FNCB Bancorp, Inc. - Quarter Report: 2016 September (Form 10-Q)

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		September 30,				December 31,
(in thousands, except share data)		2016				2015
Assets
Cash and cash equivalents:
Cash and due from banks		$	24,558			$	19,544
Interest-bearing deposits in other banks			32,778				1,539
Total cash and cash equivalents			57,336				21,083
Securities available for sale, at fair value			263,475				253,773
Stock in Federal Home Loan Bank of Pittsburgh, at cost			2,741				6,344
Loans held for sale			185				683
Loans, net of allowance for loan and lease losses of $8,490 and $8,790			721,172				724,926
Bank premises and equipment, net			10,615				11,193
Accrued interest receivable			2,736				2,475
Intangible assets			14				137
Bank-owned life insurance			29,807				29,381
Other real estate owned			2,065				3,154
Net deferred tax assets			23,024				27,807
Other assets			8,417				9,662
Total assets		$	1,121,587			$	1,090,618
Liabilities
Deposits:
Demand (non-interest-bearing)		$	157,119			$	154,531
Interest-bearing			773,840				667,015
Total deposits			930,959				821,546
Borrowed funds:
Federal Home Loan Bank of Pittsburgh advances			58,837				135,802
Subordinated debentures			14,000				14,000
Junior subordinated debentures			10,310				10,310
Total borrowed funds			83,147				160,112
Accrued interest payable			294				11,165
Other liabilities			10,614				11,617
Total liabilities			1,025,014				1,004,440
Shareholders' equity
Preferred shares ($1.25 par)
Authorized: 20,000,000 shares at September 30, 2016 and December 31, 2015
Issued and outstanding: 0 shares at September 30, 2016 and December 31, 2015			-				-
Common shares ($1.25 par)
Authorized: 50,000,000 shares at September 30, 2016 and December 31, 2015
Issued and outstanding: 16,614,856 shares at September 30, 2016 and 16,514,245 shares at December 31, 2015			20,768				20,643
Additional paid-in capital			62,381				62,059
Retained earnings			7,506				3,714
Accumulated other comprehensive income (loss)			5,918				(238	)
Total shareholders' equity			96,573				86,178
Total liabilities and shareholders’ equity		$	1,121,587			$	1,090,618

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except share data)		2016				2015				2016				2015
Interest income
Interest and fees on loans		$	7,156			$	6,693			$	21,157			$	19,640
Interest and dividends on securities:
U.S. government agencies			848				1,061				2,678				3,044
State and political subdivisions, tax-free			9				19				30				91
State and political subdivisions, taxable			675				324				1,834				447
Other securities			69				92				259				331
Total interest and dividends on securities			1,601				1,496				4,801				3,913
Interest on interest-bearing deposits in other banks			8				10				14				42
Total interest income			8,765				8,199				25,972				23,595
Interest expense
Interest on deposits			704				677				2,009				2,003
Interest on borrowed funds:
Interest on Federal Home Loan Bank of Pittsburgh advances			157				128				472				367
Interest on subordinated debentures			162				162				480				1,290
Interest on junior subordinated debentures			62				50				180				150
Total interest on borrowed funds			381				340				1,132				1,807
Total interest expense			1,085				1,017				3,141				3,810
Net interest income before (credit) provision for loan and lease losses			7,680				7,182				22,831				19,785
(Credit) provision for loan and lease losses			(234	)			(191	)			858				(340	)
Net interest income after (credit) provision for loan and lease losses			7,914				7,373				21,973				20,125
Non-interest income
Deposit service charges			739				799				2,157				2,218
Net gain on the sale of securities			-				4				960				2,302
Net gain on the sale of mortgage loans held for sale			99				13				238				69
Net gain on the sale of SBA guaranteed loans			51				-				51				-
Net gain on the sale of other real estate owned			32				129				29				145
Loan-related fees			85				94				287				290
Income from bank-owned life insurance			137				145				426				415
Legal settlements			-				-				-				184
Other			237				195				657				720
Total non-interest income			1,380				1,379				4,805				6,343
Non-interest expense
Salaries and employee benefits			3,263				3,240				10,366				9,582
Occupancy expense			479				500				1,301				1,665
Equipment expense			429				408				1,277				1,234
Advertising expense			157				86				422				335
Data processing expense			505				471				1,522				1,420
Regulatory assessments			199				203				629				711
Bank shares tax			253				217				746				652
Expense of other real estate owned			95				91				335				338
Legal expense			79				80				285				331
Professional fees			157				193				716				780
Insurance expense			131				128				384				528
Other operating expenses			806				798				2,399				2,301
Total non-interest expense			6,553				6,415				20,382				19,877
Income before income taxes			2,741				2,337				6,396				6,591
Income tax expense (benefit)			724				-				1,611				(40	)
Net income		$	2,017			$	2,337			$	4,785			$	6,631
Earnings per share
Basic		$	0.12			$	0.14			$	0.29			$	0.40
Diluted		$	0.12			$	0.14			$	0.29			$	0.40
Cash dividends declared per common share		$	0.02			$	-			$	0.06			$	-
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic			16,593,811				16,500,945				16,554,391				16,497,373
Diluted			16,593,811				16,500,945				16,554,391				16,497,373

