LCNB: Administration report and evaluation of the monetary place and working outcomes Ahead-looking statements (kind 10-Q)

Sure statements made on this doc concerning LCNB's monetary situation,
outcomes of operations, plans, targets, future efficiency and enterprise, are
"forward-looking statements" throughout the that means of Part 27A of the Securities
Act of 1933, as amended, Part 21E of the Securities Alternate Act of 1934, as
amended, and the Non-public Securities Litigation Reform Act of 1995. These
forward-looking statements are recognized by the actual fact they aren't historic
information and embody phrases resembling "anticipate", "might", "might", "really feel", "anticipate",
"consider", "plan", and comparable expressions. Please seek advice from LCNB's Annual Report
on Type 10-Okay for the yr ended December 31, 2020, in addition to its different filings
with the SEC, for a extra detailed dialogue of dangers, uncertainties and elements
that would trigger precise outcomes to vary from these mentioned within the
forward-looking statements.

These forward-looking statements mirror administration's present expectations primarily based
on all data obtainable to administration and its information of LCNB's enterprise
and operations. Moreover, LCNB's monetary situation, outcomes of operations,
plans, targets, future efficiency and enterprise are topic to dangers and
uncertainties which will trigger precise outcomes to vary materially. These elements
embody, however are usually not restricted to:

1.the success, affect, and timing of the implementation of LCNB's enterprise
methods;
2.the numerous dangers and uncertainties for LCNB's enterprise, outcomes of
operations and monetary situation, in addition to its regulatory capital and
liquidity ratios and different regulatory necessities, brought on by the COVID-19
pandemic, which is able to rely on a number of elements, together with the scope and length
of the pandemic, its affect on monetary markets, the effectiveness of LCNB's
earn a living from home preparations and staffing ranges in operational amenities, the
affect of market contributors on which LCNB depends and actions taken by
governmental authorities and different third events in response to the pandemic;
3.the disruption of world, nationwide, state, and native economies related to
the COVID-19 pandemic, which might have an effect on LCNB's liquidity and capital
positions, impair the power of our debtors to repay excellent loans,
impair collateral values, and additional improve the allowance for credit score losses;
4.LCNB's means to combine latest and any future acquisitions could also be
unsuccessful or could also be harder, time-consuming, or expensive than anticipated;
5.LCNB might incur elevated mortgage charge-offs sooner or later;
6.LCNB might face aggressive lack of clients;
7.adjustments within the rate of interest atmosphere might have outcomes on LCNB's operations
materially totally different from these anticipated by LCNB's market threat administration
capabilities;
8.adjustments normally financial situations and elevated competitors might
adversely have an effect on LCNB's working outcomes;
9.adjustments in laws and authorities insurance policies affecting financial institution holding
firms and their subsidiaries, together with adjustments in financial insurance policies, might
negatively affect LCNB's working outcomes;
10.LCNB might expertise difficulties rising mortgage and deposit balances;
11.United States commerce relations with international nations might negatively affect
the monetary situation of LCNB's
clients, which might adversely have an effect on LCNB 's working outcomes and monetary
situation;
12.deterioration within the monetary situation of the U.S. banking system might
affect the valuations of investments LCNB has made within the securities of different
monetary establishments leading to both precise losses or other-than-temporary
impairments on such investments;
13.difficulties with expertise or information safety breaches, together with
cyberattacks, that would negatively have an effect on LCNB's means to conduct enterprise
and its relationships with clients, distributors, and others;
14.antagonistic climate occasions and pure disasters and international and/or nationwide
epidemics; and
15.authorities intervention within the U.S. monetary system, together with the consequences
of legislative, tax, accounting, and regulatory actions and reforms, together with
the CARES Act, the Dodd-Frank Act, the Jumpstart Our Enterprise Startups Act, the
Shopper Monetary Safety Bureau, the capital ratios of Basel III as adopted
by the federal banking authorities, and the Tax Cuts and Jobs Act.

Ahead-looking statements made herein mirror administration's expectations as of
the date such statements are made. Such data is offered to help
shareholders and potential buyers in understanding present and anticipated
monetary operations of LCNB and is included pursuant to the protected harbor
provisions of the Non-public Securities Litigation Reform Act of 1995. LCNB
undertakes no obligation to replace any forward-looking assertion to mirror
occasions or circumstances that come up after the date such statements are made.

