10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

Quarterly Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2014

FNB BANCORP

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation)

000-49693	91-2115369
(Commission File Number)	(IRS Employer Identification No.)

975 El Camino Real, South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:         (650) 588-6800

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes o No

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock as of August 4, 2014: 4,048,000 shares.

FNB BANCORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page No
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets	3
	Consolidated Statements of Earnings	4
	Consolidated Statements of Comprehensive Earnings (Loss)	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		46
PART II OTHER INFORMATION		46
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 4. Mine Safety Disclosures		47
Item 6. Exhibits		47
SIGNATURES		48

2

 PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

ASSETS

	June 30,		December 31,
(Dollar amounts in thousands)	2014		2013
Cash and due from banks	$	21,682	$	14,007
Interest-bearing time deposits with financial institutions		4,461		5,543
Securities available-for-sale, at fair value		267,795		263,988
Loans, net of allowance for loan losses of $10,859 and $9,879 on June 30, 2014 and December 31, 2013		560,432		552,343
Bank premises, equipment, and leasehold improvements, net		12,429		12,512
Bank owned life insurance		12,337		12,151
Other equity securities		5,576		5,300
Accrued interest receivable		3,674		3,808
Other real estate owned, net		754		5,318
Goodwill		1,841		1,841
Prepaid expenses		504		701
Other assets		13,945		14,418
Total assets	$	905,430	$	891,930
Liabilities & Stockholders’ Equity
Deposits
Demand, noninterest bearing	$	203,854	$	198,523
Demand, interest bearing		82,163		80,746
Savings and money market		397,457		370,194
Time		106,748		124,152
Total deposits		790,222		773,615
Federal Home Loan Bank advances		7,000		15,000
Note payable		5,850		—
Accrued expenses and other liabilities		11,215		9,066
Total liabilities		814,287		797,681
Stockholders’ equity
Preferred stock - series C - no par value, authorized and outstanding 9,450 shares at December 31, 2013 (liquidation preference of $1,000 per share)		—		9,450
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 4,045,970 shares at June 30, 2014 and 3,978,505 shares at December 31, 2013		60,717		59,317
Retained earnings		29,183		26,738
Accumulated other comprehensive earnings (loss), net of tax		1,243		(1,256	)
Total stockholders’ equity		91,143		94,249
Total liabilities and stockholders’ equity	$	905,430	$	891,930

See accompanying notes to consolidated financial statements.

3

FNB BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(Dollar amounts and average shares are in thousands, except earnings per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014			2013
Interest income:
Interest and fees on loans	$	7,897	$	8,020	$	15,524		$	16,178
Interest on taxable securities		851		794		1,694			1,478
Interest on tax-exempt securities		492		503		980			1,009
Interest on time dep w/other financial institutions		27		49		46			90
Total interest income		9,267		9,366		18,244			18,755
Interest expense:
On deposits		484		639		945			1,321
Interest on FHLB advances		3		—		11			—
Interest on note payable		68		—		68			—
Total interest expense		555		639		1,024			1,321
Net interest income		8,712		8,727		17,220			17,434
Provision for loan losses		—		510		75			1,110
Net interest income after provision for loan losses		8,712		8,217		17,145			16,324
Noninterest income:
Service charges		647		676		1,284			1,335
Credit card fees		—		3		—			10
Net gain on sale of available-for-sale securities		28		73		39			115
Bank owned life insurance earnings		90		94		186			189
Other income		215		238		517			419
Total noninterest income		980		1,084		2,026			2,068
Noninterest expense:
Salaries and employee benefits		4,177		4,312		8,395			8,728
Occupancy expense		694		846		1,374			1,808
Equipment expense		406		386		797			784
Professional fees		501		444		1,032			807
FDIC assessment		180		180		360			360
Telephone, postage and supplies		313		277		599			714
Advertising		136		121		221			293
Data processing expense		134		170		279			326
Low income housing expense		110		109		220			219
Surety insurance		67		67		134			121
Directors expense		63		63		126			126
Loss (gain) on other real estate owned, net		60		—		(220	)		—
Other real estate owned expense, net		11		28		88			78
Other expense		358		382		647			760
Total noninterest expense		7,210		7,385		14,052			15,124
Earnings before provision for income tax expense		2,482		1,916		5,119			3,268
Provision for income tax expense		853		537		1,656			959
Net earnings		1,629		1,379		3,463			2,309
Dividends and discount accretion on preferred stock		—		172		170			330
Net earnings available to common stockholders	$	1,629	$	1,207	$	3,293		$	1,979
Earnings per share data:
Basic	$	0.40	$	0.31	$	0.82		$	0.51
Diluted	$	0.39	$	0.30	$	0.80		$	0.49
Weighted average shares outstanding:
Basic		4,029		3,915		4,007			3,908
Diluted		4,159		4,003		4,142			4,000

See accompanying notes to consolidated financial statements.

4

FNB BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(UNAUDITED)

(Dollar amounts in thousands)	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net earnings	$	1,629		$	1,379		$	3,463		$	2,309
Unrealized holding gain (loss) on available-for-sale securities, net of tax expense of ($1,034) and ($1,754) for three and six months ended June 30, 2014, and net of tax benefit of $2,783 and $3,074 for three and six months ended June 30, 2013.		1,487			(4,005	)		2,522			(4,423	)
Reclassification adjustment for gain on available-for-sale securities sold, net of tax of $11 and $16 for three and six months ended June 30, 2014, and $30 and $47 for three and six months ended June 30, 2013, respectively		(17	)		(43	)		(23	)		(68	)
Other Comprehensive Income / (loss)		1,470			(4,048	)		2,499			(4,491	)
Total comprehensive earnings (loss)	$	3,099		$	(2,669	)	$	5,962		$	(2,182	)

See accompanying notes to consolidated financial statements.

5

FNB BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollar amounts in thousands)	Six months ended
	June 30
	2014			2013
Cash flow from operating activities:
Net earnings	$	3,463		$	2,309
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on sale of securities available-for-sale		(39	)		(115	)
Gain on sale of other real estate owned, net		(220	)		—
Depreciation, amortization and accretion		1,730			1,843
Stock-based compensation expense		139			121
Earnings on bank owned life insurance		(186	)		(189	)
Change in net deferred loan fees		(18	)		130
Provision for loan losses		75			1,110
Decrease (increase) in accrued interest receivable		134			(126	)
Decrease in prepaid expense		197			654
Decrease in other assets		661			898
(Increase) decrease in accrued expenses and other liabilities		(33	)		431
Net cash provided by operating activities		5,903			7,066
Cash flows from investing activities
Purchase of securities available-for-sale		(18,791	)		(77,996	)
Proceeds from matured/called/sold securities available-for-sale		18,138			22,803
Investment, net of redemption, in other equity securities		(276	)		164
Redemption of time deposits of other banks		1,082			4,743
Proceeds from sale of other real estate owned		1,461			—
Net investment in other real estate owned		(77	)		(25	)
Net (Increase) decrease in loans		(4,746	)		9,085
Purchases of bank premises, equipment, leasehold improvements		(526	)		(618	)
Net cash used in investing activities		(3,735	)		(41,844	)

6

FNB BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended
	June 30
	2014			2013
Cash flows from financing activities
Net increase in demand and savings deposits		34,011			57,100
Net decrease in time deposits		(17,404	)		(22,652	)
Decrease in FHLB advances		(8,000	)		(719	)
Proceeds from notes payable		6,000			—
Payment on notes payable		(150	)		—
Dividends paid on common stock		(403	)		(301	)
Exercise of stock options		1,073			667
Redemption of preferred stock series C		(9,450	)		(3,150	)
Dividends paid on preferred stock series C		(170	)		(330	)
Net cash provided by financing activities		5,507			30,615
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		7,675			(4,163	)
Cash and cash equivalents at beginning of period		14,007			27,861
Cash and cash equivalents at end of period	$	21,682		$	23,698
Additional cash flow information:
Interest paid		1,009			1,372
Income taxes paid		1,537			—
Non-cash investing and financing activities:
Accrued dividends		445			376
Change in unrealized gain in available-for-sale securities, net of tax		2,499			(4,491	)
OREO sale funded by loan origination		3,400			—

See accompanying notes to consolidated financial statements.

7

FNB BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE A – BASIS OF PRESENTATION

FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.

All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2013. Results of operations for interim periods are not necessarily indicative of results for the full year.

NOTE B – STOCK OPTION PLANS

Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.

The amount of compensation expense for options recorded in the quarters ended June 30, 2014 and 2013 was $69,000 and $76,000, respectively. The amount of compensation expense recorded for the six months ended June 30, 2014 and 2013 was $139,000 and $122,000, respectively. There was an income tax benefit recognized from stock options exercised during the quarter and year to date ended June 30, 2014 of $245,000 and $121,000 for the quarter and year to date ended June 30, 2013.

8

The intrinsic value for options exercised during the six months ended June 30, 2014 was $259,000. The intrinsic value for options exercisable as of June 30, 2014 was $2,239,000. The intrinsic value for options exercised during the six months ended June 30, 2013 was $108,000. The intrinsic value of options exercisable at June 30, 2013 was $1,081,000. There were no options granted for the first six months ended June 30, 2014 and 60,785 options granted for the six month period ended June 30, 2013.

The amount of total unrecognized compensation expense related to non-vested options at June 30, 2014 was $764,000, and the weighted average period over which it will be amortized is 3.6 years.

NOTE C – EARNINGS PER SHARE CALCULATION

Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings (loss) available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. All common stock equivalents are anti-dilutive when a net loss occurs. A 5% stock dividend was declared in the fourth quarter of 2013, and prior per share amounts have been adjusted to reflect the 5% stock dividend.

Earnings per share have been computed based on the following:

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Net earnings	$	1,629	$	1,379	$	3,463	$	2,309
Dividends and discount accretion on preferred stock		—		172		170		330
Net earnings available to common stockholders	$	1,629	$	1,207	$	3,293	$	1,979
Average number of shares outstanding		4,029		3,915		4,007		3,908
Effect of dilutive options		130		88		135		92
Average number of shares outstanding used to calculate diluted earnings per share		4,159		4,003		4,142		4,000
Anti-dilutive options not included		62,800		204,359		246,420		230,859

Anti-dilutive options that were excluded from the calculation for the quarter end and year to date were 62,800 and 246,420 in 2014, and 204,359 and 230,859 in 2013, respectively.

9

NOTE D – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available-for-sale are as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2014:
U.S. Treasury securities	$	3,973	$	6	$	(31	)	$	3,948
Obligations of U.S. government agencies		70,482		437		(302	)		70,617
Mortgage-backed securities		85,360		881		(1,032	)		85,209
Obligations of states and political subdivisions		81,128		2,327		(438	)		83,017
Corporate debt		24,744		319		(59	)		25,004
	$	265,687	$	3,970	$	(1,862	)	$	267,795
December 31, 2013:
U.S. Treasury securities	$	3,069	$	12	$	(54	)	$	3,027
Obligations of U.S. government agencies		73,691		488		(860	)		73,319
Mortgage-backed securities		79,873		360		(2,373	)		77,860
Obligations of states and political subdivisions		82,526		1,467		(1,317	)		82,676
Corporate debt		26,958		330		(182	)		27,106
	$	266,117	$	2,657	$	(4,786	)	$	263,988

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of June 30, 2014 and December 31, 2013, respectively, is as follows:

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2014:
U. S. Treasury securities	$	2,019	$	(31	)	$	—	$	—		$	2,019	$	(31	)
Obligations of U.S. Government agencies		7,808		(10	)		22,153		(292	)		29,961	$	(302	)
Mortgage-backed securities		3,598		(11	)		39,727		(1,021	)		43,325		(1,032	)
Obligations of states and political subdivisions		7,455		(65	)		15,746		(373	)		23,201		(438	)
Corporate debt		1,182		(2	)		6,907		(57	)		8,089		(59	)
Total	$	22,062	$	(119	)	$	84,533	$	(1,743	)	$	106,595	$	(1,862	)

10

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2013:
U. S. Treasury securities	$	2,002	$	(54	)	$	—	$	—		$	2,002		(54	)
Obligations of U.S. Government agencies		40,108		(860	)		—		—			40,108		(860	)
Mortgage-backed securities		51,419		(2,015	)		5,664		(358	)		57,083		(2,373	)
Obligations of states and political subdivisions		33,265		(1,248	)		1,083		(69	)		34,348		(1,317	)
Corporate debt		10,857		(180	)		498		(2	)		11,355		(182	)
Total	$	137,651	$	(4,357	)	$	7,245	$	(429	)	$	144,896	$	(4,786	)

At June 30, 2014, there were sixty eight securities in an unrealized loss position for twelve consecutive months or more. At December 31, 2013, there were five securities in an unrealized loss position for twelve consecutive months or more. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to changes in interest rates and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at June 30, 2014 and December 31, 2013.

The amortized cost and carrying value of available-for-sale debt securities as of June 30, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2014:

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,240	$	13,363
Due after one through five years		98,770		99,508
Due after five years through ten years		115,377		116,313
Due after ten years		38,300		38,611
	$	265,687	$	267,795

For the six months ended June 30, 2014 and June 30, 2013, respectively, gross realized gains amounted to $39,000 and $115,000, on securities sold for $5,067,000 and $8,593,000, respectively. For the six months ended June 30, 2014, there were no gross realized losses. For the six months ended June 30, 2013, there were no gross realized losses. For the three months ended June 30, 2014 and June 30, 2013, respectively, gross realized gains amounted to $28,000 and $73,000 on securities sold for $4,044,000 and $4,871,000 respectively.

11

At June 30, 2014, securities with an amortized cost of $67,492,000 and fair value of $68,273,000 were pledged as collateral for public deposits and for other purposes required by law.

NOTE E - LOANS

Loans are summarized as follows at June 30, 2014 and December 31, 2013:

									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								June 30
June 30, 2014:	Originated			PNCI			PCI		2014
Commercial real estate	$	282,646		$	35,691		$	1,324	$	319,661
Real estate construction		37,778			1,982			—		39,760
Real estate multi-family		41,821			11,678			—		53,499
Real estate 1 to 4 family		108,785			6,084			—		114,869
Commercial & industrial		33,307			9,238			—		42,545
Consumer loans		1,434			—			—		1,434
Gross loans		505,771			64,673			1,324		571,768
Net deferred loan fees		(477	)		—			—		(477	)
Allowance for loan losses		(10,859	)					—		(10,859	)
Net loans	$	494,435		$	64,673		$	1,324	$	560,432
									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								December 31
December 31, 2013	Originated			PNCI			PCI		2013
Commercial real estate	$	285,938		$	37,936		$	1,325	$	325,199
Real estate construction		31,290			3,028			—		34,318
Real estate multi-family		34,357			11,786			—		46,143
Real estate 1 to 4 family		98,196			8,707			—		106,903
Commercial & industrial		38,287			10,217			—		48,504
Consumer loans		1,650			—			—		1,650
Gross loans		489,718			71,674			1,325		562,717
Net deferred loan fees		(495	)		—			—		(495	)
Allowance for loan losses		(9,869	)		(10	)		—		(9,879	)
Net loans	$	479,354		$	71,664		$	1,325	$	552,343

Note: PNCI means Purchased, Not Credit Impaired. PCI means Purchased, Credit Impaired.

12

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family		Consumer			Total
Allowance for credit losses
Beginning balance	$	1,268		$	5,624		$	735		$	369	$	1,835	$	66		$	9,897
Charge-offs		—			—			(183	)		—		—		(20	)		(203	)
Recoveries		110			1,051			—			—		1		3			1,165
Provision		(212	)		(460	)		165			96		414		(3	)		0
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250	$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481	$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769	$	46		$	10,099

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,237		$	5,763		$	734		$	293	$	1,788		$	64		$	9,879
Charge-offs		—			—			(183	)		—		(62	)		(31	)		(276	)
Recoveries		124			1,052			—			—		2			3			1,181
Provision		(195	)		(600	)		166			172		522			10			75
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481		$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769		$	46		$	10,099

13

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	42,545	$	319,661	$	39,760	$	53,499	$	114,869	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	4,133	$	9,043	$	2,382	$	—	$	3,847	$	9	$	19,414
Ending balance: collectively evaluated for  impairment	$	38,412	$	310,618	$	37,378	$	53,499	$	111,022	$	1,425	$	552,354

	Recorded Investment in Loans at December 31, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	48,504	$	325,199	$	34,318	$	46,143	$	106,903	$	1,650	$	562,717
Ending balance: individually evaluated for impairment	$	2,497	$	17,974	$	189	$	375	$	4,077	$	—	$	25,112
Ending balance: collectively evaluated for impairment	$	46,007	$	307,225	$	34,129	$	45,768	$	102,826	$	1,650	$	537,605

14

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2013
(Dollar amounts in thousands)
								Real		Real
								Estate		Estate
	Commercial			Real Estate		Real Estate		Multi		1 to
	& industrial			Commercial		Construction		family		4 family			Consumer		Total
Allowance for credit losses
Beginning balance	$	1,577		$	4,930	$	653	$	281	$	1,862		$	54	$	9,357
Charge-offs		—			—		—		—		(125	)		—		(125	)
Recoveries		—			2		—		—		—			1		3
Provision		(86	)		379		72		48		91			6		510
Ending balance	$	1,491		$	5,311	$	725	$	329	$	1,828		$	61	$	9,745
Ending balance: individually evaluated for impairment	$	254		$	189	$	—	$	—	$	237		$	1	$	681
Ending balance: collectively evaluated for impairment	$	1,237		$	5,122	$	725	$	329	$	1,591		$	60	$	9,064

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2013
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,875		$	4,812		$	857		$	—	$	1,516		$	64		$	9,124
Charge-offs		—			(239	)		(81	)		—		(244	)		(1	)		(565	)
Recoveries		70			4			—			—		1			1			76
Provision		(454	)		754			(34	)		329		518			(3	)		1,110
Ending balance	$	1,491		$	5,331		$	742		$	329	$	1,791		$	61		$	9,745
Ending balance: individually evaluated for impairment	$	254		$	210		$	17		$	—	$	237		$	1		$	719
Ending balance: collectively evaluated for impairment	$	1,237		$	5,121		$	725		$	329	$	1,554		$	60		$	9,026

15

	Recorded Investment in Loans at June 30, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	47,739	$	304,819	$	25,974	$	56,002	$	105,094	$	1,725	$	541,353
Ending balance: individually evaluated for impairment	$	3,795	$	19,244	$	591	$	1,192	$	3,395	$	1	$	28,218
Ending balance: collectively evaluated for impairment	$	43,944	$	285,575	$	25,383	$	54,810	$	101,699	$	1,724	$	513,135

	Impaired Loans
	As of and for the six months ended June 30, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	2,796	$	3,858	$	—	$	2,885	$	127
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		3,524		3,799		—		3,510		48
Residential- 1 to 4 family		629		629		—		632		6
Consumer		9		9		—		9		—
Total		9,340		10,860		—		8,887		252
With an allowance recorded
Commercial and industrial	$	1,337	$	1,740	$	151	$	1,418	$	4
Commercial real estate construction		—		—		—		—		—
Commercial real estate		5,506		5,507		128		5,575		134
Residential- 1 to 4 family		3,218		3,365		481		3,331		65
Total		10,061		10,612		760		10,324		203
Total
Commercial and industrial	$	4,133	$	5,598	$	151	$	4,303	$	131
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		9,030		9,306		128		9,085		182
Residential - 1 to 4 family		3,847		3,994		481		3,963		71
Consumer		9		9		—		9		—
Grand total	$	19,401	$	21,472	$	760	$	19,211	$	455

16

	Impaired Loans As of and for the year ended December 31, 2013
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	1,059	$	1,232	$	—	$	1,204	$	66
Commercial real estate construction		—		—		—		—		—
Commercial real estate		12,397		13,535		—		11,445		565
Real estate multi family		375		375		—		384		25
Residential- 1 to 4 family		1,163		1,284		—		1,009		37
Total		14,994		16,426		—		14,042		693
With an allowance recorded
Commercial and industrial	$	1,438	$	1,871	$	166	$	1,710	$	15
Commercial real estate construction		189		196		10		198		18
Commercial real estate		5,577		5,588		165		4,972		254
Residential- 1 to 4 family		2,914		2,923		254		2,989		115
Total		10,118		10,578		595		9,869		402
Total
Commercial and industrial	$	2,497	$	3,103	$	166	$	2,914	$	81
Commercial real estate construction		189		196		10		198		18
Commercial real estate		17,974		19,123		165		16,417		819
Real estate multi family		375		375		—		384		25
Residential - 1 to 4 family		4,077		4,207		254		3,998		152
Grand total	$	25,112	$	27,004	$	595	$	23,911	$	1,095

Average recorded investment on impaired loans was $20,805,000 for six months ended June 30, 2013; $21,969,000 for 3 months ended June 30, 2014, and $29,399,000 for 3 months ended June 30, 2013. Income recognized on impaired loans was $452,000 for six months ended June 30, 2013; $194,000 for three months ended June 30, 2014, and $394,000 for three months ended June 30, 2013.

