(Unaudited)
Note 1 - Basis of Presentation
Substantially all of the assets, liabilities and operations of LCNB Corp. ("LCNB") are attributable to its wholly-owned subsidiary, LCNB National Bank (the "Bank"). The accompanying unaudited consolidated financial statements include the accounts of LCNB and the Bank. LCNB completed the sale of its subsidiary, Dakin Insurance Agency, Inc. (“Dakin”) on March 23, 2011. The financial results of Dakin are included as income from discontinued operations, net of tax, in the accompanying unaudited consolidated financial statements through the date of sale.
The unaudited interim consolidated financial statements, which have been reviewed by J.D. Cloud & Co. L.L.P., LCNB’s independent registered public accounting firm, in accordance with standards established by the Public Company Accounting Oversight Board, as indicated by their report included herein and which does not express an opinion on those statements, have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 10-01.
Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies, and financial notes thereto included in LCNB's 2011 Annual Report on Form 10-K filed with the SEC.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 2 - Investment Securities
The amortized cost and estimated fair value of available-for-sale investment securities at September 30, 2012 and December 31, 2011 are summarized as follows (in thousands):
|
|
September 30, 2012
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
U.S. Treasury notes
|
|
$
|
18,512
|
|
|
|
294
|
|
|
|
-
|
|
|
|
18,806
|
|
U.S. Agency notes
|
|
|
91,148
|
|
|
|
2,004
|
|
|
|
-
|
|
|
|
93,152
|
|
U.S. Agency mortgage-backed securities
|
|
|
50,127
|
|
|
|
1,774
|
|
|
|
-
|
|
|
|
51,901
|
|
Corporate securities
|
|
|
3,036
|
|
|
|
45
|
|
|
|
-
|
|
|
|
3,081
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
70,042
|
|
|
|
3,694
|
|
|
|
8
|
|
|
|
73,728
|
|
Taxable
|
|
|
19,980
|
|
|
|
1,326
|
|
|
|
-
|
|
|
|
21,306
|
|
Mutual funds
|
|
|
2,125
|
|
|
|
44
|
|
|
|
-
|
|
|
|
2,169
|
|
Trust preferred securities
|
|
|
299
|
|
|
|
8
|
|
|
|
3
|
|
|
|
304
|
|
Equity securities
|
|
|
1,190
|
|
|
|
117
|
|
|
|
17
|
|
|
|
1,290
|
|
|
|
$
|
256,459
|
|
|
|
9,306
|
|
|
|
28
|
|
|
|
265,737
|
|
|
|
December 31, 2011
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
17,385
|
|
|
|
165
|
|
|
|
-
|
|
|
|
17,550
|
|
U.S. Agency notes
|
|
|
81,415
|
|
|
|
1,517
|
|
|
|
5
|
|
|
|
82,927
|
|
U.S. Agency mortgage-backed securities
|
|
|
50,923
|
|
|
|
1,475
|
|
|
|
111
|
|
|
|
52,287
|
|
Corporate securities
|
|
|
6,334
|
|
|
|
47
|
|
|
|
16
|
|
|
|
6,365
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
65,896
|
|
|
|
3,827
|
|
|
|
20
|
|
|
|
69,703
|
|
Taxable
|
|
|
21,027
|
|
|
|
894
|
|
|
|
14
|
|
|
|
21,907
|
|
Mutual funds
|
|
|
2,103
|
|
|
|
22
|
|
|
|
-
|
|
|
|
2,125
|
|
Trust preferred securities
|
|
|
549
|
|
|
|
37
|
|
|
|
22
|
|
|
|
564
|
|
Equity securities
|
|
|
526
|
|
|
|
57
|
|
|
|
5
|
|
|
|
578
|
|
|
|
$
|
246,158
|
|
|
|
8,041
|
|
|
|
193
|
|
|
|
254,006
|
|
The fair value of held-to-maturity investment securities, consisting of taxable and non-taxable municipal securities, approximates amortized cost at September 30, 2012 and December 31, 2011.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 2 - Investment Securities (continued)
Information concerning available-for-sale investment securities with gross unrealized losses at September 30, 2012, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
|
|
Less than Twelve Months
|
|
|
Twelve Months or Greater
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
U.S. Agency notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
U.S. Agency mortgage- backed securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Corporate securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
557
|
|
|
|
6
|
|
|
|
459
|
|
|
|
2
|
|
Taxable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mutual funds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trust preferred securities
|
|
|
147
|
|
|
|
3
|
|
|
|
49
|
|
|
|
-
|
|
Equity securities
|
|
|
208
|
|
|
|
11
|
|
|
|
58
|
|
|
|
6
|
|
|
|
$
|
912
|
|
|
|
20
|
|
|
|
566
|
|
|
|
8
|
|
Management has determined that the unrealized losses at September 30, 2012 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities. Because LCNB does not have the intent to sell the investments and it is more likely than not that LCNB will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, LCNB does not consider these investments to be other-than-temporarily impaired.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 - Loans
Major classifications of loans at September 30, 2012 and December 31, 2011 are as follows (in thousands):
|
|
September 30,
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
25,749
|
|
|
|
30,990
|
|
Commercial, secured by real estate
|
|
|
230,768
|
|
|
|
219,188
|
|
Residential real estate
|
|
|
184,256
|
|
|
|
186,904
|
|
Consumer
|
|
|
11,478
|
|
|
|
14,562
|
|
Agricultural
|
|
|
2,061
|
|
|
|
2,835
|
|
Other loans, including deposit overdrafts
|
|
|
2,993
|
|
|
|
6,554
|
|
|
|
|
457,305
|
|
|
|
461,033
|
|
Deferred net origination costs
|
|
|
102
|
|
|
|
229
|
|
|
|
|
457,407
|
|
|
|
461,262
|
|
Less allowance for loan losses
|
|
|
2,866
|
|
|
|
2,931
|
|
Loans, net
|
|
$
|
454,541
|
|
|
|
458,331
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