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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
Coronavirus Replace/Standing

The COVID-19 pandemic has created in depth disruptions to the worldwide financial system
and to the lives of people all through the world. Governments, companies,
and the general public have taken and are taking unprecedented actions to comprise the
unfold of COVID-19 and to mitigate its results, together with quarantines, journey
bans, shelter-in-place orders, closures of or restrictions on the operations of
companies and colleges, fiscal stimulus, and laws designed to ship
financial assist and different aid. Whereas the consequences of COVID-19 are quickly
evolving and never totally recognized, the pandemic and associated efforts to comprise it
have disrupted financial exercise, adversely affected the functioning of
monetary markets, impacted rates of interest, elevated financial and market
uncertainty, and disrupted commerce and provide chains. Whereas vaccination efforts
are underway, the pandemic has not but been contained and financial exercise has
not but returned to pre-pandemic ranges.

On April 8, 2021, the Ohio Division of Well being director signed an Amended Order
for Social Distancing, Facial Coverings and Non-Congregating (the "Amended
Order"). The Amended Order encourages Ohio residents to proceed sporting masks
in public, to clean their fingers as continuously as attainable or use hand sanitizer,
to take care of social distancing when attainable, and to keep away from giant gatherings.
Companies are required to publish clearly seen signage at constructing entrances
requiring all individuals getting into to put on facial coverings, have hand sanitizer
obtainable at entrances and all through their amenities, keep applicable
distancing in que traces by way of the usage of signage or tape or different means, and
routinely disinfect high-contact surfaces resembling desks, workstations,
restrooms, and gear. The Amended Order stays in power till rescinded or
modified by the Ohio Division of Well being.

Due to the financial disruption brought on by the pandemic, LCNB has offered
COVID-19 associated fee deferrals, primarily agreements to simply accept curiosity solely
funds for a time period or agreements to defer principal and curiosity
funds for a time period, on numerous loans. Loans nonetheless on deferral at
March 31, 2021 and December 31, 2020 are as follows (in 1000's):
                                         March 31, 2021December 31, 

2020

Business, secured by actual property      $        19,611            20,231
Residential actual property                              27               324
Shopper                                              -                21
                                        $        19,682            20,576



LCNB participated within the CARES Act PPP that offered authorities assured and
doubtlessly forgivable loans to candidates. The PPP was carried out by the SBA
with assist from the Division of the Treasury and offered small companies
with funds to pay as much as eight or twenty-four weeks, relying on the date of the
mortgage, of payroll prices together with advantages. Funds is also used to pay
curiosity on mortgages, hire, utilities, coated operations expenditures, coated
property harm prices, coated provider prices, and coated employee safety
expenditures. Excellent PPP loans at March 31, 2021 and December 31, 2020
totaled $33,263,000 and $21,088,000, respectively and unrecognized charges at these
dates totaled $1,044,000 and $747,000, respectively.

The LCNB continues to intently monitor the COVID-19 pandemic and plans to make future adjustments to answer the pandemic as this example continues to evolve.

Important accounting strategies

Allowance for Mortgage Losses. The allowance for mortgage losses is established by way of
a provision for mortgage losses charged to expense. Loans are charged towards the
allowance for mortgage losses when administration believes that the collectibility of
the principal is unlikely. Subsequent recoveries, if any, are credited to the
allowance. The allowance is an quantity that administration believes might be sufficient
to soak up inherent losses within the mortgage portfolio, primarily based on evaluations of the
collectibility of loans and prior mortgage loss expertise. The evaluations take
into consideration such elements as adjustments within the nature and quantity of the mortgage
portfolio, total portfolio high quality, assessment of particular drawback loans, and
present financial situations which will have an effect on the debtors' means to pay. This
analysis is inherently subjective because it requires estimates which might be
prone to important revision as extra data turns into obtainable.

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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
The allowance consists of particular and common elements. The precise
element sometimes pertains to loans which might be categorized as uncertain,
substandard, or particular point out. For such loans an allowance is established when
the discounted money flows or collateral worth is decrease than the carrying worth
of that mortgage. The final element covers non-classified loans and is predicated on
historic loss expertise adjusted for qualitative elements, which embody
traits in underperforming loans, traits within the quantity and phrases of loans,
financial traits and situations, concentrations of credit score, traits within the high quality
of loans, and borrower monetary assertion exceptions.

Based mostly on its assessments, administration believes that the allowance for mortgage losses might be ample to soak up the estimated losses inherent within the present mortgage portfolio.

