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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
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 001-35292
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, No Par ValueLCNBNASDAQ

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.
            ☒ Yes         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).
            ☒ Yes         No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐                            Accelerated filer
Non-accelerated filer ☒                             Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
             Yes         No
The number of shares outstanding of the issuer's common stock, without par value, as of May 9, 2024 was 14,142,960 shares.


LCNB CORP. AND SUBSIDIARIES

TABLE OF CONTENTS
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  










1

Glossary of Abbreviations and Acronyms
ACLAllowance for Credit Losses
ASCAccounting Standards Codification
ASUAccounting Standards Update
BankLCNB National Bank
CECLCurrent expected credit losses
CEOChief Executive Officer
CFOChief Financial Officer
CNNBCincinnati Bancorp, Inc.
CompanyLCNB Corp. and its consolidated subsidiaries as a whole
DCFDiscounted Cash Flow
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act
EFBIEagle Financial Bancorp, Inc.
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
FFIECFinancial Institutions Examination Council
FHLBFederal Home Loan Bank
FOMCFederal Open Market Committee of the Federal Reserve System
GAAPGenerally Accepted Accounting Principles
IRAIndividual Retirement Account
LCNBLCNB Corp. and its consolidated subsidiaries as a whole
LDALoss Driver Analysis
LGDLoss Given Default
LIBORLondon Interbank Offered Rate
LIHTCLow Income Housing Tax Credit
OCCOffice of the Comptroller of the Currency
PCDPurchased Credit Deteriorated
PDProbability of Default
SECSecurities and Exchange Commission
    

2

PART I – FINANCIAL INFORMATION
 
Item 1.Financial Statements

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, dollars in thousands)
March 31,
2024
December 31, 2023
ASSETS:
Cash and due from banks$24,950 $36,535 
Interest-bearing demand deposits8,001 3,188 
Total cash and cash equivalents32,951 39,723 
Investment securities:  
Equity securities with a readily determinable fair value, at fair value1,334 1,336 
Equity securities without a readily determinable fair value, at cost3,666 3,666 
Debt securities, available-for-sale, at fair value262,786 276,601 
Debt securities, held-to-maturity, at cost, net of allowance for credit losses of $5 and $5 at March 31, 2024 and December 31, 2023, respectively
16,746 16,858 
Federal Reserve Bank stock, at cost5,774 5,086 
Federal Home Loan Bank stock, at cost16,469 15,176 
Loans, net of allowance for credit losses of $10,557 and $10,525 at March 31, 2024 and December 31, 2023, respectively
1,645,797 1,712,946 
Loans held for sale75,581  
Premises and equipment, net36,690 36,302 
Operating lease right-of-use assets5,838 6,000 
Goodwill79,559 79,509 
Core deposit and other intangibles, net8,903 9,494 
Bank-owned life insurance50,165 49,847 
Interest receivable9,115 8,405 
Other assets, net31,777 30,643 
TOTAL ASSETS2,283,151 2,291,592 
LIABILITIES:  
Deposits:  
Noninterest-bearing$435,580 462,267 
Interest-bearing1,422,913 1,362,122 
Total deposits1,858,493 1,824,389 
Short-term borrowings10,000 97,395 
Long-term debt162,638 113,123 
Operating lease liabilities6,123 6,261 
Accrued interest and other liabilities12,234 15,121 
TOTAL LIABILITIES2,049,488 2,056,289 
COMMITMENTS AND CONTINGENT LIABILITIES  
SHAREHOLDERS' EQUITY:  
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding
  
Common shares – no par value; authorized 19,000,000 shares; issued 16,435,659 and 16,384,952 shares at March 31, 2024 and December 31, 2023, respectively; outstanding 13,224,276 and 13,173,569 shares at March 31, 2024 and December 31, 2023, respectively
174,082 173,637 
Retained earnings139,050 140,017 
Treasury shares at cost, 3,211,383 and 3,211,383 shares at March 31, 2024 and December 31, 2023, respectively
(56,015)(56,015)
Accumulated other comprehensive loss, net of taxes(23,454)(22,336)
TOTAL SHAREHOLDERS' EQUITY233,663 235,303 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$2,283,151 $2,291,592 

