LCNB CORP, 10-K filed on 3/10/2021
Annual Report
v3.20.4
Cover - USD ($)
12 Months Ended
Dec. 31, 2020
Mar. 09, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Current Fiscal Year End Date --12-31    
Document Transition Report false    
Entity File Number 000-26121    
Entity Registrant Name LCNB Corp.    
Entity Incorporation, State or Country Code OH    
Entity Tax Identification Number 31-1626393    
Entity Address, Address Line One 2 North Broadway    
Entity Address, City or Town Lebanon    
Entity Address, State or Province OH    
Entity Address, Postal Zip Code 45036    
City Area Code 513    
Local Phone Number 932-1414    
Title of 12(b) Security Common Stock, No Par Value    
Trading Symbol LCNB    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 195,144,851
Entity Common Stock, Shares Outstanding   12,814,987  
Entity Central Index Key 0001074902    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
ICFR Auditor Attestation Flag false    
v3.20.4
CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2020
Dec. 31, 2019
ASSETS:    
Cash and due from banks $ 17,383,000 $ 17,019,000
Interest-bearing demand deposits 14,347,000 3,746,000
Total cash and cash equivalents 31,730,000 20,765,000
Equity Securities, FV-NI 2,389,000 2,312,000
Equity Securities without Readily Determinable Fair Value, Amount 2,099,000 2,099,000
Investment securities:    
Debt securities, available-for-sale, at fair value 209,471,000 178,000,000
Debt securities, held-to-maturity, at cost 24,810,000 27,525,000
Federal Reserve Bank stock, at cost 4,652,000 4,652,000
Federal Home Loan Bank stock, at cost 5,203,000 5,203,000
Loans, net 1,293,693,000 1,239,406,000
Premises and equipment, net 35,376,000 34,787,000
Operating Lease, Right-of-Use Asset 6,274,000 5,444,000
Goodwill 59,221,000 59,221,000
Core deposit and other intangibles, net 3,453,000 4,006,000
Bank owned life insurance 42,149,000 41,667,000
Accrued interest receivable 8,337,000 3,926,000
Other assets, net 17,027,000 10,295,000
TOTAL ASSETS 1,745,884,000 1,639,308,000
Deposits:    
Non-interest-bearing 455,073,000 354,391,000
Interest-bearing 1,000,350,000 993,889,000
Total deposits 1,455,423,000 1,348,280,000
Long-term debt 22,000,000 40,994,000
Operating Lease, Liability 6,371,000 5,446,000
Accrued interest and other liabilities 21,265,000 16,540,000
TOTAL LIABILITIES 1,505,059,000 1,411,260,000
COMMITMENTS AND CONTINGENT LIABILITIES $ 0 $ 0
Preferred Stock, Shares Outstanding 0 0
SHAREHOLDERS' EQUITY:    
Preferred shares - no par value, authorized 1,000,000 shares, none outstanding $ 0 $ 0
Common Stock, Value, Issued 142,443,000 141,791,000
Retained earnings $ 115,058,000 $ 104,431,000
Treasury Stock, Shares 1,305,579 1,175,027
Treasury Stock, Value $ (20,719,000) $ (18,847,000)
Accumulated other comprehensive income, net of taxes 4,043,000 673,000
TOTAL SHAREHOLDERS' EQUITY 240,825,000 228,048,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,745,884,000 $ 1,639,308,000
Preferred Stock, Shares Authorized 1,000,000 1,000,000
Common stock, shares, outstanding (in shares) 12,858,325 12,936,783
Common Stock, Shares, Issued 14,163,904 14,111,810
Common Stock, Shares Authorized 19,000,000 19,000,000
v3.20.4
CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares
Dec. 31, 2020
Dec. 31, 2019
SHAREHOLDERS' EQUITY:    
Preferred Stock, Shares Authorized 1,000,000 1,000,000
Preferred Stock, Shares Outstanding 0 0
Common Stock, Shares Authorized 19,000,000 19,000,000
Common Stock, Shares, Issued 14,163,904 14,111,810
Treasury Stock, Shares 1,305,579 1,175,027
v3.20.4
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
INTEREST INCOME:      
Interest and fees on loans $ 59,267 $ 59,009 $ 47,489
Dividend Income, Equity Securities, Operating 54 62 65
Dividend Income, Operating 37 65 39
Interest on debt securities:      
Taxable 2,916 3,601 3,666
Non-taxable 1,027 1,677 2,686
Interest Income, Deposits with Financial Institutions 0 11 58
Other investments 479 769 591
TOTAL INTEREST INCOME 63,780 65,194 54,594
INTEREST EXPENSE:      
Interest on deposits 6,634 9,526 5,753
Interest on short-term borrowings 7 227 311
Interest on long-term debt 921 1,035 361
TOTAL INTEREST EXPENSE 7,562 10,788 6,425
NET INTEREST INCOME 56,218 54,406 48,169
PROVISION FOR LOAN LOSSES 2,014 207 923
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 54,204 54,199 47,246
NON-INTEREST INCOME:      
Fiduciary income 5,009 4,354 3,958
Service charges and fees on deposit accounts 5,482 5,875 5,590
Net gains (losses) on sales of debt securities 221 (41) (8)
Bank owned life insurance income 1,441 943 738
Net gains from sales of loans 2,297 328 223
Other operating income 1,291 889 549
TOTAL NON-INTEREST INCOME 15,741 12,348 11,050
NON-INTEREST EXPENSE:      
Salaries and employee benefits 27,178 25,320 21,279
Equipment expenses 1,377 1,209 1,138
Occupancy expense, net 2,875 2,961 2,861
State financial institutions tax 1,708 1,669 1,197
Marketing 1,254 1,319 1,119
Amortization of intangibles 1,046 1,043 922
FDIC insurance premiums, net 256 225 419
ATM expense 1,028 580 580
Computer maintenance and supplies 1,107 1,094 990
Telephone expense 706 707 649
Contracted services 1,821 1,865 1,547
Merger-related expenses 0 114 2,123
Other non-interest expense 5,429 5,416 5,678
TOTAL NON-INTEREST EXPENSE 45,785 43,522 40,502
INCOME BEFORE INCOME TAXES 24,160 23,025 17,794