Acquired Credit score Impaired Loans. LCNB accounts for acquisitions utilizing the
acquisition methodology of accounting, which requires that property acquired and
liabilities assumed be measured at their truthful values on the acquisition date.
Acquired loans are reviewed to find out if there's proof of decay
in credit score high quality since inception and whether it is possible that LCNB might be unable
to gather all quantities due beneath the contractual mortgage agreements. The evaluation
contains anticipated prepayments and estimated money flows together with principal and
curiosity funds on the date of acquisition. The quantity in extra of the
estimated future money flows will not be accreted into earnings. The quantity in extra
of the estimated future money flows over the ebook worth of the mortgage is accreted
into curiosity earnings over the remaining lifetime of the mortgage (accretable yield).
LCNB data these loans on the acquisition date at their truthful values. Thus, an
allowance for estimated future losses will not be established on the acquisition
date. Subsequent to the date of acquisition, anticipated future money flows on loans
acquired are up to date and any losses or reductions in estimated money flows which
come up subsequent to the date of acquisition are mirrored as a cost by way of
the supply for mortgage losses. A rise within the anticipated money flows adjusts
the extent of the accretable yield acknowledged on a potential foundation over the
remaining lifetime of the mortgage. Because of the quantity, dimension, and complexity of loans
throughout the acquired mortgage portfolio, there's at all times a risk of inherent
undetected losses.

Accounting for Intangibles. LCNB's intangible property at March 31, 2021 are
composed primarily of goodwill and core deposit intangibles associated to
acquisitions of different monetary establishments. It additionally contains mortgage
servicing rights recorded from gross sales of mortgage loans to the Federal House Mortgage
Mortgage Company and mortgage servicing rights acquired by way of the
acquisition of Eaton Nationwide Financial institution & Belief Co. and Columbus First Bancorp, Inc.Goodwill will not be topic to amortization, however is reviewed yearly for impairment
or sooner if circumstances point out a attainable impairment. Core deposit
intangibles are being amortized on a straight line foundation over their respective
estimated weighted common lives. Mortgage servicing rights are capitalized by
allocating the entire value of loans between mortgage servicing rights and the
loans primarily based on their estimated truthful values. Capitalized mortgage servicing
rights are amortized to mortgage servicing earnings in proportion to and over the
interval of estimated servicing earnings, topic to periodic assessment for impairment.

Truthful Worth Accounting for Debt Securities. Debt securities categorized as
available-for-sale are carried at estimated truthful worth. Unrealized positive factors and
losses, internet of taxes, are reported as amassed different complete earnings or
loss in shareholders' fairness. Truthful worth is estimated utilizing market quotations
for U.S.Treasury investments. Truthful worth for almost all of the remaining
available-for-sale securities is estimated utilizing the discounted money move methodology
for every safety with low cost charges primarily based on charges noticed out there.

Outcomes of operations

Web earnings for the three months ended March 31, 2021 was $5,240,000 (whole primary
and diluted earnings per share of $0.41). This compares to internet earnings of
$5,026,000 (whole primary and diluted earnings per share of $0.39) for a similar
three month interval in 2020.

Will increase within the provision for mortgage losses, partially because of changes for
estimated impacts from the financial downturn brought on by the COVID-19 pandemic,
negatively affected earnings in the course of the 2020 interval. LCNB recorded a $52,000
credit score for mortgage losses for the 2021 interval, in comparison with a provision of
$1,173,000 for the primary quarter 2020.
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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
Web Curiosity Earnings

Three Months Ended March 31, 2021 vs. March 31, 2020
LCNB's main supply of earnings is internet curiosity earnings, which is the
distinction between earnings from loans and different investments and curiosity paid
on deposits and different liabilities.  The next desk presents, for the three
months ended March 31, 2021 and March 31, 2020, common balances for
interest-earning property and interest-bearing liabilities, the earnings or expense
associated to every merchandise, and the ensuing common yields earned or charges paid.
                                                                                                 Three Months Ended March 31,
                                                                            2021                                                               2020
                                                    Common               Curiosity               Common               Common              Curiosity               Common
                                                  Excellent              Earned/                Yield/             Excellent             Earned/               Yield/
                                                    Steadiness                 Paid                   Price                Steadiness                Paid                  Price
                                                                                                    ({Dollars} in 1000's)
Loans (1)                                       $   1,313,803              14,535                     4.49  %       $ 1,252,554              15,227                    4.89  %
Curiosity-bearing demand deposits                       15,632                  13                     0.34  %             5,480                  31                    2.28  %

