE XIII**

**<u>Continuation as Director or Officer</u>**

Neither this Plan nor the payment of any benefits hereunder shall be construed as giving to the Participant any rights to be retained as a member of the Board of Directors or continue as an Officer of the Bank.

**ARTICLE XIV**

**<u>Termination of Plan by Reason of Changes in Law</u>**

The Bank is instituting this Plan upon the assumption that certain existing tax laws will continue in effect in substantially their current form. If there are any changes in the laws relating to the allowance of tax-free accumulation of earnings within a life insurance policy, the income tax-free payment of proceeds from life insurance policies or the deduction from income of interest payments on certificates of deposits issued by banking institutions, the Bank shall have the option to terminate or modify this Plan, subject to the limitations on plan terminations, and the plan termination requirements, under Section 409A; provided, however, that the Participant shall be entitled to the payment of amounts credited to the Participant's Deferred Compensation Account under the same terms and conditions as though the Plan were still in effect.

**ARTICLE XV**

**<u>Modification</u>**

Any changes to the Plan must be in writing and executed by an authorized representative of the Bank.

**ARTICLE XVI**

**<u>Captions</u>**

The captions at the head of an Article or a paragraph of this Plan are designed for convenience of reference only and are not to be resorted to for the purpose of interpreting any provision of this Plan.

**ARTICLE XVII**

**<u>Severability</u>**

The invalidity of any provision of this Plan shall not invalidate the remainder thereof, and said remainder shall continue in full force and effect.

Dated this ____ day of June, 2006.

THE FIRST NATIONAL COMMUNITY BANK

By: ____________________________________

Signature

_____________________________________

Print Name

______________________________________

Title

_______________________________

Secretary

:190007

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**FIRST AMENDMENT TO THE FIRST NATIONAL COMMUNITY BANK AMENDED AND RESTATED DIRECTORS**' **AND OFFICERS**'

**DEFERRED COMPENSATION PLAN** 

This Amendment to The First National Community Bank ("Bank") Amended and Restated Directors' and Officers' Deferred Compensation Plan is made this 28th day of March, 2007.

**WHEREAS,** The First National Community Bank established a Directors' and Officers' Deferred Compensation Plan ("the Plan") effective April 1, 1994, for the purpose of promoting in its Directors and Officers the strongest interest in the successful operation of the Bank and to provide the Directors and Officers with deferred benefits upon retirement;

**WHEREAS,** the Plan was subsequently amended on July 1, 2003;

**WHEREAS,** to make certain modifications to the Plan to ensure its continuing compliance with all applicable provisions of the Internal Revenue Code and the regulations promulgated thereunder, the Plan, effective January 1, 2005, was restated in its entirety;

**WHEREAS**, the Bank wishes to clarify certain provisions of the Amended and Restated Directors' and Officers' Deferred Compensation Plan;

**NOW, THEREFORE**, in accordance with Article XV of Amended and Restated Directors' and Officers' Deferred Compensation Plan, the Plan is amended, effective the date hereof, as follows:

1. Article IV, Deferred Compensation Accounts, Section 4.3 Interest Rate shall be amended to read as follows:

&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Interest Rate</u>**- The rate of interest credited on the amounts described in Section 4.2 shall be 200% of the one-year Treasury Bill rate in effect not more than thirty (30) days nor less than fifteen (15) days prior to the last day of the Plan Year to which the interest applies; provided, however, that in no event shall the rate be less than 8% per annum. Beginning with the sixth Plan Year of a Participant's participation in the Plan, the rate of interest shall be increased to 1% above the rate determined under the foregoing formula or 9%, whichever is greater.

Upon the retirement of a director or officer, interest shall continue to accrue in accordance with paragraphs 4.2 and this 4.3.

2. Article V Payments of Benefits, Section 5.1 shall be amended in its entirety to read as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 **<u>Election as to Method of Payment</u>** – On or before the date of the Participant's first Stated Deferral election pursuant to a Deferral Agreement or a Bonus Deferral Agreement executed after January 1, 2006, the Participant must complete and submit to the Bank a Distribution Election electing one of the following methods of payment of the Participant's entire Deferred Compensation Account:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. Annual payments for five (5) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. Annual payments for ten (10) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c. Annual payments for fifteen (15) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d. Annual payments for twenty (20) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e. Annual payments for twenty-five (25) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;f. Annual payments for thirty (30) years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;g. Monthly payments for sixty (60) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;h. Monthly payments for one hundred twenty (120) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. Monthly payments for one hundred eighty (180) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;j. Monthly payments for two hundred forty (240) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;k. Monthly payments for three hundred (300) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;l. Monthly payments for three hundred sixty (360) months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;m. Single lump sum payment.

Notwithstanding the foregoing, a Participant may not make any election that would have the effect of deferring payment to a later year of an amount that would otherwise be payable in 2006 or that would have the effect of causing a payment to be made in 2006 that would otherwise be paid after 2006, and any such purported election by a Participant shall be ineffective to the extent of any such proscribed acceleration or postponement. Any financial health payment triggers are hereby voided for all Deferred Compensation Account amounts, regardless of when credited. A separate election from among the foregoing options may be made on the Distribution Election by a Participant for payments in the event of the Participant's Disability.

3. Article V Payments of Benefits, Section 5.3 **<u>Amount of Payments</u>** shall be amended as follows:

&nbsp;&nbsp;&nbsp;&nbsp;5.3 **<u>Amount of Payments</u>**<u> </u> -- Each year after interest is credited to a Participant's account under Section 4.2, the amount of a Participant's monthly payments or annual installments shall be recalculated to reflect the current interest credited. A Participant electing installment payments shall receive monthly or annual installments over the period elected pursuant to Section 5.1, the amount of such payments being determined by annuitizing the Participant's Deferred Compensation Account after considering the current year interest crediting.

4. The Distribution Election, as defined in Section 1.5, shall be amended to reflect the amendment of Section 5.1 by removing the word "equal" from the election of payments.

Robert J. Mancuso

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**SECOND AMENDMENT TO THE FIRST NATIONAL COMMUNITY BANK AMENDED AND RESTATED DIRECTORS**' **AND OFFICERS**'

**DEFERRED COMPENSATION PLAN** 

This Amendment to The First National Community Bank ("Bank") Amended and Restated Directors' and Officers' Deferred Compensation Plan is made this 25<sup>th</sup> day of March, 2009.

**WHEREAS,** The First National Community Bank established a Directors' and Officers' Deferred Compensation Plan ("the Plan") effective April 1, 1994, for the purpose of promoting in its Directors and Officers the strongest interest in the successful operation of the Bank and to provide the Directors and Officers with deferred benefits upon retirement;

**WHEREAS,** the Plan was amended and restated on January 1, 2005 and subsequently amended on March 28, 2007;

**WHEREAS**, the Bank wishes to clarify a provision of the Amended and Restated Directors' and Officers' Deferred Compensation Plan;

**NOW, THEREFORE**, in accordance with Article XV of Amended and Restated Directors' and Officers' Deferred Compensation Plan, the Plan is amended, effective the date hereof, as follows:

1. Article IV, Deferred Compensation Accounts, Section 4.2 Interest on the Deferred Compensation Amount shall be amended to read as follows:

&nbsp;&nbsp;&nbsp;&nbsp;4.2 **<u>Interest on the Deferred Compensation Amount</u>** – Each Participant's Deferred Compensation Account shall be credited with interest on December 31<sup>st</sup> of each Plan Year on the amount in the Participant's Deferred Compensation Account as of December 31<sup>st</sup> ; provided that if any withdrawals, for any reason, are made from the Participant's Account throughout the Plan Year the amount of such withdrawal is not taken into account in determining the balance of the Participant's Account as of December 31<sup>st</sup> for the calculation of interest. Any Stated Deferral of bonus Compensation relating to services performed during the Plan Year and paid after December 31<sup>st</sup> of the Plan Year shall be credited with interest for the period of the Plan Year. Should a Participant die, each Participant's Deferred Compensation Account shall be credited with interest as of the Participant's date of death on the amount in the Participant's Deferred Compensation Account as of the Participant's date of death; provided that if any withdrawals, for any reason, are made from the Participant's Account during the Plan Year but prior to death the amount of such withdrawal is not taken into account in determining the balance of the Participant's Account as of the date of death.

Robert J. Mancuso

**<u>THIRD AMENDMENT TO THE FIRST NATIONAL COMMUNITY BANK AMENDED AND RESTATED DIRECTORS</u>**<u>'</u> **<u>AND OFFICERS</u>**<u>'</u> **<u>DEFERRED COMPENSATION PLAN</u>**

This Amendment to the First National Community Bank (the "Bank") Amended and Restated Directors' and Officers' Deferred Compensation Plan (the "Plan") is made this 29th day of December, 2010.