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2016				2015				2016				2015
Net income		$	2,017			$	2,337			$	4,785			$	6,631
Other comprehensive (loss) income:
Unrealized (losses) gains on securities available for sale			(1,239	)			3,465				10,288				4,461
Taxes			421				(1,178	)			(3,498	)			(1,516	)
Net of tax amount			(818	)			2,287				6,790				2,945
Reclassification adjustment for gains included in net income			-				(4	)			(960	)			(2,302	)
Taxes			-				1				326				782
Net of tax amount			-				(3	)			(634	)			(1,520	)
Total other comprehensive (loss) income			(818	)			2,284				6,156				1,425
Comprehensive income		$	1,199			$	4,621			$	10,941			$	8,056

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(in thousands, except share data)		Number of Common Shares				Common Stock				Additional Paid-in Capital				Accumulated (Deficit) /  Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders' Equity
Balances, December 31, 2014			16,484,419			$	20,605			$	61,781			$	(32,126	)		$	1,138			$	51,398
Net income for the period			-				-				-				6,631				-				6,631
Common shares issued under long-term incentive compensation plan			16,526				21				(21	)			-				-				-
Restricted stock awards			-				-				179				-				-				179
Other comprehensive income, net of tax of $734			-				-				-				-				1,425				1,425
Balances, September 30, 2015			16,500,945			$	20,626			$	61,939			$	(25,495	)		$	2,563			$	59,633
Balances, December 31, 2015			16,514,245			$	20,643			$	62,059			$	3,714			$	(238	)		$	86,178
Net income for the period			-				-				-				4,785				-				4,785
Cash dividends declared, $0.06 per share			-				-				-				(993	)			-				(993	)
Common shares issued under long-term incentive compensation plan			52,848				66				(66	)			-				-				-
Restricted stock awards			-				-				195				-				-				195
Common shares issued through dividend reinvestment / optional cash purchase plan			47,763				59				193				-				-				252
Other comprehensive income, net of tax of $3,172			-				-				-				-				6,156				6,156
Balances, September 30, 2016			16,614,856			$	20,768			$	62,381			$	7,506			$	5,918			$	96,573