PROVISION FOR INCOME TAXES 4,085 4,113 2,949
NET INCOME $ 20,075 $ 18,912 $ 14,845
Earnings per common share:      
Basic (in dollars per share) $ 1.55 $ 1.44 $ 1.24
Diluted (in dollars per share) $ 1.55 $ 1.44 $ 1.24
Weighted average common shares outstanding:      
Basic (in shares) 12,914,277 13,078,920 11,935,350
Diluted (in shares) 12,914,584 13,082,893 11,942,253
v3.20.4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net income $ 20,075 $ 18,912 $ 14,845
Other comprehensive income (loss):      
Net unrealized gain (loss) on available-for-sale securities (net of taxes of $975, $1,450, and $(516) for 2020, 2019, and 2018, respectively) 3,666 5,456 (1,939)
Reclassification adjustment for net realized (gain) loss on sale of available-for-sale securities included in net income (net of taxes of $46, $(9), and $(2) for 2020, 2019 and 2018, respectively) (175) 32 6
Other Comprehensive Income (Loss), Defined Benefit Plan, Gain (Loss) Arising During Period, after Tax (121) (96) 81
Other comprehensive income (loss) 3,370 5,392 (1,852)
TOTAL COMPREHENSIVE INCOME 23,445 24,304 12,993
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX, AS OF YEAR-END:      
Net unrealized gain (loss) on securities available-for-sale 4,349 857 (4,631)
Net unfunded liability for nonqualified pension plan (306) (184) (88)
Balance at year-end $ 4,043 $ 673 $ (4,719)
v3.20.4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Other comprehensive income (loss):      
OCI, Debt Securities, Available-for-Sale, Unrealized Holding Gain (Loss), before Adjustment, Tax $ 975 $ 1,450 $ (516)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax 46 (9) (2)
Other Comprehensive Income (Loss), Defined Benefit Plan, Gain (Loss) Arising During Period, Tax $ (33) $ (26) $ 21
v3.20.4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Cumulative Effect, Period of Adoption, Adjusted Balance
Common Shares
Common Shares
Cumulative Effect, Period of Adoption, Adjustment
Common Shares
Cumulative Effect, Period of Adoption, Adjusted Balance
Retained Earnings
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
Retained Earnings
Cumulative Effect, Period of Adoption, Adjusted Balance
Treasury Shares
Treasury Shares
Cumulative Effect, Period of Adoption, Adjustment
Treasury Shares
Cumulative Effect, Period of Adoption, Adjusted Balance
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
Cumulative Effect, Period of Adoption, Adjustment
Accumulated Other Comprehensive Income (Loss)
Cumulative Effect, Period of Adoption, Adjusted Balance
Balance (in shares) at Dec. 31, 2017       10,023,059   10,023,059                  
Balance at beginning of year at Dec. 31, 2017 $ 150,271 $ 0 $ 150,271 $ 76,977 $ 0 $ 76,977 $ 87,301 $ 525 $ 87,826 $ (11,665) $ 0 $ (11,665) $ (2,342) $ (525) $ (2,867)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Net income 14,845     0     14,845     0     0    
Other comprehensive income, net of taxes (1,852)     $ 0     0     0     (1,852)    
Dividend Reinvestment and Stock Purchase Plan (in shares)       22,936                      
Dividend Reinvestment and Stock Purchase Plan 416     $ 416     0     0     0    
Acquisition of BNB Bancorp, Inc. (in shares)       3,253,060                      
Stock issued for acquisition of Columbus First Bancorp, Inc. 63,598     $ 63,598     0     0     0    
Exercise of stock options (in shares)       6,987                      
Exercise of stock options 72     $ 72     0     0     0    
Treasury Stock, Shares, Acquired       21,400                      
Payments for Repurchase of Common Stock 348     $ 0     0     348     0    
Compensation expense relating to restricted stock (in shares)       10,634                      
Compensation expense relating to restricted stock $ 107     $ 107     0     0     0    
Dividends, Common Stock, Stock       0                      
Common Stock, Dividends, Per Share, Declared $ 0.65                            
Dividends, Common Stock, Cash $ (8,124)     $ 0     (8,124)     0     0    
Balance (in shares) at Dec. 31, 2018       13,295,276                      
Balance at end of year at Dec. 31, 2018 218,985     $ 141,170     94,547     (12,013)     (4,719)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Net income 18,912     0     18,912     0     0    
Other comprehensive income, net of taxes 5,392     $ 0     0     0     5,392    
Dividend Reinvestment and Stock Purchase Plan (in shares)       25,629                      
Dividend Reinvestment and Stock Purchase Plan 446     $ 446     0     0     0    
Exercise of stock options (in shares)       3,374                      
Exercise of stock options 41     $ 41     0     0     0    
Treasury Stock, Shares, Acquired       400,000                      
Payments for Repurchase of Common Stock 6,834     $ 0     0     6,834     0    
Compensation expense relating to restricted stock (in shares)       12,504                      
Compensation expense relating to restricted stock $ 134     $ 134     0     0     0    
Dividends, Common Stock, Stock       0                      
Common Stock, Dividends, Per Share, Declared $ 0.69                            
Dividends, Common Stock, Cash $ (9,028)     $ 0     (9,028)     0     0    
Balance (in shares) at Dec. 31, 2019 12,936,783     12,936,783                      