**WHEREAS**, the Bank established the Plan effective April 1, 1994, for the purpose of promoting in its Directors and Officers the strongest interest in the successful operation of the Bank and to provide the Directors and Officers with deferred benefits upon retirement;

**WHEREAS**, the Plan was amended and restated on January 1, 2005 and subsequently amended on March 28, 2007 and December 25, 2009;

**WHEREAS**, the Bank wishes to modify the rate of interest to be credited to Deferred Compensation Accounts under the Plan;

**WHEREAS**, interest is credited to Deferred Compensation Accounts on December 31<sup>st</sup> of each Plan Year;

**WHEREAS**, the Bank wishes to modify the rate of interest to be credited with respect to the entire 2010 Plan Year and for Plan Years thereafter;

**NOW, THEREFORE,** in accordance with Article XV of Amended and Restated Directors' and Officers' Deferred Compensation Plan, the Plan is amended, effective for the 2010 Plan Year and for Plan Years thereafter, as follows:

1. Article IV, Deferred Compensation Accounts, Section 4.3 Interest Rate shall be amended to read as follows—

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Interest Rate</u>** – The rate of interest credited on the amounts described in Section 4.2 for the Plan Year ending December 31, 2010 and for Plan Years thereafter shall be equal to the sum of (i) 1% and (ii) the average of the one-year Treasury Bill rates in effect on and between December 1 and December 15 of the Plan Year to which the rate of interest applies.

Upon the retirement of a director or officer, interest shall continue to accrue in accordance with paragraphs 4.2 and this 4.3.

2. In all other respects, the terms of the Plan are hereby affirmed.

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**FOURTH AMENDMENT TO THE**

**FIRST NATIONAL COMMUNITY BANK**

**AMENDED AND RESTATED DIRECTORS**' **AND OFFICERS**' **DEFERRED COMPENSATION PLAN**

**THIS FOURTH AMENDMENT** to the First National Community Bank Amended and Restated Directors' and Officers' Deferred Compensation Plan (the "Plan") is made this 15<sup>th</sup> day of January, 2017, by FNCB Bank (the "Bank"), formerly known as First National Community Bank, a state-chartered bank organized and existing under the laws of the Commonwealth of Pennsylvania.

&nbsp;&nbsp;&nbsp;&nbsp;**RECITALS:**

**WHEREAS,** First National Community Bank established the initial plan on April 1, 1994, and subsequently amended and restated the Plan on January 1, 2005, with further amendments on March 28, 2007; December 25, 2009; and December 29, 2010; and

**WHEREAS,** First National Community Bank converted to a Pennsylvania state-chartered bank and changed its name to FNCB Bank on June 29, 2016; and

**WHEREAS,** the conversion and name change will have no impact on the Plan and the Bank will continue to perform all obligations under the Plan as the plan sponsor; and

**WHEREAS,** the Bank has the authority to amend the Plan under Article X; and

**WHEREAS,** the Bank now deems it desirable to amend the Plan to: (i) reflect the change of sponsorship of the Plan from First National Community Bank to the Bank; (ii) revise Plan eligibility requirements; and (iii) modify the rate of interest to be credited with respect to the entire 2017 Plan Year and for Plan Years thereafter;

**NOW, THEREFORE, t**he Plan is hereby amended as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. By renaming the Plan the "FNCB Bank Amended and Restated Directors' and Officers' Deferred Compensation Plan;"

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. By deleting the phrase "First National Community Bank Amended and Restated Directors' and Officers' Deferred Compensation Plan" and inserting in its place "FNCB Bank Amended and Restated Directors' and Officers' Deferred Compensation Plan" wherever the former phrase occurs in the Plan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. By deleting the phrase "First National Community Bank" and inserting in its place "FNCB Bank" wherever the former phrase occurs in the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. By amended and restating Article II in its entirety as follows:

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**ARTICLE II** 

**<u>Eligibility</u>**

All Directors serving on the Bank's Board of Directors shall be entitled to participate in the Plan as of the January 1 coincident with or next following the Director's commencement of service on the Board. All Officers who are eligible to participate in the Bank's Executive Incentive Plan and who have been employed at the beginning of a Plan Year for at least two (2) years shall be entitled to participate in the Plan as of the January 1 coincident with or next following the Officer's second anniversary date of employment with the Bank. Nothing shall preclude an individual from participating both as an Officer and a Director in this Plan. A Participant, including a newly eligible Participant, must execute a Deferral Agreement prior to the beginning of a Plan Year for which any part of the Participant's Compensation is to be deferred.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. By amending and restating Section 4.3 in its entirety as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Interest Rate</u>** – The rate of interest credited on the amounts described in Section 4.2 for the Plan Year ending December 31, 2017, and for all subsequent Plan Years, shall be a rate determined by the Bank in its sole and absolute discretion. The Bank shall review the interest rate described in this section on an annual basis at the end of each Plan Year and may prospectively change the rate for a subsequent Plan Year(s).

Except as otherwise amended by this Fourth Amendment, all provisions of the Plan shall remain in full force and effect and the Plan and this Fourth Amendment shall be construed together and considered one and the same agreement.

**<sup>FNCB BANK:</sup>**

By:<u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u>

Printed Name:<u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u>

<sup>Title:</sup>  <u> </u>

------

**FIFTH AMENDMENT** 

**TO THE** 

**FNCB BANK AMENDED AND RESTATED DIRECTORS**' **AND OFFICERS**' **DEFERRED COMPENSATION PLAN** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**THIS FIFTH AMENDMENT** to the FNCB Bank Amended and Restated Directors' and Officers'

Deferred Compensation Plan (the "Plan") is made November 30, 2022, by FNCB Bank (the "Bank"), a statechartered bank organized and existing under the laws of the Commonwealth of Pennsylvania.

**RECITALS:** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Plan was established on April 1, 1994, and subsequently amended and restated on January 1, 2005, with further amendments on March 28, 2007; December 25, 2009; December 29, 2010; and February 22, 2017.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The Bank changed its name from First National Community Bank to FNCB Bank on June 29, 2016.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Bank has the authority to amend the Plan under Article X.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. The Bank desires to amend the Plan to modify the Disability definition.

**NOW, THEREFORE, t**he Plan is hereby amended as follows:

*Section 1.4 is deleted in its entirety and replaced with the following:*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4 **<u>Disability</u>** – "Disability" shall be defined as a condition of a Participant whereby he or she either: (a) has been deemed disabled by the Social Security Administration or (b) determined to be disabled in accordance with a disability insurance program of the Bank that covers the Participant, provided that the definition of disability applied under such disability insurance program complies with Code Section 409A. Upon the request of the Plan Administrator, the Participant must submit proof to the Plan Administrator of the Social Security Administration's or insurance provider's determination.

*Section 5.8 is deleted in its entirety and replaced with the following:*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8 **<u>Disability Distribution</u>** – Upon a Participant's Disability, as defined in Section 1.4, prior to the Normal Retirement Date, the Participant will receive payment of the Participant's Deferred Compensation Account pursuant to the method elected by the Participant for distributions in the event of a Disability. Payment of the Participant's Deferred Compensation Account in the event of the Participant's Disability prior to the Normal Retirement Date shall commence on the first day of the month following the Participant's Disability determination.

Except as otherwise amended by this Fifth Amendment, all provisions of the Plan shall remain in full force and effect and the Plan and all amendments shall be construed together and considered one and the same agreement.

The Bank executes this Fifth Amendment as of the date first written above. 

**FNCB BANK:** 

**By: _______________________________________**

**Printed Name: ______________________________**

**Title: ______________________________________**

## Exhibit 10.8

**EXHIBIT 10.8**

FIRST NATIONAL COMMUNITY BANK<br> SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN<br>**October 1, 2015**

**TABLE OF CONTENTS**

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| | |
|:---|:---|
|  | Page |
| Article I Establishment and Purpose | 1 |
| <u>Article II Definitions</u> | 1 |
| <u>Article III Eligibility and Participation</u> | 8 |
| <u>Article IV Participant Election</u> | 8 |
| <u>Article V Bank Contributions</u> | 9 |
| <u>Article VI Benefits</u> | 11 |
| <u>Article VII Modifications to Payment Schedules</u> | 13 |
| <u>Article VIII Valuation of Account Balances; Crediting Interest</u> | 14 |
| <u>Article IX Administration</u> | 14 |
| <u>Article X Amendment and Termination</u> | 15 |
| <u>Article XI Informal Funding</u> | 16 |
| <u>Article XII Claims</u> | 16 |
| <u>Article XIII General Provisions</u> |  |

---

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ARTICLE I<br> *Establishment and Purpose*

First National Community Bank (the "Bank") hereby establishes the First National Community Bank Supplemental Executive Retirement Plan ("Plan"), effective October 1, 2015.

The purpose of this Plan is to attract and retain key employees by providing each Participant with supplemental retirement benefits and rewarding them for their leadership. The Plan is not intended to meet the qualification requirements of Code Section 401(a), but is intended to meet the requirements of Code Section 409A, and shall be operated and interpreted consistent with that intent.

The Plan constitutes an unsecured promise by the Bank to pay benefits in the future. Participants in the Plan shall have the status of general unsecured creditors of the Bank. The Bank shall be solely responsible for payment of the benefits of its employees and their beneficiaries. The Plan is unfunded for Federal tax purposes and is intended to be an unfunded arrangement for eligible employees who are part of a select group of management or highly compensated employees of the Bank within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Any amounts set aside to defray the liabilities assumed by the Bank will remain the general assets of the Bank and shall remain subject to the claims of the Bank's creditors until such amounts are distributed to the Participants.

