10-Q 1 form10q.htm LCNB CORP 10-Q 9-30-2012 form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549

FORM 10-Q
 
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________                           

Commission File Number  000-26121

LCNB Corp.
(Exact name of registrant as specified in its charter)
 
Ohio
31-1626393
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

2 North Broadway, Lebanon, Ohio   45036
(Address of principal executive offices, including Zip Code)

(513) 932-1414
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes         o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes         o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes          x No

The number of shares outstanding of the issuer's common stock, without par value, as of November 5, 2012 was 6,726,719 shares.
 


 
 

 

LCNB CORP. AND SUBSIDIARIES


     
PART I – FINANCIAL INFORMATION
2
     
 
2
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
35
     
 
36
     
 
46
     
 
47
     
PART II.  OTHER INFORMATION
48
     
 
48
     
 
Item 1A.  Risk Factors
48
     
 
48
     
 
48
     
 
48
     
 
Item 5.   Other Information
48
     
 
Item 6.   Exhibits
49
     
50

 
PART I – FINANCIAL INFORMATION
 

LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands)
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
       
ASSETS:
           
Cash and due from banks
  $ 15,166       12,449  
Interest-bearing demand deposits
    17,908       7,086  
Total cash and cash equivalents
    33,074       19,535  
                 
Investment securities:
               
Available-for-sale, at fair value
    265,737       254,006  
Held-to-maturity, at cost
    12,503       10,734  
Federal Reserve Bank stock, at cost
    949       940  
Federal Home Loan Bank stock, at cost
    2,091       2,091  
Loans, net
    454,541       458,331  
Premises and equipment, net
    16,820       17,346  
Goodwill
    5,915       5,915  
Bank owned life insurance
    16,770       14,837  
Other assets
    8,792       7,835  
TOTAL ASSETS
  $ 817,192       791,570  
                 
LIABILITIES:
               
Deposits:
               
Noninterest-bearing
  $ 116,489       106,793  
Interest-bearing
    584,591       556,769  
Total deposits
    701,080       663,562  
Short-term borrowings
    12,076       21,596  
Long-term debt
    14,049       21,373  
Accrued interest and other liabilities
    7,856       7,079  
TOTAL LIABILITIES
    735,061       713,610  
                 
SHAREHOLDERS’ EQUITY:
               
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding
    -       -  
Common shares – no par value, authorized 12,000,000 shares, issued 7,480,134 and 7,460,494  shares at September 30, 2012 and December 31, 2011, respectively
    27,040       26,753  
Retained earnings
    60,760       57,877  
Treasury shares at cost, 753,627 and 755,771 shares at September 30, 2012 and December 31, 2011, respectively
    (11,665 )     (11,698 )
Accumulated other comprehensive income, net of taxes
    5,996       5,028  
TOTAL SHAREHOLDERS’ EQUITY
    82,131       77,960  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 817,192       791,570  

The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
(Unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
INTEREST INCOME:
                       
Interest and fees on loans
  $ 5,822       6,294       17,950       19,289  
Interest on investment securities –
                               
Taxable
    941       1,036       2,810       2,826  
Non-taxable
    615       619       1,831       1,966  
Other short-term investments
    26       27       115       124  
TOTAL INTEREST INCOME
    7,404       7,976       22,706       24,205  
                                 
INTEREST EXPENSE:
                               
Interest on deposits
    1,050       1,371       3,332       4,454  
Interest on short-term borrowings
    4       6       12       23  
Interest on long-term debt
    136       160       440       499  
TOTAL INTEREST EXPENSE
    1,190       1,537       3,784       4,976  
NET INTEREST INCOME
    6,214       6,439       18,922       19,229  
PROVISION FOR LOAN LOSSES
    436       588       742       1,476  
                                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    5,778       5,851       18,180       17,753  
                                 
NON-INTEREST INCOME:
                               
Trust income
    530       553       1,769       1,572  
Service charges and fees on deposit accounts
    911       957       2,698       2,810  
Net gain on sales of securities
    427       273       886       692  
Bank owned life insurance income
    145       153       432       447  
Gains from sales of mortgage loans
    151       35       360       92  
Other operating income
    41       62       151       170  
TOTAL NON-INTEREST INCOME
    2,205       2,033       6,296       5,783  
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
    3,059       2,983       9,004       8,990  
Equipment expenses
    263       288       789       745  
Occupancy expense, net
    445       443       1,242       1,305  
State franchise tax
    193       190       595       582  
Marketing
    129       145       409       370  
FDIC insurance premiums
    83       95       298       563  
Other non-interest expense
    1,392       1,292       4,005       3,973  
TOTAL NON-INTEREST EXPENSE
    5,564       5,436       16,342       16,528  
INCOME BEFORE INCOME TAXES
    2,419       2,448       8,134       7,008  
PROVISION FOR INCOME TAXES
    572       581       2,023       1,640  
INCOME FROM CONTINUING OPERATIONS
    1,847       1,867       6,111       5,368  
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
    -       -       -       793  
NET INCOME
  $ 1,847       1,867       6,111       6,161  
                                 