Non-accrual, past-due, and accruing restructured loans as of September 30, 2012 and December 31, 2011 are as follows (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Non-accrual loans:
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
264
|
|
|
|
495
|
|
Commercial, secured by real estate
|
|
|
1,083
|
|
|
|
1,950
|
|
Residential real estate
|
|
|
1,430
|
|
|
|
1,223
|
|
Total non-accrual loans
|
|
|
2,777
|
|
|
|
3,668
|
|
Past-due 90 days or more and still accruing
|
|
|
22
|
|
|
|
39
|
|
Total non-accrual and past-due 90 days or more and still accruing
|
|
|
2,799
|
|
|
|
3,707
|
|
Accruing restructured loans
|
|
|
13,356
|
|
|
|
14,739
|
|
Total
|
|
$
|
16,155
|
|
|
|
18,446
|
|
|
|
|
|
|
|
|
|
|
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans
|
|
|
0.61
|
%
|
|
|
0.80
|
%
|
|
|
|
|
|
|
|
|
|
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans
|
|
|
3.53
|
%
|
|
|
4.00
|
%
|
Loans sold to and serviced for the Federal Home Loan Mortgage Corporation and other investors are not included in the accompanying consolidated balance sheets. The unpaid principal balances of those loans at September 30, 2012 and December 31, 2011 are $70,208,000 and $67,410,000, respectively. Loans sold to the Federal Home Loan Mortgage Corporation during the three months ended September 30, 2012 and 2011 totaled $7,934,000 and $2,173,000, respectively, and $19,328,000 and $4,871,000 during the nine months ended September 30, 2012 and 2011, respectively.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
The allowance for loan losses and recorded investment in loans for the nine months ended September 30 are as follows (in thousands):
|
|
Commercial
& Industrial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agricultural
|
|
|
Other
|
|
|
Total
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
162
|
|
|
|
1,941
|
|
|
|
656
|
|
|
|
166
|
|
|
|
-
|
|
|
|
6
|
|
|
|
2,931
|
|
Change in classification
|
|
|
18
|
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision charged to expenses
|
|
|
163
|
|
|
|
(24
|
)
|
|
|
632
|
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
20
|
|
|
|
742
|
|
Losses charged off
|
|
|
(159
|
)
|
|
|
(234
|
)
|
|
|
(479
|
)
|
|
|
(84
|
)
|
|
|
-
|
|
|
|
(64
|
)
|
|
|
(1,020
|
)
|
Recoveries
|
|
|
-
|
|
|
|
71
|
|
|
|
7
|
|
|
|
95
|
|
|
|
-
|
|
|
|
40
|
|
|
|
213
|
|
Balance, end of period
|
|
$
|
184
|
|
|
|
1,736
|
|
|
|
816
|
|
|
|
128
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
21
|
|
|
|
41
|
|
|
|
227
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
289
|
|
Collectively evaluated for impairment
|
|
|
163
|
|
|
|
1,695
|
|
|
|
589
|
|
|
|
128
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2,577
|
|
Balance, end of period
|
|
$
|
184
|
|
|
|
1,736
|
|
|
|
816
|
|
|
|
128
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
264
|
|
|
|
9,942
|
|
|
|
5,110
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,329
|
|
Collectively evaluated for impairment
|
|
|
25,462
|
|
|
|
220,622
|
|
|
|
179,390
|
|
|
|
11,550
|
|
|
|
2,061
|
|
|
|
2,993
|
|
|
|
442,078
|
|
Balance, end of period
|
|
$
|
25,726
|
|
|
|
230,564
|
|
|
|
184,500
|
|
|
|
11,563
|
|
|
|
2,061
|
|
|
|
2,993
|
|
|
|
457,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
305
|
|
|
|
1,625
|
|
|
|
459
|
|
|
|
246
|
|
|
|
-
|
|
|
|
6
|
|
|
|
2,641
|
|
Provision charged to expenses
|
|
|
499
|
|
|
|
409
|
|
|
|
501
|
|
|
|
36
|
|
|
|
-
|
|
|
|
31
|
|
|
|
1,476
|
|
Losses charged off
|
|
|
(251
|
)
|
|
|
(203
|
)
|
|
|
(371
|
)
|
|
|
(183
|
)
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
(1,108
|
)
|
Recoveries
|
|
|
-
|
|
|
|
30
|
|
|
|
28
|
|
|
|
105
|
|
|
|
-
|
|
|
|
69
|
|
|
|
232
|
|
Balance, end of period
|
|
$
|
553
|
|
|
|
1,861
|
|
|
|
617
|
|
|
|
204
|
|
|
|
-
|
|
|
|
6
|
|
|
|
3,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
337
|
|
|
|
303
|
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
733
|
|
Collectively evaluated for impairment
|
|
|
216
|
|
|
|
1,558
|
|
|
|
524
|
|
|
|
204
|
|
|
|
-
|
|
|
|
6
|
|
|
|
2,508
|
|
Balance, end of period
|
|
$
|
553
|
|
|
|
1,861
|
|
|
|
617
|
|
|
|
204
|
|
|
|
-
|
|
|
|
6
|
|
|
|
3,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
904
|
|
|
|
11,618
|
|
|
|
596
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,128
|
|
Collectively evaluated for impairment
|
|
|
31,236
|
|
|
|
192,453
|
|
|
|
183,532
|
|
|
|
16,183
|
|
|
|
3,245
|
|
|
|
9,759
|
|
|
|
436,408
|
|
Balance, end of period
|
|
$
|
32,140
|
|
|
|
204,071
|
|
|
|
184,128
|
|
|
|
16,193
|
|
|
|
3,245
|
|
|
|
9,759
|
|
|
|
449,536
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
LCNB uses a risk-rating system to quantify loan quality. A loan is assigned to a risk category based on relevant information about the ability of the borrower to service the debt including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. The categories used are:
|
·
|
Pass – loans categorized in this category are higher quality loans that do not fit any of the other categories described below.
|
|
·
|
Other Assets Especially Mentioned (OAEM) - loans in this category are currently protected but are potentially weak. These loans constitute a risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an undue risk in light of the circumstances surrounding a specific asset.
|
|
·
|
Substandard – loans in this category are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that LCNB will sustain some loss if the deficiencies are not corrected.