Federal Reserve Financial institution inventory                              4,652                   -                        -  %             4,652                   -                       -  %
Federal House Mortgage Financial institution inventory                            5,203                  26                     2.03  %             5,203                  33                    2.55  %
Funding securities:
Fairness securities                                       4,500                  19                     1.71  %             4,313                  30                    2.80  %
Debt securities, taxable                              211,618                 718                     1.38  %           146,954                 950                    2.60  %
Debt securities, non-taxable (2)                       34,174                 284                     3.37  %            43,790                 361                    3.32  %
Complete earnings property                               1,589,582              15,595                     3.98  %         1,462,946              16,632                    4.57  %
Non-earning property                                    191,287                                                           179,478
Allowance for mortgage losses                              (5,715)                                                           (3,938)
Complete property                                    $   1,775,154$ 1,638,486

Financial savings deposits                                $     795,026                 280                     0.14  %       $   679,092                 486                    0.29  %
IRA and time certificates                             234,134                 748                     1.30  %           320,651               1,631                    2.05  %
Brief-term borrowings                                     342                   1                     1.19  %             1,415                   7                    1.99  %
Lengthy-term debt                                         19,689                 134                     2.76  %            38,325                 254                    2.67  %
Complete interest-bearing liabilities                  1,049,191               1,163                     0.45  %         1,039,483               2,378                    0.92  %
Demand deposits                                       458,996                                                           347,027
Different liabilities                                      25,450                                                            20,918
Capital                                               241,517                                                           231,058
Complete liabilities and capital                   $   1,775,154$ 1,638,486
Web rate of interest unfold (3)                                                                          3.53  %                                                          3.65  %
Web curiosity earnings and internet curiosity
margin on a taxable-equivalent foundation (4)                                   14,432                     3.68  %                                14,254                    3.92  %
Ratio of interest-earning property to
interest-bearing liabilities                           151.51  %                                                         140.74  %


(1) Consists of loans with out accrual accounting. (2) Earnings from tax-exempt securities is included in curiosity earnings on an equal tax foundation. Curiosity earnings has been cut up

  by an element comprised of the complement of the incremental tax charge of 21%.
(3)The online curiosity unfold is the distinction between the typical charge on whole
interest-earning property and interest-bearing liabilities.
(4)The online curiosity margin is the taxable-equivalent internet curiosity earnings divided
by common interest-earning property.





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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
The next desk presents the adjustments in taxable-equivalent foundation curiosity
earnings and expense for every main class of interest-earning property and
interest-bearing liabilities and the quantity of change attributable to quantity and
charge adjustments for the three months ended March 31, 2021 as in comparison with the identical
interval in 2020.  Adjustments not solely attributable to charge or quantity have been
allotted to quantity and charge adjustments in proportion to the connection of
absolute greenback quantities of the adjustments in every.
                                                                              Three Months Ended March 31, 2021 vs. 2020
                                                                                     Improve (lower) because of:
                                                                         Quantity                  Price                   Complete
                                                                                            (In 1000's)
Curiosity-earning Belongings:
Loans                                                              $           721                (1,413)                  (692)

Curiosity-bearing demand deposits                                                24                   (42)                   (18)

Federal Reserve Financial institution inventory                                                       -                     -                      -
Federal House Mortgage Financial institution inventory                                                     -                    (7)                    (7)
Funding securities:
Fairness securities                                                                1                   (12)                   (11)
Debt securities, taxable                                                       323                  (555)                  (232)
Debt securities, non-taxable                                                   (80)                    3                    (77)
Complete curiosity earnings                                                          989                (2,026)                (1,037)

Curiosity-bearing Liabilities:
Financial savings deposits                                                                72                  (278)                  (206)
IRA and time certificates                                                     (371)                 (512)                  (883)
Brief-term borrowings                                                           (4)                   (2)                    (6)
Lengthy-term debt                                                                (127)                    7                   (120)
Complete curiosity expense                                                        (430)                 (785)                (1,215)
Web curiosity earnings                                                $         1,419                (1,241)                   178



Web curiosity earnings on a totally equal taxable foundation for the three months ended March 31, 2021 totaled 14,432,000 USD, an augmentation of $ 178,000 in comparison with the comparable interval in 2020. Complete curiosity expense decreased 1,215,000 USD, partially compensated by a $ 1,037,000 lower in whole curiosity earnings.

