Note 15 - Regulatory Matters and Impact on Payment of Dividends

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 15 - REGULATORY MATTERS AND IMPACT ON PAYMENT OF DIVIDENDS

The principal source of income and funds for LCNB Corp. is dividends paid by the Bank.  The payment of dividends is subject to restriction by regulatory authorities.  For 2025, the restrictions generally limit dividends to the aggregate of net income for the year 2025 plus the net earnings retained for 2024 and 2023.  If dividends exceed net income for a year, a bank is generally not required to carry forward the negative amount resulting from such excess if the bank can attribute the excess to the preceding two years. If the excess is greater than the bank's previously undistributed net income for the preceding two years, prior OCC approval of the dividend is required and a negative amount would be carried forward in future dividend calculations. In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines.

The Bank must meet certain minimum capital requirements set by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's and Bank's financial statements.  The Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

In addition to the minimum capital requirements, a financial institution needs to maintain a Capital Conservation Buffer composed of Common Equity Tier 1 Capital of at least 2.5% above its minimum risk-weighted capital requirements to avoid limitations on its ability to make capital distributions, including dividend payments to shareholders and certain discretionary bonus payments to executive officers. A financial institution with a buffer below 2.5% will be subject to increasingly stringent limitations on capital distributions as the buffer approaches zero.

For various regulatory purposes, financial institutions are classified into categories based upon capital adequacy:

				Minimum
				Requirement
				with Capital
	Minimum			Conservation			To Be Considered
	Requirement			Buffer			Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets		4.5	%		7.0	%		6.5	%
Ratio of tier 1 capital to risk-weighted assets		6.0	%		8.5	%		8.0	%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets		8.0	%		10.5	%		10.0	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)		4.0	%		N/A			5.0	%

As of the most recent notification from its regulators, the Bank was categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  Management believes that no conditions or events have occurred since the last notification that would change the Bank's category.

On September 17, 2019, the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy for qualifying community banking organizations, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The simplified rule was designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. It could be used beginning with the March 31, 2020 Call Report. Qualifications to use the simplified approach include having a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. LCNB did not qualify to use the simplified approach for its  December 31, 2024 or  December 31, 2023 regulatory capital calculations.

A summary of the regulatory capital of the Bank at December 31 follows (dollars in thousands):

	2024			2023
Regulatory Capital:
Shareholders' equity	$	259,811			242,528
Goodwill and other intangible assets		(100,279	)		(84,897	)
Accumulated other comprehensive loss		19,189			22,336
Tier 1 risk-based capital		178,721			179,967
Eligible allowance for credit losses		11,805			10,318
Total risk-based capital	$	190,526			190,285
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets		9.94	%		10.17	%
Tier 1 capital to risk-weighted assets		9.94	%		10.17	%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets		10.60	%		10.75	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)		7.94	%		8.05	%