ARTICLE II<br> *Definitions*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <u>Account</u>. Account means a bookkeeping account maintained by the Committee to record the payment obligation of the Bank to a Participant as determined under the terms of the Plan. The Committee may maintain an Account to record the total obligation to a Participant and component Accounts to reflect amounts payable at different times and in different forms. Reference to an Account means any such Account established by the Committee, as the context requires. Accounts are intended to constitute unfunded obligations within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <u>Account Balance</u>. Account Balance means, with respect to any Account, the total payment obligation owed to a Participant from such Account as of the most recent Valuation Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <u>Bank</u>. Bank shall mean First National Community Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4 <u>Bank Contribution</u>. Bank Contribution means a credit by the Bank to a Participant's Account in accordance with the provisions of Article V of the Plan, including a Performance-Based Contribution. Except for the Required Bank Contribution as defined in Section 5.1 of the Plan and as otherwise specifically provided for herein, Bank Contributions are credited at the sole discretion of the Bank and the fact that a Bank Contribution is credited in one year shall not obligate the Bank to continue to make such Bank Contribution in subsequent years. Unless the context clearly indicates otherwise, a reference to Bank Contribution shall include income attributable to such contribution.

2.5" <u>Bank Regulatory Agency</u>" means any governmental authority, regulatory agency, ministry, department, statutory corporation, central bank or other body of the United States or of any other country or of any state or other political subdivision of any of them having jurisdiction over the Company or the Bank or any transaction contemplated, undertaken or proposed to be undertaken by the Company or the Bank, including, but not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Federal Deposit Insurance Corporation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Philadelphia;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The Comptroller of the Currency; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Any predecessor or successor of any of the foregoing, or any Bank Regulatory Agency which the Company or Bank may become subject to supervision by as a result of a change in chartering agency or membership status in the Federal Reserve System, or change in applicable law.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6 <u>Beneficiary</u>. Beneficiary means a natural person, estate, or trust designated by a Participant to receive payments to which a Beneficiary is entitled in accordance with provisions of the Plan. The Participant's spouse, if living, otherwise the Participant's estate, shall be the Beneficiary if the Committee determines: (i) the Participant has failed to properly designate a Beneficiary, or (ii) all designated Beneficiaries have predeceased the Participant.

A former spouse shall have no interest under the Plan, as Beneficiary or otherwise, unless the Participant designates such person as a Beneficiary after dissolution of the marriage.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7 <u>Board</u>. Board means a Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8 <u>Business Day</u>. A Business Day is each day on which the New York Stock Exchange is open for business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.9 <u>Cause</u>. Cause means:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) any act of theft, fraud, intentional misrepresentation or similar conduct by Employee in connection with or associated with the services rendered by an Employee to the Bank;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any Bank Regulatory Agency formal action or proceeding against an Employee as a result of his or her negligence, fraud, malfeasance or misconduct;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any of the following conduct on the part an Employee that has not been corrected or cured within thirty (30) days after having received written notice from the Bank Board detailing and describing such conduct:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the use of drugs, alcohol or other substances by an Employee to an extent which materially interferes with or prevents an Employee from performing his or her duties under this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) failure by or the inability of an Employee to devote full time, attention and energy to the performance of his or her duties (other than by reason of his or her death or disability);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) intentional material failure by an Employee to carry out the explicit lawful and reasonable directions, instructions, policies, rules, regulations or decisions of the Company Board or Bank Board, which are consistent with an Employee's position with the Bank;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) any action (including any failure to act) or conduct by an Employee in violation of a material provision of this Plan or his or her employment agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) willful or intentional misconduct on the part of an Employee that results in substantial injury to the Company or Bank or any of its subsidiaries or affiliates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) any willful or intentional violation of the Bank's Code of Business Conduct and Ethics Policy or Conflict of Interest Policy (or their successor policies addressing the same subject matter); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) any willful or intentional violation of the Bank's Employee Conduct Policy as defined in the Bank's Employee Handbook.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10 <u>Change in Control</u>. Change in Control means and shall be deemed to have occurred if:

There shall be consummated (1) any consolidation, merger, share exchange, or similar transaction relating to the Company, in which the Company is not the continuing or surviving entity or pursuant to which shares of the Company's capital stock are converted into cash, securities of another entity and/or other property, other than a transaction in which the holders of the Company's voting stock immediately before such transaction shall, upon consummation of such transaction, own at least fifty percent (50%) of the voting power of the surviving entity, or (2) any sale of all or substantially all of the assets of the Company or Bank, other than a transfer of assets to a related person which is not treated as a change in control event under §1.409A-3(i)(5)(vii)(B) of U.S. Treasury Regulations;

Any person (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall after the Commencement Date become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty-one percent (51%) or more of the voting power of then all outstanding securities of the Company entitled to vote generally in the election of directors of the Company (including, without limitation, any securities of the Company that any such person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, which shall be deemed beneficially owned by such person), provided, however that the acquisition by any person or group of persons acquiring beneficial ownership of such level of voting power in connection with a recapitalization transaction or the purchase of newly issued securities directly from the Company, approved by the Company Board in office as of the date of this Agreement (the "Incumbent Board"), shall not be considered a Change in Control for purposes of this Plan, and provided further that any person who becomes a member of the Company Board and whose nomination, election or appointment as a director was approved by at least a majority of the directors comprising the Incumbent Board, or by a nominating committee of the Company Board, the membership of which was approved by at least a majority of the directors comprising the Incumbent Board, shall, for purposes of this Plan be considered as a member of the Incumbent Board;

Where over a twelve month period, a majority of the members of the Company Board are replaced by directors whose appointment or election was not endorsed by a majority of the members of the Company Board in office prior to such appointment or election; or

Notwithstanding the foregoing, if the event purportedly constituting a Change in Control under this section does not also constitute a "change in ownership" of the Company, a "change in effective control" of the Company, or a "change in the ownership of a substantial portion of the assets" of the Company within the meaning of Section 409A ("Code") and the regulations and administrative guidance promulgated thereunder ("Section 409A"), then such event shall not constitute a "Change in Control" hereunder. Additionally, no event shall constitute a "Change in Control" under this Plan to the extent that the acquisition of beneficial ownership of voting securities of the Company by the person or group results from an acquisition directly from the Company (or from an underwriter with which the Company has entered into an agreement for a firm commitment underwriting of the Company's securities) in a capital raising transaction, or pursuant to an agreement with the Company to voluntarily convert the Company's Subordinated Notes due 2019 for voting securities of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11 <u>Change in Control Termination</u>. For purposes of this Agreement, a "Change in Control Termination" means that while this Agreement is in effect:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Employee's employment with the Bank is terminated without Cause within one hundred twenty (120) days immediately prior to and in conjunction with a Change in Control or within one (1) year following consummation of a Change in Control; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Within one year following consummation of a Change in Control, 1) the Employee's duties or position have been materially reduced such that Employee is not in a comparable position (with the same salary and at least the same level of other compensation and benefits in effect immediately prior to the Change in Control) with the surviving corporation to the position he held immediately prior to the Change in Control, or, 2) Employee's position is based entirely or in part in a location outside Lackawanna, Luzerne or Wayne County, Pennsylvania, and within fifteen (15) days after notification of such position reduction, relocation or change of business travel requirements, Employee notifies the Bank Board or its successors that he or she is terminating his or her employment due to such change in his or her employment unless such change is cured within thirty (30) days of such notice by providing he or she with a comparable position (including the same salary, and at least the same level of other comparable compensation and benefits in effect immediately prior to the Change in Control), and/or an office location based solely within Lackawanna, Luzerne or Wayne County, Pennsylvania. If Employee's employment is terminated under this Section, his or her last day of employment shall be mutually agreed to by Employee and the Bank Board or its successors, but shall be not more than sixty (60) days after such notice is given by Employee.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.12 <u>Claimant</u>. Claimant means a Participant or Beneficiary filing a claim under Article XII of this Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.13 <u>Code</u>. Code means the Internal Revenue Code of 1986, as amended from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.14 <u>Code Section 409A</u>. Code Section 409A means section 409A of the Code, and regulations and other guidance issued by the Treasury Department and Internal Revenue Service thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15 <u>Committee</u>. Committee means the committee appointed by the Board of Directors of the Company (or the appropriate committee of such board) to administer the Plan. If no designation is made, the Compensation Committee of the Company shall have and exercise the powers of the Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.16 <u>Company</u>. Company means First National Community Bancorp, Inc.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.17 <u>Compensation Agreement</u>. Compensation Agreement means the election forms completed by a Participant pursuant to Article IV in which the Participate elects (i) the form of distribution and (ii) when the benefit will commence to be paid.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.18 <u>Director</u>. Director means a member of the Board of Directors of the Bank unless otherwise specified.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19 <u>Disability Benefit</u>. Disability Benefit means the benefit payable under the Plan to a Participant in the event such Participant is determined to be Disabled as Provided in Section 6.1 of the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20 <u>Disabled</u>. Disabled means that a Participant is, by reason of any medically-determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, (i) unable to engage in any substantial gainful activity, or (ii) receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Bank. The Committee shall determine whether a Participant is Disabled in accordance with Treasury Regulation Section 1.409A-3(i)(4).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.21 <u>Effective Date</u>. Effective Date means October 1, 2015.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.22 <u>Eligible Employee</u>. Eligible Employee ("Employee") means, for a Plan Year, a member of a "select group of management or highly compensated employees" of the Bank within the meaning of Sections 201(2), 30l(a)(3) and 401(a)(l) of ERISA, as determined by the Committee from time to time in its sole discretion and who has been designated in writing by the Committee as eligible to participate in the Plan. The Committee may in its discretion establish criteria to use in determining which Employees are Eligible Employees, which criteria may include income level, period of employment, participation in other plans, or such other criteria as it may deem appropriate. Any criteria established may be described in Exhibit A to the Plan, and such criteria can be amended from time to time without formal amendment of the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.23 <u>Employee</u>. Employee means a common-law employee of an Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.24 <u>Employer</u>. Employer means the Bank.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.25 <u>ERISA</u>. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.26 <u>Normal Retirement Age</u>. Normal Retirement Age means having attained at least age 62.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.27 <u>Participant</u>. Participant means an Eligible Employee who has received notification of his or her eligibility to participate in the Plan under Section 3.1 and any other person with an Account Balance greater than zero, regardless of whether such individual continues to be an Eligible Employee. A Participant's continued participation in the Plan shall be governed by Section 3.2 of the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.28 <u>Payment Schedule</u>. Payment Schedule means the date as of which payment of an Account under the Plan will commence and the form in which payment of such Account will be made as specified in the Compensation Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.29 <u>Performance-Based Contribution</u>. Performance-Based Contribution means a contribution credited to a Participant's Account as defined in Section 5.3.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.30 <u>Plan</u>. Generally, the term Plan means the "First National Community Bank Supplemental Executive Retirement Plan" as documented herein and as may be amended from time to time hereafter. However, to the extent permitted or required under Code Section 409A, the term Plan may in the appropriate context also mean a portion of the Plan that is treated as a single plan under Treas. Reg. Section 1.409A-l(c), or the Plan or portion of the Plan and any other nonqualified deferred compensation plan or portion thereof that is treated as a single plan under such section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.31 <u>Plan Year</u>. Plan Year means January 1 through December 31.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.32 <u>Retirement</u>. Retirement means a Participant's Separation from Service after attainment of his or her Normal Retirement Age.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.33 <u>Retirement Benefit</u>. Retirement Benefit means the benefit payable to a Participant under the Plan following the Retirement of the Participant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.34 <u>Separation from Service</u>. An Employee incurs a Separation from Service upon termination of employment with the Employer. Whether a Separation from Service has occurred shall be determined by the Committee in accordance with Code Section 409A. For purposes of this Plan, "Separation from Service" means a "Separation from Service" as defined under Code Section 409A and the regulations promulgated thereunder.

