FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Summary of Valuation of LCNB's Assets Recorded at Fair Value by Inputs Level

The following table summarizes the valuation of LCNB’s assets recorded at fair value by input levels as of December 31 (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total Gains (Losses)
December 31, 2013
Recurring fair value measurements:
Investment securities available-for-sale:
U.S. Treasury notes	$	12,894	12,894	—	—
U.S. Agency notes	106,675		—	106,675	—
U.S. Agency mortgage-backed securities	40,309		—	40,309	—
Certificates of deposit	1,501		—	1,501	—
Municipal securities:
Non-taxable	75,333		—	75,333	—
Taxable	17,309		—	17,309	—
Mutual funds	2,380		1,380	1,000	—
Trust preferred securities	147		147	—	—
Equity securities	1,693		1,693	—	—
Total recurring fair value measurements	$	258,241	16,114	242,127	—

Nonrecurring fair value measurements:
Impaired loans	$	8,530	—	773	7,757	—
Other real estate owned and repossessed assets (a)	1,463		—	1,463	—	178
Total nonrecurring fair value measurements	$	9,993	—	2,236	7,757	178

December 31, 2012
Recurring fair value measurement:
Investment securities available-for-sale:
U.S. Treasury notes	$	18,686	18,686	—	—
U.S. Agency notes	90,606		—	90,606	—
U.S. Agency mortgage-backed securities	52,541		—	52,541	—
Corporate securities	3,067		3,067	—	—
Municipal securities:
Non-taxable	73,882		—	73,882	—
Taxable	15,841		—	15,841	—
Mutual funds	2,168		1,168	1,000	—
Trust preferred securities	245		245	—	—
Equity securities	1,470		1,470	—	—
Total recurring fair value measurements	$	258,506	24,636	233,870	—

Nonrecurring fair value measurements:
Impaired loans	$	4,276	—	161	4,115	—
Other real estate owned and repossessed assets (b)	2,189		—	2,189	—	(295	)
Total nonrecurring fair value measurements	$	6,465	—	2,350	4,115	(295	)

(a)

Seven other real estate owned properties with a total carrying amount of $404,000 were written down to their combined fair value of $328,000, resulting in an impairment charge of $76,000. Twelve properties were sold for a combined net gain of $256,000. The write-downs and net gain were included in other real estate owned expense for the period. A repossessed asset was sold for a loss of $2,000, which was included in other non-interest expense for the period.

(b)

Eight other real estate owned properties with a total carrying amount of $1,809,000 were written down to their combined fair value of $1,525,000, resulting in an impairment charge of $284,000. Another property was sold at a loss of $8,000. The write-downs and loss were included in other non-interest expense for the period. Repossessed assets with a carrying value of $23,000 were sold for a combined total of $20,000, resulting in a net loss of $3,000, which was included in other non-interest expense for the period.

Carrying Amounts and Estimated Fair Values of Financial Instruments

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



	2013			2012
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	14,688	14,688	13,475	13,475
Investment securities:
Available-for-sale	258,241		258,241	258,506	258,506
Held-to-maturity	16,323		16,196	15,424	15,424
Federal Reserve Bank stock	1,603		1,603	949	949
Federal Home Loan Bank stock	2,854		2,854	2,091	2,091
Loans, net	570,766		573,163	450,346	453,060

FINANCIAL LIABILITIES:
Deposits	785,761		788,096	671,471	675,964
Short-term borrowings	8,655		8,655	13,756	13,756
Long-term debt	12,102		12,842	13,705	14,724

Summary of Categorization by Inputs Level of LCNB's Financial Assets and Liabilities Not Recorded at Fair Value but for Which Fair Value is Disclosed

The following table summarizes the categorization by input level of the Company’s financial assets and liabilities not recorded at fair value but for which fair value is disclosed at December 31 (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
December 31, 2013
Assets:
Loans, net	$	564,633	—	564,633	—
Investment securities, non-taxable, held-to-maturity	16,196		—	—	16,196
Federal Reserve Bank stock	1,603		1,603	—	—
Federal Home Loan Bank stock	2,854		2,854	—	—

Liabilities:
Deposits	788,096		—	788,096	—
Long-term debt	12,842		—	12,842	—

December 31, 2012
Assets:
Loans, net	448,784		—	448,784	—
Investment securities, non-taxable, held-to-maturity	15,424		—	—	15,424
Federal Reserve Bank stock	949		949	—	—
Federal Home Loan Bank stock	2,091		2,091	—	—

Liabilities:
Deposits	675,964		—	675,964	—
Long-term debt	14,724		—	14,724	—

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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