NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
Basis of Presentation
The accompanying unaudited interim consolidated condensed financial statements include LCNB Corp. ("LCNB") and its wholly-owned subsidiaries: LCNB National Bank (the "Bank") and LCNB Risk Management, Inc., its captive insurance company. All material intercompany transactions and balances are eliminated in consolidation.
The unaudited interim consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 10-01.
The consolidated condensed balance sheet as of December 31, 2018 has been derived from the audited consolidated balance sheet as of that date.
Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies, and financial notes thereto included in LCNB's 2018 Annual Report on Form 10-K filed with the SEC.
Accounting Changes
ASU No. 2016-02, "Leases (Topic 842)"
ASU No. 2016-02 was issued in February 2016 and was adopted by LCNB as of January 1, 2019. It requires a lessee to recognize in the statement of financial position a liability to make lease payments ("the lease liability") and a right-of-use asset representing its right to use the underlying asset for the lease term, initially measured at the present value of the lease payments. When measuring assets and liabilities arising from a lease, the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments.
A lessee shall classify a lease as a finance lease if it meets any of five listed criteria:
|
|
|
|
1.
|
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
|
|
|
|
|
2.
|
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
|
|
|
|
|
3.
|
The lease term is for the major part of the remaining economic life of the underlying asset.
|
|
|
|
|
4.
|
The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.
|
|
|
|
|
5.
|
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
|
For finance leases, a lessee shall recognize in the statement of income interest on the lease liability separately from amortization of the right-of-use asset. Amortization of the right-of-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 1 - Basis of Presentation (continued)
LCNB adopted this update using a modified retrospective approach, as defined, and elected not to restate comparable prior periods. The update provides for a number of practical expedients that can be used to simplify the transition to the new standard. LCNB elected a package of practical expedients that allowed it to not reassess whether an existing contract is or contains a lease, to not reassess previous lease classifications, and to not reassess initial direct costs. LCNB also elected a practical expedient that allowed it to use hindsight when determining lease terms. LCNB did not elect a practical expedient that would have allowed it to not reassess certain land easements, as this expedient was not applicable to it.
LCNB has adopted an accounting policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. Lease expense for such leases will generally be recognized on a straight-line basis over the lease term.
Note 2 – Acquisition
On December 20, 2017, LCNB and Columbus First Bancorp, Inc. (“CFB”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which CFB merged with and into LCNB on May 31, 2018. Immediately following the merger of CFB into LCNB, Columbus First Bank, a wholly-owned subsidiary of CFB, merged into the Bank. Columbus First Bank operated from one full-service office located in Worthington, Ohio. That office became a branch of the Bank after the merger.
Under the terms of the Merger Agreement, the shareholders of CFB received two shares of LCNB common stock for each outstanding CFB common share. Unexercised stock options of CFB were canceled in exchange for a cash payment.
The merger with CFB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at their estimated fair values as of the merger date. The estimated fair values reported in LCNB's Form 10-Q for the quarterly period ended June 30, 2018 were preliminary, as the pricing study had not been finalized at that time.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 2 – Acquisition (continued)
The following table summarizes the preliminary balances at June 30, 2018, revisions to the preliminary balances, and the balances at December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Fair Value Adjustments
|
|
December 31, 2018
|
|
Consideration Paid:
|
|
|
|
|
|
|
Common shares issued (3,253,060 shares issued at $19.55 per share)
|
$
|
63,598
|
|
|
—
|
|
|
63,598
|
|
|
Cash paid to cancel share based payment awards
|
783
|
|
|
—
|
|
|
783
|
|
|
|
64,381
|
|
|
—
|
|
|
64,381
|
|
|
|
|
|
|
|
|
|
Identifiable Assets Acquired:
|
|
|
|
|
|
|
Cash and cash equivalents
|
13,679
|
|
|
—
|
|
|
13,679
|
|
|
Interest-bearing time deposits
|
10,350
|
|
|
—
|
|
|
10,350
|
|
|
Federal Home Loan Bank stock
|
1,207
|
|
|
—
|
|
|
1,207
|
|
|
Loans, net
|
282,748
|
|
|
(615
|
)
|
|
282,133
|
|
|
Loans held for sale, net
|
1,819
|
|
|
—
|
|
|
1,819
|
|
|
Premises and equipment
|
102
|
|
|
—
|
|
|
102
|
|
|
Core deposit intangible
|
2,089
|
|
|
88
|
|
|
2,177
|
|
|
Other real estate owned
|
35
|
|
|
—
|
|
|
35
|
|
|
Deferred income taxes
|
—
|
|
|
352
|
|
|
352
|
|
|
Other assets
|
2,022
|
|
|
(658
|
)
|
|
1,364
|
|
|
Total identifiable assets acquired
|
314,051
|
|
|
(833
|
)
|
|
313,218
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
Deposits
|
245,036
|
|
|
(606
|
)
|
|
244,430
|
|
|
Short-term borrowings
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
Long-term debt
|
22,920
|
|
|
23
|
|
|
22,943
|
|
|
Deferred income taxes
|
200
|
|
|
(200
|
)
|
|
—
|
|
|
Other liabilities
|
491
|
|
|
11
|
|
|
502
|
|
|
Total liabilities assumed
|
278,647
|
|
|
(772
|
)
|
|
277,875
|
|
|
|
|
|
|
|
|
|
Total Identifiable Net Assets Acquired
|
35,404
|
|
|
(61
|
)
|
|
35,343
|
|
|
|
|
|
|
|
|
|
Goodwill resulting from merger
|
$
|
28,977
|
|
|
61
|
|
|
29,038
|
|
As permitted by ASC 805-10-25, Business Combinations, the above estimated amounts could be adjusted up to one year after the closing date of the acquisition to reflect any new information obtained about facts and circumstances existing at the acquisition date. Any changes in the estimated fair values were recognized in the period the adjustment was identified. This adjustment period closed on May 31, 2019. There were no revisions during 2019.
The amount of goodwill recorded reflects LCNB's expansion in the Columbus market and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill will not be amortizable on LCNB's financial records and will not be deductible for tax purposes. Goodwill will be subject to an annual test for impairment and the amount impaired, if any, will be charged to expense at the time of impairment. The core deposit intangible is being amortized over the estimated weighted average economic life of the various core deposit types, which is approximately seven years.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 2 – Acquisition (continued)
Direct costs related to the acquisition were expensed as incurred and are recorded as a merger-related expense in the consolidated condensed statements of income.
CFB's results of operations are included in the consolidated condensed statements of income from May 31, 2018, the effective date of the merger.
Note 3 - Investment Securities
The amortized cost and estimated fair value of equity and debt securities at September 30, 2019 and December 31, 2018 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Debt Securities, Available-for-Sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
$
|
2,274
|
|
|
38
|
|
|
—
|
|
|
2,312
|
|
|
U.S. Agency notes
|
48,766
|
|
|
336
|
|
|
59
|
|
|
49,043
|
|
|
U.S. Agency mortgage-backed securities
|
84,665
|
|
|
630
|
|
|
233
|
|
|
85,062
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
38,214
|
|
|
145
|
|
|
68
|
|
|
38,291
|
|
|
Taxable
|
16,196
|
|
|
331
|
|
|
5
|
|
|
16,522
|
|
|
|
$
|
190,115
|
|
|
1,480
|
|
|
365
|
|
|
191,230
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities, Held-to-Maturity:
|
|
|
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
Non-taxable
|
$
|
25,934
|
|
|
208
|
|
|
17
|
|
|
26,125
|
|
|
Taxable
|
8,097
|
|
|
194
|
|
|
—
|
|
|
8,291
|
|
|
|
$
|
34,031
|
|
|
402
|
|
|
17
|
|
|
34,416
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Debt Securities, Available-for-Sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
$
|
2,278
|
|
|
—
|
|
|
43
|
|
|
2,235
|
|
|
U.S. Agency notes
|
80,708
|
|
|
—
|
|
|
2,368
|
|
|
78,340
|
|
|
U.S. Agency mortgage-backed securities
|
57,584
|
|
|
7
|
|
|
1,981
|
|
|
55,610
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
86,059
|
|
|
77
|
|
|
1,422
|
|
|
84,714
|
|
|
Taxable
|
17,654
|
|
|
102
|
|
|
234
|
|
|
17,522
|
|
|
|
$
|
244,283
|
|
|
186
|
|
|
6,048
|
|
|
238,421
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities, Held-to-Maturity:
|
|
|
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
Non-taxable
|
$
|
26,021
|
|
|
84
|
|
|
635
|
|
|
25,470
|
|
|
Taxable
|
3,700
|
|
|
—
|
|
|
146
|
|
|
3,554
|
|
|
|
$
|
29,721
|
|
|
84
|
|
|
781
|
|
|
29,024
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 - Investment Securities (continued)
Information concerning debt securities with gross unrealized losses at September 30, 2019 and December 31, 2018, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
U.S. Agency notes
|
—
|
|
|
—
|
|
|
21,900
|
|
|
59
|
|
|
U.S. Agency mortgage-backed securities
|
2,818
|
|
|
2
|
|
|
21,758
|
|
|
231
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
13,061
|
|
|
47
|
|
|
1,492
|
|
|
21
|
|
|
Taxable
|
—
|
|
|
—
|
|
|
4,048
|
|
|
5
|
|
|
|
$
|
15,879
|
|
|
49
|
|
|
49,198
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
Non-taxable
|
$
|
991
|
|
|
1
|
|
|
2,649
|
|
|
16
|
|
|
Taxable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
991
|
|
|
1
|
|
|
2,649
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
$
|
—
|
|
|
—
|
|
|
2,235
|
|
|
43
|
|
|
U.S. Agency notes
|
4,988
|
|
|
7
|
|
|
73,351
|
|
|
2,361
|
|
|
U.S. Agency mortgage-backed securities
|
137
|
|
|
—
|
|
|
55,217
|
|
|
1,981
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
14,264
|
|
|
49
|
|
|
58,211
|
|
|
1,373
|
|
|
Taxable
|
—
|
|
|
—
|
|
|
14,407
|
|
|
234
|
|
|
|
$
|
19,389
|
|
|
56
|
|
|
203,421
|
|
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
Non-taxable
|
$
|
366
|
|
|
1
|
|
|
18,588
|
|
|
634
|
|
|
Taxable
|
400
|
|
|
1
|
|
|
3,154
|
|
|
145
|
|
|
|
$
|
766
|
|
|
2
|
|
|
21,742
|
|
|
779
|
|
Management has determined that the unrealized losses at September 30, 2019 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities. Because LCNB does not have the intent to sell the investments and it is more likely than not that LCNB will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, LCNB does not consider these investments to be other-than-temporarily impaired.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 - Investment Securities (continued)
Contractual maturities of debt securities at September 30, 2019 were as follows (in thousands). Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Due within one year
|
$
|
9,983
|
|
|
9,981
|
|
|
2,535
|
|
|
2,539
|
|
|
Due from one to five years
|
63,472
|
|
|
63,712
|
|
|
7,876
|
|
|
7,994
|
|
|
Due from five to ten years
|
30,291
|
|
|
30,756
|
|
|
8,495
|
|
|
8,511
|
|
|
Due after ten years
|
1,704
|
|
|
1,719
|
|
|
15,125
|
|
|
15,372
|
|
|
|
105,450
|
|
|
106,168
|
|
|
34,031
|
|
|
34,416
|
|
|
U.S. Agency mortgage-backed securities
|
84,665
|
|
|
85,062
|
|
|
—
|
|
|
—
|
|
|
|
$
|
190,115
|
|
|
191,230
|
|
|
34,031
|
|
|
34,416
|
|
Debt securities with a market value of $166,744,000 and $106,568,000 at September 30, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and for other purposes required or as permitted by law.