The $1,037,000 lower in whole curiosity earnings was due primarily to a $692,000
lower in mortgage curiosity earnings and a $309,000 whole lower in curiosity
earnings from taxable and non-taxable debt securities. The lower in mortgage
curiosity earnings was primarily because of a 40 foundation level (a foundation level equals
0.01%) lower within the common charge earned on loans, partially offset by a $61.2
million improve within the common stability of LCNB's mortgage portfolio. The lower
in curiosity earnings from taxable debt securities was because of a 122 foundation level
lower within the common charge earned on these securities, partially offset by a
$64.7 million improve in common securities. The lower in non-taxable debt
securities was because of a $9.6 million lower in common securities, partially
offset by a 5 foundation level improve within the common charge earned on these
securities. The online lower within the common stability of taxable debt securities
was invested within the mortgage portfolio and was additionally used to boost liquidity. The
lower in common charges was because of market situations.







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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
The $1,215,000 lower in whole curiosity expense was because of a $206,000 lower
in curiosity expense for financial savings deposits, an $883,000 lower in curiosity
expense for IRA and time certificates, and a $120,000 lower in curiosity
expense for long-term debt. Curiosity expense for financial savings deposits decreased
primarily because of a 15 foundation level market-driven lower within the common charge
paid for these deposits, partially offset by a $115.9 million improve within the
common stability of those deposits. Curiosity expense for IRA and time
certificates decreased primarily because of a 75 foundation level lower within the common
charge paid for these deposits and secondarily to an $86.5 million lower within the
common stability of those deposits. Curiosity expense for long-term debt decreased
because of an $18.6 million lower in common debt excellent, barely offset by
a 9 foundation level improve within the common charge paid.

Provision and allowance for mortgage losses

The entire provision for mortgage losses is decided primarily based upon administration's
analysis as to the quantity wanted to take care of the allowance for mortgage losses at
a stage thought of applicable in relation to the danger of losses inherent within the
portfolio. For evaluation functions, the mortgage portfolio is separated into swimming pools of
comparable loans. These swimming pools embody business & industrial loans, proprietor occupied
business actual property loans, non-owner occupied business actual property loans,
actual property loans secured by farms, actual property loans secured by multi-family
dwellings, residential actual property loans secured by senior liens on 1-4 household
dwellings, residential actual property loans secured by junior liens on 1-4 household
dwellings, house fairness line of credit score loans, client loans, loans for
agricultural functions not secured by actual property, building loans secured by
1-4 household dwellings, building loans secured by different actual property, and
a number of smaller classifications. Inside every pool of loans, LCNB examines a
number of elements to find out the adequacy of the allowance for mortgage losses,
together with historic charge-off percentages,
total pool high quality, a assessment of particular drawback loans, present financial
traits and situations which will have an effect on debtors' means to pay, and the character,
quantity, and consistency of the mortgage pool.

The supply for mortgage losses for the three months ended March 31, 2021 was
$1,225,000 lower than the comparable interval in 2020. The 2020 interval included
qualitative changes for estimated impacts from the financial downturn prompted
by the COVID-19 pandemic. Calculating an applicable stage for the allowance and
provision for mortgage losses entails a excessive diploma of administration judgment and is,
by its nature, imprecise. Revisions could also be obligatory as extra data turns into
obtainable.

Web collections for the three months ended March 31, 2021 have been $ 3,000, in comparison with the web radiations of $ 210,000 for a similar three-month interval in 2020.

Earnings apart from curiosity

A comparability of non-interest earnings for the three months ended March 31, 2021
and March 31, 2020 appears like this (in 1000’s):

                                                                                Three Months Ended
                                                                                     March 31,
                                                                                               2021             2020             Distinction
Fiduciary earnings                                                                            $ 1,529             1,103                426
Service costs and charges on deposit accounts                                                  1,366             1,295                 71
Web positive factors from gross sales of debt securities, available-for-sale                                       -               221               (221)
Financial institution owned life insurance coverage earnings                                                                267               601               (334)
Positive factors from gross sales of loans                                                                        43               120                (77)
Different working earnings                                                                          260               499               (239)
Complete non-interest earnings                                                                   $ 3,465             3,839               (374)



Causes for adjustments embody:
•Fiduciary earnings elevated primarily because of progress out there worth of
property serviced.
•Service costs and charges on deposit accounts elevated primarily because of
will increase in test card earnings, partially offset by decreases in overdraft charges
and charge earnings acknowledged on Insured Money Sweep ("ICS") deposit merchandise.
•Web positive factors from gross sales of debt securities, available-for-sale, decreased because of
the absence of safety gross sales in the course of the 2021 interval.
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Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
•Financial institution owned life insurance coverage earnings for the three months ended March 31, 2020
included a mortality profit, whereas no mortality advantages had been acknowledged throughout
the 2021 interval.
•Positive factors from gross sales of loans decreased primarily because of a decrease quantity of
residential actual property mortgage gross sales.
•Different working earnings decreased primarily as a result of absence of internet positive factors
realized from the sale of fairness safety investments in the course of the 2021 interval,
partially offset by a rise in unrealized internet positive factors from fairness securities
held within the portfolio.