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		Nine Months Ended
		September 30,
(in thousands)		2016				2015
Operating activities:
Net income		$	4,785			$	6,631
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Investment securities amortization, net			880				1,173
Equity in trust			(5	)			(5	)
Depreciation and amortization			1,973				1,168
Stock-based compensation expense			195				179
Provision (credit) for loan and lease losses			858				(340	)
Valuation adjustment for off-balance sheet commitments			(64	)			(27	)
Gain on the sale of available-for-sale securities			(960	)			(2,302	)
Gain on the sale of loans held for sale			(238	)			(69	)
Gain on the sale of SBA guaranteed loans			(51	)			-
Gain on the sale of other real estate owned			(29	)			(145	)
Valuation adjustment of other real estate owned			170				208
Income from bank-owned life insurance			(426	)			(415	)
Proceeds from the sale of loans held for sale			5,592				1,982
Funds used to originate loans held for sale			(4,856	)			(1,352	)
Deferred income tax expense			1,611				-
Increase in interest receivable			(261	)			(543	)
Decrease in prepaid expenses and other assets			62				829
(Decrease) increase in interest payable			(10,871	)			925
Decrease in accrued expenses and other liabilities			(944	)			(2,221	)
Total adjustments			(7,364	)			(955	)
Net cash (used in) provided by operating activities			(2,579	)			5,676
Cash flows from investing activities:
Maturities, calls and principal payments of available-for-sale securities			4,972				7,326
Proceeds from the sale of securities available for sale			32,588				78,765
Purchases of securities available for sale			(37,854	)			(113,042	)
Redemption (purchase) of the stock of the Federal Home Loan Bank of Pittsburgh			3,603				(1,495	)
Redemption of the stock of the Federal Reserve Bank			1,351				-
Net increase in loans to customers			(377	)			(58,975	)
Proceeds from the sale of SBA guaranteed loans			1,315				-
Proceeds from the sale of other real estate owned			1,903				697
Purchases of bank premises and equipment			(376	)			(1,175	)
Net cash provided by (used in) investing activities			7,125				(87,899	)
Cash flows from financing activities:
Net increase in deposits			109,413				56,706
Net (repayment of) proceeds from Federal Home Loan Bank of Pittsburgh advances - overnight			(60,500	)			19,500
Proceeds from Federal Home Loan Bank of Pittsburgh advances - term			37,753				142,947
Repayment of Federal Home Loan Bank of Pittsburgh advances - term			(54,218	)			(130,583	)
Principal reduction on subordinated debentures			-				(11,000	)
Proceeds from issuance of common shares			252				-
Cash dividends paid			(993	)			-
Net cash provided by financing activities			31,707				77,570
Net increase (decrease) in cash and cash equivalents			36,253				(4,653	)
Cash and cash equivalents at beginning of period			21,083				35,667
Cash and cash equivalents at end of period		$	57,336			$	31,014
Supplemental cash flow information
Cash paid during the period for:
Interest		$	14,012			$	2,885
Income taxes			-				22
Other transactions:
Loans transferred to OREO and repossessed assets			1,210				149
Principal balance of loans transferred to held for sale			-				4,592
Change in deferred gain on sale of other real estate owned			5				(26	)

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Note 1.     Basis of Presentation

 

On October 4, 2016, First National Community Bancorp, Inc., the parent company of FNCB Bank, filed an amendment to its articles of incorporation to change the its name, effective October 17, 2016, to “FNCB Bancorp, Inc.” The Board of Directors has also amended its bylaws, effective October 17, 2016, to reflect the new name. 

 

The consolidated financial statements are comprised of the accounts of FNCB Bancorp, Inc., and its wholly owned subsidiary, FNCB Bank (the “Bank”), as well as the Bank’s wholly owned subsidiaries (collectively, “FNCB”). The accounting and reporting policies of FNCB conform to accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Prior period amounts have been reclassified when necessary to conform to the current period’s presentation. These reclassifications did not have an impact on the operating results or financial position of FNCB. The operating results and financial position of FNCB for the nine months ended September 30, 2016, may not be indicative of future results of operations and financial position.

 

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

 

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FNCB’s audited financial statements, included in the Annual Report filed on Form 10-K as of and for the year ended December 31, 2015.

Note 2.     New Authoritative Accounting Guidance

 

Accounting Guidance to be Adopted in Future Periods

 

Accounting Standard Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments,” provides guidance on eight specific cash flow issues in order to reduce current and potential future diversity in reporting. The specific cash flow items addressed include debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-15 is effective for all entities that are required to present a statement of cash flows under Topic 230, and early adoption is permitted. The adoption of this guidance on January 1, 2018 is not expected to have a material effect on the operating results or financial position of FNCB.

 

Refer to Note 2 to FNCB’s consolidated financial statements included in the 2015 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the periods ended March 31, 2016 and June 30, 2016 for a discussion of additional accounting guidance applicable to FNCB that will be adopted in future periods.

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Note 3. Securities

 

The following tables present the amortized cost, gross unrealized gains and losses, and the fair value of FNCB’s securities at September 30, 2016 and December 31, 2015:

 

 

 

At September 30, 2016 and December 31, 2015, securities with a carrying amount of $262.1 million and $252.4 million, respectively, were pledged as collateral to secure public deposits and for other purposes.

 

 

The following table shows the amortized cost and approximate fair value of FNCB’s available-for-sale debt securities at September 30, 2016 using contractual maturities.  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 and residential mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary:

 

 

There were no sales of available-for-sale securities for the three months ended September 30, 2016. Gross proceeds from the sale of available-for-sale securities were $32.6 million for the nine months ended September 30, 2016, with gross gains of $960 thousand realized upon the sales. There were no losses realized upon the sales for the nine months ended September 30, 2016.

 

Gross proceeds from the sale of available-for-sale securities were $5.3 million and $78.8 million, respectively, for the three and nine months ended September 30, 2015, with gross gains of $4 thousand and $2.3 million, respectively, realized upon the sales. There were no gross losses realized upon the sales for the three months ended September 30, 2015. FNCB realized gross losses of $4 thousand upon the sales for the nine months ended September 30, 2015.