Certain information concerning the sale of debt securities, available-for-sale, for the three and nine months ended September 30, 2019 and 2018 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Proceeds from sales
|
$
|
25,105
|
|
|
5,202
|
|
|
75,407
|
|
|
8,545
|
|
|
Gross realized gains
|
84
|
|
|
14
|
|
|
212
|
|
|
21
|
|
|
Gross realized losses
|
104
|
|
|
21
|
|
|
249
|
|
|
29
|
|
Realized gains or losses from the sale of securities are computed using the specific identification method.
Equity securities with a readily determinable fair value are carried at fair value, with changes in fair value recognized in other operating income in the consolidated condensed statements of income. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer. LCNB was not aware of any impairment or observable price change adjustments that needed to be made at September 30, 2019 on its investments in equity securities without a readily determinable fair value.
The amortized cost and estimated fair value of equity securities with a readily determinable fair value at September 30, 2019 and December 31, 2018 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Mutual funds
|
$
|
1,364
|
|
|
1,341
|
|
|
1,651
|
|
|
1,559
|
|
|
Equity securities
|
755
|
|
|
925
|
|
|
471
|
|
|
519
|
|
|
Total equity securities with a readily determinable fair value
|
$
|
2,119
|
|
|
2,266
|
|
|
2,122
|
|
|
2,078
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 - Investment Securities (continued)
Certain information concerning changes in fair value of equity securities with a readily determinable fair value for the nine months ended September 30, 2019 and 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
Net gains recognized
|
$
|
207
|
|
|
12
|
|
|
Less net realized gains on equity securities sold
|
17
|
|
|
25
|
|
|
Unrealized gains (losses) recognized and still held at period end
|
$
|
190
|
|
|
(13
|
)
|
Note 4 - Loans
Major classifications of loans at September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Commercial and industrial
|
$
|
71,576
|
|
|
77,740
|
|
|
Commercial, secured by real estate
|
797,842
|
|
|
740,647
|
|
|
Residential real estate
|
320,703
|
|
|
349,127
|
|
|
Consumer
|
23,918
|
|
|
17,283
|
|
|
Agricultural
|
11,525
|
|
|
13,297
|
|
|
Other loans, including deposit overdrafts
|
456
|
|
|
450
|
|
|
Loans, gross
|
1,226,020
|
|
|
1,198,544
|
|
|
Deferred origination costs (fees), net
|
(128
|
)
|
|
79
|
|
|
Loans, net of deferred origination costs (fees)
|
1,225,892
|
|
|
1,198,623
|
|
|
Less allowance for loan losses
|
4,167
|
|
|
4,046
|
|
|
Loans, net
|
$
|
1,221,725
|
|
|
1,194,577
|
|
Non-accrual, past-due, and accruing restructured loans as of September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Non-accrual loans:
|
|
|
|
|
Commercial and industrial
|
$
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
2,624
|
|
|
1,767
|
|
|
Residential real estate
|
899
|
|
|
1,007
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
Agricultural
|
—
|
|
|
177
|
|
|
Total non-accrual loans
|
3,523
|
|
|
2,951
|
|
|
Past-due 90 days or more and still accruing
|
—
|
|
|
149
|
|
|
Total non-accrual and past-due 90 days or more and still accruing
|
3,523
|
|
|
3,100
|
|
|
Accruing restructured loans
|
6,784
|
|
|
10,516
|
|
|
Total
|
$
|
10,307
|
|
|
13,616
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
The allowance for loan losses for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
& Industrial
|
|
Commercial, Secured by
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Agricultural
|
|
Other
|
|
Total
|
|
Three Months Ended September 30, 2019
|
|
Balance, beginning of period
|
$
|
497
|
|
|
2,720
|
|
|
773
|
|
|
81
|
|
|
38
|
|
|
3
|
|
|
4,112
|
|
|
Provision (credit) charged to expenses
|
(50
|
)
|
|
372
|
|
|
(101
|
)
|
|
10
|
|
|
1
|
|
|
32
|
|
|
264
|
|
|
Losses charged off
|
(47
|
)
|
|
—
|
|
|
(204
|
)
|
|
(5
|
)
|
|
—
|
|
|
(52
|
)
|
|
(308
|
)
|
|
Recoveries
|
—
|
|
|
—
|
|
|
73
|
|
|
4
|
|
|
—
|
|
|
22
|
|
|
99
|
|
|
Balance, end of period
|
$
|
400
|
|
|
3,092
|
|
|
541
|
|
|
90
|
|
|
39
|
|
|
5
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Balance, beginning of year
|
$
|
400
|
|
|
2,745
|
|
|
767
|
|
|
87
|
|
|
46
|
|
|
1
|
|
|
4,046
|
|
|
Provision (credit) charged to expenses
|
47
|
|
|
298
|
|
|
(189
|
)
|
|
(12
|
)
|
|
(7
|
)
|
|
76
|
|
|
213
|
|
|
Losses charged off
|
(47
|
)
|
|
(7
|
)
|
|
(272
|
)
|
|
(15
|
)
|
|
—
|
|
|
(126
|
)
|
|
(467
|
)
|
|
Recoveries
|
—
|
|
|
56
|
|
|
235
|
|
|
30
|
|
|
—
|
|
|
54
|
|
|
375
|
|
|
Balance, end of period
|
$
|
400
|
|
|
3,092
|
|
|
541
|
|
|
90
|
|
|
39
|
|
|
5
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Balance, beginning of period
|
$
|
407
|
|
|
2,383
|
|
|
690
|
|
|
70
|
|
|
52
|
|
|
1
|
|
|
3,603
|
|
|
Provision (credit) charged to expenses
|
(3
|
)
|
|
488
|
|
|
25
|
|
|
95
|
|
|
2
|
|
|
52
|
|
|
659
|
|
|
Losses charged off
|
—
|
|
|
(116
|
)
|
|
—
|
|
|
(88
|
)
|
|
—
|
|
|
(81
|
)
|
|
(285
|
)
|
|
Recoveries
|
—
|
|
|
3
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
32
|
|
|
39
|
|
|
Balance, end of period
|
$
|
404
|
|
|
2,758
|
|
|
715
|
|
|
81
|
|
|
54
|
|
|
4
|
|
|
4,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Balance, beginning of year
|
$
|
378
|
|
|
2,178
|
|
|
717
|
|
|
76
|
|
|
53
|
|
|
1
|
|
|
3,403
|
|
|
Provision (credit) charged to expenses
|
26
|
|
|
546
|
|
|
211
|
|
|
102
|
|
|
1
|
|
|
76
|
|
|
962
|
|
|
Losses charged off
|
—
|
|
|
(145
|
)
|
|
(227
|
)
|
|
(109
|
)
|
|
—
|
|
|
(142
|
)
|
|
(623
|
)
|
|
Recoveries
|
—
|
|
|
179
|
|
|
14
|
|
|
12
|
|
|
—
|
|
|
69
|
|
|
274
|
|
|
Balance, end of period
|
$
|
404
|
|
|
2,758
|
|
|
715
|
|
|
81
|
|
|
54
|
|
|
4
|
|
|
4,016
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
A breakdown of the allowance for loan losses and the loan portfolio by loan segment at September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
& Industrial
|
|
Commercial, Secured by
Real Estate
|
|
Residential
Real Estate
|
|
Consumer
|
|
Agricultural
|
|
Other
|
|
Total
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
7
|
|
|
346
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
381
|
|
|
Collectively evaluated for impairment
|
393
|
|
|
2,746
|
|
|
513
|
|
|
90
|
|
|
39
|
|
|
5
|
|
|
3,786
|
|
|
Acquired credit impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance, end of period
|
$
|
400
|
|
|
3,092
|
|
|
541
|
|
|
90
|
|
|
39
|
|
|
5
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
239
|
|
|
7,650
|
|
|
1,438
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
9,356
|
|
|
Collectively evaluated for impairment
|
70,575
|
|
|
784,453
|
|
|
316,772
|
|
|
24,010
|
|
|
11,540
|
|
|
148
|
|
|
1,207,498
|
|
|
Acquired credit impaired loans
|
817
|
|
|
5,032
|
|
|
2,881
|
|
|
—
|
|
|
—
|
|
|
308
|
|
|
9,038
|
|
|
Balance, end of period
|
$
|
71,631
|
|
|
797,135
|
|
|
321,091
|
|
|
24,039
|
|
|
11,540
|
|
|
456
|
|
|
1,225,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
10
|
|
|
3
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
Collectively evaluated for impairment
|
390
|
|
|
2,742
|
|
|
718
|
|
|
87
|
|
|
46
|
|
|
1
|
|
|
3,984
|
|
|
Acquired credit impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance, end of period
|
$
|
400
|
|
|
2,745
|
|
|
767
|
|
|
87
|
|
|
46
|
|
|
1
|
|
|
4,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
268
|
|
|
15,101
|
|
|
1,558
|
|
|
36
|
|
|
177
|
|
|
—
|
|
|
17,140
|
|
|
Collectively evaluated for impairment
|
76,609
|
|
|
718,709
|
|
|
344,751
|
|
|
17,363
|
|
|
13,135
|
|
|
114
|
|
|
1,170,681
|
|
|
Acquired credit impaired loans
|
922
|
|
|
6,315
|
|
|
3,229
|
|
|
—
|
|
|
—
|
|
|
336
|
|
|
10,802
|
|
|
Balance, end of period
|
$
|
77,799
|
|
|
740,125
|
|
|
349,538
|
|
|
17,399
|
|
|
13,312
|
|
|
450
|
|
|
1,198,623
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
The risk characteristics of LCNB's material loan portfolio segments are as follows:
Commercial and Industrial Loans. LCNB’s commercial and industrial loan portfolio consists of loans for various purposes, including loans to fund working capital requirements (such as inventory and receivables financing) and purchases of machinery and equipment. LCNB offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans, and lines of credit. Most commercial and industrial loans have a fixed rate, with maturities ranging from one to ten years. Commercial and industrial loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. Commercial and industrial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of the business. Collateral, when obtained, may include liens on furniture, fixtures, equipment, inventory, receivables, or other assets. As a result, such loans involve complexities, variables, and risks that require thorough underwriting and more robust servicing than other types of loans.
Commercial, Secured by Real Estate Loans. Commercial real estate loans include loans secured by a variety of commercial, retail, and office buildings, religious facilities, hotels, multifamily (more than four-family) residential properties, construction and land development loans, and other land loans. Commercial real estate loan products generally amortize over five to twenty-five years and are payable in monthly principal and interest installments. Some have balloon payments due within one to ten years after the origination date. The majority have adjustable interest rates with adjustment periods ranging from one to ten years, some of which are subject to established “floor” interest rates.
Commercial real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon global debt service, collateral value, financial strength of any and all guarantors, and other factors. Commercial real estate loans are generally originated with a 75% to 85% maximum loan to appraised value ratio, depending upon borrower occupancy.
Residential Real Estate Loans. Residential real estate loans include loans secured by first or second mortgage liens on one to four-family residential properties. Home equity lines of credit and mortgage loans secured by owner-occupied agricultural property are included in this category. First and second mortgage loans are generally amortized over five to thirty years with monthly principal and interest payments. Home equity lines of credit generally have a five year or less draw period with interest only payments followed by a repayment period with monthly payments based on the amount outstanding. LCNB offers both fixed and adjustable rate mortgage loans. Adjustable rate loans are available with adjustment periods ranging between one to ten years and adjust according to an established index plus a margin, subject to certain floor and ceiling rates. Home equity lines of credit have a variable rate based on the Wall Street Journal prime rate plus a margin.
LCNB does not originate reverse mortgage loans or residential real estate loans generally considered to be “subprime.”
Residential real estate loans are underwritten primarily based on the borrower’s ability to repay, prior credit history, and the value of the collateral. LCNB generally requires private mortgage insurance for first mortgage loans that have a loan to appraised value ratio of greater than 80%.
Consumer Loans. LCNB’s portfolio of consumer loans generally includes secured and unsecured loans to individuals for household, family and other personal expenditures. Secured loans include loans to fund the purchase of automobiles, recreational vehicles, boats, and similar acquisitions. Consumer loans made by LCNB generally have fixed rates and terms ranging up to 72 months, depending upon the nature of the collateral, size of the loan, and other relevant factors.
Consumer loans generally have higher interest rates, but pose additional risks of collectibility and loss when compared to certain other types of loans. Collateral, if present, is generally subject to damage, wear, and depreciation. The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.
Agricultural Loans. LCNB’s portfolio of agricultural loans includes loans for financing agricultural production and for financing the purchase of equipment used in the production of agricultural products. LCNB’s agricultural loans are generally secured by farm machinery, livestock, crops, vehicles, or other agricultural-related collateral.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
LCNB uses a risk-rating system to quantify loan quality. A loan is assigned to a risk category based on relevant information about the ability of the borrower to service the debt including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. The categories used are:
|
|
|
|
•
|
Pass – loans categorized in this category are higher quality loans that do not fit any of the other categories described below.
|
|
|
|
|
•
|
Other Assets Especially Mentioned ("OAEM") – loans in this category are currently protected but are potentially weak. These loans constitute a risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an undue risk in light of the circumstances surrounding a specific asset.
|
|
|
|
|
•
|
Substandard – loans in this category are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that LCNB will sustain some loss if the deficiencies are not corrected.
|
|
|
|
|
•
|
Doubtful – loans classified in this category have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
|
A breakdown of the loan portfolio by credit quality indicators at September 30, 2019 and December 31, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
OAEM
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
69,725
|
|
|
161
|
|
|
1,745
|
|
|
—
|
|
|
71,631
|
|
|
Commercial, secured by real estate
|
782,232
|
|
|
986
|
|
|
13,917
|
|
|
—
|
|
|
797,135
|
|
|
Residential real estate
|
319,128
|
|
|
99
|
|
|
1,864
|
|
|
—
|
|
|
321,091
|
|
|
Consumer
|
24,022
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
24,039
|
|
|
Agricultural
|
11,513
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
11,540
|
|
|
Other
|
456
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
456
|
|
|
Total
|
$
|
1,207,076
|
|
|
1,246
|
|
|
17,570
|
|
|
—
|
|
|
1,225,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
74,530
|
|
|
89
|
|
|
3,180
|
|
|
—
|
|
|
77,799
|
|
|
Commercial, secured by real estate
|
718,233
|
|
|
768
|
|
|
21,124
|
|
|
—
|
|
|
740,125
|
|
|
Residential real estate
|
344,432
|
|
|
—
|
|
|
5,106
|
|
|
—
|
|
|
349,538
|
|
|
Consumer
|
17,381
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
17,399
|
|
|
Agricultural
|
13,116
|
|
|
—
|
|
|
196
|
|
|
—
|
|
|
13,312
|
|
|
Other
|
450
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
450
|
|
|
Total
|
$
|
1,168,142
|
|
|
857
|
|
|
29,624
|
|
|
—
|
|
|
1,198,623
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
A loan portfolio aging analysis at September 30, 2019 and December 31, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater Than
90 Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total Loans
Receivable
|
|
Total Loans Greater Than
90 Days and
Accruing
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
59
|
|
|
30
|
|
|
—
|
|
|
89
|
|
|
71,542
|
|
|
71,631
|
|
|
—
|
|
|
Commercial, secured by real estate
|
54
|
|
|
46
|
|
|
—
|
|
|
100
|
|
|
797,035
|
|
|
797,135
|
|
|
—
|
|
|
Residential real estate
|
411
|
|
|
201
|
|
|
528
|
|
|
1,140
|
|
|
319,951
|
|
|
321,091
|
|
|
—
|
|
|
Consumer
|
16
|
|
|
11
|
|
|
—
|
|
|
27
|
|
|
24,012
|
|
|
24,039
|
|
|
—
|
|
|
Agricultural
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
11,513
|
|
|
11,540
|
|
|
—
|
|
|
Other
|
148
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
308
|
|
|
456
|
|
|
—
|
|
|
Total
|
$
|
715
|
|
|
288
|
|
|
528
|
|
|
1,531
|
|
|
1,224,361
|
|
|
1,225,892
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
626
|
|
|
173
|
|
|
—
|
|
|
799
|
|
|
77,000
|
|
|
77,799
|
|
|
—
|
|
|
Commercial, secured by real estate
|
347
|
|
|
141
|
|
|
347
|
|
|
835
|
|
|
739,290
|
|
|
740,125
|
|
|
—
|
|
|
Residential real estate
|
905
|
|
|
536
|
|
|
1,046
|
|
|
2,487
|
|
|
347,051
|
|
|
349,538