|
|
·
|
Doubtful – loans classified in this category have all the weaknesses inherent in loans classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
A breakdown of the loan portfolio by credit quality indicators at September 30, 2012 and December 31, 2011 is as follows (in thousands):
|
|
Pass
|
|
|
OAEM
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
22,452
|
|
|
|
2,646
|
|
|
|
447
|
|
|
|
181
|
|
|
|
25,726
|
|
Commercial, secured by real estate
|
|
|
218,963
|
|
|
|
2,412
|
|
|
|
9,189
|
|
|
|
-
|
|
|
|
230,564
|
|
Residential real estate
|
|
|
174,759
|
|
|
|
2,593
|
|
|
|
7,148
|
|
|
|
-
|
|
|
|
184,500
|
|
Consumer
|
|
|
11,458
|
|
|
|
-
|
|
|
|
100
|
|
|
|
5
|
|
|
|
11,563
|
|
Agricultural
|
|
|
2,057
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
2,061
|
|
Other
|
|
|
2,993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,993
|
|
Total
|
|
$
|
432,682
|
|
|
|
7,651
|
|
|
|
16,888
|
|
|
|
186
|
|
|
|
457,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
26,099
|
|
|
|
1,700
|
|
|
|
2,804
|
|
|
|
370
|
|
|
|
30,973
|
|
Commercial, secured by real estate
|
|
|
206,728
|
|
|
|
2,133
|
|
|
|
9,633
|
|
|
|
568
|
|
|
|
219,062
|
|
Residential real estate
|
|
|
182,409
|
|
|
|
1,681
|
|
|
|
2,682
|
|
|
|
376
|
|
|
|
187,148
|
|
Consumer
|
|
|
14,601
|
|
|
|
-
|
|
|
|
50
|
|
|
|
39
|
|
|
|
14,690
|
|
Agricultural
|
|
|
1,430
|
|
|
|
-
|
|
|
|
1,405
|
|
|
|
-
|
|
|
|
2,835
|
|
Other
|
|
|
6,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,554
|
|
Total
|
|
$
|
437,821
|
|
|
|
5,514
|
|
|
|
16,574
|
|
|
|
1,353
|
|
|
|
461,262
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
A loan portfolio aging analysis at September 30, 2012 and December 31, 2011 is as follows (in thousands):
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Total Loans
Greater Than
90 Days and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
-
|
|
|
|
-
|
|
|
|
264
|
|
|
|
264
|
|
|
|
25,462
|
|
|
|
25,726
|
|
|
|
-
|
|
Commercial, secured by real estate
|
|
|
172
|
|
|
|
80
|
|
|
|
1,083
|
|
|
|
1,335
|
|
|
|
229,229
|
|
|
|
230,564
|
|
|
|
-
|
|
Residential real estate
|
|
|
900
|
|
|
|
74
|
|
|
|
1,346
|
|
|
|
2,320
|
|
|
|
182,180
|
|
|
|
184,500
|
|
|
|
-
|
|
Consumer
|
|
|
66
|
|
|
|
44
|
|
|
|
22
|
|
|
|
132
|
|
|
|
11,431
|
|
|
|
11,563
|
|
|
|
22
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,061
|
|
|
|
2,061
|
|
|
|
-
|
|
Other
|
|
|
44
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44
|
|
|
|
2,949
|
|
|
|
2,993
|
|
|
|
-
|
|
Total
|
|
$
|
1,182
|
|
|
|
198
|
|
|
|
2,715
|
|
|
|
4,095
|
|
|
|
453,312
|
|
|
|
457,407
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
2
|
|
|
|
-
|
|
|
|
495
|
|
|
|
497
|
|
|
|
30,476
|
|
|
|
30,973
|
|
|
|
-
|
|
Commercial, secured by real estate
|
|
|
-
|
|
|
|
83
|
|
|
|
1,769
|
|
|
|
1,852
|
|
|
|
217,210
|
|
|
|
219,062
|
|
|
|
-
|
|
Residential real estate
|
|
|
1,132
|
|
|
|
22
|
|
|
|
1,202
|
|
|
|
2,356
|
|
|
|
184,792
|
|
|
|
187,148
|
|
|
|
-
|
|
Consumer
|
|
|
82
|
|
|
|
37
|
|
|
|
39
|
|
|
|
158
|
|
|
|
14,532
|
|
|
|
14,690
|
|
|
|
39
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,835
|
|
|
|
2,835
|
|
|
|
-
|
|
Other
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
|
|
6,495
|
|
|
|
6,554
|
|
|
|
-
|
|
Total
|
|
$
|
1,275
|
|
|
|
142
|
|
|
|
3,505
|
|
|
|
4,922
|
|
|
|
456,340
|
|
|
|
461,262
|
|
|
|
39
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
Impaired loans at September 30, 2012 and December 31, 2011 are as follows (in thousands):
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
83
|
|
|
|
572
|
|
|
|
-
|
|
|
|
1,494
|
|
|
|
43
|
|
Commercial real estate
|
|
|
12,827
|
|
|
|
13,270
|
|
|
|
-
|
|
|
|
12,486
|
|
|
|
348
|
|
Residential real estate
|
|
|
474
|
|
|
|
474
|
|
|
|
-
|
|
|
|
389
|
|
|
|
3
|
|
Consumer
|
|
|
22
|
|
|
|
22
|
|
|
|
-
|
|
|
|
23
|
|
|
|
1
|
|
Total
|
|
$
|
13,406
|
|
|
|
14,338
|
|
|
|
-
|
|
|
|
14,392
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
181
|
|
|
|
250
|
|
|
|
21
|
|
|
|
181
|
|
|
|
-
|
|
Commercial real estate
|
|
|
1,168
|
|
|
|
1,222
|
|
|
|
98
|
|
|
|
1,643
|
|
|
|
43
|
|
Residential real estate
|
|
|
583
|
|
|
|
777
|
|
|
|
170
|
|
|
|
728
|
|
|
|
-
|
|
Consumer
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Total
|
|
$
|
1,937
|
|
|
|
2,254
|
|
|
|
289
|
|
|
|
2,556
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
264
|
|
|
|
822
|
|
|
|
21
|
|
|
|
1,675
|
|
|
|
43
|
|
Commercial real estate
|
|
|
13,995
|
|
|
|
14,492
|
|
|
|
98
|
|
|
|
14,129
|
|
|
|
391
|
|
Residential real estate
|
|
|
1,057
|
|
|
|
1,251
|
|
|
|
170
|
|
|
|
1,117
|
|
|
|
3
|
|
Consumer
|
|
|
27
|
|
|
|
27
|
|
|
|
-
|
|
|
|
27
|
|
|
|
1
|
|
Total
|
|
$
|
15,343
|
|
|
|
16,592
|
|
|
|
289
|
|
|
|
16,948
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
2,881
|
|
|
|
3,211
|
|
|
|
-
|
|
|
|
3,015
|
|
|
|
139
|
|
Commercial real estate
|
|
|
12,373
|
|
|
|
12,587
|
|
|
|
-
|
|
|
|
12,686
|
|
|
|
529
|
|
Residential real estate
|
|
|
332
|
|
|
|
332
|
|
|
|
-
|
|
|
|
332
|
|
|
|
-
|
|
Consumer
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
Total
|
|
$
|
15,594
|
|
|
|
16,138
|
|
|
|
-
|
|
|
|
16,038
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
177
|
|
|
|
177
|
|
|
|
-
|
|
|
|
330
|
|
|
|
14
|
|
Commercial real estate
|
|
|
2,120
|
|
|
|
3,136
|
|
|
|
257
|
|
|
|
2,514
|
|
|
|
67
|
|
Residential real estate
|
|
|
264
|
|
|
|
264
|
|
|
|
142
|
|
|
|
257
|
|
|
|
-
|