Balance at end of year at Dec. 31, 2019 $ 228,048     $ 141,791     104,431     (18,847)     673    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Net income 20,075     0     20,075     0     0    
Other comprehensive income, net of taxes 3,370     $ 0     0     0     3,370    
Dividend Reinvestment and Stock Purchase Plan (in shares)       26,840                      
Dividend Reinvestment and Stock Purchase Plan 401     $ 401     0     0     0    
Exercise of stock options (in shares)       9,593                      
Exercise of stock options 114     $ 114     0     0     0    
Treasury Stock, Shares, Acquired       130,552                      
Payments for Repurchase of Common Stock 1,872     $ 0     0     1,872     0    
Compensation expense relating to restricted stock (in shares)       15,661                      
Compensation expense relating to restricted stock $ 137     $ 137     0     0     0    
Dividends, Common Stock, Stock       0                      
Common Stock, Dividends, Per Share, Declared $ 0.73                            
Dividends, Common Stock, Cash $ (9,448)     $ 0     (9,448)     0     0    
Balance (in shares) at Dec. 31, 2020 12,858,325     12,858,325                      
Balance at end of year at Dec. 31, 2020 $ 240,825     $ 142,443     $ 115,058     $ (20,719)     $ 4,043    
v3.20.4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]      
Common Stock, Dividends, Per Share, Declared $ 0.73 $ 0.69 $ 0.65
v3.20.4
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 20,075 $ 18,912 $ 14,845
Adjustments to reconcile net income to net cash flows from operating activities-      
Depreciation, amortization and accretion 2,234 3,244 4,073
Provision for loan losses 2,014 207 923
Deferred income tax provision 134 419 228
Increase in cash surrender value of bank owned life insurance (1,124) (943) (738)
Bank owned life insurance death benefits in excess of cash surrender value (317) 0 0
Equity Securities, FV-NI, Gain (Loss) (675) (264) 73
Net gain on sales of securities (221) 41 8
Realized (gain) loss from sale of premises and equipment (53) (1) 575
Realized (gain) loss from sale and impairment of other real estate owned and repossessed assets (11) 44 14
Origination of mortgage loans for sale (65,890) (16,418) (8,924)
Realized gains from sales of loans (2,297) (328) (223)
Proceeds from sales of loans 67,467 16,590 9,033
Compensation expense related to restricted stock 137 134 107
Changes in:      
Accrued income receivable (4,573) 230 215
Other assets (6,795) (1,373) (1,811)
Other liabilities 3,573 1,474 1,344
TOTAL ADJUSTMENTS (6,397) 3,056 4,897
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 13,678 21,968 19,742
CASH FLOWS FROM INVESTING ACTIVITIES:      
Proceeds from sales of equity securities 967 398 127
Proceeds from sales of debt securities available-for-sale 8,786 84,521 8,545
Proceeds from maturities and calls of debt securities:      
Available-for-sale 66,170 28,942 24,249
Held-to-maturity 5,297 10,766 6,281
Purchases of equity securities (369) (367) (1,118)
Purchases of debt securities:      
Available-for-sale (102,920) (47,270) 0
Held-to-maturity (2,582) (8,570) (3,431)
Increase (Decrease) in Time Deposits 0 996 9,354
Proceeds from Sale of Federal Reserve Bank Stock 0 1 0
Purchase of Federal Reserve Bank stock 0 0 (1,921)
Net increase in loans (54,196) (44,093) (65,842)
Purchase of bank owned life insurance 0 (12,000) 0
Proceeds from bank owned life insurance mortality benefits 958 0 0
Proceeds from sales of other real estate owned and repossessed assets 208 19 21
Purchases of premises and equipment (2,791) (3,934) (600)
Proceeds from sales of premises and equipment 421 5 651
Net cash received from acquisition of Columbus First Bancorp, Inc. 0 0 12,896
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (80,051) 9,056 (10,788)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Net increase (decrease) in deposits 107,143 47,361 (29,332)
Net decrease in short-term borrowings 0 (56,230) (770)
Proceeds from long-term debt 0 0 31,000
Principal payments on long-term debt (19,000) (6,055) (7,214)
Proceeds from issuance of common stock 54 76 65
Payments for Repurchase of Common Stock 1,872 6,834 348
Proceeds from exercise of stock options 114 41 72
Cash dividends paid on common stock (9,101) (8,658) (7,773)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 77,338 (30,299) (14,300)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect 10,965 725 (5,346)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,765 20,040 25,386
CASH AND CASH EQUIVALENTS AT END OF YEAR 31,730 20,765 20,040
CASH PAID DURING THE YEAR FOR:      
Interest 7,809 10,480 5,908
Income taxes 3,811 3,471 1,950
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITY:      
Transfer from loans to other real estate owned and repossessed assets 0 17 244
Payments to Acquire Federal Home Loan Bank Stock $ 0 $ (358) $ 0
v3.20.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LCNB Corp. (the "Company" or “LCNB”), an Ohio corporation formed in December 1998, is a financial holding company whose principal activity is the ownership of LCNB National Bank (the "Bank").  The Bank was founded in 1877 and provides full banking services, including Wealth Management and Investment services, to customers primarily in Southwestern Ohio and Franklin County Ohio and contiguous areas.