|
|
|
149
|
|
|
Consumer
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
17,385
|
|
|
17,399
|
|
|
—
|
|
|
Agricultural
|
19
|
|
|
—
|
|
|
178
|
|
|
197
|
|
|
13,115
|
|
|
13,312
|
|
|
—
|
|
|
Other
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
336
|
|
|
450
|
|
|
—
|
|
|
Total
|
$
|
2,025
|
|
|
850
|
|
|
1,571
|
|
|
4,446
|
|
|
1,194,177
|
|
|
1,198,623
|
|
|
149
|
|
Impaired loans, including acquired credit impaired loans, at September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
817
|
|
|
1,358
|
|
|
—
|
|
|
926
|
|
|
1,457
|
|
|
—
|
|
|
Commercial, secured by real estate
|
10,186
|
|
|
11,065
|
|
|
—
|
|
|
21,266
|
|
|
22,451
|
|
|
—
|
|
|
Residential real estate
|
3,569
|
|
|
4,135
|
|
|
—
|
|
|
4,122
|
|
|
4,872
|
|
|
—
|
|
|
Consumer
|
11
|
|
|
11
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
177
|
|
|
—
|
|
|
Other
|
308
|
|
|
434
|
|
|
—
|
|
|
336
|
|
|
475
|
|
|
—
|
|
|
Total
|
$
|
14,891
|
|
|
17,003
|
|
|
—
|
|
|
26,840
|
|
|
29,445
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
239
|
|
|
245
|
|
|
7
|
|
|
264
|
|
|
269
|
|
|
10
|
|
|
Commercial, secured by real estate
|
2,496
|
|
|
2,496
|
|
|
346
|
|
|
150
|
|
|
150
|
|
|
3
|
|
|
Residential real estate
|
750
|
|
|
751
|
|
|
28
|
|
|
665
|
|
|
684
|
|
|
49
|
|
|
Consumer
|
18
|
|
|
18
|
|
|
—
|
|
|
23
|
|
|
23
|
|
|
—
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
3,503
|
|
|
3,510
|
|
|
381
|
|
|
1,102
|
|
|
1,126
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
1,056
|
|
|
1,603
|
|
|
7
|
|
|
1,190
|
|
|
1,726
|
|
|
10
|
|
|
Commercial, secured by real estate
|
12,682
|
|
|
13,561
|
|
|
346
|
|
|
21,416
|
|
|
22,601
|
|
|
3
|
|
|
Residential real estate
|
4,319
|
|
|
4,886
|
|
|
28
|
|
|
4,787
|
|
|
5,556
|
|
|
49
|
|
|
Consumer
|
29
|
|
|
29
|
|
|
—
|
|
|
36
|
|
|
36
|
|
|
—
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
177
|
|
|
—
|
|
|
Other
|
308
|
|
|
434
|
|
|
—
|
|
|
336
|
|
|
475
|
|
|
—
|
|
|
Total
|
$
|
18,394
|
|
|
20,513
|
|
|
381
|
|
|
27,942
|
|
|
30,571
|
|
|
62
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
The following presents information related to the average recorded investment and interest income recognized on impaired loans, including acquired credit impaired loans, for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
960
|
|
|
11
|
|
|
1,261
|
|
|
35
|
|
|
Commercial, secured by real estate
|
11,409
|
|
|
290
|
|
|
17,364
|
|
|
269
|
|
|
Residential real estate
|
3,600
|
|
|
51
|
|
|
3,935
|
|
|
77
|
|
|
Consumer
|
12
|
|
|
—
|
|
|
68
|
|
|
1
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
Other
|
304
|
|
|
8
|
|
|
374
|
|
|
10
|
|
|
Total
|
$
|
16,285
|
|
|
360
|
|
|
23,179
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
244
|
|
|
4
|
|
|
276
|
|
|
4
|
|
|
Commercial, secured by real estate
|
2,514
|
|
|
13
|
|
|
152
|
|
|
3
|
|
|
Residential real estate
|
741
|
|
|
12
|
|
|
573
|
|
|
8
|
|
|
Consumer
|
19
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
3,518
|
|
|
29
|
|
|
1,024
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
1,204
|
|
|
15
|
|
|
1,537
|
|
|
39
|
|
|
Commercial, secured by real estate
|
13,923
|
|
|
303
|
|
|
17,516
|
|
|
272
|
|
|
Residential real estate
|
4,341
|
|
|
63
|
|
|
4,508
|
|
|
85
|
|
|
Consumer
|
31
|
|
|
—
|
|
|
91
|
|
|
1
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
Other
|
304
|
|
|
8
|
|
|
374
|
|
|
10
|
|
|
Total
|
$
|
19,803
|
|
|
389
|
|
|
24,203
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
866
|
|
|
20
|
|
|
950
|
|
|
56
|
|
|
Commercial, secured by real estate
|
13,891
|
|
|
787
|
|
|
16,143
|
|
|
657
|
|
|
Residential real estate
|
3,724
|
|
|
161
|
|
|
3,420
|
|
|
174
|
|
|
Consumer
|
12
|
|
|
1
|
|
|
37
|
|
|
2
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
Other
|
322
|
|
|
26
|
|
|
390
|
|
|
31
|
|
|
Total
|
$
|
18,815
|
|
|
995
|
|
|
21,117
|
|
|
920
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
253
|
|
|
11
|
|
|
283
|
|
|
13
|
|
|
Commercial, secured by real estate
|
2,563
|
|
|
47
|
|
|
154
|
|
|
9
|
|
|
Residential real estate
|
725
|
|
|
34
|
|
|
577
|
|
|
23
|
|
|
Consumer
|
21
|
|
|
1
|
|
|
24
|
|
|
1
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
3,562
|
|
|
93
|
|
|
1,038
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
1,119
|
|
|
31
|
|
|
1,233
|
|
|
69
|
|
|
Commercial, secured by real estate
|
16,454
|
|
|
834
|
|
|
16,297
|
|
|
666
|
|
|
Residential real estate
|
4,449
|
|
|
195
|
|
|
3,997
|
|
|
197
|
|
|
Consumer
|
33
|
|
|
2
|
|
|
61
|
|
|
3
|
|
|
Agricultural
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
Other
|
322
|
|
|
26
|
|
|
390
|
|
|
31
|
|
|
Total
|
$
|
22,377
|
|
|
1,088
|
|
|
22,155
|
|
|
966
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
Of the interest income recognized on impaired loans during the nine months ended September 30, 2019 and 2018, approximately $47,000 and $85,000, respectively, were recognized on a cash basis.
From time to time, the terms of certain loans are modified as troubled debt restructurings ("TDRs") where concessions are granted to borrowers experiencing financial difficulties. The modification of the terms of such loans may have included one, or a combination of, the following: a temporary or permanent reduction of the stated interest rate of the loan, an increase in the stated rate of interest lower than the current market rate for new debt with similar risk, forgiveness of principal, an extension of the maturity date, or a change in the payment terms.
Loan modifications that were classified as TDRs during the three and nine months ended September 30, 2019 and 2018 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Number
of
Loans
|
|
Pre-Modification Recorded Balance
|
|
Post-Modification Recorded Balance
|
|
Number of Loans
|
|
Pre-Modification Recorded Balance
|
|
Post-Modification Recorded Balance
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
1
|
|
|
66
|
|
|
66
|
|
|
1
|
|
|
199
|
|
|
199
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
1
|
|
|
$
|
66
|
|
|
66
|
|
|
1
|
|
|
$
|
199
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
2
|
|
|
258
|
|
|
258
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
3
|
|
|
120
|
|
|
120
|
|
|
1
|
|
|
199
|
|
|
199
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
5
|
|
|
$
|
378
|
|
|
378
|
|
|
1
|
|
|
$
|
199
|
|
|
199
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
Post-modification balances, at the dates of modification, of newly restructured troubled debt by type of modification for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Modification
|
|
Rate Modification
|
|
Interest Only
|
|
Principal Forgiveness
|
|
Combination
|
|
Total Modifications
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
66
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
66
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258
|
|
|
258
|
|
|
Residential real estate
|
120
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
120
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
199
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
One troubled debt restructuring with a current balance of $22,000 defaulted within twelve months of the restructuring date during the third quarter 2019. There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring date for the nine months ended September 30, 2018.
Information concerning loans that were modified during the nine months ended September 30, 2019 and 2018 and that were determined to be troubled debt restructurings follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Impaired loans without a valuation allowance
|
$
|
282
|
|
|
199
|
|
|
Impaired loans with a valuation allowance
|
96
|
|
|
—
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Loans (continued)
Mortgage loans sold to and serviced for investors are not included in the accompanying consolidated condensed balance sheets. The unpaid principal balances of those loans at September 30, 2019 and December 31, 2018 were approximately $90,784,000 and $97,685,000, respectively.