 

The following tables present the number of, fair value and gross unrealized losses of available-for-sale securities with unrealized losses at September 30, 2016 and December 31, 2015:

 

 

 

 

 

Management evaluates individual securities in an unrealized loss position quarterly for other than temporary impairment (“OTTI”). As part of its evaluation, management considers, among other things, the length of time a security’s fair value is less than its amortized cost, the severity of decline, any credit deterioration of the issuer, whether or not management intends to sell the security, and whether it is more likely than not that FNCB will be required to sell the security prior to recovery of its amortized cost.

 

There were four securities in an unrealized loss position at September 30, 2016, including one security issued by a U.S. government-sponsored agency, one obligation of a state and political subdivision, one corporate bond, and one equity security. Three of the securities were in an unrealized loss position for greater than 12 months. Management performed a review of the fair values of all securities in an unrealized loss position as of September 30, 2016 and determined that movements in the fair values of the securities were consistent with the change in market interest rates. 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 other events or circumstances 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 September 30, 2016. 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 and equity securities, management concluded that the individual unrealized losses were temporary and OTTI did not exist at September 30, 2016.

 

Investments in FHLB of Pittsburgh and Federal Reserve Bank of Philadelphia (“FRB”) stock have limited marketability and are carried at cost. FNCB’s investment in FHLB of Pittsburgh stock totaled $2.7 million and $6.3 million at September 30, 2016 and December 31, 2015, respectively. During the three months ended September 30, 2016, the Bank canceled its membership with the FRB, and as a result, the entire balance of FRB stock totaling $1.3 million was redeemed. FRB stock of $1.3 million is included in Other Assets in the Consolidated Statements of Financial Condition at December 31, 2015. Management noted no indicators of impairment for the FHLB of Pittsburgh stock at September 30, 2016.

Note 4. Loans

 

The following table summarizes loans receivable, net, by category at September 30, 2016 and December 31, 2015:

 

 

FNCB has granted loans, letters of credit and lines of credit to certain of its executive officers and directors as well as to certain related parties of executive officers and directors. For more information about related party transactions, refer to Note 6 – “Related Party Transactions” to these consolidated financial statements.

 

FNCB originates one- to four-family mortgage loans for sale in the secondary market. During the three months and nine months ended September 30, 2016, one-to four-family mortgages sold on the secondary market were $2.0 million and $5.3 million, respectively. FNCB retains servicing rights on these mortgages. At September 30, 2016 and December 31, 2015, there were $185 thousand and $683 thousand in one-to four-family residential mortgage loans held for sale, respectively.

 

During the three months ended September 30, 2016, FNCB sold the guaranteed principal balance of three loans that were guaranteed by the Small Business Administration (“SBA”) totaling $1.3 million. A net gain of $51 thousand was realized upon the sale and included in non-interest income for the three and nine months ended September 30, 2016. FNCB retained the servicing rights on these loans. There were no sales of guaranteed loans during the three or nine months ended September 30, 2015.

 

 

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

 

There were no material changes to the risk characteristics of FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL during the nine months ended September 30, 2016. Refer to Note 2 to FNCB’s consolidated financial statements included in the 2015 Annual Report on Form 10-K for information about the risk characteristics related to FNCB’s loan segments, loan classification and credit grading systems and methodology for determining the adequacy of the ALLL.

 

Each quarter, management evaluates the ALLL and adjusts the ALLL as appropriate through a provision or credit for loan losses. While management uses the best information available to make evaluations, future adjustments to the ALLL may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of its examination process, bank regulators periodically review the ALLL. These regulators may require FNCB to adjust the ALLL based on their analysis of information available at the time of examination.

 

The following table summarizes activity in the ALLL by loan category for the three and nine months ended September 30, 2016 and 2015:

 

 

 

The following table represents the allocation of the ALLL and the related loan balance, by loan category, disaggregated based on the impairment methodology at September 30, 2016 and December 31, 2015:

 

 

Credit Quality Indicators – Commercial Loans

 

Management continuously monitors the credit quality of FNCB’s commercial loans by regularly reviewing certain credit quality indicators. Management utilizes credit risk ratings as the key credit quality indicator for evaluating the credit quality of FNCB’s loan receivables.

 

FNCB’s 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 its 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 considered collectively for ALLL calculation purposes. However, accruing loans modified under a troubled debt restructuring (“TDRs”) that have been performing for an extended period of time, 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 of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances.