Nonaccrual loans totaled $5,463,000 and $7,351,000 as of June 30, 2014 and December 31, 2013. The majority of the difference between impaired loans and nonaccrual loans represents loans that are restructured and performing under modified loan agreements, and where principal and interest is considered to be collectible.

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30		December 31,
	2014		2013
Commercial & industrial	$	1,928	$	2,046
Real estate - construction		—		189
Commercial real estate		2,852		4,290
Real estate - 1 to 4 family		674		826
Consumer		9		—
Total	$	5,463	$	7,351

17

Interest income on impaired loans of $455,000 was recognized for cash payments received during the six months ended June 30, 2014, and $1,095,000 was recognized for cash payments received during the year ended December 31, 2013, respectively. Interest income on impaired loans for cash payments received during the six month period ended June 30, 2013 was $452,000; for the three months ended June 30, 2014 it was $194,000, and for the three months ended June 30, 2013 it was $394,000. The amount of interest on impaired loans not collected for the six months ended June 30, 2014 was $214,000 and for the year ended December 31, 2013 was $656,000. For the six months ended June 30, 2013, it was $388,000; for three months ended June 30, 2014, it was $64,000; for the three months ended June 30, 2013 it was $190,000. The cumulative amount of unpaid interest on impaired loans was $3,644,000 at June 30, 2014, and $3,430,000 at the year ended December 31, 2013. Total outstanding principal of troubled debt restructured loans as of June 30, 2014 was $17,353,000, of which $2,165,000 was commercial and industrial loans, $3,689,000 was residential loans, and $11,499,000 was commercial real estate loans. Total outstanding principal of troubled debt restructured loans at December 31, 2013 was $13,706,000, of which $2,412,000 was commercial loans, $189,000 was real estate construction loans, $2,121,000 was real estate one to four family, and $8,455,000 was commercial real estate loans.

Troubled Debt Restructurings

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2014						December 31, 2013
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial & industrial	$	297	$	1,868	$	2,165	$	461	$	1,951	$	2,412
Real Estate construction		—		—		—		—		189		189
Real estate 1 to 4 family		3,173		516		3,689		2,121		529		2,650
Commercial real estate		9,398		2,101		11,499		6,315		2,140		8,455
Total	$	12,868	$	4,485	$	17,353	$	8,897	$	4,809	$	13,706

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

18

As of June 30, 2014, there were no commitments for additional funding of troubled debt restructurings.

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		572		572
Commercial real estate		3		1,454		1,454
Total		4		2,026	$	2,026

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the six months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real Estate Construction		1	$	196	$	196
Real estate 1 to 4 family		2		739		739
Real estate multi-family		1		544		544
Commercial real estate		4		3,737		3,737
Total		8	$	5,216	$	5,216

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3		1,454		1,454
Total		3	$	1,454	$	1,454

19

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		440		440
Commercial real estate		2		1,503		1,503
Total		3	$	1,943	$	1,943

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

Risk rating system

Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.

Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. These well-defined weaknesses may include a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.

Doubtful loans represent credits with weakness inherent in the Substandard classification and where collection or liquidation in full is highly questionable. To be classified Doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.

20

Real Estate – Multi-Family

Our multi-family commercial real estate loans are secured by multi-family properties located primarily in San Mateo and San Francisco counties. These loans are made to investors where our primary source of repayment is from cash flows generated by the properties, through rent collections. The borrowers’ promissory notes are secured with recorded liens on the underlying properties. The borrowers would normally also be required to personally guarantee repayment of the loans. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Commercial Real Estate Loans

Other commercial real estate loans consist of loans secured by non-farm, non-residential properties, including, but not limited to industrial, hotel, assisted care, retail, office and mixed use buildings.

Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan.

The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Real Estate Construction Loans

Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.

21

Real Estate-1 to 4 family Loans

Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly. 

Commercial and Industrial Loans

Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.

Consumer Loans

Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.

22

	Age Analysis of Past Due Loans
	As of June 30, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	590	$	727	$	1,317	$	281,329	$	282,646
Real estate construction		—		—		—		—		37,778		37,778
Real estate multi family		—		—		—		—		41,821		41,821
Real estate 1 to 4 family		88		—		159		247		108,538		108,785
Commercial and industrial		33		—		1,907		1,940		31,367		33,307
Consumer		9		—		—		9		1,425		1,434
Total	$	130	$	590	$	2,793	$	3,513	$	502,258	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	35,691	$	35,691
Real estate construction		—		—		—		—		1,982		1,982
Real estate multi-family		—		—		—		—		11,678		11,678
Real estate 1 to 4 family		—		—		—		—		6,084		6,084
Commercial and industrial		—		—		—		—		9,238		9,238
Total	$	—	$	—	$	—	$	—	$	64,673	$	64,673
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,324	$	1,324
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,324	$	1,324

At June 30, 2014 there were no loans that were 90 days or more past due where interest was still accruing.

The over 90 days column includes nonaccruals that were over 90 days, but does not include loans that are in nonaccrual status for reasons other than past due.

23

	Age Analysis of Past Due Loans
	As of December 31, 2013
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	1,403	$	—	$	2,349	$	3,752	$	282,186	$	285,938
Real estate construction		—		—		—		—		31,290		31,290
Real estate multi family		—		—		—		—		34,357		34,357
Real estate 1 to 4 family		161		75		826		1,062		97,134		98,196
Commercial & industrial		563		210		2,046		2,819		35,468		38,287
Consumer		116		19		—		135		1,515		1,650
Total	$	2,243	$	304	$	5,221	$	7,768	$	481,950	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	616	$	616	$	37,320	$	37,936
Real estate construction		—		—		189		189		2,839		3,028
Real estate multi-family		—		—		—		—		11,786		11,786
Real estate 1 to 4 family		—		—		—		—		8,707		8,707
Commercial & industrial		—		—		—		—		10,217		10,217
Total	$	—	$	—	$	805	$	805	$	70,869	$	71,674
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325

At December 31, 2013 there were no loans that were 90 days or more past due where interest was still accruing.

24

	Credit Quality Indicators
	As of June 30, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	277,913	$	1,933	$	2,800	$	—	$	282,646
Real estate construction		36,709		—		1,069		—		37,778
Real estate multi-family		41,821		—		—		—		41,821
Real estate 1 to 4 family		108,110		—		529		146		108,785
Commercial and industrial		32,302		—		988		17		33,307
Consumer loans		1,434		—		—		—		1,434
Totals	$	498,289	$	1,933	$	5,386	$	163	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	29,824	$	—	$	5,867	$	—	$	35,691
Real estate construction		1,982		—		—		—		1,982
Real estate multi-family		11,678		—		—		—		11,678
Real estate 1 to 4 family		5,681		—		403		—		6,084
Commercial and industrial		9,238		—		—		—		9,238
Total	$	58,403	$	—	$	6,270	$	—	$	64,673
Credit impaired
Commercial real estate									$	1,324
Total									$	1,324

25

	Credit Quality Indicators
	As of December 31, 2013
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	280,356	$	2,330	$	3,252	$	—	$	285,938
Real estate construction		29,673		573		1,044		—		31,290
Real estate multi-family		34,357		—		—		—		34,357
Real estate 1 to 4 family		97,514		—		429		253		98,196
Commercial & industrial		36,837		—		1,439		11		38,287
Consumer loans		1,631		—		19		—		1,650
Totals	$	480,368	$	2,903	$	6,183	$	264	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	28,342	$	4,951	$	4,643	$	—	$	37,936
Real estate construction		1,520		—		1,508		—		3,028
Real estate multi-family		11,786		—		—		—		11,786
Real estate 1 to 4 family		8,299		—		408		—		8,707
Commercial & industrial		10,217		—		—		—		10,217
Total	$	60,164	$	4,951	$	6,559	$	—	$	71,674
Purchased
Credit impaired
Commercial real estate									$	1,325
Total									$	1,325

NOTE F - BORROWINGS

Federal home Loan Bank advances

There is an overnight advance dated June 30, 2014 in the amount of $7,000,000 at 0.18% which matured on July 1, 2014 and was paid off.

Corporate loan

On March 27, 2014, FNB Bancorp received funding under a $6,000,000 term loan credit facility. This loan carries a variable rate of interest that fluctuates on a monthly basis. The interest rate is based on the 3 month LIBOR rate plus 4%. Payments of $50,000 in principal plus accrued interest are payable monthly. The first loan payment was due May 1^st, 2014. The maturity date on this credit facility is March 26, 2019. On the maturity date, all outstanding principal plus accrued interest shall become due and payable. FNB Bancorp has pledged its stock ownership in First National Bank of Northern California as collateral subject to the terms and conditions contained in the Loan Agreement and the Pledge and Security Agreement. FNB Bancorp retains the right to prepay this debt at any time upon not less than 7 days’ prior written notice to Lender. The proceeds from this loan were contributed to the Bank as an additional capital contribution. This capital contribution qualified as Tier 1 capital for the Bank under regulatory capital guidelines.

26

NOTE G – FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value as of June 30, 2014 and December 31, 2013, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following tables present the recorded amounts of assets measured at fair value on a recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,948	$	3,948	$	—	$	—
Obligations of U.S. Government agencies		70,617		—		70,617		—
Mortgage-backed securities		85,209		—		85,209		—
Obligations of states and political subdivisions		83,017		—		83,017		—
Corporate debt		25,004		—		25,004		—
Total assets measured at fair value	$	267,795	$	3,948	$	263,847	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,027	$	3,027	$	—	$	—
Obligations of U.S. Government agencies		73,319		—		73,319		—
Mortgage-backed securities		77,860		—		77,860		—
Obligations of states and political subdivisions		82,676		—		82,676		—
Corporate debt		27,106		—		27,106		—
Total assets measured at fair value	$	263,988	$	3,027	$	260,961	$	—

27

The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans:
Commercial and industrial	$	1,110	$	—	$	—	$	1,110
Residential- 1 to 4 family		64		—		—		64
Commercial real estate		373		—		—		373
Total impaired assets measured at fair value	$	1,547	$	—	$	—	$	1,547
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans::
Commercial and industrial	$	1,908	$	—	$	—	$	1,908
Residential- 1 to 4 family		411		—		—		411
Commercial real estate		2,491		—		—		2,491
Other real estate owned		1,771		—		—		1,771
Total impaired assets measured at fair value	$	6,581	$	—	$	—	$	6,581

The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.

Other real estate owned is carried at the lower of historical cost or fair market value less costs to sell. An appraisal (a Level 3 valuation) is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment is recorded along with a corresponding reduction in the book carrying value of the property.

28

The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Generally, the third party appraisals apply the “market approach,” which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3.

Fair Values of Financial Instruments.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.

Cash and Cash Equivalents including Interest Bearing Time Deposits with Financial Institutions.

The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.

Securities Available-for-Sale.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans Receivable.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.

Other equity securities.

These are mostly Federal Reserve Bank stock and Federal Home Loan Bank stock, carried in Other Assets. They are not traded, and not available for sale, and have no fair market value.

Deposit liabilities.

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.

29

Federal Home Loan Bank Advances.

The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.

Notes payable.

Fair value is equal to the current balance. They represent a corporate loan with a monthly variable rate, based on the 3-month LIBOR rate plus 4%.

Accrued Interest Receivable and Payable

The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.

The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.

The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

The following table provides summary information on the estimated fair value of financial instruments at June 30, 2014:

June 30, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	21,682	$	21,682	$	21,682
Interest-bearing time deposits with financial institutions		4,461		4,461				4,461
Securities available for sale		267,795		267,795		3,948		263,847
Loans		571,291		583,474						583,474
Other equity securities		5,576		5,576						5,576
Accrued interest receivable		3,674		3,674				3,674
Financial liabilities:
Deposits		790,222		790,222				790,222
Federal Home Loan Bank advances		7,000		7,000				7,000
Note payable		5,850		5,850				5,850
Accrued interest payable		239		239				239
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,391						1,391

30

The carrying amount of loans include $5,463,000 of nonaccrual loans (loans that are not accruing interest) as of June 30, 2014. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.

The following table provides summary information on the estimated fair value of financial instruments at December 31, 2013: 

December 31, 2013	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,007	$	14,007	$	14,007
Interest-bearing time deposits with financial institutions		5,543		5,543				5,543
Securities available for sale		263,988		263,988		3,027		260,961
Loans		562,717		563,325						563,325
Other equity securities		5,300		5,300						5,300
Accrued interest receivable		3,808		3,808				3,808
Financial liabilities:
Deposits		773,615		774,012				774,012
Federal Home Loan Bank advances		15,000		15,000				15,000
Accrued interest payable		224		224				224
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,297						1,297

The carrying amount of loans include $7,351,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2013. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. 

NOTE H – PREFERRED STOCK

On September 15, 2011, Preferred Stock was issued to the U. S. Treasury as part of the Treasury’s Small Business Lending Fund (“SBLF”), as Preferred Stock – Series C – Non-Cumulative. The initial dividend rate was 5%. Depending on the volume of our small business lending, the dividend rate can be reduced to as low as one percent. If lending does not increase in the first two years, the dividend rate will increase to seven percent. Effective January 1, 2014, the effective dividend rate increased from 5% to 9%.

On May 6, 2013, 25% or $3,150,000 of the original $12,600,000 was redeemed. On January 24, 2014, FNB Bancorp (the “Company”) redeemed all the remaining outstanding preferred shares that had been issued to the United States Treasury Department through the Small Business Lending Fund (“SBLF”) in a cash redemption transaction. Subsequent to this redemption, the United States Treasury Department no longer has any equity interest in the Company of any kind.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information and Uncertainties Regarding Future Financial Performance.

This report, including management’s discussion below, concerning earnings and financial condition, contains “forward-looking statements”. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Company’s future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:

Increased Competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products and competitive market pricing, which could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins. These factors could reduce our ability to attract new deposits and loans and leases.

Liquidity Risk. The stability of funding sources and continued availability of borrowings; our ability to raise capital or incur debt on reasonable terms.

Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions over an extended period of time could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company’s reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.

Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies and conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Open Market Committee (“FOMC”) monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings. In addition, deterioration in economic conditions that could result in increased loan and lease losses.

Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, liquidity requirements, and the risks associated with concentration in real estate related loans could adversely affect earnings by reducing yields on earning assets or increasing operating costs.

32

Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.

Critical Accounting Policies And Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.

Allowance for Loan Losses

The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Company’s loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrower’s ability to repay, regulatory policies, and the estimated value of underlying collateral. The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact our borrowers’ ability to repay their loans. Determination of the allowance is based upon objective and subjective judgments by management from the information currently available. Adverse changes in information could result in higher than expected charge-offs and loan loss provisions.

Goodwill

Goodwill arises when the Company’s purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Company’s consolidated statements of earnings. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.

33

Other Than Temporary Impairment

Other than temporary impairment (“OTTI”) is triggered if the Company has the intent to sell the security, it is likely that it will be required to sell the security before recovery, or if the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or it is likely it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that the Company will be required to sell the security but the Company does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The credit loss is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected of a security. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment loss related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, would be recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are to be presented as a separate category within OCI.

For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly based on the procedures described above.

Provision for and Deferred Income Taxes

The Company is subject to income tax laws of the United States, its states, and the municipalities in which it operates. The Company considers its income tax provision methodology to be critical, as the determination of current and deferred taxes based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state tax authorities.

Recent Accounting Pronouncements

In April 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740). This ASU requires an entity to present in the financial statements an unrecognized tax benefit as a liability and the unrecognized tax benefit should not be combined with deferred tax assets to the extent that a net operating loss carry-forward, tax loss or credit carry-forward is also not available at the reporting date. The amendment is to be applied prospectively to all unrecognized tax benefits and are effective for annual and interim reporting periods beginning after December 15, 2013. This ASU did not have a material impact on the Company’s consolidated financial statements.

34

In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reports beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The adoption of ASU 2014-04 is not expected to have a material impact on the Company’s consolidated financial statement.

