Glossary of Abbreviations and Acronyms

 

ACL		Allowance for Credit Losses
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Bank		LCNB National Bank
CECL		Current expected credit losses
CNNB		Cincinnati Bancorp, Inc.
Company		LCNB Corp. and its consolidated subsidiaries as a whole
DCF		Discounted Cash Flow
EFBI		Eagle Financial Bancorp, Inc.
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FFIEC		Financial Institutions Examination Council
FHLB		Federal Home Loan Bank
FICO		Fair Isaac Corporation
FOMC		Federal Open Market Committee of the Federal Reserve System
FRB		Federal Reserve Bank
GAAP		Generally Accepted Accounting Principles
ICS		Insured Cash Sweep
IRA		Individual Retirement Account
LCNB		LCNB Corp. and its consolidated subsidiaries as a whole
LDA		Loss Driver Analysis
LGD		Loss Given Default
OAEM		Other Assets Especially Mentioned
PCD		Purchased Credit Deteriorated
PD		Probability of Default
SEC		Securities and Exchange Commission

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1.         Financial Statements

 

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

 

 

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

 

 

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

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

 

 

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

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

 

 

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands, except per share data)

(Unaudited)

 

 

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

 

 

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

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

 

 

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 condensed 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 10-01.

 

The consolidated condensed balance sheet as of December 31, 2025 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, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026. 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 2025 Annual Report on Form 10-K filed with the SEC.

 

Certain prior period amounts have been reclassified to conform to the current year presentation. Specifically, certain prior‑period income statement amounts previously classified as other non‑interest expense have been reclassified to computer maintenance and supplies expense to align with the current year’s presentation. These reclassifications do not impact the reported results of operations.

 

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”

ASU No. 2023-09 was issued in December 2023 and became effective for LCNB on January 1, 2025. The amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: (1) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and (2) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: (1) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign; and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.  Adoption of ASU No. 2023-09 did not have a material impact to the financial statements of the Company.

 

ASU 2024-01 “Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards,”

ASU No. 2024-01 was issued in March 2024 and became effective for LCNB on January 1, 2025. It clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and, therefore, is within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle. Adoption of ASU No. 2024-01 did not have a material impact to the financial statements of the Company.

 

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 2025-08 “Financial Instruments — Credit Losses (Topic 326): Purchased Loans.”

In  November 2025, the FASB issued ASU 2025-08 Financial Instruments—Credit Losses (Topic 326) — Purchased Loans (the Update). The amendments in this Update expand the population of acquired financial assets subject to the gross-up approach in Topic 326. In accordance with the amendments in this Update, loans (excluding credit cards) acquired without credit deterioration and deemed “seasoned” are purchased seasoned loans and accounted for using the gross-up approach at acquisition. All non-PCD (purchased financial asset with credit deterioration) loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-PCD loans (excluding credit cards) are seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. The amendments in this Update are effective for all entities for annual reporting periods beginning after  December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. Management is currently evaluating the Update and does not expect adoption of the Update to have a material effect on the Company’s financial position or results of operations.

        

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NOTE 2 - INVESTMENT SECURITIES

 

The amortized cost and estimated fair value of debt securities at March 31, 2026 and December 31, 2025 are summarized as follows (in thousands):

 

		Amortized Cost				Unrealized Gains				Unrealized Losses				Allowance for Credit Losses				Fair Value
March 31, 2026
Debt Securities, Available-for-Sale:
U.S. Treasury notes		$	52,614				—				2,142				—				50,472
U.S. Agency notes			74,948				6				2,757				—				72,197
Corporate bonds			12,019				64				440				—				11,643
U.S. Agency mortgage-backed securities			65,715				1				5,402				—				60,314
Municipal securities:
Non-taxable			3,157				—				181				—				2,976
Taxable			32,905				—				1,757				—				31,148
		$	241,358				71				12,679				—				228,750
		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value				Allowance for Credit Losses
Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable		$	13,001				—				715				12,286				8
Taxable			2,969				—				337				2,632				2
		$	15,970				—				1,052				14,918				10
		Amortized Cost				Unrealized Gains				Unrealized Losses				Allowance for Credit Losses				Fair Value
December 31, 2025
Debt Securities, Available-for-Sale:
U.S. Treasury notes		$	52,626				—				2,168				—				50,458
U.S. Agency notes			75,299				38				2,933				—				72,404
Corporate Bonds			12,013				64				344				—				11,733
U.S. Agency mortgage-backed securities			68,085				3				5,571				—				62,517
Municipal securities:
Non-taxable			4,191				—				186				—				4,005
Taxable			32,898				1				1,745				—				31,154
		$	245,112				106				12,947				—				232,271
		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value				Allowance for Credit Losses
Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable		$	13,122				18				666				12,474				9
Taxable			2,969				—				319				2,650				2
		$	16,091				18				985				15,124				11

 

The amortized cost of debt securities in the above table excludes accrued interest of $1.06 million and $895 thousand at March 31, 2026 and December 31, 2025, respectively, that is recorded in other assets on the consolidated condensed balance sheets.

 

The Company estimated the expected credit losses at March 31, 2026 and December 31, 2025 to be immaterial based on the composition of the securities portfolio. 

 

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NOTE 2 - INVESTMENT SECURITIES (continued)

 

Information concerning debt securities with gross unrealized losses at March 31, 2026 and December 31, 2025, 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
March 31, 2026
Available-for-Sale:
U.S. Treasury notes		$	—				—				50,472				2,142
U.S. Agency notes			—				—				67,975				2,757
Corporate bonds			4,282				168				4,528				272
U.S. Agency mortgage-backed securities			6,651				31				53,481				5,371
Municipal securities:
Non-taxable			—				—				2,976				181
Taxable			898				2				30,250				1,755
		$	11,831				201				209,682				12,478
Held-to-Maturity:
Municipal securities:
Non-taxable		$	2,542				8				9,358				707
Taxable			—				—				2,632				337
		$	2,542				8				11,990				1,044
December 31, 2025
Available-for-Sale:
U.S. Treasury notes		$	—				—				50,458				2,168
U.S. Agency notes			—				—				68,169				2,933
Corporate Bonds			2,119				81				5,237				263
U.S. Agency mortgage-backed securities			6,785				50				55,533				5,521
Municipal securities:
Non-taxable			—				—				2,975				186
Taxable			—				—				30,252				1,745
		$	8,904				131				212,624				12,816
Held-to-Maturity:
Municipal securities:
Non-taxable		$	1,364				13				8,608				653
Taxable			—				—				2,650				319
		$	1,364				13				11,258				972

 

At March 31, 2026, LCNB’s securities portfolio consisted of 152 securities, 143 of which were in an unrealized loss position. At December 31, 2025, LCNB's securities portfolio consisted of 153 securities, 139 of which were in an unrealized loss position.

 

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NOTE 2 - INVESTMENT SECURITIES (continued)

 

Each quarter, LCNB performs an analysis to determine if any of the unrealized losses on available-for-sale debt securities are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments. The assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and LCNB's ability and intent to hold the security for a period of time sufficient for a recovery in value. LCNB also considers the extent to which the securities are issued by the federal government or its agencies and any guarantee of issued amounts by those agencies. The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years. No credit losses were determined to be present as of March 31, 2026, as there was no credit quality deterioration noted. Therefore, no provision for credit losses on available-for-sale debt securities was recognized for the first quarter of 2026.

 

Debt securities with a market value of $156.9 million and $121.4 million at March 31, 2026 and December 31, 2025, 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, 2026.

 

Contractual maturities of debt securities at March 31, 2026 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.

 

		Available-for-Sale								Held-to-Maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due within one year		$	31,160				30,801				279				275
Due from one to five years			121,031				115,076				885				835
Due from five to ten years			23,452				22,559				8,024				7,632
Due after ten years			—				—				6,782				6,176
			175,643				168,436				15,970				14,918
U.S. Agency mortgage-backed securities			65,715				60,314				—				—
		$	241,358				228,750				15,970				14,918

 

There were no sales of debt securities available-for-sale for the three months ended March 31, 2026 and 2025.

 

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

 

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NOTE 2 - INVESTMENT SECURITIES (continued)

 

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, 2026 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, 2026 and December 31, 2025 are summarized as follows (in thousands):

 

		March 31, 2026								December 31, 2025
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Mutual Funds		$	1,501				1,348				1,491				1,345
Equity Securities			10				74				10				88
Total equity securities with a readily determinable fair value		$	1,511				1,422				1,501				1,433

 

Certain information concerning changes in the fair value of equity securities with a readily determinable fair value for the three months ended March 31, 2026 and 2025 were as follows (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025
Net gains (losses) recognized during the period on equity securities		$	(22	)			14
Less net gains (losses) recognized during the period on equity securities sold during the period			—				—
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at period end		$	(22	)			14

 

LCNB is a member of the FHLB system and its regional FRB. Members are required to own a certain amount of stock based on predetermined formulas. FHLB and FRB stock are carried at cost, which is equal to par value, and periodically evaluated for impairment based on ultimate recovery of par value.

 

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NOTE 3 - LOANS

 

Major classifications of loans at March 31, 2026 and December 31, 2025 were as follows (in thousands):

 

		March 31, 2026				December 31, 2025
Commercial & industrial		$	100,567				104,105
Commercial, secured by real estate:
Owner occupied			225,168				219,273
Non-owner occupied			488,249				505,182
Farmland			35,065				35,561
Multi-family			252,794				253,051
Construction			87,474				85,144
Residential real estate:
Secured by senior liens on 1-4 family dwellings			401,540				395,552
Secured by junior liens on 1-4 family dwellings			20,311				20,690
Home equity line-of-credit loans			55,782				54,109
Consumer			15,859				16,955
Agricultural			14,592				15,699
Other loans, including deposit overdrafts			273				210
Loans, gross			1,697,674				1,705,531
Less allowance for credit losses			13,372				13,704
Loans, net		$	1,684,302				1,691,827

 

Loans in the above table are shown net of deferred origination fees and costs. Deferred origination fees, net of related costs, were $1.1 million at March 31, 2026 and December 31, 2025, respectively. Accrued interest receivable of $7.2 million and $7.1 million are excluded from the balances above as of March 31, 2026 and December 31, 2025, respectively, and are recorded in interest receivable in the consolidated condensed balance sheets.

   

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NOTE 3 – LOANS (continued)

 

Non-accrual loans by class of receivable as of March 31, 2026 and December 31, 2025 were as follows (in thousands):

 

		March 31, 2026								December 31, 2025
		Non-accrual								Non-accrual
		Loans with no				Total				Loans with no				Total
		Allowance for				Non-accrual				Allowance for				Non-accrual
		Credit Losses				Loans				Credit Losses				Loans
Commercial & industrial		$	—				2,752				—				1,391
Commercial, secured by real estate:
Owner occupied			—				—				—				—
Non-owner occupied			—				—				—				—
Farmland			—				—				—				—
Multi-family			—				—				—				—
Construction			—				—				—				—
Residential real estate:
Secured by senior liens on 1-4 family dwellings			47				377				52				384
Secured by junior liens on 1-4 family dwellings			—				—				—				—
Home equity line-of-credit loans			—				—				—				—
Consumer			18				18				19				19
Agricultural			—				—				—				—
Total		$	65				3,147				71				1,794

 

Interest income recognized on nonaccrual loans totaled approximately $20 thousand and $1 thousand during the three months ended  March 31, 2026 and 2025, respectively. Accrued interest reversed and charged against interest income for these loans totaled approximately $146 thousand and $9 thousand during the three months ended  March 31, 2026 and 2025, respectively.