|
Consumer
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Total
|
|
$
|
2,563
|
|
|
|
3,579
|
|
|
|
399
|
|
|
|
3,102
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
3,058
|
|
|
|
3,388
|
|
|
|
-
|
|
|
|
3,345
|
|
|
|
153
|
|
Commercial real estate
|
|
|
14,493
|
|
|
|
15,723
|
|
|
|
257
|
|
|
|
15,200
|
|
|
|
596
|
|
Residential real estate
|
|
|
596
|
|
|
|
596
|
|
|
|
142
|
|
|
|
589
|
|
|
|
-
|
|
Consumer
|
|
|
10
|
|
|
|
10
|
|
|
|
-
|
|
|
|
6
|
|
|
|
1
|
|
Total
|
|
$
|
18,157
|
|
|
|
19,717
|
|
|
|
399
|
|
|
|
19,140
|
|
|
|
750
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 3 – Loans (continued)
Loan modifications that were classified as troubled debt restructurings during the three and nine months ended September 30, 2012 and 2011 are as follows (dollars in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
Number
of Loans
|
|
|
Balance at
Modification
|
|
|
Number
of Loans
|
|
|
Balance at
Modification
|
|
|
Number
of Loans
|
|
|
Balance at
Modification
|
|
|
Number
of Loans
|
|
|
Balance at
Modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
204
|
|
Commercial, secured by real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
625
|
|
Residential real estate
|
|
|
1
|
|
|
|
100
|
|
|
|
5
|
|
|
|
65
|
|
|
|
3
|
|
|
|
273
|
|
|
|
5
|
|
|
|
65
|
|
Consumer
|
|
|
2
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
20
|
|
|
|
3
|
|
|
|
11
|
|
Total
|
|
|
3
|
|
|
$
|
120
|
|
|
|
5
|
|
|
$
|
65
|
|
|
|
5
|
|
|
$
|
293
|
|
|
|
11
|
|
|
$
|
905
|
|
Each restructured loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s ability to pay the debt as modified. Modifications may include interest only payments for a period of time, temporary or permanent reduction of the loan’s interest rate, capitalization of delinquent interest, or extensions of the maturity date.
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 three or nine months ended September 30, 2012 and 2011.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4 – Other Real Estate Owned
Other real estate owned includes property acquired through foreclosure or deed-in-lieu of foreclosure and also includes property deemed to be in-substance foreclosed and are included in “other assets” in the consolidated balance sheets. Changes in other real estate owned are as follows (in thousands):
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Balance, beginning of year
|
|
$
|
1,619
|
|
|
|
2,088
|
|
Transfer from loans
|
|
|
755
|
|
|
|
-
|
|
Additions
|
|
|
16
|
|
|
|
-
|
|
Reductions due to valuation write downs
|
|
|
(76
|
)
|
|
|
-
|
|
Balance, end of period
|
|
$
|
2,314
|
|
|
|
2,008
|
|
Other real estate owned at September 30, 2012 and December 31, 2011 consisted of (dollars in thousands):
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Number
|
|
|
Balance
|
|
|
Number
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
2
|
|
|
$
|
2,063
|
|
|
|
1
|
|
|
$
|
1,579
|
|
Residential real estate
|
|
|
8
|
|
|
|
251
|
|
|
|
1
|
|
|
|
40
|
|
|
|
|
10
|
|
|
$
|
2,314
|
|
|
|
2
|
|
|
$
|
1,619
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 5 – Borrowings
Funds borrowed from the Federal Home Loan Bank of Cincinnati at September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
|
|
Interest
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Rate
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Advances, due at maturity:
|
|
|
|
|
|
|
|
|
|
Advance due August 2012
|
|
|
1.99
|
%
|
|
$
|
-
|
|
|
|
6,000
|
|
Advance due January 2015
|
|
|
2.00
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
Advance due March 2017
|
|
|
5.25
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Advances, with monthly principal and interest payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance due March 2014
|
|
|
2.45
|
%
|
|
|
1,565
|
|
|
|
2,326
|
|
Advance due March 2019
|
|
|
2.82
|
%
|
|
|
2,484
|
|
|
|
3,047
|
|
|
|
|
|
|
|
$
|
14,049
|
|
|
|
21,373
|
|
All advances from the Federal Home Loan Bank of Cincinnati are secured by a blanket pledge of LCNB’s 1-4 family first lien mortgage loans in the amount of approximately $143 million and $147 million at September 30, 2012 and December 31, 2011, respectively. Additionally, LCNB is required to hold minimum levels of FHLB stock, based on the outstanding borrowings.
Short-term borrowings at September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
FHLB short-term advance
|
|
$
|
-
|
|
|
|
-
|
%
|
|
|
12,000
|
|
|
|
0.04
|
%
|
Repurchase agreements
|
|
|
12,076
|
|
|
|
0.10
|
%
|
|
|
9,596
|
|
|
|
0.10
|
%
|
|
|
$
|
12,076
|
|
|
|
0.10
|
%
|
|
|
21,596
|
|
|
|
0.07
|
%
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 6 – Income Taxes
A reconciliation between the statutory income tax and LCNB's effective tax rate on income from continuing operations follows:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest
|
|
|
(8.3
|
)%
|
|
|
(8.2
|
)%
|
|
|
(7.3
|
)%
|
|
|
(9.0
|
)%
|
Tax exempt income on bank owned life insurance
|
|
|
(2.0
|
)%
|
|
|
(2.1
|
)%
|
|
|
(1.8
|
)%
|
|
|
(2.2
|
)%
|
Other, net
|
|
|
(0.1
|
)%
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
0.6
|
%
|
Effective tax rate
|
|
|
23.6
|
%
|
|
|
23.7
|
%
|
|
|
24.9
|
%
|
|
|
23.4
|
%
|
Note 7 - Commitments and Contingent Liabilities
LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments included commitments to extend credit. They involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.
