Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Recent Accounting Pronouncements

Accounting Changes

From time to time the FASB issues an ASU to communicate changes to U.S. GAAP. The following information provides brief summaries of ASUs that have recently become effective:

Financial Accounting Standards (“FASB”) Accounting Standards Update (“ASU”) No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting"

ASU No. 2020-04 was issued in March 2020 and provides optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. LCNB does not expect the guidance in ASU No. 2020-04 will have a material impact on its results of consolidated operations or financial position.

ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans"

ASU No. 2018-14 was issued in August 2018 and was adopted by LCNB on January 1, 2021. The amendments in this update modify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including the deletion, modification, and addition of certain targeted disclosures. The amendments are to be applied on a retrospective basis to all periods presented upon adoption. Adoption of ASU No. 2018-14 did not have a material impact on LCNB's results of consolidated operations or financial position.

ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"

ASU No. 2019-12 was issued in December 2019 and adopted by LCNB on January 1, 2021. It simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifies and amends certain other guidance. Adoption of ASU No. 2019-12 did not have a material impact on LCNB's results of consolidated operations or financial position.

Recent Accounting Pronouncements

The following information provides brief summaries of newly issued but not yet effective ASUs that could have an effect on LCNB’s financial position or results of consolidated operations:

ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"

ASU No. 2016-13 was issued in June 2016 and, once effective, will significantly change current guidance for recognizing impairment of financial instruments. Current guidance requires an "incurred loss" methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU No. 2016-13 replaces the incurred loss impairment methodology with a new current expected credit loss ("CECL") methodology that reflects expected credit losses over the lives of the loans and requires consideration of a broader range of information to inform credit loss estimates. The ASU requires an organization to estimate all expected credit losses for financial assets measured at amortized cost, including loans and held-to-maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. Additional disclosures are required.

ASU No. 2016-13 also amends the accounting for credit losses on debt securities, available-for-sale, and purchased financial assets with credit deterioration. Under the new guidance, entities will determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Any credit loss will be recognized as an allowance for credit losses on debt securities, available-for-sale, rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to estimated credit losses on debt securities, available-for-sale, immediately in earnings rather than as interest income over time, as currently required.

ASU No. 2016-13 eliminates the current accounting model for purchased credit impaired loans and debt securities. Instead, purchased financial assets with credit deterioration will be recorded gross of estimated credit losses as of the date of acquisition and the estimated credit losses amounts will be added to the allowance for credit losses. Thereafter, entities will account for additional impairment of such purchased assets using the models listed above.

Originally, ASU No. 2016-13 would have taken effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At their meeting on October 16, 2019, FASB approved a final ASU delaying the effective date for several major standards, including ASU No. 2016-13, if certain qualifications are met. The new effective date for SEC filers eligible to be smaller reporting companies ("SRC"), as defined, will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. As an SRC, LCNB intends to adopt ASU No. 2016-13 for the fiscal year, and interim periods within the fiscal year, beginning after December 15, 2022.

LCNB has created a cross-functional CECL Committee, which reports to the Audit Committee, composed of members from the lending, Wealth Management, and finance departments. During 2017, the CECL Committee selected a vendor to assist in implementation of and ongoing compliance with the new requirements. It has completed analyzing its data collection efforts, selected a calculation model, analyzed its pool segmentation and reporting mechanisms, and has finished back testing in preparation for adoption of the new methodology. While the committee and management expect that implementation of ASU No. 2016-13 will increase the balance of the allowance for loan losses, they are continuing to evaluate the modeling and its potential impact on LCNB's results of consolidated operations and financial position. The consolidated financial statement impact of this new standard cannot be reasonably estimated at this time; however, it is anticipated during 2022 that modeling adjustments should be complete after finalizing review of prepayment, curtailment, and forecasting assessments.

ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures"

ASU No. 2022-02 was issued in March 2022 and, once effective, will eliminate the accounting guidance on TDRs for creditors who have adopted ASU No. 2016-13 and provides for enhanced disclosures for certain modifications to borrowers experiencing financial difficulties. The update also amends the guidance on vintage disclosures for public business entities, as defined, to require the disclosure of current-period gross charge-offs by year of origination. For entities that have adopted ASU No. 2016-13, the update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU No. 2016-13, this update needs to be adopted at the same time that ASU No. 2016-13 is adopted. Early adoption is permitted if an entity has already adopted ASU No. 2016-13.

ASU No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions"

ASU No. 2022-03 was issued in June 2022 and, once effective, will clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of the security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The update clarifies that a sales restriction is not considered in measuring fair value. In addition an entity will need to disclose the fair value of equity securities subject to contractual sales restrictions, the nature and remaining durations of the sales restrictions, and any circumstances that could cause a lapse in the restrictions. For public business entities, ASU No.2022-03 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The amendments are to be applied prospectively with any adoption adjustments recognized in earnings and disclosed on the date of adoption.