Dividends declared per common share
  $ 0.16       0.16       0.48       0.48  
                                 
Basic earnings per common share:
                               
Continuing operations
  $ 0.27       0.28       0.91       0.80  
Discontinued operations
    -       -       -       0.12  
                                 
Diluted earnings per common share:
                               
Continuing operations
  $ 0.27       0.28       0.90       0.80  
Discontinued operations
    -       -       -       0.12  
                                 
Weighted average common shares outstanding:
                               
Basic
    6,721,699       6,690,963       6,713,959       6,690,157  
Diluted
    6,797,675       6,750,807       6,787,000       6,746,568  

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

LCNB CORP. AND SUBSIDIARIES
(In thousands)
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net Income
  $ 1,847       1,867       6,111       6,161  
                                 
Other comprehensive income:
                               
                                 
Net unrealized gain on available-for-sale securities (net of taxes of $556 and $1,348 for the three months ended September 30, 2012 and 2011, respectively, and $787 and $2,054 for the nine months ended September 30, 2012 and 2011, respectively)
    1,080             2,618             1,529             3,969  
                                 
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $145 and $92 for the three months ended September 30, 2012 and 2011, respectively, and $300 and $235 for the nine months ended September 30, 2012 and 2011, respectively)
    (282 )     (181 )     (586 )     (457 )
                                 
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost (net of taxes of $4 and $- for the three months ended September 30, 2012 and 2011, respectively, and $12 and $2 for the nine months ended September 30, 2012 and 2011, respectively)
    9       -       25       4  
                                 
Nonqualified pension plan curtailment (net of taxes of $80)
    -       -       -       155  
                                 
TOTAL COMPREHENSIVE INCOME
  $ 2,654       4,304       7,079       9,832  

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

LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
(Unaudited)
 
   
Common
Shares
Outstanding
   
 
Common
Stock
   
 
Retained
Earnings
   
 
Treasury
Shares
   
Accumulated
Other
Comprehensive
Income
   
Total
Shareholders’
Equity
 
                                     
Balance December 31, 2010
    6,689,743     $ 26,515       54,045       (11,698 )     1,845       70,707  
Net income
                    6,161                       6,161  
Net unrealized gain on available-for-sale securities, net of taxes
                                    3,969       3,969  
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                    (457 )     (457 )
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost, net of taxes
                                      4         4  
Nonqualified pension plan curtailment entry, net of taxes
                                    155       155  
Dividend Reinvestment and Stock Purchase Plan
    7,659       97                               97  
Compensation expense relating to stock options
            35                               35  
Common stock dividends, $0.48 per share
                    (3,211 )                     (3,211 )
Balance September 30, 2011
    6,697,402     $ 26,647       56,995       (11,698 )     5,516       77,460  
                                                 
Balance December 31, 2011
    6,704,723     $ 26,753       57,877       (11,698 )     5,028       77,960  
Net income
                    6,111                       6,111  
Net unrealized gain on available-for-sale securities, net of taxes
                                    1,529       1,529  
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                    (586 )     (586 )
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost, net of taxes
                                      25         25  
Dividend Reinvestment and Stock Purchase Plan
    19,640       257                               257  
Exercise of stock options
    2,144               (5 )     33               28  
Compensation expense relating to stock options
            30                               30  
Common stock dividends, $0.48 per share
                    (3,223 )                     (3,223 )
Balance September 30, 2012
    6,726,507     $ 27,040       60,760       (11,665 )     5,996       82,131  

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

LCNB CORP. AND SUBSIDIARIES
(In thousands)
(unaudited)
 