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.  The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles and with general practices in the banking industry.

Certain prior period data presented in the consolidated financial statements have been reclassified to conform with the current year presentation. These reclassifications had no effect on net income.

USE OF ESTIMATES
The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash, balances due from banks, federal funds sold, and interest-bearing demand deposits with original maturities of twelve months or less.  Deposits with other banks routinely have balances greater than FDIC insured limits.  Management considers the risk of loss to be very low with respect to such deposits.

INVESTMENT SECURITIES
Certain municipal debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost.  Debt securities not classified as held-to-maturity are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, a separate component of shareholders’ equity.  Amortization of premiums and accretion of discounts are recognized as adjustments to interest income using the level-yield method.  Realized gains or losses from the sale of securities are recorded on the trade date and are computed using the specific identification method.

Declines in the fair value of debt securities below their cost that are deemed to be other-than-temporarily impaired, and for which the Company does not intend to sell the securities and it is not more likely than not that the securities will be sold before the anticipated recovery of the impairment, are separated into losses related to credit factors and losses related to other factors.  The losses related to credit factors are recognized in earnings and losses related to other factors are recognized in other comprehensive income.  In estimating other than temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management determined that no such impairment adjustment was required to be made in the Company's Consolidated Statements of Income as of December 31, 2020, 2019, and 2018.

Equity securities are measured at fair value with changes in fair value recognized in net income.
Federal Home Loan Bank ("FHLB") stock is an equity interest in the Federal Home Loan Bank of Cincinnati.  It can be sold only at its par value of $100 per share and only to the FHLB or to another member institution.  In addition, the equity ownership rights are more limited than would be the case for a public company because of the oversight role exercised by the Federal Housing Finance Agency in the process of budgeting and approving dividends.  Federal Reserve Bank stock is similarly restricted in marketability and value.  Both investments are carried at cost, which is their par value.

FHLB and Federal Reserve Bank stock are both subject to minimum ownership requirements by member banks.  The required investments in common stock are based on predetermined formulas.

LOANS
The Company’s loan portfolio includes most types of commercial and industrial loans, commercial loans secured by real estate, residential real estate loans, consumer loans, agricultural loans and other types of loans. Most of the properties collateralizing the loan portfolio are located within the Company’s market area.