Earnings Analysis

Net earnings for the quarter ended June 30, 2014 were $1,629,000, compared to net earnings of $1,379,000 for the quarter ended June 30, 2013, an increase of 18%. Net earnings for the six months ended June 30, 2014 were $3,463,000, an increase of $1,154,000 from the same period in 2013. Net earnings during the three months and six months ended June 30, 2014 compared to the same period during 2013 benefitted from favorable expense comparisons due partly to the closure of our island of Guam office during the 2^nd quarter of 2013 and reductions in the provision for loan losses. Net earnings for the first quarter of 2014 were $1,834,000, and for the fourth quarter of 2013 were $1,999,000.

Net interest income for the quarter ended June 30, 2014 was $8,712,000, compared to $8,727,000 for the quarter ended June 30, 2013, a decrease of $15,000, or 0.2%. Net interest income for the six months ended June 30, 2014 was $17,220,000, compared to $17,434,000 for the six months ended June 30, 2013. Declines in net interest during 2014 compared to 2013 were due primarily to the decline in interest rates on earning assets. Short term market interest rates are currently being held to low levels due to accommodating policy decisions made by the Federal Open Market Committee of the Federal Reserve Bank.

35

The following tables present an analysis of net interest income and average earning assets and liabilities for the three-and six-month periods ended June 30, 2014 compared to the three-and six-month periods ended June 30, 2013. 

TABLE 1	NET INTEREST INCOME AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY  Three months ended June 30,
	2014							2013
(Dollar amounts in thousands)					Annualized							Annualized
	Average				Average			Average				Average
	Balance		Interest		Yield			Balance		Interest		Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	568,329	$	7,897		5.64	%	$	553,031	$	8,020		5.88	%
Taxable securities		188,807		851		1.83	%		185,715		794		1.73	%
Nontaxable securities (3)		73,331		657		3.63	%		74,548		671		3.65	%
Fed funds sold		5		—		n/a			59		—		n/a
Int time depos-other fin institutions		4,569		27		2.40	%		8,890		49		2.24	%
Total interest earning assets		835,041		9,432		4.58	%		822,243		9,534		4.70	%
NONINTEREST EARNING ASSETS:
Cash and due from banks		22,815							34,875
Premises		12,544							12,757
Other assets		28,417							34,546
Total noninterest earning assets		63,776							82,178
TOTAL ASSETS	$	898,817						$	904,421
INTEREST BEARING LIABILITIES:
Demand, int bearing	$	81,566		18		0.09	%	$	78,809		25		0.13	%
Money market		331,460		314		0.38	%		315,519		359		0.46	%
Savings		66,658		17		0.10	%		63,503		25		0.16	%
Time deposits		109,113		135		0.50	%		157,111		230		0.59	%
FHLB advances		7,846		3		0.16	%		523		—		n/a
Note payable		5,939		68		4.64	%		—		—		n/a
Fed funds purchased		—		—		n/a			17		—		n/a
Total interest bearing liabilities		602,582		555		0.37	%		615,482		639		0.42	%
NONINTEREST BEARING LIABILITIES:
Demand deposits		197,312							184,289
Other liabilities		9,860							10,712
Total noninterest bearing liabilities		207,172							195,001
TOTAL LIABILITIES		809,754							810,483
Stockholders’ equity		89,063							93,938
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	898,817						$	904,421
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	8,877		4.31	%		206,761	$	8,895		4.39	%

1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

2) Amounts of interest earned included loan fees of $362,000 and $337,000 for the quarters ended June 30, 2014 and 2013, respectively.

3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $165,000 and $168,000 for the quarters ended June 30, 2014 and 2013, respectively, and were derived from nontaxable municipal interest income.

4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

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TABLE 2	NET INTEREST INCOME AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY
	Six months ended June 30,
	2014							2013
(Dollar amounts in thousands)					Annualized							Annualized
	Average				Average			Average				Average
	Balance		Interest		Yield			Balance		Interest		Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)	$	565,898	$	15,524		5.53	%	$	552,493	$	16,178		5.90	%
Taxable securities		188,552		1,694		1.81	%		175,963		1,478		1.69	%
Nontaxable securities (3)		72,903		1,308		3.62	%		74,354		1,348		3.66	%
Fed funds sold		16		—		n/a			36		—		n/a
Int time depos-other fin institutions		4,937		46		1.88	%		10,511		90		1.73	%
Tot interest earning assets		832,306		18,572		4.50	%		813,357		19,094		4.73	%
NONINTEREST EARNING ASSETS:
Cash and due from banks		19,238							38,544
Premises		12,533							12,733
Other assets		30,134							34,597
Tot noninterest earning assets		61,905							85,874
TOTAL ASSETS	$	894,211						$	899,231
Demand, int bearing	$	78,936		34		0.09	%	$	77,346		50		0.13	%
Money market		321,913		599		0.38	%		304,347		724		0.48	%
Savings		65,884		33		0.10	%		65,023		57		0.18	%
Time deposits		114,575		278		0.49	%		162,110		490		0.61	%
FHLB advances		15,033		11		0.15	%		610		—		n/a
Note payable		3,152		68		4.35	%		—		—		n/a
Fed funds purchased		—		—		n/a			14		—		n/a
Tot interest bearing liabilities		599,493		1,023		0.34	%		609,450		1,321		0.44	%
NONINTEREST BEARING LIABILITIES:
Demand deposits		196,324							184,576
Other liabilities		9,531							10,551
Tot noninterest bearing liabilities		205,855							195,127
TOTAL LIABILITIES		805,348							804,577
Stockholders’ equity		88,863							94,654
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	894,211						$	899,231
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)			$	17,549		4.25	%			$	17,773		4.41	%

(1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

(2) Amounts of interest earned included loan fees of $658,000 and $591,000 for the six months ended June 30, 2014 and 2013, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $328,000 and $339,000 for the six months ended June 30, 2014 and 2013, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income.

(4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

Tables 1 and 2, above, show the various components that contributed to changes in net interest income for the three and six months ended June 30, 2014 and 2013. The principal interest earning assets are loans, from a volume as well as from a rate or yield perspective. For the quarter ended June 30, 2014, average loans outstanding represented 68.1% of average earning assets. For the quarter ended June 30, 2013, they represented 67.3% of average earning assets. For the six months ended June 30, 2014 and 2013, average loans outstanding represented 68.0% and 67.9%, respectively, of average earning assets.

37

The taxable equivalent yield on average interest earning assets for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013 decreased from 4.70% to 4.58%, or 12 basis points. Average loans increased by $15,298,000, year over year, while their yield decreased from 5.88% to 5.35%, or 53 basis points. Interest income on total interest earning assets for the quarter decreased $518,000 or 5.43% on a fully-taxable equivalent basis.

For the three months ended June 30, 2014 compared to the three months ended June 30, 2013, the cost on total interest bearing liabilities decreased from 0.42% to 0.37%, a decrease of 5 basis points. Time deposit interest cost decreased from 0.59% to 0.50%. Their average balance outstanding decreased by $47,998,000, or 30.6%, while their expense decreased $95,000.

Customer deposits have been migrating out of time deposits and into money market accounts during both 2013 and 2014. The low rates being offered on term deposits coupled with the possible increase in short term rates by the FOMC are, in part, the explanation for this migration.

For the six months ended June 30, 2014 compared to the six months ended June 30, 2013, interest income on interest earning assets decreased $523,000 or 2.7% on a fully-taxable equivalent basis, and average earning assets increased $18,949,000, or 2.3%. Average loans increased by $13,405,000, or 2.4%. Interest on loans decreased $654,000 or 4.0%, while the yield decreased 37 basis points, or 6.3%. The cost on total interest bearing liabilities decreased from 0.44% to 0.34%. Time deposit averages decreased $47,535,000 or 29.3%. Their yield decreased 12 basis points, or 19.7%. Money market deposit average balances increased $17,566,000, or 5.8%, and their cost decreased $125,000, or 17.3%.

For the three and six month periods ended June 30, 2014 and June 30, 2013, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and b) changes in rate (changes in rate times the prior year’s volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.

38

Table 3	FNB BANCORP AND SUBSIDIARY
	RATE/VOLUME VARIANCE ANALYSIS
	Three Months Ended June 30,
(Dollar amounts in thousands)	2014 Compared to 2013
				Variance
	Interest			Attributable to
	Income/Expense			Rate			Volume
INTEREST EARNING ASSETS
Loans	$	(123	)	$	(335	)	$	212
Taxable securities		57			43			14
Nontaxable securities (1)		(14	)		(3	)		(11	)
Interest on time deposits with other financial institutions		(22	)		2			(24	)
Total	$	(102	)	$	(293	)	$	191
INTEREST BEARING LIABILITIES
Demand deposits	$	7		$	8		$	(1	)
Money market		45			60			(15	)
Savings deposits		8			9			(1	)
Time deposits		95			25			70
FHLB advances		(3	)		—			(3	)
Note payable		(68	)		—			(68	)
Total	$	84		$	102		$	(18	)
NET INTEREST INCOME	$	(18	)	$	(191	)	$	173

(1) Includes tax equivalent adjustment of $165,000 and $168,000 in the three months ended June 30, 2014 and June 30, 2013, respectively.

Table 4	FNB BANCORP AND SUBSIDIARY
	RATE/VOLUME VARIANCE ANALYSIS
	Six Months Ended June 30,
(Dollar amounts in thousands)	2014 Compared to 2013
				Variance
	Interest			Attributable to
	Income/Expense			Rate			Volume
INTEREST EARNING ASSETS
Loans	$	(654	)	$	(1,047	)	$	393
Taxable securities		216			110			106
Nontaxable securities (1)		(40	)		(14	)		(26	)
Interest on time deposits with other financial institutions		(44	)		8			(52	)
Total	$	(522	)	$	(943	)	$	421
INTEREST BEARING LIABILITIES
Demand deposits	$	16		$	17		$	(1	)
Money market		125			167			(42	)
Savings deposits		24			25			(1	)
Time deposits		212			68			144
FHLB advances		(11	)		—			(11	)
Note payable		(68	)		—			(68	)
Total	$	298		$	277		$	21
NET INTEREST INCOME	$	(224	)	$	(666	)	$	442

(1) Includes tax equivalent adjustment of $328,000 and $339,000 in the six months ended June 30, 2014 and June 30, 2013, respectively.

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Noninterest income

The following table shows the principal components of noninterest income for the periods indicated.

Table 5	NONINTEREST INCOME
	Three months
	ended June 30,				Variance
(Dollar amounts in thousands)	2014		2013		Amount			Percent
Service charges	$	647	$	676	$	(29	)		-4.3	%
Credit card fees		—		3		(3	)		-100.0	%
Net gain on available-for-sale of securities		28		73		(45	)		-61.6	%
Bank owned life insurance policy earnings		90		94		(4	)		-4.3	%
Other income		215		238		(23	)		-9.7	%
Total noninterest income	$	980	$	1,084	$	(104	)		-9.6	%
	Six months ended June 30,					Variance
(Dollars in thousands)	2014		2013		Amount			Percent
Service charges	$	1,284	$	1,335	$	(51	)		-3.8	%
Credit card fees		—		10		(10	)		-100.0	%
Gain on sale of available-for-securities		39		115		(76	)		-66.1	%
Bank owned life insurance policy earnings		186		189		(3	)		-1.6	%
Other income		517		419		98			23.4	%
Total noninterest income	$	2,026	$	2,068	$	(42	)		-2.0	%

Noninterest income consists mainly of service charges on deposits, credit card fees, and several other miscellaneous types of income. The Bank service charges were down during the second quarter and year to date of June 30, 2014 when compared to the same period during 2013 due primarily to a decrease in our overdraft fees. The decrease in credit card fees for the three and six months ended June 30, 2014 was related to the sale of our merchant credit card portfolio that was completed in the fourth quarter of 2012. During the first six months of 2014, the Bank sold $5,029,000 in investment securities for a pre-tax gain of $39,000. During the first six months of 2013, the Company sold approximately $8,593,000 in investment securities at a pre-tax net gain of $115,000. The sale proceeds were reinvested in a variety of investment securities during the same period.

40

Noninterest expense

The following table shows the principal components of noninterest expense for the periods indicated.

Table 6	NONINTEREST EXPENSE
	Three months
	ended June 30,					Variance
(Dollar amounts in thousands)	2014			2013		Amount			Percent
Salaries and employee benefits	$	4,177		$	4,312	$	(135	)		-3.1	%
Occupancy expense		694			846		(152	)		-18.0	%
Equipment expense		406			386		20			5.2	%
Professional fees		501			444		57			12.8	%
FDIC assessment		180			180		—			n/a
Telephone, postage & supplies		313			277		36			13.0	%
Advertising expense		136			121		15			12.4	%
Data processing expense		134			170		(36	)		-21.2	%
Low income housing expense		110			109		1			0.9	%
Surety insurance		67			67		—			n/a
Directors expense		63			63		—			n/a
Other real estate owned expense		11			28		(17	)		-60.7	%
Loss on sale of other real estate owned		60			—		60			100.0	%
Other expense		358			382		(24	)		-6.3	%
Total noninterest expense	$	7,210		$	7,385	$	(175	)		-2.4	%
	NONINTEREST EXPENSE
	Six months
	ended June 30,					Variance
(Dollars in thousands)	2014			2013		Amount			Percent
Salaries and employee benefits	$	8,395		$	8,728	$	(333	)		-3.8	%
Occupancy expense		1,374			1,808		(434	)		-24.0	%
Equipment expense		797			784		13			1.7	%
Professional fees		1,032			807		225			27.9	%
FDIC assessment		360			360		—			n/a
Telephone, postage & supplies		599			714		(115	)		-16.1	%
Advertising expense		221			293		(72	)		-24.6	%
Data processing expense		279			326		(47	)		-14.4	%
Low income housing expense		220			219		1			0.5	%
Surety insurance		134			121		13			10.7	%
Directors expense		126			126		—			n/a
Other real estate owned expense		88			78		10			12.8	%
Gain on sale of other real estate owned		(220	)		—		(220	)		100.0	%
Other expense		647			760		(113	)		-14.9	%
Total noninterest expense	$	14,052		$	15,124	$	(1,072	)		-7.1	%

Noninterest expense consists mainly of salaries and employee benefits. For the three months ended June 30, 2014 compared to three months ended June 30, 2013, salaries and benefits represented 58% and 58% of total noninterest expenses. During the six months ended June 30, 2014 compared to the six months ended June 30, 2013, salaries and benefits represented 60% and 58%. During the first six months of 2013, the Bank’s occupancy expense increase was due to the acquired Oceanic Bank branches, and a Company rebranding effort and the related signage changes. During the first quarter of 2013, the Bank recorded a one-time expense accrual related to the closure of our island of Guam office, which was effective June 14, 2013. In connection with this office closure, the Bank accrued $76,000 in anticipated severance payments and $176,000 in estimated future lease payments.

41

Provision for Loan Losses

During the six months ended June 30, 2014, there was a provision for loan losses of $75,000 compared to $1,110,000 for the same period in 2013. The allowance for loan losses was $10,859,000 or 1.90% of total gross loans at June 30, 2014, compared to $9,879,000 or 1.76% of total gross loans at December 31, 2013. During the six months ended June 30, 2014, $276,000 in loans were charged off, compared to $565,000 in the same period in 2013. The overall quality of the remaining portfolio did not warrant a provision for loan losses during the three month period ended June 30, 2014. The allowance for loan losses is maintained at a level considered adequate for management to provide for probable loan losses inherent in the loan portfolio as of June 30, 2014. Loans charged-off during the first six months of 2014 were significantly lower than during the same time period during 2013, reflecting the improvement in the level of problem loans within our loan portfolio on a year over year basis.

Income Taxes

The effective tax rate for the quarter ended June 30, 2014 was 34.4% compared to 28.0% for the quarter ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 and June 30, 2013 was an effective tax rate of 32.4% and 29.3%, respectively. Tax preference items which have a significant effect on our effective tax rate are changing amounts invested in tax-advantaged securities, available Low Income Housing Credits, and amounts of interest income on tax advantaged municipal debt securities.

Asset and Liability Management

Ongoing management of the Company’s interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Company’s position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired interest rate sensitivity position including the sale or purchase of assets and product pricing.

In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from the Company’s customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at June 30, 2014, are adequate to meet its operating needs in 2014 and our liquidity positions are sufficient to meet our liquidity needs in the near term.

Financial Condition

Assets. Total assets increased to $905,430,000 at June 30, 2014 from $891,930,000 at December 31, 2013, an increase of $13,500,000. The principal source of this increase was an increase of $8,089,000 in net loans, an increase of $7,675,000 in cash and due from banks, an increase of $3,807,000 in securities available for sale, and a decrease of $4,564,000 in other real estate owned. Asset growth occurs primarily from the retention of net earnings and increases in the deposit portfolio or our borrowing positions.

42

Loans. Gross loans (before net loan fees) at June 30, 2014 were $571,768,000, an increase of $9,051,000 or 1.61% from December 31, 2013. Gross commercial real estate loans decreased $5,538,000, real estate construction loans increased $5,442,000, real estate multi- family loans increased $7,356,000, real estate loans secured by 1 to 4 family residences increased $7,966,000, commercial and industrial loans decreased $5,959,000, and consumer loans decreased by $216,000. The loan portfolio breakdown was as follows:

TABLE 7	LOAN PORTFOLIO
	June 30			Percent			December 31			Percent
(Dollar amounts in thousands)	2014						2013
Commercial real estate	$	319,661			56	%	$	325,199			58	%
Real estate construction		39,760			7	%		34,318			6	%
Real estate multi family		53,499			9	%		46,143			8	%
Real estate 1 to 4 family		114,869			20	%		106,903			19	%
Commercial and industrial		42,545			8	%		48,504			9	%
Consumer loans		1,434			-	%		1,650			-	%
Gross loans		571,768			100	%		562,717			100	%
Net deferred loan fees		(477	)		-	%		(495	)		-	%
Total	$	571,291			100	%	$	562,222			100	%

Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generating credit quality ratings, reviewing economic conditions in the Company’s market area, and considering the Company’s historical loan loss experience. The Company’s management considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. Management watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. It also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.

A summary of transactions in the allowance for loan losses for the six months ended June 30, 2014, and June 30, 2013, respectively is as follows:

TABLE 8	ALLOWANCE FOR LOAN LOSSES
	Six months ended			Six months ended
(Dollar amounts in thousands)	June 30, 2014			June 30, 2013
Balance, beginning of period	$	9,879		$	9,124
Provision for loan losses		75			1,110
Recoveries		1,181			76
Amounts charged off		(276	)		(565	)
Balance, end of period	$	10,859		$	9,745

During the six months ended June 30, 2014, there was a provision of $75,000, compared to $1,110,000 for the same period in 2013. Loan charge-off levels have declined significantly year over year, and remain close to historic norms.