The total recorded investment in residential consumer mortgage loans secured by residential real estate that were in the process of foreclosure at September 30, 2019 was $415,000.
Note 5 - Acquired Credit Impaired Loans
Loans acquired through mergers are recorded at fair value with no carryover of the acquired entity's previously established allowance for loan losses. The excess of expected cash flows over the estimated fair value of acquired loans is recognized as interest income over the remaining contractual lives of the loans using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses. Subsequent improvements in expected cash flows result in the recognition of additional interest income over the then-remaining contractual lives of the loans.
Impaired loans acquired are accounted for under ASC 310-30. Factors considered in evaluating whether an acquired loan was impaired include delinquency status and history, updated borrower credit status, collateral information, and updated loan-to-value information. The difference between contractually required payments at the time of acquisition and the cash flows expected to be collected is referred to as the nonaccretable difference. The interest component of the cash flows expected to be collected is referred to as the accretable yield and is recognized as interest income over the remaining contractual life of the loan using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses. Subsequent improvements in expected cash flows will result in a reclassification from the nonaccretable difference to the accretable yield.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 5 – Acquired Credit Impaired Loans (continued)
The following table provides at September 30, 2019 and December 31, 2018 the major classifications of acquired credit impaired loans that are accounted for in accordance with ASC 310-30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Acquired from First Capital Bancshares, Inc.
|
|
|
|
|
Commercial & industrial
|
$
|
7
|
|
|
13
|
|
|
Commercial, secured by real estate
|
800
|
|
|
818
|
|
|
Residential real estate
|
676
|
|
|
911
|
|
|
Other loans, including deposit overdrafts
|
—
|
|
|
—
|
|
|
Loans, gross
|
1,483
|
|
|
1,742
|
|
|
Less allowance for loan losses
|
—
|
|
|
—
|
|
|
Loans, net
|
$
|
1,483
|
|
|
1,742
|
|
|
|
|
|
|
|
Acquired from Eaton National Bank & Trust Co.
|
|
|
|
|
Commercial & industrial
|
$
|
501
|
|
|
503
|
|
|
Commercial, secured by real estate
|
841
|
|
|
1,547
|
|
|
Residential real estate
|
721
|
|
|
784
|
|
|
Other loans, including deposit overdrafts
|
308
|
|
|
336
|
|
|
Loans, gross
|
2,371
|
|
|
3,170
|
|
|
Less allowance for loan losses
|
—
|
|
|
—
|
|
|
Loans, net
|
$
|
2,371
|
|
|
3,170
|
|
|
|
|
|
|
|
Acquired from BNB Bancorp, Inc.
|
|
|
|
|
Commercial & industrial
|
$
|
—
|
|
|
—
|
|
|
Commercial, secured by real estate
|
1,241
|
|
|
1,396
|
|
|
Residential real estate
|
105
|
|
|
158
|
|
|
Other loans, including deposit overdrafts
|
—
|
|
|
—
|
|
|
Loans, gross
|
1,346
|
|
|
1,554
|
|
|
Less allowance for loan losses
|
—
|
|
|
—
|
|
|
Loans, net
|
$
|
1,346
|
|
|
1,554
|
|
|
|
|
|
|
|
Acquired from Columbus First Bancorp, Inc.
|
|
|
|
|
Commercial & industrial
|
$
|
309
|
|
|
406
|
|
|
Commercial, secured by real estate
|
2,150
|
|
|
2,554
|
|
|
Residential real estate
|
1,379
|
|
|
1,376
|
|
|
Other loans, including deposit overdrafts
|
—
|
|
|
—
|
|
|
Loans, gross
|
3,838
|
|
|
4,336
|
|
|
Less allowance for loan losses
|
—
|
|
|
—
|
|
|
Loans, net
|
$
|
3,838
|
|
|
4,336
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Commercial & industrial
|
$
|
817
|
|
|
922
|
|
|
Commercial, secured by real estate
|
5,032
|
|
|
6,315
|
|
|
Residential real estate
|
2,881
|
|
|
3,229
|
|
|
Other loans, including deposit overdrafts
|
308
|
|
|
336
|
|
|
Loans, gross
|
9,038
|
|
|
10,802
|
|
|
Less allowance for loan losses
|
—
|
|
|
—
|
|
|
Loans, net
|
$
|
9,038
|
|
|
10,802
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 5 – Acquired Credit Impaired Loans (continued)
The following table provides the outstanding balance and related carrying amount for acquired credit impaired loans at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Outstanding balance
|
$
|
11,132
|
|
|
13,371
|
|
|
Carrying amount
|
9,038
|
|
|
10,802
|
|
Activity during the three and nine months ended September 30, 2019 and 2018 for the accretable discount related to acquired credit impaired loans is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Accretable discount at beginning of period
|
$
|
626
|
|
|
633
|
|
|
743
|
|
|
669
|
|
|
Accretable discount acquired during period
|
—
|
|
|
151
|
|
|
—
|
|
|
151
|
|
|
Reclassification from nonaccretable discount to accretable discount
|
136
|
|
|
—
|
|
|
195
|
|
|
—
|
|
|
Disposals
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Accretion
|
(131
|
)
|
|
(11
|
)
|
|
(308
|
)
|
|
(47
|
)
|
|
Accretable discount at end of period
|
$
|
631
|
|
|
773
|
|
|
631
|
|
|
773
|
|
Note 6 - Affordable Housing Tax Credit Limited Partnership
LCNB is a limited partner in limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit ("LIHTC") pursuant to Section 42 of the Internal Revenue Code. The purpose of the investments is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.
The following table presents the balances of LCNB's affordable housing tax credit investments and related unfunded commitments at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Affordable housing tax credit investment
|
$
|
7,000
|
|
|
5,000
|
|
|
Less amortization
|
616
|
|
|
492
|
|
|
Net affordable housing tax credit investment
|
$
|
6,384
|
|
|
4,508
|
|
|
|
|
|
|
|
Unfunded commitment
|
$
|
4,993
|
|
|
3,372
|
|
The net affordable housing tax credit investment is included in other assets and the unfunded commitment is included in accrued interest and other liabilities in the consolidated condensed balance sheets.
LCNB expects to fund the unfunded commitment over 11 years.
LCNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 6 – Affordable Housing Tax Credit Limited Partnership (continued)
The following table presents other information relating to LCNB's affordable housing tax credit investments for the nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Tax credits and other tax benefits recognized
|
$
|
262
|
|
|
168
|
|
|
Tax credit amortization expense included in provision for income taxes
|
124
|
|
|
169
|
|
Note 7 – Borrowings
Borrowings at September 30, 2019 and December 31, 2018 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Amount
|
|
Rate
|
|
|
Amount
|
|
Rate
|
|
Line of credit
|
$
|
—
|
|
|
—
|
%
|
|
$
|
4,230
|
|
|
3.00
|
%
|
|
FHLB short-term advances
|
—
|
|
|
—
|
%
|
|
52,000
|
|
|
2.48
|
%
|
|
FHLB long-term advances
|
41,990
|
|
|
2.54
|
%
|
|
47,032
|
|
|
2.45
|
%
|
|
|
$
|
41,990
|
|
|
2.54
|
%
|
|
$
|
103,262
|
|
|
2.49
|
%
|
All advances from the Federal Home Loan Bank ("FHLB") of Cincinnati, both long-term and short-term, are secured by a blanket pledge of LCNB's 1-4 family first lien mortgage loans in the amount of approximately $280 million and $303 million at September 30, 2019 and December 31, 2018, respectively. Additionally, LCNB is required to hold minimum levels of FHLB stock, based on the outstanding borrowings. Total remaining borrowing capacity at September 30, 2019 was approximately $87.4 million. One of the factors limiting remaining borrowing capacity is ownership of FHLB stock. LCNB could increase its remaining borrowing capacity by purchasing additional FHLB stock.
Note 8 - Leases
LCNB has capitalized operating leases for its Otterbein, Fairfield, Barron Street, and Worthington offices, for the land at its Oxford and Oakwood offices, and for certain office equipment. The Oakwood lease has a remaining term of seventeen years with options to renew for six additional periods of five years each. The Oxford lease has a remaining term of forty-one years with no renewal options. The other leases have remaining terms of less than one year up to six years, some of which contain options to renew the leases for additional five-year periods.
