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EX-32 - EXHIBIT 32 - LCNB CORPex32.htm
EX-31.1 - EXHIBIT 31.1 - LCNB CORPex31_1.htm
EX-31.2 - EXHIBIT 31.2 - LCNB CORPex31_2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549
 
FORM 10-Q
 
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2011
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from                                to                              
 
Commission File Number  000-26121
 
LCNB Corp.
(Exact name of registrant as specified in its charter)

 
Ohio
   
31-1626393
 
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
2 North Broadway, Lebanon, Ohio 45036
(Address of principal executive offices, including Zip Code)

(513) 932-1414
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
                                                  x Yes         o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
                                                  o Yes         o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
     Large accelerated filer o                                                                                                           Accelerated filer x
     Non-accelerated filer o (Do not check if a smaller reporting company)                           Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
                                                  o Yes         x No
 
The number of shares outstanding of the issuer’s common stock, without par value, as of May 2, 2011 was 6,689,743 shares.
 


 
 

 
 
LCNB Corp.
 
 
3
   
3
   
3
   
4
   
5
   
6
   
7
   
8
   
33
   
34
   
39
   
40
   
40
   
41
   
41
   
41
   
41
   
41
   
41
   
41
   
42
   
43
 
 
-2-

 
 
LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands)
 
    March 31,
2011
(Unaudited)
    December 31,
2010
 
ASSETS:
               
Cash and due from banks
 
$
14,266
     
10,817
 
Interest-bearing demand deposits
   
17,622
     
 182
 
Total cash and cash equivalents
   
31,888
     
10,999
 
                 
Investment securities:
               
Available-for-sale, at fair value
   
211,852
     
235,882
 
Held-to-maturity, at cost
   
11,497
     
12,141
 
Federal Reserve Bank stock, at cost
   
939
     
939
 
Federal Home Loan Bank stock, at cost
   
2,091
     
2,091
 
Loans, net
   
460,522
     
452,350
 
Premises and equipment, net
   
16,493
     
16,017
 
Goodwill
   
5,915
     
5,915
 
Bank owned life insurance
   
14,388
     
14,242
 
Other assets
   
9,910
     
9,558
 
TOTAL ASSETS
 
$
765,495
     
760,134
 
                 
LIABILITIES:
               
Deposits:
               
Noninterest-bearing
 
$
95,487
     
98,994
 
Interest-bearing
   
559,604
     
539,545
 
Total deposits
   
655,091
     
638,539
 
Short-term borrowings
   
11,402
     
 21,691
 
Long-term debt
   
22,402
     
   23,120
 
Accrued interest and other liabilities
   
5,132
     
6,077
 
TOTAL LIABILITIES
   
694,027
     
689,427
 
                 
SHAREHOLDERS’ EQUITY:
               
Preferred shares - no par value, authorized 1,000,000 shares, none outstanding
   
     
 
Common shares - no par value, authorized 8,000,000 shares, issued 7,445,514 shares at March 31, 2011 and December 31, 2010
   
11,068
     
11,068
 
Surplus
   
15,457
     
15,447
 
Retained earnings
   
55,277
     
54,045
 
Treasury shares at cost, 755,771 shares at March 31, 2011 and December 31, 2010
   
(11,698
   
(11,698
Accumulated other comprehensive income, net of taxes
   
1,364
     
1,845
 
TOTAL SHAREHOLDERS’ EQUITY
   
71,468
     
70,707
 
                 
TOTAL LIABILITES AND SHAREHOLDERS’ EQUITY
 
$
765,495
     
760,134
 
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
-3-

 
LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
(Unaudited)
 
     
Three Months Ended
 
     
March 31,
 
     
2011
     
2010
 
INTEREST INCOME:
               
Interest and fees on loans
 
$
6,518
     
6,832
 
Interest on investment securities:
               
Taxable
   
876
     
930
 
Non-taxable
   
707
     
808
 
Other investments
   
29
     
32
 
TOTAL INTEREST INCOME
   
8,130
     
8,602
 
                 
INTEREST EXPENSE:
               
Interest on deposits
   
1,584
     
1,976
 
Interest on short-term borrowings
   
10
     
9
 
Interest on long-term debt
   
178
     
177
 
TOTAL INTEREST EXPENSE
   
1,772
     
2,162
 
NET INTEREST INCOME
   
6,358
     
6,440
 
PROVISION FOR LOAN LOSSES
   
664
     
208
 
                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
   
5,694
     
6,232
 
                 
NON-INTEREST INCOME:
               
