XNAS:LCNB LCNB Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 2012

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         oNo

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).
x 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          xNo

The number of shares outstanding of the issuer's common stock, without par value, as of August 6, 2012 was 6,720,907 shares.
 


 
 

 
 
LCNB CORP. AND SUBSIDIARIES

 
PART I – FINANCIAL INFORMATION
2
   
Item 1.   Financial Statements
2
   
CONSOLIDATED BALANCE SHEETS
2
   
CONSOLIDATED STATEMENTS OF INCOME
3
   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
4
   
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
5
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
6
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
35
   
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of  Operations
36
   
Item 3.  Quantitative and Qualitative Disclosures about Market Risks
46
   
Item 4. Controls and Procedures
47
   
PART II. OTHER INFORMATION
48
   
Item 1.   Legal Proceedings
48
   
Item 1A.  Risk Factors
48
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
48
   
Item 3. Defaults Upon Senior Securities
48
   
Item 4.  Mine Safety Disclosures
48
   
Item 5.   Other Information
48
   
Item 6. Exhibits
49
   
SIGNATURES
50
 
 
 
 
LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
    June 30,     December 31,  
    2012     2011  
ASSETS:
  (Unaudited)        
Cash and due from banks
  $ 16,928       12,449  
Interest-bearing demand deposits
    9,968       7,086  
Total cash and cash equivalents
    26,896       19,535  
                 
Investment securities:
               
Available-for-sale, at fair value
    285,141       254,006  
Held-to-maturity, at cost
    11,474       10,734  
Federal Reserve Bank stock, at cost
    949       940  
Federal Home Loan Bank stock, at cost
    2,091       2,091  
Loans, net
    458,629       458,331  
Premises and equipment, net
    16,953       17,346  
Goodwill
    5,915       5,915  
Bank owned life insurance
    15,125       14,837  
Other assets
    8,402       7,835  
TOTAL ASSETS
  $ 831,575       791,570  
                 
LIABILITIES:
               
Deposits:
               
Noninterest-bearing
  $ 117,813       106,793  
Interest-bearing
    592,843       556,769  
Total deposits
    710,656       663,562  
Short-term borrowings
    13,142       21,596  
Long-term debt
    20,391       21,373  
Accrued interest and other liabilities
    6,921       7,079  
TOTAL LIABILITIES
    751,110       713,610  
                 
SHAREHOLDERS’ EQUITY:
               
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding
    -       -  
Common shares – no par value, authorized 12,000,000 shares, issued 7,474,269 and 7,460,494  shares at June 30, 2012 and December 31, 2011, respectively
    26,952       26,753  
Retained earnings
    59,989       57,877  
Treasury shares at cost, 753,627 and 755,771 shares at June 30, 2012 and December 31, 2011, respectively
    (11,665 )     (11,698 )
Accumulated other comprehensive income, net of taxes
    5,189       5,028  
TOTAL SHAREHOLDERS’ EQUITY
    80,465        77,960   
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 831,575       791,570  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
INTEREST INCOME:
                       
Interest and fees on loans
  $ 5,920       6,477       12,128       12,995  
Interest on investment securities –
                               
Taxable
    982       914       1,869       1,790  
Non-taxable
    610       640       1,216       1,347  
Other short-term investments
    59       68       89       97  
TOTAL INTEREST INCOME
    7,571       8,099       15,302       16,229  
                                 
INTEREST EXPENSE:
                               
Interest on deposits
    1,117       1,499       2,282       3,083  
Interest on short-term borrowings
    5       7       8       17  
Interest on long-term debt
    150       161       304       339  
TOTAL INTEREST EXPENSE
    1,272       1,667       2,594       3,439  
NET INTEREST INCOME
    6,299       6,432       12,708       12,790  
PROVISION FOR LOAN LOSSES
    91       224       306       888  
                                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    6,208       6,208       12,402       11,902  
                                 
NON-INTEREST INCOME:
                               