Right-of-use assets represent LCNB's right to use the underlying assets for their lease terms and lease liabilities represent the obligation to make lease payments. They are recognized using the present value of lease payments over the lease terms. The discount rate is LCNB's incremental borrowing rate for periods similar to the respective lease terms. LCNB management is reasonably certain that it will exercise the renewal options for the offices named above and these additional terms have been included in the calculation of the right-of-use assets and the lease liabilities. The lease for the Fairfield office is for a period of one year and LCNB management has elected the short-term measurement and recognition exception permitted by ASC 842 and has not calculated a right-of-use asset or lease liability for this office.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 8 – Leases (continued)
Lease expenses for offices are included in the consolidated condensed statements of income in occupancy expense, net and lease expenses for equipment are included in equipment expenses. Components of lease expense for the three and nine months ended September 30, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
Operating lease expense
|
$
|
140
|
|
|
420
|
|
|
Short-term lease expense
|
11
|
|
|
37
|
|
|
Variable lease expense
|
3
|
|
|
8
|
|
|
Other
|
1
|
|
|
4
|
|
|
Total lease expense
|
$
|
155
|
|
|
469
|
|
Other information related to leases at September 30, 2019 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
373
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
5,531
|
|
|
Weighted average remaining lease term in years for operating leases
|
39 years
|
|
|
Weighted average discount rate for operating leases
|
3.63
|
%
|
Note 9 – Income Taxes
A reconciliation between the statutory income tax and LCNB's effective tax rate on income from continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest
|
(1.3
|
)%
|
|
(2.6
|
)%
|
|
(1.6
|
)%
|
|
(3.6
|
)%
|
|
Tax exempt income on bank owned life insurance
|
(1.1
|
)%
|
|
(0.8
|
)%
|
|
(0.8
|
)%
|
|
(1.0
|
)%
|
|
Captive insurance premium income
|
(0.7
|
)%
|
|
(0.8
|
)%
|
|
(0.8
|
)%
|
|
(0.9
|
)%
|
|
Other, net
|
(1.0
|
)%
|
|
—
|
%
|
|
(0.8
|
)%
|
|
0.3
|
%
|
|
Effective tax rate
|
16.9
|
%
|
|
16.8
|
%
|
|
17.0
|
%
|
|
15.8
|
%
|
Note 10 - Commitments and Contingent Liabilities
LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. They involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.
The Bounce Protection product, a customer deposit overdraft program, is offered as a service and does not constitute a contract between the customer and LCNB.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 10 – Commitments and Contingent Liabilities (continued)
LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent off-balance-sheet credit risk at September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Commitments to extend credit:
|
|
|
|
|
Commercial loans
|
$
|
49,409
|
|
|
23,978
|
|
|
Other loans
|
|
|
|
|
|
|
Fixed rate
|
6,119
|
|
|
2,961
|
|
|
Adjustable rate
|
2,503
|
|
|
1,077
|
|
|
Unused lines of credit:
|
|
|
|
|
|
|
Fixed rate
|
20,415
|
|
|
31,446
|
|
|
Adjustable rate
|
159,580
|
|
|
169,031
|
|
|
Unused overdraft protection amounts on demand and NOW accounts
|
16,338
|
|
|
16,249
|
|
|
Standby letters of credit
|
883
|
|
|
1,080
|
|
|
Total commitments
|
$
|
255,247
|
|
|
245,822
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Unused lines of credit include amounts not drawn on line of credit loans. Commitments to extend credit and unused lines of credit generally have fixed expiration dates or other termination clauses.
LCNB evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, residential realty, income-producing commercial property, agricultural property, and property, plant, and equipment.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees generally are fully secured and have varying maturities.
Capital expenditures include the construction or acquisition of new office buildings, improvements to LCNB's offices, purchases of furniture and equipment, and additions or improvements to LCNB's information technology system. Commitments outstanding for capital expenditures as of September 30, 2019 totaled approximately $2,635,000.
Management believes that LCNB has sufficient liquidity to fund its lending and capital expenditure commitments.
LCNB and its subsidiaries are parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated financial position or results of operations.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 11 – Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
Unrealized Gains and Losses on Available-for-Sale Securities
|
|
Changes in Pension Plan Assets and Benefit Obligations
|
|
Total
|
|
Unrealized Gains and Losses on Available-for-Sale Securities
|
|
Changes in Pension Plan Assets and Benefit Obligations
|
|
Total
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
35
|
|
|
(88
|
)
|
|
$
|
(53
|
)
|
|
(4,631
|
)
|
|
(88
|
)
|
|
(4,719
|
)
|
|
Before reclassifications
|
829
|
|
|
—
|
|
|
829
|
|
|
5,482
|
|
|
—
|
|
|
5,482
|
|
|
Reclassifications
|
16
|
|
|
—
|
|
|
16
|
|
|
29
|
|
|
—
|
|
|
29
|
|
|
Balance at end of period
|
$
|
880
|
|
|
$
|
(88
|
)
|
|
$
|
792
|
|
|
880
|
|
|
(88
|
)
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(6,220
|
)
|
|
$
|
(163
|
)
|
|
$
|
(6,383
|
)
|
|
(2,200
|
)
|
|
(142
|
)
|
|
(2,342
|
)
|
|
Cumulative effect of changes in accounting principles
|
—
|
|
|
—
|
|
|
—
|
|
|
(498
|
)
|
|
(27
|
)
|
|
(525
|
)
|
|
Balance at beginning of period, as adjusted
|
(6,220
|
)
|
|
(163
|
)
|
|
(6,383
|
)
|
|
(2,698
|
)
|
|
(169
|
)
|
|
(2,867
|
)
|
|
Before reclassifications
|
(1,058
|
)
|
|
3
|
|
|
(1,055
|
)
|
|
(4,581
|
)
|
|
9
|
|
|
(4,572
|
)
|
|
Reclassifications
|
5
|
|
|
—
|
|
|
5
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
Balance at end of period
|
$
|
(7,273
|
)
|
|
$
|
(160
|
)
|
|
$
|
(7,433
|
)
|
|
(7,273
|
)
|
|
(160
|
)
|
|
(7,433
|
)
|
Reclassifications out of accumulated other comprehensive income (loss) during the three and nine months ended September 30, 2019 and 2018 and the affected line items in the consolidated condensed statements of income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Affected Line Item in the Consolidated Condensed Statements of Income
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Realized losses from sales of debt securities, available-for-sale
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net losses from sales of debt securities, available-for-sale
|
|
Income tax benefit
|
(4
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
(2
|
)
|
|
Provision for income taxes
|
|
Reclassification adjustment, net of taxes
|
$
|
4
|
|
|
2
|
|
|
8
|
|
|
2
|
|
|
|
Note 12 – Retirement Plans
LCNB participates in a noncontributory defined benefit multi-employer retirement plan that covers substantially all regular full-time employees hired before January 1, 2009. Employees hired before this date who received a benefit reduction under certain amendments to the defined benefit retirement plan receive an automatic contribution of 5% or 7% of their annual compensation, depending on the sum of an employee's age and vesting service, into their defined contribution plans (401(k) plans), regardless of the contributions made by the employees. These contributions are made annually and these employees do not receive any employer matches to their 401(k) contributions.
Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum LCNB contribution of 3% of each individual employee's annual compensation.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 – Retirement Plans (continued)
Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated condensed statements of income for the three and nine-month periods ended September 30, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Qualified noncontributory defined benefit retirement plan
|
$
|
215
|
|
|
279
|
|
|
730
|
|
|
804
|
|
|
401(k) plan
|
131
|
|
|
119
|
|
|
395
|
|
|
336
|
|
Certain highly compensated former employees participate in a nonqualified defined benefit retirement plan. The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code. This plan is limited to the original participants and no new participants have been added.
The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the three and nine months ended September 30, 2019 and 2018 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest cost
|
|
20
|
|
|
17
|
|
|
57
|
|
|
51
|
|
|
Amortization of unrecognized net loss
|
|
—
|
|
|
4
|
|
|
—
|
|
|
12
|
|
|
Net periodic pension cost
|
|
$
|
20
|
|
|
21
|
|
|
57
|
|
|
63
|
|
Amounts recognized in accumulated other comprehensive income (loss), net of tax, at September 30, 2019 and December 31, 2018 for the nonqualified defined benefit retirement plan consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Net actuarial loss
|
$
|
88
|
|
|
88
|
|
|
Past service cost
|
—
|
|
|
—
|
|
|
Total recognized, net of tax
|
$
|
88
|
|
|
88
|
|
Note 13 – Stock Based Compensation
LCNB established an Ownership Incentive Plan (the "2002 Plan") during 2002 that allowed for stock-based awards to eligible employees, as determined by the Board of Directors. The awards were made in the form of stock options, share awards, and/or appreciation rights. The 2002 Plan provided for the issuance of up to 200,000 shares of common stock. The 2002 Plan expired on April 16, 2012. Any outstanding unexercised options, however, continue to be exercisable in accordance with their terms.
The 2015 Ownership Incentive Plan (the "2015 Plan") was ratified by LCNB's shareholders at the annual meeting on April 28, 2015 and allows for stock-based awards to eligible employees, as determined by the Compensation Committee of the Board of Directors. Awards may be made in the form of stock options, appreciation rights, restricted shares, and/or restricted share units. The 2015 Plan provides for the issuance of up to 450,000 shares of common stock. The 2015 Plan will terminate on April 28, 2025 and is subject to earlier termination by the Compensation Committee.