 

The ratio of non-accrual loans to total loans outstanding at March 31, 2026 and December 31, 2025 was 0.19% and 0.11%, 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.

 

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 and was last updated for the September 30, 2025 ACL calculation based on relevant information available at June 30, 2025.

 

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NOTE 3 – 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, or a loan is greater than 90 days past due. 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 – There were no changes to the Company's forecast or reversion periods during the first quarter of 2026; as of March 31, 2026, the Company continues to utilize a four-quarter reasonable and supportable forecast period with a six-quarter straight line reversion to the long-term historical average.

•

Economic forecast – The Company utilizes Moody's to provide economic forecasts under various scenarios, which are assessed against economic indicators and management’s observations in the market. As of March 31, 2026, the Company selected a forecasted data model which projects unemployment between 5.01% and 5.76%, the change in Coincident Economic Activity between 0.36% and 1.06%, and the change in the Home Price Index between -2.88% and -2.68% during the forecast periods. Management believes that the resulting quantitative reserve appropriately balances economic indicators with identified risks. As of December 31, 2025, the Company selected a forecast model which projects unemployment between 5.45% and 6.22%, the change in Coincident Economic Activity between 0.07% and 0.58%, and the change in the Home Price Index between -3.30% and 1.24% during the forecast periods. The historical averages for LCNB’s economic indicators are: unemployment, 5.69%; change in Coincident Economic Activity, 1.96%; and change in Home Price Index, 2.82%.

 

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 below:

 

•

Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the Company operates that affect the collectability of financial assets;

•

The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics;

•

Model risk including statistical risk, reversion risk, timing risk, and model limitation risk;

•

Changes in the nature and volume of the portfolio and terms of loans; and

•

Lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries.

 

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NOTE 3 – LOANS (continued)

 

The following table presents activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2026 and 2025 (in thousands):

 

																						Other Loans,
						Commercial,																Including
		Commercial				Secured by				Residential												Deposit
		& Industrial				Real Estate				Real Estate				Consumer				Agricultural				Overdrafts				Total
Three Months Ended March 31, 2026
Balance, beginning of period		$	2,463				6,514				4,492				188				30				17				13,704
Provision for (recovery of) credit losses			2,362				(112	)			77				62				(8	)			17				2,398
Losses charged off			(2,628	)			—				(2	)			(90	)			—				(46	)			(2,766	)
Recoveries			—				—				—				15				—				21				36
Balance, end of period		$	2,197				6,402				4,567				175				22				9				13,372
Ratio of net charge-offs to average loans			10.41	%			—	%			—	%			1.85	%			—	%			41.98	%			0.65	%

 

																						Other Loans,
						Commercial,																Including
		Commercial				Secured by				Residential												Deposit
		& Industrial				Real Estate				Real Estate				Consumer				Agricultural				Overdrafts				Total
Three Months Ended March 31, 2025
Balance, beginning of period		$	1,573				6,537				3,634				220				24				13				12,001
Provision for (recovery of) credit losses			(266	)			293				91				1				(4	)			47				162
Losses charged off			—				—				—				—				—				(53	)			(53	)
Recoveries			—				—				4				—				—				10				14
Balance, end of period		$	1,307				6,830				3,729				221				20				17				12,124
Ratio of net charge-offs to average loans			—	%			—	%			—	%			—	%			—	%			111.79	%			0.01	%

 

 

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NOTE 3 – LOANS (continued)

 

The ratio of the allowance for credit losses for loans to total loans at  March 31, 2026 and December 31, 2025 was 0.79% and 0.80%, respectively.

 

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, less costs to sell, and the amortized cost basis of the loan as of the measurement date.

 

The following table presents the carrying value and related allowance of collateral dependent individually evaluated loans by class segment at the dates indicated (in thousands):

 

		March 31, 2026								December 31, 2025
		Amortized				Related				Amortized				Related
		Cost Basis				Allowance				Cost Basis				Allowance
Commercial & industrial		$	—				—				—				—
Commercial, secured by real estate:
Owner occupied			—				—				—				—
Non-owner occupied			—				—				—				—
Farmland			—				—				—				—
Multi-family			—				—				—				—
Construction			—				—				—				—
Residential real estate:
Secured by senior liens on 1-4 family dwellings			977				22				1,024				23
Secured by junior liens on 1-4 family dwellings			—				—				37				—
Home equity line-of-credit loans			42				—				—				—
Consumer			—				—				—				—
Agricultural			—				—				—				—
Other loans, including deposit overdrafts			—				—				—				—
Total		$	1,019				22				1,061				23

 

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NOTE 3 – LOANS (continued)

 

The risk characteristics of LCNB's material loan portfolio segments were as follows:

 

Commercial & Industrial Loans. LCNB’s commercial & industrial loan portfolio consists of loans for a variety of purposes, including, for example, loans to fund working capital requirements (such as inventory and receivables financing) and purchases of machinery and equipment.  LCNB offers a variety of commercial & industrial loan arrangements, including term loans, balloon loans, and lines of credit.  Commercial & industrial loans can have a fixed or variable rate, with maturities ranging from one to ten years.  Commercial & industrial loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. Commercial & industrial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of the business.  Collateral, when obtained, may include liens on furniture, fixtures, equipment, inventory, receivables, or other assets.  As a result, such loans involve complexities, variables, and risks that require thorough underwriting and more robust servicing than other types of loans.

 

Commercial, Secured by Real Estate Loans.  Commercial real estate loans include loans secured by a variety of commercial, retail and office buildings, religious facilities, hotels, multifamily (more than four-family) residential properties, construction and land development loans, and other land loans. Mortgage loans secured by owner-occupied agricultural property are included in this category.  Commercial real estate loan products generally amortize over five to twenty-five years and are payable in monthly principal and interest installments.  Some have balloon payments due within one to ten years after the origination date.  The majority have adjustable interest rates with adjustment periods ranging from one to ten years, some of which are subject to established “floor” interest rates.

 

Commercial real estate loans are underwritten based on the ability of the property, in the case of income-producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon global debt service, collateral value, financial strength and liquidity of any and all guarantors, and other factors. Commercial real estate loans are generally originated with a 75% to 85% maximum loan to appraised value ratio, depending upon borrower occupancy rates.

 

Residential Real Estate Loans.  Residential real estate loans include loans secured by first or second mortgage liens on one to four-family residential properties.  Home equity lines of credit are also included in this category.  First and second mortgage loans are generally amortized over five to thirty years with monthly principal and interest payments.  Home equity lines of credit generally have a five-year or less draw period with interest only payments followed by a repayment period with monthly payments based on the amount outstanding.  LCNB offers both fixed and adjustable-rate mortgage loans.  Adjustable-rate loans are available with adjustment periods ranging between one to fifteen years and adjust according to an established index plus a margin, subject to certain floor and ceiling rates.  A substantial majority of home equity lines of credit have a variable rate of interest based on the Wall Street Journal prime rate plus a margin.

 

Residential real estate loans are underwritten primarily based on the borrower’s ability to repay, prior credit history, and the value of the collateral.  LCNB generally requires private mortgage insurance for first mortgage loans that have a loan to appraised value ratio of greater than 80% or may require other credit enhancements for second lien mortgage loans.

 

Consumer Loans.  LCNB’s portfolio of consumer loans generally includes secured and unsecured loans to individuals for household, family and other personal expenditures.  Secured loans include loans to fund the purchase of automobiles, recreational vehicles, boats, and similar acquisitions. Consumer loans made by LCNB generally have fixed rates and terms ranging up to 84 months, depending upon the nature of the collateral, size of the loan, and other relevant factors. Consumer loans generally have higher interest rates but pose additional risks of collectability and loss when compared to certain other types of loans. Collateral, if present, is generally subject to damage, wear, and depreciation.  The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.

 

Agricultural Loans.  LCNB’s portfolio of agricultural loans includes loans for financing agricultural production and for financing the purchase of equipment used in the production of agricultural products.  LCNB’s agricultural loans are generally secured by farm machinery, livestock, crops, vehicles, or other agricultural-related collateral.

 

Other Loans, Including Deposit Overdrafts. Other loans may include loans that do not fit in any of the other categories, but the category is primarily composed of overdrafts from transaction deposit accounts. Overdraft payments are recorded as a recovery and overdrafts are generally written off after 60 days with a negative balance.

 

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NOTE 3 – LOANS (continued)

 

LCNB’s management monitors the credit quality of its loans on an ongoing basis. This monitoring includes annual reviews for loans with a principal balance greater than $1 million and bi-annual reviews for loans with a principal balance of more than $500 thousand through $1 million. LCNB also has a loan grade monitoring system in place to track and report loan grades and classifications, enabling the identification and management of non-performing loans. ​ Major factors used in determining loan grades vary based on the nature of the loan, but commonly include factors such as debt service coverage, internal cash flow, liquidity, leverage, operating performance, debt burden, FICO scores, occupancy, interest rate sensitivity, and expense burden. ​Commercial real estate loans rated OAEM or worse are reviewed at least quarterly for credit deterioration.

 

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 as 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 generally performs a classification of assets review, including the regulatory classification of assets, on an ongoing basis. The results of the classification of assets review are validated annually by an independent third-party loan review firm. In the event of a difference in rating or classification between those assigned by the internal and external resources, the Company will utilize the more critical or conservative rating or classification. Loans with regulatory classifications are presented monthly to the Board of Directors.

 

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NOTE 3 – LOANS (continued)

 

The following table presents the amortized cost basis of loans by vintage and credit quality indicators at March 31, 2026 and December 31, 2025 (in thousands):

 

		Term Loans by Origination Year
																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
		2026				2025				2024				2023				2022				Prior				Cost Basis				to Term				Total
March 31, 2026
Commercial & industrial
Pass		$	5,080				15,365				12,464				8,990				18,326				17,545				19,434				—				97,204
OAEM			—				92				143				—				—				—				—				—				235
Substandard			—				—				—				56				1,722				1,350				—				—				3,128
Doubtful			—				—				—				—				—				—				—				—				—
Total			5,080				15,457				12,607				9,046				20,048				18,895				19,434				—				100,567
Gross charge-offs (1)			—				—				1,301				—				1,327				—				—				—				2,628
Commercial, secured by real estate
Pass			17,655				73,365				52,900				115,249				198,673				487,588				107,361				197				1,052,988
OAEM			—				—				—				—				1,800				8,504				—				—				10,304
Substandard			—				—				—				2,411				19,399				3,648				—				—				25,458
Doubtful			—				—				—				—				—				—				—				—				—
Total			17,655				73,365				52,900				117,660				219,872				499,740				107,361				197				1,088,750
Gross charge-offs (1)			—				—				—				—				—				—				—				—				—
Residential real estate
Pass			20,812				40,367				30,123				49,136				72,303				206,523				54,063				—				473,327
OAEM			—				—				—				—				—				1,014				—				—				1,014
Substandard			—				—				—				639				187				2,212				254				—				3,292
Doubtful			—				—				—				—				—				—				—				—				—
Total			20,812				40,367				30,123				49,775				72,490				209,749				54,317				—				477,633
Gross charge-offs (1)			—				—				—				2				—				—				—				—				2
Consumer
Pass			1,143				5,103				3,476				2,548				2,002				1,494				50				—				15,816
OAEM			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				13				22				8				—				—				43
Doubtful			—				—				—				—				—				—				—				—				—
Total			1,143				5,103				3,476				2,561				2,024				1,502				50				—				15,859
Gross charge-offs (1)			—				—				—				66				24				—				—				—				90
Agricultural
Pass			50				2,004				50				1,136				189				215				10,948				—				14,592
OAEM			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Total			50				2,004				50				1,136				189				215				10,948				—				14,592
Gross charge-offs (1)			—				—				—				—				—				—				—				—				—
Other
Pass			—				—				—				—				—				—				273				—				273
OAEM			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Total			—				—				—				—				—				—				273				—				273
Gross charge-offs (1)			—				—				—				—				—				—				46				—				46
Total loans		$	44,740				136,296				99,156				180,178				314,623				730,101				192,383				197				1,697,674

 

(1) - for the three months ended March 31, 2026.