43

In management’s judgment, the allowance is adequate to absorb probable losses currently inherent in the loan portfolio at June 30, 2014. However, changes in prevailing economic conditions in the Company’s markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.

The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.

Nonperforming assets. Nonperforming assets consist of nonaccrual loans, loans that are 90 days or more past due but are still accruing interest and other real estate owned. At June 30, 2014, there was $6,217,000 in nonperforming assets, compared to $12,669,000 at December 31, 2013. Nonaccrual loans were $5,463,000 at June 30, 2014, compared to $7,351,000 at December 31, 2013. There were no loans past due 90 days and still accruing at either date.

There was one property value at $754,000 in Other Real Estate Owned at June 30, 2014, and four properties valued at $5,318,000 at December 31, 2013. Three of these were sold in the first six months of 2014, for a net gain of $220,000. Management intends to aggressively market our Other Real Estate Owned. While management believes these properties will sell, there can be no assurance that these properties will sell quickly given the current real estate market, nor can the expected sales price be accurately predicted. At June 30, 2014 the Other Real Estate Owned consisted of one commercial real estate building located in South San Francisco that is currently leased.

Deposits. Total deposits at June 30, 2014, were $790,222,000 compared to $773,615,000 on December 31, 2013. Of these totals, noninterest-bearing demand deposits were $203,854,000 or 25.8% of the total on June 30, 2014, and $198,523,000 or 25.7% on December 31, 2013. Time deposits were $106,748,000 on June 30, 2014, and $124,152,000 on December 31, 2013.

The following table sets forth the maturity schedule of the time certificates of deposit on June 30, 2014:

TABLE 9
(Dollar amounts in thousands)	Under		$100,000
Maturities	$100,000		or more		Total
Three months or less	$	8,783	$	25,803	$	34,586
Over three through six months		7,431		17,527		24,958
Over six through twelve months		9,486		14,818		24,304
Over twelve months		9,984		12,916		22,900
Total	$	35,684	$	71,064	$	106,748

Regulatory Capital. The following table shows the risk-based capital ratios and leverage ratios at June 30, 2014 and December 31, 2013 for the Bank:

44

TABLE 10								Minimum “Well
	June 30,			December 31,				Capitalized”
Regulatory Capital Ratios	2014			2013				Requirements
Total Regulatory Capital Ratio		14.35	%		14.12	%	≥		10.00	%
Tier 1 Capital Ratio		13.09	%		12.86	%	≥		6.00	%
Leverage Ratios		10.06	%		9.67	%	≥		5.00	%

Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of June 30, 2014, liquid assets were $293,938,000, or 32.5% of total assets. As of December 31, 2013, liquid assets were $283,538,000, or 31.8% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Company’s primary uses of funds are loans, and the primary sources of funds are deposits. The Company also has federal funds borrowing facilities totaling $30,000,000, a Federal Home Loan Bank line up to 30% of total eligible assets, and a Federal Reserve Bank borrowing facility. Also please see the Company’s consolidated statements of cash flows for further information, given that the cash flow statement is the primary statement disclosing the company’s cash transactions.

The relationship between total net loans and total deposits is a useful additional measure of liquidity. A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On June 30, 2014, and December 31, 2013, respectively, net loans were at 70.9% and 71.4% of deposits.

Off-Balance Sheet Items

The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of June 30, 2014 and December 31, 2013, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $139,097,000 and $132,041,000 at June 30, 2014 and December 31, 2013, respectively. As a percentage of net loans, these off-balance sheet items represent 24.81% and 23.91% respectively. The Company does not expect all commitments to be funded.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Company’s interest earning assets and deposits.

45

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management as of the end of the Company’s fiscal quarter ended June 30, 2014. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

(b) Internal Control Over Financial Reporting: An evaluation of any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Company’s fiscal quarter ended June 30, 2014, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% stockholder of the Company, or any associate of any such director, officer, affiliate or 5% stockholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank.

From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.

Item 1A. Risk Factors

During the course of normal operations, the Bank and the Company manage a variety of risks including, but not limited to, credit risk, operational risk, interest rate risk and regulatory compliance risk. For a more complete discussion of the risk factors facing the Bank and the Company, please refer to the section entitled “Item 1A – Risk Factors” in the Company’s December 31, 2013 Form 10K.

46

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law. The purpose of this legislation was to bring about regulatory changes and oversight that would help stop past abuses from recurring in the future. This legislation gives new powers to the FDIC and the Federal Reserve Bank that they may use in the execution of their duties as regulators and overseers of the banking industry. It also created a new federal consumer protection agency named the Consumer Financial Protection Bureau (“CFPB”). All existing consumer laws and regulations will be transferred to the CFPB. This Act is expected to enable regulators to issue numerous new banking regulations and requirements that have not yet been fully developed or promulgated. The ultimate effect the Act has on the Company’s operations will ultimately be determined by the significance of the new banking regulations that are issued as a result of the Act.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 6. Exhibits

Exhibits

31: Rule 13a-14(a)/15d-14(a) Certifications

32: Section 1350 Certifications

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FNB BANCORP
	(Registrant)
Dated:
August 12, 2014.	By:	/s/ Thomas C. McGraw
		Thomas C. McGraw
		Chief Executive Officer
		(Authorized Officer)
	By:	/s/ David A. Curtis
		David A. Curtis
		Senior Vice President
		Chief Financial Officer
		(Principal Financial Officer)

47

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

               I, Thomas C. McGraw, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

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 we have:

       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;

       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;

       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

       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 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:

       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

       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: August 12, 2014.	/s/ Thomas C. McGraw
	Thomas C. McGraw
	Chief Executive Officer

48

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

               I, David A. Curtis, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

2.            Based on my knowledge, this quarterly 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-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

       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;

       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 instruments for external purposes in accordance with generally accepted accounting principles;

       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

       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 registrant’s board of directors:

       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

       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: August 12, 2014.	/s/ David A. Curtis
	David A. Curtis
	Senior Vice President and
	Chief Financial Officer

49

EX-32

Exhibit 32

Section 1350 Certifications 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of FNB Bancorp, a California corporation (the “Company”), does hereby certify that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 12, 2014.	/s/ Thomas C. McGraw
	Thomas C. McGraw
	Chief Executive Officer
Dated: August 12, 2014.	/s/ David A. Curtis
	David A. Curtis
	Senior Vice President and
	Chief Financial Officer

A signed original of this statement required by Section 906 has been provided to FNB Bancorp and will be retained by FNB Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

50

XML

5. LOANS, Credit Quality Indicators Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Pass
Originated
Commercial real estate	$ 277,913	$ 280,356
Real estate construction	36,709	29,673
Real estate multi-family	41,821	34,357
Real estate 1 to 4 family	108,110	97,514
Commercial & industrial	32,302	36,837
Consumer loans	1,434	1,631
Totals	498,289	480,368
Purchased Not credit impaired
Commercial real estate	29,824	28,342
Real estate construction	1,982	1,520
Real estate multi-family	11,678	11,786
Real estate 1 to 4 family	5,681	8,299
Commercial & industrial	9,238	10,217
Total	58,403	60,164
Special mention
Originated
Commercial real estate	1,933	2,330
Real estate construction	0	573
Real estate multi-family	0	0
Real estate 1 to 4 family	0	0
Commercial & industrial	0	0
Consumer loans	0	0
Totals	1,933	2,903
Purchased Not credit impaired
Commercial real estate	0	4,951
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	0	0
Commercial & industrial	0	0
Total	0	4,951
fil:SubStandardMember
Originated
Commercial real estate	2,800	3,252
Real estate construction	1,069	1,044
Real estate multi-family	0	0
Real estate 1 to 4 family	529	429
Commercial & industrial	988	1,439
Consumer loans	0	19
Totals	5,386	6,183
Purchased Not credit impaired
Commercial real estate	5,867	4,643
Real estate construction	0	1,508
Real estate multi-family	0	0
Real estate 1 to 4 family	403	408
Commercial & industrial	0	0
Total	6,270	6,559
Doubtful
Originated
Commercial real estate	0	0
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	146	253
Commercial & industrial	17	11
Consumer loans	0	0
Totals	163	264
Purchased Not credit impaired
Commercial real estate	0	0
Real estate construction	0	0
Real estate multi-family	0	0
Real estate 1 to 4 family	0	0
Commercial & industrial	0	0
Total	0	0
Total loans
Originated
Commercial real estate	282,646	285,938
Real estate construction	37,778	31,290
Real estate multi-family	41,821	34,357
Real estate 1 to 4 family	108,785	98,196
Commercial & industrial	33,307	38,287
Consumer loans	1,434	1,650
Totals	505,771	489,718
Purchased Not credit impaired
Commercial real estate	35,691	37,936
Real estate construction	1,982	3,028
Real estate multi-family	11,678	11,786
Real estate 1 to 4 family	6,084	8,707
Commercial & industrial	9,238	10,217
Total	64,673	71,674
Purchased Credit Impaired
Commercial real estate	1,324	1,325
Total	$ 1,324	$ 1,325

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E. LOANS, Summary of Loan as follows (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Gross loans	$ 571,768	$ 562,717
Net deferred loan fees	(477)	(495)
Allowance for loan losses	(10,859)	(9,879)
Net loans	560,432	552,343
Commercial real estate
Gross loans	319,661	325,199
Real estate construction
Gross loans	39,760
Real Estate Multi family
Gross loans	53,499	46,143
Real Estate 1 to 4 family
Gross loans	114,869	106,903
Commercial & industrial
Gross loans	42,545	48,504
Consumer loans
Gross loans	1,434	1,650
Real Estate Construction
Gross loans		34,318
FNB Bancorp Originated
Gross loans	505,771	489,718
Net deferred loan fees	(477)	(495)
Allowance for loan losses	(10,859)	(9,869)
Net loans	494,435	479,354
FNB Bancorp Originated | Commercial real estate
Gross loans	282,646	285,938
FNB Bancorp Originated | Real estate construction
Gross loans	37,778	31,290
FNB Bancorp Originated | Real Estate Multi family
Gross loans	41,821	34,357
FNB Bancorp Originated | Real Estate 1 to 4 family
Gross loans	108,785	98,196
FNB Bancorp Originated | Commercial & industrial
Gross loans	33,307	38,287
FNB Bancorp Originated | Consumer loans
Gross loans	1,434	1,650
PNCI
Gross loans	64,673	71,674
Net deferred loan fees	0	0
Allowance for loan losses		(10)
Net loans	64,673	71,664
PNCI | Commercial real estate
Gross loans	35,691	37,936
PNCI | Real estate construction
Gross loans	1,982	3,028
PNCI | Real Estate Multi family
Gross loans	11,678	11,786
PNCI | Real Estate 1 to 4 family
Gross loans	6,084	8,707
PNCI | Commercial & industrial
Gross loans	9,238	10,217
PNCI | Consumer loans
Gross loans	0	0
PCI
Gross loans	1,324	1,325
Net deferred loan fees	0	0
Allowance for loan losses	0	0
Net loans	1,324	1,325
PCI | Commercial real estate
Gross loans	1,324	1,325
PCI | Real estate construction
Gross loans	0	0
PCI | Real Estate Multi family
Gross loans	0	0
PCI | Real Estate 1 to 4 family
Gross loans	0	0
PCI | Commercial & industrial
Gross loans	0	0
PCI | Consumer loans
Gross loans	$ 0	$ 0

XML

B. STOCK OPTION PLANS

6 Months Ended

Jun. 30, 2014

STOCK OPTION PLANS

STOCK OPTION PLANS

Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.

The amount of compensation expense for options recorded in the quarters ended June 30, 2014 and 2013 was $69,000 and $76,000, respectively. The amount of compensation expense recorded for the six months ended June 30, 2014 and 2013 was $139,000 and $122,000, respectively. There was an income tax benefit recognized from stock options exercised during the quarter and year to date ended June 30, 2014 of $245,000 and $121,000 for the quarter and year to date ended June 30, 2013.

The intrinsic value for options exercised during the six months ended June 30, 2014 was $259,000. The intrinsic value for options exercisable as of June 30, 2014 was $2,239,000. The intrinsic value for options exercised during the six months ended June 30, 2013 was $108,000. The intrinsic value of options exercisable at June 30, 2013 was $1,081,000. There were no options granted for the first six months ended June 30, 2014 and 60,785 options granted for the six month period ended June 30, 2013.

The amount of total unrecognized compensation expense related to non-vested options at June 30, 2014 was $764,000, and the weighted average period over which it will be amortized is 3.6 years.

XML

E. LOANS, Nonaccrual (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Loans, Nonaccrual Status	$ 5,463	$ 7,351
Commercial & industrial
Loans, Nonaccrual Status	1,928	2,046
Real Estate Construction
Loans, Nonaccrual Status	0	189
Commercial real estate
Loans, Nonaccrual Status	2,852	4,290
Real Estate 1 to 4 family
Loans, Nonaccrual Status	674	826
Consumer loans
Loans, Nonaccrual Status	$ 9	$ 0

XML

E. LOANS, Impaired Loans Allowance (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
With no related allowance, Recorded Investment	$ 9,340	$ 14,994
With no related allowance, Unpaid Principal Balance	10,860	16,426
With no related allowance, Average Recorded Investment	8,887	14,042
With no related allowance, Income Recognized	252	693
With an allowance recorded, Recorded Investment	10,061	10,118
With an allowance recorded, Unpaid Principal Balance	10,612	10,578
With an allowance recorded, Related Allowance	760	595
With an allowance recorded, Average Impaired Balance	10,324	9,869
With an allowance recorded, Income Recognized	203	402
Recorded Investment	19,401	25,112
Unpaid Principal Balance	21,472	27,004
Related Allowance	760	595
Average Recorded Investment	19,211	23,911
Income Recognized	455	1,095
Commercial & industrial
With no related allowance, Recorded Investment	2,796	1,059
With no related allowance, Unpaid Principal Balance	3,858	1,232
With no related allowance, Average Recorded Investment	2,885	1,204
With no related allowance, Income Recognized	127	66
With an allowance recorded, Recorded Investment	1,337	1,438
With an allowance recorded, Unpaid Principal Balance	1,740	1,871
With an allowance recorded, Related Allowance	151	166
With an allowance recorded, Average Impaired Balance	1,418	1,710
With an allowance recorded, Income Recognized	4	15
Recorded Investment	4,133	2,497
Unpaid Principal Balance	5,598	3,103
Related Allowance	151	166
Average Recorded Investment	4,303	2,914
Income Recognized	131	81
Commercial real estate construction
With no related allowance, Recorded Investment	2,382	0
With no related allowance, Unpaid Principal Balance	2,565	0
With no related allowance, Average Recorded Investment	1,851	0
With no related allowance, Income Recognized	71	0
With an allowance recorded, Recorded Investment	0	189
With an allowance recorded, Unpaid Principal Balance	0	196
With an allowance recorded, Related Allowance	0	10
With an allowance recorded, Average Impaired Balance	0	198
With an allowance recorded, Income Recognized	0	18
Recorded Investment	2,382	189
Unpaid Principal Balance	2,565	196
Related Allowance	0	10
Average Recorded Investment	1,851	198
Income Recognized	71	18
Commercial real estate
With no related allowance, Recorded Investment	3,524	12,397
With no related allowance, Unpaid Principal Balance	3,799	13,535
With no related allowance, Average Recorded Investment	3,510	11,445
With no related allowance, Income Recognized	48	565
With an allowance recorded, Recorded Investment	5,506	5,577
With an allowance recorded, Unpaid Principal Balance	5,507	5,588
With an allowance recorded, Related Allowance	128	165
With an allowance recorded, Average Impaired Balance	5,575	4,972
With an allowance recorded, Income Recognized	134	254
Recorded Investment	9,030	17,974
Unpaid Principal Balance	9,306	19,123
Related Allowance	128	165
Average Recorded Investment	9,085	16,417
Income Recognized	182	819
Real Estate 1 to 4 family
With no related allowance, Recorded Investment	629	1,163
With no related allowance, Unpaid Principal Balance	629	1,284
With no related allowance, Average Recorded Investment	632	1,009
With no related allowance, Income Recognized	6	37
With an allowance recorded, Recorded Investment	3,218	2,914
With an allowance recorded, Unpaid Principal Balance	3,365	2,923
With an allowance recorded, Related Allowance	481	254
With an allowance recorded, Average Impaired Balance	3,331	2,989
With an allowance recorded, Income Recognized	65	115
Recorded Investment	3,847	4,077
Unpaid Principal Balance	3,994	4,207
Related Allowance	481	254
Average Recorded Investment	3,963	3,998
Income Recognized	71	152
Consumer loans
With no related allowance, Recorded Investment	9
With no related allowance, Unpaid Principal Balance	9
With no related allowance, Average Recorded Investment	9
With no related allowance, Income Recognized	0
Recorded Investment	9
Unpaid Principal Balance	9
Related Allowance	0
Average Recorded Investment	9
Income Recognized	0
Real Estate Multi family
With no related allowance, Recorded Investment		375
With no related allowance, Unpaid Principal Balance		375
With no related allowance, Average Recorded Investment		384
With no related allowance, Income Recognized		25
Recorded Investment		375
Unpaid Principal Balance		375
Related Allowance		0
Average Recorded Investment		384
Income Recognized		$ 25

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E. LOANS, Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Troubled debt restructured loans outstanding, accrual status	$ 12,868	$ 8,897
Troubled debt restructured loans outstanding, nonaccrual status	4,485	4,809
Total modifications	17,353	13,706
Commercial real estate
Troubled debt restructured loans outstanding, accrual status	9,398	6,315
Troubled debt restructured loans outstanding, nonaccrual status	2,101	2,140
Total modifications	11,499	8,455
Real Estate Construction
Troubled debt restructured loans outstanding, accrual status	0	0
Troubled debt restructured loans outstanding, nonaccrual status	0	189
Total modifications	0	189
Real Estate 1 to 4 family
Troubled debt restructured loans outstanding, accrual status	3,173	2,121
Troubled debt restructured loans outstanding, nonaccrual status	516	529
Total modifications	3,689	2,650
Commercial & industrial
Troubled debt restructured loans outstanding, accrual status	297	461
Troubled debt restructured loans outstanding, nonaccrual status	1,868	1,951
Total modifications	$ 2,165	$ 2,412

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E. LOANS, Payment Modification (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Number of Modifications	3	3	4	8
Pre-modification Recorded Investment	$ 1,454	$ 1,943	$ 2,026	$ 5,216
Post-modification Recorded Investment	1,454	1,943	2,026	5,216
Real Estate 1 to 4 family
Number of Modifications		2	1	2
Pre-modification Recorded Investment		1,503	572	739
Post-modification Recorded Investment		1,503	572	739
Commercial real estate
Number of Modifications	3	1	3	4
Pre-modification Recorded Investment	1,454	440	1,454	3,737
Post-modification Recorded Investment	1,454	440	1,454	3,737
Real Estate Construction
Number of Modifications				1
Pre-modification Recorded Investment				196
Post-modification Recorded Investment				196
Real Estate Multi family
Number of Modifications				1
Pre-modification Recorded Investment				544
Post-modification Recorded Investment				$ 544

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A. BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2014

BASIS OF PRESENTATION

BASIS OF PRESENTATION

FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.