Stock-based awards may be in the form of treasury shares or newly issued shares.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 13 – Stock Based Compensation (continued)
LCNB has not granted stock option awards since 2012. Options granted to date under the 2002 Plan vest ratably over a five-year period and expire ten years after the date of grant. Stock options outstanding at September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Stock Options
|
|
Exercisable Stock Options
|
|
Exercise Price Range
|
|
Number
|
|
Weighted Average
Exercise
Price
|
|
Weighted Average Remaining Contractual
Life (Years)
|
|
Number
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual
Life (Years)
|
|
$11.00 - $12.99
|
|
13,278
|
|
|
11.98
|
|
|
1.4
|
|
13,278
|
|
|
11.98
|
|
|
1.4
|
The following table summarizes stock option activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
Options
|
|
Weighted Average Exercise
Price
|
|
Aggregate Intrinsic Value (in thousands) (1)
|
|
Options
|
|
Weighted Average Exercise
Price
|
|
Aggregate Intrinsic Value (in thousands) (1)
|
|
Outstanding, January 1,
|
13,278
|
|
|
$
|
11.98
|
|
|
|
|
20,265
|
|
|
$
|
11.42
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
(2,631
|
)
|
|
12.55
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Outstanding, September 30,
|
13,278
|
|
|
11.98
|
|
|
76
|
|
|
17,634
|
|
|
11.25
|
|
|
131
|
|
|
Exercisable, September 30,
|
13,278
|
|
|
11.98
|
|
|
76
|
|
|
17,634
|
|
|
11.25
|
|
|
131
|
|
|
(1) Aggregate Intrinsic Value is defined as the amount by which the current market value of the underlying stock exceeds the exercise price of the option.
|
The following table provides information related to stock options exercised during the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
Intrinsic value of options exercised
|
$
|
—
|
|
|
17
|
|
|
Cash received from options exercised
|
—
|
|
|
33
|
|
|
Tax benefit realized from options exercised
|
—
|
|
|
2
|
|
No compensation costs related to option awards were recognized during 2018 or 2019.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 13 – Stock Based Compensation (continued)
Restricted stock awards granted under the 2015 Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Outstanding, January 1,
|
16,958
|
|
|
$
|
18.94
|
|
|
8,817
|
|
|
$
|
16.44
|
|
|
Granted
|
12,504
|
|
|
16.95
|
|
|
10,634
|
|
|
19.20
|
|
|
Vested
|
(10,711
|
)
|
|
18.44
|
|
|
(669
|
)
|
|
22.60
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding, September 30,
|
18,751
|
|
|
$
|
17.90
|
|
|
18,782
|
|
|
$
|
17.78
|
|
The following table presents expense recorded in salaries and employee benefits for restricted stock awards and the related tax information for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Restricted stock expense
|
$
|
21
|
|
|
18
|
|
|
112
|
|
|
89
|
|
|
Tax effect
|
5
|
|
|
4
|
|
|
24
|
|
|
19
|
|
Unrecognized compensation expense for restricted stock awards was $281,000 at September 30, 2019 and is expected to be recognized over a period of 4.5 years.
Note 14 – Earnings per Common Share
LCNB has granted restricted stock awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by ASC 260-10-45. Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrants, and restricted stock. The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options and warrants with proceeds used to purchase treasury shares at the average market price for the period.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 14 – Earnings per Common Share (continued)
Earnings per share for the three and nine months ended September 30, 2019 and 2018 were calculated as follows (dollars in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income
|
$
|
4,727
|
|
|
4,201
|
|
|
14,082
|
|
|
9,652
|
|
|
Less allocation of earnings and dividends to participating securities
|
7
|
|
|
5
|
|
|
24
|
|
|
12
|
|
|
Net income allocated to common shareholders
|
$
|
4,720
|
|
|
4,196
|
|
|
14,058
|
|
|
9,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, gross
|
12,951,701
|
|
|
13,300,463
|
|
|
13,157,538
|
|
|
11,495,650
|
|
|
Less average participating securities
|
18,751
|
|
|
15,260
|
|
|
22,404
|
|
|
15,260
|
|
|
Weighted average number of shares outstanding used in the calculation of basic earnings per common share
|
12,932,950
|
|
|
13,285,203
|
|
|
13,135,134
|
|
|
11,480,390
|
|
|
Add dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
4,195
|
|
|
5,462
|
|
|
3,966
|
|
|
5,661
|
|
|
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share
|
12,937,145
|
|
|
13,290,665
|
|
|
13,139,100
|
|
|
11,486,051
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.36
|
|
|
0.32
|
|
|
$
|
1.07
|
|
|
0.84
|
|
|
Diluted
|
0.36
|
|
|
0.32
|
|
|
1.07
|
|
|
0.84
|
|
There were no anti-dilutive stock options outstanding at September 30, 2019 or 2018.
Note 15 - Fair Value Measurements
LCNB measures certain assets at fair value using various valuation techniques and assumptions, depending on the nature of the asset. Fair value is defined as the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.
The inputs to the valuation techniques used to measure fair value are assigned to one of three broad levels:
|
|
|
|
•
|
Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date.
|
|
|
|
|
•
|
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly. Level 2 inputs may include quoted prices for similar assets in active markets, quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data.
|
|
|
|
|
•
|
Level 3 – inputs that are unobservable for the asset or liability.
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Fair Value Measurements (continued)
Equity Securities With a Readily Determinable Fair Value
Equity securities with a readily determinable fair value are reported at fair value with changes in fair value reported in other operating income in the consolidated condensed statements of income. Fair values for equity securities are determined based on market quotations (level 1). LCNB has invested in two mutual funds that are traded in active markets and their fair values are based on market quotations (level 1). Investments in another two mutual funds are measured at fair value using net asset values ("NAV") and are considered level 1 because the NAVs are determined and published and are the basis for current transactions. One of the mutual funds measured at fair value using its NAV was sold during the first quarter 2019.
Debt Securities, Available-for-Sale
The majority of LCNB's financial debt securities are classified as available-for-sale. The securities are reported at fair value with unrealized holding gains and losses reported net of income taxes in accumulated other comprehensive income (loss). LCNB utilizes a pricing service for determining the fair values of its debt securities. Methods and significant assumptions used to estimate fair value are as follows:
|
|
|
|
•
|
Fair value for U.S. Treasury notes are determined based on market quotations (level 1).
|
|
|
|
|
•
|
Fair values for the other debt securities are calculated using the discounted cash flow method for each security. The discount rates for these cash flows are estimated by the pricing service using rates observed in the market (level 2). Cash flow streams are dependent on estimated prepayment speeds and the overall structure of the securities given existing market conditions.
|
Assets Recorded at Fair Value on a Nonrecurring Basis
Assets that may be recorded at fair value on a nonrecurring basis include impaired loans, other real estate owned, and other repossessed assets.
A loan is considered impaired when management believes it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impaired loans are carried at the present value of estimated future cash flows using the loan's existing rate or the fair value of collateral if the loan is collateral dependent, if this value is less than the loan balance. These inputs are considered to be level 3.
Other real estate owned is adjusted to fair value, less costs to sell, upon transfer of the loan to foreclosed assets, usually based on an appraisal of the property. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Other repossessed assets are valued at estimated sales prices, less costs to sell. The inputs for real estate owned and other repossessed assets are considered to be level 3.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Fair Value Measurements (continued)
The following table summarizes the valuation of LCNB's assets recorded at fair value by input levels as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at the End of
the Reporting Period Using
|
|
|
|
|
Fair Value Measurements
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a readily determinable fair value:
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
925
|
|
|
925
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds
|
|
42
|
|
|
42
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds measured at net asset value
|
|
1,299
|
|
|
1,299
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
2,312
|
|
|
2,312
|
|
|
—
|
|
|
—
|
|
|
|
U.S. Agency notes
|
|
49,043
|
|
|
—
|
|
|
49,043
|
|
|
—
|
|
|
|
U.S. Agency mortgage-backed securities
|
|
85,062
|
|
|
—
|
|
|
85,062
|
|
|
—
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
38,291
|
|
|
—
|
|
|
38,291
|
|
|
—
|
|
|
|
Taxable
|
|
16,522
|
|
|
—
|
|
|
16,522
|
|
|
—
|
|
|
|
Total recurring fair value measurements
|
|
$
|
193,496
|
|
|
4,578
|
|
|
188,918
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
3,123
|
|
|
—
|
|
|
—
|
|
|
3,123
|
|
|
|
Other real estate owned and repossessed assets
|
|
197
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
|
Total nonrecurring fair value measurements
|
|
$
|
3,320
|
|
|
—
|
|
|
—
|
|
|
3,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a readily determinable fair value:
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
519
|
|
|
519
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds
|
|
39
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds measured at net asset value
|
|
1,520
|
|
|
1,520
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
2,235
|
|
|
2,235
|
|
|
—
|
|
|
—
|
|
|
|
U.S. Agency notes
|
|
78,340
|
|
|
—
|
|
|
78,340
|
|
|
—
|
|
|
|
U.S. Agency mortgage-backed securities
|
|
55,610
|
|
|
—
|
|
|
55,610
|
|
|
—
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
84,714
|
|
|
—
|
|
|
84,714
|
|
|
—
|
|
|
|
Taxable
|
|
17,522
|
|
|
—
|
|
|
17,522
|
|
|
—
|
|
|
|
Total recurring fair value measurements
|
|
$
|
240,499
|
|
|
4,313
|
|
|
236,186
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,039
|
|
|
—
|
|
|
—
|
|
|
1,039
|
|
|
|
Other real estate owned and repossessed assets
|
|
244
|
|
|
—
|
|
|
—
|
|
|
244
|
|
|
|
Total nonrecurring fair value measurements
|
|
$
|
1,283
|
|
|
—
|
|
|
—
|
|
|
1,283
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Fair Value Measurements (continued)
The following table presents quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements at September 30, 2019 and December 31, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
High
|
|
Low
|
|
Weighted Average
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,010
|
|
|
Estimated sales price
|
|
Adjustments for comparable properties, discounts to reflect current market conditions
|
|
Not applicable
|
|
|
|
1,113
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
8.25
|
%
|
|
4.50
|
%
|
|
6.79
|
%
|
|
Other real estate owned
|
|
197
|
|
|
Estimated sales price
|
|
Adjustments for comparable properties, discounts to reflect current market conditions
