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LOANS
 12 Months Ended
Dec. 31, 2022
Receivables [Abstract]  
LOANS LOANS
Major classifications of loans at December 31 were as follows (in thousands):
 20222021
Commercial and industrial$120,327 101,598 
Commercial, secured by real estate936,255 887,679 
Residential real estate306,128 335,106 
Consumer28,414 34,291 
Agricultural10,073 10,649 
Other loans, including deposit overdrafts81 122 
 1,401,278 1,369,445 
Less allowance for loan losses5,646 5,506 
Loans-net$1,395,632 1,363,939 

Loans in the above table are shown net of deferred origination fees and costs. Deferred origination fees, net of related costs, were $980,000 and $961,000 at December 31, 2022 and 2021, respectively.
Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (dollars in thousands):
 20222021
Non-accrual loans:  
Commercial, secured by real estate$319 1,182 
Residential real estate72 299 
Total non-accrual loans391 1,481 
Past-due 90 days or more and still accruing39 56 
Total non-accrual and past-due 90 days or more and still accruing430 1,537 
Accruing restructured loans1,376 2,622 
Total$1,806 4,159 
Ratio of total non-accrual loans to total loans0.03 %0.11 %
Ratio of total non-accrual loans, past-due 90 days or more and still accruing, and accruing restructured loans to total loans0.13 %0.30 %

Interest income that would have been recorded during 2022 and 2021 if loans on non-accrual status at December 31, 2022 and 2021 had been current and in accordance with their original terms was approximately $32,000 and $31,000, respectively.
The allowance for loan losses and recorded investment in loans for the years ended December 31 were as follows (in thousands):
 Commercial
& Industrial		Commercial,
Secured by
Real Estate		Residential
Real Estate		ConsumerAgriculturalOtherTotal
2022       
Allowance for loan losses:       
Balance, beginning of year$1,095 3,607 665 105 30 4 5,506 
Provision for (recovery of) loan losses205 69 (81)(12)(8)77 250 
Losses charged off— (67)(5)(37)— (157)(266)
Recoveries— — 45 30 — 81 156 
Balance, end of year$1,300 3,609 624 86 22 5 5,646 
Individually evaluated for impairment$4 11 6 — — — 21 
Collectively evaluated for impairment1,296 3,598 618 86 22 5 5,625 
Acquired credit impaired loans— — — — — — — 
Balance, end of year$1,300 3,609 624 86 22 5 5,646 
Loans:       
Individually evaluated for impairment$114 963 482 — — — 1,559 
Collectively evaluated for impairment119,799 934,568 304,770 28,414 10,073 81 1,397,705 
Acquired credit impaired loans414 724 876 — — — 2,014 
Balance, end of year$120,327 936,255 306,128 28,414 10,073 81 1,401,278 
Ratio of net charge-offs to average loans— %0.01 %(0.01)%0.02 %— %100.00 %0.01 %
2021       
Allowance for loan losses:       
Balance, beginning of year$816 3,903 837 153 28 (9)5,728 
Provision for (recovery of) loan losses279 (375)(190)(45)2 60 (269)
Losses charged off— (112)(28)(9)— (105)(254)
Recoveries— 191 46 6 — 58 301 
Balance, end of year$1,095 3,607 665 105 30 4 5,506 
Individually evaluated for impairment$5 11 9 — — — 25 
Collectively evaluated for impairment1,090 3,596 656 105 30 4 5,481 
Acquired credit impaired loans— — — — — — — 
Balance, end of year$1,095 3,607 665 105 30 4 5,506 
Loans:       
Individually evaluated for impairment$155 2,945 559 — — — 3,659 
Collectively evaluated for impairment101,355 883,122 333,384 34,291 10,649 122 1,362,923 
Acquired credit impaired loans88 1,612 1,163 — — — 2,863 
Balance, end of year$101,598 887,679 335,106 34,291 10,649 122 1,369,445 
Ratio of net charge-offs to average loans— %(0.01)%(0.01)%0.01 %— %16.24 %— %
 Commercial
& Industrial		Commercial,
Secured by
Real Estate		Residential
Real Estate		ConsumerAgriculturalOtherTotal
2020       
Allowance for loan losses:       
Balance, beginning of year$456 2,924 528 99 34 4 4,045 
Provision for (recovery of) loan losses342 1,332 239 62 (6)45 2,014 
Losses charged off(13)(353)(5)(30)— (140)(541)
Recoveries31 — 75 22 — 82 210 
Balance, end of year$816 3,903 837 153 28 (9)5,728 
Individually evaluated for impairment$8 17 27 — — — 52 
Collectively evaluated for impairment808 3,886 810 153 28 (9)5,676 
Acquired credit impaired loans— — — — — — — 
Balance, end of year$816 3,903 837 153 28 (9)5,728 
Ratio of net charge-offs to average loans(0.02)%0.04 %(0.02)%0.02 %— %10.83 %0.03 %

The risk characteristics of LCNB's material loan portfolio segments were as follows:

Commercial & Industrial Loans. LCNB’s commercial and industrial loan portfolio consists of loans for various purposes, including, for example, 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.  Commercial & industrial loans can have a fixed or variable rate, with maturities ranging from one to ten years. Commercial & industrial loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. Commercial & 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.