The Committee specifically reserves the right to determine whether a sale or other disposition of substantial assets to an unrelated party constitutes a Separation from Service with respect to a Participant providing services to the seller immediately prior to the transaction and providing services to the buyer after the transaction. Such determination shall be made in accordance with the requirements of Code Section 409A.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.35 <u>Specified Employee</u>. Specified Employee means an Employee who, as of the date of his or her Separation from Service, is a "key employee" of the Company or any Affiliate, any stock of which is actively traded on an established securities market or otherwise. An Employee is a key employee if he or she meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with applicable regulations thereunder and without regard to Code Section 416(i)(5)) at any time during the 12-month period ending on the Specified Employee Identification Date. Such Employee shall be treated as a key employee for the entire 12-month period beginning on the Specified Employee Effective Date.

For purposes of determining whether an Employee is a Specified Employee, the compensation of the Employee shall be determined in accordance with the definition of compensation provided under Treas. Reg. Section 1.415(c)-2(d)(3) (wages within the meaning of Code section 3401(a) for purposes of income tax withholding at the source, plus amounts excludible from gross income under section 125(a), 132(t)(4), 402(e)(3), 402(h)(l)(B), 402(k) or 457(b), without regard to rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed); provided, however, that, with respect to a nonresident alien who is not a Participant in the Plan, compensation shall not include compensation that is not includible in the gross income of the Employee under Code Sections 872, 893, 894, 911, 931 and 933, provided such compensation is not effectively connected with the conduct of a trade or business within the United States.

Notwithstanding anything in this paragraph to the contrary, (i) if a different definition of compensation has been designated by the Bank with respect to another nonqualified deferred compensation plan in which a key employee participates, the definition of compensation shall be the definition provided in Treas. Reg. Section 1.409A-l(i)(2), and (ii) the Bank may through action that is legally binding with respect to all nonqualified deferred compensation plans maintained by the Bank, elect to use a different definition of compensation.

In the event of corporate transactions described in Treas. Reg. Section 1.409A-1(i)6), the identification of Specified Employees shall be determined in accordance with the default rules described therein, unless the Employer elects to utilize the available alternative methodology through designations made within the timeframes specified therein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.36 <u>Specified Employee Identification Date</u>. Specified Employee Identification Date means December 31, unless the Employer has elected a different date through action that is legally binding with respect to all nonqualified deferred compensation plans maintained by the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.37 <u>Specified Employee Effective Date</u>. Specified Employee Effective Date means the first day of the fourth month following the Specified Employee Identification Date, or such earlier date as is selected by the Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.38 <u>Substantial Risk of Forfeiture</u>. Substantial Risk of Forfeiture shall have the meaning specified in Treas. Reg. Section 1.409A-1(d).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.39 <u>Termination Benefit</u>. Termination Benefit shall mean the benefits described in Section 6.1 (a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.40 <u>Valuation Date</u>. Valuation Date shall mean each Business Day.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.41 <u>Year of Service</u>. A Year of Service shall mean each 12-month period of continuous service with the Employer.

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ARTICLE III<br> *Eligibility and Participation*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <u>Eligibility and Participation</u>. An Eligible Employee becomes a Participant upon receipt of notification of eligibility to participate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <u>Duration</u>. A Participant shall be eligible to receive allocations of Bank Contributions, subject to the terms of the Plan, for as long as such Participant remains an Eligible Employee. A Participant who is no longer an Eligible Employee but has not Separated from Service may otherwise exercise all of the rights of a Participant under the Plan with respect to his or her Account(s). On and after a Separation from Service, a Participant shall remain a Participant as long as his or her Account Balance is greater than zero. An individual shall cease being a Participant in the Plan when all benefits under the Plan to which he or she is entitled have been paid.

ARTICLE IV<br> *Participant Election*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <u>Elections, Generally</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) A Participant shall submit a Compensation Agreement during the enrollment periods established by the Committee and in the manner specified by the Committee, but in any event, in accordance with Section 4.2. A Compensation Agreement that is not timely filed with respect to a service period or component of Compensation shall be considered void and shall have no effect with respect to such service period or Compensation. The Committee may modify any Compensation Agreement prior to the date the election becomes irrevocable under the rules of Section 4.2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <u>Timing Requirements for Compensation Agreements</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *First Year of Eligibility*. In the case of the first year in which an Eligible Employee becomes eligible to participate in the Plan, he or she has up to 30 days following his or her initial eligibility to submit a Compensation Agreement. The Compensation Agreement described in this paragraph becomes irrevocable upon the end of such 30-day period. Except as otherwise provided below in all other cases, the Compensation Agreement shall be completed prior to January 1 of the applicable calendar year. The determination of whether an Eligible Employee may file a Compensation Agreement under this paragraph shall be determined in accordance with the rules of Code Section 409A, including the provisions of Treas. Reg. Section 1.409A-2(a)(7).

Subject to the provisions of Article VI, Participants may elect on their Compensation Agreement to have their account balance paid in one or more of the following forms of distribution:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) lump sum

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) annual installment payment (maximum of 10 years of payments)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Prior Year Election*. The Compensation Agreement described in this paragraph shall become irrevocable with respect to any calendar year as of January 1 of the applicable year.

(c)" *Evergreen*" *Elections*. The Committee, in its discretion, may provide in the Compensation Agreement that such Compensation Agreement will continue in effect for each subsequent year or performance period. Such "evergreen" Compensation Agreements will become effective with respect to an item of Compensation on the date such election becomes irrevocable under this Section 4.2. An evergreen Compensation Agreement may be terminated or modified prospectively with respect to Compensation for which such election remains revocable under this Section 4.2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) *Default Election*: Subject to any other provision of this Plan to the contrary, if no election is in effect with respect to the Account, any amounts payable from the amount shall be paid in a lump sum.

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ARTICLE V<br> *Bank Contributions*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <u>Required Bank Contribution</u>. The Bank will credit to the Account of each eligible Participant the Required Bank Contribution as hereinafter defined.

The Required Bank Contributions for each Participant shall be equal to the Required Contribution specified on Exhibit A, (the Required Bank Contribution Schedule), which can be amended from time to time by the Committee without formal amendment of the Plan. The Required Bank Contribution will be credited on December 31 of each Plan Year to each Participant who is an Employee of the Bank on such date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <u>Discretionary Bank Contributions</u>. The Bank may, from time to time in its sole and absolute discretion, credit Bank Contributions to any Participant in any amount determined by the Bank ("Discretionary Bank Contributions"). Such contributions will be credited to a Participant's Account.