Non-Curiosity Expense

A comparability of non-interest costs for the three months ended March 31, 2021
and March 31, 2020 appears like this (in 1000’s):

                                                       Three Months Ended
                                                            March 31,
                                                                          

Distinction 2021 2020

  Salaries and worker advantages                                       $  6,433        6,768          (335)
  Gear bills                                                        368          287            81
  Occupancy expense, internet                                                    794          682           112
  State monetary establishments tax                                          444          436             8
  Advertising and marketing                                                                 268          177            91
  Amortization of intangibles                                               257          260            (3)
  FDIC insurance coverage premiums (credit score), internet                                     113           (1)          114
  Contracted providers                                                       540          402           138

  Different non-interest expense                                              2,275        2,061           214
  Complete non-interest expense                                           $ 11,492       11,072           420



Causes for adjustments embody:
•Salaries and worker advantages decreased primarily because of a rise in
salaries and advantages allotted to deferred prices on loans, reflecting a higher
quantity of originations in the course of the 2021 interval. The 2021 interval included PPP
loans, which weren't an element within the 2020 interval.
•Gear bills elevated primarily because of elevated gear rental prices
and elevated depreciation costs for furnishings and gear. Throughout 2020,
LCNB steadily changed ATMs that it had beforehand owned with new ATMs obtained
by way of an outsourcing association.
•Occupancy expense elevated primarily because of elevated janitorial and cleansing
prices and to will increase in facility restore and upkeep prices.
•Advertising and marketing elevated primarily because of expanded use of tv, radio, and
digital media.
•FDIC insurance coverage premiums elevated in 2021 as a result of LCNB obtained small financial institution
evaluation credit from the FDIC in the course of the first and second quarters 2020. LCNB
obtained the complete quantity of the credit score in the course of the first two quarters of 2020 and
premium funds returned to their regular ranges thereafter.
•Contracted providers elevated because of elevated utilization of expertise providers and
to cost will increase normally.
•Different non-interest expense elevated partially because of a strategic determination to
outsource LCNB's ATM operations to a third-party vendor throughout 2020, relieving
LCNB department personnel from varied ATM upkeep obligations.
.
Earnings Taxes

LCNB's efficient tax charge for the three months ended March 31, 2021 was 18.1%,
in comparison with 12.9% for the three months ended March 31, 2020.  The distinction
between the statutory charge of 21% and the efficient tax charges is primarily due
to tax-exempt curiosity earnings from municipal securities, tax-exempt earnings
from financial institution owned life insurance coverage, tax-exempt earnings from LCNB Danger Administration,
Inc., and tax credit and losses associated to investments in reasonably priced housing
tax credit score restricted partnerships. A one-time tax profit acknowledged consequently
of sure provisions within the CARES Act handed by Congress and signed by
President Trump in the course of the first quarter 2020 additionally contributed to the distinction
in the course of the 2020 interval.




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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
Monetary Situation

A comparability of stability sheet objects at March 31, 2021 and December 31, 2020
appears like this ({dollars} in 1000’s):

                                                              March 31, 2021           December 31, 2020            Distinction $             Distinction %
ASSETS:
Complete money and money equivalents                             $        41,144                  31,730                    9,414                         

29.67%

Marketable securities: fairness securities whose truthful worth will be simply decided, at truthful worth

                                                         2,506                   2,389                      117                          

4.90% Fairness securities with out simply determinable truthful worth, at value

                                                        2,099                   2,099                        -                             -  %
Debt securities, available-for-sale, at truthful worth                  237,619                 209,471                   28,148                         13.44  %
Debt securities, held-to-maturity, at value                           24,695                  24,810                     (115)                        (0.46) %
Federal Reserve Financial institution inventory, at value                                   4,652                   4,652                        -                             -  %
Federal House Mortgage Financial institution inventory, at value                                 5,203                   5,203                        -                             -  %
Loans, internet                                                        1,329,422               1,293,693                   35,729                          2.76  %
Premises and gear, internet                                          35,243                  35,376                     (133)                        (0.38) %
Working lease right-of-use property                                   6,865                   6,274                      591                          9.42  %
Goodwill                                                             59,221                  59,221                        -                             -  %
Core deposit and different intangibles                                    3,108                   3,453                     (345)                        (9.99) %
Financial institution owned life insurance coverage                                            42,416                  42,149                      267                          0.63  %
Curiosity receivable                                                   8,665                   8,337                      328                          3.93  %
Different property                                                         15,463                  17,027                   (1,564)                        (9.19) %
Complete property                                                $     1,818,321               1,745,884                   72,437                          4.15  %

