Ending a six-year feud provided a big holiday lift for this Pa. bank

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FNCB Bancorp in Dunmore, Pa., received an early Christmas gift Friday, settling a long-running legal dispute with a Maryland insurer.

Under the settlement, the $1.3 billion-asset FNCB, the holding company for FNCB Bank, expects to record a one-time, $6 million gain in the fourth quarter. Earnings for the first nine months of 2018 totaled $6.3 million.

FNCB announced the conclusion of the 6-year-old lawsuit with Fidelity and Deposit Co. of Maryland in a report filed late Friday with the Securities and Exchange Commission.

“The case was resolved to the parties’ mutual satisfaction,” the bank said.

In an interview Monday, Chief Financial Officer James Bone declined to discuss details of the lawsuit. There seems little doubt, though, the $6 million payout will provide solid momentum as the company enters 2019.

Along with boosting regulatory capital levels, the settlement should push FNCB’s results closer to parity with peer institutions. Through the first nine months of the year, FNCB’s return on assets totaled 0.78%, nearly 60 basis points below the average for banks with assets between $1 billion and $10 billion, according to the Federal Deposit Insurance Corp.

“We can focus on operations on a go-forward basis,” Bone said.

In an investor presentation last month, FNCB set a goal of reaching and exceeding a 1% return on assets.

FNCB has not disclosed its 2018 legal expenses. It reported attorney fees totaling more than $920,000 between 2015 and 2017.

FNCB's beef with Fidelity and Deposit stretches back to September 2012. After the bank filed a claim for insurance coverage, Fidelity and Deposit sued FNCB in U.S. District Court for the Middle District of Pennsylvania seeking to rescind a directors and officers insurance policy.

FNCB first obtained the policy in 2003, renewing it in 2010 and extending it further in 2011. It filed a counterclaim against Fidelity and Deposit in November 2012 seeking payment of its original claim plus losses and expenses resulting from the lawsuit.

The original claim stems from a shareholder lawsuit, filed in May 2012, alleging FNCB’s directors failed to properly supervise the company as it took on more risk. FNCB settled the suit for $5 million in March 2014, though it admitted no wrongdoing.

Friday’s settlement appears to close the books on a string of legal, regulatory and operations problems that have bedeviled FNCB for several years. In addition to its legal issues with shareholders and with Fidelity and Deposit, FNCB has worked through a consent order with the Office of the Comptroller of the Currency, as well as problems with Bank Secrecy Act compliance and financial reporting.

A spokesperson for Fidelity and Deposit, a subsidiary of Zurich American Insurance Co., declined to comment.

FNCB, which changed its name from First National Community Bank in 2016, operates 18 branches across three counties in northeastern Pennsylvania.

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