Loans are stated at the principal amount outstanding, net of unearned income, deferred origination fees and costs, and the allowance for loan losses.  Interest income is accrued on the unpaid principal balance. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received.  Generally, a loan is placed on non-accrual status when it is classified as impaired or there is an indication that the borrower’s cash flow may not be sufficient to make payments as they come due, unless the loan is well secured and in the process of collection.  Subsequent cash receipts on non-accrual loans are recorded as a reduction of principal and interest income is recorded once principal recovery is reasonably assured.  The current year's accrued interest on loans placed on non-accrual status is charged against earnings. Previous years' accrued interest is charged against the allowance for loan losses. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer a reasonable doubt as to the timely collection of interest or principal.

Loan origination fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of loan yields.  These amounts are being amortized over the lives of the related loans.

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the consolidated financial statements when they are funded.  The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

Loans acquired from 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. Management estimates the cash flows expected to be collected at acquisition using a third-party risk model, which incorporates the estimate of key assumptions, such as default rates, severity, and prepayment speeds.

Impaired loans acquired are accounted for under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 310-30.  Factors considered in evaluating whether an acquired loan was impaired include delinquency status and history, updated borrower credit status, collateral information, and current 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.
 
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.  Consumer loans are charged off when they reach 120 days past due.  Subsequent recoveries, if any, are credited to the allowance.

The provision for loan losses is determined by management based upon its evaluation of the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated risk of losses inherent in the portfolio.  Current methodology used by management to estimate the allowance takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historic categorical trends, current delinquency levels as related to historical levels, portfolio growth rates, changes in composition of the portfolio, the current economic environment, as well as current allowance adequacy in relation to the portfolio.  Management is cognizant that reliance on historical information coupled with the cyclical nature of the economy, including credit cycles, affects the allowance.  Management considers all of these factors prior to making any adjustments to the allowance due to the subjectivity and imprecision involved in allocation methodology.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are specifically reviewed for impairment.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers loans not specifically reviewed for impairment and homogeneous loan pools, such as residential real estate and consumer loans.  The general component is measured for each loan category separately based on each category’s average of historical loss experience over a trailing sixty month period, adjusted for qualitative factors.  Such qualitative factors may include current economic conditions if different from the five-year historical loss period, trends in underperforming loans, trends in volume and terms of loan categories, concentrations of credit, and trends in loan quality.

A loan is considered impaired when management believes, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.  An impaired loan is measured by the present value of expected future cash flows using the loan's effective interest rate.  An impaired collateral-dependent loan may be measured based on collateral value.  Smaller-balance homogeneous loans, including residential mortgage and consumer installment loans, which are not evaluated individually are collectively evaluated for impairment.

PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.  Land is stated at cost. Depreciation is computed on both the straight-line and accelerated methods over the estimated useful lives of the assets, generally 15 to 40 years for premises and 3 to 10 years for equipment.  Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs incurred for maintenance and repairs are expensed as incurred. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.

LEASES
FASB Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)," 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 designated criteria. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease. All leases entered into by LCNB through December 31, 2020 are classified as operating leases. Lessees shall recognize a single lease cost on a straight-line basis over the lease term for operating leases. 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.

OTHER REAL ESTATE OWNED
Other real estate owned includes properties acquired through foreclosure.  Such property is held for sale and is initially recorded at fair value, less costs to sell, establishing a new cost basis.  Fair value is primarily based on a property appraisal obtained at the time of transfer and any periodic updates that may be obtained thereafter.  The allowance for loan losses is charged for any write down of the loan’s carrying value to fair value at the date of transfer.  Any subsequent reductions in fair value and expenses incurred from holding other real estate owned are charged to other non-interest expense.  Costs, excluding interest, relating to the improvement of other real estate owned are capitalized.  Gains and losses from the sale of other real estate owned are included in other non-interest expense.

GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill is not amortized, but is instead subject to an annual review for impairment. A review for impairment may be conducted more frequently than annually if circumstances indicate a possible impairment. Impairment indicators that may be considered include the condition of the economy and banking industry; estimated future cash flows; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of LCNB’s stock, and other relevant events. These and other factors could lead to a conclusion that goodwill is impaired, which would require LCNB to write off the difference between the estimated fair value of the company and the carrying value.

Mortgage servicing rights on originated mortgage loans that have been sold are initially recorded at their estimated fair values.  Mortgage servicing rights are amortized to loan servicing income in proportion to and over the period of estimated servicing income.  Such assets are periodically evaluated as to the recoverability of their carrying value.

The Company’s other intangible assets relate to core deposits acquired from business combinations.  These intangible assets are amortized on a straight-line basis over their estimated useful lives.  Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised.

BANK OWNED LIFE INSURANCE
The Company has purchased life insurance policies on certain officers of the Company.  The Company is the beneficiary of these policies and has recorded the estimated cash surrender value in other assets in the Consolidated Balance Sheets.  Income on the policies, based on the increase in cash surrender value and any incremental death benefits, is included in non-interest income in the Consolidated Statements of Income.