LIABILITIES:
Deposits:
Non-interest-bearing                                        $       475,127                 455,073                   20,054                          4.41  %
Curiosity-bearing                                                  1,061,989               1,000,350                   61,639                          6.16  %
Complete deposits                                                    1,537,116               1,455,423                   81,693                          5.61  %

Lengthy-term debt                                                       17,000                  22,000                   (5,000)                       (22.73) %
Working lease liabilities                                           6,998                   6,371                      627                          9.84  %
Accrued curiosity and different liabilities                               17,961                  21,265                   (3,304)                       (15.54) %
Complete liabilities                                                 1,579,075               1,505,059                   74,016                          4.92  %

TOTAL SHAREHOLDERS' EQUITY                                          239,246                 240,825                   (1,579)                        (0.66) %
Complete liabilities and shareholders' fairness                  $     1,818,321               1,745,884                   72,437                          4.15  %



Causes for adjustments embody:
•Debt securities, available-for-sale, elevated because of purchases of extra
securities totaling $40.8 million, partially offset by maturities and calls of
securities totaling $7.8 million. No securities had been bought in the course of the first
quarter 2021.
•Web loans elevated because of natural progress within the mortgage portfolio, together with a
internet improve in PPP loans of $12.2 million. A lot of the progress occurred within the
business & industrial, business actual property, and residential actual property
portfolios.
•Working lease right-of-use property and working lease liabilities elevated
because of a brand new lease for the Union Village workplace and the renewal of a postage
machine lease.
•Core deposit and different intangibles decreased because of amortization of core
deposit intangibles and mortgage servicing rights.
•Curiosity receivable elevated primarily because of a rise in accrued curiosity
on debt securities, partially as a result of improve in debt securities and
partially because of timing of curiosity fee receipts. This improve was
partially offset by a lower in accrued curiosity on COVID-19 associated mortgage
fee deferrals.
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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
•Non-interest-bearing deposits and interest-bearing deposits have grown
considerably for the reason that begin of the COVID-19 pandemic and this pattern continued
in the course of the first quarter 2021. Administration believes the expansion displays buyer
preferences for liquidity throughout unsure financial durations. Balances in demand
deposits and NOW and financial savings accounts have grown, whereas balances in IRA and time
deposits have decreased.
•Lengthy-term debt decreased because of payoffs of matured debt. There have been no new
borrowings throughout 2021.
•Complete shareholders' fairness decreased primarily because of a $3.4 million lower
in amassed different complete earnings, internet of taxes brought on by market-driven
decreases within the truthful worth of LCNB's debt safety investments, dividends paid
to shareholders, and treasury shares bought. These decreases had been partially
offset by earnings retained in the course of the first three months of 2021.

Regulatory capital

The Financial institution should meet sure minimal capital necessities set by federal banking
companies. Failure to satisfy minimal capital necessities can provoke sure
necessary and attainable extra discretionary actions by regulators that, if
undertaken, might have a cloth impact on the Firm's and Financial institution's monetary
statements. LCNB's and the Financial institution's capital quantities and classification are additionally
topic to qualitative judgments by regulators about elements, threat
weightings, and different elements.

Along with the minimal capital necessities, a monetary establishment wants
to take care of a Capital Conservation Buffer composed of Widespread Fairness Tier 1
Capital of at the least 2.5% above its minimal risk-weighted capital necessities to
keep away from limitations on its means to make capital distributions, together with
dividend funds to shareholders and sure discretionary bonus funds to
government officers. A monetary establishment with a buffer beneath 2.5% is topic
to more and more stringent limitations on capital distributions because the buffer
approaches zero.

For varied regulatory functions, monetary establishments are categorized into classes primarily based on capital adequacy:

                                                                                               Minimal Requirement
                                                                                                   with Capital               To Be Thought of
                                                                     Minimal Requirement       Conservation Buffer            Effectively-Capitalized
Ratio of Widespread Fairness Tier 1 Capital to risk-weighted property                     4.5  %                     7.0  %                         6.5  %
Ratio of Tier 1 Capital to risk-weighted property                                   6.0  %                     8.5  %                         8.0  %
Ratio of Complete Capital (Tier 1 Capital plus Tier 2 Capital) to                    8.0  %                    10.5  %                        10.0  %
risk-weighted property
Leverage Ratio (Tier 1 Capital to adjusted quarterly common                      4.0  %                        N/A                         5.0  %
whole property)


In the latest notification from their regulators, the Financial institution and LCNB had been categorized as “nicely capitalized” beneath the regulatory framework for immediate corrective motion. Administration believes that no situation or occasion has arisen for the reason that final notification that will modify the class of the Financial institution or the LCNB.