All Required and Discretionary Bank Contributions and the earnings thereon, shall vest upon the Participants attainment of his or her Normal Retirement Age.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3 <u>Performance-Based Contribution</u>. The Bank will credit the Account of each Participant with the Performance-Based Contribution. The amount of the Performance-Based Contribution shall be equal to the difference, if any, for the applicable Plan Year, of the bonus payable to the Participant under the Bank's Executive Incentive Plan and the Required Bank Contribution for the Participant. The Performance-Based Contribution shall be credited to the Participants Account on the date the Committee certifies the amount of the Participants' Executive Incentive Plan bonus with respect to a Plan Year provided the Participant is an Employee of the Bank on such date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4 <u>Forfeiture Events</u>. If a Participant's employment with the Bank or any affiliate of the Bank is (i) voluntarily terminated prior to the Participant's attaining his or her Normal Retirement Age or (ii) terminated for Cause, the Participant will forfeit his or her entire Account and will not be entitled to any benefits under this Plan. The Participant shall pay back all amounts he or she received pursuant to this Plan prior to his or her termination of employment for Cause.

Notwithstanding anything herein to the contrary, a Bank can suspend, cause to be forfeited, prevent, or claw back any and all benefits and payments made or that are to be made in the event that any Bank Regulatory Agency, or other state or federal regulatory or law enforcement authority determines that an Employee:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the Bank or Company that has had or is likely to have a material adverse effect on the Bank or Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Was substantially responsible for the insolvency of, the appointment of a conservator or receiver for, or the troubled condition, as defined by applicable regulations of the appropriate federal banking agency, of the Company or Bank;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Materially violated any applicable federal or state banking law or regulation that has had or is likely to have a material effect on the Company or Bank; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Violated or conspired to violate one or all of Sections 215, 656, 657, 1005, 1006, 1007, 1014, 1032, or 1344 of Title 18 of the United States Code, or Sections 1341 or 1343 of such Title affecting a federally insured financial institution as defined in title 18 of the United States Code.

In the event the benefits owed under the Plan are suspended, prevented, clawed back or forfeited as described in this Section 5.4 the Bank and the Company shall have no obligation to provide benefits under the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5 <u>Vesting Events</u>. The Participant shall become fully vested in the fair market value of his or her Account upon (i) becoming Disabled, (ii) involuntary termination of employment from the Bank without Cause, (iii) his or her death, (iv) Change in Control or (v) upon attaining his or her Normal Retirement Age prior to a Separation from Service or other termination of employment. The portion of a Participant's Account that remains unvested upon his or her Separation from Service after the application of the terms of this Section 5.5 shall be forfeited.

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ARTICLE VI<br> *Benefits*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <u>Benefits, Generally</u>. A Participant shall be entitled to the following benefits, payable as provided for hereon subject to the provisions of Section 6.3, under the Plan:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Termination Benefit*. Upon the Participant's Separation from Service (i) after attaining his or her Normal Retirement Age, or (ii) an involuntary Separation from Service without cause prior to his or her Normal Retirement Age, for reasons other than death, Disability, or for Cause or a Change in Control, he or she shall be entitled to a Termination Benefit. The Termination Benefit shall be equal to the value of his or her Account as of the date on which the Separation from Service occurs. Payment of the Termination Benefit will be made and begin in accordance with the provisions of the Participant's Compensation Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Disability Benefit*. Upon a determination by the Committee that a Participant is Disabled, he or she shall be entitled to a Disability Benefit. The Disability Benefit shall be equal to the value of the Account as of the date on which the Disability occurs and will be paid in the following month in a lump sum.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Death Benefit*. In the event of the Participant's death, his or her designated Beneficiary(ies) shall be entitled to a Death Benefit. The Death Benefit shall be equal to the Account balance and will be paid in a lump sum. The Death Benefit shall be based on the value of the Account as of the end of the month in which death occurred, with payment made in the following month.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) *Change in Control*. A Participant will receive a single lump sum payment equal to the unpaid balance of all of his or her Accounts if a Separation from Service occurs within 24 months following a Change in Control. In addition to the foregoing, upon a Change in Control, a Participant who has incurred a Separation from Service prior to the Change in Control, and any Beneficiary of such Participant who is receiving or is scheduled to receive payments, will receive the balance of all unpaid Accounts in a single lump sum. Accounts will be valued as of the last day of the month following the Change in Control and will be paid within 90 days of said Separation from Service.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) *Small Account Balances*. The Committee shall pay the value of the Participant's Accounts upon a Separation from Service in a single lump sum if the balance of such Accounts is not greater than the applicable dollar amount under Code Section 402(g)(1)(B), provided the payment represents the complete liquidation of the Participant's interest in the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) *Rules Applicable to Installment Payments*. If a Payment Schedule specifies installment payments, annual payments will be made beginning as of the payment commencement date for such installments; the next installment payment will be made in December of the year which immediately follows the year in which the first installment is paid and on each subsequent one year anniversary thereafter until all installments have been paid. The amount of each installment payment shall be determined by dividing (a) by (b), where (a) equals the Account balance as of the payment date and (b) equals the remaining number of installment payments.

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For purposes of Article VII, installment payments will be treated as a single form of payment. If a lump sum equal to less than 100% of the Account is paid, the payment commencement date for the installment form of payment will be the first anniversary of the payment of the lump sum.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <u>Acceleration of or Delay in Payments</u>. The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3G)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7). Notwithstanding anything to the contrary herein, no payments shall be made from the Plan pursuant to a domestic relations order.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <u>Compliance With Code Section 409A</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) It is the intention of the parties hereto that this Agreement and the payments provided for hereunder shall be in accordance with Section 409A, and thus avoid the imposition of any excise tax and interest on a Participant pursuant to Code Section 409A(a)(1)(B), and this Plan shall be interpreted and construed consistent with this intent. Participant shall be solely responsible for the payment of any excise tax or penalty which may be imposed or to which he or she may become subject as a result of the payment of any amounts under this Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding anything to the contrary contained herein, any payment hereunder that is considered "nonqualified deferred compensation" that is to be made to a Participant while he or she is a "specified employee", in each case as defined and determined for purposes of Section 409A, within six months following a Participant's "separation from service" (as determined in accordance with Section 409A), then to the extent that such payment is not otherwise permitted under Section 409A such that it would be exempt from the excise tax thereunder, such payment shall be delayed and shall be paid on the first business day of the seventh calendar month following Participant's separation from service, or, if earlier upon the Participant's death. To the extent that any payment to a Participant which is payable in installments is required to be deferred pursuant to this Section 6.3(b), such deferred installments shall be paid on the first business day of the seventh month following Participant's separation from service, or, if earlier upon the Participant's death, and any remaining installments shall be paid as scheduled. For purposes of this Agreement, any payment to a Participant which is payable in installments represents the right to a series of separate payments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The parties hereto agree that they shall take such actions as may be necessary and permissible under applicable law, regulation and guidance to amend or revise this Plan in order to fully comply with Section 409A.

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ARTICLE VII<br> *Modifications to Payment Schedules*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 <u>Participant</u><u>'</u><u>s Right to Modify</u>. A Participant may modify any or all of the alternative Payment Schedules with respect to an Account, consistent with the permissible Payment Schedules available under the Plan, provided such modification complies with the requirements of this Article VII and Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 <u>Time of Election</u>. The date on which a modification election is submitted to the Committee must be at least twelve months prior to the date on which payment is scheduled to commence under the Payment Schedule in effect prior to the modification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 <u>Date of Payment under Modified Payment Schedule</u>. Except with respect to modifications that relate to the payment of a Death Benefit or a Disability Benefit, the date that payments are to commence under the modified Payment Schedule must be no earlier than five years after the date payment would have commenced under the original Payment Schedule. Under no circumstances may a modification election result in an acceleration of payments in violation of Code Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4 <u>Effective Date</u>. A modification election submitted in accordance with this Article VII is irrevocable upon receipt by the Committee and becomes effective 12 months after such date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5 <u>Effect on Accounts</u>. An election to modify a Payment Schedule is specific to the Account or payment event to which it applies, and shall not be construed to affect the Payment Schedules of any other Accounts.

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ARTICLE VIII<br> *Valuation of Account Balances; Crediting Interest*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <u>Valuation</u>. Bank Contributions shall be credited to the Account in accordance with the provisions of Article V. Valuation of Accounts shall be performed under procedures approved by the Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <u>Adjustment for Earnings</u>. Each Account will be adjusted to reflect Interest Credits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <u>Interest Credits</u>. The Account balance shall be credited with interest on December 31 of each calendar year. For purposes of the Interest Credit, the Account balance shall include all Bank Contributions credited to the Participant's Account on the applicable December 31. The annual amount of interest credited on the Account balance shall be computed using an annual interest rate equal to the sum of (1) 1% and (2) the average of the one year Treasury Bill rates in effect on and between December 1 and December 15 of the Plan year to which the rate of interest applies.