 

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NOTE 3 – LOANS (continued)

 

		Term Loans by Origination Year
																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
		2025				2024				2023				2022				2021				Prior				Cost Basis				to Term				Total
December 31, 2025
Commercial & industrial
Pass		$	15,763				12,931				9,383				20,832				14,842				6,225				16,190				—				96,166
OAEM			95				148				—				611				628				1,189				222				—				2,893
Substandard			—				—				62				2,919				—				195				406				73				3,655
Doubtful			—				1,391				—				—				—				—				—				—				1,391
Total			15,858				14,470				9,445				24,362				15,470				7,609				16,818				73				104,105
Gross charge-offs (2)			—				—				—				—				—				—				—				—				—
Commercial, secured by real estate
Pass			73,115				51,350				117,825				221,380				147,240				352,335				98,073				—				1,061,318
OAEM			—				—				—				4,947				4,254				6,602				—				—				15,803
Substandard			—				—				2,418				12,508				1,451				4,546				—				167				21,090
Doubtful			—				—				—				—				—				—				—				—				—
Total			73,115				51,350				120,243				238,835				152,945				363,483				98,073				167				1,098,211
Gross charge-offs (2)			—				—				—				—				—				110				—				—				110
Residential real estate
Pass			42,199				31,209				52,824				73,538				80,450				133,502				52,488				—				466,210
OAEM			—				—				—				—				192				855				—				—				1,047
Substandard			—				—				643				188				277				1,864				122				—				3,094
Doubtful			—				—				—				—				—				—				—				—				—
Total			42,199				31,209				53,467				73,726				80,919				136,221				52,610				—				470,351
Gross charge-offs (2)			—				—				27				—				—				31				—				—				58
Consumer
Pass			5,598				3,954				3,047				2,254				1,305				683				54				—				16,895
OAEM			—				—				—				—				—				—				—				—				—
Substandard			—				—				15				27				5				13				—				—				60
Doubtful			—				—				—				—				—				—				—				—				—
Total			5,598				3,954				3,062				2,281				1,310				696				54				—				16,955
Gross charge-offs (2)			—				18				—				4				10				2				—				—				34
Agricultural
Pass			2,285				51				1,246				224				54				199				11,640				—				15,699
OAEM			—								—				—				—				—				—				—				—
Substandard			—								—				—				—				—				—				—				—
Doubtful			—								—				—				—				—				—				—				—
Total			2,285				51				1,246				224				54				199				11,640				—				15,699
Gross charge-offs (2)			—				—				—				—				57				—				—				—				57
Other
Pass			—				—				—				—				—				—				210				—				210
OAEM			—				—				—				—				—				—				—				—				—
Substandard			—				—				—				—				—				—				—				—				—
Doubtful			—				—				—				—				—				—				—				—				—
Total			—				—				—				—				—				—				210				—				210
Gross charge-offs (2)			—				—				—				—				—				—				206				—				206
Total loans		$	139,055				101,034				187,463				339,428				250,698				508,208				179,405				240				1,705,531

 

(2) - for the year ended December 31, 2025.

 

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NOTE 3 – LOANS (continued)

 

A loan portfolio aging analysis by class segment at March 31, 2026 and December 31, 2025 is as follows (in thousands):

 

																										90 Days
										90 Days																or More
		30-59 Days				60-89 Days				or More				Total								Total Loans				Past Due
		Past Due				Past Due				Past Due				Past Due				Current				Receivable				and Accruing
March 31, 2026
Commercial & industrial		$	107				—				—				107				100,460				100,567				—
Commercial, secured by real estate:
Owner occupied			85				—				—				85				225,083				225,168				—
Non-owner occupied			—				2,411				—				2,411				485,838				488,249				—
Farmland			228				—				—				228				34,837				35,065				—
Multi-family			3,106				—				—				3,106				249,688				252,794				—
Construction			—				—				—				—				87,474				87,474				—
Residential real estate:
Secured by senior liens on 1-4 family dwellings			1,371				390				421				2,182				399,358				401,540				75
Secured by junior liens on 1-4 family dwellings			184				—				—				184				20,127				20,311				—
Home equity line-of-credit loans			195				—				42				237				55,545				55,782				42
Consumer			29				—				19				48				15,811				15,859				19
Agricultural			—				—				—				—				14,592				14,592				—
Other			273				—				—				273				—				273				—
Total		$	5,578				2,801				482				8,861				1,688,813				1,697,674				136
December 31, 2025
Commercial & industrial		$	74				—				—				74				104,031				104,105				—
Commercial, secured by real estate:
Owner occupied			—				—				—				—				219,273				219,273				—
Non-owner occupied			2,418				—				—				2,418				502,764				505,182				—
Farmland			—				—				—				—				35,561				35,561				—
Multi-family			—				—				—				—				253,051				253,051				—
Construction			72				—				—				72				85,072				85,144				—
Residential real estate
Secured by senior liens on 1-4 family dwellings			1,220				360				838				2,418				393,134				395,552				505
Secured by junior liens on 1-4 family dwellings			47				—				—				47				20,643				20,690				—
Home equity line-of-credit loans			176				122				11				309				53,800				54,109				11
Consumer			29				—				15				44				16,911				16,955				15
Agricultural			—				—				—				—				15,699				15,699				—
Other			210				—				—				210				—				210				—
Total		$	4,246				482				864				5,592				1,699,939				1,705,531				531

 

Residential consumer mortgage loans secured by residential real estate in the process of foreclosure totaled $118 and $33 thousand at March 31, 2026 and  December 31, 2025, respectively.

 

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NOTE 3 – LOANS (continued)

 

From time to time, the terms of certain loans are modified when concessions are granted to borrowers experiencing financial difficulties. Each modification is separately negotiated with the borrower and includes terms and conditions that reflect the borrower's ability to pay the debt as modified. The modification of the terms of such loans may have included one, or a combination of, the following: an interest rate reduction, term extension, forgiveness of principal, or an other-than-insignificant payment delay.

 

Excluding individually evaluated collateral dependent loans that are measured at fair value, the following tables present the amortized cost basis of loans modified during the reporting period for borrowers who were experiencing financial difficulty at the time of modification, disaggregated by class of financing receivable and type of concession granted (in thousands), as of  March 31, 2025 follows. The amortized cost basis of loans that were modified for borrowers experiencing financial difficulty during the first quarter of 2026 was zero as of March 31, 2026. 

 

		Interest Rate Reduction				Extended Maturity				Principal Forgiveness				Payment Delay				Combination - Interest Rate Reduction and Extended Maturity				Combination - Interest Rate Reduction and Payment Delay				Combination - Extended Maturity and Payment Delay				Total Modifications				Percent of Total Class
Three Months Ended March 31, 2025
Commercial & industrial		$	—				77				—				—				999				—				—				1,076				0.95	%
Commercial, secured by real estate, owner occupied			—				494				—				—				—				—				—				494				0.23	%
Total		$	—				571				—				—				999				—				—				1,570

 

During the first quarter of 2026, one borrower defaulted on a commercial and industrial loan that underwent payment-delay modifications during the first quarter of 2026 while the borrower was known to be experiencing financial difficulty. At March 31, 2026, the amortized cost basis of this loan was zero. No other loans defaulted during the year-to-date period ended March 31, 2026, that, within twelve months prior to their default, were modified for borrowers experiencing financial difficulty.

 

During the third quarter of 2024, one borrower defaulted on two consumer loans that underwent maturity-extension and payment-delay modifications during the second quarter of 2024 while the borrower was known to be experiencing financial difficulty. The borrower remained in default through February 2025. At March 31, 2025, the amortized cost basis of these two consumer loans totaled $27 thousand. No other loans defaulted during the year-to-date period ended March 31, 2025, that, within twelve months prior to their default, were modified for borrowers experiencing financial difficulty.

 

At  March 31, 2026 and December 31, 2025, LCNB was not committed to lend additional funds to borrowers who, during the respective three and twelve-month reporting periods, were granted loan modifications while experiencing financial difficulty.

 

Mortgage loans sold to and serviced for the Federal Home Loan Mortgage Corporation and other investors are not included in the accompanying consolidated condensed balance sheets.  The unpaid principal balances of those loans at March 31, 2026 and December 31, 2025 were approximately $325.1 million and $333.5 million, respectively.

 

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NOTE 4 - PURCHASED CREDIT DETERIORATED LOANS

 

Activity during the three months ended March 31, 2026 and 2025 for the accretable discount related to PCD loans acquired from EFBI and CNNB is as follows (in thousands):

 

		Three Months Ended March 31,
		2026				2025
Accretable discount, beginning of period		$	843				1,113
Less accretion			18				13
Accretable discount, end of period		$	825			$	1,100

  

NOTE 5 - AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP INVESTMENTS

 

LCNB is a limited partner in multiple limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit pursuant to Section 42 of the Internal Revenue Code. The purpose of the investments is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.

 

The following table presents the balances of LCNB's affordable housing tax credit investments and related unfunded commitments at March 31, 2026 and December 31, 2025 (in thousands):

 

		March 31,				December 31,
		2026				2025
Affordable housing tax credit investment		$	20,950				20,950
Less amortization			8,121				7,689
Net affordable housing tax credit investment		$	12,829				13,261
Unfunded commitment		$	4,475				4,804

 

The net affordable housing tax credit investment is included in other assets and the unfunded commitment is included in accrued interest and other liabilities in the consolidated condensed balance sheets.

 

LCNB expects to fund the unfunded commitment over 11 years.

 

The following table presents other information relating to LCNB's affordable housing tax credit investments for the three months ended March 31, 2026 and 2025 (in thousands):

 

		Three Months Ended March 31,
		2026				2025
Tax credits and other tax benefits recognized		$	527				485
Tax credit amortization expense included in provision for income taxes			431				400

 

NOTE 6 - DEPOSITS

 

The following table presents the composition of LCNB's deposits at March 31, 2026 and December 31, 2025 (in thousands):

 

		March 31,				December 31,
		2026				2025
Demand deposits		$	469,767				466,094
Interest-bearing demand and money fund deposits			664,565				673,415
Savings deposits			356,966				355,880
IRA and time certificates			347,495				344,966
Total		$	1,838,793				1,840,355

 

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NOTE 6 - DEPOSITS (continued)

 

Contractual maturities of time deposits at March 31, 2026 were as follows (in thousands):

 

Three months or less		$	82,281
Over three through six months			102,780
Over six through twelve months			125,079
April 1, 2026 - March 31, 2027			310,140
April 1, 2027 - March 31, 2028			23,296
April 1, 2028 - March 31, 2029			11,047
April 1, 2029 - March 31, 2030			1,269
April 1, 2030 - March 31, 2031			1,511
Thereafter			232
Total contractual maturities		$	347,495

 

The aggregate amount of time deposits in denominations of $250 thousand or more at March 31, 2026 and December 31, 2025 was $67.0 million and $66.3 million, respectively.