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.
3

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
 20242023
INTEREST INCOME:
Interest and fees on loans$22,682 16,143 
Dividends on equity securities:
With a readily determinable fair value9 17 
Without a readily determinable fair value31 20 
Interest on debt securities:
Taxable1,232 1,343 
Non-taxable143 176 
Other investments661 219 
TOTAL INTEREST INCOME24,758 17,918 
INTEREST EXPENSE:  
Interest on deposits8,190 2,456 
Interest on short-term borrowings935 1,304 
Interest on long-term debt1,738 216 
TOTAL INTEREST EXPENSE10,863 3,976 
NET INTEREST INCOME13,895 13,942 
PROVISION FOR (RECOVERY OF) CREDIT LOSSES125 (57)
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) CREDIT LOSSES13,770 13,999 
NON-INTEREST INCOME:  
Fiduciary income1,973 1,740 
Service charges and fees on deposit accounts1,384 1,482 
Net losses from sales of debt securities, available-for-sale(214) 
Bank-owned life insurance income318 271 
Net gains from sales of loans522 6 
Other operating income (loss)(54)82 
TOTAL NON-INTEREST INCOME3,929 3,581 
NON-INTEREST EXPENSE:  
Salaries and employee benefits8,554 7,349 
Equipment expenses390 361 
Occupancy expense, net1,005 963 
State financial institutions tax428 397 
Marketing174 192 
Amortization of intangibles236 111 
FDIC insurance premiums, net504 215 
Contracted services784 641 
Merger-related expenses775 25 
Other non-interest expense2,622 2,271 
TOTAL NON-INTEREST EXPENSE15,472 12,525 
INCOME BEFORE INCOME TAXES2,227 5,055 
PROVISION FOR INCOME TAXES312 898 
NET INCOME$1,915 4,157 
Earnings per common share:  
Basic$0.15 0.37 
Diluted$0.15 0.37 
Weighted average common shares outstanding:  
Basic13,112,302 11,189,170 
Diluted13,112,302 11,189,170 

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.
4

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended 
March 31,
 20242023
Net income$1,915 4,157 
Other comprehensive income (loss):  
Net unrealized gain (loss) on available-for-sale debt securities (net of tax expense (benefit) of $(342) and $1,316 for the three months ended March 31, 2024 and 2023, respectively)
(1,287)4,950 
Reclassification adjustment for net realized (gains) losses on sales of available-for-sale debt securities included in net income (net of tax expense (benefit) of $(45) and $0 for the three months ended March 31, 2024 and 2023, respectively)
169  
  Other comprehensive income (loss), net of tax(1,118)4,950 
TOTAL COMPREHENSIVE INCOME$797 9,107 

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

5

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
 Common Shares OutstandingCommon StockRetained
Earnings
Treasury
Shares
Accumulated Other Comprehensive LossTotal Shareholders'
Equity
Three Months Ended March 31, 2024
Balance at January 1, 202413,173,569 $173,637 140,017 (56,015)(22,336)235,303 
Net income  1,915   1,915 
Other comprehensive loss, net of taxes   (1,118)(1,118)
Dividend Reinvestment and Stock Purchase Plan9,004 130   130 
Shares issued for restricted stock awards41,703 
Compensation expense relating to restricted stock315 315 
Common stock dividends, $0.22 per share
  (2,882)  (2,882)
Balance at March 31, 202413,224,276 $174,082 139,050 (56,015)(23,454)233,663 
Three Months Ended March 31, 2023
Balance at January 1, 202311,259,080 $144,069 139,249 (52,689)(29,954)200,675 
Cumulative change in accounting principle - ASC 326(1,922)(1,922)
Balance at January 1, 2023, adjusted11,259,080 144,069 137,327 (52,689)(29,954)198,753 
Net income  4,157   4,157 
Other comprehensive income, net of taxes    4,950 4,950 
Dividend Reinvestment and Stock Purchase Plan5,861 103    103 
Repurchase of common stock(107,028)(1,838)(1,838)
Shares issued for restricted stock awards44,150 
Compensation expense relating to restricted stock316 316 
Common stock dividends, $0.21 per share
  (2,369)  (2,369)
Balance at March 31, 202311,202,063 $144,488 139,115 (54,527)(25,004)204,072 