LCNB offers the Bounce Protection product, a customer deposit overdraft program, which is offered as a service and does not constitute a contract between the customer and LCNB.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 7 – Commitments and Contingent Liabilities (continued)
LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments whose contract amounts represent off-balance-sheet credit risk at September 30, 2012 and December 31, 2011 are as follows (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
12,046
|
|
|
|
3,227
|
|
Other loans
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
2,143
|
|
|
|
1,391
|
|
Adjustable rate
|
|
|
1,964
|
|
|
|
2,099
|
|
Unused lines of credit:
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
3,646
|
|
|
|
3,883
|
|
Adjustable rate
|
|
|
47,286
|
|
|
|
55,274
|
|
Unused Bounce Protection amounts on demand and NOW accounts
|
|
|
9,718
|
|
|
|
9,810
|
|
Standby letters of credit
|
|
|
5,575
|
|
|
|
5,575
|
|
|
|
$
|
82,378
|
|
|
|
81,259
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Unused lines of credit include amounts not drawn in line of credit loans. Commitments to extend credit and unused lines of credit generally have fixed expiration dates or other termination clauses.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. At September 30, 2012 and December 31, 2011, outstanding guarantees of approximately $546,000 were issued to developers and contractors. These guarantees generally are fully secured and have varying maturities. In addition, LCNB has a participation in four letters of credit securing payment of principal and interest on a bond issue. The participation amounts at September 30, 2012 and December 31, 2011 totaled approximately $5.0 million. The letters of credit have a final maturity date of July 15, 2014, as extended.
LCNB evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable; inventory; property, plant and equipment; residential realty; and income-producing commercial properties.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 7 – Commitments and Contingent Liabilities (continued)
Management believes that LCNB has sufficient liquidity to fund its lending and capital expenditure commitments.
LCNB and its subsidiary are parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated financial position or results of operations.
Note 8 – Regulatory Capital
The Bank and LCNB are required by regulators to meet certain minimum levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into Tier 1 capital (essentially shareholders' equity less goodwill and other intangibles) and Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in LCNB's assets, provide for weighting assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit. The leverage ratio supplements the risk-based capital guidelines.
For various regulatory purposes, financial institutions are classified into categories based upon capital adequacy.
|
|
Minimum
Requirement
|
|
|
To Be Considered
Well-Capitalized
|
|
Ratio of tier 1 capital to risk-weighted assets
|
|
4.0%
|
|
|
6.0%
|
|
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets
|
|
8.0%
|
|
|
10.0%
|
|
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)
|
|
3.0%
|
|
|
5.0%
|
|
As of the most recent notification from their regulators, the Bank and LCNB were 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 or LCNB's category.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 8 – Regulatory Capital (continued)
A summary of the regulatory capital and capital ratios of LCNB follows (dollars in thousands):
|
|
At
|
|
|
At
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Regulatory Capital:
|
|
|
|
Shareholders' equity
|
|
$
|
82,131
|
|
|
|
77,960
|
|
Goodwill and other intangibles
|
|
|
(6,032
|
)
|
|
|
(6,071
|
)
|
Accumulated other comprehensive (income) loss
|
|
|
(5,996
|
)
|
|
|
(5,028
|
)
|
Tier 1 risk-based capital
|
|
|
70,103
|
|
|
|
66,861
|
|
|
|
|
|
|
|
|
|
|
Eligible allowance for loan losses
|
|
|
2,866
|
|
|
|
2,931
|
|
Total risk-based capital
|
|
$
|
72,969
|
|
|
|
69,792
|
|
|
|
|
|
|
|
|
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
Tier 1 risk-based
|
|
|
14.71
|
%
|
|
|
13.93
|
%
|
Total risk-based
|
|
|
15.32
|
%
|
|
|
14.54
|
%
|
Leverage
|
|
|
8.76
|
%
|
|
|
8.51
|
%
|
Note 9 – Employee Benefits
LCNB participates in a noncontributory defined benefit retirement multi-employer plan that covers substantially all regular full-time employees hired before January 1, 2009.
Employees of LCNB also participate in a defined contribution retirement plan. Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum LCNB contribution of 3% of each individual employee’s annual compensation. Employees hired before January 1, 2009 who received a benefit reduction under certain amendments to the defined benefit retirement plan receive an automatic contribution of 5% or 7% of annual compensation, depending on the sum of an employee’s age and vesting service, into the 401(k) plan, regardless of the contributions made by the employees. This contribution is made annually and these employees do not receive any employer matches to their 401(k) contributions.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 9 – Employee Benefits (continued)
Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated statements of income for the three and nine-month periods ended September 30, 2012 and 2011 are as follows (in thousands):
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified noncontributory defined benefit retirement plan
|
|
$
|
230
|
|
|
|
198
|
|
|
|
521
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan
|
|
|
88
|
|
|
|
75
|
|
|
|
198
|
|
|
|
232
|
|
Certain highly compensated employees participate in a nonqualified defined benefit retirement plan. The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code.
The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the three and nine months ended September 30, 2012 and 2011 are summarized as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
22
|
|
|
|
23
|
|
|
|
66
|
|
|
|
89
|
|
Interest cost
|
|
|
11
|
|
|
|
9
|
|
|
|
33
|
|
|
|
26
|
|
Amortization of unrecognized net (gain) loss
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
15
|
|
|
|
(20
|
)
|
Amortization of unrecognized prior service cost
|
|
|
7
|
|
|
|
7
|
|
|
|
21
|
|
|
|
25
|
|
Net periodic pension cost
|
|
$
|
45
|
|
|
|
31
|
|
|
|
135
|
|
|
|
120
|
|
Amounts recognized in accumulated other comprehensive income at September 30, 2012 and December 31, 2011 for the nonqualified defined benefit retirement plan consists of (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Net actuarial loss
|
|
$
|
141
|
|
|
|
156
|
|
Past service cost
|
|
|
53
|
|
|
|
74
|
|
|
|
$
|
194
|
|
|
|
230
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 10 - Stock Based Compensation
LCNB established an Ownership Incentive Plan (the "Plan") during 2002 that allows for stock-based awards to eligible employees, as determined by the Board of Directors. The awards may be in the form of stock options, share awards, and/or appreciation rights. The Plan provides for the issuance of up to 200,000 shares.