ARTICLE IX<br> *Administration*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <u>Plan Administration</u>. This Plan shall be administered by the Committee which shall have discretionary authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and to utilize its discretion to decide or resolve any and all questions, including but not limited to eligibility for benefits and interpretations of this Plan and its terms, as may arise in connection with the Plan. Claims for benefits shall be filed with the Committee and resolved in accordance with the claims procedures in Article XII.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <u>Administration Upon Change in Control</u>. Upon a Change in Control, the Committee, as constituted immediately prior to such Change in Control, shall continue to act as the Committee. The individual who was the Chief Executive Officer of the Bank (or if such person is unable or unwilling to act, the next highest ranking officer) prior to the Change in Control shall have the authority (but shall not be obligated) to appoint an independent third party to act as the Committee.

The Employer shall, with respect to the Committee identified under this Section, (i) pay all reasonable expenses and fees of the Committee, (ii) indemnify the Committee (including individuals serving as Committee members) against any costs, expenses and liabilities including, without limitation, attorneys' fees and expenses arising in connection with the performance of the Committee hereunder, except with respect to matters resulting from the Committee's gross negligence or willful misconduct and (iii) supply full and timely information to the Committee on all matters related to the Plan, any rabbi trust, Participants, Beneficiaries and Accounts as the Committee may reasonably require.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 <u>Withholding</u>. The Employer shall have the right to withhold from any payment due under the Plan (or with respect to any amounts credited to the Plan) any taxes required by law to be withheld in respect of such payment (or credit). Withholdings required under applicable law with respect to amounts credited to the Plan shall be deducted from Compensation that has not been deferred to the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 <u>Indemnification</u>. The Bank shall indemnify and hold harmless each employee, officer, director, agent or organization, to whom or to which are delegated duties, responsibilities, and authority under the Plan or otherwise with respect to administration of the Plan, including, without limitation, the Committee and its agents, against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him or her or it (including but not limited to reasonable attorney fees) which arise as a result of his or her or its actions or failure to act in connection with the operation and administration of the Plan to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty, or expense is not paid for by liability insurance purchased or paid for by the Bank. Notwithstanding the foregoing, the Bank shall not indemnify any person or organization if his or her or its actions or failure to act are due to gross negligence or willful misconduct or for any such amount incurred through any settlement or compromise of any action unless the Bank consents in writing to such settlement or compromise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5 <u>Delegation of Authority</u>. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who shall be legal counsel to the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.6 <u>Binding Decisions or Actions</u>. The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations thereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

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ARTICLE X<br> *Amendment and Termination*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1 <u>Amendment and Termination</u>. The Bank may at any time and from time to time amend the Plan or may terminate the Plan as provided in this Article X. The Bank may also terminate its participation in the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2 <u>Amendments</u>. The Bank, by action taken by its Board of Directors, may amend the Plan at any time and for any reason, provided that any such amendment shall not reduce the vested Account balances of any Participant accrued as of the date of any such amendment or restatement (as if the Participant had incurred a voluntary Separation from Service on such date) or reduce any rights of a Participant under the Plan or other Plan features with respect to amounts credited to the Participant's Account prior to the date of any such amendment or restatement without the consent of the Participant. The Board of Directors of the Company may delegate to the Committee the authority to amend the Plan without the consent of the Board of Directors for the purpose of (i) conforming the Plan to the requirements of law, (ii) facilitating the administration of the Plan, (iii) clarifying provisions based on the Committee's interpretation of the document and (iv) making such other amendments as the Board of Directors may authorize. The Board of Directors of the Company may delegate some or all its authority to amend the Plan to the Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3 <u>Termination</u>. The Bank, by action taken by its Board of Directors, may terminate the Plan and pay Participants and Beneficiaries their Account balances in a single lump sum at any time, to the extent and in accordance with Treas. Reg. Section 1.409A-3G)(4)(ix). If the Bank terminates its participation in the Plan, the benefits of affected Employees shall be paid at the time provided in Article VI.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.4 <u>Accounts Taxable Under Code Section 409A</u>. The Plan is intended to constitute a plan of deferred compensation that meets the requirements for deferral of income taxation under Code Section 409A. The Committee, pursuant to its authority to interpret the Plan, may sever from the Plan or any Compensation Agreement any provision or exercise of a right that otherwise would result in a violation of Code Section 409A.

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ARTICLE XI<br> *Informal Funding*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1 <u>General Assets</u>. Obligations established under the terms of the Plan may be satisfied from the general funds of the Bank, or a trust described in this Article XI. No Participant, spouse or Beneficiary shall have any right, title or interest whatever in assets of the Bank. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Bank and any Employee, spouse, or Beneficiary. To the extent that any person acquires a right to receive payments hereunder, such rights are no greater than the right of an unsecured general creditor of the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2 <u>Rabbi Trust</u>. The Bank may, in its sole discretion, establish a grantor trust, commonly known as a rabbi trust, as a vehicle for accumulating assets to pay benefits under the Plan. Payments under the Plan may be paid from the general assets of the Bank or from the assets of any such rabbi trust. Payment from any such source shall reduce the obligation owed to the Participant or Beneficiary under the Plan.

ARTICLE XII<br> *Claims*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1 <u>Filing a Claim</u>. Any controversy or claim arising out of or relating to the Plan shall be filed in writing with the Committee which shall make all determinations concerning such claim. Any claim filed with the Committee and any decision by the Committee denying such claim shall be in writing and shall be delivered to the Participant or Beneficiary filing the claim (the "Claimant").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *In General*. Notice of a denial of benefits (other than Disability benefits) will be provided within ninety (90) days of the Committee's receipt of the Claimant's claim for benefits. If the Committee determines that it needs additional time to review the claim, the Committee will provide the Claimant with a notice of the extension before the end of the initial ninety (90) day period. The extension will not be more than ninety (90) days from the end of the initial ninety (90) day period and the notice of extension will explain the special circumstances that require the extension and the date by which the Committee expects to make a decision.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Disability Benefits*. Notice of denial of Disability benefits will be provided within forty-five (45) days of the Committee's receipt of the Claimant's claim for Disability benefits. If the Committee determines that it needs additional time to review the Disability claim, the Committee will provide the Claimant with a notice of the extension before the end of the initial forty-five (45) day period. If the Committee determines that a decision cannot be made within the first extension period due to matters beyond the control of the Committee, the time period for making a determination may be further extended for an additional thirty (30) days. If such an additional extension is necessary, the Committee shall notify the Claimant prior to the expiration of the initial thirty (30) day extension. Any notice of extension shall indicate the circumstances necessitating the extension of time, the date by which the Committee expects to furnish a notice of decision, the specific standards on which such entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim and any additional information needed to resolve those issues. A Claimant will be provided a minimum of forty-five (45) days to submit any necessary additional information to the Committee. In the event that a thirty (30) day extension is necessary due to a Claimant's failure to submit information necessary to decide a claim, the period for furnishing a notice of decision shall be tolled from the date on which the notice of the extension is sent to the Claimant until the earlier of the date the Claimant responds to the request for additional information or the response deadline.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Contents of Notice*. If a claim for benefits is completely or partially denied, notice of such denial shall be in writing and shall set forth the reasons for denial in plain language. The notice shall (i) cite the pertinent provisions of the Plan document and (ii) explain, where appropriate, how the Claimant can perfect the claim, including a description of any additional material or information necessary to complete the claim and why such material or information is necessary. The claim denial also shall include an explanation of the claims review procedures and the time limits applicable to such procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse decision on review. In the case of a complete or partial denial of a Disability benefit claim, the notice shall provide a statement that the Committee will provide to the Claimant, upon request and free of charge, a copy of any internal rule, guideline, protocol, or other similar criterion that was relied upon in making the decision.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2 <u>Appeal of Denied Claims</u>. A Claimant whose claim has been completely or partially denied shall be entitled to appeal the claim denial by filing a written appeal with a committee designated to hear such appeals (the "Appeals Committee"). A Claimant who timely requests a review of the denied claim (or his or her authorized representative) may review, upon request and free of charge, copies of all documents, records and other information relevant to the denial and may submit written comments, documents, records and other information relevant to the claim to the Appeals Committee. All written comments, documents, records, and other information shall be considered "relevant" if the information (i) was relied upon in making a benefits determination, (ii) was submitted, considered or generated in the course of making a benefits decision regardless of whether it was relied upon to make the decision, or (iii) demonstrates compliance with administrative processes and safeguards established for making benefit decisions. The Appeals Committee may, in its sole discretion and if it deems appropriate or necessary, decide to hold a hearing with respect to the claim appeal.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *In General*. Appeal of a denied benefits claim (other than a Disability benefits claim) must be filed in writing with the Appeals Committee no later than sixty (60) days after receipt of the written notification of such claim denial. The Appeals Committee shall make its decision regarding the merits of the denied claim within sixty (60) days following receipt of the appeal (or within one hundred and twenty (120) days after such receipt, in a case where there are special circumstances requiring an extension of time for reviewing the appealed claim). If an extension of time for reviewing the appeal is required because of special circumstances, written notice of the extension shall be furnished to the Claimant prior to the commencement of the extension. The notice will indicate the special circumstances requiring the extension of time and the date by which the Appeals Committee expects to render the determination on review. The review will take into account comments, documents, records and other information submitted by the Claimant relating to the claim without regard to whether such information was submitted or considered in the initial benefit determination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Disability Benefits*. Appeal of a denied Disability benefits claim must be filed in writing with the Appeals Committee no later than one hundred eighty (180) days after receipt of the written notification of such claim denial. The review shall be conducted by the Appeals Committee (exclusive of the person who made the initial adverse decision or such person's subordinate). In reviewing the appeal, the Appeals Committee shall (i) not afford deference to the initial denial of the claim, (ii) consult a medical professional who has appropriate training and experience in the field of medicine relating to the Claimant's disability and who was neither consulted as part of the initial denial nor is the subordinate of such individual and (iii) identify the medical or vocational experts whose advice was obtained with respect to the initial benefit denial, without regard to whether the advice was relied upon in making the decision. The Appeals Committee shall make its decision regarding the merits of the denied claim within forty-five (45) days following receipt of the appeal (or within ninety (90) days after such receipt, in a case where there are special circumstances requiring extension of time for reviewing the appealed claim). If an extension of time for reviewing the appeal is required because of special circumstances, written notice of the extension shall be furnished to the Claimant prior to the commencement of the extension. The notice will indicate the special circumstances requiring the extension of time and the date by which the Appeals Committee expects to render the determination on review. Following its review of any additional information submitted by the Claimant, the Appeals Committee shall render a decision on its review of the denied claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Contents of Notice*. If a benefits claim is completely or partially denied on review, notice of such denial shall be in writing and shall set forth the reasons for denial in plain language.