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.
6

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended 
March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$1,915 4,157 
Adjustments to reconcile net income to net cash flows from operating activities:  
Depreciation, amortization, and accretion481 720 
Provision for (recovery of) credit losses125 (57)
Deferred income tax provision (benefit)44 (648)
Increase in cash surrender value of bank-owned life insurance(318)(271)
Realized and unrealized losses from equity securities, net 10 31 
Realized losses from sales of debt securities, available-for-sale214  
Origination of mortgage loans for sale(32,620)(335)
Realized gains from sales of loans(522)(6)
Proceeds from sales of mortgage loans22,429 338 
Compensation expense related to restricted stock315 316 
Changes in:  
Accrued interest receivable(710)(523)
Other assets(936)597 
Other liabilities(2,921)(1,827)
TOTAL ADJUSTMENTS(14,409)(1,665)
NET CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES(12,494)2,492 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from sales of equity securities 963 
Proceeds from sales of debt securities, available-for-sale9,615  
Proceeds from maturities and calls of debt securities:
Available-for-sale4,624 2,769 
Held-to-maturity112 108 
Purchases of equity securities(8)(7)
Purchases of debt securities:
   Available-for-sale(2,207)(300)
Purchase of Federal Reserve Bank stock(688) 
Purchases of Federal Home Loan Bank stock(1,293)(3,306)
Proceeds from redemption of Federal Home Loan Bank stock 754 
Net increase in loans2,961 6,912 
Purchases of premises and equipment(858)(588)
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES12,258 7,305 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Net increase (decrease) in deposits34,104 (1,089)
Net increase (decrease) in short-term borrowings(87,395)5,045 
Proceeds from issuance of long-term debt50,000  
Principal payments on long-term debt(493)(474)
Proceeds from issuance of common stock130 103 
Repurchase of common stock (1,838)
Cash dividends paid on common stock(2,882)(2,369)
NET CASH FLOWS USED IN FINANCING ACTIVITIES(6,536)(622)
NET CHANGE IN CASH AND CASH EQUIVALENTS(6,772)9,175 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD39,723 22,701 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$32,951 31,876 
SUPPLEMENTAL CASH FLOW INFORMATION:  
CASH PAID DURING THE YEAR FOR:
Interest paid$10,312 3,433 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:  
Transfer from loans held for investment to loans held for sale$64,869  

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.
7

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION
 
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements include LCNB Corp. and its wholly-owned subsidiaries: LCNB National Bank and LCNB Risk Management, Inc., its captive insurance company. All material intercompany transactions and balances are eliminated in consolidation.

The unaudited interim consolidated condensed financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.  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 the Company's financial position, results of consolidated operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 8-03.

The consolidated condensed balance sheet as of December 31, 2023 has been derived from the audited consolidated balance sheet as of that date.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.  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 2023 Annual Report on Form 10-K filed with the SEC.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards (“FASB”) Accounting Standards Update (“ASU”) No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting"
ASU No. 2020-04 was issued in March 2020 and provides optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Originally, the amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. ASU No. 2022-06, "Reference
Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" extended the sunset date from December 31, 2022 to
December 31, 2024. LCNB has adopted the standard and utilized the LIBOR transition relief allowed under ASU 2020-04 and ASU 2020-06. The impact was immaterial, as all loans indexed to LIBOR were transitioned to another referenced index, predominately the Secured Overnight Financing Rate ("SOFR") for one, three, and six months. In all instances, LCNB was able to meet the criteria for the practical expedients and there was no impact on its results of consolidated operations or financial position.