All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2013. Results of operations for interim periods are not necessarily indicative of results for the full year.

XML

E. LOANS, Past due loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Originated
Past Due, 30-59 days	$ 130	$ 2,243
Past Due, 60-89 days	590	304
Past Due, > 90 days	2,793	5,221
Past Due, Total	3,513	7,768
Current	502,258	481,950
Total Loans	505,771	489,718
Originated | Commercial real estate
Past Due, 30-59 days	0	1,403
Past Due, 60-89 days	590	0
Past Due, > 90 days	727	2,349
Past Due, Total	1,317	3,752
Current	281,329	282,186
Total Loans	282,646	285,938
Originated | Real Estate Construction
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	0
Past Due, Total	0	0
Current	37,778	31,290
Total Loans	37,778	31,290
Originated | Real Estate Multi family
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	0
Past Due, Total	0	0
Current	41,821	34,357
Total Loans	41,821	34,357
Originated | Real Estate 1 to 4 family
Past Due, 30-59 days	88	161
Past Due, 60-89 days	0	75
Past Due, > 90 days	159	826
Past Due, Total	247	1,062
Current	108,538	97,134
Total Loans	108,785	98,196
Originated | Commercial & industrial
Past Due, 30-59 days	33	563
Past Due, 60-89 days	0	210
Past Due, > 90 days	1,907	2,046
Past Due, Total	1,940	2,819
Current	31,367	35,468
Total Loans	33,307	38,287
Originated | Consumer loans
Past Due, 30-59 days	9	116
Past Due, 60-89 days	0	19
Past Due, > 90 days	0	0
Past Due, Total	9	135
Current	1,425	1,515
Total Loans	1,434	1,650
Purchased Not credit impaired
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	805
Past Due, Total	0	805
Current	64,673	70,869
Total Loans	64,673	71,674
Purchased Not credit impaired | Commercial real estate
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	616
Past Due, Total	0	616
Current	35,691	37,320
Total Loans	35,691	37,936
Purchased Not credit impaired | Real Estate Construction
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	189
Past Due, Total	0	189
Current	1,982	2,839
Total Loans	1,982	3,028
Purchased Not credit impaired | Real Estate Multi family
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	0
Past Due, Total	0	0
Current	11,678	11,786
Total Loans	11,678	11,786
Purchased Not credit impaired | Real Estate 1 to 4 family
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	0
Past Due, Total	0	0
Current	6,084	8,707
Total Loans	6,084	8,707
Purchased Not credit impaired | Commercial & industrial
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	0
Past Due, Total	0	0
Current	9,238	10,217
Total Loans	9,238	10,217
Purchased Credit impaired
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	1,325
Past Due, Total	0	1,325
Current	1,324	0
Total Loans	1,324	1,325
Purchased Credit impaired | Commercial real estate
Past Due, 30-59 days	0	0
Past Due, 60-89 days	0	0
Past Due, > 90 days	0	1,325
Past Due, Total	0	1,325
Current	1,324	0
Total Loans	$ 1,324	$ 1,325

XML

Consolidated Balance Sheets (Unaudited) (Dollar amounts in thousands) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Assets
Cash and due from banks	$ 21,682	$ 14,007
Interest-bearing time deposits with financial institutions	4,461	5,543
Securities available-for-sale, at fair value	267,795	263,988
Loans, net of allowance for loan losses of $10,859 and $9,879 on June 30, 2014 and December 31, 2013	560,432	552,343
Bank premises, equipment, and leasehold improvements, net	12,429	12,512
Bank-owned life insurance, net	12,337	12,151
Other equity securities	5,576	5,300
Accrued interest receivable	3,674	3,808
Other real estate owned, net	754	5,318
Goodwill	1,841	1,841
Prepaid expenses	504	701
Other assets	13,945	14,418
Total assets	905,430	891,930
Deposits
Demand, noninterest bearing	203,854	198,523
Demand, interest bearing	82,163	80,746
Savings and money market	397,457	370,194
Time	106,748	124,152
Total deposits	790,222	773,615
Federal Home Loan Bank advances	7,000	15,000
Notes Payable	5,850	0
Accrued expenses and other liabilities	11,215	9,066
Total liabilities	814,287	797,681
Stockholders' equity
Preferred stock - series C - no par value, authorized and outstanding 9,450 shares at December 31, 2013 (liquidation preference of $1,000 per share)	0	9,450
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 4,045,970 shares at June 30, 2014 and 3,978,505 shares at December 31, 2013	60,717	59,317
Retained earnings	29,183	26,738
Accumulated other comprehensive loss, net of tax	1,243	(1,256)
Total stockholders' equity	91,143	94,249
Total liabilities and stockholders' equity	$ 905,430	$ 891,930

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Consolidated Statements of Comprehensive Earnings (Parentheticals) (Dollar amounts in thousands) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Other Comprehensive Earnings Parentheticals
Tax on unrealized holding gain (loss) on available-for-sale securities (in dollars)	$ (1,034)	$ 2,783	$ (1,754)	$ 3,074
Tax on reclassification adjustment for gain on available-for-sale (in dollars)	$ 11	$ 30	$ 16	$ 47

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G. FAIR VALUE MEASUREMENT, Nonrecurring basis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value
Commercial and Insustrial	$ 1,110	$ 1,908
Residential- 1 to 4 family	64	411
Commercial real estate	373	2,491
Other real estate owned		1,771
Total impaired assets measured at fair value	1,547	6,581
Level 1
Commercial and Insustrial	0	0
Residential- 1 to 4 family	0	0
Commercial real estate	0	0
Other real estate owned		0
Total impaired assets measured at fair value	0	0
Level 2
Commercial and Insustrial	0	0
Residential- 1 to 4 family	0	0
Commercial real estate	0	0
Other real estate owned		0
Total impaired assets measured at fair value	0	0
Level 3
Commercial and Insustrial	1,110	1,908
Residential- 1 to 4 family	64	411
Commercial real estate	373	2,491
Other real estate owned		1,771
Total impaired assets measured at fair value	$ 1,547	$ 6,581

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D. SECURITIES AVAILABLE FOR SALE, Amortized cost and carrying values (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Available for sale securities, Amortized Cost	$ 265,687	$ 266,117
Available for sale securities, Unrealized Gains	3,970	2,657
Available for sale securities, Unrealized Losses	(1,862)	(4,786)
Available for sale securities, Estimated Fair Value	267,795	263,988
U.S. Treasury securities
Available for sale securities, Amortized Cost	3,973	3,069
Available for sale securities, Unrealized Gains	6	12
Available for sale securities, Unrealized Losses	(31)	(54)
Available for sale securities, Estimated Fair Value	3,948	3,027
Obligations of U.S. government agencies
Available for sale securities, Amortized Cost	70,482	73,691
Available for sale securities, Unrealized Gains	437	488
Available for sale securities, Unrealized Losses	(302)	(860)
Available for sale securities, Estimated Fair Value	70,617	73,319
Mortgage-backed securities
Available for sale securities, Amortized Cost	85,360	79,873
Available for sale securities, Unrealized Gains	881	360
Available for sale securities, Unrealized Losses	(1,032)	(2,373)
Available for sale securities, Estimated Fair Value	85,209	77,860
Obligations of states and political subdivisions
Available for sale securities, Amortized Cost	81,128	82,526
Available for sale securities, Unrealized Gains	2,327	1,467
Available for sale securities, Unrealized Losses	(438)	(1,317)
Available for sale securities, Estimated Fair Value	83,017	82,676
Corporate debt
Available for sale securities, Amortized Cost	24,744	26,958
Available for sale securities, Unrealized Gains	319	330
Available for sale securities, Unrealized Losses	(59)	(182)
Available for sale securities, Estimated Fair Value	$ 25,004	$ 27,106

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G. FAIR VALUE MEASUREMENT, Financial instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012
Financial assets:
Cash and cash equivalents	$ 21,682	$ 14,007	$ 23,698	$ 27,861
Interest-bearing time deposits with financial Institutions	4,461	5,543
Other Equity Securities	267,795
Accrued interest receivable	3,674	3,808
Financial liabilities:
Deposits	790,222	773,615
Notes payable	5,850	0
Carrying Amount
Financial assets:
Cash and cash equivalents	21,682	14,007
Interest-bearing time deposits with financial Institutions	4,461	5,543
Securities available for sale	267,795	263,988
Loans, net	571,291	562,717
Other Equity Securities	5,576	5,300
Accrued interest receivable	3,674	3,808
Financial liabilities:
Deposits	790,222	773,615
Federal Home Loan Bank advances	7,000	15,000
Notes payable	5,850	224
Accrued interest payable	239	0
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Fair Value
Financial assets:
Cash and cash equivalents	21,682	14,007
Interest-bearing time deposits with financial Institutions	4,461	5,543
Securities available for sale	267,795	263,988
Loans, net	583,474	563,325
Other Equity Securities	5,576	5,300
Accrued interest receivable	3,674	3,808
Financial liabilities:
Deposits	790,222	774,012
Federal Home Loan Bank advances	7,000	15,000
Notes payable	5,850	0
Accrued interest payable	239	224
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	1,391	1,297
Level 1
Financial assets:
Cash and cash equivalents	21,682	14,007
Interest-bearing time deposits with financial Institutions		0
Securities available for sale	3,948	3,027
Loans, net	0	0
Other Equity Securities	0	0
Accrued interest receivable	0	0
Financial liabilities:
Deposits	0	0
Federal Home Loan Bank advances	0	0
Notes payable	0	0
Accrued interest payable	0	0
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Level 2
Financial assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits with financial Institutions	4,461	5,543
Securities available for sale	263,847	260,961
Loans, net	0	0
Other Equity Securities	0	0
Accrued interest receivable	3,674	3,808
Financial liabilities:
Deposits	790,222	774,012
Federal Home Loan Bank advances	7,000	15,000
Notes payable	5,850	0
Accrued interest payable	239	224
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	0	0
Level 3
Financial assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits with financial Institutions	0	0
Securities available for sale	0	0
Loans, net	583,474	563,325
Other Equity Securities	5,576	5,300
Accrued interest receivable		0
Financial liabilities:
Deposits	0	0
Federal Home Loan Bank advances	0	0
Notes payable	0	0
Accrued interest payable	0	0
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit	$ 1,391	$ 1,297

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D. SECURITIES AVAILABLE FOR SALE, Amortized Cost and Carrying Value (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
SECURITIES AVAILABLE FOR SALE - Summary of Investments Amortized Cost and Carrying Value
Due in one year or less, Amortized Cost	$ 13,240
Due after one through five years, Amortized Cost	98,770
Due after five through ten years, Amortized Cost	115,377
Due after ten years, Amortized Cost	38,300
Equity securities, Amortized Cost	265,687
Due in one year or less, Estimated Fair Value	13,363
Due after one through five years, Estimated Fair Value	99,508
Due after five through ten years, Estimated Fair Value	116,313
Due after ten years, Estimated Fair Value	38,611
Equity securities, Estimated Fair Value	$ 267,795

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flow from operating activities:
Net earnings	$ 3,463	$ 2,309
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on sale of securities available-for-sale	(39)	(115)
Gain on sale of other real estate owned, net	(220)	0
Depreciation, amortization and accretion	1,730	1,843
Stock-based compensation expense	139	121
Earnings on bank owned life insurance	(186)	(189)
Change in net deferred loan fees	(18)	130
Provision for loan losses	75	1,110
Decrease in accrued interest receivable	134	(126)
Decrease in prepaid expense	197	654
Decrease in other assets	661	898
(Increase) decrease in accrued expenses and other liabilities	(33)	431
Net cash provided by operating activities	5,903	7,066
Cash flows from investing activities:
Purchase of securities available-for-sale	(18,791)	(77,996)
Proceeds from matured/called/sold securities available-for-sale	18,138	22,803
Investment, net of redemption, in other equity securities	(276)	164
Redemption of time deposits of other banks	1,082	4,743
Proceeds from sale of other real estate owned	1,461	0
Net investment in other real estate owned	(77)	(25)
Net (increase) decrease in loans	(4,746)	9,085
Purchases of bank premises, equipment, leasehold improvements	(526)	(618)
Net cash used in investing activities	(3,735)	(41,844)
Cash flows from financing activities:
Net increase in demand and savings deposits	34,011	57,100
Net decrease in time deposits	(17,404)	(22,652)
Decrease in FHLB advances	(8,000)	(719)
Proceeds from notes payable	6,000	0
Payments on notes payable	(150)	0
Dividends paid on common stock	(403)	(301)
Exercise of stock options	1,073	667
Redemption of preferred stock series C	(9,450)	(3,150)
Dividends paid on preferred stock series C	(170)	(330)
Net cash provided by financing activities	5,507	30,615
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	7,675	(4,163)
Cash and cash equivalents at beginning of period	14,007	27,861
Cash and cash equivalents at end of period	21,682	23,698
Additional cash flow information:
Interest paid	1,009	1,372
Income taxes paid	1,537	0
Non-cash investing and financing activities:
Accrued dividends	445	376
Change in unrealized gain in available for-sale securities, net of tax	2,499	(4,491)
OREO sale funded by A38loan origination	$ 3,400	$ 0

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Consolidated Balance Sheets Parentheticals (Dollar amounts in thousands) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Stock Transactions, Parenthetical Disclosures [Abstract]
Allowance for loan losses	$ (10,859)	$ (9,879)
Preferred Stock, Series C shares authorized		9,450
Preferred Stock, Series C shares outstanding		9,450
Preferred stock, series C liquidation preference per share (in dollars per share)		$ 1,000
Common Stock, shares authorized	10,000,000	10,000,000
Common Stock, shares issued	4,045,970	3,978,505
Common Stock, shares outstanding	4,045,970	3,978,505

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D. SECURITIES AVAILABLE FOR SALE (Tables)

6 Months Ended

Jun. 30, 2014

SECURITIES AVAILABLE FOR SALE TABLES

Schedule of amortized cost and carrying values of securities available-for-sale

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2014:
U.S. Treasury securities	$	3,973	$	6	$	(31	)	$	3,948
Obligations of U.S. government agencies		70,482		437		(302	)		70,617
Mortgage-backed securities		85,360		881		(1,032	)		85,209
Obligations of states and political subdivisions		81,128		2,327		(438	)		83,017
Corporate debt		24,744		319		(59	)		25,004
	$	265,687	$	3,970	$	(1,862	)	$	267,795
December 31, 2013:
U.S. Treasury securities	$	3,069	$	12	$	(54	)	$	3,027
Obligations of U.S. government agencies		73,691		488		(860	)		73,319
Mortgage-backed securities		79,873		360		(2,373	)		77,860
Obligations of states and political subdivisions		82,526		1,467		(1,317	)		82,676
Corporate debt		26,958		330		(182	)		27,106
	$	266,117	$	2,657	$	(4,786	)	$	263,988

Schedule analysis of gross unrealized losses of the available-for-sale investment securities

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2014:
U. S. Treasury securities	$	2,019	$	(31	)	$	—	$	—		$	2,019	$	(31	)
Obligations of U.S. Government agencies		7,808		(10	)		22,153		(292	)		29,961	$	(302	)
Mortgage-backed securities		3,598		(11	)		39,727		(1,021	)		43,325		(1,032	)
Obligations of states and political subdivisions		7,455		(65	)		15,746		(373	)		23,201		(438	)
Corporate debt		1,182		(2	)		6,907		(57	)		8,089		(59	)
Total	$	22,062	$	(119	)	$	84,533	$	(1,743	)	$	106,595	$	(1,862	)

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2013:
U. S. Treasury securities	$	2,002	$	(54	)	$	—	$	—		$	2,002		(54	)
Obligations of U.S. Government agencies		40,108		(860	)		—		—			40,108		(860	)
Mortgage-backed securities		51,419		(2,015	)		5,664		(358	)		57,083		(2,373	)
Obligations of states and political subdivisions		33,265		(1,248	)		1,083		(69	)		34,348		(1,317	)
Corporate debt		10,857		(180	)		498		(2	)		11,355		(182	)
Total	$	137,651	$	(4,357	)	$	7,245	$	(429	)	$	144,896	$	(4,786	)

Schedule of amortized cost and carrying value of available-for-sale debt securities by contractual maturity

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,240	$	13,363
Due after one through five years		98,770		99,508
Due after five years through ten years		115,377		116,313
Due after ten years		38,300		38,611
	$	265,687	$	267,795

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 04, 2014
Document and Entity Information:
Entity Registrant Name	FNB BANCORP/CA/
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Entity Central Index Key	0001163199
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		4,048,000
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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E. LOANS (Tables)

6 Months Ended

Jun. 30, 2014

LOANS TABLES

Schedule Of Loans Outstanding

Loans are summarized as follows at June 30, 2014 and December 31, 2013:

									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								June 30
June 30, 2014:	Originated			PNCI			PCI		2014
Commercial real estate	$	282,646		$	35,691		$	1,324	$	319,661
Real estate construction		37,778			1,982			—		39,760
Real estate multi-family		41,821			11,678			—		53,499
Real estate 1 to 4 family		108,785			6,084			—		114,869
Commercial & industrial		33,307			9,238			—		42,545
Consumer loans		1,434			—			—		1,434
Gross loans		505,771			64,673			1,324		571,768
Net deferred loan fees		(477	)		—			—		(477	)
Allowance for loan losses		(10,859	)					—		(10,859	)
Net loans	$	494,435		$	64,673		$	1,324	$	560,432
									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								December 31
December 31, 2013	Originated			PNCI			PCI		2013
Commercial real estate	$	285,938		$	37,936		$	1,325	$	325,199
Real estate construction		31,290			3,028			—		34,318
Real estate multi-family		34,357			11,786			—		46,143
Real estate 1 to 4 family		98,196			8,707			—		106,903
Commercial & industrial		38,287			10,217			—		48,504
Consumer loans		1,650			—			—		1,650
Gross loans		489,718			71,674			1,325		562,717
Net deferred loan fees		(495	)		—			—		(495	)
Allowance for loan losses		(9,869	)		(10	)		—		(9,879	)
Net loans	$	479,354		$	71,664		$	1,325	$	552,343

Schedule of Allowance for Credit Losses

Note: PNCI means Purchased, Not Credit Impaired. PCI means Purchased, Credit Impaired.