 

NOTE 7 – BORROWINGS

 

Long-term debt at March 31, 2026 and December 31, 2025 was as follows (dollars in thousands):

 

		March 31, 2026								December 31, 2025
		Amount				Weighted Average Interest Rate				Amount				Weighted Average Interest Rate
Term loan		$	9,133				6.50	%		$	9,428				6.50	%
FHLB long-term advances			95,000				4.83	%			95,000				4.83	%
		$	104,133				4.98	%		$	104,428				4.98	%

 

The term loan with a correspondent financial institution bears a fixed interest rate of 6.5%, amortizes quarterly, and has a final balloon payment due on June 15, 2028.

 

Contractual maturities of long-term debt at March 31, 2026 and December 31, 2025 were as follows (in thousands):

 

		March 31,				December 31,
		2026				2025
Maturing within one year		$	26,223				26,203
Maturing after one year through two years			26,304				26,284
Maturing after two years through three years			31,606				31,941
Maturing after three years through four years			10,000				10,000
Maturing after four years through five years			10,000				10,000
Total		$	104,133				104,428

 

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NOTE 7 – BORROWINGS (continued)

 

There were no short-term borrowings at March 31, 2026 or  December 31, 2025.

 

At March 31, 2026, LCNB had a short-term revolving line of credit arrangement with a financial institution for a maximum amount of $10 million at an interest rate equal to the Wall Street Journal Prime Rate minus 25 basis points. This agreement expires on June 15, 2027.

 

At March 31, 2026, LCNB had short-term line of credit borrowing arrangements with three correspondent financial institutions. Under the terms of the first arrangement, LCNB can borrow up to $30 million at an interest rate equal to the lending institution’s federal funds rate plus a spread of 50 basis points. Under the terms of the second arrangement, LCNB can borrow up to $50 million at an interest rate equal to the FOMC targeted federal funds rate plus a spread of 25 basis points. Under the terms of the third arrangement, LCNB can borrow up to $25 million at the interest rate in effect at the time of borrowing. At March 31, 2026, LCNB had not drawn down on any of these borrowing arrangements.

 

All long-term and short-term advances from the FHLB of Cincinnati are secured by a blanket pledge of LCNB's 1-4 family first lien mortgage loans in the amount of approximately $416 million and $408 million at March 31, 2026 and December 31, 2025, respectively. Remaining borrowing capacity with the FHLB of Cincinnati, including both long-term and short-term borrowings, at March 31, 2026 was approximately $154.1 million.

 

NOTE 8 - LEASES

 

Lease expenses for offices are included in the consolidated condensed statements of income in net occupancy expense and lease expenses for equipment and ATMs are included in equipment expense. Components of lease expense for the three months ended March 31, 2026 and 2025 were as follows (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025
Operating lease expense		$	252				252
Short-term lease expense			—				5
Variable lease expense			13				20
Other			8				11
Total lease expense		$	273				288

 

Other information related to leases at March 31, 2026 were as follows (dollars in thousands):

 

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	293
Right-of-use assets obtained in exchange for new operating lease liabilities		$	—
Weighted average remaining lease term in years for operating leases			29.3
Weighted average discount rate for operating leases			3.75	%

 

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NOTE 9 – INCOME TAXES

 

A reconciliation between the statutory income tax and the Company's effective tax rate for the three months ended March 31, 2026 follows:

 

		Amount				Percent
Federal statutory tax rate		$	1,117				21.0	%
State and local income taxes, net of federal income tax effect			—				—	%
Tax credits:
Low-income housing tax credits (a)			(91	)			(1.7	)%
Nontaxable or nondeductible items:
Tax exempt interest			(29	)			(0.5	)%
Tax exempt income on bank-owned life insurance			(75	)			(1.4	)%
Captive insurance premium income			(42	)			(0.8	)%
Other, net			(3	)			(0.1	)%
Total		$	877				16.5	%

(a) Net of amortization and tax benefits.

 

Effective tax rates differ from the federal statutory rate for the three months ended March 31, 2025 applied to income before income taxes due to the following:

 

Statutory tax rate			21.0	%
Increase (decrease) resulting from:
Tax exempt interest			(0.5	)%
Tax exempt income on bank-owned life insurance			(1.3	)%
Captive insurance premium income			(1.3	)%
Affordable housing tax credit limited partnerships			(1.6	)%
Nondeductible merger-related expenses			—	%
Other, net			0.1	%
Effective tax rate			16.4	%

 

  

NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES

 

LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated condensed balance sheets.  Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.

 

In addition to such commitments to extend credit, LCNB may have services for customers in place that, though they obligate LCNB to provide credit on certain terms, do not constitute commitments to extend credit. For example, the Account Protection product, LCNB's deposit overdraft program, is offered as a service by LCNB and does not constitute a contract between the customer and LCNB.

 

LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.  

 

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NOTE 10 – COMMITMENTS AND CONTINGENT LIABILITIES (continued)

 

Financial instruments whose contract amounts represent off-balance-sheet credit risk at March 31, 2026 and December 31, 2025 were as follows (in thousands):

 

		March 31, 2026				December 31, 2025
Commitments to extend credit:
Commercial loans		$	38,548				20,565
Other loans:
Fixed rate			5,099				3,458
Adjustable rate			20,415				12,404
Unused lines of credit:
Fixed rate			5,097				5,776
Adjustable rate			203,143				203,384
Unused overdraft protection amounts on demand accounts			16,409				16,613
Standby letters of credit			5				5
Total commitments		$	288,716				262,205

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Unused lines of credit include amounts not drawn on line-of-credit loans.  Commitments to extend credit and unused lines of credit generally have fixed expiration dates or other termination clauses.

 

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  These guarantees generally are fully secured and have varying maturities.  

 

LCNB evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained is based on management's credit evaluation of the borrower and may include accounts receivable; inventory, property, plant, and equipment; residential realty; and income-producing commercial properties.

 

Activity in the allowance for credit losses on off-balance sheet credit exposures, recorded in other liabilities on the consolidated condensed balance sheets, for the three months ended March 31, 2026 and 2025 is as follows (in thousands):

 

		Three Months Ended March 31,
		2026				2025
Balance, beginning of period		$	216				263
Provision for (recovery of) credit losses			(58	)			34
Balance, end of period		$	158				297

 

Capital expenditures include the construction or acquisition of new office buildings, improvements to LCNB's offices, purchases of furniture and equipment, and additions or improvements to LCNB's information technology system. Commitments outstanding for capital expenditures as of March 31, 2026 totaled approximately $237 thousand.

 

Management believes that LCNB has sufficient liquidity to fund its lending and capital expenditure commitments.

 

LCNB and its subsidiaries are parties to various claims and proceedings arising in the normal course of business.  Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to LCNB's consolidated financial position or results of operations.

 

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NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Changes in accumulated other comprehensive loss for the three months ended March 31, 2026 and 2025 were as follows (in thousands):

 

		Three Months Ended March 31,
						Changes in
		Unrealized				Pension Plan
		Losses on				Assets and
		Available-for-				Benefit
		Sale Debt Securities				Obligations				Total
2026
Balance at beginning of period		$	(10,143	)			(7	)			(10,150	)
Other comprehensive income, net of taxes			183				—				183
Balance at end of period		$	(9,960	)			(7	)			(9,967	)
2025
Balance at beginning of period		$	(19,190	)			1				(19,189	)
Other comprehensive income, net of taxes			3,662				—				3,662
Balance at end of period		$	(15,528	)			1				(15,527	)

 

NOTE 12 – RETIREMENT PLANS

 

LCNB participated in a noncontributory defined benefit multi-employer retirement plan that covered substantially all regular full-time employees hired before January 1, 2009, on which date the plan was soft-frozen.  The plan was then hard-frozen on March 1, 2025, meaning that benefit increases no longer accrued to covered employees as of that date.  The plan was unfrozen during the fourth quarter of 2025 to allow for amendments that enhanced benefits for active employees currently participating in the plan.  The plan was then refrozen on November 30, 2025, and LCNB withdrew from the plan by the end of December 2025.  During the first quarter of 2026, LCNB, in its capacity as a plan fiduciary, entered into a group annuity contract from an established life insurance company. No additional Company funds were contributed in connection with the annuity purchase. The annuity provides participants with benefits equivalent to those under the pension plan, and the Company no longer has any continuing involvement in the plan.

 

Employees hired on or after January 1, 2009 receive a 50% employer match on their 401(k) plan contributions, up to a maximum LCNB contribution equal to 3% of each individual employee's annual compensation.  Employees hired before this date who received a benefit reduction under certain amendments to the defined benefit retirement plan received an automatic contribution of 5% or 7% of their annual compensation, depending on the sum of an employee's age and vesting service, into their defined contribution plans (401(k) plans), regardless of the contributions made by the employees.  These contributions are made annually and these employees did not receive any employer matches to their 401(k) contributions until March 1, 2025, at which time they started receiving matches.

 

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NOTE 12 – RETIREMENT PLANS (continued)

 

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated condensed statements of income for the three-month period ended  March 31, 2026 and 2025 were as follows (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025
Qualified noncontributory defined benefit retirement plan		$	—				316
401(k) plan			281				260

 

Certain highly compensated former employees participate in a nonqualified defined benefit retirement plan.  The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code. This plan is limited to the original participants and no new participants have been added.

 

The net periodic pension cost of the nonqualified defined benefit retirement plan consists solely of interest cost of $18 thousand for the three months ended March 31, 2026 and $19 thousand for the three months ended March 31, 2025.

 

NOTE 13 – STOCK BASED COMPENSATION

 

The 2025 Ownership Incentive Plan  (the "2025 Plan") was ratified by LCNB Corp.'s shareholders at the annual meeting on May 19, 2025 and allows for stock-based awards to eligible employees and non-employee directors, as determined by the Compensation Committee of the Board of Directors. The 2025 Plan replaced the 2015 Ownership Incentive Plan (the "2015 Plan"), which terminated on April 28, 2025. Awards may be made in the form of stock options, appreciation rights, restricted shares, and/or restricted share units. The 2025 Plan provides for the issuance of up to 600 thousand shares of common stock, where the 2015 Plan provided for the issuance of up to 450 thousand shares of common stock. The 2025 Plan will terminate on May 19, 2035 and could be subject to earlier termination by the Board Compensation Committee.

 

Stock-based awards may be in the form of treasury shares or newly issued shares.

 

Restricted stock awards during the three months ended March 31, 2026 and 2025 were as follows:

 

		2026								2025
						Weighted								Weighted
						Average								Average
						Grant Date								Grant Date
		Shares				Fair Value				Shares				Fair Value
Nonvested at January 1,			79,896			$	15.84				84,593				16.59
Granted			44,816				17.46				38,950				14.60
Vested			(35,160	)			16.70				(37,998	)			16.12
Forfeited			—				—				—				—
Nonvested at March 31,			89,552			$	16.32				85,545				15.89

 

At March 31, 2026, there were 89,552 restricted stock awards outstanding with an approximate stock value of $1.4 million based on that day's closing stock price. At March 31, 2025, there were 85,545 restricted stock awards outstanding with an approximate stock value of $1.3 million based on that day's closing stock price. The fair value of restricted stock awards was $782 thousand on the grant date of February 23, 2026 and $569 thousand on the grant date of February 24, 2025. Grants to officers of LCNB vest over a period of five years while grants to members of the board of directors vest immediately. The grant date fair value is recognized ratably into expense over the vesting period.