Trust income
    473       536       1,239       1,019  
Service charges and fees on deposit accounts
    909       952       1,787       1,853  
Net gain on sales of securities
    79       124       459       419  
Bank owned life insurance income
    139       148       287       294  
Gains from sales of mortgage loans
    102       24       209       57  
Other operating income
    53       51       110       108  
TOTAL NON-INTEREST INCOME
    1,755       1,835       4,091       3,750  
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
    2,963       2,955       5,945       6,007  
Equipment expenses
    264       240       526       457  
Occupancy expense, net
    390       407       797       862  
State franchise tax
    196       196       402       392  
Marketing
    169       110       280       225  
FDIC insurance premiums
    104       188       215       468  
Other non-interest expense
    1,244       1,211       2,613       2,681  
TOTAL NON-INTEREST EXPENSE
    5,330       5,307       10,778       11,092  
INCOME BEFORE INCOME TAXES
    2,633       2,736       5,715       4,560  
PROVISION FOR INCOME TAXES
    646       713       1,451       1,059  
INCOME FROM CONTINUING OPERATIONS
    1,987       2,023       4,264       3,501  
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
    -       (31 )     -       793  
NET INCOME
  $ 1,987       1,992       4,264       4,294  
                                 
Dividends declared per common share
  $ 0.16       0.16       0.32       0.32  
                                 
Basic earnings per common share:
                               
Continuing operations
  $ 0.30       0.30       0.64       0.52  
Discontinued operations
    -       -       -       0.12  
                                 
Diluted earnings per common share:
                               
Continuing operations
  $ 0.29       0.30       0.63       0.52  
Discontinued operations
    -       -       -       0.12  
                                 
Weighted average common shares outstanding:
                               
Basic
    6,713,847       6,689,743       6,710,062       6,689,743  
Diluted
    6,789,776       6,746,791       6,781,614       6,744,375  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
Net Income
  $ 1,987       1,992       4,264       4,294  
   
Other comprehensive income:
                               
   
Net unrealized gain on available-for-sale securities (net of taxes of $490 and $926 for the three months ended June 30, 2012 and 2011, respectively, and $231 and $696 for the six months ended June 30, 2012 and 2011, respectively)
    954            1,798             449             1,351  
   
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $26 and $42 for the three months ended June 30, 2012 and 2011, respectively, and $155 and $143 for the six months ended June 30, 2012 and 2011, respectively)
    (53 )     (82 )     (304 )     (276 )
   
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost (net of taxes of $3 and $1 for the three months ended June 30, 2012 and 2011, respectively, and $8 and $2 for the six months ended June 30, 2012 and 2011, respectively)
    9       (1 )     16       4  
   
Nonqualified pension plan curtailment (net of taxes of $80)
    -       -       -       155  
   
TOTAL COMPREHENSIVE INCOME
  $ 2,897       3,707       4,425       5,528  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
(Unaudited)
   
Common
Shares
Outstanding
   
Common
Stock
   
Retained
Earnings
   
Treasury
Shares
   
Accumulated
 Other
Comprehensive
Income
   
Total
Shareholders’
Equity
 
                                     
Balance December 31, 2010
    6,689,743     $ 26,515       54,045       (11,698 )     1,845       70,707  
Net income
                    4,294                       4,294  
Net unrealized gain (loss) on available-for-sale securities, net of taxes
                                    1,351       1,351  
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                    (276 )     (276 )
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost, net of taxes
                                      4         4  
Nonqualified pension plan curtailment entry, net of taxes
                                    155       155  
Compensation expense relating to stock options
            22                               22  
Common stock dividends, $0.32 per share
                    (2,141 )                     (2,141 )
Balance June 30, 2011
    6,689,743     $ 26,537       56,198       (11,698 )     3,079       74,116  
                                                 
Balance December 31, 2011
    6,704,723     $ 26,753       57,877       (11,698 )     5,028       77,960  
Net income
                    4,264                       4,264  
Net unrealized gain (loss) on available-for-sale securities, net of taxes
                                    449       449  
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income, net of taxes
                                    (304 )     (304 )
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost, net of taxes
                                    16       16  
Dividend Reinvestment and Stock Purchase Plan
    13,775       179                               179  
Exercise of stock options
    2,144               (5 )     33               28  
Compensation expense relating to stock options
            20                               20  
Common stock dividends, $0.32 per share
                    (2,147 )                     (2,147 )
Balance June 30, 2012
    6,720,642     $ 26,952       59,989       (11,665 )     5,189       80,465  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
       