Trust income
   
483
     
469
 
Service charges and fees on deposit accounts
   
901
     
926
 
Net gain on sales of securities
   
295
     
77
 
Bank owned life insurance income
   
146
     
153
 
Gains from sales of mortgage loans
   
33
     
30
 
Other operating income
   
73
     
98
 
TOTAL NON-INTEREST INCOME
   
1,931
     
1,753
 
                 
NON-INTEREST EXPENSE:
               
Salaries and employee benefits
   
3,052
     
2,768
 
Equipment expenses
   
217
     
204
 
Occupancy expense, net
   
455
     
524
 
State franchise tax
   
196
     
181
 
Marketing
   
115
     
76
 
Intangible amortization
   
14
     
14
 
FDIC premiums
   
280
     
218
 
Other non-interest expense
   
1,472
     
1,222
 
TOTAL NON-INTEREST EXPENSE
   
5,801
     
5,207
 
                 
INCOME BEFORE INCOME TAXES
   
1,824
     
2,778
 
PROVISION FOR INCOME TAXES
   
346
     
637
 
NET INCOME FROM CONTINUING OPERATIONS
   
1,478
     
2,141
 
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
   
824
     
71
 
NET INCOME
 
$
2,302
     
2,212
 
                 
Dividends declared per common share
 
$
0.16
     
0.16
 
                 
Basic and diluted earnings per common share:
               
Continuing operations
 
$
0.22
     
0.32
 
Discontinued operations
   
0.12
     
0.01
 
                 
Weighted average common shares outstanding:
               
Basic
   
6,689,743
     
6,687,232
 
Diluted
   
6,741,767
     
6,729,790
 
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
-4-

 
LCNB CORP. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
     
Three Months Ended
 
     
March 31,
 
     
2011
     
2010
 
                 
Net Income
 
$
2,302
     
2,212
 
                 
Other comprehensive income:
               
                 
Net unrealized gain (loss) on available-for-sale securities (net of taxes of $230 and $181 for the three months ended March 31, 2011 and 2010, respectively)
   
(447
   
351
 
                 
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $100 and $26 for the three months ended March 31, 2011 and 2010, respectively)
   
(194
   
(51
                 
Change in nonqualified pension plan unrecognized net gain (loss) (net of taxes of $4)
   
8
     
 
                 
Reclassification adjustment for recognition of nonqualified pension plan net (gain) loss (net of taxes of $1)
   
(3
   
 
                 
Nonqualified pension plan curtailment entry (net of taxes of $80)
   
155
     
 
                 
Total comprehensive income
 
$
1,821
     
2,512
 
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
-5-

 
LCNB CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    Common
Shares
Outstanding
    Preferred
Stock
    Common
Stock
    Surplus     Retained
Earnings
    Treasury
Shares
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Shareholders’
Equity
 
                                                                 
Balance January 1, 2011
    6,689,743     $       11,068       15,447       54,045       (11,698 )     1,845       70,707  
Net income
                                    2,302                       2,302  
Net unrealized gain (loss) on available-for-sale securities, net of taxes
                                                    (447 )     (447 )
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                                    (194 )     (194 )
Change in nonqualified pension plan unrecognized net gain (loss), net of taxes
                                                    8       8  
Reclassification adjustment for recognition of nonqualified pension plan net gain, net of taxes
                                                    (3 )     (3 )
Nonqualified pension plan curtailment entry, net of taxes
                                                    155       155  
Compensation expense relating to stock options
                            10                               10  
Common stock dividends, $0.16 per share
                                    (1,070 )                     (1,070 )
Balance March 31, 2011
    6,689,743             11,068       15,457       55,277       (11,698 )     1,364       71,468  
                                                                 
Balance January 1, 2010
    6,687,232     $       11,068       15,407       48,962       (11,737 )     1,915       65,615  
Net income
                                    2,212                       2,212  
Net unrealized gain (loss) on available-for-sale securities, net of tax
                                                    351       351  
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                                    (51 )     (51 )
Compensation expense relating to stock options
                            9                               9  
Common stock dividends, $0.16 per share
                                    (1,070 )                     (1,070 )
Balance March 31, 2010
    6,687,232     $       11,068       15,416       50,104       (11,737 )     2,215       67,066  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
-6-