Options granted to date vest ratably over a five year period and expire ten years after the date of grant. Stock options outstanding at September 30, 2012 are as follows:
|
|
Outstanding Stock Options
|
|
|
Exercisable Stock Options
|
|
Exercise
Price Range
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$9.00 - $10.99
|
|
|
29,110
|
|
|
$
|
9.00
|
|
|
|
5.5
|
|
|
|
18
,
964
|
|
|
$
|
9.00
|
|
|
|
5.1
|
|
$11.00 - $12.99
|
|
|
74
,
290
|
|
|
|
12
.
03
|
|
|
|
6.9
|
|
|
|
29
,
159
|
|
|
|
12.01
|
|
|
|
4.8
|
|
$13.00 - $14.99
|
|
|
8
,
912
|
|
|
|
13.09
|
|
|
|
0.3
|
|
|
|
8
,
912
|
|
|
|
13.09
|
|
|
|
0.3
|
|
$17.00 - $18.99
|
|
|
24,158
|
|
|
|
18.16
|
|
|
|
2.4
|
|
|
|
24
,
158
|
|
|
|
18.16
|
|
|
|
2.4
|
|
|
|
|
136
,
470
|
|
|
|
12.54
|
|
|
|
5.4
|
|
|
|
81
,
193
|
|
|
|
13.25
|
|
|
|
3.7
|
|
The following table summarizes stock option activity for the periods indicated:
|
|
2012
|
|
|
2011
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, January 1
|
|
|
124,123
|
|
|
$
|
12.54
|
|
|
|
99,040
|
|
|
$
|
12.71
|
|
Granted
|
|
|
14,491
|
|
|
|
12.60
|
|
|
|
25,083
|
|
|
|
11.85
|
|
Exercised
|
|
|
(2,144
|
)
|
|
|
13.09
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30
|
|
|
136,470
|
|
|
|
12.54
|
|
|
|
124,123
|
|
|
|
12.54
|
|
Exercisable, September 30
|
|
|
81,193
|
|
|
|
13.25
|
|
|
|
57,746
|
|
|
|
14.06
|
|
The aggregate intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) for options outstanding at September 30, 2012 that were “in the money” (market price greater than exercise price) was $233,000. The aggregate intrinsic value at that date for only the options that were exercisable was $127,000. The aggregate intrinsic value for options outstanding at September 30, 2011 that were in the money was $217,000 and the aggregate intrinsic value at that date for only the options that were exercisable was $87,000. The intrinsic value changes based upon fluctuations in the market value of LCNB’s stock.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 10 - Stock Based Compensation (continued)
The fair value of options granted is estimated at the date of grant using the Black-Scholes option-pricing model. The following table shows the estimated weighted-average fair value of options granted and the assumptions used in calculating that value for the years indicated:
|
|
2012
|
|
|
2011
|
|
Estimated weighted-average fair value of options granted
|
|
$
|
2.80
|
|
|
$
|
2.09
|
|
Risk-free interest rate
|
|
|
0.84
|
%
|
|
|
2.84
|
%
|
Average dividend
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
Volatility factor of the expected market price of LCNB's common stock
|
|
|
39.56
|
%
|
|
|
27.37
|
%
|
Average life in years
|
|
|
6.5
|
|
|
|
6.5
|
|
Total expense related to options included in salaries and employee benefits in the consolidated statements of income for the three and nine months ended September 30, 2012 were $10,000 and $30,000, respectively, and $13,000 and $35,000 for the three and nine months ended September 30, 2011, respectively.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 11 - Earnings per Common Share
Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrant, and restricted stock. The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options, warrant, and restricted stock with proceeds used to purchase treasury shares at the average market price for the period. The computations are as follows for the three and nine months ended September 30, 2012 and 2011 (dollars in thousands, except share and per share data):
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,847
|
|
|
|
1,867
|
|
|
|
6,111
|
|
|
|
5,368
|
|
Income from discontinued operations, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
793
|
|
Net income
|
|
$
|
1,847
|
|
|
|
1,867
|
|
|
|
6,111
|
|
|
|
6,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in the calculation of basic earnings per common share
|
|
|
6,721,699
|
|
|
|
6,690,963
|
|
|
|
6,713,959
|
|
|
|
6,690,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
10,089
|
|
|
|
5,003
|
|
|
|
8,898
|
|
|
|
4,426
|
|
Stock warrant
|
|
|
65,887
|
|
|
|
54,841
|
|
|
|
64,143
|
|
|
|
51,985
|
|
|
|
|
75,976
|
|
|
|
59,844
|
|
|
|
73,041
|
|
|
|
56,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share
|
|
|
6,797,675
|
|
|
|
6,750,807
|
|
|
|
6,787,000
|
|
|
|
6,746,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.27
|
|
|
|
0.28
|
|
|
|
0.91
|
|
|
|
0.80
|
|
Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.27
|
|
|
|
0.28
|
|
|
|
0.90
|
|
|
|
0.80
|
|
Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.12
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Fair Value Measurements
LCNB measures certain assets at fair value using various valuation techniques and assumptions, depending on the nature of the asset. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
The inputs to valuation techniques used to measure fair value are assigned to one of three broad levels:
|
·
|
Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date.
|
|
·
|
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly. Level 2 inputs may include quoted prices for similar assets in active markets, quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data.
|
|
·
|
Level 3 - inputs that are unobservable for the asset or liability.
|
The majority of LCNB’s financial debt securities are classified as available-for-sale. The securities are reported at fair value with unrealized holding gains and losses reported net of income taxes in accumulated other comprehensive income.
