Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

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 March 31, 2014 and December 31, 2013 (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)
March 31, 2014
Recurring fair value measurements:
Investment securities available-for-sale:
U.S. Treasury notes	$	35,172	35,172	—	—
U.S. Agency notes	122,461		—	122,461	—
U.S. Agency mortgage-backed securities	43,829		—	43,829	—
Certificates of deposit with other banks	3,095		—	3,095	—
Municipal securities:
Non-taxable	84,486		—	84,486	—
Taxable	16,831		—	16,831	—
Mutual funds	2,395		1,395	1,000	—
Trust preferred securities	50		50	—	—
Equity securities	1,744		1,744	—	—
Total recurring fair value measurements	$	310,063	38,361	271,702	—
Nonrecurring fair value measurements:
Impaired loans	$	4,345	—	349	3,996	—
Other real estate owned and repossessed assets (a)	1,799		—	1,799	—	(19	)
Total nonrecurring fair value measurements	$	6,144	—	2,148	3,996	(19	)

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 with other banks	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 (b)	1,463		—	1,463	—	178
Total nonrecurring fair value measurements	$	9,993	—	2,236	7,757	178

(a)

One other real estate owned property with a total carrying amount of $99,000 was written down to its fair value of $94,000, resulting in an impairment charge of $5,000. Two other real estate owned properties with a total carrying amount of $150,000 were sold for a combined total of $136,000, resulting in a net loss of $14,000. The write-downs and losses,were included in other non-interest expense for the period.

(b)

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.

Carrying Amounts and Estimated Fair Values of Financial Instruments

Carrying amounts and estimated fair values of financial instruments as of March 31, 2014 and December 31, 2013 are as follows (in thousands):



	March 31, 2014			December 31, 2013
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	33,423	33,423	14,688	14,688
Investment securities:
Available-for-sale	310,063		310,063	258,241	258,241
Held-to-maturity	16,467		16,326	16,323	16,196
Federal Reserve Bank stock	1,603		1,603	1,603	1,603
Federal Home Loan Bank stock	3,638		3,638	2,854	2,854
Loans, net	681,826		685,250	570,766	573,163

FINANCIAL LIABILITIES:
Deposits	984,514		986,967	785,761	788,096
Short-term borrowings	11,215		11,215	8,655	8,655
Long-term debt	11,580		12,307	12,102	12,842

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 as of March 31, 2014 and December 31, 2013 of LCNB's financial assets and liabilities not recorded at fair value but for which fair value is disclosed (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)
March 31, 2014
Assets:
Loans, net	$	680,905	—	680,905	—
Investment securities, non-taxable, held-to-maturity	16,326		—	—	16,326
Federal Reserve Bank stock	1,603		1,603	—	—
Federal Home Loan Bank stock	3,638		3,638	—	—
Liabilities:
Deposits	986,967		—	986,967	—
Long-term debt	12,307		—	12,307	—

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	—

- 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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