LCNB CORP. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 2,302       2,212  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation, amortization and accretion
    685       631  
Provision for loan losses
    664       208  
Curtailment charge for nonqualified defined benefit retirement plan
    191       -  
Increase in cash surrender value of bank owned life insurance
    (146 )     (153 )
Realized gain from sales of securities available-for-sale
    (295 )     (77 )
Realized gain from sales of premises and equipment
    -       (4 )
Realized gain from sale of insurance agency
    (1,503 )     -  
Realized gain from sale of repossessed assets
    (16 )     (10 )
Origination of mortgage loans for sale
    (1,722 )     (1,600 )
Realized gains from sales of mortgage loans
    (33 )     (30 )
Proceeds from sales of mortgage loans
    1,737       1,613  
Compensation expense related to stock options
    10       9  
(Increase) decrease due to changes in assets and liabilities:
               
Accrued income receivable
    (604 )     (149 )
Other assets
    (6 )     (211 )
Other liabilities
    (261 )     28  
NET CASH FLOWS FROM OPERATING ACTIVITIES
    1,003       2,467  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from sales of investment securities available-for-sale
    14,518       5,342  
Proceeds from maturities of investment securities:
               
Available-for-sale
    8,520       16,875  
Held-to-maturity
    1,259       516  
Purchases of investment securities:
               
Available-for-sale
    (9 )     (5,324 )
Held-to-maturity
    (615 )     (1,373 )
Net (increase) decrease in loans
    (9,102 )     259  
Proceeds from sale of repossessed assets
    35       61  
Purchases of premises and equipment
    (718 )     (87 )
Proceeds from sales of premises and equipment
    -       4  
Proceeds from sale of insurance agency, net of cash disposed
    1,523       -  
NET CASH FLOWS FROM INVESTING ACTIVITIES
    15,411       16,273  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in deposits
    16,552       7,000  
Net decrease in short-term borrowings
    (10,289 )     (9,157 )
Proceeds from long-term debt
    5,000       -  
Principal payments on long-term debt
    (5,718 )     (807 )
Cash dividends paid on common stock
    (1,070 )     (1,070 )
NET CASH FLOWS FROM FINANCING ACTIVITIES
    4,475       (4,034 )
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    20,889       14,706  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    10,999       12,626  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 31,888       27,332  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
CASH PAID DURING THE YEAR FOR:
               
Interest
  $ 1,831       2,186  
Income taxes
    620       315  
                 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
               
Transfer from loans to other real estate owned and repossessed assets
    225       125  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
-7-

 
LCNB CORP. AND SUBSIDIARIES
(Unaudited)
 
Note 1 - Basis of Presentation
Substantially all of the assets, liabilities and operations of LCNB Corp. (“LCNB”) are attributable to its wholly-owned subsidiary, LCNB National Bank (the “Bank”).  The accompanying unaudited consolidated financial statements include the accounts of LCNB and the Bank.  LCNB completed the sale of its subsidiary, Dakin Insurance Agency, Inc. (“Dakin”) on March 23, 2011.  The financial results of Dakin are included as income from discontinued operations, net of tax, in the accompanying unaudited consolidated financial statements through the date of sale.
 
The unaudited interim consolidated financial statements, which have been reviewed by J.D. Cloud & Co. L.L.P., LCNB’s independent registered public accounting firm, in accordance with standards established by the Public Company Accounting Oversight Board, as indicated by their report included herein and which does not express an opinion on those statements, have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 10-01.
 
Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation.
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.  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 2010 Annual Report on Form 10-K filed with the SEC.
 
 
-8-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 2 -  Investment Securities
The amortized cost and fair value of available-for-sale investment securities at March 31, 2011 and December 31, 2010 are summarized as follows (in thousands):
 
   
March 31, 2011
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
U.S. Treasury notes
  $ 19,634       13       237       19,410  
U.S. Agency notes
    76,371       29       1,225       75,175  
U.S. Agency mortgage-backed securities
    27,155       1,101       67       28,189  
Corporate securities
    1,010       13             1,023  
Municipal securities:
                               
Non-taxable
    65,647       2,611       135       68,123  
Taxable
    18,177       187       363       18,001  
Mutual fund
    1,072             14       1,058  
Trust preferred securities
    549       59       3       605  
Equity securities
    249       25       6       268  
    $ 209,864       4,038       2,050       211,852  
 
   
December 31, 2010
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
                         
U.S. Treasury notes
  $ 19,724       16       155       19,585  
U.S. Agency notes
    83,600       107       845       82,862  
U.S. Agency mortgage-backed securities
    31,786       1,364       56       33,094  
Corporate securities
    2,012       13             2,025  
Municipal securities:
                               
Non-taxable
    71,902       2,642       116       74,428  
Taxable
    22,049       302       383       21,968  
Mutual fund
    1,063             10       1,053  
Trust preferred securities
    549       57       2       604  
Equity securities
    249       18       4       263  
    $ 232,934       4,519       1,571       235,882  
 
The fair value of held-to-maturity investment securities, consisting of taxable and non-taxable municipal securities, approximates amortized cost at March 31, 2011 and December 31, 2010.
 