   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 6,111       6,161  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation, amortization, and accretion
    2,339       2,137  
Provision for loan losses
    742       1,476  
Curtailment charge for nonqualified defined benefit retirement plan
    -       191  
Increase in cash surrender value of bank owned life insurance
    (432 )     (447 )
Realized (gain) loss from sales of securities available-for-sale
    (886 )     (692 )
Realized (gain) loss from sales of premises and equipment
    (10 )     (6 )
Realized gain from sale of insurance agency
    -       (1,503 )
Realized (gain) loss from sales and write-downs of other real estate owned and repossessed assets
    80       (48 )
Origination of mortgage loans for sale
    (19,328 )     (4,871 )
Realized gains from sales of mortgage loans
    (360 )     (92 )
Proceeds from sales of mortgage loans
    19,492       4,911  
Compensation expense related to stock options
    30       35  
Changes in:
               
Accrued income receivable
    (650 )     (458 )
Other assets
    358       31  
Other liabilities
    314       (119 )
TOTAL ADJUSTMENTS
    1,689       545  
NET CASH FLOWS FROM OPERATING ACTIVITIES
    7,800       6,706  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from sales of investment securities available-for-sale
    64,002       28,470  
Proceeds from maturities and calls of investment securities:
               
Available-for-sale
    22,759       43,123  
Held-to-maturity
    1,563       3,658  
Purchases of investment securities:
               
Available-for-sale
    (97,344 )     (98,750 )
Held-to-maturity
    (3,332 )     (2,650 )
Purchase of Federal Reserve Bank stock
    (8 )     (2 )
Net (increase) decrease in loans
    2,248       4,255  
Purchase of bank owned life insurance
    (1,500 )     -  
Proceeds from sale of other real estate owned and repossessed assets
    20       295  
Additions to other real estate owned
    (16 )     -  
Purchases of premises and equipment
    (403 )     (2,323 )
Proceeds from sales of premises and equipment
    13       16  
Proceeds from sale of insurance agency, net of cash disposed
    -       1,523  
NET CASH FLOWS FROM INVESTING ACTIVITIES
    (11,998 )     (22,385 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase (decrease) in deposits
    37,518       51,158  
Net increase (decrease) in short-term borrowings
    (9,520 )     (9,305 )
Proceeds from long-term debt
    -       5,000  
Principal payments on long-term debt
    (7,324 )     (6,402 )
Proceeds from issuance of common stock
    41       97  
Proceeds from exercise of stock options
    28       -  
Cash dividends paid on common stock
    (3,006 )     (3,211 )
NET CASH FLOWS FROM FINANCING ACTIVITIES
    17,737       37,337  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    13,539       21,658  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    19,535       10,999  
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 33,074       32,657  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Interest paid
  $ 3,857       5,096  
Income taxes paid
    1,735       2,844  
                 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
               
Transfer from loans to other real estate owned and repossessed assets
    755       229  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
(Unaudited)

Note 1 - Basis of Presentation
Substantially all of the assets, liabilities and operations of LCNB Corp. ("LCNB") are attributable to its wholly-owned subsidiary, LCNB National Bank (the "Bank").  The accompanying unaudited consolidated financial statements include the accounts of LCNB and the Bank.  LCNB completed the sale of its subsidiary, Dakin Insurance Agency, Inc. (“Dakin”) on March 23, 2011.  The financial results of Dakin are included as income from discontinued operations, net of tax, in the accompanying unaudited consolidated financial statements through the date of sale.

The unaudited interim consolidated financial statements, which have been reviewed by J.D. Cloud & Co. L.L.P., LCNB’s independent registered public accounting firm, in accordance with standards established by the Public Company Accounting Oversight Board, as indicated by their report included herein and which does not express an opinion on those 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”).  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  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.

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 and 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, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.  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 2011 Annual Report on Form 10-K filed with the SEC.
 
 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 2 - Investment Securities
The amortized cost and estimated fair value of available-for-sale investment securities at September 30, 2012 and December 31, 2011 are summarized as follows (in thousands):

   
September 30, 2012
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
U.S. Treasury notes
  $ 18,512       294       -       18,806  
U.S. Agency notes
    91,148       2,004       -       93,152  
U.S. Agency mortgage-backed securities
    50,127       1,774       -       51,901  
Corporate securities
    3,036       45       -       3,081  
Municipal securities:
                               
Non-taxable
    70,042       3,694       8       73,728  
Taxable
    19,980       1,326       -       21,306  
Mutual funds
    2,125       44       -       2,169  
Trust preferred securities
    299       8       3       304  
Equity securities
    1,190       117       17       1,290  
    $ 256,459       9,306       28       265,737  

   
December 31, 2011
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
                         
U.S. Treasury notes
  $ 17,385       165       -       17,550  
U.S. Agency notes
    81,415       1,517       5       82,927  
U.S. Agency mortgage-backed securities
    50,923       1,475       111       52,287  
Corporate securities
    6,334       47       16       6,365  
Municipal securities:
                               
Non-taxable
    65,896       3,827       20       69,703  
Taxable
    21,027       894       14       21,907  
Mutual funds
    2,103       22       -       2,125  
Trust preferred securities
    549       37       22       564  
Equity securities
    526       57       5       578  
    $ 246,158       8,041       193       254,006  

The fair value of held-to-maturity investment securities, consisting of taxable and non-taxable municipal securities, approximates amortized cost at September 30, 2012 and December 31, 2011.
 