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP
LCNB has elected to account for its investment in an affordable housing tax credit limited partnership using the proportional amortization method described in "ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (A Consensus of the FASB Emerging Issues Task Force)." Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The investment in the limited partnership is included in other assets and the unfunded amount is included in accrued interest and other liabilities in LCNB's Consolidated Balance Sheets.
FAIR VALUE MEASUREMENTS
Accounting guidance establishes a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value.  A financial instrument’s level within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The three broad input levels are:
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; and
Level 3 - inputs that are unobservable for the asset or liability.

Accounting guidance permits, but does not require, companies to measure many financial instruments and certain other items, including loans and debt securities, at fair value.  The decision to elect the fair value option is made individually for each instrument and is irrevocable once made.  Changes in fair value for the selected instruments are recorded in earnings. The Company did not select any financial instruments for the fair value election in 2020 or 2019.

ADVERTISING EXPENSE
Advertising costs are expensed as incurred and are recorded as a marketing expense, a component of non-interest expense.

PENSION PLANS
Eligible employees of the Company hired before 2009 participate in a multiple-employer qualified noncontributory defined benefit retirement plan.  This plan is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.

Citizens National had a qualified noncontributory, defined benefit pension plan, which has been assumed by the Company, that covers eligible employees hired before May 1, 2005. This is a single employer plan.

TREASURY STOCK
Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the weighted average method.

STOCK OPTIONS AND RESTRICTED STOCK AWARD PLANS
The cost of employee services received in exchange for stock option grants is the grant-date fair value of the award estimated using an option-pricing model.  The compensation cost for restricted stock awards is based on the market price of the Company's common stock at the date of grant multiplied by the number of shares granted that are expected to vest. The estimated cost is recognized on a straight-line basis over the period the employee is required to provide services in exchange for the award, usually the vesting period.  The Company uses a Black-Scholes pricing model and related assumptions for estimating the fair value of stock option grants and a five-year vesting period for stock options and restricted stock.

REVENUE RECOGNITION
FASB ASC No. 606, "Revenue from Contracts with Customers" ("ASC No. 606") provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, including loans and investment securities, are not included in the scope of ASC No. 606. The adoption of ASC No. 606 did not result in a change to the accounting for any of LCNB's revenue streams that are within the scope of the amendments. Revenue-generating activities that are within the scope of ASC 606 and that are presented as non-interest income in LCNB's Consolidated Statements of Income include:
Fiduciary income - this includes periodic fees due from Wealth Management and Investment Services customers for managing the customers' financial assets. Fees are generally charged on a quarterly or annual basis and are recognized ratably throughout the period, as the services are provided on an ongoing basis.
Service charges and fees on deposit accounts - these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer, or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

INCOME TAXES
Deferred income taxes are determined using the asset and liability method of accounting.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Management analyzes material tax positions taken in any income tax return for any tax jurisdiction and determines the likelihood of the positions being sustained in a tax examination.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

EARNINGS PER SHARE
Basic earnings per share allocated to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is adjusted for the dilutive effects of stock based compensation and is calculated using the two-class method or the treasury stock method.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock based compensation with the proceeds used to purchase treasury shares at the average market price for the period.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

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 was adopted by LCNB as of January 1, 2020. It 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. Adoption of ASU No. 2017-04 did not have a material impact on LCNB's results of consolidated 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 was adopted by LCNB as of January 1, 2020. It 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. Adoption of ASU No. 2018-13 did not have a material impact on LCNB's results of consolidated 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 was adopted by LCNB on January 1, 2020. It 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. Adoption of ASU No. 2018-15 did not have a material impact on LCNB's results of consolidated operations or financial position.

ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting"
ASU No. 2020-04 was issued in March 2020 and provides optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying generally accepted accounting principles ("GAAP") to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. LCNB does not expect the guidance in ASU No. 2020-04 will have a material impact on its results of consolidated operations or financial position.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
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 consolidated 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 available-for-sale debt securities 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 available-for-sale debt securities 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 available-for-sale debt securities 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 ("SRC"), as defined, will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. As an SRC, LCNB intends to adopt ASU No. 2016-13 for the fiscal year, and interim periods within the fiscal year, beginning after December 15, 2022.
LCNB has created a cross-functional CECL Committee, which reports to the Audit Committee, composed of members from the lending, Wealth Management, and finance departments. During 2017, the CECL Committee 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, analyzed its pool segmentation and reporting mechanisms, and has recently finished back testing in preparation 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.

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 consolidated operations or financial position.

ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"
ASU No. 2019-12 was issued in December 2019 and simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifies and amends certain other guidance. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. Adoption of ASU No. 2019-12 is not expected to have a material impact on LCNB's results of consolidated operations or financial position.
v3.20.4
INVESTMENT SECURITIES
12 Months Ended
Dec. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
INVESTMENT SECURITIES INVESTMENT SECURITIES
The amortized cost and estimated fair value of equity and debt securities at December 31 are summarized as follows (in thousands):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
2020
Debt Securities Available-for-Sale:
U.S. Treasury notes$2,268 120 — 2,388 
U.S. Agency notes66,983 950 33 67,900 
Corporate Bonds1,200 — 21 1,179 
U.S. Agency mortgage-backed securities88,455 3,180 91,634 
Municipal securities:    
Non-taxable12,651 282 — 12,933 
Taxable32,409 1,031 33,437 
 $203,966 5,563 58 209,471 
Debt Securities Held-to-Maturity:
Municipal securities:
Non-taxable$21,408 181 — 21,589 
Taxable3,402 37 3,371 
$24,810 187 37 24,960 
2019
Debt Securities Available-for-Sale:
U.S. Treasury notes$2,273 36 — 2,309 
U.S. Agency notes48,745 273 34 48,984 
U.S. Agency mortgage-backed securities83,977 672 243 84,406 
Municipal securities:    
Non-taxable22,174 161 14 22,321 
Taxable19,746 269 35 19,980 
 $176,915 1,411 326 178,000 
Debt Securities Held-to-Maturity:
Municipal securities:
Non-taxable$24,300 343 24,638 
Taxable3,225 25 — 3,250 
$27,525 368 27,888 
Information concerning debt securities with gross unrealized losses at December 31, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
 Less Than Twelve MonthsTwelve Months or More
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
2020
Available-for-Sale:
U.S. Agency notes$10,674 33 — — 
Corporate Bonds679 21 — — 
U.S. Agency mortgage-backed securities290 — — 
Municipal securities:   
Non-taxable38 — — — 
Taxable3,063 — — 
 $14,744 58 — — 
Held-to-Maturity:
Municipal securities:
  Non-taxable$— — — 
  Taxable3,113 37 — — 
$3,114 37 — — 
2019
Available-for-Sale:
U.S. Agency notes$3,586 11 11,939 23 
U.S. Agency mortgage-backed securities10,555 10 19,233 233 
Municipal securities:
  Non-taxable2,631 1,257 12 
  Taxable5,067 35 450 — 
$21,839 58 32,879 268 
Held-to-Maturity:
Municipal securities:
  Non-taxable$54 — 2,660 
  Taxable— — — — 
$54 — 2,660 

Management has determined that the unrealized losses at December 31, 2020 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities.   Because the Company does not have the intent to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost, the Company does not consider these investments to be other-than-temporarily impaired.
Contractual maturities of debt securities at December 31, 2020 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.
 Available-for-SaleHeld-to-Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due within one year$3,795 3,846 2,135 2,144 
Due from one to five years47,699 48,838 5,676 5,758 
Due from five to ten years63,288 64,417 2,055 2,097 
Due after ten years729 736 14,944 14,961 
 115,511 117,837 24,810 24,960 
U.S. Agency mortgage-backed securities88,455 91,634 — — 
 $203,966 209,471 24,810 24,960 

Debt securities with a market value of $118,599,000 and $123,009,000 at December 31, 2020 and 2019, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Certain information concerning the sale of debt securities available-for-sale for the years ended December 31 was as follows (in thousands):
 202020192018
Proceeds from sales$8,786 84,521 8,545 
Gross realized gains221 228 21 
Gross realized losses— 269 29 

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 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 December 31, 2020 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 December 31 are summarized as follows (in thousands):
20202019
 Amortized
Cost
Fair
Value
Amortized CostFair Value
Mutual funds$1,395 1,402 1,371 1,345 
Equity securities778 987 741 967 
Total equity securities with a readily determinable fair value$2,173 2,389 2,112 2,312 

Certain information concerning changes in fair value of equity securities with a readily determinable fair value for the years ended December 31 was as follows (in thousands):
20202019
Net gains recognized$675 264 
Less net realized gains on equity securities sold658 21 
Unrealized gains recognized and still held at period end$17 243 
v3.20.4
LOANS
12 Months Ended
Dec. 31, 2020
Receivables [Abstract]  
LOANS LOANS
Major classifications of loans at December 31 were as follows (in thousands):
 20202019
Commercial and industrial$100,254 78,306 
Commercial, secured by real estate843,230 804,953 
Residential real estate309,692 322,533 
Consumer36,917 25,232 
Agricultural10,100 11,509 
Other loans, including deposit overdrafts363 1,193 
 1,300,556 1,243,726 
Deferred origination fees, net(1,135)(275)
 1,299,421 1,243,451 
Less allowance for loan losses5,728 4,045 
Loans-net$1,293,693 1,239,406 

Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (dollars in thousands):
 20202019
Non-accrual loans:  
Commercial and industrial$— — 
Commercial, secured by real estate2,458 2,467 
Residential real estate1,260 743 
Agricultural— — 
Total non-accrual loans3,718 3,210 
Past-due 90 days or more and still accruing— — 
Total non-accrual and past-due 90 days or more and still accruing3,718 3,210 
Accruing restructured loans5,176 6,609 
Total$8,894 9,819 
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans0.29 %0.26 %
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans0.68 %0.79 %

Interest income that would have been recorded during 2020 and 2019 if loans on non-accrual status at December 31, 2020 and 2019 had been current and in accordance with their original terms was approximately $134,000 and $75,000, respectively.

LCNB is not committed to lend additional funds to debtors whose loans have been modified to provide a reduction or deferral of principal or interest because of deterioration in the financial position of the borrower.
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
2020       
Allowance for loan losses:       
Balance, beginning of year$456 2,924 528 99 34 4,045 
Provision charged to expenses342 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$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 
Loans:       
Individually evaluated for impairment$194 6,613 1,641 — — 8,453 
Collectively evaluated for impairment99,040 833,548 306,138 37,047 10,116 179 1,286,068 
Acquired credit impaired loans362 2,048 2,306 — — 184 4,900 
Balance, end of year$99,596 842,209 310,085 37,052 10,116 363 1,299,421 
2019       
Allowance for loan losses:       
Balance, beginning of year$400 2,745 767 87 46 4,046 
Provision charged to expenses103 266 (264)(12)110 207 
Losses charged off(47)(143)(272)(24)— (181)(667)
Recoveries— 56 297 32 — 74 459 
Balance, end of year$456 2,924 528 99 34 4,045 
Individually evaluated for impairment$272 17 — — — 295 
Collectively evaluated for impairment450 2,652 511 99 34 3,750 
Acquired credit impaired loans— — — — — — — 
Balance, end of year$456 2,924 528 99 34 4,045 
Loans:       
Individually evaluated for impairment$230 7,432 949 27 — — 8,638 
Collectively evaluated for impairment77,430 793,191 319,188 25,328 11,523 930 1,227,590 
Acquired credit impaired loans711 3,531 2,718 — — 263 7,223 
Balance, end of year$78,371 804,154 322,855 25,355 11,523 1,193 1,243,451 
 Commercial
& Industrial
Commercial,
Secured by
Real Estate
Residential
Real Estate
ConsumerAgriculturalOtherTotal
2018       
Allowance for loan losses:       
Balance, beginning of year$378 2,178 717 76 53 3,403 
Provision charged to expenses21 473 213 133 (7)90 923 
Losses charged off— (145)(234)(135)— (179)(693)
Recoveries239 71 13 — 89 413 
Balance, end of year$400 2,745 767 87 46 4,046 
Individually evaluated for impairment$10 49 — — — 62 
Collectively evaluated for impairment390 2,742 718 87 46 3,984 
Acquired credit impaired loans— — — — — — — 
Balance, end of year$400 2,745 767 87 46 4,046 

The risk characteristics of LCNB's material loan portfolio segments were 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 year 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.

This category includes PPP loans that were authorized under the CARES 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, and utilities. PPP loans made by LCNB have a maturity of two years and an interest rate of 1%. In addition, the SBA pays originating lenders processing fees based on the size of the loan, ranging from 1% to 5% of the loan amount. A borrower who meets certain requirements can request loan forgiveness from the SBA. If loan forgiveness is granted, the SBA will forward the forgiveness amount to the lender.

Commercial, Secured by Real Estate Loans.  Commercial real estate loans include loans secured by a variety of commercial, retail, and office buildings, religious facilities, 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 property.  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.

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 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 and can 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 credit and ability to repay are 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 the Company 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.
An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):
 PassOAEMSubstandardDoubtfulTotal
2020     
Commercial & industrial$97,391 — 2,205 — 99,596 
Commercial, secured by real estate811,558 9,279 21,372 — 842,209 
Residential real estate306,092 1,005 2,988 — 310,085 
Consumer37,050 — — 37,052 
Agricultural10,116 — — — 10,116 
Other363 — — — 363 
Total$1,262,570 10,284 26,567 — 1,299,421 
2019     
Commercial & industrial$76,236 233 1,902 — 78,371 
Commercial, secured by real estate789,319 3,007 11,828 — 804,154 
Residential real estate319,075 267 3,513 — 322,855 
Consumer25,342 — 13 — 25,355 
Agricultural11,523 — — — 11,523 
Other1,193 — — — 1,193 
Total$1,222,688 3,507 17,256 — 1,243,451 

The Company 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
2020       
Commercial & industrial$—