8

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 1 - BASIS OF PRESENTATION (continued)
ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments" ("ASC 326")
The Company adopted ASC 326 on January 1, 2023. It significantly changed guidance for recognizing impairment of financial instruments. Previous guidance required an "incurred loss" methodology for recognizing credit losses that delayed recognition until it was probable a loss had been incurred. ASC 326 replaced the incurred loss impairment methodology with a new "current expected credit loss" ("CECL") methodology that reflects expected credit losses over the lives of the credit instruments and requires consideration of a broader range of information to estimate credit losses. ASC 326 requires an organization to estimate all expected credit losses for financial assets measured at amortized cost, including loans and held-to-maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. It also applies to off-balance sheet credit exposures, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. ASC 326 also made changes to the accounting for credit losses on available-for-sale debt securities. Additional disclosures are required.

LCNB adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable guidance. The following table shows the impact of adopting ASC 326 on January 1, 2023 (in thousands):


As Reported Pre-ASC 326Impact of ASC 326 AdoptionAs Reported Under ASC 326
Assets:
Loans, gross of allowance$1,401,278 341 1,401,619 
ACL on loans(5,646)(2,196)(7,842)
ACL on debt securities, held to maturity (7)(7)
Deferred tax assets, net6,639 511 7,150 
Liabilities:
ACL on off-balance sheet credit exposures 571 571 
Shareholders' Equity:
Retained earnings139,249 (1,922)137,327 

Federal banking regulatory agencies allow an optional phase-in period of three years for banks to absorb the impact to regulatory capital of implementing CECL. LCNB has elected not to exercise this option and the full impact of adopting ASC 326 is included in regulatory capital as of March 31, 2024. Adoption of the ASC did not materially affect LCNB's regulatory capital ratios.

ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures"
ASU No. 2022-02 was issued in March 2022 and became effective for LCNB on January 1, 2023. These amendments eliminated previous TDR recognition and measurement guidance and, instead, required that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements and introduce new disclosure requirements for certain modifications to borrowers experiencing financial difficulties. Additionally, the amendments require the disclosure of current-period gross charge-offs by year of origination. Adoption of ASU No. 2022-02 did not have a material impact on LCNB's results of consolidated operations or financial position.

9

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 1 - BASIS OF PRESENTATION (continued)
ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a Consensus of the Emerging Issues Task Force)"
ASU No. 2023-02 was issued in March 2023 and became effective for LCNB on January 1, 2024. It allows reporting entities the option to use the proportional amortization method to account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met, regardless of the tax credit program from which the income tax credits are received. The proportional amortization method was previously limited to Low-Income Housing Tax Credit investments. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). Adoption of ASU No. 2023-02 did not have a material impact on LCNB's results of consolidated operations or financial position.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
From time to time the FASB issues an ASU to communicate changes to U.S. GAAP. The following information provides brief summaries of newly issued but not yet effective ASUs that could have an effect on LCNB’s financial position or results of consolidated operations:

ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures"
ASU No. 2023-07 was issued in November 2023 and changes the requirements for segment disclosures, primarily through enhancing disclosure requirements for significant segment expenses, enhancing interim disclosure requirements, clarifying circumstances in which an entity can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and modifying other disclosure requirements. A public entity should apply the amendments retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted.



NOTE 2 - BUSINESS COMBINATIONS

Cincinnati Bancorp, Inc.
On November 1, 2023, LCNB acquired Cincinnati Bancorp, Inc. (“CNNB”), the holding company for Cincinnati Federal, a federally chartered stock savings and loan association. Under the terms of the definitive merger agreement, CNNB merged with and into LCNB Corp., immediately followed by the merger of Cincinnati Federal with and into LCNB National Bank. CNNB operated four full-service branch offices in Cincinnati, Ohio and 1 full-service office in Florence, Kentucky, which became offices of LCNB after the merger. The merger significantly increased LCNB’s existing presence in the Cincinnati market and expanded LCNB’s community banking franchise across the Ohio River into the Northern Kentucky market.

CNNB results of operations were included in LCNB's results beginning November 1, 2023.