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family		Consumer			Total
Allowance for credit losses
Beginning balance	$	1,268		$	5,624		$	735		$	369	$	1,835	$	66		$	9,897
Charge-offs		—			—			(183	)		—		—		(20	)		(203	)
Recoveries		110			1,051			—			—		1		3			1,165
Provision		(212	)		(460	)		165			96		414		(3	)		0
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250	$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481	$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769	$	46		$	10,099

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,237		$	5,763		$	734		$	293	$	1,788		$	64		$	9,879
Charge-offs		—			—			(183	)		—		(62	)		(31	)		(276	)
Recoveries		124			1,052			—			—		2			3			1,181
Provision		(195	)		(600	)		166			172		522			10			75
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481		$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769		$	46		$	10,099

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2013
(Dollar amounts in thousands)
								Real		Real
								Estate		Estate
	Commercial			Real Estate		Real Estate		Multi		1 to
	& industrial			Commercial		Construction		family		4 family			Consumer		Total
Allowance for credit losses
Beginning balance	$	1,577		$	4,930	$	653	$	281	$	1,862		$	54	$	9,357
Charge-offs		—			—		—		—		(125	)		—		(125	)
Recoveries		—			2		—		—		—			1		3
Provision		(86	)		379		72		48		91			6		510
Ending balance	$	1,491		$	5,311	$	725	$	329	$	1,828		$	61	$	9,745
Ending balance: individually evaluated for impairment	$	254		$	189	$	—	$	—	$	237		$	1	$	681
Ending balance: collectively evaluated for impairment	$	1,237		$	5,122	$	725	$	329	$	1,591		$	60	$	9,064

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2013
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,875		$	4,812		$	857		$	—	$	1,516		$	64		$	9,124
Charge-offs		—			(239	)		(81	)		—		(244	)		(1	)		(565	)
Recoveries		70			4			—			—		1			1			76
Provision		(454	)		754			(34	)		329		518			(3	)		1,110
Ending balance	$	1,491		$	5,331		$	742		$	329	$	1,791		$	61		$	9,745
Ending balance: individually evaluated for impairment	$	254		$	210		$	17		$	—	$	237		$	1		$	719
Ending balance: collectively evaluated for impairment	$	1,237		$	5,121		$	725		$	329	$	1,554		$	60		$	9,026

Schedule of Recorded Investment in Loans

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	42,545	$	319,661	$	39,760	$	53,499	$	114,869	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	4,133	$	9,043	$	2,382	$	—	$	3,847	$	9	$	19,414
Ending balance: collectively evaluated for  impairment	$	38,412	$	310,618	$	37,378	$	53,499	$	111,022	$	1,425	$	552,354

	Recorded Investment in Loans at December 31, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	48,504	$	325,199	$	34,318	$	46,143	$	106,903	$	1,650	$	562,717
Ending balance: individually evaluated for impairment	$	2,497	$	17,974	$	189	$	375	$	4,077	$	—	$	25,112
Ending balance: collectively evaluated for impairment	$	46,007	$	307,225	$	34,129	$	45,768	$	102,826	$	1,650	$	537,605

	Recorded Investment in Loans at June 30, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	47,739	$	304,819	$	25,974	$	56,002	$	105,094	$	1,725	$	541,353
Ending balance: individually evaluated for impairment	$	3,795	$	19,244	$	591	$	1,192	$	3,395	$	1	$	28,218
Ending balance: collectively evaluated for impairment	$	43,944	$	285,575	$	25,383	$	54,810	$	101,699	$	1,724	$	513,135

Schedule of Impaired Loans Allowance

	Impaired Loans
	As of and for the six months ended June 30, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	2,796	$	3,858	$	—	$	2,885	$	127
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		3,524		3,799		—		3,510		48
Residential- 1 to 4 family		629		629		—		632		6
Consumer		9		9		—		9		—
Total		9,340		10,860		—		8,887		252
With an allowance recorded
Commercial and industrial	$	1,337	$	1,740	$	151	$	1,418	$	4
Commercial real estate construction		—		—		—		—		—
Commercial real estate		5,506		5,507		128		5,575		134
Residential- 1 to 4 family		3,218		3,365		481		3,331		65
Total		10,061		10,612		760		10,324		203
Total
Commercial and industrial	$	4,133	$	5,598	$	151	$	4,303	$	131
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		9,030		9,306		128		9,085		182
Residential - 1 to 4 family		3,847		3,994		481		3,963		71
Consumer		9		9		—		9		—
Grand total	$	19,401	$	21,472	$	760	$	19,211	$	455

	Impaired Loans As of and for the year ended December 31, 2013
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	1,059	$	1,232	$	—	$	1,204	$	66
Commercial real estate construction		—		—		—		—		—
Commercial real estate		12,397		13,535		—		11,445		565
Real estate multi family		375		375		—		384		25
Residential- 1 to 4 family		1,163		1,284		—		1,009		37
Total		14,994		16,426		—		14,042		693
With an allowance recorded
Commercial and industrial	$	1,438	$	1,871	$	166	$	1,710	$	15
Commercial real estate construction		189		196		10		198		18
Commercial real estate		5,577		5,588		165		4,972		254
Residential- 1 to 4 family		2,914		2,923		254		2,989		115
Total		10,118		10,578		595		9,869		402
Total
Commercial and industrial	$	2,497	$	3,103	$	166	$	2,914	$	81
Commercial real estate construction		189		196		10		198		18
Commercial real estate		17,974		19,123		165		16,417		819
Real estate multi family		375		375		—		384		25
Residential - 1 to 4 family		4,077		4,207		254		3,998		152
Grand total	$	25,112	$	27,004	$	595	$	23,911	$	1,095

Schedule of Loans On Nonaccrual Status

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30		December 31,
	2014		2013
Commercial & industrial	$	1,928	$	2,046
Real estate - construction		—		189
Commercial real estate		2,852		4,290
Real estate - 1 to 4 family		674		826
Consumer		9		—
Total	$	5,463	$	7,351

Troubled Debt Restructurings

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2014						December 31, 2013
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial & industrial	$	297	$	1,868	$	2,165	$	461	$	1,951	$	2,412
Real Estate construction		—		—		—		—		189		189
Real estate 1 to 4 family		3,173		516		3,689		2,121		529		2,650
Commercial real estate		9,398		2,101		11,499		6,315		2,140		8,455
Total	$	12,868	$	4,485	$	17,353	$	8,897	$	4,809	$	13,706

Schedule of Short-term Debt Modifications

As of June 30, 2014, there were no commitments for additional funding of troubled debt restructurings.

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		572		572
Commercial real estate		3		1,454		1,454
Total		4		2,026	$	2,026

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the six months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real Estate Construction		1	$	196	$	196
Real estate 1 to 4 family		2		739		739
Real estate multi-family		1		544		544
Commercial real estate		4		3,737		3,737
Total		8	$	5,216	$	5,216

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3		1,454		1,454
Total		3	$	1,454	$	1,454

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		440		440
Commercial real estate		2		1,503		1,503
Total		3	$	1,943	$	1,943

Schedule Age Analysis Of Past Due Loans

	Age Analysis of Past Due Loans
	As of June 30, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	590	$	727	$	1,317	$	281,329	$	282,646
Real estate construction		—		—		—		—		37,778		37,778
Real estate multi family		—		—		—		—		41,821		41,821
Real estate 1 to 4 family		88		—		159		247		108,538		108,785
Commercial and industrial		33		—		1,907		1,940		31,367		33,307
Consumer		9		—		—		9		1,425		1,434
Total	$	130	$	590	$	2,793	$	3,513	$	502,258	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	35,691	$	35,691
Real estate construction		—		—		—		—		1,982		1,982
Real estate multi-family		—		—		—		—		11,678		11,678
Real estate 1 to 4 family		—		—		—		—		6,084		6,084
Commercial and industrial		—		—		—		—		9,238		9,238
Total	$	—	$	—	$	—	$	—	$	64,673	$	64,673
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,324	$	1,324
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,324	$	1,324

	Age Analysis of Past Due Loans
	As of December 31, 2013
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	1,403	$	—	$	2,349	$	3,752	$	282,186	$	285,938
Real estate construction		—		—		—		—		31,290		31,290
Real estate multi family		—		—		—		—		34,357		34,357
Real estate 1 to 4 family		161		75		826		1,062		97,134		98,196
Commercial & industrial		563		210		2,046		2,819		35,468		38,287
Consumer		116		19		—		135		1,515		1,650
Total	$	2,243	$	304	$	5,221	$	7,768	$	481,950	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	616	$	616	$	37,320	$	37,936
Real estate construction		—		—		189		189		2,839		3,028
Real estate multi-family		—		—		—		—		11,786		11,786
Real estate 1 to 4 family		—		—		—		—		8,707		8,707
Commercial & industrial		—		—		—		—		10,217		10,217
Total	$	—	$	—	$	805	$	805	$	70,869	$	71,674
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325

Schedule Credit Quality Indicators

At December 31, 2013 there were no loans that were 90 days or more past due where interest was still accruing.

	Credit Quality Indicators
	As of June 30, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	277,913	$	1,933	$	2,800	$	—	$	282,646
Real estate construction		36,709		—		1,069		—		37,778
Real estate multi-family		41,821		—		—		—		41,821
Real estate 1 to 4 family		108,110		—		529		146		108,785
Commercial and industrial		32,302		—		988		17		33,307
Consumer loans		1,434		—		—		—		1,434
Totals	$	498,289	$	1,933	$	5,386	$	163	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	29,824	$	—	$	5,867	$	—	$	35,691
Real estate construction		1,982		—		—		—		1,982
Real estate multi-family		11,678		—		—		—		11,678
Real estate 1 to 4 family		5,681		—		403		—		6,084
Commercial and industrial		9,238		—		—		—		9,238
Total	$	58,403	$	—	$	6,270	$	—	$	64,673
Credit impaired
Commercial real estate									$	1,324
Total									$	1,324

	Credit Quality Indicators
	As of December 31, 2013
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	280,356	$	2,330	$	3,252	$	—	$	285,938
Real estate construction		29,673		573		1,044		—		31,290
Real estate multi-family		34,357		—		—		—		34,357
Real estate 1 to 4 family		97,514		—		429		253		98,196
Commercial & industrial		36,837		—		1,439		11		38,287
Consumer loans		1,631		—		19		—		1,650
Totals	$	480,368	$	2,903	$	6,183	$	264	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	28,342	$	4,951	$	4,643	$	—	$	37,936
Real estate construction		1,520		—		1,508		—		3,028
Real estate multi-family		11,786		—		—		—		11,786
Real estate 1 to 4 family		8,299		—		408		—		8,707
Commercial & industrial		10,217		—		—		—		10,217
Total	$	60,164	$	4,951	$	6,559	$	—	$	71,674
Purchased
Credit impaired
Commercial real estate									$	1,325
Total									$	1,325

XML

Consolidated Statements of Earnings (Unaudited) (Dollar amounts in thousands) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest income
Interest and fees on loans	$ 7,897	$ 8,020	$ 15,524	$ 16,178
Interest on taxable securities	851	794	1,694	1,478
Interest on tax-exempt securities	492	503	980	1,009
Interest on time deposits with other financial institutions	27	49	46	90
Total interest income	9,267	9,366	18,244	18,755
Interest expense
On deposits	484	639	945	1,321
Interest on FHLB advances	3	0	11	0
Interest on note payable	68	0	68	0
Total interest expense	555	639	1,024	1,321
Net interest income	8,712	8,727	17,220	17,434
Provision for loan losses	0	510	75	1,110
Net interest income after provision for loan losses	8,712	8,217	17,145	16,324
Noninterest income
Service charges	647	676	1,284	1,335
Credit card fees	0	3	0	10
Net gain on sale of available-for-sale securities	28	73	39	115
Bank-owned life insurance earnings	90	94	186	189
Other income	215	238	517	419
Total noninterest income	980	1,084	2,026	2,068
Noninterest expense
Salaries and employee benefits	4,177	4,312	8,395	8,728
Occupancy expense	694	846	1,374	1,808
Equipment expense	406	386	797	784
Professional fees	501	444	1,032	807
FDIC assessment	180	180	360	360
Telephone, postage and supplies	313	277	599	714
Advertising	136	121	221	293
Data processing expense	134	170	279	326
Low income housing expense	110	109	220	219
Surety insurance	67	67	134	121
Directors expense	63	63	126	126
Loss (gain) on sale of other real estate owned	60	0	(220)	0
Other real estate owned expense, net	11	28	88	78
Other expense	358	382	647	760
Total noninterest expense	7,210	7,385	14,052	15,124
Earnings before provision for income tax expense	2,482	1,916	5,119	3,268
Provision for income tax expense	853	537	1,656	959
Net earnings	1,629	1,379	3,463	2,309
Dividends and discount accretion on preferred stock	0	172	170	330
Net earnings available to common stockholders	$ 1,629	$ 1,207	$ 3,293	$ 1,979
Earnings per share data:
Basic	$ 0.4	$ 0.31	$ 0.82	$ 0.51
Diluted	$ 0.39	$ 0.3	$ 0.8	$ 0.49
Weighted average shares outstanding:
Basic	4,029	3,915	4,007	3,908
Diluted	4,159	4,003	4,142	4,000

XML

E. LOANS

6 Months Ended

Jun. 30, 2014

LOANS

LOANS

Loans are summarized as follows at June 30, 2014 and December 31, 2013:

									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								June 30
June 30, 2014:	Originated			PNCI			PCI		2014
Commercial real estate	$	282,646		$	35,691		$	1,324	$	319,661
Real estate construction		37,778			1,982			—		39,760
Real estate multi-family		41,821			11,678			—		53,499
Real estate 1 to 4 family		108,785			6,084			—		114,869
Commercial & industrial		33,307			9,238			—		42,545
Consumer loans		1,434			—			—		1,434
Gross loans		505,771			64,673			1,324		571,768
Net deferred loan fees		(477	)		—			—		(477	)
Allowance for loan losses		(10,859	)					—		(10,859	)
Net loans	$	494,435		$	64,673		$	1,324	$	560,432
									Total
(Dollar amounts in thousands)	FNB								Balance
	Bancorp								December 31
December 31, 2013	Originated			PNCI			PCI		2013
Commercial real estate	$	285,938		$	37,936		$	1,325	$	325,199
Real estate construction		31,290			3,028			—		34,318
Real estate multi-family		34,357			11,786			—		46,143
Real estate 1 to 4 family		98,196			8,707			—		106,903
Commercial & industrial		38,287			10,217			—		48,504
Consumer loans		1,650			—			—		1,650
Gross loans		489,718			71,674			1,325		562,717
Net deferred loan fees		(495	)		—			—		(495	)
Allowance for loan losses		(9,869	)		(10	)		—		(9,879	)
Net loans	$	479,354		$	71,664		$	1,325	$	552,343

Note: PNCI means Purchased, Not Credit Impaired. PCI means Purchased, Credit Impaired.

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family		Consumer			Total
Allowance for credit losses
Beginning balance	$	1,268		$	5,624		$	735		$	369	$	1,835	$	66		$	9,897
Charge-offs		—			—			(183	)		—		—		(20	)		(203	)
Recoveries		110			1,051			—			—		1		3			1,165
Provision		(212	)		(460	)		165			96		414		(3	)		0
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250	$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481	$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769	$	46		$	10,099

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2014
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,237		$	5,763		$	734		$	293	$	1,788		$	64		$	9,879
Charge-offs		—			—			(183	)		—		(62	)		(31	)		(276	)
Recoveries		124			1,052			—			—		2			3			1,181
Provision		(195	)		(600	)		166			172		522			10			75
Ending balance	$	1,166		$	6,215		$	717		$	465	$	2,250		$	46		$	10,859
Ending balance: individually evaluated for impairment	$	151		$	128		$	—		$	—	$	481		$	—		$	760
Ending balance: collectively evaluated for impairment	$	1,015		$	6,087		$	717		$	465	$	1,769		$	46		$	10,099

13

	Recorded Investment in Loans at June 30, 2014
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	42,545	$	319,661	$	39,760	$	53,499	$	114,869	$	1,434	$	571,768
Ending balance: individually evaluated for impairment	$	4,133	$	9,043	$	2,382	$	—	$	3,847	$	9	$	19,414
Ending balance: collectively evaluated for  impairment	$	38,412	$	310,618	$	37,378	$	53,499	$	111,022	$	1,425	$	552,354

	Recorded Investment in Loans at December 31, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	48,504	$	325,199	$	34,318	$	46,143	$	106,903	$	1,650	$	562,717
Ending balance: individually evaluated for impairment	$	2,497	$	17,974	$	189	$	375	$	4,077	$	—	$	25,112
Ending balance: collectively evaluated for impairment	$	46,007	$	307,225	$	34,129	$	45,768	$	102,826	$	1,650	$	537,605

14

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2013
(Dollar amounts in thousands)
								Real		Real
								Estate		Estate
	Commercial			Real Estate		Real Estate		Multi		1 to
	& industrial			Commercial		Construction		family		4 family			Consumer		Total
Allowance for credit losses
Beginning balance	$	1,577		$	4,930	$	653	$	281	$	1,862		$	54	$	9,357
Charge-offs		—			—		—		—		(125	)		—		(125	)
Recoveries		—			2		—		—		—			1		3
Provision		(86	)		379		72		48		91			6		510
Ending balance	$	1,491		$	5,311	$	725	$	329	$	1,828		$	61	$	9,745
Ending balance: individually evaluated for impairment	$	254		$	189	$	—	$	—	$	237		$	1	$	681
Ending balance: collectively evaluated for impairment	$	1,237		$	5,122	$	725	$	329	$	1,591		$	60	$	9,064

