REGULATORY MATTERS

12 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

REGULATORY MATTERS

REGULATORY MATTERS

The Federal Reserve Act requires depository institutions to maintain cash reserves with the Federal Reserve Bank.  In 2013 and 2012, the Bank maintained average reserve balances of $9,128,000 and $10,658,000, respectively.  The reserve balances at December 31, 2013 and 2012 were $11,730,000 and $6,438,000, respectively.

The principal source of income and funds for LCNB Corp. is dividends paid by the Bank.  The payment of dividends is subject to restriction by regulatory authorities.  For 2014, the restrictions generally limit dividends to the aggregate of net income for the year 2014 plus the net earnings retained for 2013 and 2012.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines. At December 31, 2013, approximately $3,781,000 of the Bank’s earnings retained was available for dividends in 2014 under this guideline.  Dividends in excess of these limitations would require the prior approval of the Comptroller of the Currency.

The Company (consolidated) and 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 Bank's financial statements.  The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.  For various regulatory purposes, institutions are classified into categories based upon capital adequacy.

Minimum capital requirements and capital levels needed to be considered well-capitalized at December 31, 2013 and 2012 are:

	Minimum Requirement	To Be Considered Well-Capitalized
Ratio of tier 1 capital to risk-weighted assets	4.0%	6.0%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.0%	10.0%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	3.0%	5.0%

As of the most recent notification from their regulators, the Company and Bank 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 category.

A summary of the regulatory capital of the Consolidated Company and Bank at December 31 follows (dollars in thousands):

	2013					2012
	Consolidated Company			Bank		Consolidated Company		Bank
Regulatory Capital:
Shareholders' equity	$	118,873		90,438		82,006		76,999
Goodwill and other intangible assets	(16,532		)	(16,532	)	(6,019	)	(6,019	)
Accumulated other comprehensive (income) loss	1,722			1,856		(4,721	)	(4,672	)
Tier 1 risk-based capital	104,063			75,762		71,266		66,308
Eligible allowance for loan losses	3,588			3,588		3,437		3,437
Total risk-based capital	$	107,651		79,350		74,703		69,745
Capital Ratios:
Total risk-based	18.65		%	13.81	%	15.86	%	14.86	%
Tier 1 risk-based	18.03		%	13.18	%	15.13	%	14.13	%
Leverage	11.10		%	8.10	%	8.98	%	8.40	%

An underwritten public offering of common stock was completed during November 2013. LCNB issued 1,642,857 shares of stock, resulting in $26.9 million of net proceeds. The net proceeds were used to fund the acquisition of Eaton National Bank in January 2014 and the remaining net proceeds were used for general corporate purposes.

LCNB Corp. filed a Registration Statement on Form S-3 with the SEC on July 27, 2011 to register 400,000 shares for use in its Amended and Restated Dividend Reinvestment and Stock Purchase Plan (the “Amended Plan”).  Formerly LCNB purchased the shares needed for its Dividend and Stock Purchase Plan in the secondary market.  Under the Amended Plan, LCNB has the option of purchasing shares in the secondary market, using treasury shares, or issuing new shares.

On January 9, 2009, LCNB issued 13,400 shares of Fixed Rate Cumulative Preferred Stock, Series A and a warrant for the purchase of 217,063 common shares of LCNB stock at an exercise price of $9.26 per share to the U.S. Treasury Department.  LCNB allocated $583,000 of the proceeds from the preferred stock issuance to the warrant.  The warrant carries a ten year term and was 100% vested at grant.  On October 21, 2009, LCNB redeemed the preferred stock that had been issued under the Capital Purchase Program agreement, but did not redeem the warrant.  The Treasury Department sold the warrant to an investor during the fourth quarter 2011, which was subsequently converted into two individual warrants. These warrants remain outstanding at December 31, 2013.