 

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NOTE 13 – STOCK BASED COMPENSATION (continued)

 

The following table presents expense recorded in salaries and employee benefits for restricted stock awards and the related tax information for the three months ended March 31, 2026 and 2025 (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025
Restricted stock expense		$	266				284
Tax effect			56				60

 

Unrecognized compensation expense for restricted stock awards was $1.3 million at March 31, 2026 and is expected to be recognized over a period of 4.9 years.

 

NOTE 14 – EARNINGS PER COMMON SHARE

 

LCNB has granted restricted stock awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by ASC No. 260-10-45. Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities.  Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrants, and restricted stock.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options and warrants with proceeds used to purchase treasury shares at the average market price for the period.  

 

Earnings per share for the three months ended March 31, 2026 and 2025 were calculated as follows (dollars in thousands, except share and per share data):

 

		Three Months Ended
		March 31,
		2026				2025
Net income		$	4,444				4,609
Less allocation of earnings and dividends to participating securities			28				28
Net income allocated to common shareholders		$	4,416				4,581
Weighted average common shares outstanding, gross			14,214,743				14,136,855
Less average participating securities			89,552				85,545
Adjusted weighted average number of shares outstanding used in the calculation of basic and diluted earnings per common share			14,125,191				14,051,310
Earnings per common share:
Basic		$	0.31				0.33
Diluted			0.31				0.33

 

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NOTE 15 - FAIR VALUE MEASUREMENTS

 

LCNB measures certain assets at fair value using various valuation techniques and assumptions, depending on the nature of the asset.  Fair value is defined as the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.

 

The inputs to the valuation techniques used to measure fair value are assigned to one of three broad levels:

 

•

Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date.

 

•

Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets in active markets, quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data.

 

•

Level 3 – inputs that are unobservable for the asset or liability.

 

EQUITY SECURITIES WITH A READILY DETERMINABLE FAIR VALUE

 

Equity securities with a readily determinable fair value are reported at fair value with changes in fair value reported in other operating income in the consolidated condensed statements of income. Fair values for equity securities are determined based on market quotations (level 1). LCNB has an investment in a mutual fund that is measured at fair value using net asset values, which are considered level 1 because the net asset values are determined and published and are the basis for current transactions.

 

DEBT SECURITIES, AVAILABLE-FOR-SALE

 

The majority of LCNB's financial debt securities are classified as available-for-sale.  The securities are reported at fair value with unrealized holding gains and losses reported net of income taxes in accumulated other comprehensive loss. LCNB utilizes a pricing service for determining the fair values of its debt securities.  Methods and significant assumptions used to estimate fair value were as follows:

 

•

Fair values for U.S. Treasury notes are determined based on market quotations (level 1).

•

Fair values for the other debt securities are calculated using the discounted cash flow method for each security.  The discount rates for these cash flows are estimated by the pricing service using rates observed in the market (level 2). Cash flow streams are dependent on estimated prepayment speeds and the overall structure of the securities given existing market conditions.

 

ASSETS RECORDED AT FAIR VALUE ON A NONRECURRING BASIS

 

Assets that may be recorded at fair value on a nonrecurring basis include individually evaluated collateral dependent loans (or impaired loans prior to the adoption of ASC 326), other real estate owned, and other repossessed assets.

 

LCNB does not record loans at fair value on a recurring basis, except for loans held for sale. However, from time to time, nonrecurring fair value adjustments to collateral dependent loans are recorded to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of significant borrower distress and on an ongoing basis until recovery or charge-off. The fair values of distressed loans are determined using either the sales comparison approach or income approach. Respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

 

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NOTE 15 - FAIR VALUE MEASUREMENTS (continued)

 

The following table summarizes the valuation of LCNB's assets recorded at fair value by input levels as of March 31, 2026 and December 31, 2025 (in thousands):

 

						Fair Value Measurements at the End of
						the Reporting Period Using
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets for				Observable				Unobservable
		Fair Value				Identical Assets				Inputs				Inputs
		Measurements				(Level 1)				(Level 2)				(Level 3)
March 31, 2026
Recurring fair value measurements:
Equity securities with a readily determinable fair value:
Equity securities		$	74				74				—				—
Mutual funds measured at net asset value			1,348				1,348				—				—
Debt securities, available-for-sale:
U.S. Treasury notes			50,472				50,472				—				—
U.S. Agency notes			72,197				—				72,197				—
Corporate bonds			11,643				—				11,643
U.S. Agency mortgage-backed securities			60,314				—				60,314				—
Municipal securities:
Non-taxable			2,976				—				2,976				—
Taxable			31,148				—				31,148				—
Other assets:
Lender Risk Account			6,134				—				—				6,134
Total recurring fair value measurements		$	236,306				51,894				178,278				6,134
Nonrecurring fair value measurements:
Individually evaluated collateral dependent loans		$	357				—				—				357
Total nonrecurring fair value measurements		$	357				—				—				357
December 31, 2025
Recurring fair value measurements:
Equity securities with a readily determinable fair value:
Equity securities		$	88				88				—				—
Mutual funds measured at net asset value			1,345				1,345				—				—
Debt securities, available-for-sale:
U.S. Treasury notes			50,458				50,458				—				—
U.S. Agency notes			72,404				—				72,404				—
Corporate bonds			11,733				—				11,733				—
U.S. Agency mortgage-backed securities			62,517				—				62,517				—
Municipal securities:
Non-taxable			4,005				—				4,005				—
Taxable			31,154				—				31,154				—
Other assets:
Lender Risk Account			6,165				—				—				6,165
Total recurring fair value measurements		$	239,869				51,891				181,813				6,165
Nonrecurring fair value measurements:
Individually evaluated collateral dependent loans		$	309				—				—				309
Total nonrecurring fair value measurements		$	309				—				—				309

 

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NOTE 15 - FAIR VALUE MEASUREMENTS (continued)

 

The following table presents quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements at March 31, 2026 and December 31, 2025 (dollars in thousands):

 

Range

Valuation

Unobservable

Weighted

Fair Value

Technique

Inputs

High

Low

Average

March 31, 2026

Individually evaluated collateral dependent loans

$

357

Estimated sales price

Adjustments for comparable properties, discounts to reflect current market conditions

Not applicable

December 31, 2025

Individually evaluated collateral dependent loans

$

309

Estimated sales price

Adjustments for comparable properties, discounts to reflect current market conditions

Not applicable

 

Carrying amounts and estimated fair values of financial instruments as of March 31, 2026 and December 31, 2025 were as follows (in thousands):

 

										Fair Value Measurements at the End of
										the Reporting Period Using
										Quoted
										Prices				Significant
										in Active				Other				Significant
										Markets for				Observable				Unobservable
		Carrying				Fair				Identical Assets				Inputs				Inputs
		Amount				Value				(Level 1)				(Level 2)				(Level 3)
March 31, 2026
FINANCIAL ASSETS:
Cash and cash equivalents		$	29,181				29,181				29,181				—				—
Debt securities, held-to-maturity, net			15,960				14,918				—				14,918				—
Loans held-for-sale			3,438				3,438				—				3,438				—
Loans, net			1,684,302				1,645,085				—				—				1,645,085
Accrued interest receivable			8,312				8,312				—				8,312				—
Lender risk account			6,134				6,134				—				—				6,134
FINANCIAL LIABILITIES:
Deposits			1,838,793				1,840,029				1,491,298				348,731				—
Long-term debt			104,133				105,915				—				105,915				—
Accrued interest payable			1,213				1,213				—				1,213				—
December 31, 2025
FINANCIAL ASSETS:
Cash and cash equivalents		$	21,614				21,614				21,614				—				—
Debt securities, held-to-maturity, net			16,080				15,124				—				15,124				—
Loans held-for-sale			1,718				1,718				—				1,718				—
Loans, net			1,691,827				1,655,360				—				—				1,655,360
Accrued interest receivable			7,968				7,968				—				7,968				—
Lender risk account			6,165				6,165				—				—				6,165
FINANCIAL LIABILITIES:
Deposits			1,840,355				1,841,661				1,495,389				346,272				—
Long-term debt			104,428				106,456				—				106,456				—
Accrued interest payable			1,533				1,533				—				1,533				—

 

The methodology to derive the fair value of loans at March 31, 2026 is consistent with the methodology utilized to determine the fair value of loans acquired in the Company’s acquisitions of CNNB and EFBI.

 

 

Fair values of financial instruments are based on various assumptions, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in actual transactions. In addition, because the required disclosures exclude certain financial instruments and all nonfinancial instruments, any aggregation of the fair value amounts presented would not represent the underlying value of LCNB.

 

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NOTE 16 - SEGMENT INFORMATION

 

LCNB has one reportable segment, which is determined by the members of the executive team who, as a group, act as the designated chief operating decision makers. Based upon information provided about LCNB's products and services offered, the reportable segment is primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision makers, who use such information to review performance of various components of the business, such as branches, which are then aggregated if operating performance, products and services, and customers are similar. The chief operating decision makers will evaluate the financial performance of LCNB's business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing LCNB's segment and in determining the allocation of resources. The chief operating decision makers use revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision makers use consolidated net income to benchmark LCNB against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessing performance and in establishing compensation. Loans, investments, fiduciary income, and deposit service charges and fees provide the significant revenues in the banking operation. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation. All operations are domestic.

 

Accounting policies for the reportable segment are the same as those described in Note 1 of Form 10-K for the year ended December 31, 2025. Segment performance is evaluated using consolidated net income.

 

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

Certain statements made in this document regarding LCNB’s financial condition, results of operations, plans, objectives, future performance and business, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as “anticipate”, “could”, “may”, “feel”, “expect”, “believe”, “plan”, and similar expressions. Please refer to LCNB’s Annual Report on Form 10-K for the year ended December 31, 2025, as well as its other filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.

 

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of LCNB’s business and operations. Additionally, LCNB’s financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:

 

1.

the success, impact, and timing of the implementation of LCNB’s business strategies;

2.

LCNB’s ability to integrate future acquisitions may be unsuccessful, or may be more difficult, time-consuming, or costly than expected;

3.

LCNB may incur increased loan charge-offs in the future and the allowance for credit losses may be inadequate;

4.

LCNB may face competitive loss of customers to both bank and nonbank financial institutions;

5.

changes in the interest rate environment, either by interest rate increases or decreases, may have results on LCNB’s operations materially different from those anticipated by LCNB’s market risk management functions;

6.

changes in general economic conditions, including increased competition, could adversely affect LCNB’s operating results;

7.

changes in or instability regarding regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact LCNB’s operating results;

8.

LCNB may experience difficulties growing loan and deposit balances;

9.

United States trade relations with foreign countries could negatively impact the financial condition of LCNB's customers, which could adversely affect LCNB's operating results and financial condition;

10.

global and/or geopolitical relations and/or conflicts could create financial market uncertainty and have negative impacts on commodities, currency, and stability, which could adversely affect LCNB's operating results and financial condition;

11.

difficulties with technology or data security breaches, including cyberattacks or widespread outages, could negatively affect LCNB's ability to conduct business and its relationships with customers, vendors, and others;

12.

adverse weather events and natural disasters and global and/or national epidemics could negatively affect LCNB's customers given its concentrated geographic scope, which could impact LCNB's operating results; and

13.

government intervention in the U.S. financial system, including the effects of legislative, tax, accounting, and regulatory actions and reforms, including the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities, changes in deposit insurance premium levels, and any such future regulatory actions or reforms.

 

Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist shareholders and potential investors in understanding current and anticipated financial operations of LCNB and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. LCNB undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made. 