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2013
(Dollar amounts in thousands)
										Real		Real
										Estate		Estate
	Commercial			Commercial			Real Estate			Multi		1 to
	& industrial			Real estate			Construction			family		4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	1,875		$	4,812		$	857		$	—	$	1,516		$	64		$	9,124
Charge-offs		—			(239	)		(81	)		—		(244	)		(1	)		(565	)
Recoveries		70			4			—			—		1			1			76
Provision		(454	)		754			(34	)		329		518			(3	)		1,110
Ending balance	$	1,491		$	5,331		$	742		$	329	$	1,791		$	61		$	9,745
Ending balance: individually evaluated for impairment	$	254		$	210		$	17		$	—	$	237		$	1		$	719
Ending balance: collectively evaluated for impairment	$	1,237		$	5,121		$	725		$	329	$	1,554		$	60		$	9,026

15

	Recorded Investment in Loans at June 30, 2013
(Dollar amounts in thousands)
							Real		Real
							Estate		Estate
	Commercial		Commercial		Real Estate		Multi		1 to
	& industrial		Real Estate		Construction		family		4 family		Consumer		Total
Loans:
Ending balance	$	47,739	$	304,819	$	25,974	$	56,002	$	105,094	$	1,725	$	541,353
Ending balance: individually evaluated for impairment	$	3,795	$	19,244	$	591	$	1,192	$	3,395	$	1	$	28,218
Ending balance: collectively evaluated for impairment	$	43,944	$	285,575	$	25,383	$	54,810	$	101,699	$	1,724	$	513,135

	Impaired Loans
	As of and for the six months ended June 30, 2014
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	2,796	$	3,858	$	—	$	2,885	$	127
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		3,524		3,799		—		3,510		48
Residential- 1 to 4 family		629		629		—		632		6
Consumer		9		9		—		9		—
Total		9,340		10,860		—		8,887		252
With an allowance recorded
Commercial and industrial	$	1,337	$	1,740	$	151	$	1,418	$	4
Commercial real estate construction		—		—		—		—		—
Commercial real estate		5,506		5,507		128		5,575		134
Residential- 1 to 4 family		3,218		3,365		481		3,331		65
Total		10,061		10,612		760		10,324		203
Total
Commercial and industrial	$	4,133	$	5,598	$	151	$	4,303	$	131
Commercial real estate construction		2,382		2,565		—		1,851		71
Commercial real estate		9,030		9,306		128		9,085		182
Residential - 1 to 4 family		3,847		3,994		481		3,963		71
Consumer		9		9		—		9		—
Grand total	$	19,401	$	21,472	$	760	$	19,211	$	455

16

	Impaired Loans As of and for the year ended December 31, 2013
			Unpaid				Average
(Dollar amounts in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial and industrial	$	1,059	$	1,232	$	—	$	1,204	$	66
Commercial real estate construction		—		—		—		—		—
Commercial real estate		12,397		13,535		—		11,445		565
Real estate multi family		375		375		—		384		25
Residential- 1 to 4 family		1,163		1,284		—		1,009		37
Total		14,994		16,426		—		14,042		693
With an allowance recorded
Commercial and industrial	$	1,438	$	1,871	$	166	$	1,710	$	15
Commercial real estate construction		189		196		10		198		18
Commercial real estate		5,577		5,588		165		4,972		254
Residential- 1 to 4 family		2,914		2,923		254		2,989		115
Total		10,118		10,578		595		9,869		402
Total
Commercial and industrial	$	2,497	$	3,103	$	166	$	2,914	$	81
Commercial real estate construction		189		196		10		198		18
Commercial real estate		17,974		19,123		165		16,417		819
Real estate multi family		375		375		—		384		25
Residential - 1 to 4 family		4,077		4,207		254		3,998		152
Grand total	$	25,112	$	27,004	$	595	$	23,911	$	1,095

Average recorded investment on impaired loans was $20,805,000 for six months ended June 30, 2013; $21,969,000 for 3 months ended June 30, 2014, and $29,399,000 for 3 months ended June 30, 2013. Income recognized on impaired loans was $452,000 for six months ended June 30, 2013; $194,000 for three months ended June 30, 2014, and $394,000 for three months ended June 30, 2013.

Nonaccrual loans totaled $5,463,000 and $7,351,000 as of June 30, 2014 and December 31, 2013. The majority of the difference between impaired loans and nonaccrual loans represents loans that are restructured and performing under modified loan agreements, and where principal and interest is considered to be collectible.

	Loans on Nonaccrual Status as of
(Dollar amounts in thousands)	June 30		December 31,
	2014		2013
Commercial & industrial	$	1,928	$	2,046
Real estate - construction		—		189
Commercial real estate		2,852		4,290
Real estate - 1 to 4 family		674		826
Consumer		9		—
Total	$	5,463	$	7,351

Interest income on impaired loans of $455,000 was recognized for cash payments received during the six months ended June 30, 2014, and $1,095,000 was recognized for cash payments received during the year ended December 31, 2013, respectively. Interest income on impaired loans for cash payments received during the six month period ended June 30, 2013 was $452,000; for the three months ended June 30, 2014 it was $194,000, and for the three months ended June 30, 2013 it was $394,000. The amount of interest on impaired loans not collected for the six months ended June 30, 2014 was $214,000 and for the year ended December 31, 2013 was $656,000. For the six months ended June 30, 2013, it was $388,000; for three months ended June 30, 2014, it was $64,000; for the three months ended June 30, 2013 it was $190,000. The cumulative amount of unpaid interest on impaired loans was $3,644,000 at June 30, 2014, and $3,430,000 at the year ended December 31, 2013. Total outstanding principal of troubled debt restructured loans as of June 30, 2014 was $17,353,000, of which $2,165,000 was commercial and industrial loans, $3,689,000 was residential loans, and $11,499,000 was commercial real estate loans. Total outstanding principal of troubled debt restructured loans at December 31, 2013 was $13,706,000, of which $2,412,000 was commercial loans, $189,000 was real estate construction loans, $2,121,000 was real estate one to four family, and $8,455,000 was commercial real estate loans.

Troubled Debt Restructurings

	Total troubled debt restructured loans outstanding at
(dollars in thousands)	June 30, 2014						December 31, 2013
			Non-						Non-
	Accrual		accrual		Total		Accrual		accrual		Total
	status		status		modifications		status		status		modifications
Commercial & industrial	$	297	$	1,868	$	2,165	$	461	$	1,951	$	2,412
Real Estate construction		—		—		—		—		189		189
Real estate 1 to 4 family		3,173		516		3,689		2,121		529		2,650
Commercial real estate		9,398		2,101		11,499		6,315		2,140		8,455
Total	$	12,868	$	4,485	$	17,353	$	8,897	$	4,809	$	13,706

Modification Categories

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.

Rate Modification – A modification in which the interest rate is changed.

Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

As of June 30, 2014, there were no commitments for additional funding of troubled debt restructurings.

	Modifications
	For the six months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		572		572
Commercial real estate		3		1,454		1,454
Total		4		2,026	$	2,026

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the six months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real Estate Construction		1	$	196	$	196
Real estate 1 to 4 family		2		739		739
Real estate multi-family		1		544		544
Commercial real estate		4		3,737		3,737
Total		8	$	5,216	$	5,216

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2014
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Commercial real estate		3		1,454		1,454
Total		3	$	1,454	$	1,454

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

	Modifications
	For the three months ended June 30, 2013
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
(Dollar amounts in thousands)
Real estate 1 to 4 family		1		440		440
Commercial real estate		2		1,503		1,503
Total		3	$	1,943	$	1,943

As of June 30, 2014, no loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and as a result payment. There were no principal reductions granted.

Risk rating system

Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.

Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. These well-defined weaknesses may include a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.

Doubtful loans represent credits with weakness inherent in the Substandard classification and where collection or liquidation in full is highly questionable. To be classified Doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.

Real Estate – Multi-Family

Our multi-family commercial real estate loans are secured by multi-family properties located primarily in San Mateo and San Francisco counties. These loans are made to investors where our primary source of repayment is from cash flows generated by the properties, through rent collections. The borrowers’ promissory notes are secured with recorded liens on the underlying properties. The borrowers would normally also be required to personally guarantee repayment of the loans. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Commercial Real Estate Loans

Other commercial real estate loans consist of loans secured by non-farm, non-residential properties, including, but not limited to industrial, hotel, assisted care, retail, office and mixed use buildings.

Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan.

The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Real Estate Construction Loans

Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.

Real Estate-1 to 4 family Loans

Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly. 

Commercial and Industrial Loans

Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.

Consumer Loans

Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.

	Age Analysis of Past Due Loans
	As of June 30, 2014
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	—	$	590	$	727	$	1,317	$	281,329	$	282,646
Real estate construction		—		—		—		—		37,778		37,778
Real estate multi family		—		—		—		—		41,821		41,821
Real estate 1 to 4 family		88		—		159		247		108,538		108,785
Commercial and industrial		33		—		1,907		1,940		31,367		33,307
Consumer		9		—		—		9		1,425		1,434
Total	$	130	$	590	$	2,793	$	3,513	$	502,258	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	35,691	$	35,691
Real estate construction		—		—		—		—		1,982		1,982
Real estate multi-family		—		—		—		—		11,678		11,678
Real estate 1 to 4 family		—		—		—		—		6,084		6,084
Commercial and industrial		—		—		—		—		9,238		9,238
Total	$	—	$	—	$	—	$	—	$	64,673	$	64,673
Credit impaired
Commercial real estate	$	—	$	—	$	—	$	—	$	1,324	$	1,324
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,324	$	1,324

At June 30, 2014 there were no loans that were 90 days or more past due where interest was still accruing.

The over 90 days column includes nonaccruals that were over 90 days, but does not include loans that are in nonaccrual status for reasons other than past due.

	Age Analysis of Past Due Loans
	As of December 31, 2013
(Dollar amounts in thousands)
	30-59		60-89
	Days		Days		Over		Total
	Past		Past		90		Past				Total
Originated	Due		Due		Days		Due		Current		Loans
Commercial real estate	$	1,403	$	—	$	2,349	$	3,752	$	282,186	$	285,938
Real estate construction		—		—		—		—		31,290		31,290
Real estate multi family		—		—		—		—		34,357		34,357
Real estate 1 to 4 family		161		75		826		1,062		97,134		98,196
Commercial & industrial		563		210		2,046		2,819		35,468		38,287
Consumer		116		19		—		135		1,515		1,650
Total	$	2,243	$	304	$	5,221	$	7,768	$	481,950	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	—	$	—	$	616	$	616	$	37,320	$	37,936
Real estate construction		—		—		189		189		2,839		3,028
Real estate multi-family		—		—		—		—		11,786		11,786
Real estate 1 to 4 family		—		—		—		—		8,707		8,707
Commercial & industrial		—		—		—		—		10,217		10,217
Total	$	—	$	—	$	805	$	805	$	70,869	$	71,674
Purchased
Credit impaired
Commercial real estate	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325
Real estate construction		—		—		—		—		—		—
Real estate multi-family		—		—		—		—		—		—
Real estate 1 to 4 family		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Total	$	—	$	—	$	1,325	$	1,325	$	—	$	1,325

At December 31, 2013 there were no loans that were 90 days or more past due where interest was still accruing.

	Credit Quality Indicators
	As of June 30, 2014
(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	277,913	$	1,933	$	2,800	$	—	$	282,646
Real estate construction		36,709		—		1,069		—		37,778
Real estate multi-family		41,821		—		—		—		41,821
Real estate 1 to 4 family		108,110		—		529		146		108,785
Commercial and industrial		32,302		—		988		17		33,307
Consumer loans		1,434		—		—		—		1,434
Totals	$	498,289	$	1,933	$	5,386	$	163	$	505,771
Purchased
Not credit impaired
Commercial real estate	$	29,824	$	—	$	5,867	$	—	$	35,691
Real estate construction		1,982		—		—		—		1,982
Real estate multi-family		11,678		—		—		—		11,678
Real estate 1 to 4 family		5,681		—		403		—		6,084
Commercial and industrial		9,238		—		—		—		9,238
Total	$	58,403	$	—	$	6,270	$	—	$	64,673
Credit impaired
Commercial real estate									$	1,324
Total									$	1,324

	Credit Quality Indicators
	As of December 31, 2013
(Dollar amounts in thousands)
			Special		Sub-				Total
Originated	Pass		mention		standard		Doubtful		loans
Commercial real estate	$	280,356	$	2,330	$	3,252	$	—	$	285,938
Real estate construction		29,673		573		1,044		—		31,290
Real estate multi-family		34,357		—		—		—		34,357
Real estate 1 to 4 family		97,514		—		429		253		98,196
Commercial & industrial		36,837		—		1,439		11		38,287
Consumer loans		1,631		—		19		—		1,650
Totals	$	480,368	$	2,903	$	6,183	$	264	$	489,718
Purchased
Not credit impaired
Commercial real estate	$	28,342	$	4,951	$	4,643	$	—	$	37,936
Real estate construction		1,520		—		1,508		—		3,028
Real estate multi-family		11,786		—		—		—		11,786
Real estate 1 to 4 family		8,299		—		408		—		8,707
Commercial & industrial		10,217		—		—		—		10,217
Total	$	60,164	$	4,951	$	6,559	$	—	$	71,674
Purchased
Credit impaired
Commercial real estate									$	1,325
Total									$	1,325

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D. SECURITIES AVAILABLE FOR SALE

6 Months Ended

Jun. 30, 2014

SECURITIES AVAILABLE FOR SALE

SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available-for-sale are as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
June 30, 2014:
U.S. Treasury securities	$	3,973	$	6	$	(31	)	$	3,948
Obligations of U.S. government agencies		70,482		437		(302	)		70,617
Mortgage-backed securities		85,360		881		(1,032	)		85,209
Obligations of states and political subdivisions		81,128		2,327		(438	)		83,017
Corporate debt		24,744		319		(59	)		25,004
	$	265,687	$	3,970	$	(1,862	)	$	267,795
December 31, 2013:
U.S. Treasury securities	$	3,069	$	12	$	(54	)	$	3,027
Obligations of U.S. government agencies		73,691		488		(860	)		73,319
Mortgage-backed securities		79,873		360		(2,373	)		77,860
Obligations of states and political subdivisions		82,526		1,467		(1,317	)		82,676
Corporate debt		26,958		330		(182	)		27,106
	$	266,117	$	2,657	$	(4,786	)	$	263,988

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of June 30, 2014 and December 31, 2013, respectively, is as follows:

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
June 30, 2014:
U. S. Treasury securities	$	2,019	$	(31	)	$	—	$	—		$	2,019	$	(31	)
Obligations of U.S. Government agencies		7,808		(10	)		22,153		(292	)		29,961	$	(302	)
Mortgage-backed securities		3,598		(11	)		39,727		(1,021	)		43,325		(1,032	)
Obligations of states and political subdivisions		7,455		(65	)		15,746		(373	)		23,201		(438	)
Corporate debt		1,182		(2	)		6,907		(57	)		8,089		(59	)
Total	$	22,062	$	(119	)	$	84,533	$	(1,743	)	$	106,595	$	(1,862	)

(Dollar amounts in thousands)			Less than					12 Months
	Total		12 Months			Total		or Longer			Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2013:
U. S. Treasury securities	$	2,002	$	(54	)	$	—	$	—		$	2,002		(54	)
Obligations of U.S. Government agencies		40,108		(860	)		—		—			40,108		(860	)
Mortgage-backed securities		51,419		(2,015	)		5,664		(358	)		57,083		(2,373	)
Obligations of states and political subdivisions		33,265		(1,248	)		1,083		(69	)		34,348		(1,317	)
Corporate debt		10,857		(180	)		498		(2	)		11,355		(182	)
Total	$	137,651	$	(4,357	)	$	7,245	$	(429	)	$	144,896	$	(4,786	)

At June 30, 2014, there were sixty eight securities in an unrealized loss position for twelve consecutive months or more. At December 31, 2013, there were five securities in an unrealized loss position for twelve consecutive months or more. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to changes in interest rates and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at June 30, 2014 and December 31, 2013.

The amortized cost and carrying value of available-for-sale debt securities as of June 30, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2014:

(Dollar amounts in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale:
Due in one year or less	$	13,240	$	13,363
Due after one through five years		98,770		99,508
Due after five years through ten years		115,377		116,313
Due after ten years		38,300		38,611
	$	265,687	$	267,795

For the six months ended June 30, 2014 and June 30, 2013, respectively, gross realized gains amounted to $39,000 and $115,000, on securities sold for $5,067,000 and $8,593,000, respectively. For the six months ended June 30, 2014, there were no gross realized losses. For the six months ended June 30, 2013, there were no gross realized losses. For the three months ended June 30, 2014 and June 30, 2013, respectively, gross realized gains amounted to $28,000 and $73,000 on securities sold for $4,044,000 and $4,871,000 respectively.

At June 30, 2014, securities with an amortized cost of $67,492,000 and fair value of $68,273,000 were pledged as collateral for public deposits and for other purposes required by law.