The decision on review shall set forth (i) the specific reason or reasons for the denial, (ii) specific references to the pertinent Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, or other information relevant (as defined above) to the Claimant's claim, and (iv) a statement describing any voluntary appeal procedures offered by the plan and a statement of the Claimant's right to bring an action under Section 502(a) of ERISA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) For the denial of a Disability benefit, the notice will also include a statement that the Appeals Committee will provide, upon request and free of charge, (i) any internal rule, guideline, protocol or other similar criterion relied upon in making the decision, (ii) any medical opinion relied upon to make the decision and (iii) the required statement under Section 2560.503-1(j)(5)(iii) of the Department of Labor regulations.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.3 <u>Claims Appeals Upon Change in Control</u>. Upon a Change in Control, the Appeals Committee, as constituted immediately prior to such Change in Control, shall continue to act as the Appeals Committee. Upon such Change in Control, the Bank may not remove any member of the Appeals Committee, but may replace resigning members if 2/3rds of the members of the Board of Directors of the Company and a majority of Participants and Beneficiaries with Account Balances consent to the replacement.

The Appeals Committee shall have the exclusive authority at the appeals stage to interpret the terms of the Plan and resolve appeals under the Claims Procedure.

The Bank shall with respect to the Committee identified under this Section, (i) pay its proportionate share of all reasonable expenses and fees of the Appeals Committee, (ii) indemnify the Appeals Committee (including individual committee members) against any costs, expenses and liabilities including, without limitation, attorneys' fees and expenses arising in connection with the performance of the Appeals Committee hereunder, except with respect to matters resulting from the Appeals Committee's gross negligence or willful misconduct and (iii) supply full and timely information to the Appeals Committee on all matters related to the Plan, any rabbi trust, Participants, Beneficiaries and Accounts as the Appeals Committee may reasonably require.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.4 <u>Legal Action</u>. A Claimant may not bring any legal action, including commencement of any arbitration, relating to a claim for benefits under the Plan unless and until the Claimant has followed the claims procedures under the Plan and exhausted his or her administrative remedies under such claims procedures.

If a Participant or Beneficiary prevails in a legal proceeding brought under the Plan to enforce the rights of such Participant or any other similarly situated Participant or Beneficiary, in whole or in part, the Bank shall reimburse such Participant or Beneficiary for all legal costs, expenses, attorneys' fees and such other liabilities incurred as a result of such proceedings. If the legal proceeding is brought in connection with a Change in Control, or a "change in control" as defined in a rabbi trust described in Section 11.2, the Participant or Beneficiary may file a claim directly with the trustee for reimbursement of such costs, expenses and fees. For purposes of the preceding sentence, the amount of the claim shall be treated as if it were an addition to the Participant's or Beneficiary's Account Balance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.5 <u>Discretion of Appeals Committee</u>. All interpretations, determinations and decisions of the Appeals Committee with respect to any claim shall be made in its sole discretion, and shall be final and conclusive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.6 <u>Arbitration</u>.

Any claim or controversy between the Bank and a Participant or Beneficiary is not resolved through the claims procedure set forth in Article XII, such claim shall be submitted to and resolved exclusively by expedited binding arbitration by a single arbitrator. Arbitration shall be conducted in accordance with the following procedures:

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The complaining party shall promptly send written notice to the other party identifying the matter in dispute and the proposed remedy. Following the giving of such notice, the parties shall meet and attempt in good faith to resolve the matter. In the event the parties are unable to resolve the matter within twenty one (21) days, the parties shall meet and attempt in good faith to select a single arbitrator acceptable to both parties. If a single arbitrator is not selected by mutual consent within ten (10) Business Days following the giving of the written notice of dispute, an arbitrator shall be selected from a list of nine persons each of whom shall be an attorney who is either engaged in the active practice of law or recognized arbitrator and who, in either event, is experienced in serving as an arbitrator in disputes between employers and employees, which list shall be provided by the main office of the American Arbitration Association ("AAA"). If, within three (3) Business Days of the parties' receipt of such list, the parties are unable to agree on an arbitrator from the list, then the parties shall each strike names alternatively from the list, with the first to strike being determined by the flip of a coin. After each party has had four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected.

Unless the parties agree otherwise, within sixty (60) days of the selection of the arbitrator, a hearing shall be conducted before such arbitrator at a time and a place agreed upon by the parties. In the event the parties are unable to agree upon the time or place of the arbitration, the time and place shall be designated by the arbitrator after consultation with the parties. Within thirty (30) days of the conclusion of the arbitration hearing, the arbitrator shall issue an award, accompanied by a written decision explaining the basis for the arbitrator's award.

In any arbitration hereunder, the Bank and Participant or Beneficiary shall each pay one-half of all administrative fees of the arbitration and all fees of the arbitrator, except that the Participant or Beneficiary may, if he/she/it wishes, pay up to one-half of those amounts. Each party shall pay its own attorneys' fees, costs, and expenses, unless the arbitrator orders otherwise. The prevailing party in such arbitration, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled, to the extent permitted by law, to reimbursement from the other party for all of the prevailing party's costs (including but not limited to the arbitrator's compensation), expenses, and attorneys' fees. The arbitrator shall have no authority to add to or to modify this Plan, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy. The arbitrator shall have no authority to add to or to modify this Plan, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing the motion establishes that it would be entitled to summary judgment if the matter had been pursued in court litigation.

The decision of the arbitrator shall be final, binding, and non-appealable, and may be enforced as a final judgment in any court of competent jurisdiction.

This arbitration provision of the Plan shall extend to claims against any parent, subsidiary, or affiliate of each party, and, when acting within such capacity, any officer, director, shareholder, Participant, Beneficiary, or agent of any party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law or under this Plan.

Notwithstanding the foregoing, and unless otherwise agreed between the parties, either party may apply to a court for provisional relief, including a temporary restraining order or preliminary injunction, on the ground that the arbitration award to which the applicant may be entitled may be rendered ineffectual without provisional relief.

Any arbitration hereunder shall be conducted in accordance with the Federal Arbitration Act: provided, however, that, in the event of any inconsistency between the rules and procedures of the Act and the terms of this Plan, the terms of this Plan shall prevail.

If any of the provisions of this Section 12.6(a) are determined to be unlawful or otherwise unenforceable, in the whole part, such determination shall not affect the validity of the remainder of this section and this section shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the provisions of this Section 12.6(a) are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact and treated as determinative to the maximum extent permitted by law.

The parties do not agree to arbitrate any putative class action or any other representative action. The parties agree to arbitrate only the claims(s) of a single Participant or Beneficiary.

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ARTICLE XIII<br> *General Provisions*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1 <u>Assignment</u>. No interest of any Participant, spouse or Beneficiary under this Plan and no benefit payable hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any such interest or any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through any Participant, spouse or Beneficiary.

The Company and Bank may assign any or all of its liabilities under this Plan in connection with any restructuring, recapitalization, sale of assets or other similar transactions affecting a Participating Employer without the consent of the Participant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2 <u>No Legal or Equitable Rights or Interest</u>. No Participant or other person shall have any legal or equitable rights or interest in this Plan that are not expressly granted in this Plan. Participation in this Plan does not give any person any right to be retained in the service of the Bank. The right and power of the Bank to dismiss or discharge an Employee is expressly reserved. The Bank makes no representations or warranties as to the tax consequences to a Participant or a Participant's beneficiaries resulting from a deferral of income pursuant to the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3 <u>No Employment Contract</u>. Nothing contained herein shall be construed to constitute a contract of employment between an Employee and the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.4 <u>Notice</u>. Any notice or filing required or permitted to be delivered to the Committee under this Plan shall be delivered in writing, in person, or through such electronic means as is established by the Committee. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Written transmission shall be sent by certified mail to:

Chairman, Board of Directors

First National Community Bancorp, Inc.