LCNB utilizes a pricing service for determining the fair values of most of its investment securities. Fair value for U.S. Treasury notes and corporate securities are determined based on market quotations (level 1). Fair value for most of the other investment securities is calculated using the discounted cash flow method for each security. The discount rates for these cash flows are estimated by the pricing service using rates observed in the market (level 2). Cash flow streams are dependent on estimated prepayment speeds and the overall structure of the securities given existing market conditions. In addition, LCNB has invested in two mutual funds that invest in debt securities or loans that qualify for credit under the Community Reinvestment Act. The investment in one of the mutual funds is considered to have level 2 inputs because, among other factors, the fund invests primarily in U.S. Government and Agency Obligations, which are considered to be level 2 investments. The investment in the other mutual fund is considered to have level 3 inputs because its shares are not traded in an active market, it does not publish a daily net asset value, and it is primarily a loan fund. Additionally, LCNB owns trust preferred securities in various financial institutions and equity securities in non-financial companies. Market quotations (level 1) are used to determine fair values for these investments.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Fair Value Measurements (continued)
Assets that may be recorded at fair value on a nonrecurring basis include impaired loans, other real estate owned, and other repossessed assets. A loan is considered impaired when management believes it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate or the fair value of collateral if the loan is collateral dependent, if this value is less than the loan balance. When the fair value of the collateral is based on an observable market price or current appraised value, the inputs are considered to be level 2. When an appraised value is not available and there is not an observable market price, the inputs are considered to be level 3.
Other real estate owned is adjusted to fair value upon transfer of the loan to foreclosed assets, usually based on an appraisal of the property. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. The inputs for a valuation based on current appraised value are considered to be level 2.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Fair Value Measurements (continued)
The following table summarizes the valuation of LCNB’s assets recorded at fair value by input levels as of September 30, 2012 and December 31, 2011 (in thousands):
|
|
|
Fair Value Measurements at the End of
the Reporting Period Using
|
|
|
|
|
|
|
Fair Value
Measurements
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
18,806
|
|
|
|
18,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
U.S. Agency notes
|
|
|
93,152
|
|
|
|
-
|
|
|
|
93,152
|
|
|
|
-
|
|
|
|
|
U.S. Agency mortgage-backed securities
|
|
|
51,901
|
|
|
|
-
|
|
|
|
51,901
|
|
|
|
-
|
|
|
|
|
Corporate securities
|
|
|
3,081
|
|
|
|
3,081
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
73,728
|
|
|
|
-
|
|
|
|
73,728
|
|
|
|
-
|
|
|
|
|
Taxable
|
|
|
21,306
|
|
|
|
-
|
|
|
|
21,306
|
|
|
|
-
|
|
|
|
|
Mutual funds
|
|
|
2,169
|
|
|
|
-
|
|
|
|
1,169
|
|
|
|
1,000
|
|
|
|
|
Trust preferred securities
|
|
|
304
|
|
|
|
304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Equity securities
|
|
|
1,290
|
|
|
|
1,290
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Total recurring fair value measurements
|
|
$
|
265,737
|
|
|
|
23,481
|
|
|
|
241,256
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,648
|
|
|
|
-
|
|
|
|
220
|
|
|
|
1,428
|
|
|
|
-
|
|
Other real estate owned and repossessed assets (a) (b)
|
|
|
2,314
|
|
|
|
-
|
|
|
|
2,314
|
|
|
|
-
|
|
|
|
(79
|
)
|
Total nonrecurring fair value measurements
|
|
$
|
3,962
|
|
|
|
-
|
|
|
|
2,534
|
|
|
|
1,428
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
17,550
|
|
|
|
17,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
U.S. Agency notes
|
|
|
82,927
|
|
|
|
-
|
|
|
|
82,927
|
|
|
|
-
|
|
|
|
|
|
U.S. Agency mortgage-backed securities
|
|
|
52,287
|
|
|
|
-
|
|
|
|
52,287
|
|
|
|
-
|
|
|
|
|
|
Corporate securities
|
|
|
6,365
|
|
|
|
4,152
|
|
|
|
2,213
|
|
|
|
-
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
69,703
|
|
|
|
-
|
|
|
|
69,703
|
|
|
|
-
|
|
|
|
|
|
Taxable
|
|
|
21,907
|
|
|
|
-
|
|
|
|
21,907
|
|
|
|
-
|
|
|
|
|
|
Mutual funds
|
|
|
2,125
|
|
|
|
-
|
|
|
|
1,125
|
|
|
|
1,000
|
|
|
|
|
|
Trust preferred securities
|
|
|
564
|
|
|
|
564
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Equity securities
|
|
|
578
|
|
|
|
578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Total recurring fair value measurements
|
|
$
|
254,006
|
|
|
|
22,844
|
|
|
|
230,162
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,563
|
|
|
|
-
|
|
|
|
1,300
|
|
|
|
1,263
|
|
|
|
-
|
|
Other real estate owned and repossessed assets (c)
|
|
|
1,642
|
|
|
|
-
|
|
|
|
1,619
|
|
|
|
23
|
|
|
|
31
|
|
Total nonrecurring fair value measurements
|
|
$
|
4,205
|
|
|
|
-
|
|
|
|
2,919
|
|
|
|
1,286
|
|
|
|
31
|
|
(a)
|
Two other real estate owned properties with a total carrying amount of $1,619,000 were written down to their combined fair value of $1,543,000, resulting in an impairment charge of $76,000, which was included in other non-interest expense for the period.
|
(b)
|
Repossessed assets with a carrying value of $23,000 were sold for a combined total of $20,000, resulting in a net loss of $3,000, which was included in other non-interest expense for the period.
|
(c)
|
Repossessed assets with a carrying value of $117,000 were sold for a combined total of $148,000, resulting in a net gain of $31,000, which was included in other non-interest expense for the period.