 

Loss - Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.

 

Credit Quality Indicators – Other Loans

 

Certain residential real estate loans, consumer loans, and commercial indirect auto loans are monitored on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are placed on non-accrual status unless collection of the loan is in process and reasonably assured. FNCB utilizes accruing versus non-accrual status as the credit quality indicator for these loan pools.

 

The following tables present the recorded investment in loans receivable by loan category and credit quality indicator at September 30, 2016 and December 31, 2015:

 

 

 

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment in these non-accrual loans was $2.4 million and $3.8 million at September 30, 2016 and December 31, 2015, respectively. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accrual status. There were no loans past due 90 days or more and still accruing at September 30, 2016 and December 31, 2015.

 

 

The following tables present the delinquency status of performing (accruing) and non-accrual loans at September 30, 2016 and December 31, 2015:

 

 

 

 

 

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 Accounting Standards Codification (“ASC”) 310, at September 30, 2016 and December 31, 2015. Non-accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold are not evaluated individually for impairment and are accordingly not included in the following tables. However, these loans are evaluated collectively for impairment as homogenous pools in the general allowance under ASC Topic 450. Total non-accrual loans, other than TDRs, with balances less than the $100 thousand loan relationship threshold that were evaluated under ASC Topic 450 amounted to $0.8 million at September 30, 2016 and December 31, 2015.

 

 

 

 

The following table presents the average balance and interest income by loan category recognized on impaired loans for the three and nine months ended September 30, 2016 and 2015:

 

 

(1) Interest income represents income recognized on performing TDRs.

 

The additional interest income that would have been earned on non-accrual and restructured loans had these loans performed in accordance with their original terms approximated $48 thousand and $175 thousand for the three and nine months ended September 30, 2016, respectively, and $112 thousand and $298 thousand for the three and nine months ended September 30, 2015.

 

Troubled Debt Restructured Loans

 

TDRs at September 30, 2016 and December 31, 2015 were $4.3 million and $5.8 million, respectively. Accruing and non-accruing TDRs were $4.1 million and $0.2 million, respectively at September 30, 2016, and $5.0 million and $0.8 million, respectively at December 31, 2015. Approximately $266 thousand and $295 thousand in specific reserves have been established for TDRs as of September 30, 2016 and December 31, 2015, respectively. FNCB was not committed to lend additional funds to any loan classified as a TDR at September 30, 2016 and December 31, 2015.

 

The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date, capitalization of real estate taxes, or a permanent reduction of the recorded investment in the loan.

 

The following tables show the pre- and post- modification recorded investment in loans modified as TDRs during the three and nine months ended September 30, 2016 and 2015: 

  

 

 

The following table presents the types of modifications made during the three and nine months ended September 30, 2016 and 2015:

 

 

 

The one loan modified as a TDR during the nine months ended September 30, 2016 resulted in a $1 thousand increase to the specific reserve in the ALLL at September 30, 2016. Although the eight loans modified as TDRs during the nine months ended September 30, 2015 did not result in an increase to the specific reserve in the ALLL at September 30, 2015, charge-offs resulting from the modified TDRs totaled $912 thousand for the nine months ended September 30, 2015.

 

The following table presents the number and recorded investment of TDRs which have defaulted (defined as past due 90 days or more) during the three months and nine months ended September 30, 2016 that were modified within the twelve months prior to such default:

 

 

For impairment determination purposes, the three residential real estate TDRs that defaulted during the nine months ended September 30, 2016 were considered collateral-dependent loans. One of the three TDRs suffered a decline in collateral value, which resulted in a charge against the ALLL of $37 thousand during the nine months ended September 30, 2016. The one commercial real estate loan with a recorded investment of $680 that defaulted during the nine months ended September 30, 2016, was foreclosed upon and transferred to OREO during the third quarter of 2016. There were no loans modified as TDRs within the previous 12 months which defaulted during the three and nine months ended September 30, 2015. There was one TDR with a recorded investment of $3.5 million that defaulted during the nine months ended September 30, 2015, however the default did not occur within 12 months of the original modification.

 

There were five consumer mortgage loans secured by residential real estate properties with an aggregate recorded investment of $162 thousand that were in the process of foreclosure at September 30, 2016. There was one residential real estate property with a carrying value of $237 thousand that was foreclosed upon during the nine months ended September 30, 2016. There were two residential real estate properties with an aggregate carrying value of $41 thousand included in OREO at September 30, 2016 and December 31, 2015.