Under the terms of the merger agreement, CNNB shareholders had the opportunity to elect to receive either 0.9274 shares of LCNB stock or $17.21 in cash for each share of CNNB common stock owned, subject to the limitation that 80% of the consideration be in the form of LCNB common stock and 20% of the consideration be in the form of cash. The fair value of the common stock issued as part of the consideration was determined on the basis of the closing price of LCNB's common stock on the acquisition date.






10

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 2 - BUSINESS COMBINATIONS (continued)

The following table summarizes the fair value of the total consideration transferred as a part of the CNNB acquisition and the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction (in thousands):

Consideration:
Cash consideration $9,475
Common stock (2,042,598 shares issued at $13.99 per share)
28,576
Fair value of total consideration transferred 38,051
Identifiable Assets Acquired:
Cash and cash equivalents 11,368 
Debt securities, available-for-sale 5,210 
Federal Home Loan Bank stock 7,508 
Loans, net 236,692 
Premises and equipment 2,767 
Operating lease right-of-use assets 64 
Core deposit and other intangibles 8,391 
Bank owned life insurance 4,413 
Deferred income taxes 4,451 
Other assets 12,896 
Total identifiable assets acquired 293,760 
Liabilities Assumed:
Deposits 210,532 
Short-term borrowings 55,999 
Long-term debt 5,963 
Operating lease liabilities 64 
Other liabilities 3,489 
Total liabilities assumed 276,047 
Total Identifiable Net Assets Acquired 17,713 
Goodwill Resulting From Merger $20,338 

The fair value and gross contractual amounts of non-PCD loans as of the acquisition date was $231.9 million and $258.6 million, respectively. LCNB recorded a provision for credit losses on these loans of $1,722,000.

As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. As such, any changes in the estimated fair value of assets, including acquired loans, will be recognized in the period the adjustment is identified. Goodwill increased by $50,000 during the first quarter 2024 primarily due to valuation adjustments to other assets.

11

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 2 - BUSINESS COMBINATIONS (continued)

The amount of goodwill recorded reflects LCNB's expansion in the Cincinnati market and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill will not be amortizable on LCNB's financial records and will not be deductible for tax purposes. Goodwill will be subject to an annual test for impairment and the amount impaired, if any, will be charged to expense at the time of impairment. The core deposit intangible will be amortized over the estimated weighted average economic life of the various core deposit types, which is ten years.

Direct expenses related to the CNNB acquisition totaled $477,000 during the three months ended March 31, 2024, were expensed as incurred, and are recorded as merger-related expenses in the consolidated statements of income.

Eagle Financial Bancorp, Inc.
On April 12, 2024, LCNB acquired Eagle Financial Bancorp, Inc. (“EFBI”), the holding company for EAGLE.bank. Under the terms of the definitive merger agreement, EFBI merged with and into LCNB Corp., immediately followed by the merger of EAGLE.bank with and into LCNB National Bank. EAGLE.bank operated three full-service banking offices in Cincinnati, Ohio, which became offices of LCNB after the merger. This transaction increases LCNB’s presence in the Cincinnati market.

Subject to the terms of the merger agreement, EFBI shareholders had the opportunity to elect to receive either 1.1401 shares of LCNB stock, $19.10 per share in cash for each share of EFBI common stock owned, or a combination thereof subject to at least 60%, but not more than 70%, of the shares of EFBI being exchanged for LCNB common stock. As of December 31, 2023, EFBI reported 1,342,275 shares of common stock outstanding, as well as 115,807 options with a weighted average strike price of $16.18 per share (each option carries that right to purchase one EFBI share). Any unexercised stock options of EFBI were canceled prior to the effective time of the merger in exchange for a cash payment per option equal to the difference between $19.10 and the exercise price of the option.

The following table summarizes the fair value of the total consideration transferred as a part of the EFBI acquisition (in thousands):

Consideration:
Cash consideration $10,256
Common stock (918,128 shares issued at $14.04 per share)
12,891
Fair value of total consideration transferred $23,147

Calculation of the fair value of the net assets acquired in this merger transaction is in process.