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Fair Value Measurements (continued)
Carrying amounts and estimated fair values of financial instruments as of September 30, 2012 and December 31, 2011 are as follows (in thousands):
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,074
|
|
|
|
33,074
|
|
|
|
19,535
|
|
|
|
19,535
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
265,737
|
|
|
|
265,737
|
|
|
|
254,006
|
|
|
|
254,006
|
|
Held-to-maturity
|
|
|
12,503
|
|
|
|
12,503
|
|
|
|
10,734
|
|
|
|
10,734
|
|
Federal Reserve Bank stock
|
|
|
949
|
|
|
|
949
|
|
|
|
940
|
|
|
|
940
|
|
Federal Home Loan Bank stock
|
|
|
2,091
|
|
|
|
2,091
|
|
|
|
2,091
|
|
|
|
2,091
|
|
Loans, net
|
|
|
454,541
|
|
|
|
459,524
|
|
|
|
458,331
|
|
|
|
470,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
701,080
|
|
|
|
705,803
|
|
|
|
663,562
|
|
|
|
669,383
|
|
Short-term borrowings
|
|
|
12,076
|
|
|
|
12,076
|
|
|
|
21,596
|
|
|
|
21,596
|
|
Long-term debt
|
|
|
14,049
|
|
|
|
15,138
|
|
|
|
21,373
|
|
|
|
22,570
|
|
The fair value of off-balance-sheet financial instruments at September 30, 2012 and December 31, 2011 was not material.
Fair values of financial instruments are based on various assumptions, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in actual transactions. In addition, because the required disclosures exclude certain financial instruments and all nonfinancial instruments, any aggregation of the fair value amounts presented would not represent the underlying value of LCNB. The following methods and assumptions were used to estimate the fair value of certain financial instruments:
Cash and cash equivalents
The carrying amounts presented are deemed to approximate fair value.
Investment securities
Fair values for securities, excluding Federal Home Loan Bank and Federal Reserve Bank stock, are based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and/or discounted cash flow analyses or other methods. The carrying value of Federal Home Loan Bank and Federal Reserve Bank stock approximates fair value based on the respective redemptive provisions.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Fair Value of Measurements (continued)
Loans
Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, incorporating assumptions of current and projected prepayment speeds. These current rates approximate market rates.
Deposits
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, which approximates market rates.
Borrowings
The carrying amounts of federal funds purchased, repurchase agreements, and U.S. Treasury demand note borrowings are deemed to approximate fair value of short-term borrowings. For long-term debt, fair values are estimated based on the discounted value of expected net cash flows using current interest rates.
The following table summarizes the categorization by input level as of September 30, 2012 and December 31, 2011 of LCNB’s financial assets and liabilities not recorded at fair value but for which fair value is disclosed (in thousands):
|
|
|
Fair Value Measurements at the End of
the Reporting Period Using
|
|
|
|
Fair Value
Measurements
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
457,876
|
|
|
|
-
|
|
|
|
457,876
|
|
|
|
-
|
|
Investment securities, non-taxable, held-to-maturity
|
|
|
12,503
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,503
|
|
Federal Reserve Bank stock
|
|
|
949
|
|
|
|
949
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
2,091
|
|
|
|
2,091
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
705,803
|
|
|
|
-
|
|
|
|
705,803
|
|
|
|
-
|
|
Long-term debt
|
|
|
15,138
|
|
|
|
-
|
|
|
|
15,138
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
468,283
|
|
|
|
-
|
|
|
|
468,283
|
|
|
|
-
|
|
Investment securities, non-taxable, held-to-maturity
|
|
|
10,734
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,734
|
|
Federal Reserve Bank stock
|
|
|
940
|
|
|
|
940
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
2,091
|
|
|
|
2,091
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
669,383
|
|
|
|
-
|
|
|
|
669,383
|
|
|
|
-
|
|
Long-term debt
|
|
|
22,570
|
|
|
|
-
|
|
|
|
22,570
|
|
|
|
-
|
|
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 13 – Discontinued Operations
LCNB sold its insurance agency subsidiary on March 23, 2011 and therefore its financial results are reported in the income statements as income from discontinued operations, net of taxes. Income from discontinued operations for the nine months ended September 30, 2011 includes the gain recognized from the sale less certain related closing costs, taxes, and a curtailment expense recognized in LCNB’s nonqualified defined benefit retirement plan due to the sale. The following table summarizes income from discontinued operations for the period indicated (in thousands):
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
|
|
|
|
Dakin Insurance Agency financial results:
|
|
|
|
|
Revenue
|
|
$
|
381
|
|
Non-interest expenses
|
|
|
301
|
|
Income from operations before income taxes
|
|
|
80
|
|
Gain from sale of insurance agency
|
|
|
1,503
|
|
Closing costs related to sale
|
|
|
(60)
|
|
Curtailment expense on nonqualified defined benefit retirement plan
|
|
|
(191)
|
|
Provision for income taxes
|
|
|
(539)
|
|
Total income (loss) from discontinued operations, net of taxes
|
|
$
|
793
|
|
There was no income from discontinued operations for the three months ended September 31, 2011.
Note 14 – Acquisition
On October 9, 2012, LCNB and First Capital Bancshares, Inc. (“First Capital”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which First Capital will be merged into LCNB in a stock and cash transaction valued at approximately $19.6 million. Immediately following the merger of First Capital into LCNB, Citizens National Bank (“Citizens”), a wholly-owned subsidiary of First Capital, will be merged into LCNB National Bank. Citizens operates six full–service branches with a main office and two other facilities in Chillicothe, Ohio and one branch in each of Frankfort, Ohio, Clarksburg, Ohio, and Washington Court House, Ohio. These offices will become branches of LCNB after the merger. As of December 31, 2011, First Capital had total assets of $148.2 million, deposits of $132.0 million, net loans of $104.8 million and shareholders’ equity of $13.7 million.
Under the terms of the Merger Agreement, the shareholders of First Capital common stock will be entitled to elect to receive, for each share of First Capital Common Stock, (i) $30.76 in cash, (ii) 2.329 common shares of LCNB (subject to an adjustment based upon the average closing price of LCNB common shares for the 25 trading days prior to the effective date of the merger), or (iii) a combination of cash and LCNB common stock. A First Capital shareholder’s election to receive cash or stock is subject to allocation procedures that will ensure that no more than 50% and no less than 40% of the outstanding First Capital shares are exchanged for cash and that no more than 60% and no less than 50% of the outstanding First Capital shares are exchanged for LCNB common shares. Subject to adoption of the Merger Agreement by the shareholders of First Capital, approval of the merger by regulatory authorities, and the satisfaction of other customary closing conditions, the transaction is anticipated to be completed during the fourth quarter 2012 or the first quarter 2013.
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 15 - Recent Accounting Pronouncements
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” The provisions of ASU No. 2012-02 permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test, as is currently required by GAAP. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. As LCNB does not have any indefinite-lived intangible assets, other than goodwill, the adoption of ASU No. 2012-02 is expected to have no impact on its consolidated financial statements.