   
Six Months Ended
   
June 30,
   
2012
   
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net income
  $ 4,264       4,294  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation, amortization, and accretion
    1,558       1,351  
Provision for loan losses
    306       888  
Curtailment charge for nonqualified defined benefit retirement plan
    -       191  
Increase in cash surrender value of bank owned life insurance
    (287 )     (294 )
Realized (gain) loss from sales of securities available-for-sale
    (459 )     (419 )
Realized (gain) loss from sales of premises and equipment
    -       (5 )
Realized gain from sale of insurance agency
    -       (1,503 )
Realized (gain) loss from sales and write-downs of other real estate owned and repossessed assets
    80       (31 )
Origination of mortgage loans for sale
    (11,394 )     (2,698 )
Realized gains from sales of mortgage loans
    (209 )     (57 )
Proceeds from sales of mortgage loans
    11,486       2,726  
Compensation expense related to stock options
    20       22  
Changes in:
               
Accrued income receivable
    (122 )     21  
Other assets
    22       57  
Other liabilities
    (218 )     (335 )
TOTAL ADJUSTMENTS
    783       (86 )
NET CASH FLOWS FROM OPERATING ACTIVITIES
    5,047       4,208  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from sales of investment securities available-for-sale
    31,484       18,982  
Proceeds from maturities and calls of investment securities:
               
Available-for-sale
    16,680       15,729  
Held-to-maturity
    1,442       2,628  
Purchases of investment securities:
               
Available-for-sale
    (79,400 )     (48,203 )
Held-to-maturity
    (2,182 )     (1,730 )
Purchase of Federal Reserve Bank stock
    (8 )     (2 )
Net (increase) decrease in loans
    (1,212 )     (3,281 )
Proceeds from sale of other real estate owned and repossessed assets
    20       148  
Purchases of premises and equipment
    (212 )     (1,692 )
Additions to other real owned
    (16 )     -  
Proceeds from sales of premises and equipment
    -       13  
Proceeds from sale of insurance agency, net of cash disposed
    -       1,523  
NET CASH FLOWS FROM INVESTING ACTIVITIES
    (33,404 )     (15,885 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase (decrease) in deposits
    47,094       40,212  
Net increase (decrease) in short-term borrowings
    (8,454 )     (9,493 )
Proceeds from long-term debt
    -       5,000  
Principal payments on long-term debt
    (982 )     (6,059 )
Proceeds from issuance of common stock
    30       -  
Proceeds from exercise of stock options
    28       -  
Cash dividends paid on common stock
    (1,998 )     (2,141 )
NET CASH FLOWS FROM FINANCING ACTIVITIES
    35,718       27,519  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    7,361       15,842  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    19,535       10,999  
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 26,896       26,841  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
CASH PAID DURING THE YEAR FOR:
               
Interest
  $ 2,655       3,514  
Income taxes
    1,125       1,714  
                 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
               
Transfer from loans to other real estate owned and repossessed assets
    564       229  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
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 and six months ended June 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 June 30, 2012 and December 31, 2011 are summarized as follows (in thousands):

   
June 30, 2012
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
U.S. Treasury notes
  $ 20,848       321       -       21,169  
U.S. Agency notes
    99,700       1,577       35       101,242  
U.S. Agency mortgage-backed securities
    56,814       1,498       15       58,297  
Corporate securities
    6,280       53       1       6,332  
Municipal securities:
                               
Non-taxable
    69,854       3,427       48       73,233  
Taxable
    19,983       1,195       -       21,178  
Mutual funds
    2,118       35       -       2,153  
Trust preferred securities
    498       26       9       515  
Equity securities
    977       78       33       1,022  
    $ 277,072       8,210       141       285,141  

   
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 fund
    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 June 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 June 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
    16,819       35       -       -  
U.S. Agency mortgage-backed securities
    4,355       15       -       -  
Corporate securities
    2,192       1       -       -  
Municipal securities:
                               
Non-taxable
    5,272       30       2,148       18  
Taxable
    -       -       -       -  
Mutual fund
    -       -       -       -  
Trust preferred securities
    99       1       141       8  
Equity securities
    415       28       59       5  
    $ 29,152       110       2,348       31  

Management has determined that the unrealized losses at June 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 June 30, 2012 and December 31, 2011 are as follows (in thousands):

   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
Commercial and industrial
  $ 25,350       30,990  
Commercial, secured by real estate
    230,285       219,188  
Residential real estate
    187,752       186,904  
Consumer
    12,498       14,562  
Agricultural
    1,641       2,835  
Other loans, including deposit overdrafts
    3,922       6,554  
      461,448       461,033  
Deferred net origination costs
    133       229  
      461,581       461,262  
Less allowance for loan losses
    2,952       2,931  
Loans, net
  $ 458,629       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 June 30, 2012 and December 31, 2011 are as follows (in thousands):