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Critical Accounting Estimates

 

The accounting policies of LCNB conform to U.S. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. These estimates and assumptions are based on information available to management as of the date of the financial statements. Actual results could differ significantly from management’s estimates. As this information changes, management’s estimates and assumptions used to prepare LCNB’s financial statements and related disclosures may also change. The most significant accounting policies followed by LCNB are presented in Note 1 of the Notes to Consolidated Financial Statements included in LCNB's 2025 Annual Report on Form 10-K filed with the SEC. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the items described below to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new information becomes available.

 

Allowance for Credit Losses.  The allowance is maintained at a level LCNB management believes is adequate to absorb estimated credit losses identified and inherent in the loan portfolio. The allowance is established through a provision for credit losses charged to expense.  Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely.  Subsequent recoveries, if any, are credited to the allowance.  The allowance is an amount that management believes will be adequate to absorb estimated losses over the contractual terms in the loan portfolio based on evaluations of the collectability of loans and prior loan loss experience.  The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current and forecasted economic conditions that may affect the borrowers' ability to pay.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

See Note 1 - Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans in the 2025 Annual Report on Form 10-K for further detailed descriptions of LCNB's estimation process and methodology related to the allowance. See also Note 4 – Loans in this Quarterly Report on Form 10-Q for further information regarding LCNB's loan portfolio and allowance.

 

Accounting for Intangibles. LCNB’s intangible assets are composed primarily of goodwill and core deposit intangibles related to acquisitions of other financial institutions.

 

Accounting rules require LCNB to determine the fair value of all the assets and liabilities of an acquired entity and to record their fair values on the date of acquisition. LCNB employs a variety of means in determining fair values, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For those items for which management concludes that LCNB has the appropriate expertise to determine fair value, management may choose to use its own calculation of fair value. In other cases, where the fair value is not readily determined, consultation with outside parties is used to determine fair value. Once valuations have been determined, the net difference between the price paid for the acquired entity and the fair value of the balance sheet is recorded as goodwill. Goodwill is assessed at least annually for impairment, with any such impairment recognized in the period identified. A more frequent assessment is performed if there are material changes in the marketplace or within the organizational structure.

 

Core deposit intangibles acquired from business combinations are initially measured at their estimated fair values and are then amortized on a straight-line basis over their estimated useful lives. Management evaluates whether triggering events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised.

 

Fair Value Accounting for Debt Securities. Debt securities classified as available-for-sale are recorded at fair value with unrealized gains and losses recorded in other comprehensive income (loss), net of tax. Available-for-sale debt securities in unrealized loss positions are evaluated to determine if the decline in fair value should be recorded in income or in other comprehensive income (loss). LCNB first determines if it intends to sell or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is written down to fair value through income. If neither of these criteria is met, LCNB evaluates whether the decline in fair value resulted from credit factors. In making this determination, management considers, among other factors, the extent to which fair value is less than the amortized cost basis, any changes to the rating of the security by rating agencies, and any adverse conditions specifically related to the security or issuer. If the present value of cash flows expected to be collected is less than the amortized cost basis, a provision is recorded to the allowance for credit losses. Any decline in fair value not recorded through an allowance for credit losses is recognized in accumulated other comprehensive income (loss), net of applicable taxes.

 

Loans Held-For-Sale. Loans held-for-sale (“LHFS”) represent mortgage loans intended to be sold in the secondary market and other loans that management has an active plan to sell. LHFS are carried at the lower-of-cost-or-fair value as determined on an aggregate basis by type of loan. Any writedowns to fair value upon the transfer of loans to LHFS are reflected in loan charge-offs. Any further decreases are recognized in non-interest income and increases in fair value above the loan cost basis are not recognized until the loans are sold.

   

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Results of Operations

 

Net income for the three months ended March 31, 2026 was $4.4 million (total basic and diluted earnings per share of $0.31). This compares to net income of $4.6 million (total basic and diluted earnings per share of $0.33) for the same three-month periods in 2025. 

 

Net interest income for the three months ended March 31, 2026 was $18.8 million, compared to net interest income of $16.3 million for the same three-month periods in 2025. The growth in net interest income was primarily due to a decrease on the average rate paid on interest-bearing liabilities and a decrease in the average balances of these liabilities, along with an increase in the average rate earned on LCNB's loan portfolio. LCNB's tax equivalent net interest margin for the first three months of 2026 was 3.83%, compared to 3.25% for the same period last year.

 

Net charge‑offs during the first quarter of 2026 primarily reflected the resolution of two unrelated credits within the logistics sector, an industry that has experienced elevated stress in recent periods across the broader economy. One of these loans, which carried a specific reserve of approximately $1.4 million at December 31, 2025, was charged off during the quarter with no additional impact to earnings, consistent with the Company’s prior disclosures. In addition, the Company recognized a charge‑off of approximately $1.3 million related to a separate logistics‑sector borrower following adverse developments subsequent to year‑end.

 

Non-interest income for the three months ended March 31, 2026 was $4.7 million, compared to non-interest income of $5.2 million for the same period in 2025. The decrease was primarily due to lower net gains from sales of loans and lower service charges and fees recognized on deposit accounts, partially offset by higher fiduciary income.

 

Non-interest expense for the three months ended March 31, 2026 was $15.9 million, compared to non-interest expense of $15.8 million for the same three-month period in 2025.  Salaries and employee benefits increased during the 2026 period, largely offset by a decrease in FDIC insurance premiums.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Net Interest Income

 

Three Months Ended March 31, 2026 vs. March 31, 2025

 

LCNB's primary source of earnings is net interest income, which is the difference between earnings from loans and other investments and interest paid on deposits and other liabilities.  The following table presents, for the three months ended March 31, 2026 and March 31, 2025, average balances for interest-earning assets and interest-bearing liabilities, the income or expense related to each item, and the resulting average yields earned or rates paid.

 

		Three Months Ended March 31,
		2026												2025
		Average				Interest				Average				Average				Interest				Average
		Outstanding				Earned/				Yield/				Outstanding				Earned/				Yield/
		Balance				Paid				Rate				Balance				Paid				Rate
										(Dollars in thousands)
Loans (1)		$	1,707,948				23,433				5.56	%		$	1,721,894				23,181				5.46	%
Interest-bearing demand deposits			10,987				107				3.95	%			10,337				130				5.10	%
Interest-bearing time deposits			2,710				25				3.74	%			250				—				0.00	%
Federal Reserve Bank stock			6,405				94				5.95	%			6,405				95				6.02	%
Federal Home Loan Bank stock			20,710				392				7.68	%			20,710				469				9.18	%
Investment securities:
Equity securities			5,104				37				2.94	%			5,043				39				3.14	%
Debt securities, taxable			230,649				1,196				2.10	%			254,715				1,256				2.00	%
Debt securities, non-taxable (2)			16,082				185				4.67	%			17,160				185				4.37	%
Total earnings assets			2,000,595				25,469				5.16	%			2,036,514				25,355				5.05	%
Non-earning assets			265,726												273,545
Allowance for credit losses			(12,823	)											(12,001	)
Total assets		$	2,253,498											$	2,298,058
Interest-bearing demand and money market deposits		$	682,183				2,465				1.47	%		$	570,473				2,337				1.66	%
Savings deposits			356,622				207				0.24	%			365,876				195				0.22	%
IRA and time certificates			343,061				2,609				3.08	%			497,178				5,027				4.10	%
Short-term borrowings			4,795				46				3.89	%			72				1				5.63	%
Long-term debt			104,376				1,256				4.88	%			127,289				1,457				4.64	%
Total interest-bearing liabilities			1,491,037				6,583				1.79	%			1,560,888				9,017				2.34	%
Demand deposits			464,479												462,916
Other liabilities			21,620												19,134
Equity			276,362												255,120
Total liabilities and equity		$	2,253,498											$	2,298,058
Net interest rate spread (3)											3.37	%											2.71	%
Net interest income and net interest margin on a taxable-equivalent basis (4)							18,886				3.83	%							16,338				3.25	%
Ratio of interest-earning assets to interest-bearing liabilities			134.17	%											130.47	%

 

(1)	Includes non-accrual loans and loans held-for-sale.
(2)	Income from tax-exempt securities is included in interest income on a taxable-equivalent basis.  Interest income has been divided by a factor comprised of the complement of the incremental tax rate of 21%.
(3)	The net interest spread is the difference between the average rate on total interest-earning assets and interest-bearing liabilities.
(4)	The net interest margin is the taxable-equivalent net interest income divided by average interest-earning assets.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

The following table presents the changes in taxable-equivalent basis interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the three months ended March 31, 2026 as compared to the same period in 2025.  Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of absolute dollar amounts of the changes in each.

 

		Three Months Ended
		March 31, 2026 vs. 2025
		Increase (decrease) attributable to:
		Volume				Rate				Total
		(In thousands)
Interest-earning Assets:
Loans		$	(189	)			441				252
Interest-bearing demand deposits			8				(31	)			(23	)
Interest-bearing time deposits			—				25				25
Federal Reserve Bank stock			—				(1	)			(1	)
Federal Home Loan Bank stock			—				(77	)			(77	)
Investment securities:
Equity securities			—				(2	)			(2	)
Debt securities, taxable			(123	)			63				(60	)
Debt securities, non-taxable			(12	)			12				—
Total interest income			(316	)			430				114
Interest-bearing Liabilities:
Interest-bearing demand and money market deposits			424				(296	)			128
Savings deposits			(5	)			17				12
IRA and time certificates			(1,344	)			(1,074	)			(2,418	)
Short-term borrowings			45				—				45
Long-term debt			(273	)			72				(201	)
Total interest expense			(1,153	)			(1,281	)			(2,434	)
Net interest income		$	837				1,711				2,548

 

Net interest income on a fully taxable-equivalent basis for the three months ended March 31, 2026 totaled $18.9 million, an increase of $2.6 million from the comparable period in 2025.  Total interest expense decreased $2.4 million, with interest income increasing $114 thousand.

 

The $114 thousand increase in total interest income was primarily due to a 10 basis point (a basis point equals 0.01%) increase in the average rate earned on the loan portfolio, partially offset by a $13.9 million decrease in average loan balances.

 

The $2.4 million decrease in total interest expense was primarily due to a $154.1 million decrease in average IRA and time certificate deposits and to a 102 basis point decrease in the average rate paid for these deposits. 

 

 

Provision and Allowance For Credit Losses

 

LCNB continuously reviews the loan portfolio for credit risk through the use of its lending and loan review functions. Independent loan reviews analyze specific loans, providing validation that credit risks are appropriately identified, graded, and reported to the Loan Committee, Board of Directors, and the Audit Committee. New credits meeting specific criteria are analyzed prior to origination and are reviewed by the Loan Committee and the Board of Directors.

 

The total provision for credit losses is determined based upon management's evaluation as to the amount needed to maintain the allowance for credit losses at a level considered appropriate in relation to the risk of losses inherent in the portfolio. For analysis purposes, the loan portfolio is separated into pools of similar loans. These pools include commercial and industrial loans, owner occupied commercial real estate loans, non-owner occupied commercial real estate loans, real estate loans secured by farms, real estate loans secured by multi-family dwellings, residential real estate loans secured by senior liens on 1-4 family dwellings, residential real estate loans secured by junior liens on 1-4 family dwellings, home equity line of credit loans, consumer loans, loans for agricultural purposes not secured by real estate, construction loans secured by 1-4 family dwellings, construction loans secured by other real estate, and several smaller classifications. Within each pool of loans, LCNB examines a variety of factors to determine the adequacy of the allowance for credit losses, including historic charge-off percentages, overall pool quality, a review of specific problem loans, current economic trends and conditions that may affect borrowers' ability to pay, and the nature, volume, and consistency of the loan pool. Calculating an appropriate level for the allowance and provision for credit losses involves a high degree of management judgment and is, by its nature, imprecise. Revisions may be necessary as more information becomes available or if market conditions change.