 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 2 - Investment Securities (continued)
Information concerning available-for-sale investment securities with gross unrealized losses at September 30, 2012, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

   
Less than Twelve Months
   
Twelve Months or Greater
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
                         
U.S. Treasury notes
  $ -       -       -       -  
U.S. Agency notes
    -       -       -       -  
U.S. Agency mortgage- backed securities
    -       -       -       -  
Corporate securities
    -       -       -       -  
Municipal securities:
                               
Non-taxable
    557       6       459       2  
Taxable
    -       -       -       -  
Mutual funds
    -       -       -       -  
Trust preferred securities
    147       3       49       -  
Equity securities
    208       11       58       6  
    $ 912       20       566       8  

Management has determined that the unrealized losses at September 30, 2012 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 FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 - Loans
Major classifications of loans at September 30, 2012 and December 31, 2011 are as follows (in thousands):

   
September 30,
 
December 31,
   
2012
 
2011
             
Commercial and industrial
  $ 25,749       30,990  
Commercial, secured by real estate
    230,768       219,188  
Residential real estate
    184,256       186,904  
Consumer
    11,478       14,562  
Agricultural
    2,061       2,835  
Other loans, including deposit overdrafts
    2,993       6,554  
      457,305       461,033  
Deferred net origination costs
    102       229  
      457,407       461,262  
Less allowance for loan losses
    2,866       2,931  
Loans, net
  $ 454,541       458,331  


LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
Non-accrual, past-due, and accruing restructured loans as of September 30, 2012 and December 31, 2011 are as follows (in thousands):

   
September 30,
   
December 31,
 
   
2012
   
2011
 
Non-accrual loans:
           
Commercial and industrial
  $ 264       495  
Commercial, secured by real estate
    1,083       1,950  
Residential real estate
    1,430       1,223  
Total non-accrual loans
    2,777       3,668  
Past-due 90 days or more and still accruing
    22       39  
Total non-accrual and past-due 90 days  or more and still accruing
    2,799       3,707  
Accruing restructured loans
    13,356       14,739  
Total
  $ 16,155       18,446  
                 
Percentage of total non-accrual and past-due 90  days or more and still accruing to total loans
    0.61 %     0.80 %
                 
Percentage of total non-accrual, past-due 90 days  or more and still accruing, and accruing  restructured loans to total loans
    3.53 %     4.00 %

Loans sold to and serviced for the Federal Home Loan Mortgage Corporation and other investors are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of those loans at September 30, 2012 and December 31, 2011 are $70,208,000 and $67,410,000, respectively.  Loans sold to the Federal Home Loan Mortgage Corporation during the three months ended September 30, 2012 and 2011 totaled $7,934,000 and $2,173,000, respectively, and $19,328,000 and $4,871,000 during the nine months ended September 30, 2012 and 2011, respectively.
 

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

Note 3 – Loans (continued)
The allowance for loan losses and recorded investment in loans for the nine months ended September 30 are as follows (in thousands):

   
Commercial
& Industrial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agricultural
   
Other
   
Total
 
2012
                                         
Allowance for loan losses:
                                         
Balance, beginning of year
  $ 162       1,941       656       166       -       6       2,931  
Change in classification
    18       (18 )     -       -       -       -       -  
Provision charged to expenses
    163       (24 )     632       (49 )     -       20       742  
Losses charged off
    (159 )     (234 )     (479 )     (84 )     -       (64 )     (1,020 )
Recoveries
    -       71       7       95       -       40       213  
Balance, end of period
  $ 184       1,736       816       128       -       2       2,866  
                                                         
Individually evaluated for impairment
  $ 21       41       227       -       -       -       289  
Collectively evaluated for impairment
    163       1,695       589       128       -       2       2,577  
Balance, end of period
  $ 184       1,736       816       128       -       2       2,866  
                                                         
Loans:
                                                       
 
Individually evaluated for impairment
  $ 264       9,942       5,110       13       -       -       15,329  
Collectively evaluated for impairment
    25,462       220,622       179,390       11,550       2,061       2,993       442,078  
Balance, end of period
  $ 25,726       230,564       184,500       11,563       2,061       2,993       457,407  
                                                         