EFBI had approximately $174.3 million in assets, $140.4 million in net loans, $136.7 million of deposits, and $26.0 million in consolidated stockholders’ equity as of December 31, 2023.

Direct expenses related to the EFBI acquisition totaled $298,000 during the three months ended March 31, 2024, were expensed as incurred, and are recorded as merger-related expenses in the consolidated statements of income.
12

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)



NOTE 3 - INVESTMENT SECURITIES
 
The amortized cost and estimated fair value of debt securities at March 31, 2024 and December 31, 2023 are summarized as follows (in thousands):
 Amortized CostUnrealized GainsUnrealized LossesFair Value
March 31, 2024
Debt Securities, Available-for-Sale:
U.S. Treasury notes$74,308  6,502 67,806 
U.S. Agency notes88,929  8,339 80,590 
Corporate bonds7,450  824 6,626 
U.S. Agency mortgage-backed securities79,727 6 9,940 69,793 
Municipal securities:
Non-taxable4,638  235 4,403 
Taxable37,354  3,786 33,568 
 $292,406 6 29,626 262,786 
Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable$13,468 2 853 12,617 
Taxable3,283  389 2,894 
$16,751 2 1,242 15,511 
December 31, 2023
Debt Securities, Available-for-Sale:
U.S. Treasury notes$74,404  6,202 68,202 
U.S. Agency notes88,978  8,077 80,901 
Corporate Bonds7,450  916 6,534 
U.S. Agency mortgage-backed securities81,634 2 8,846 72,790 
Municipal securities:
Non-taxable7,416  245 7,171 
Taxable44,923 1 3,921 41,003 
 $304,805 $3 28,207 276,601 
Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable$13,580 4 872 12,712 
Taxable3,283  316 2,967 
$16,863 4 1,188 15,679 

The Company estimated the expected credit losses at March 31, 2024 and December 31, 2023 to be immaterial based on the composition of the securities portfolio.




13

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 3 - INVESTMENT SECURITIES (continued)


Information concerning debt securities with gross unrealized losses at March 31, 2024 and December 31, 2023, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
 Less than Twelve MonthsTwelve Months or Greater
 Fair ValueUnrealized LossesFair ValueUnrealized Losses
March 31, 2024
Available-for-Sale:
U.S. Treasury notes$1,489 7 66,317 6,495 
U.S. Agency notes  80,590 8,339 
Corporate bonds729 21 5,897 803 
U.S. Agency mortgage-backed securities  69,301 9,940 
Municipal securities:
Non-taxable  4,403 235 
Taxable  33,447 3,786 
 $2,218 28 259,955 29,598 
Held-to-Maturity:
Municipal securities:
  Non-taxable$  11,900 853 
  Taxable  2,894 389 
$  14,794 1,242 
December 31, 2023
Available-for-Sale:
U.S. Treasury notes$  68,202 6,202 
U.S. Agency notes  80,901 8,077 
Corporate Bonds734 16 5,800 900 
U.S. Agency mortgage-backed securities  72,287 8,846 
Municipal securities:
Non-taxable1,540 10 5,631 235 
Taxable  40,392 3,921 
 $2,274 26 273,213 28,181 
Held-to-Maturity:
Municipal securities:
  Non-taxable$6,012 476 5,975 396 
  Taxable  2,966 316 
$6,012 476 8,941 712 

At March 31, 2024, LCNB’s securities portfolio consisted of 168 securities, 161 of which were in an unrealized loss position. At December 31, 2023, LCNB's securities portfolio consisted of 207 securities, 176 of which were in an unrealized loss position. After considering the issuers of the securities, LCNB management determined that that the unrealized losses were due to changing interest rate environments. As LCNB had no intent at March 31, 2024 to sell its debt securities before recovery of their cost basis and as it was more likely than not that it will not be required to sell its debt securities before recovery of the cost basis, no unrealized losses were deemed to represent credit losses.