 

LCNB recorded a provision for credit losses of $2.3 million for the first quarter of 2026, compared to $197 thousand for the comparable period in 2025. The provision for the 2026 period included a provision for credit losses on loans of $2.4 million and a recovery on off-balance-sheet credit exposures of $59 thousand. The provision for the 2025 period included a provision for credit losses on loans of $162 thousand and a provision for off-balance-sheet credit exposures of $34 thousand. The provision expense for the first quarter of 2026 was primarily driven by specific reserves related to three participated loans. One logistics-related loan was reserved for and charged‑off during the quarter and specific reserves were included on two commercial and industrial loans in other industries impacted by continued global trade uncertainty and geopolitical conditions. The loan portfolio's overall asset quality remains strong, with nonperforming loans to total loans of 0.19% at March 31, 2026, compared to 0.28% at March 31, 2025. 

 

Net charge-offs for the three months ended March 31, 2026 totaled $2.7 million, compared to net charge-offs of $39 thousand for the same period in 2025. Net charge‑offs during the first quarter of 2026 primarily reflected the resolution of participation loans to two unrelated borrowers within the logistics sector. Loans to one of the borrowers, which carried a specific reserve of approximately $1.4 million at December 31, 2025, was charged off during the quarter with no additional impact to earnings, consistent with LCNB's prior disclosures. In addition, LCNB recognized an additional charge‑off during the first quarter 2026 of approximately $1.3 million related to a separate logistics‑sector borrower after significant adverse developments arose subsequent to year‑end, including the withdrawal of the borrower’s sponsor from restructuring discussions and the acceptance by the lending group of a discounted debt‑repurchase proposal.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Non-Interest Income

 

A comparison of non-interest income for the three months ended March 31, 2026 and March 31, 2025 is as follows (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025				Difference
Fiduciary income		$	2,539				2,164				375
Service charges and fees on deposit accounts			1,485				1,766				(281	)
Bank-owned life insurance income			359				346				13
Net gains from sales of loans			200				841				(641	)
Other operating income			110				105				5
Total non-interest income		$	4,693				5,222				(529	)

 

Reasons for changes include:

•

Fiduciary income increased primarily due to increases in the fair values of trust and brokerage assets managed, on which fees are based. The increases in fair value were due to the opening of new Wealth Management customer accounts and to an increase in the market values of managed assets.

•

Service charges and fees on deposit accounts decreased primarily due to decreased fee income received on the ICS product, partially offset by an increase in overdraft fees.

•

Net gains from sales of loans decreased during the first quarter of 2026, primarily reflecting a strategic decision to retain a higher percentage of loan originations—particularly 1–4 family, first‑lien residential loans—on the balance sheet rather than selling them into the secondary market. Overall loan origination volumes were largely consistent between periods, with 1–4 family, first‑lien residential loan originations totaling $32.9 million in the first quarter of 2026 compared to $36.3 million in the first quarter of 2025. Loans sold during the first quarter of 2026 totaled $10.8 million, compared to $27.0 million during the same period in 2025.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Non-Interest Expense

 

A comparison of non-interest expense for the three months ended March 31, 2026 and March 31, 2025 is as follows (in thousands):

 

		Three Months Ended
		March 31,
		2026				2025				Difference
Salaries and employee benefits		$	9,467				9,172				295
Equipment expenses			392				382				10
Occupancy expense, net			1,021				1,010				11
State financial institutions tax			447				453				(6	)
Marketing			294				315				(21	)
Amortization of intangibles			225				297				(72	)
FDIC insurance premiums, net			275				410				(135	)
Computer maintenance and supplies			405				380				25
Contracted services			979				870				109
Other non-interest expense			2,375				2,520				(145	)
Total non-interest expense		$	15,880				15,809				71

 

Reasons for changes include:

	•	Salaries and employee benefits increased due to an increase in bonus expense accruals, partially offset by a decrease in expenses for LCNB's defined benefit retirement plan.
	•	Amortization of intangibles decreased because the core deposit intangible related to Columbus First Bancorp, Inc. amortized in full during the third quarter of 2025.

	•	FDIC insurance premiums decreased because of a decreased assessment base reflecting a decrease in total assets and to a reduction in the assessment rate charged.
	•	Contracted services increased due to increased cost for cloud software and other data services and increased costs for LCNB's overdraft protection product.

•

Other non-interest expense for the three months ended March 31, 2025 included a $73 thousand impairment charge on the fair value of a closed office. The remaining net decrease of $72 thousand for the three-month period in 2026 can be attributed to smaller decreases in various other accounts.

 

Income Taxes

 

LCNB's effective tax rate for the three months ended March 31, 2026 was 16.5%, compared to 16.4% for the same period in 2025.  The difference between the statutory rate of 21% and the effective tax rates is primarily due to tax-exempt interest income from municipal securities, tax-exempt earnings from bank-owned life insurance, tax-exempt earnings from LCNB Risk Management, Inc., and tax credits and losses related to investments in affordable housing tax credit limited partnerships.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Financial Condition

 

A comparison of balance sheet line items at March 31, 2026 and December 31, 2025 is as follows (dollars in thousands):

 

		March 31, 2026				December 31, 2025				Difference $				Difference %
ASSETS:
Total cash and cash equivalents		$	29,181				21,614				7,567				35.01	%
Interest-bearing time deposits			2,712				2,710				2				0.07	%
Investment securities:
Equity securities with a readily determinable fair value, at fair value			1,422				1,433				(11	)			(0.77	)%
Equity securities without a readily determinable fair value, at cost			3,666				3,666				—				0.00	%
Debt securities, available-for-sale, at fair value			228,750				232,271				(3,521	)			(1.52	)%
Debt securities, held-to-maturity, net, at cost			15,960				16,080				(120	)			(0.75	)%
Federal Reserve Bank stock, at cost			6,405				6,405				—				0.00	%
Federal Home Loan Bank stock, at cost			20,710				20,710				—				0.00	%
Loans held-for-sale			3,438				1,718				1,720				100.12	%
Loans, net			1,684,302				1,691,827				(7,525	)			(0.44	)%
Premises and equipment, net			38,965				39,196				(231	)			(0.59	)%
Operating lease right-of-use assets			6,388				6,475				(87	)			(1.34	)%
Goodwill			90,310				90,310				—				0.00	%
Core deposit and other intangibles, net			8,893				9,271				(378	)			(4.08	)%
Bank-owned life insurance			55,783				55,424				359				0.65	%
Interest receivable			8,312				7,968				344				4.32	%
Other assets, net			32,639				33,691				(1,052	)			(3.12	)%
TOTAL ASSETS		$	2,237,836				2,240,769				(2,933	)			(0.13	)%
LIABILITIES:
Deposits:
Noninterest-bearing		$	469,767				466,094				3,673				0.79	%
Interest-bearing			1,369,026				1,374,261				(5,235	)			(0.38	)%
Total deposits			1,838,793				1,840,355				(1,562	)			(0.08	)%
Long-term debt			104,133				104,428				(295	)			(0.28	)%
Operating lease liabilities			6,758				6,877				(119	)			(1.73	)%
Accrued interest and other liabilities			12,336				15,180				(2,844	)			(18.74	)%
TOTAL LIABILITIES		$	1,962,020				1,966,840				(4,820	)			(0.25	)%
SHAREHOLDERS' EQUITY:
Common shares		$	188,620				188,212				408				0.22	%
Retained earnings			153,250				151,938				1,312				0.86	%
Treasury shares, at cost			(56,087	)			(56,071	)			(16	)			0.03	%
Accumulated other comprehensive loss, net of taxes			(9,967	)			(10,150	)			183				(1.80	)%
TOTAL SHAREHOLDERS' EQUITY		$	275,816				273,929				1,887				0.69	%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	2,237,836				2,240,769				(2,933	)			(0.13	)%

 

Reasons for changes include:

	•	Debt securities, available-for-sale, decreased due to maturities and paydowns, partially offset by a decrease in unrealized losses.  Purchases of new securities during the period were minimal.
	•	Debt securities, held-to-maturity, increased due to purchases of new securities.

	•	Loans, net, decreased primarily due to timing of borrower payoffs and efforts to rebalance the composition of the portfolio.
	•	Core deposit and other intangibles, net decreased due to amortization of core deposit and mortgage servicing rights intangibles.
	•	Bank-owned life insurance increased due to increases in the cash values of the policies. No new policies were purchased during 2025 or 2026.
	•	Other assets, net, decreased primarily due to timing differences in a clearing account, the sale of premises held-for-sale, a reduction in deferred tax assets resulting from utilization of prior-year loss carryforwards, and a decrease in the carrying value of low income housing tax credit investments due to asset amortization.  These decreases were partially offset by an increase in prepaid items.

   

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

•

Total interest-bearing deposits decreased primarily due to decreases in deposits obtained through the ICS service, partially offset by an increase in interest-bearing demand deposits.

•

Accrued interest and other liabilities decreased due to decreased accrued bonuses (bonuses were paid in February 2026), a decrease in low income housing tax credit payables due to payments for various projects, and smaller decreases in a number of other accounts.

 

LCNB's loan portfolio represents its largest asset category and is its most significant source of interest income. Loan classifications have been identified as Commercial & Industrial, Commercial Real Estate, Residential Real Estate, Consumer, Agricultural, and Other. Commercial real estate is the largest classification in LCNB's loan portfolio, comprising about 64.1% of total loans at March 31, 2026.

 

Loans secured by commercial real estate consist of owner-occupied, non-owner-occupied, farmland, multi-family, and construction loans. A commercial real estate, owner-occupied loan finances the purchase, construction, or refinance of a building or other property for which the repayment of principal is dependent upon cash flows from ongoing operations conducted by the party, or an affiliate of the party, who owns the property. A commercial real estate, non-owner occupied loan finances the purchase, construction or refinance of a building or other property for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property. The values of these loans are primarily impacted by the level of interest rates associated with the debt and to local economic conditions, which dictate occupancy rates and the amount of rent charged. The increase in debt service due to higher interest rates may not be able to be passed on to tenants. As part of the origination process, loan interest rates and occupancy rates are stressed to determine the impact on the borrower’s ability to maintain adequate debt service under different economic conditions. Further, LCNB monitors the concentration in any one industry and has established limits relative to the total of the Bank's Tier 1 and Tier 2 capital for each category of loan. Credit quality trends are monitored by industry to determine if a change in the risk exposure to a certain industry may warrant a change in underwriting standards.