   
June 30,
   
December 31,
 
   
2012
   
2011
 
Non-accrual loans:
           
Commercial and industrial
  $ 243       495  
Commercial, secured by real estate
    1,007       1,950  
Residential real estate
    1,998       1,223  
Total non-accrual loans
    3,248       3,668  
Past-due 90 days or more and still accruing
    73       39  
Total non-accrual and past-due 90 days or more and still accruing
    3,321       3,707  
Accruing restructured loans
    13,447       14,739  
Total
  $ 16,768       18,446  
                 
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans
    0.72 %     0.80 %
                 
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans
    3.63 %     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 June 30, 2012 and December 31, 2011 are $68,938,000 and $67,410,000, respectively.  Loans sold to the Federal Home Loan Mortgage Corporation during the three and six months ended June 30, 2012 totaled $5,528,000 and $11,394,000, respectively, and $976,000 and $2,698,000 during the three and six months ended June 30, 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 six months ended June 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  
Provision charged to expenses
    (10 )     (77 )     422       (39 )     -       10       306  
Losses charged off
    -       (206 )     (153 )     (57 )     -       (40 )     (456 )
Recoveries
    -       71       7       68       -       25       171  
Balance, end of period
  $ 152       1,729       932       138       -       1       2,952  
                                                         
Ending balance:
                                                       
Individually evaluated for impairment
  $ -       83       378       -       -       -       461  
Collectively evaluated for impairment
    152       1,646       554       138       -       1       2,491  
Totals
  $ 152       1,729       932       138       -       1       2,952  
                                                         
Loans:
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 242       10,232       5,614       8       -       -       16,096  
Collectively evaluated for impairment
    25,087       219,866       182,380       12,589       1,641       3,922       445,485  
Totals
  $ 25,329       230,098       187,994       12,597       1,641       3,922       461,581  
                                                         
2011
                                                       
Allowance for loan losses:
                                                       
Balance, beginning of year
  $ 305       1,625       459       246       -       6       2,641  
Provision charged to expenses
    321       279       250       23       -       15       888  
Losses charged off
    (251 )     -       (132 )     (138 )     -       (58 )     (579 )
Recoveries
    -       30       4       82       -       43       159  
Balance, end of period
  $ 375       1,934       581       213       -       6       3,109  
                                                         
Ending balance:
                                                       
Individually evaluated for impairment
  $ 133       341       82       -       -       -       556  
Collectively evaluated for impairment
    242       1,593       499       213       -       6       2,553  
Totals
  $ 375       1,934       581       213       -       6       3,109  
                                                         
Loans:
                                                       
Ending balance:
                                                       
Individually evaluated for impairment
  $ 780       11,920       533       -       -       -       13,233  
Collectively evaluated for impairment
    32,713       194,939       187,248       17,113       2,844       9,466       444,323  
Totals
  $ 33,493       206,859       187,781       17,113       2,844       9,466       457,556  
 
 
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 June 30, 2012 and December 31, 2011 is as follows (in thousands):

   
Pass
   
OAEM
   
Substandard
   
Doubtful
   
Total
 
June 30, 2012
                             
Commercial & industrial
  $ 22,146       2,526       657       -       25,329  
Commercial, secured by real estate
    219,325       2,236       8,537       -       230,098  
Residential real estate
    178,178       2,632       7,184       -       187,994  
Consumer
    12,540       -       57       -       12,597  
Agricultural
    1,637       -       4       -       1,641  
Other
    3,922       -       -       -       3,922  
Total
  $ 437,748       7,394       16,439       -       461,581  
                                         
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 June 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
 
                                           
June 30, 2012
                                         
Commercial & industrial
  $ -       -       242       242       25,087       25,329       -  
Commercial, secured by real estate
    468       81       1,007       1,556       228,542       230,098       -  
Residential real estate
    617       411       2,038       3,066       184,928       187,994       39  
Consumer
    71       20       34       125       12,472       12,597       34  
Agricultural
    -       -       -       -       1,641       1,641       -  
Other
    45       -       -       45       3,877       3,922       -  
Total
  $ 1,201       512       3,321       5,034       456,547       461,581       73  
                                                         
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 June 30, 2012 and December 31, 2011 are as follows (in thousands):

   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Average
Recorded
 Investment
   
Interest
Income
Recognized
 
June 30, 2012
                             
With no related allowance recorded:
                             
Commercial & industrial
  $ 243       572       -       2,054       43  
Commercial real estate
    12,920       13,364