14

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 3 - INVESTMENT SECURITIES (continued)


Debt securities with a market value of $172.4 million and $124.4 million at March 31, 2024 and December 31, 2023, respectively, were pledged to secure public deposits and for other purposes required or as permitted by law.

Excluding holdings in U.S. Treasury securities and U.S. Government Agencies, there were no investments in securities of any issuer that exceeded 10% of LCNB's consolidated shareholders' equity at March 31, 2024.

Contractual maturities of debt securities at March 31, 2024 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.
 Available-for-SaleHeld-to-Maturity
Amortized CostFair ValueAmortized CostFair Value
Due within one year$15,909 15,531 1,469 1,449 
Due from one to five years163,735 148,059 1,319 1,281 
Due from five to ten years33,035 29,403 2,849 2,699 
Due after ten years  11,114 10,082 
 212,679 192,993 16,751 15,511 
U.S. Agency mortgage-backed securities79,727 69,793   
 $292,406 262,786 16,751 15,511 

Certain information concerning the sale of debt securities available-for-sale for the three months ended March 31, 2024 and 2023 was as follows (in thousands):
 Three Months Ended 
March 31,
 20242023
Proceeds from sales$9,615  
Gross realized gains  
Gross realized losses214  

Realized gains or losses from the sale of securities are computed using the specific identification method.

Equity securities with a readily determinable fair value are carried at fair value, with changes in fair value recognized in other operating income in the consolidated condensed statements of income. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer. LCNB was not aware of any impairment or observable price change adjustments that needed to be made at March 31, 2024 on its investments in equity securities without a readily determinable fair value.

The amortized cost and estimated fair value of equity securities with a readily determinable fair value at March 31, 2024 and December 31, 2023 are summarized as follows (in thousands):
March 31, 2024December 31, 2023
 Amortized
Cost
Fair
 Value
Amortized
Cost
Fair
 Value
Mutual Funds$1,423 1,236 1,415 1,240 
Equity Securities10 98 10 96 
Total equity securities with a readily determinable fair value$1,433 1,334 1,425 1,336 
15

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 3 - INVESTMENT SECURITIES (continued)


Certain information concerning changes in the fair value of equity securities with a readily determinable fair value for the three and three months ended March 31, 2024 and 2023 were as follows (in thousands):
Three Months Ended
March 31,
20242023
Net losses recognized during the period on equity securities$(10)(31)
Less net losses recognized during the period on equity securities sold during the period (61)
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at period end$(10)30 


NOTE 4 - LOANS
 
Major classifications of loans at March 31, 2024 and December 31, 2023 were as follows (in thousands):
March 31, 2024December 31, 2023
Commercial & industrial$122,357 120,541 
Commercial, secured by real estate:
Owner occupied 208,255 206,705 
Non-owner occupied 507,109 501,108 
Farmland38,411 37,367 
Multi-family 240,411 240,033 
Construction loans secured by 1-4 family dwellings 11,674 9,058 
Construction loans secured by other real estate 91,798 111,373 
Residential real estate:
Secured by senior liens on 1-4 family dwellings 343,014 402,026 
Secured by junior liens on 1-4 family dwellings 19,469 19,999 
Home equity line-of-credit loans 36,930 38,579 
Consumer24,159 25,600 
Agricultural12,694 11,000 
Other loans, including deposit overdrafts73 82 
  Loans, gross1,656,354 1,723,471 
Less allowance for credit losses10,557 10,525 
Loans, net$1,645,797 1,712,946 

Loans in the above table are shown net of deferred origination fees and costs. Deferred origination fees, net of related costs, were $583,000 and $181,000 at March 31, 2024 and December 31, 2023, respectively.