 
-9-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 2 -  Investment Securities (continued)
Substantially all securities in unrealized loss positions at March 31, 2011 have been in a loss position less than twelve months.  Management has determined that the unrealized losses at March 31, 2011 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 bases, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
Note 3 - Loans
Major classifications of loans at March 31, 2011 and December 31, 2010 are as follows (in thousands):
 
    March 31,
 
  December 31,  
    2011     2010  
                 
Commercial and industrial
 
$
35,381
     
36,122
 
Commercial, secured by real estate
   
209,952
     
196,136
 
Residential real estate
   
187,905
     
190,277
 
Consumer
   
18,229
     
19,691
 
Agricultural
   
2,260
     
2,966
 
Other loans, including deposit overdrafts
   
9,402
     
9,413
 
     
463,129
     
454,605
 
Deferred net origination costs
   
324
     
386
 
     
463,453
     
454,991
 
Less allowance for loan losses
   
2,931
     
2,641
 
Loans, net
 
$
460,522
     
452,350
 
 
 
-10-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
Non-accrual, past-due, and restructured loans as of March 31, 2011 and December 31, 2010 were as follows (in thousands):
 
    March 31,
2011
    December 31,
2010
 
                 
Non-accrual loans
 
$
3,098
     
3,761
 
Past-due 90 days or more and still accruing
   
572
     
300
 
Restructured loans
   
9,619
     
9,088
 
Total
 
$
13,289
     
13,149
 
Percent to total loans
   
2.87
   
2.89
%
 
Non-accrual loans at March 31, 2011 decreased from the balance at December 31, 2010 primarily due to the receipt of a $594,000 guarantee payment on a Small Business Administration loan.  Restructured loans at March 31, 2011 increased from the balance at December 31, 2010 primarily due to the modification of two commercial real estate loans to the same borrower totaling $626,000.
 
Loans sold to and serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of those loans at March 31, 2011 and December 31, 2010 were $69,627,000 and $70,705,000, respectively.  Loans sold to the Federal Home Loan Mortgage Corporation during the three months ended March 31, 2011 and 2010 totaled $1,722,000 and $1,600,000, respectively.
 
 
-11-

 
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 three months ended March 31 were as follows (000’s):
 
   
Commercial
& Industrial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agricultural
   
Other
   
Unallocated
   
Total
 
March 31, 2011
                                               
Allowance for loan losses:
                                               
Balance, beginning of year
  $ 305       1,625       459       246             6             2,641  
Provision charged to expenses
    284       200       141       34             5             664  
Losses charged off
    (251 )           (100 )     (91 )           (30 )           (472 )
Recoveries
          30       1       42             25             98  
Balance, end of period
  $ 338       1,855       501       231             6             2,931  
                                                                 
Ending balance:  individually evaluated for impairment
  $ 100       336                                     436  
Ending balance:  collectively evaluated for impairment
    238       1,519       501       231             6             2,495  
                                                                 
Loans:
                                                               
Ending balance
  $ 35,381       209,952       187,905       18,229       2,260       9,402             463,129  
Ending balance:  individually evaluated for impairment
    833       12,026       532                               13,391  
Ending balance:  collectively evaluated for impairment
    34,548       197,926       187,373       18,229       2,260       9,402             449,738  
 
 
-12-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
 
   
Commercial
& Industrial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agricultural
   
Other
   
Unallocated
   
Total
 
March 31, 2010
                                               
Allowance for loan losses:
                                               
Balance, beginning of year
  $ 546       1,628       491       313             9       11       2,998  
Provision charged to expenses
    14       102       11       80             12       (11 )     208  
Losses charged off
    (5 )           (18 )     (144 )           (38 )           (205 )
Recoveries
                      33             26             59  
Balance, end of period
  $ 555       1,730       484       282             9             3,060  
                                                                 
Ending balance:  individually evaluated for impairment
  $ 290       654                                     944  
Ending balance:  collectively evaluated for impairment
    265       1,076       484       282             9             2,116  
                                                                 
Loans:
                                                               
Ending balance
  $ 44,092       187,593       191,771       23,792       2,648       9,441             459,337  
Ending balance:  individually evaluated for impairment
    1,242       9,116                                     10,358  
Ending balance:  collectively evaluated for impairment
    42,850       178,477       191,771       23,792       2,648       9,441             448,979  
 
 
-13-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
The Company 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.
 