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D. SECURITIES AVAILABLE FOR SALE, Analysis of gross unrealized losses (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Less than 12 months, Estimated Fair Value	$ 22,062	$ 137,651
Less than 12 months, Unrealized Loss	(119)	(4,357)
12 months or more, Estimated Fair Value	84,533	7,245
12 months or more, Unrealized Loss	(1,743)	(429)
Total Estimated Fair Value	106,595	144,896
Total Unrealized Loss	(1,862)	(4,786)
U.S. Treasury securities
Less than 12 months, Estimated Fair Value	2,019	2,002
Less than 12 months, Unrealized Loss	(31)	(54)
12 months or more, Estimated Fair Value	0	0
12 months or more, Unrealized Loss	0	0
Total Estimated Fair Value	2,019	2,002
Total Unrealized Loss	(31)	(54)
Obligations of U.S. government agencies
Less than 12 months, Estimated Fair Value	7,808	40,108
Less than 12 months, Unrealized Loss	(10)	(860)
12 months or more, Estimated Fair Value	22,153	0
12 months or more, Unrealized Loss	(292)	0
Total Estimated Fair Value	29,961	40,108
Total Unrealized Loss	(302)	(860)
Mortgage-backed securities
Less than 12 months, Estimated Fair Value	3,598	51,419
Less than 12 months, Unrealized Loss	(11)	(2,015)
12 months or more, Estimated Fair Value	39,727	5,664
12 months or more, Unrealized Loss	(1,021)	(358)
Total Estimated Fair Value	43,325	57,083
Total Unrealized Loss	(1,032)	(2,373)
Obligations of states and political subdivisions
Less than 12 months, Estimated Fair Value	7,455	33,265
Less than 12 months, Unrealized Loss	(65)	(1,248)
12 months or more, Estimated Fair Value	15,746	1,083
12 months or more, Unrealized Loss	(373)	(69)
Total Estimated Fair Value	23,201	34,348
Total Unrealized Loss	(438)	(1,317)
Corporate debt
Less than 12 months, Estimated Fair Value	1,182	10,857
Less than 12 months, Unrealized Loss	(2)	(180)
12 months or more, Estimated Fair Value	6,907	498
12 months or more, Unrealized Loss	(57)	(2)
Total Estimated Fair Value	8,089	11,355
Total Unrealized Loss	$ (59)	$ (182)

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G. FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2014

FAIR VALUE MEASUREMENT TABLES {1}

Schedule of assets measured at fair value on a recurring basis

The following tables present the recorded amounts of assets measured at fair value on a recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,948	$	3,948	$	—	$	—
Obligations of U.S. Government agencies		70,617		—		70,617		—
Mortgage-backed securities		85,209		—		85,209		—
Obligations of states and political subdivisions		83,017		—		83,017		—
Corporate debt		25,004		—		25,004		—
Total assets measured at fair value	$	267,795	$	3,948	$	263,847	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,027	$	3,027	$	—	$	—
Obligations of U.S. Government agencies		73,319		—		73,319		—
Mortgage-backed securities		77,860		—		77,860		—
Obligations of states and political subdivisions		82,676		—		82,676		—
Corporate debt		27,106		—		27,106		—
Total assets measured at fair value	$	263,988	$	3,027	$	260,961	$	—

Schedule of assets measured at fair value on a non-recurring basis

The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans:
Commercial and industrial	$	1,110	$	—	$	—	$	1,110
Residential- 1 to 4 family		64		—		—		64
Commercial real estate		373		—		—		373
Total impaired assets measured at fair value	$	1,547	$	—	$	—	$	1,547
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans::
Commercial and industrial	$	1,908	$	—	$	—	$	1,908
Residential- 1 to 4 family		411		—		—		411
Commercial real estate		2,491		—		—		2,491
Other real estate owned		1,771		—		—		1,771
Total impaired assets measured at fair value	$	6,581	$	—	$	—	$	6,581

Schedule of estimated fair value of financial instruments

The following table provides summary information on the estimated fair value of financial instruments at June 30, 2014:

June 30, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	21,682	$	21,682	$	21,682
Interest-bearing time deposits with financial institutions		4,461		4,461				4,461
Securities available for sale		267,795		267,795		3,948		263,847
Loans		571,291		583,474						583,474
Other equity securities		5,576		5,576						5,576
Accrued interest receivable		3,674		3,674				3,674
Financial liabilities:
Deposits		790,222		790,222				790,222
Federal Home Loan Bank advances		7,000		7,000				7,000
Note payable		5,850		5,850				5,850
Accrued interest payable		239		239				239
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,391						1,391

The following table provides summary information on the estimated fair value of financial instruments at December 31, 2013: 

December 31, 2013	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,007	$	14,007	$	14,007
Interest-bearing time deposits with financial institutions		5,543		5,543				5,543
Securities available for sale		263,988		263,988		3,027		260,961
Loans		562,717		563,325						563,325
Other equity securities		5,300		5,300						5,300
Accrued interest receivable		3,808		3,808				3,808
Financial liabilities:
Deposits		773,615		774,012				774,012
Federal Home Loan Bank advances		15,000		15,000				15,000
Accrued interest payable		224		224				224
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,297						1,297

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H. PREFERRED STOCK

6 Months Ended

Jun. 30, 2014

PREFERRED STOCK

PREFERRED STOCK

On September 15, 2011, Preferred Stock was issued to the U. S. Treasury as part of the Treasury’s Small Business Lending Fund (“SBLF”), as Preferred Stock – Series C – Non-Cumulative. The initial dividend rate was 5%. Depending on the volume of our small business lending, the dividend rate can be reduced to as low as one percent. If lending does not increase in the first two years, the dividend rate will increase to seven percent. Effective January 1, 2014, the effective dividend rate increased from 5% to 9%.

On May 6, 2013, 25% or $3,150,000 of the original $12,600,000 was redeemed. On January 24, 2014, FNB Bancorp (the “Company”) redeemed all the remaining outstanding preferred shares that had been issued to the United States Treasury Department through the Small Business Lending Fund (“SBLF”) in a cash redemption transaction. Subsequent to this redemption, the United States Treasury Department no longer has any equity interest in the Company of any kind.

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F. BORROWINGS

6 Months Ended

Jun. 30, 2014

BORROWINGS

BORROWINGS

Federal home Loan Bank advances

There is an overnight advance dated June 30, 2014 in the amount of $7,000,000 at 0.18% which matured on July 1, 2014 and was paid off.

Corporate loan

On March 27, 2014, FNB Bancorp received funding under a $6,000,000 term loan credit facility. This loan carries a variable rate of interest that fluctuates on a monthly basis. The interest rate is based on the 3 month LIBOR rate plus 4%. Payments of $50,000 in principal plus accrued interest are payable monthly. The first loan payment was due May 1^st, 2014. The maturity date on this credit facility is March 26, 2019. On the maturity date, all outstanding principal plus accrued interest shall become due and payable. FNB Bancorp has pledged its stock ownership in First National Bank of Northern California as collateral subject to the terms and conditions contained in the Loan Agreement and the Pledge and Security Agreement. FNB Bancorp retains the right to prepay this debt at any time upon not less than 7 days’ prior written notice to Lender. The proceeds from this loan were contributed to the Bank as an additional capital contribution. This capital contribution qualified as Tier 1 capital for the Bank under regulatory capital guidelines.

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G. FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2014

FAIR VALUE MEASUREMENT TABLES

FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value as of June 30, 2014 and December 31, 2013, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following tables present the recorded amounts of assets measured at fair value on a recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,948	$	3,948	$	—	$	—
Obligations of U.S. Government agencies		70,617		—		70,617		—
Mortgage-backed securities		85,209		—		85,209		—
Obligations of states and political subdivisions		83,017		—		83,017		—
Corporate debt		25,004		—		25,004		—
Total assets measured at fair value	$	267,795	$	3,948	$	263,847	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	3,027	$	3,027	$	—	$	—
Obligations of U.S. Government agencies		73,319		—		73,319		—
Mortgage-backed securities		77,860		—		77,860		—
Obligations of states and political subdivisions		82,676		—		82,676		—
Corporate debt		27,106		—		27,106		—
Total assets measured at fair value	$	263,988	$	3,027	$	260,961	$	—

The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at June 30, 2014, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	6/30/2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans:
Commercial and industrial	$	1,110	$	—	$	—	$	1,110
Residential- 1 to 4 family		64		—		—		64
Commercial real estate		373		—		—		373
Total impaired assets measured at fair value	$	1,547	$	—	$	—	$	1,547
			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2013, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans::
Commercial and industrial	$	1,908	$	—	$	—	$	1,908
Residential- 1 to 4 family		411		—		—		411
Commercial real estate		2,491		—		—		2,491
Other real estate owned		1,771		—		—		1,771
Total impaired assets measured at fair value	$	6,581	$	—	$	—	$	6,581

The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.

Other real estate owned is carried at the lower of historical cost or fair market value less costs to sell. An appraisal (a Level 3 valuation) is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment is recorded along with a corresponding reduction in the book carrying value of the property.

The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Generally, the third party appraisals apply the “market approach,” which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3.

Fair Values of Financial Instruments.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.

Cash and Cash Equivalents including Interest Bearing Time Deposits with Financial Institutions.

The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.

Securities Available-for-Sale.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans Receivable.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.

Other equity securities.

These are mostly Federal Reserve Bank stock and Federal Home Loan Bank stock, carried in Other Assets. They are not traded, and not available for sale, and have no fair market value.

Deposit liabilities.

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.

Federal Home Loan Bank Advances.

The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.

Notes payable.

Fair value is equal to the current balance. They represent a corporate loan with a monthly variable rate, based on the 3-month LIBOR rate plus 4%.

Accrued Interest Receivable and Payable

The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.

The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.

The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

The following table provides summary information on the estimated fair value of financial instruments at June 30, 2014:

June 30, 2014	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	21,682	$	21,682	$	21,682
Interest-bearing time deposits with financial institutions		4,461		4,461				4,461
Securities available for sale		267,795		267,795		3,948		263,847
Loans		571,291		583,474						583,474
Other equity securities		5,576		5,576						5,576
Accrued interest receivable		3,674		3,674				3,674
Financial liabilities:
Deposits		790,222		790,222				790,222
Federal Home Loan Bank advances		7,000		7,000				7,000
Note payable		5,850		5,850				5,850
Accrued interest payable		239		239				239
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,391						1,391

The carrying amount of loans include $5,463,000 of nonaccrual loans (loans that are not accruing interest) as of June 30, 2014. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.

The following table provides summary information on the estimated fair value of financial instruments at December 31, 2013: 

December 31, 2013	Carrying		Fair		Fair value measurements
(Dollar amounts in thousands)	amount		value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	14,007	$	14,007	$	14,007
Interest-bearing time deposits with financial institutions		5,543		5,543				5,543
Securities available for sale		263,988		263,988		3,027		260,961
Loans		562,717		563,325						563,325
Other equity securities		5,300		5,300						5,300
Accrued interest receivable		3,808		3,808				3,808
Financial liabilities:
Deposits		773,615		774,012				774,012
Federal Home Loan Bank advances		15,000		15,000				15,000
Accrued interest payable		224		224				224
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		1,297						1,297

The carrying amount of loans include $7,351,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2013. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. 

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C. EARNINGS PER SHARE CALCULATION (Tables)

6 Months Ended

Jun. 30, 2014

Earnings per share computed

Earnings per common share (EPS) computed

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Net earnings	$	1,629	$	1,379	$	3,463	$	2,309
Dividends and discount accretion on preferred stock		—		172		170		330
Net earnings available to common stockholders	$	1,629	$	1,207	$	3,293	$	1,979
Average number of shares outstanding		4,029		3,915		4,007		3,908
Effect of dilutive options		130		88		135		92
Average number of shares outstanding used to calculate diluted earnings per share		4,159		4,003		4,142		4,000
Anti-dilutive options not included		62,800		204,359		246,420		230,859

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G. FAIR VALUE MEASUREMENT, Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
U. S. Treasury securities	$ 3,948	$ 3,027
Obligations of U.S. Government agencies	70,617	73,319
Mortgage-backed securities	85,209	77,860
Obligations of states and political subdivisions	83,017	82,676
Corporate debt	25,004	27,106
Total assets measured at fair value	267,795	263,988
Level 1
U. S. Treasury securities	3,948	3,027
Obligations of U.S. Government agencies	0	0
Mortgage-backed securities	0	0
Obligations of states and political subdivisions	0	0
Corporate debt	0	0
Total assets measured at fair value	3,948	3,027
Level 2
U. S. Treasury securities	0	0
Obligations of U.S. Government agencies	70,617	73,319
Mortgage-backed securities	85,209	77,860
Obligations of states and political subdivisions	83,017	82,676
Corporate debt	25,004	27,106
Total assets measured at fair value	263,847	260,961
Level 3
U. S. Treasury securities	0	0
Obligations of U.S. Government agencies	0	0
Mortgage-backed securities	0	0
Obligations of states and political subdivisions	0	0
Corporate debt	0	0
Total assets measured at fair value	$ 0	$ 0

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C. EARNINGS PER SHARE CALCULATION (Dollar amounts in thousands) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Summary Earnings per share calculation
Net earnings	$ 1,629	$ 1,379	$ 3,463	$ 2,309
Dividends and discount accretion on preferred stock	0	172	170	330
Net earnings available to common stockholders	1,629	1,207	3,293	1,979
Average number of shares outstanding	4,029	3,915	4,007	3,908
Effect of dilutive options	$ 130	$ 88	$ 135	$ 92
Average number of shares outstanding used to calculate diluted earnings per share	4,159	4,003	4,142	4,000
Anti-dilutive options not included	62,800	204,359	246,420	230,859

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5. LOANS, Allowance for Credit Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Real Estate Multi family
Allowance for credit losses
Beginning balance	$ 369	$ 281	$ 293	$ 0
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	96	48	172	329
Ending balance	465	329	465	329
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	465	329	465	329
Real Estate 1 to 4 family
Allowance for credit losses
Beginning balance	1,835	1,862	1,788	1,516
Charge-offs	0	(125)	(62)	(244)
Recoveries	1	0	2	1
Provision	414	91	522	518
Ending balance	2,250	1,828	2,250	1,791
Ending balance: individually evaluated for impairment	481	237	481	237
Ending balance: collectively evaluated for impairment	1,769	1,591	1,769	1,554
Commercial and industrial
Allowance for credit losses
Beginning balance	1,268	1,577	1,237	1,875
Charge-offs	0	0	0	0
Recoveries	110	0	124	70
Provision	(212)	(86)	(195)	(454)
Ending balance	1,166	1,491	1,166	1,491
Ending balance: individually evaluated for impairment	151	254	151	254
Ending balance: collectively evaluated for impairment	1,015	1,237	1,015	1,237
Commercial and Real estate
Allowance for credit losses
Beginning balance	5,624	4,930	5,763	4,812
Charge-offs	0	0	0	(239)
Recoveries	1,051	2	1,052	4
Provision	(460)	379	(600)	754
Ending balance	6,215	5,311	6,215	5,331
Ending balance: individually evaluated for impairment	128	189	128	210
Ending balance: collectively evaluated for impairment	6,087	5,122	6,087	5,121
Real Estate Construction
Allowance for credit losses
Beginning balance	735	653	734	857
Charge-offs	(183)	0	(183)	(81)
Recoveries	0	0	0	0
Provision	165	72	166	(34)
Ending balance	717	725	717	742
Ending balance: individually evaluated for impairment	0	0	0	17
Ending balance: collectively evaluated for impairment	717	725	717	725
Consumer
Allowance for credit losses
Beginning balance	66	54	64	64
Charge-offs	(20)	0	(31)	(1)
Recoveries	3	1	3	1
Provision	(3)	6	10	(3)
Ending balance	46	61	46	61
Ending balance: individually evaluated for impairment	0	1	0	1
Ending balance: collectively evaluated for impairment	46	60	46	60
Total
Allowance for credit losses
Beginning balance	9,897	9,357	9,879	9,124
Charge-offs	(203)	(125)	(276)	(565)
Recoveries	1,165	3	1,181	76
Provision	0	510	75	1,110
Ending balance	10,859	9,745	10,859	9,745
Ending balance: individually evaluated for impairment	760	681	760	719
Ending balance: collectively evaluated for impairment	$ 10,099	$ 9,064	$ 10,099	$ 9,026

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Consolidated Statements of Comprehensive Earnings (Unaudited) (Dollar amounts in thousands) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Net earnings	$ 1,629	$ 1,379	$ 3,463	$ 2,309
Unrealized holding gain (loss) on available-for-sale securities, net of tax expense of ($1,034) and ($1,754) for three and six months ended June 30, 2014, and net of tax benefit of $2,783 and $3,074 for three and six months ended June 30, 2013.	1,487	(4,005)	2,522	(4,423)
Reclassification adjustment for gain on available-for-sale securities sold, net of tax of $11 and $16 for three and six months ended June 30, 2014, and $30 and $47 for the three and six months ended June 30, 2013, respectively	(17)	(43)	(23)	(68)
Other Comprehensive Income / (loss)	1,470	(4,048)	2,499	(4,491)
Total comprehensive earnings (loss)	$ 3,099	$ (2,669)	$ 5,962	$ (2,182)

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C. EARNINGS PER SHARE CALCULATION

6 Months Ended

Jun. 30, 2014

EARNINGS PER SHARE CALCULATION

EARNINGS PER SHARE CALCULATION

Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings (loss) available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. All common stock equivalents are anti-dilutive when a net loss occurs. A 5% stock dividend was declared in the fourth quarter of 2013, and prior per share amounts have been adjusted to reflect the 5% stock dividend.

Earnings per share have been computed based on the following:

(All amounts in thousands)	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Net earnings	$	1,629	$	1,379	$	3,463	$	2,309
Dividends and discount accretion on preferred stock		—		172		170		330
Net earnings available to common stockholders	$	1,629	$	1,207	$	3,293	$	1,979
Average number of shares outstanding		4,029		3,915		4,007		3,908
Effect of dilutive options		130		88		135		92
Average number of shares outstanding used to calculate diluted earnings per share		4,159		4,003		4,142		4,000
Anti-dilutive options not included		62,800		204,359		246,420		230,859

Anti-dilutive options that were excluded from the calculation for the quarter end and year to date were 62,800 and 246,420 in 2014, and 204,359 and 230,859 in 2013, respectively.

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5. LOANS, Recorded Investment in Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Real Estate Construction
Loans:
Ending balance	$ 39,760	$ 34,318	$ 25,974
Ending balance: individually evaluated for impairment	2,382	189	591
Ending balance: collectively evaluated for impairment	37,378	34,129	25,383
Real Estate Multi family
Loans:
Ending balance	53,499	46,143	56,002
Ending balance: individually evaluated for impairment	0	375	1,192
Ending balance: collectively evaluated for impairment	53,499	46,143	54,810
Commercial and industrial
Loans:
Ending balance	42,545	48,504	47,739
Ending balance: individually evaluated for impairment	4,133	2,497	3,795
Ending balance: collectively evaluated for impairment	38,412	46,007	43,944
Commercial and Real estate
Loans:
Ending balance	319,661	323,874	304,819
Ending balance: individually evaluated for impairment	9,043	17,974	19,244
Ending balance: collectively evaluated for impairment	310,618	305,900	285,575
Real Estate 1 to 4 family
Loans:
Ending balance	114,869	106,903	105,094
Ending balance: individually evaluated for impairment	3,847	4,077	3,395
Ending balance: collectively evaluated for impairment	111,022	102,826	101,699
Consumer
Loans:
Ending balance	1,434	1,650	1,725
Ending balance: individually evaluated for impairment	9	0	1
Ending balance: collectively evaluated for impairment	1,425	1,650	1,724
Total
Loans:
Ending balance	571,768	561,392	541,353
Ending balance: individually evaluated for impairment	19,414	25,112	28,218
Ending balance: collectively evaluated for impairment	$ 552,354	$ 536,655	$ 513,135

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B. STOCK OPTION PLANS (Detail Narratives) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
STOCK OPTION PLANS DETAILS
Compensation expense for options	$ 69	$ 76	$ 139	$ 122
Recognized income tax benefit			245	121
Intrinsic Value Options Exercised			259	108
Intrinsic Value Options Exercisable	2,239	1,081	2,239	1,081
Unrecognized Compensation Expense Nonvested Options	$ 764		$ 764
Non-vested options weighted average period			3 years 7 months 6 days