On September 17, 2019, the FDIC finalized a rule that launched an elective
simplified measure of capital adequacy for qualifying group banking
organizations, as required by the Financial Development, Regulatory Aid and
Shopper Safety Act. The simplified rule was designed to cut back burden by
eradicating the necessities for calculating and reporting risk-based capital
ratios for qualifying group banking organizations that choose into the
framework. Its use was permitted starting with the March 31, 2020 Name Report.
{Qualifications} to make use of the simplified method embody having a tier 1 leverage
ratio of higher than 9%, lower than $10 billion in whole consolidated property,
and restricted quantities of off-balance-sheet exposures and buying and selling property and
liabilities. A qualifying group banking group that opts into the
Group Financial institution Leverage Ratio framework and meets all necessities beneath the
framework might be thought of to have met the well-capitalized ratio necessities
beneath the Immediate Corrective Motion laws and won't be required to
report or calculate risk-based capital. LCNB qualifies to make use of the simplified
measure, however didn't choose in for the March 31, 2021 regulatory capital
calculations.







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                          LCNB CORP. AND SUBSIDIARIES

Merchandise 2. Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations (continued)
A abstract of the Financial institution's regulatory capital and capital ratios follows ({dollars}
in 1000's):
                                                                       March 31, 2021          December 31, 2020
Regulatory Capital:
Shareholders' fairness                                                  $      234,430                   234,092
Goodwill and different intangibles                                               (61,441)                  (61,698)
Gathered different complete (earnings) loss                                   (603)                   (4,043)
Tier 1 risk-based capital                                                    172,386                   168,351
Eligible allowance for mortgage losses                                             5,679                     5,728
Complete risk-based capital                                              $      178,065                   174,079
Capital ratios:
Widespread Fairness Tier 1 Capital to risk-weighted property                           12.48  %                  12.48  %
Tier 1 Capital to risk-weighted property                                         12.48  %                  12.48  %
Complete Capital to risk-weighted property                                          12.89  %                  12.91  %
Leverage                                                                       10.11  %                  10.06  %



Liquidity

LCNB is dependent upon dividends from the Financial institution for almost all of its liquid property,
together with the money wanted to pay dividends to its shareholders.  Nationwide
banking legislation limits the quantity of dividends the Financial institution might pay to the sum of
retained internet earnings for the present yr plus retained internet earnings for the
earlier two years.  Prior approval from the Workplace of the Comptroller of the
Foreign money, the Financial institution's main regulator, is important for the Financial institution to pay
dividends in extra of this quantity. As well as, dividend funds might not
cut back capital ranges beneath minimal regulatory tips.  Administration believes
the Financial institution will be capable of pay anticipated dividends to LCNB without having to
request approval.  The Financial institution will not be conscious of any the explanation why it might not obtain
such approval, if required.

Efficient liquidity administration ensures that money is accessible to satisfy the money
move wants of debtors and depositors, in addition to assembly LCNB's working money
wants. Major funding sources embody buyer deposits with the Financial institution,
short-term and long-term borrowings from the Federal House Mortgage Financial institution, short-term
line of credit score preparations with two correspondent banks, and curiosity and
repayments obtained from LCNB's mortgage and funding portfolios.

Complete remaining borrowing capability with the Federal House Mortgage Financial institution at March 31,
2021 was roughly $172.6 million. As well as, extra borrowings of
roughly $55.0 million had been obtainable by way of the road of credit score
preparations at March 31, 2021.

On April 9, 2020, the Federal Reserve established the PPPLF to bolster the
effectiveness of the SBA's PPP. The PPPLF will lengthen credit score to eligible
monetary establishments that originate PPP loans, taking the loans as collateral
at face worth. LCNB administration has determined to not at present use the PPPLF as a
supply of liquidity, as different sources of liquidity are believed to be sufficient
at the moment.

Administration intently displays the extent of liquid property obtainable to satisfy ongoing
funding wants.  It's administration's intent to take care of sufficient liquidity in order that
ample funds are available at an inexpensive value.  LCNB skilled
no liquidity or operational issues because of present liquidity ranges.
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Contents

                          LCNB CORP. AND SUBSIDIARIES

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