This category includes PPP loans that were authorized under the CARES Act and updated by the Economic Aid Act. The PPP was implemented by the SBA with support from the Department of the Treasury and provided small businesses that were negatively impacted by the COVID-19 pandemic with government guaranteed and potentially forgivable loans that could be used to pay up to eight or twenty-four weeks, depending on the date of the loan, of payroll costs including benefits. Funds could also be used to pay interest on mortgages, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures. LCNB originated 316 PPP loans with original balances totaling $45.5 million during 2020 and originated an additional 358 loans with original balances totaling $38.3 million during the first half of 2021. Outstanding PPP loans at December 31, 2022 and 2021 totaled $40,000 and $6,935,000, respectively, and unrecognized fees at those dates totaled $4,000 and $272,000, respectively.

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. Mortgage loans secured by owner-occupied agricultural property are included in this category.  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 and liquidity 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 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 fifteen 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.

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% or may require other credit enhancements for second lien mortgage loans.
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 collectability 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 or 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 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.
An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):
 PassOAEMSubstandardDoubtfulTotal
2022     
Commercial & industrial$114,573 3,744 2,010 — 120,327 
Commercial, secured by real estate913,375 15,344 7,536 — 936,255 
Residential real estate304,513 — 1,615 — 306,128 
Consumer28,411 — 3 — 28,414 
Agricultural10,073 — — — 10,073 
Other81 — — — 81 
Total$1,371,026 19,088 11,164 — 1,401,278 
2021     
Commercial & industrial$98,694 2,757 147 — 101,598 
Commercial, secured by real estate851,709 22,336 13,634 — 887,679 
Residential real estate332,962 — 2,144 — 335,106 
Consumer34,281 — 10 — 34,291 
Agricultural10,649 — — — 10,649 
Other122 — — — 122 
Total$1,328,417 25,093 15,935 — 1,369,445 

LCNB generally performs a classification of assets review, including the regulatory classification of assets, on an ongoing basis. The results of the classification of assets review are validated annually by an independent third party loan review firm. In the event of a difference in rating or classification between those assigned by the internal and external resources, the Company will utilize the more critical or conservative rating or classification. Loans with regulatory classifications are presented monthly to the Board of Directors.

LCNB evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.
A loan portfolio aging analysis at December 31 is as follows (in thousands):
 30-59 Days
Past Due		60-89 Days
Past Due		Greater Than
90 Days		Total
Past Due		CurrentTotal Loans
Receivable		Total Loans Greater Than
90 Days and
Accruing
2022       
Commercial & industrial$— — — — 120,327 120,327 — 
Commercial, secured by real estate— — — — 936,255 936,255 — 
Residential real estate81 — 79 160 305,968 306,128 39 
Consumer117 3 — 120 28,294 28,414 — 
Agricultural— — — — 10,073 10,073 — 
Other81 — — 81 — 81 — 
Total$279 3 79 361 1,400,917 1,401,278 39 
2021       
Commercial & industrial$— — — — 101,598 101,598 — 
Commercial, secured by real estate181 — 784 965 886,714 887,679 — 
Residential real estate1,130 1 109 1,240 333,866 335,106 51 
Consumer22 5 5 32 34,259 34,291 5 
Agricultural— — — — 10,649 10,649 — 
Other122 — — 122 — 122 — 
Total$1,455 6 898 2,359 1,367,086 1,369,445 56 
Impaired loans, including acquired credit impaired loans, for the years ended December 31 were as follows (in thousands):
 Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized
2022     
With no related allowance recorded:     
Commercial & industrial$414 523 — 311 145 
Commercial, secured by real estate1,042 1,255 — 2,220 357 
Residential real estate1,173 1,379 — 1,306 234 
Consumer— — — — — 
Agricultural— — — — — 
Other— — — — — 
Total$2,629 3,157 — 3,837 736 
With an allowance recorded:     
Commercial & industrial$114 119 4 135 8 
Commercial, secured by real estate645 645 11 663 43 
Residential real estate185 185 6 194 11 
Consumer— — — — — 
Agricultural— — — — — 
Other— — — — — 
Total$944 949 21 992 62 
Total:     
Commercial & industrial$528 642 4 446 153 
Commercial, secured by real estate1,687 1,900 11 2,883 400 
Residential real estate1,358 1,564 6 1,500 245 
Consumer— — — — — 
Agricultural— — — — — 
Other— — — — — 
Total$3,573 4,106 21 4,829 798 
 
 Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized
2021     
With no related allowance recorded:     
Commercial & industrial$88 316 — 236 83 
Commercial, secured by real estate3,897 4,736 — 5,978 411 
Residential real estate1,501 1,857 — 2,553 227 
Consumer— — — 1 — 
Agricultural— — — — — 
Other— — — 144 127 
Total$5,486 6,909 — 8,912 848 
With an allowance recorded:     
Commercial & industrial$155 160 5 175 10 
Commercial, secured by real estate660 660 11 674 36 
Residential real estate221 221 9 230 13 
Consumer— — — — — 
Agricultural— — — — — 
Other— — — — — 
Total$1,036 1,041 25 1,079 59 
Total:     
Commercial & industrial$243 476 5 411 93 
Commercial, secured by real estate4,557 5,396 11 6,652 447 
Residential real estate1,722 2,078 9 2,783 240 
Consumer— — — 1 — 
Agricultural— — — — — 
Other— — — 144 127 
Total$6,522 7,950 25 9,991 907 
 Average
Recorded
Investment		Interest
Income
Recognized
2020  
With no related allowance recorded:  
Commercial & industrial$1,044 335 
Commercial, secured by real estate7,070 731 
Residential real estate3,290 316 
Consumer10 1 
Agricultural— — 
Other234 36 
Total$11,648 1,419 
With an allowance recorded:  
Commercial & industrial$212 12 
Commercial, secured by real estate1,517 18 
Residential real estate404 18 
Consumer3 — 
Agricultural— — 
Other— — 
Total$2,136 48 
Total:  
Commercial & industrial$1,256 347 
Commercial, secured by real estate8,587 749 
Residential real estate3,694 334 
Consumer13 1 
Agricultural— — 
Other234 36 
Total$13,784 1,467 

Of the interest income recognized on impaired loans during 2022, 2021, and 2020, approximately $5,000, $37,000, and $34,000, respectively, were recognized on a cash basis. The Company continued to accrue interest on certain loans classified as impaired during 2022, 2021, and 2020 because they were restructured or considered well secured and in the process of collection.

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 troubled debt restructurings during the years ended December 31 were as follows (dollars in thousands):
 202220212020
 Number
of Loans		Pre-Modification Recorded BalancePost-Modification Recorded BalanceNumber
of Loans		Pre-Modification Recorded BalancePost-Modification Recorded BalanceNumber
of Loans		Pre-Modification Recorded BalancePost-Modification Recorded Balance
Commercial and industrial— $— $— — $— $— 1 $5 $4 
Commercial, secured by real estate— — — — — — 1 1,525 1,525 
Residential real estate— — — 3 97 101 1 14 14 
Consumer— — — — — — — — — 
Totals— $— $— 3 $97 $101 3 $1,544 $1,543 

Post-modification balances of newly restructured troubled debt by type of modification for the years ended December 31 were as follows (in thousands):
 Term ModificationRate ModificationInterest OnlyPrincipal ForgivenessCombinationTotal Modifications
2022     
Commercial & industrial$— — — — — — 
Commercial, secured by real estate— — — — — — 
Residential real estate— — — — — — 
Consumer— — — — — — 
Total$— — — — — — 
2021     
Commercial & industrial$— — — — — — 
Commercial, secured by real estate— — — — — — 
Residential real estate32 — — — 69 101 
Consumer— — — — — — 
Total$32 — — — 69 101 
2020
Commercial & industrial$— — — — 4 4 
Commercial, secured by real estate— — — — 1,525 1,525 
Residential real estate— — — — 14 14 
Consumer— — — — — — 
Total$— — — — 1,543 1,543 

LCNB is not committed to lend additional funds to borrowers whose loan terms were modified in a troubled debt restructuring.

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring date for the years ended December 31, 2022, 2021, or 2020.

All troubled debt restructurings are considered impaired loans. The allowance for loan loss on such restructured loans is based on the present value of future expected cash flows.
Information concerning the post-modification balances of loans that were modified during the year ended December 31 and that were determined to be troubled debt restructurings follows (in thousands):
20222021
Impaired loans without a valuation allowance at the end of the period— 101 
Impaired loans with a valuation allowance at the end of the period— — 

Mortgage 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 December 31, 2022 and 2021 were approximately $148,412,000 and $149,382,000, respectively.