16

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 4 – LOANS (continued)

Non-accrual loans by class of receivable as of March 31, 2024 and December 31, 2023 were as follows (in thousands):
March 31, 2024December 31, 2023
Non-accrual Loans with no Allowance for Credit LossesTotal Non-accrual LoansInterest Income RecognizedNon-accrual Loans with no Allowance for Credit LossesTotal Non-accrual LoansInterest Income Recognized
Commercial & industrial$      
Commercial, secured by real estate:
Owner occupied      
Non-owner occupied 2,642     
Farmland52 52 16 51 51 26 
Multi-family      
Construction loans secured by 1-4 family dwellings      
Construction loans secured by other real estate      
Residential real estate:
Secured by senior liens on 1-4 family dwellings25 25 1 29 29  
Secured by junior liens on 1-4 family dwellings      
Home equity line-of-credit loans      
Consumer      
Agricultural      
Total$77 2,719 17 80 80 26 

One commercial loan secured by real estate, non-owner occupied, was added to the non-accrual classification during the first quarter of 2024. Accrued interest reversed and charged against interest income for these loans totaled approximately $27,000.

The ratio of non-accrual loans to total loans outstanding at March 31, 2024 and December 31, 2023 was 0.16% and 0.00%, respectively.

ALLOWANCE FOR CREDIT LOSSES
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

During the first quarter of 2023, the Company adopted ASU No. 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023. See Note 1 - Basis of Presentation - Adoption of New Accounting Pronouncements for a summary of the impact adoption of ASU No. 2016-13 had on LCNB's ACL, retained earnings, and deferred taxes.

QUANTITATIVE CONSIDERATIONS
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:
Forecast model - For each portfolio segment, an LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized peer FFIEC Call Report data for all pools. The Company plans to update the LDA when materially relevant.
17

LCNB CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)

NOTE 4 – LOANS (continued)

Probability of default – PD is the probability that an asset will be in default within a given time frame. The Company has defined default as when a charge-off has occurred, a loan goes to non-accrual status, a loan is greater than 90 days past due, or financial difficulty modification status change. The forecast model is utilized to estimate PDs.
Loss given default – LGD is the percentage of the asset not expected to be collected due to default. The LGD is derived from company specific and peer loss data.
Prepayments and curtailments – Prepayments and curtailments are calculated based on the Company’s own data. This analysis is updated when materially relevant.
Forecast and reversion – the Company as of December 31, 2023 established a two-quarter reasonable and supportable forecast period with a six-quarter straight line reversion to the long-term historical average. As of March 31, 2024, the Company established a three-quarter reasonable and supportable forecast period with a seven-quarter straight line reversion to the long-term historical average because management believes the economy has shown more stability and resiliency than previously assumed. Extending the forecast and reversion periods from previous quarters has differing effects on pools based on the economic indicators used and the relation of the selected forecast range to the historical average. For example, the historical average for the bank’s unemployment indicator is 5.85%, which is higher than the forecasted range utilized as of March 31, 2024. The extended forecast and reversion period ultimately decreases the reserve associated with the unemployment factor when compared to the historical average.
The historical averages for LCNB’s economic indicators are unemployment – 5.85%, change in Coincident Economic Activity – 1.83%, change in Commercial Real Estate Price Indexes – 5.50%, and change in Home Price Index – 3.42%
Economic forecast – the Company utilizes a third party to provide economic forecasts under various scenarios, which are assessed against economic indicators and management’s observations in the market. As of December 31, 2023, the Company selected a forecast which forecasts unemployment between 4.21% and 4.55%, the change in Coincident Economic Activity between 0.62% and 1.91%, the change in Commercial Real Estate Price Indexes between -8.56% and -6.64%, and the change in the Home Price Index between 0.09% and 4.47% during the forecast periods. As of March 31, 2024, the Company selected a forecast which forecasts unemployment between 4.45% and 5.14%, the change in Coincident Economic Activity between -0.53% and 0.47%, the change in Commercial Real Estate Price Indexes between -10.17% and -3.82%, and the change in the Home Price Index between -3.92% and 2.19% during the forecast periods. Management believes that the resulting quantitative reserve appropriately balances economic indicators with identified risks.

QUALITATIVE CONSIDERATIONS
In addition to the quantitative model, management considers the need for qualitative adjustment for risks not considered in the DCF. Factors that are considered by management in determining loan collectability and the appropriate level of the ACL are listed b