102 East Drinker Street

Dunmore, Pennsylvania 18512

Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing or hand- delivered, or sent by mail to the last known address of the Participant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.5 <u>Headings</u>. The headings of Sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.6 <u>Invalid or Unenforceable Provisions</u>. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Committee may elect in its sole discretion to construe such invalid or unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to the extent invalid or unenforceable, had not been included.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.7 <u>Lost Participants or Beneficiaries</u>. Any Participant or Beneficiary who is entitled to a benefit from the Plan has the duty to keep the Committee advised of his or her current mailing address. If benefit payments are returned to the Plan or are not presented for payment after a reasonable amount of time, the Committee shall presume that the payee is missing. The Committee, after making such efforts as in its discretion it deems reasonable and appropriate to locate the payee, shall stop payment on any uncashed checks and may discontinue making future payments until contact with the payee is restored.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.8 <u>Facility of Payment to a Minor</u>. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Committee may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Committee, the Bank, and the Plan from further liability on account thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.9 <u>Governing Law</u>. To the extent not preempted by ERISA, the laws of Commonwealth of Pennsylvania shall govern the construction and administration of the Plan.

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**IN WITNESS WHEREOF, the undersigned executed this Plan as of the 1st day of October, 2015, to be effective as of the Effective Date.**

**The First National Community Bank**

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| | |
|:---|:---|
| By: | Dominick DeNaples |
| Its: | Chairman of the Board<br> (Title) |
|  | (Signature) |

---

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**FIRST AMENDMENT** <br> **TO THE**

**FIRST NATIONAL COMMUNITY BANK**

**SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN**

THIS FIRST AMENDMENT to the First National Community Bank Supplemental Executive Retirement Plan (the "Plan") is made this 15<sup>th</sup> day of January, 2017, by FNCB Bank (the "Bank"), formerly known as First National Community Bank, a state-chartered bank organized and existing under the laws of the Commonwealth of Pennsylvania.

RECITALS:

WHEREAS, First National Community Bank adopted the Plan on October 1, 2015; and

WHEREAS, First National Community Bank converted to a Pennsylvania state-chartered bank and changed its name to FNCB Bank on June 29, 2016; and

WHEREAS, the conversion and name change will have no impact on the Plan and the Bank will continue to perform all obligations under the Plan as the plan sponsor; and

WHEREAS, the Bank has the authority to amend the Plan under Article X; and

WHEREAS, the Bank now deems it desirable to amend the Plan to reflect the change of sponsorship of the Plan from First National Community Bank to the Bank;

NOW, THEREFORE, the Plan is hereby amended as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. By renaming the Plan the "FNCB Bank Supplemental Executive Retirement Plan;"

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. By deleting the phrase "First National Community Bank Supplemental Executive Retirement<br> Plan" and inserting in its place "FNCB Bank Supplemental Executive Retirement Plan" wherever<br> the former phrase occurs in the Plan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. By deleting the phrase "First National Community Bank" and inserting in its place "FNCB Bank"<br> wherever the former phrase occurs in the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. By amending and restating Section 8.3 in its entirety as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <u>Interest Credits</u>. The Account Balance shall be credited with interest on December 31 of each calendar year. For purposes of the Interest Credit, the Account Balance shall include all Bank Contributions credited to the Participant's Account on the applicable December 31. The annual amount of interest credited on the Account Balance shall be computed using an annual interest rate equal to the average ten-year Treasury Bill rate in effect on and between December 1 and December 15 of the Plan Year to which the rate of interest applies with a minimum rate of 3%.

Except as otherwise amended by this First Amendment, all provisions of the Plan shall remain in full force and effect and the Plan and this First Amendment shall be construed together and considered one and the same agreement.

IN WITNESS WHEREOF, the Bank executes this First Amendment as of the date first written above.<br>

FNCB BANK:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By:<u> </u><u> </u><u> </u><u> </u><u> </u><u> </u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Printed Name:<u> </u><u> </u><u> </u><u> </u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title:<u> </u><u> </u><u> </u><u> </u><u> </u>

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**SECOND AMENDMENT** 

**TO THE** 

**FNCB BANK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN** 

**THIS SECOND AMENDMENT** to the FNCB Bank Supplemental Executive Retirement Plan (the "Plan") is made November 30, 2022, by FNCB Bank (the "Bank"), a state-chartered bank organized and existing under the laws of the Commonwealth of Pennsylvania.

**RECITALS:** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Plan was adopted by First National Community Bank on October 1, 2015; and was subsequently amended on January 15, 2017.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The Bank changed its name from First National Community Bank to FNCB Bank on June 29, 2016.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Bank has the authority to amend the Plan under Article X.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. The Bank desires to amend the Plan to modify the Disability definition and to clarify the commencement dates of Separation from Service benefits.

**NOW, THEREFORE, t**he Plan is hereby amended as follows:

*Section 2.20 is replaced in its entirety with the following:*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20 <u>Disabled.</u> Disabled shall be defined as a condition of a Participant whereby he or she either: (a) has been deemed disabled by the Social Security Administration or (b) determined to be disabled in accordance with a disability insurance program of the Bank that covers the Participant, provided that the definition of disability applied under such disability insurance program complies with Code Section 409A. Upon the request of the Plan Administrator, the Participant must submit proof to the Plan Administrator of the Social Security Administration's or insurance provider's determination.

*Section 6.1(a) is replaced in its entirety with the following:* 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)  *Termination Benefit.* 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*(i)* Upon a Participant's Separation from Service (other than for Cause, death, or within twenty-four (24) months following a Change in Control) on or after attaining his or her Normal Retirement Age, the Participant shall be entitled to a Termination Benefit equal to his or her vested Account balance as of the date of Separation from Service, paid in accordance with the Participant's distribution election. Payment will be made or commence the month following the Participant's Separation from Service.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*(ii)* Upon a Participant's Separation from Service (other than for Cause, death, or within twenty-four (24) months following a Change in Control) prior to attaining his or her Normal Retirement Age, the Participant shall be entitled to a Termination Benefit equal to his or her vested Account balance as of the date of Separation from Service, paid in accordance with the Participant's distribution election. Payment will be made or commence the month following the Participant's Normal Retirement Age. In the event of the Participant's death after Separation from Service but prior to the commencement of payment, the Participant's vested Account balance as of the date of the Participant's death will be paid to the Participant's Beneficiary in a lump sum within ninety (90) days following the date of the Participant's death.

*Section 6.1(b) is replaced in its entirety with the following:*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Disability Benefit.* Upon a Participant's Disability, he or she shall be entitled to a Disability Benefit. The Disability Benefit shall be equal to the value of the Account as of the date on which the Disability occurs and will be paid in the following month in a lump sum.

Except as otherwise amended by this Second Amendment, all provisions of the Plan shall remain in full force and effect and the Plan and all amendments shall be construed together and considered one and the same agreement.

The Bank executes this Second Amendment as of the date first written above. 

**FNCB BANK:** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By: _________________________________

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Printed Name:<u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u><u> </u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title: ________________________________

## Ex-23

**EXHIBIT 23**

**Consent of Independent Registered Public Accounting Firm**

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-193545) and Forms S-3 (Nos. 333-260114 and 333-145032) of FNCB Bancorp, Inc. and Subsidiaries of our report dated March 10, 2023, relating to the consolidated financial statements, which appears in this annual report on Form 10-K for the year ended December 31, 2022.

/s/ Baker Tilly US, LLP

Baker Tilly US, LLP

Iselin, New Jersey<br> March 10, 2023

## Exhibit 31.1

**EXHIBIT 31.1**

CERTIFICATION

I, Gerard A. Champi, certify that:

1. I have reviewed this annual report on Form 10-K of FNCB Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

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| | | |
|:---|:---|:---|
| Date: March 10, 2023 | By: | /s/ Gerard A. Champi |
|  |  | Gerard A. Champi |
|  |  | President and Chief Executive Officer |

---

## Exhibit 31.2

**EXHIBIT 31.2**

CERTIFICATION

I, James M. Bone, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of FNCB Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: March 10, 2023 | By: | /s/ James M. Bone, Jr. |
|  |  | James M. Bone, Jr., CPA |
|  |  | Executive Vice President and Chief Financial Officer |

---

## Ex-32

**EXHIBIT 32**

CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of FNCB Bancorp, Inc. ("the Company") on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerard A. Champi, President and Chief Executive Officer of the Company, and I, James M. Bone, Jr., Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes –Oxley Act of 2002, that to the best of our knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2022.

---

| | | |
|:---|:---|:---|
| Date: March 10, 2023 | By: | /s/ Gerard A. Champi |
|  |  | Gerard A. Champi<br> President and Chief Executive Officer |
| Date: March 10, 2023 | By: | /s/ James M. Bone, Jr. |
|  |  | James M. Bone, Jr., CPA |
|  |  | Executive Vice President and Chief Financial Officer |

---

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.