 

The following table provides a breakdown of amortized cost of commercial real estate loans by property-type classification as of March 31, 2026, excluding loans which are junior in lien or covered by collateral secured with varying classes of assets (dollars in thousands):

 

		Amount				% of Total
Multi-family		$	274,620				27	%
Retail			146,390				14	%
Office			122,547				12	%
Hotel/Motel			95,750				9	%
Mixed Use			80,842				8	%
Other			69,482				7	%
Self storage			48,201				5	%
Warehouse (one tenant)			44,087				4	%
Farmland			35,065				3	%
Light Industrial			31,321				3	%
Warehouse (more than one tenant)			28,228				3	%
Manufacturing			25,406				2	%
Healthcare Facilities			17,646				2	%
Dental			11,157				1	%
Total		$	1,030,742				100	%

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Most of LCNB's commercial real estate loans are made within its general market area of Southwest and Central Ohio and Northern Kentucky. The following table provides a breakdown of amortized cost of commercial real estate loans by real estate collateral location as of March 31, 2026, excluding loans which are junior in lien or covered by collateral secured with varying classes of assets (dollars in thousands):

 

		Amount				% of Total
Franklin County, Ohio		$	274,472				27	%
Hamilton County, Ohio			180,525				18	%
Montgomery County, Ohio			99,945				10	%
Butler County, Ohio			94,739				9	%
Warren County, Ohio			85,922				8	%
Delaware County, Ohio			61,814				6	%
Other counties, Ohio			40,114				4	%
Greene County, Ohio			38,199				4	%
Boone County, Kentucky			36,866				4	%
Clermont County, Ohio			25,217				2	%
Preble County, Ohio			17,721				2	%
Licking County, Ohio			17,554				2	%
Kenton County, Kentucky			15,513				2	%
Fayette County, Ohio			10,814				1	%
Ross County, Ohio			9,133				1	%
Fairfield County, Ohio			8,277				1	%
Other counties, Indiana			7,377				1	%
Other counties, Kentucky			6,540				1	%
Total		$	1,030,742				100	%

 

Regulatory Capital

 

The Bank must meet certain minimum capital requirements set by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's and the Bank's financial statements. LCNB’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

 

In addition to the minimum capital requirements, a financial institution needs to maintain a Capital Conservation Buffer composed of Common Equity Tier 1 Capital of at least 2.5% above its minimum risk-weighted capital requirements to avoid limitations on its ability to make capital distributions, including dividend payments to shareholders and certain discretionary bonus payments to executive officers. A financial institution with a buffer below 2.5% is subject to increasingly stringent limitations on capital distributions as the buffer approaches zero.

 

For various regulatory purposes, financial institutions are classified into categories based upon capital adequacy:

 

						Minimum
						Requirement				To Be
						with Capital				Considered
		Minimum				Conservation				Well-
		Requirement				Buffer				Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets			4.5	%			7.0	%			6.5	%
Ratio of Tier 1 Capital to risk-weighted assets			6.0	%			8.5	%			8.0	%
Ratio of Total Capital (Tier 1 Capital plus Tier 2 Capital) to risk-weighted assets			8.0	%			10.5	%			10.0	%
Leverage Ratio (Tier 1 Capital to adjusted quarterly average total assets)			4.0	%		N/A					5.0	%

 

As of the most recent notification from their regulators, the Bank and LCNB were categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  Management believes that no conditions or events have occurred since the last notification that would change the Bank's or LCNB's category.

 

 

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

A summary of the Bank's regulatory capital and capital ratios follows (dollars in thousands):

 

		March 31, 2026				December 31, 2025
Regulatory Capital:
Shareholders' equity		$	281,255				278,356
Goodwill and other intangibles			(97,127	)			(97,502	)
Accumulated other comprehensive loss, net			9,967				10,151
Tier 1 risk-based capital			194,095				191,005
Eligible allowance for credit losses			13,224				13,613
Total risk-based capital		$	207,319				204,618
Capital ratios:
Common Equity Tier 1 Capital to risk-weighted assets			11.28	%			11.02	%
Tier 1 Capital to risk-weighted assets			11.28	%			11.02	%
Total Capital to risk-weighted assets			12.04	%			11.81	%
Leverage			8.95	%			8.94	%

 

Qualifications for community banking organizations to use a simplified measure of capital adequacy approach include having a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the Community Bank Leverage Ratio framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. LCNB did not qualify to use the simplified measure for the March 31, 2026 or December 31, 2025 regulatory capital calculations.

 

Liquidity

 

Effective liquidity management ensures that cash is available to meet the cash flow needs of borrowers and depositors, pay dividends to shareholders, and meet LCNB's operating cash needs. Primary funding sources include customer deposits with the Bank, short-term and long-term borrowings from the FHLB, line of credit arrangements totaling $115.0 million with three correspondent banks, and interest and repayments received from LCNB's loan and investment portfolios. In addition, LCNB has approximately $38 million in off-balance sheet ICS immediately available for liquidity.

 

Total remaining borrowing capacity with the FHLB at March 31, 2026 was approximately $154.1 million. Additional borrowings of approximately $115.0 million were available through line of credit arrangements with correspondent banks.

 

Management closely monitors the level of liquid assets available to meet ongoing funding needs.  It is management's intent to maintain adequate liquidity so that sufficient funds are readily available at a reasonable cost.  LCNB experienced no liquidity or operational problems as a result of current liquidity levels. Management believes LCNB has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short and long-term.

 

Commitments to extend credit at March 31, 2026 totaled $288.7 million and are more fully described in Note 10 - Commitments and Contingent Liabilities to LCNB's condensed consolidated financial statements. Since many commitments to extend credit may expire without being drawn upon, the total commitment amount does not necessarily represent future cash required to satisfy the commitment reported prior to its expiration.

 

 

Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

Market risk for LCNB is primarily due to interest rate risk.  LCNB attempts to mitigate this risk through asset/liability management strategies designed to decrease the vulnerability of its earnings to material and prolonged changes in interest rates.  LCNB does not use derivatives such as interest rate swaps, caps, or floors to hedge this risk.  LCNB has not entered into any market risk instruments for trading purposes.

 

The Bank's Asset and Liability Management Committee primarily uses a combination of Interest Rate Sensitivity Analysis ("IRSA") and Economic Value of Equity ("EVE") analysis for measuring and managing interest rate risk.  IRSA is used to estimate the effect on net interest income ("NII") during a one-year period of instantaneous and sustained movements in interest rates, also called interest rate shocks, of 100, 200, and 300 basis points.  The annual base projection uses a current interest rate scenario.  As shown below, the March 31, 2026 IRSA indicates that either an increase or a decrease in interest rates would have a positive effect on NII. The changes in NII for all rate shock scenarios are within LCNB's acceptable ranges.

 

						$ Change in				% Change in
Rate Shock Scenario in Basis Points		Amount				NII				NII				Limits
		(Dollars in thousands)
Up 300		$	78,516				1,407				1.82	%			15	%
Up 200			78,404				1,294				1.68	%			10	%
Up 100			78,433				1,324				1.72	%			5	%
Base			77,109				—				—	%			0	%
Down 100			77,800				690				0.90	%			5	%
Down 200			77,728				619				0.80	%			10	%
Down 300			78,269				1,160				1.50	%			15	%

 

The IRSA shows the effect on NII during a one-year period only.  A longer-range model is the EVE analysis, which shows, accounting for the same rate shocks, the estimated present value of future cash inflows from interest-earning assets less the present value of future cash outflows for interest-bearing liabilities for the same rate shocks.  As shown below, the March 31, 2026 EVE analysis indicates that an increase in interest rates will have a negative effect on the EVE and a decrease in interest rates will have a positive effect. The changes in EVE for all upward rate shock scenarios and the down 100 BP rate shock scenario are within LCNB's acceptable ranges.  The down 200 BP and down 300 BP scenarios are slightly outside of LCNB's acceptable ranges, 

 

						$ Change in				% Change in
Rate Shock Scenario in Basis Points		Amount				EVE				EVE				Limits
		(Dollars in thousands)
Up 300		$	277,504				(77,608	)			(21.86	)%			25	%
Up 200			305,199				(49,913	)			(14.01	)%			20	%
Up 100			333,656				(21,456	)			(6.04	)%			15	%
Base			355,112				—				—	%			—	%
Down 100			389,849				34,737				9.78	%			15	%
Down 200			430,676				75,564				21.28	%			20	%
Down 300			444,347				89,235				25.13	%			25	%

 

The IRSA and EVE simulations discussed above are not projections of future income or equity and should not be relied on as being indicative of future operating results.  Assumptions used, including the nature and timing of interest rate levels, yield curve conditions, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment or replacement of asset and liability cash flows, are inherently uncertain and, as a result, the models cannot precisely measure future NII or equity.  Furthermore, the models do not reflect actions that borrowers, depositors, and management may take in response to changing economic conditions and interest rate levels.

 

 

Item 4.         Controls and Procedures

 

a)  Disclosure controls and procedures.  The Chief Executive Officer and the Chief Financial Officer have carried out an evaluation of the effectiveness of LCNB's disclosure controls and procedures that ensure that information relating to LCNB required to be disclosed by LCNB in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to LCNB's management, including its principal executive officer and principal financial officer, as appropriate, in order to allow timely decisions to be made regarding required disclosures.  Based upon this evaluation, these officers have concluded that, as of March 31, 2026, LCNB's disclosure controls and procedures were effective.

 

b)  Changes in internal control over financial reporting.  During the period covered by this report, there were no changes in LCNB's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, LCNB's internal control over financial reporting.

 

 

PART II.  OTHER INFORMATION

 

 

Item 1.         Legal Proceedings

 

Except for routine litigation incidental to its business, LCNB is not a party to any material pending legal proceedings and none of its property is the subject of any material proceedings.

 

Item 1A.      Risk Factors

 

Readers should carefully consider the risk factors previously disclosed in Part I, Item 1A. Risk Factors in LCNB's Form 10-K for the year ended December 31, 2025.

 

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds

 

During the period covered by this report, LCNB did not sell any of its securities that were not registered under the Securities Act.

 

Under LCNB's Stock Repurchase Plan Agreement (the "Plan"), LCNB may purchase common shares through various means such as open market transactions, including block purchases and privately negotiated transactions. The number of shares repurchased and the timing, manner, price and amount of any repurchases are determined at LCNB's discretion. Factors include, but are not limited to, share price, trading volume, and general market conditions, along with LCNB’s general business conditions. The Plan may be suspended or discontinued at any time and does not obligate LCNB to acquire any specific number of its common shares.

 

As part of the Plan, LCNB entered into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The 10b5-1 trading plan permits common shares to be repurchased at times that LCNB might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. The 10b5-1 trading plan is administered by an independent broker and is subject to price, market volume, and timing restrictions.

 

On February 27, 2023, LCNB's Board of Directors authorized the Plan. Under the terms of the Plan, LCNB is authorized to repurchase up to 500,000 of its outstanding common shares. The Plan replaced and superseded LCNB’s prior Issuer Stock Repurchase Plan Agreement, which was adopted on May 27, 2022.

 

 There were no repurchases made under the Plan during the three months ended March 31, 2026, and there are still 310,922 shares that may be purchased pursuant to the Plan.

 

 

Item 3.         Defaults Upon Senior Securities

 

None.

 

Item 4.         Mine Safety Disclosures

 

Not applicable.

Item 5.         Other Information

 

During the three months ended March 31, 2026, none of our directors or officers informed us of the adoption, modification, or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.

 

 

Item 6.         Exhibits

   

Exhibit No.	Exhibit Description
3.1	Amended and Restated Articles of Incorporation of LCNB Corp., as amended. (This document represents the Amended and Restated Articles of Incorporation of LCNB Corp. in compiled form incorporating all amendments. The compiled document has not been filed with the Ohio Secretary of State.) - incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, Exhibit 3.1.
3.2	Code of Regulations of LCNB Corp. – incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, Exhibit 3(ii)
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from LCNB Corp.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 is formatted in Extensible Business Reporting Language:  (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Shareholders' Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (vi) the Notes to Consolidated Condensed Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	LCNB Corp.
May 6, 2026	/s/ Eric J. Meilstrup
	Eric J. Meilstrup
	Chief Executive Officer
May 6, 2026	/s/ Andrew M. Wallace
	Andrew M. Wallace, CPA
	Executive Vice President and Chief Financial Officer