2011
                                                       
Allowance for loan losses:
                                                       
Balance, beginning of year
  $ 305       1,625       459       246       -       6       2,641  
Provision charged to expenses
    499       409       501       36       -       31       1,476  
Losses charged off
    (251 )     (203 )     (371 )     (183 )     -       (100 )     (1,108 )
Recoveries
    -       30       28       105       -       69       232  
Balance, end of period
  $ 553       1,861       617       204       -       6       3,241  
                                                         
Individually evaluated for impairment
  $ 337       303       93       -       -       -       733  
Collectively evaluated for impairment
    216       1,558       524       204       -       6       2,508  
Balance, end of period
  $ 553       1,861       617       204       -       6       3,241  
                                                         
Loans:
                                                       
Individually evaluated for impairment
  $ 904       11,618       596       10       -       -       13,128  
Collectively evaluated for impairment
    31,236       192,453       183,532       16,183       3,245       9,759       436,408  
Balance, end of period
  $ 32,140       204,071       184,128       16,193       3,245       9,759       449,536  


LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – 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 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.

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

Note 3 – Loans (continued)
A breakdown of the loan portfolio by credit quality indicators at September 30, 2012 and December 31, 2011 is as follows (in thousands):

   
Pass
   
OAEM
   
Substandard
   
Doubtful
   
Total
 
September 30, 2012
                             
Commercial & industrial
  $ 22,452       2,646       447       181       25,726  
Commercial, secured by real estate
    218,963       2,412       9,189       -       230,564  
Residential real estate
    174,759       2,593       7,148       -       184,500  
Consumer
    11,458       -       100       5       11,563  
Agricultural
    2,057       -       4       -       2,061  
Other
    2,993       -       -       -       2,993  
Total
  $ 432,682       7,651       16,888       186       457,407  
                                         
December 31, 2011
                                       
Commercial & industrial
  $ 26,099       1,700       2,804       370       30,973  
Commercial, secured by real estate
    206,728       2,133       9,633       568       219,062  
Residential real estate
    182,409       1,681       2,682       376       187,148  
Consumer
    14,601       -       50       39       14,690  
Agricultural
    1,430       -       1,405       -       2,835  
Other
    6,554       -       -       -       6,554  
Total
  $ 437,821       5,514       16,574       1,353       461,262  

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

Note 3 – Loans (continued)
A loan portfolio aging analysis at September 30, 2012 and December 31, 2011 is as follows (in thousands):

   
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Greater Than
90 Days
   
Total
Past Due
   
Current
   
Total Loans
Receivable
   
Total Loans
Greater Than
90 Days and
Accruing
 
                                           
September 30, 2012
                                         
Commercial & industrial
  $ -       -       264       264       25,462       25,726       -  
Commercial, secured by real estate
    172       80       1,083       1,335       229,229       230,564       -  
Residential real estate
    900       74       1,346       2,320       182,180       184,500       -  
Consumer
    66       44       22       132       11,431       11,563       22  
Agricultural
    -       -       -       -       2,061       2,061       -  
Other
    44       -       -       44       2,949       2,993       -  
Total
  $ 1,182       198       2,715       4,095       453,312       457,407       22  
                                                         
December 31, 2011
                                                       
Commercial & industrial
  $ 2       -       495       497       30,476       30,973       -  
Commercial, secured by real estate
    -       83       1,769       1,852       217,210       219,062       -  
Residential real estate
    1,132       22       1,202       2,356       184,792       187,148       -  
Consumer
    82       37       39       158       14,532       14,690       39  
Agricultural
    -       -       -       -       2,835       2,835       -  
Other
    59       -       -       59       6,495       6,554       -  
Total
  $ 1,275       142       3,505       4,922       456,340       461,262       39  


LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
Impaired loans at September 30, 2012 and December 31, 2011 are as follows (in thousands):

   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
September 30, 2012
                             
With no related allowance recorded:
                             
Commercial & industrial
  $ 83       572       -       1,494       43  
Commercial real estate
    12,827       13,270       -       12,486       348  
Residential real estate
    474       474       -       389       3  
Consumer
    22       22       -       23       1  
Total
  $ 13,406       14,338       -       14,392       395  
                                         
With an allowance recorded:
                                       
Commercial & industrial
  $ 181       250       21       181       -  
Commercial real estate
    1,168       1,222       98       1,643       43  
Residential real estate
    583       777       170