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
45
|
|
|
Estimated sales price
|
|
Adjustments for comparable properties, discounts to reflect current market conditions
|
|
Not applicable
|
|
|
|
994
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
8.25
|
%
|
|
4.50
|
%
|
|
6.86
|
%
|
|
Other real estate owned
|
|
244
|
|
|
Estimated sales price
|
|
Adjustments for comparable properties, discounts to reflect current market conditions
|
|
Not applicable
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Fair Value Measurements (continued)
Carrying amounts and estimated fair values of financial instruments as of September 30, 2019 and December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at the End of
the Reporting Period Using
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Quoted
Prices
in Active
Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,826
|
|
|
22,826
|
|
|
22,826
|
|
|
—
|
|
|
—
|
|
|
Interest-bearing time deposits
|
|
249
|
|
|
249
|
|
|
—
|
|
|
249
|
|
|
—
|
|
|
Debt securities, held-to-maturity
|
|
34,031
|
|
|
34,416
|
|
|
—
|
|
|
—
|
|
|
34,416
|
|
|
Federal Reserve Bank stock
|
|
4,652
|
|
|
4,652
|
|
|
4,652
|
|
|
—
|
|
|
—
|
|
|
Federal Home Loan Bank stock
|
|
5,203
|
|
|
5,203
|
|
|
5,203
|
|
|
—
|
|
|
—
|
|
|
Loans, net
|
|
1,221,725
|
|
|
1,239,377
|
|
|
—
|
|
|
—
|
|
|
1,239,377
|
|
|
Accrued interest receivable
|
|
4,868
|
|
|
4,868
|
|
|
—
|
|
|
4,868
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,355,383
|
|
|
1,359,835
|
|
|
1,019,796
|
|
|
340,039
|
|
|
—
|
|
|
Short-term borrowings
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
|
41,990
|
|
|
42,536
|
|
|
—
|
|
|
42,536
|
|
|
—
|
|
|
Accrued interest payable
|
|
714
|
|
|
714
|
|
|
—
|
|
|
714
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,040
|
|
|
20,040
|
|
|
20,040
|
|
|
—
|
|
|
—
|
|
|
Interest-bearing time deposits
|
|
996
|
|
|
996
|
|
|
—
|
|
|
996
|
|
|
—
|
|
|
Debt securities, held-to-maturity
|
|
29,721
|
|
|
29,024
|
|
|
—
|
|
|
—
|
|
|
29,024
|
|
|
Federal Reserve Bank stock
|
|
4,653
|
|
|
4,653
|
|
|
4,653
|
|
|
—
|
|
|
—
|
|
|
Federal Home Loan Bank stock
|
|
4,845
|
|
|
4,845
|
|
|
4,845
|
|
|
—
|
|
|
—
|
|
|
Loans, net
|
|
1,194,577
|
|
|
1,183,041
|
|
|
—
|
|
|
—
|
|
|
1,183,041
|
|
|
Accrued interest receivable
|
|
4,317
|
|
|
4,317
|
|
|
—
|
|
|
4,317
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,300,919
|
|
|
1,301,298
|
|
|
1,004,057
|
|
|
297,241
|
|
|
—
|
|
|
Short-term borrowings
|
|
56,230
|
|
|
56,230
|
|
|
56,230
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
|
47,032
|
|
|
48,255
|
|
|
—
|
|
|
48,255
|
|
|
—
|
|
|
Accrued interest payable
|
|
690
|
|
|
690
|
|
|
—
|
|
|
690
|
|
|
—
|
|
The fair values of off-balance-sheet financial instruments such as loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of such instruments were not material at September 30, 2019 and December 31, 2018.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Fair Value Measurements (continued)
Fair values of financial instruments are based on various assumptions, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in actual transactions. In addition, because the required disclosures exclude certain financial instruments and all nonfinancial instruments, any aggregation of the fair value amounts presented would not represent the underlying value of LCNB. The following methods and assumptions were used to estimate the fair value of certain financial instruments:
Cash and cash equivalents
The carrying amounts presented are deemed to approximate fair value.
Interest-bearing time deposits
Fair values are estimated based on the discounted value of expected net cash flows using current interest rates.
Equity securities without a readily determinable fair value
Equity securities without a readily determinable fair value are measured at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Debt securities, held-to-maturity
Fair values for debt securities, held-to-maturity are based on quoted market prices for similar securities and/or discounted cash flow analysis or other methods.
Federal Home Loan Bank stock and Federal Reserve Bank stock
The carrying value of Federal Home Loan Bank and Federal Reserve Bank stock approximates fair value based on the respective redemptive provisions.
Loans
The estimated fair value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments. The fair value calculation discounts estimated future cash flows using rates that incorporated discounts for credit, liquidity, and marketability factors.
Deposits
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, which approximates market rates.
Borrowings
The carrying amounts of federal funds purchased, repurchase agreements, and U.S. Treasury demand note borrowings are deemed to approximate fair value of short-term borrowings. For long-term debt, fair values are estimated based on the discounted value of expected net cash flows using current interest rates.
Accrued interest receivable and Accrued interest payable
Carrying amount approximates fair value.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 16 – Recent Accounting Pronouncements
From time to time the FASB issues an ASU to communicate changes to U.S. generally accepted accounting principles. The following information provides brief summaries of newly issued but not yet effective ASUs that could have an effect on LCNB’s financial position or results of operations:
ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"
ASU No. 2016-13 was issued in June 2016 and, once effective, will significantly change current guidance for recognizing impairment of financial instruments. Current guidance requires an "incurred loss" methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU No. 2016-13 replaces the incurred loss impairment methodology with a new current expected credit loss ("CECL") methodology that reflects expected credit losses over the lives of the loans and requires consideration of a broader range of information to inform credit loss estimates. The ASU requires an organization to estimate all expected credit losses for financial assets measured at amortized cost, including loans and held-to-maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. Additional disclosures are required.
ASU No. 2016-13 also amends the accounting for credit losses on debt securities, available-for-sale, and purchased financial assets with credit deterioration. Under the new guidance, entities will determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Any credit loss will be recognized as an allowance for credit losses on debt securities, available-for-sale, rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to estimated credit losses on debt securities, available-for-sale, immediately in earnings rather than as interest income over time, as currently required.
ASU No. 2016-13 eliminates the current accounting model for purchased credit impaired loans and debt securities. Instead, purchased financial assets with credit deterioration will be recorded gross of estimated credit losses as of the date of acquisition and the estimated credit losses amounts will be added to the allowance for credit losses. Thereafter, entities will account for additional impairment of such purchased assets using the models listed above.
Originally, ASU No. 2016-13 would have taken effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At their meeting on October 16, 2019, FASB approved a final ASU delaying the effective date for several major standards, including ASU No. 2016-13, if certain qualifications are met. The new effective date for SEC filers eligible to be smaller reporting companies, as defined, will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. SEC filers that are not eligible to be smaller reporting companies need to adopt ASU No. 2016-13 as of the original effective date. LCNB is eligible to be a smaller reporting company and intends to delay adoption of ASU No. 2016-13.
LCNB has created a cross-functional CECL Committee, which reports to the Audit Committee, composed of members from the lending, trust, and finance departments. The CECL Committee has selected a vendor to assist in implementation of and ongoing compliance with the new requirements. It has completed analyzing its data collection efforts, selected a calculation model, and is currently analyzing its pool segmentation and reporting mechanisms for adoption of the new methodology. While the committee and management expect that the implementation of ASU No. 2016-13 will increase the balance of the allowance for loan losses, they are continuing to evaluate the potential impact on LCNB's results of operations and financial position. The financial statement impact of this new standard cannot be reasonably estimated at this time.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 16 – Recent Accounting Pronouncements (continued)
ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"
ASU No. 2017-04 was issued in January 2017 and applies to public and other entities that have goodwill reported in their financial statements. To simplify the subsequent measurement of goodwill, this ASU eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer should adopt the amendments in this update on a prospective basis for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption of ASU No. 2017-04 is not expected to have a material impact on LCNB's results of operations or financial position.
ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement"
ASU No. 2018-13 was issued in August 2018 and applies to all entities that are required to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update modify fair value disclosure requirements, including the deletion, modification, and addition of certain targeted disclosures. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and delay adoption of the additional disclosures until the effective date. The amendments are to be applied on a retrospective basis to all periods presented upon adoption, except for certain amendments described in the update that are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Adoption of ASU No. 2018-13 will not have a material impact on LCNB's results of operations or financial position.
ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans"
ASU No. 2018-14 was issued in August 2018. The amendments in this update modify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including the deletion, modification, and addition of certain targeted disclosures. The amendments are effective for public business entities for fiscal years beginning after December 15, 2020. Early adoption is permitted. The amendments are to be applied on a retrospective basis to all periods presented upon adoption. Adoption of ASU No. 2018-14 will not have a material impact on LCNB's results of operations or financial position.
ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract"
ASU No. 2018-15 was issued in August 2018 and applies to entities that are a customer in a hosting arrangement, as defined, that is accounted for as a service contract. The amendments in this update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Capitalized implementation costs are to be expensed over the term of the hosting arrangement. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Adoption of ASU No. 2018-15 is not expected to have a material impact on LCNB's results of operations or financial position.
LCNB CORP. AND SUBSIDIARIES