 
-14-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
An analysis of the Company’s loan portfolio by credit quality indicators at March 31, 2011 and December 31, 2010 is as follows (000’s):
 
   
No Grade
   
Pass
   
OAEM
   
Substandard
   
Doubtful
   
Total
 
March 31, 2011
                                   
Commercial & industrial
  $ 1,115       32,376       1,139       751             35,381  
Commercial, secured by real estate
    1,987       192,977       4,853       7,767       2,368       209,952  
Residential real estate
    18,544       165,941       1,390       2,030             187,905  
Consumer
    368       17,768             70       23       18,229  
Agricultural
    311       1,949                         2,260  
Other
    75       9,327                         9,402  
Total
  $ 22,400       420,338       7,382       10,618       2,391       463,129  
                                                 
December 31, 2010
                                               
Commercial & industrial
  $ 1,299       32,421       1,177       1,225             36,122  
Commercial, secured by real estate
    2,053       179,710       4,897       8,574       902       196,136  
Residential real estate
    17,346       170,900       264       1,702       65       190,277  
Consumer
    394       19,144             72       81       19,691  
Agricultural
    247       2,719                         2,966  
Other
    116       9,297                         9,413  
Total
  $ 21,455       414,191       6,338       11,573       1,048       454,605  
 
 
-15-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
A loan portfolio aging analysis at March 31, 2011 and December 31, 2010 is as follows (000’s):
 
   
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
 
March 31, 2011
                                         
Commercial & industrial
  $ 9                   9       35,372       35,381        
Commercial, secured by real estate
    223       35       2,368       2,626       207,326       209,952        
Residential real estate
    711       60       1,078       1,849       186,056       187,905       549  
Consumer
    95       54       23       172       18,057       18,229       23  
Agricultural
                            2,260       2,260        
Other
    74                   74       9,328       9,402        
Total
  $ 1,112       149       3,469       4,730       458,399       463,129       572  
                                                         
December 31, 2010
                                                       
Commercial & industrial
  $ 138             595       733       35,389       36,122       1  
Commercial, secured by real estate
    753             1,766       2,519       193,617       196,136       114  
Residential real estate
    482       36       698       1,216       189,061       190,277       110  
Consumer
    231       54       76       361       19,330       19,691       75  
Agricultural
                            2,966       2,966        
Other
    5                   5       9,408       9,413        
Total
  $ 1,609       90       3,135       4,834       449,771       454,605       300  
 
 
-16-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
Impaired loans at March 31, 2011 and December 31, 2010 were as follows (000’s):
 
   
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
March 31, 2011
                             
With no related allowance recorded:
                             
Commercial & industrial
  $ 249       249             424       13  
Commercial real estate
    8,250       8,250             8,276       111  
Residential real estate
    533       533             533        
Total
    9,032       9,032             9,233       124  
                                         
With an allowance recorded:
                                       
Commercial & industrial
    484       584       100       884       8  
Commercial real estate
    3,440       3,776       336       3,827       45  
Residential real estate
                             
Total
    3,924       4,360       436       4,711       53  
                                         
Total:
                                       
Commercial & industrial
    733       833       100       1,308       21  
Commercial real estate
    11,690       12,026       336       12,103       156  
Residential real estate
    533       533             533        
Total
  $ 12,956       13,392       436       13,944       177  
 
 
-17-

 
LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
 
Note 3 – Loans (continued)
 
   
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
December 31, 2010
                             
With no related allowance recorded:
                             
Commercial & industrial
  $ 594       594             751       9  
Commercial real estate
    8,350       8,350             9,058       372  
Residential real estate
    533       533             534        
Total
    9,477       9,477             10,343       381  
                                         
With an allowance recorded:
                                       
Commercial & industrial
    356       476       120       693       29  
Commercial real estate
    2,974       3,150       176       3,403       142  
Residential real estate
                             
Total
  $ 3,330       3,626       296       4,096       171  
                                         
Total:
                                       
Commercial & industrial
  $ 950       1,070       120       1,444       38  
Commercial real estate
    11,324       11,500       176       12,461       514  
Residential real estate
    533       533             534        
Total
  $ 12,807       13,103       296       14,439       552  
 
Non-accrual loans at March 31, 2011 and December 31, 2010 were as follows (000’s):
 
   
March 31,
2011
   
December 31, 2010
 
Commercial and industrial
  $       595  
Commercial, secured by real estate
    2,368       2,377  
Residential real estate
    730       789  
      3,098       3,761